We are especially concerned with the need to busband Federal credit resources, just as we do Federal budget resources, in view of the current large increases in Federal credit programs which are financed outside of the Federal budget. In the Budget for the fiscal year 1972 it is estimated that the amount of such Federally-assisted loans outstanding will increase by $30 billion compared to an increase in fiscal 1970 of $13 billion. In his Budget Message to the Congress on January 29, 1971 the President stated: Furthermore, the Federal credit programs which the Congress has placed outside the budget-guaranteed and insured loans, or loans by federally sponsored enterprises-escape regular review by either the executive or the legislative branch. The evaluation of these extra budgetary programs has not been fully consistent with budget items. Their effects on fiscal policy have not been rigorously included in the overall budget process. And their effects on overall debt management are not coordinated well with the overall public debt policy. For these reasons, I will propose legislation to enable these credit programs to be reviewed and coordinated along with other Federal programs. The Treasury Department is currently working with other agencies in preparing the legislation referred to by the President and we hope to be in a position soon to submit a proposal to the Congress. I understand that your Committee wishes to consider the feasibility of alternative methods of providing credit assistance under S. 582 and that you would also like to discuss the collateral issues raised by the various alternatives. DIRECT LOANS Looking at the problem just from the standpoint of financial efficiency, the most direct, and least expensive, method of financing is direct Federal loans. That is, the Treasury Department is able to borrow at lower interest rates than would be required on the market obligations of other borrowers. Direct Federal loans would, of course, require direct budget outlays. Limited budgetary resources in recent years have not permitted significant expansion of direct Federal lending, and it appears in some cases that the Congress is unwilling to rely on the availability of budget funds to finance Federal credit programs. GUARANTEES OF TAXABLE MUNICIPAL BONDS In order to avoid both the budget outlay problems with direct loans and the tax-exempt interest problem with loan guarantees the Congress provided last year for a new method of financing, namely, Federal guarantees and interest subsidies on taxable municipal bonds. This new financing technique was first authorized in P.L. 91-296, the Medical Facilities Modernization Act of 1970. In that case, which involved Federal credit aid to public bodies for hospital facilities, the Administration submitted legislation proposing guaranteed loans for private hospitals and, in order to avoid the tax-exempt bond guarantee problem, direct loans for public bodies. Yet both the Senate and House committees considering this legislation recommended instead Federal guarantees of tax-exempt obligations. In the Congressional consideration of the medical facilities bill there was no apparent disagreement between the Administration and the Congress regarding the problems created by tax-exempt bond guarantees. Nevertheless, the committees apparently felt that guaranteed loans to public bodies, since they would not depend upon the availability of direct loan funds in the budget, were essential to assure the availability of credit aid. Under the circumstances the Administration agreed to a Senate amendment to the House-passed bill, which was subsequently enacted in P.L. 91–296. That amendment provided that the obligations could be purchased by the Federal Government from a revolving loan fund then resold in the private market with a guarantee. When resold the interest on any obligations guaranteed under that Act would be subject to Federal income taxation notwithstanding the fact that they were obligations issued by States or oher public bodies. Similar provisions were later enacted by the Congress for the rural water and sewer loans of the Farmers Home Administration (P.L. 91–617). A somewhat different approach was taken for new community loans guaranteed by the Department of Housing and Urban Development (P.L. 91-609). Under that act the new community obligations can be issued directly in the market by the public bodies on a taxable basis. Thus the Congress in 1970 provided for the first time for Federal guarantees of taxable municipal obligations and did this in three separate acts. The Farmers Home loans and the medical facilities loans are expected to be made directly by the Federal agencies at low interest rates and then sold in the private market with a Federal guarantee and supplemental interest payments to the investor in whatever amounts necessary to meet the market. The new community loans will be made and held by private investors but will also receive a Federal interest subsidy and guarantee. The Treasury Department and the Administration supported these provisions as preferable to guarantees of taxexempt bonds and in recognition of the urgent needs for Federal credit assistance in these three areas. CONSOLIDATED FINANCING Another approach to providing credit assistance to local public bodies is the Environmental Financing Authority proposal by the President in his Environmental Message to the Congress on February 8, 1971. The Environmental Financing Authority would purchase tax-exempt obligations issued by local public bodies to finance the non-Federal share of the costs of the construction of waste treatment facilities eligible for Federal grants from the Environmental Protection Agency. EFA could purchase only obligations guaranteed by EPA and only if the issuing public body is unable to borrow in the market on reasonable terms. EFA would finance its purchases by selling its own securities in the market, and appropriations would be authorized to cover the difference between EFA's taxable borrowing rate and its tax-exempt lending rate. The EPA legislation (S. 1015) would permit a more efficient method of financing as compared with the approach taken in the three bills enacted last year for Federal guarantees of taxable municipal bonds. That is, EFA as a corporate body empowered to issue its own obligations in the market would have the advantages of consolidated financing and an ability to adjust the timing, maturities, and other terms of its issues to changing market conditions in order to minimize its borrowing costs. Also, since there is an established market for Federal agency securities, EFA would be able to mobilize quickly the funds necessary to meet the urgent needs for waste treatment facilities. While the EFA approach may be the most efficient method, short of direct Treasury financing, of providing Federal credit assistance for certain programs, the Administration considers that the use of this approach beyond assisting the financing of waste treatment facilities is not justified at this time. In this connection, I would particularly like to stress our objection to use of the EFA approach on a program by program basis, the inevitable result of which would be to move toward the establishment of a number of small Federally sponsored agencies competing with each other in the capital markets in the funding of new and comparatively modest Federal financial assistance programs. In conclusion, we feel that Federal credit assistance should be authorized only for programs of high national priority and only for borrowers who are unable to meet their needs in the private financial markets. In those cases where the need for Federal credit aid is clearly established we believe that the financing should be conducted in the most efficient manner available and in the taxable rather than in the tax-exempt market. I would like to stress again, as indicated in the President's statement on credit programs in the Budget Message, that legislation will be proposed to facilitate overall review and coordination of both the financial and budgetary aspects of Federal credit programs which are financed outside the regular budget. Pending the enactment of this legislation we would recommend against the establishment of additional programs of Federal credit aid except for the most urgent credit needs. This concludes my remarks on the provision of S. 582 of major concerns to the Treasury and on several alternative methods of Federal financial assistance that have recently been enacted or proposed by the Administration. I would be happy to answer any questions you may have. 92D CONGRESS 1ST SESSION H. R. 2493 IN THE HOUSE OF REPRESENTATIVES JANUARY 29, 1971 Mr. LENNON introduced the following bill; which was referred to the Committee on Merchant Marine and Fisheries A BILL To assist the States in establishing coastal and estuarine zone management plans and programs. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That the Act entitled "An Act to provide for a comprehen4 sive, long-range, and coordinated national program in marine 5 science, to establish a National Council on Marine Resources 6 and Engineering Development, and a Commission on Marine 7. Science, Engineering and Resources, and for other purposes", 8 approved October 15, 1966, as amended (16 U.S.C. 1121 et 9 seq.), is amended by adding at the end thereof the follow10 ing new titles: 4 "SEC. 301. This title may be cited as the 'National 5 Coastal and Estuarine Zone Management Act of 1971'. 8 "(a) That the well-being of American society now de 9 mands that manmade laws be extended to regulate the impact 10 of man on the biophysical environment. 11 12 "(b) That there is a national interest in the effective management, beneficial use, protection, and development 13 of the Nation's coastal and estuarine zone. 14 "(c) That the coastal and estuarine zone is rich in a 15 variety of natural, commercial, recreational, industrial, and 16 esthetic resources of immediate and potential value to the present and future well-being of our Nation. 17 18 "(d) That the increasing and competing demands upon 19 the lands and waters of our coastal and estuarine zone oc 20 casioned by population growth and economic development, 21 22 2 2 2 2 2 including requirements for industry, commerce, residential development, recreation, extraction of mineral resources and 23 fossil fuels, transportation and navigation, waste disposal, 24 and harvesting of fish, shellfish, and other living marine re 3 1 sources, have resulted in the loss of living marine resources, 2 wildlife, nutrient-rich areas, permanent and adverse changes 3 to ecological systems, decreasing open space for public use, 4 and shoreline erosion. 5 "(e) That the coastal and estuarine zone, and the fish, 6 shellfish, other living marine resources, and wildlife therein, 7 are ecologically fragile and consequently extremely vulner8 abe to destruction by man's alterations. 9 "(f) That present land and water uses in the more 10 populated coastal areas do not adequately accommodate the 11 diverse requirements of the coastal and estuarine zone. 12 66 (g) That in light of competing demands and the 13 urgent need to protect our coastal and estuarine zone, the 14 institutional framework responsible is currently diffuse in 15 focus, neglected in importance, and inadequate in regulatory 16 authority. 17 "(h) That the key to more effective use of the coastal 18 and estuarine zone is the introduction of a management sys 19 tem permitting conscious and informed choices among 20 alternative uses. 21 222 66 (i) That the absence of a national policy and an in 22 tegrated management and planning mechanism for the 23 coastal and estuarine zone resource has contributed to the 24 impairment of the Nation's environmental quality. 71-186 - 72 - 3 |