think that this bill does two things. I think, first, it says to the States, Show some initiative of your own, and then if you fail to solve this problem yourself, the Federal Government will step in, which I think is the proper step after those other mediums have been exhausted. In our own State there are definitely some areas that cannot possibly come under the provisions of the Maine School Building Authority. They have just drained themselves white in order to try to provide for the needs of the community. Those areas cannot be helped by anything other than a direct grant coming from the Federal Government supplemented by the State.

But the State has to show some interest in this problem as well as the Federal Government. Money down here is no different than the money raised at the local level. It comes out of the people's pockets. The sooner the people realize that all tax money comes from themselves the better. It is exactly the same, whether they pay it here or pay it at the local level except the administrative costs of collection are going to be relatively smaller if it is done at the local level than if it is here at the Federal level.

Senator SMITH. That would imply that as far as possible you would like to see the matter handled at the local level nearest to the people that you could possibly get it?

Senator PAYNE. The closer you can get these problems to the people, the more you can interest the people in the problems and have them understand their responsibility for this type of a program. If they always think they can turn to the Federal Government for a solution, they are going to lose their interest in the problem because they say "let somebody else take care of it."

Senator SMITH. That is what concerned me. for my questions. Thank you very much.

That is the reason

Senator PAYNE. I would like to make just one other comment, if I may. I do feel that the interest rate in the proposed bill is high. I don't think that 3 percent or 31% is going to be an attractive interest rate. The Maine School Building Authority has had to go over a 3-percent figure only 4 or 5 times. In most cases the Maine interest rates have been 23%, 212, 28.

Senator SMITH. Would amend title I in that respect?

Senator PAYNE. I definitely would. I don't think that it offers the proper incentive for communities and States to come under this type of a program.

I think that the rate should be lower than the 31% that has been figured. I do think that the aid in the third section should be increased with, as I say, perhaps the formula similar to that which has been introduced by Senator Hill or Senator Ives.

I have no preference on that except I think they are all heading toward the right direction. I know the Hospital Construction Act has worked marvelously well over the country, and Senator Hill's bill is practically patterned after it.

The Hospital Construction Act requires local responsibility first in taking the initiative to provide funds at the local level to be supplemented by the Federal Government after every other means has been exhausted.

Senator SMITH. Senator Ives has even suggested the possibility of taking the ceiling off entirely and just giving an authorization of what

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may be needed to accomplish the purpose of the act. There have been some suggestions from the Budget Bureau that we ought to have a ceiling somewhere, so we don't just have it one way.

It is a matter that will probably come before our Appropriations Committee every year to determine what the need will be that year from the estimates submitted, so there might be something said for taking the ceiling off, or else raising the ceiling along the line of Senator Hill's suggestion in his bill, 500 million a year for 2 years. I am not clear on that myself. I haven't heard enough testimony here to convince me whether we need a larger

Senator PAYNE. Where this authority type of assistance has worked very well is where a small community wants to raise $30,000. They just cannot issue twenty- or thirty-thousand-dollar bond issues and get any kind of a favorable interest rate because there is too much legal redtape in the preparation of the bonds. An authority permits the lumping of applications together into a reasonably good size portfolio so that when the bonds are offered a reasonable rate of return is given and the bond house is able to handle it.

Senator SMITH. Thank you.

Chairman HILL. Senator, you have given us some interesting testimony. I know you speak with authority as a former Governor of Maine. Let me ask you this: Is your authority operating now?

Senator PAYNE. The authority for the present moment can operate, but, its loans must be included within the constitutional limitation on municipal debt. An amendment must be passed by the legislature to correct the exception for authority loans from the constitutional debt limit which was inadvertently left out of the constitutional amendment approved by the voters last September. This exception is now in the process of being put back in. However, the authority still has the right to go ahead and make loans within the constitutional limit on municipal debt.

Chairman HILL. Can you correct this by action of the legislature? Senator PAYNE. No, it has to go to the people on referendum before it is finally corrected.

it?

Chairman HILL. Then it takes a constitutional amendment, doesn't

Senator PAYNE. That is right.

Chairman HILL. When did you find

Senator PAYNE. May Mr. Hoy, who has been very close to that, explain it to you?

Chairman HILL. When did you find you had to have an amendment to the constitution?

Mr. Hoy. Let me go back to the beginning. In 1951 we asked an opinion of our supreme judicial court if a lease agreement would be considered a part of the debt limit of the town or not. The court thought a lease agreement might be part of the debt so the legislature in order to remove any doubt submitted a constitutional amendment to the people containing an exception for loans issued by the authority from the municipal debt limit.

The people approved the amendment which added a clause to section 9 of our constitution providing that loans from the Maine School Building Authority would not be considered a part of municipal debt within the constitutional debt limitation of 5 percent of property valuation.

Chairman HILL. It wouldn't come under the 5-percent ceiling?
Mr. Hoy. That is right.

In our procedure, we had taken the 5 percent and said if the town has a limit of 5, we will do about what they have been doing for the school districts, go to 12 percent of their assessment.

Two years ago, or in the last legislature, they introduced a bill which would increase the borrowing capacity of the towns from 5 to 72 percent, and they repealed section 9 of the constitution which had been amended to include this exemption of Maine school-building authority loans. It was not discovered until about 2 months ago that the exemption had been inadvertently omitted from the amendment which the people voted on last September. Thus municipal borrowing capacity went from 5 to 712 without continuing the exemption for Maine school-building authority loans.

Chairman HILL. Governor Payne, in the meantime, you had come to Washington as a Senator?

Senator SMITH. Very outstanding and able Senator.
Senator PAYNE. You are very charitable.

Chairman HILL. I agree with my friend from New Jersey.

Mr. Hoy. We now have a ruling from the supreme judicial court that all of the loans previously made are legal and the debt limit provision remains in force. The legislature is passing another amendment to restore what was taken away. It cannot be voted upon until next September. Any amendment of the constitution has to go before the people at a September election.

Chairman HILL. Even if it is approved the 1st of October, you have to wait until September?

Mr. Hoy. That is right. They don't want to act too fast in Maine. Chairman HILL. So you can't get your amendment until September? Mr. Hoy. That is right. We can make loans now if they came within the borrowing capacity of 71⁄2 percent.

Chairman HILL. The new constitutional amendment?

Mr. Hoy. Right, the new one of 712 percent. We might be able to do it on a lease agreement, but we wouldn't attempt to do it if there is any question about the legality of the bonds.

May I point out, in support of what Senator Payne has said, most of our school buildings built under the authority are 2, 3, 4, 6-room buildings, with the exception of 3 or 4 buildings in large towns. None of these schools would have been built if it had not been for the Maine school-building authority.

There is one other point I would like to make. We had to turn down probably 7 or 8 towns that could not qualify even under this liberal school authority. The only provision for compulsory repayment we have in our law is if a town fails to meet its obligation, an amount to meet its failure can be withheld from the State subsidy. So we have limited our loans to the towns so that it would not take more than half of their State subsidy to meet their obligation if they failed to meet the obligation by regular payments..

I didn't come here for this purpose, but Senator Payne thought that I might be helpful.

Senator SMITH. We are happy to have one who has been in the business.

Mr. Hoy. It has worked beautifully. The towns participating are very happy about it. Once we got our first bond issue out, we could put them out very nicely. The procedure, briefly, is this. The local superintendent of schools has to say they need a school. The local school committee certifies that need to the State board of education. If the State board of education agrees that the need exists and approves the plans, then it goes back to the municipal officers of the town, and they have to make the formal application. The application then comes back to the Maine school-building authority and after approval by the authority is finally acted upon by the people in a city election or town meeting before it becomes effective.

The thing that bothered me in reading S. 968 originally was this 31%-percent limit. That is tied in very much to what Federal bonds or municipal bonds may sell for. If you issue Federal bonds at 3 percent, these towns will have to go up to 3 or more in their rate. The interest rate is so fluctuating that I think it should not be tied down at all, because you might have an inflationary period when interest rates might be very high and to borrow for 3% percent or more would let every town in the country in, and our experience has been we can borrow up to 212 and 234.

If we had State credit behind our bonds we would save 3/4 to 1 percent. State credit is not behind them except to the extent they can withhold from State subsidies.

Senator SMITH. I thought 3% applied to title I and the regulations thereunder.

Mr. Hoy. It is title I. I am pointing out when you tie it to an interest rate, you have something that fluctuates so much, it is of no value at all in aiding the people who qualify and in getting them to apply.

Chairman HILL. Any further questions?

Senator GOLDWATER. I would like to ask Senator Payne a question. Senator, you have studied the provisions of S. 5 and you are acquainted with the provisions of S. 968. The big objection to the approach of the Federal Government in assisting education has always been the fear of control from the Federal level. Do you feel that S. 968 offers less danger of control than S. 5?

Senator PAYNE. I wouldn't say there was too much difference. Not so far as control is concerned.

Senator GOLDWATER. Ultimate control?

Senator PAYNE. I personally don't believe that under either one of them we would wind up with ultimate control in the Federal Government.

Senator GOLDWATER. S. 5 has about four pages that could be construed as

Senator PAYNE. You are referring now to the requirements that must be met?

Senator GOLDWATER. That is right.

Senator PAYNE. Those requirements, of course, have been patterned after the provisions of the so-called Hill-Burton Act for hospital construction. I must be very frank in saying that I have had considerable experience with that act which has provided our State with many needed hospital facilities that they could not have had otherwise. I ran into no difficulty whatsoever in the operation of that act in connection with the construction of hospitals in Maine.

Senator GOLDWATER. Then you feel that S. 968 is safe as far as the possibility of containing any dangers is concerned?

Senator PAYNE. I do. Certainly our Maine school-building authority has not stepped in and taken over at the local level. The standards in S. 968 duplicate in a sense what our State authority does in its activities.

Chairman HILL. Senator, wouldn't you rather have the standards, so to speak, or the requirements laid down clearly and definitely in the statute than to have those standards and requirements left within the discretion and imposition of a Federal official?

Senator PAYNE. I think the standards must be laid down very specifically. I am not completely sold, if you will forgive me for saying so, that we have even in any of these bills the standards that must be met at the local level before these instrumentalities should take effect.

I think it is one of those things we have to be relatively specific about in order to get the proper initiative at the State and local levels, first, before we step into the picture.

Chairman HILL. You would have them written into the statute? Senator PAYNE. Yes, sir.

Chairman HILL. Any further questions, gentlemen? If not, Senator, we certainly want to thank both of you gentlemen, and we appreciate your having brought us this information.

Senator PAYNE. Thank you for giving us the opportunity.

Chairman HILL. Dr. Fuller, you and Dr. Remmlein may come around, sir.

In the meantime, Senator Smith has a letter he would like to place in the record.

Senator SMITH. Yesterday there was a question raised as to whether a State must, in all cases, establish a State building agency pursuant to agreement under title II of S. 968 as a condition to being eligible for grant under title III.

There was some difference of opinion on the language of the bill. Therefore, I requested the Department of Health, Education, and Welfare to tell me their construction of this part of the bill.

Without reading it now, I would like to ask that it appear in the record at this point for the benefit of all. This is from Roswell B. Perkins, Assistant Secretary of the Department of Health, Education, and Welfare.

Chairman HILL. It will so appear.

(The letter referred to follows:)

DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE,
Washington, February 18, 1955.

Hon. H. ALEXANDER SMITH,
United States Senate.

DEAR SENATOR SMITH: This is in response to your inquiry as to whether a State must in all cases establish a State school building agency pursuant to an agreement under title II of S. 968 as a condition to being eligible for a grant under title III.

The answer is "No." While establishment of such an agency would be necessary in some cases, it would certainly not be necessary in all cases.

In the case of a school district which has not reached its legal bonding capacity-and there will be many of these-it could qualify for a grant under title III if it is unable, because of lack of economic capacity, to sell its bonds to the Commissioner of Education under title I. In such a case, establishment of a State school building agency under title II of the bill would not be necessary.