LEAGUE OF KANSAS MUNICIPALITIES, Subject: Community facilities loan program No. 1. PATRICK HEALY, Jr., Executive Director, American Municipal Association, DEAR PAT: This is in reply to your National Legislative Bulletin of March 19, 1958, dealing with the proposed Community Facilities Act of 1958 as contained in S. 3497. Your need for an urgent reply to this bulletin precludes a detailed analysis of the potential use of this particular program in the State of Kansas. However, a cursory analysis of our situation here in terms of the details which you have given us from S. 3497, we would conclude that there would not be too much use of this type of a proposal in this State, at least under current conditions. Our statutes currently require that municipal bond issues must be retired within periods of 20 to 30 years depending upon the type of issues which may be involved that is, revenue or general obligation bonds. It would be doubtful that local governments could extend their credit on such loans as that proposed in this act up to a period of 50 years without some amendment in the State statutes and past thinking in the Kansas Legislature would seem to preclude such an extension. Kansas has a strong cash basis law and has generally looked with some disfavor upon the extensive use of deficit financing or the use of long-term debt obligations. In reviewing the issuance of municipal bonds in this State, we have usually received fairly favorable interest rates. You will note from the attached tear sheet from the March issue of Kansas Government Journal that during the month of January the coupon rates on bonds issued by Kansas cities, in particular, were not very far off of the 3 percent rate at which money would be available under this act, even under the lower interests which are now in effect. The January issues reported on the attached tear sheet were during a period when the interest rates were somewhat higher. Unless the money market changed very drastically or unless we had authority to extend the period of bond retirement to the maximum provided for in this proposal, it would be rather doubtful that the act would be of much use. I further question the desirability of including in any act which should be passed the five annual installment deferments, except possibly in the case of revenue-producing facilities. It would seem to me rather dangerous to permit governing bodies and governmental units to commit themselves for a period of 50 years on a rather expensive program and then not have to assume the responsibility of immediately providing for some of the financing to handle that program. It would be extremely easy for a community to accept this type of proposal and postpone all responsibility for it until the next administration or to some future date. It seems to me that it would also raise questions regarding debt limits. Very truly yours, ALLEN E. PRITCHARD, Jr., Executive Director. CITY OF KALAMAZOO, MICH., March 24, 1958. Washington, D. C. AMERICAN MUNICIPAL ASSOCIATION, GENTLEMEN: My answers to your five questions in regard to the Community Facilities Act of 1958 are as follows: 1, 2, and 3. No projects are being delayed for the city of Kalamazoo due to high financing costs. 4. Our debt limit is now approximately $17,500,000. Including the bonds which will be issued in 1958 our outstanding debt is approximately $6,900,000. 5. I do not believe this act is necessary or desirable. The theory of countercyclical spending is excellent for the Federal Government. However, local governments must keep their own finances on a sound basis. The interest rates we are now paying on bond issues are as low as the rate paid by the Treasury. This bill would be of no use to most cities. If cities are straining against tight debt limitations they should either raise their assessment rates or seek the necessary legal changes. In conclusion I do not believe the AMA should support this legislation. C. H. ELLIOTT, City Manager. THE CITY OF MORGANTOWN, W. Va., OFFICE OF CITY MANAGER, Morgantown, W. Va., March 22, 1958. Mr. PATRICK HEALY, Jr., Executive Director, American Municipal Association, Washington, D. C. DEAR MR. HEALY: Your leaflet entitled "Community Facilities Loan Program No. 1" dated March 19, 1958, has been read with a great deal of concern and interest. We were hopeful that some solution for relief of unemployed would be available by Senate bill 3497. From the contents of your leaflet, relative to the contents of this bill, there is little hope of any town or city in West Virginia being able to make use of any funds provided by the bill. The reason: West Virginia legislation is so strict on municipalities and their financing that present or future money cannot be made available to meet amortization charges for bond issues-all bond debt requirements must be paid from general fund revenues and this source is very restricted; revenues from miscellaneous sources are diminishing with the economy of the particular area. For Morgantown, only 13 percent of the general fund revenue is obtained from property tax, the remainder being from sources of any character permitted by State law and practically all such sources are now being utilized by this town. We of this area are most interested in a public works program as that sort of a program appears to be the best to give a more varied program of employment and to require a more solid type of materials. It is trusted some legislation may be obtained which will assist communities in States with legislative restrictions governing revenue to be able to give some relief to the unemployment problem. Respectfully, AMERICAN MUNICIPAL ASSOCIATION, Washington, D. C. ELMER W. PRINCE, City Manager. OFFICE OF THE MAYOR, Milwaukee, Wis., March 21, 1958. GENTLEMEN: In connection with your national legislative bulletin dated March 19, 1958, and captioned "Community Facilities Loan Program No. 1," you have requested an expression of opinion as to merits of bill S. 3497. This bill was recently introduced by Senator Fulbright, among others, and is entitled "The Community Facilities Act of 1958" and provides for a $2 billion revolving fund from which the Federal Government would make loans available to States and local governments for immediate construction of essential public works and public facilities. Because of the short time this bill has been under consideration, the city of Milwaukee has not had the opportunity to formulate an official policy concerning it; however, from my own point of view I would answer your questions as follows: 1. Would the Government financing described above permit you to proceed with construction of public facilities now being delayed because of high financing costs? No. The city of Milwaukee presently has the capacity to borrow all funds necessary to meet currently programed public work. We are, however, seriously concerned about the wisdom of accumulating additional municipal indebtedness. We question whether municipalities should burden themselves with additional public indebtedness in excess of well thought out longrange capital financing plans and should accelerate these expenditures for the sole purpose of relieving the Federal Government from its responsibility for preserving a healthy national economy. Any delays in financing in Milwaukee reflect a reluctance to borrow rather than an inability to do so. 2. If so, how many projects could be put under construction before the end of 1958, what type of projects are they, and what would be their total cost? None. 3. How much of such financing would be by revenue bonds (as distinguished from full faith and credit or general obligation bonds)? None. See question 1. 4. How much margin do you have against your debt limitation for additional general obligation bonds? The current debt limit of the city of Milwaukee is approximately $277,316,628 against which $82,294,000 of general obligation bonds are currently outstanding. Thus a net margin of $195,022,628 remains in local borrowing capacity. Against this must be charged $24,600,000 in bonds already authorized for issuance in the current budget. It is quite possible that all these bonds will not be issued this year because construction is not expected to meet the authorization. A recent large issue of waterworks revenue bonds together with current appropriations will be sufficient to meet the entire construction program that will be sufficiently designed to go into work this year. 5. Additional information or comments as to the usefulness of this type of legislation to expedite construction of municipal public works. I believe that this sort of legislation is of very limited utility. Municipal bonds are not difficult to sell on the current market and generally can be moved at a rate of interest lower than the going Treasury rate plus ? percent which this bill provides as the point at which the loans could be made from the revolving fund. This is certainly true in the case of any city having a high credit rating. For example, the city of Milwaukee has recently marketed both general obligation bonds and revenue bonds at a rate less than the current rate paid by the Treasury. In addition, it would seem that the bill would be of little help to cities at or near their regular debt limit and therefore unable to borrow under any circumstances, though it is undoubtedly these communities that are most in need of aid. I do not feel that Federal assistance of the type here proposed would be of value to the city of Milwaukee or any community so situated. The real need is not for Federal loans resulting in further growing debt of our already overburdened local communities but rather for legislation that will make the tre mendous tax resources of the Federal Government directly available to the Nation's municipalities. Very truly yours, FRANK P. ZEIDLER, Mayor. The CHAIRMAN. The next witness is Mr. Biemiller, representing the AFL-CIO. Mr. Biemiller, will you come forward, please. Mr. Biemiller, we are very happy to have you. You have a written statement, I believe. STATEMENT OF ANDREW J. BIEMILLER, DIRECTOR, DEPARTMENT OF LEGISLATION; ACCOMPANIED BY BERT SEIDMAN, ECONOMIST, AFL-CIO Mr. BIEMILLER. I have, sir. The CHAIRMAN. Would you like to read that to the committee? The CHAIRMAN. You may proceed. Mr. BIEMILLER. Mr. Chairman and members of the committee, I appreciate the opportunity to appear before your committee today to express the views of the American Federation of Labor and Congress of Industrial Organizations on the proposed Community Facilities Act of 1958, S. 3497. At the outset, let me commend the chairman of this committee, Senator Fulbright, for his prompt recognition of the important role that an expanded local public works program can play in the critical recession now confronting the Nation. We are most happy that this committee is losing no time in tackling this important issue. 23334-58-10 I am sure that it would be superfluous for me to devote much time to a description of the serious economic downturn that this Nation has witnessed during the past few months. Full-time unemployment exceeds 5 million. Some 6.7 percent of the labor force is unemployed in the Nation as a whole, and in some States the rate is more than twice as great. Approximately 30 percent of our industrial capacity is standing idle. As of now, no upturn is in sight. Both the Congress and the administration have already taken some steps to halt the economic decline. Largely through the initiative of this committee, the Congress has already passed an antirecession housing bill. Existing public works programs are being speeded up. Other measures are currently receiving consideration in both the executive and legislative branches of the Government. What has been done thus far is all to the good, but it is far from enough. We need much more decisive action if we are to stem the mounting tide of unemployment and put America once more on the road to prosperity. We, therefore, welcome the introduction of S. 3497 because we believe its enactment will provide an important weapon in the Nation's fight against the recession. But it alone will by no means assure the success of that effort. Let me stress one point on which we in the labor movement feel most strongly. The Nation is not confronted here with a choice of alternative programs. This is not an either-or proposition. On the contrary, what America needs and needs promptly-is a comprehensive antirecession program in which no measure will be omitted which can in any way help to restore the Nation's prosperity and put the jobless back to work. The accelerated and expanded local public works program which S. 3497 would make possible is one important part of the needed comprehensive program. As I shall develop in greater detail in a moment, however, enactment of S. 3497 will probably not immediately stimulate economic activity and employment to any significant extent. This means that other measures are needed which will have a more immediate impact. Since they are not within the purview of this committee, I shall merely list them. Purchasing power can be boosted immediately by increasing exemptions under the income tax by at least $100, raising unemployment benefits and extending their duration, improving benefits under the social-security program, and extending coverage of the Fair Labor Standards Act. Enactment of these measures now will give the economy the quick shot in the arm which is desperately needed. It will provide the delaying action which can give full effect later on to public works, housing, school construction, and other programs that necessarily require more time before they can appreciably influence the course of the economy. Expansion and acceleration of community facilities and local public works construction is one of the most important measures in this second phase of antirecession action. S. 3497 would authorize a $2 billion revolving fund to be used for loans to localities for construction of local public works, including streets, hospitals, schools, parks, waterworks, sewage facilities, and other necessary community facilities. Loans would be made available at the average cost of money to the government, plus one-fourth of 1 percent to cover administrative expenses, currently a total of about 3 percent. The repayment period would be a maximum of 50 years except that there is a provision for a maximum 5-year postponement of repayments of principal or interest or both. The loan program would be administered by the already existing Community Facilities Administration within the Housing and Home Finance Agency. In the very short time since the announcement of this hearing, we have attempted to make a limited survey of the overall national picture as well as a spot check of the specific situation in a few communities. In this quick survey, we have sought to determine what effect enactment of S. 3497 might have and what changes, if any, we might suggest in the program as contemplated. It is our understanding that S. 3497 is intended to expand local public works programs. This means that it will add to construction which is expected to take place even without the additional funds S. 3497 would make available. As the members of this committee are no doubt aware, local public works have been expanding rapidly in recent years, even if not sufficiently to keep pace with rapidly expanding community requirements. Therefore, plans have already been developed for a considerable amount of local public works. On the other hand, the recession and the consequent fall in local revenues could, if no additional funds are made available, slow down available local public works construction from previously scheduled levels. All of this suggests that to expand local public works beyond the presently contemplated levels, the big bottleneck may very well be planning and other preliminary steps required prior to actual construction. While some local public works have been planned and are or soon will be ready to go ahead, they will probably not add significantly to public works already slated for construction. It is our impression that most projects, over and above those already scheduled, are not "on the shelf," in the sense that plans and specifications have been completed and the projects are ready for construction. What this means is that even though a considerable number of projects are already planned, there will probably be a delay of upwards of at least 6 months before the additional projects S. 3497 might make possible would be ready for construction. The limited but absolutely necessary funds for planning local public works projects should therefore be expanded immediately to assure maximum speed in readying the projects for construction. Of course, the length of time required for planning, receiving bids, and other preliminaries will vary depending on the project and the community. Nevertheless, it seems fairly certain that with the best will in the world, very few of these additional projects could be made ready for the construction stage before the end of 1958. If you take into account the seasonal effect on construction activities in the early months of the year, it seems probable that the program authorized by S. 3497 will not really begin to have a significant impact on economic activity and employment until about a year from now in the spring of 1959. But at that time, it could contribute importantly to economic recovery if other measures with a more immediate impact are taken now. It is our impression that the financial terms for loans authorized by S. 3497 would be quite attractive to some, but by no means all, |