1 Balance from initial earmarking not included in initial loan contract.

Mr. TRANSUE. Just one question in regard to the same question that Mr. Meeks asked you. I would like to get the same information for Michigan. In fact, I have asked your authority some time ago for it, and have not received it.

Mr. STRAUS. You did not receive it? I am very particular about these requests from Congressmen for earmarkings, to see that they are answered the same day. I am very much disappointed, and apologize. It won't happen again.

Mr. LUCE. In my district there is the town of Watertown, which contains a Federal arsenal. Suppose that we estimate the value of that at $1,000,000. If it were privately owned it would pay $40,000 in taxes. Do I understand you to reason that because the town of Watertown cannot tax that arsenal, it is making a contribution of $40,000?

Mr. STRAUS. That, sir, is precisely an excellent and unusually clear statement of the theory which the municipalities hold as to the local contribution. You stated it better than I can. They feel that when there is a piece of property there which is not completed-and this Congressman raised that point, not as it is today-it would be taxed at a certain amount, and that if it amount, is not so taxed, they consider that a local contribution.

Mr. Luce. This arsenal has been there for 40 or 50 years, perhaps more or less; I do not know the exact time, but I never heard anybody suggest that the town of Watertown was making any contribution to the Government.

Mr. STRAUS. I wish that you would sit with me in some of these things when the localities come in and explain about the big contributions they are making when they provide for this tax exemption.

Mr. GOLDSBOROUGH. If the Federal Government puts up a building for a local community which they want put up, which they did not have before, and which was not taxable before, I do not believe that you will ever get this committee to think that that is a contribution by them. I think that that is a joke.

Mr. STRAUS. That is the way they figure it, as a contribution. Mr. MEEKS. It does not amount to a joke, even.

Mr. CRAWFORD. Will you yield there on that point?

Mr. GOLDSBOROUGH. Certainly.

Mr. CRAWFORD. Isn't that the very philosophy which was grounded and beaten into this original bill when it went through here, to the effect that if the local communities did that very thing, they would be making a contribution?

Mr. STRAUS. Oh, surely. I think everybody would agree that that is the philosophy of the act. But as I understand the point that the gentleman was raising, it is as to whether or not the localities really are being penalized to the extent that they think they are when they partially or completely waive taxes on something that they did not previously have.

Mr. GOLDSBOROUGH. They are evidently not being penalized at all, and I think that we ought to approach this thing on a more rational basis. I would not be surprised if the majority of this committee are in favor of this bill, but not on any such basis as that, that communities, when they get something they want and did not have before, and were not getting any taxes on before, are making a contribution because they do not tax that particular something. I do not believe you will ever get anywhere with this committee on that sort of a basis.

Mr. STRAUS. There is not any suggestion on my part to make any change in the existing law on that, but the fact is, as you will find out if you talk to your own mayors or city councils, that they regard a completed building at its full value as a building, and they put it on the tax rolls at that figure, and to the extent that they do not collect those taxes on it, they consider that a contribution.

Mr. GOLDSBOROUGH. Maybe they do that, but they are not rational when they do it.

Mr. STRAUS. They tell me, of course, that they are giving sewerage service, and they are giving police protection, school service, and so forth, for those buildings, and that they are tax-exempt.

Mr. FISH. Is it not true that in slum clearance projects, you tear down existing buildings that do pay taxes? They are owned by somebody, and those people who own them have to pay taxes.

Mr. STRAUS. That is a perfectly tenable view.

Mr. FISH. In that respect there is justification for their claim, because those slum dwellings are replaced by Government buildings that are not taxed. It is not like putting an armory in some city where no building existed before and no taxes were paid. It is an entirely different proposition. If you clear away slum houses existing on which taxes are paid, you certainly lose those taxes.

Mr. STRAUs. I think

Mr. FISH. I just wanted to show the other side of the picture. Mr. STRAUS. May I speak on that, because it seems important to get this made clear, that I think you have to think of all of these things in terms of a program, and while I have no great sympathy for the occasional contention of cities of the burden imposed by reason of these contributions, nevertheless, looking at the thing realistically, if one-third, one-fourth, or one-fifth of the population of the cities has to be rehoused with Government subsidies, and if they are to have that many buildings which are not paying their full amount of taxes, you cannot honestly say to the cities that they are not making a contribution and they should not have contribution figured in. If you go to the utmost extreme, they might say that they are not able to collect any taxes for any of that property, and that they are making a contribution. My only feeling when I spoke before was that the extent of the contribution is at times exaggerated by the cities when they claim that by granting these tax exemptions on a building which theretofore did not exist, they are making a large contribution.

Mr. FISH. Let me understand how this operates. Before you enter into your contracts, do the cities come in and give a definite pledge of their contribution of the exemption of taxes?

Mr. STRAUS. That is right.

Mr. FISH. The city gives a signed pledge?

Mr. STRAUS. The city gives a signed pledge of the extent to which it will tax or not tax the property.

Mr. FISH. What is the law? How much does a city have to contribute?

Mr. STRAUS. One dollar for every five dollars we put up.

Mr. FISH. Twenty percent?

Mr. STRAUS. Twenty percent.

Mr. FISH. And your bill changes that to 10 percent?

Mr. STRAUS. It does not touch that in any way. We are not asking for any change in our act, except more money, and the right during the next year to loan up to 100 percent of the project.

Mr. FISH. You are asking in this bill for $1,000,000,000, are you not? Mr. STRAUS. Yes, sir.

Mr. FISH. That is an addition over what you have now, is it not? Mr. STRAUS. Five hundred million dollars addition. Actually, as

far as this year is concerned, it is $700,000,000 more.

Mr. FISH. But we authorize $500,000,000 more altogether?
Mr. STRAUS. Yes, sir.

Mr. FISH. Are these bonds or these issues guaranteed by the Gov

ernment of the United States?

Mr. STRAUS. They are.

Mr. FISH. Are they tax-exempt?

Mr. STRAUS. I think that they are tax-exempt today, yes.

Mr. FISH. Will they continue to be tax-exempt under this proposi

tion?

Mr. STRAUS. I am not touching any of that, sir.

Mr. FISH. But you have a bill before us and you are asking for the

issuance of another $500,000,000 for your building projects. Mr. STRAUs. Yes.

Mr. FISH. Are those to be tax exempt?

Mr. STRAUS. I do not know. I am not trying to fence with you. I do not get you at all. Are not Government bonds under the present law tax exempt?

Mr. FISH. Not at all. It is entirely up to Congress.

Mr. STRAUS. These are tax exempt.

Mr. FISH. I am asking you whether the $500,000,000 additionalMr. STRAUS (interposing). The answer is yes.

Mr. FISH. It is in direct violation, then, of the President's recommendation, is it not?

Mr. STRAUS. I thought, under the President's recommendation, that all of this type of bonds would be generally taxed; and then this would be, too. So these would be taxed, then, if you pass that act. Mr. MCKEOUGH. If you issue the bonds for this $500,000,000 after we pass that law

Mr. STRAUS (interposing). Then they are taxable.

Mr. FISH. There is nothing said about that here. That is what I want to know.

Mr. MCKEOUGH. I think that there ought to be some amplification, such as that they are subject to any future law passed by Congress. Mr. FISH. When I asked Mr. Straus, he said that they are tax exempt. Now he says that they will not be.

Mr. STRAUS. Congressman, I wonder if that is quite fair. You asked me if they are now tax exempt, and then you asked if they would be if the President's recommendation should be adopted. The answer that I wanted to make is that under the present law they are tax exempt, but I know that Congress can change the law.

Mr. FISH. I wanted to know whether you thought these would be tax-exempt under this bill, or not.

Mr. MCKEOUGH. He does not know.

Mr. FISH. As to this bill, I am asking him about the provision in section 20, whether that means that they should be tax-exempt or Mr. STRAUS. I would think that these bonds of the Federal Government should be treated precisely as other Federal bonds, and if the Congress decides to leave them tax-exempt, then these should also be tax-exempt. If the Congress decides, in line with the President's recommendation, to tax bonds of this character, then these also should be taxed.

Mr. FISH. You are raising a really important issue.
Mr. STRAUs. I do not want to. I would rather avoid it.

Mr. FISH. If we do not make them tax-exempt, then the question

is, could you sell these bonds?
not tax-exempt?

Mr. STRAUS. I do not know.
I would not qualify as an expert.

Could you get the money if they are
That is a financial matter, on which

Mr. GOLDSBOROUGH. You haven't any doubt about it?

Mr. STRAUS. I only can say that as to bonds that were sold taxexempt, the actual interest rate was something under 1 percent, and if you added on taxes, it does not seem they would be very difficult to sell. The demand for them is fully in excess of what the supply is today, I am informed by the Treasury.

Mr. FISH. You have not tried to sell them?

Mr. STRAUS. I have not tried, but it is difficult for me to believe that bonds which are federally guaranteed, in your lifetime or mine, might not be a marketable commodity.

Mr. KOPPLEMANN. Did I understand you earlier in your testimony to say something about a time limit to July 1, that in the fiscal year you are going to spend $125,000,000, and there was

Mr. STRAUS. I take the calendar year.

Mr. KOPPLEMANN. Would the difference between what you spend and what you had allocated to you have to go back to the Treasury, or is there no time limit on the use of that?

Mr. STRAUS. No time limit on that.

Mr. SPENCE. With reference to the consideration that was raised in regard to tax exemption, it seems to me that the illustration that was given of the arsenal, which is built with Government money and owned by the Government, and where no local subdivision has any authority to tax it, is very different from a case of tax exemption granted to your corporation, because I understand that if there was no tax exemption, it would otherwise be taxed?

Mr. STRAUS. That is absolutely correct. This is a voluntary act in our case.

Mr. SPENCE. And in every instance they have the power to tax your projects, because they are not purely public projects; they are owned by the local corporation, and are taxable?

Mr. STRAUs. That is correct.

Mr. FORD. I would like to ask one question. Do I understand that if a city puts up $100,000 originally on a 1-million-dollar project, the yearly contribution would be $35,000? Then the city's contribution, or 20 percent of that, would be $7,000. Then would you take this $100,000 and spend it over 60 years and deduct that $1,600 from the $5,400? Supposing that they were going to pay $7,000 in cash; would you give them credit for that?

Mr. STRAUS. Do you mean under the amended act, or the original act? Mr. FORD. Original act.