STATEMENT OF GORDON L. CALVERT, MUNICIPAL DIRECTOR AND ASSISTANT GENERAL COUNSEL; ACCOMPANIED BY FRANK E. MORRIS, RESEARCH DIRECTOR, INVESTMENT BANKERS ASSOCIATION OF AMERICA

Mr. CALVERT. Thank you.

We are submitting this statement for the Investment Bankers Association of America. We had hoped that our president, Mr. William C. Jackson, Jr., of Dallas, could be here to present the statement, but he was unable to make the trip.

I am Gordon Calvert, municipal director and assistant general counsel of the association.

Senator BRICKER. Who is the president?

Mr. CALVERT. William C. Jackson, Jr., of Dallas, Tex.
Senator BRICKER. You change every year?

Mr. CALVERT. Yes; that is correct.

With me is Mr. Frank E. Morris, research director of our association.

If it is the pleasure of the committee, I will merely refer to the first two sections of our statement, and ask that they be included in the record.

The first of those sections is introductory comments, and merely identifies the association and the nature of its membership.

The second section is a summary of the provisions of the bill.
The CHAIRMAN. That may be done.

(The portion of the statement referred to follows:)

INTRODUCTORY COMMENTS

The Investment Bankers Association of America is a voluntary unincorporated trade association of investment banking firms and security dealers who underwrite and deal in all types of securities. Our association has over 800 member firms engaged in one phase or another of the securities business in the United States and Canada, including about 100 commercial banks. members have, in addition to their main offices, over 1,300 registered branch offices. Many of these firms underwrite and deal in State and municipal bonds and in the aggregate do a large percentage of the underwriting, distribution, and trading of State and municipal bonds.

SUMMARY OF S. 3497

Our

S. 3497 would expand the public-facility-loan program (administered by the Community Facilities Administration of the Housing and Home Finance Agency) under a proposed Community Facilities Act of 1958. This bill would authorize the Administrator, if a State or municipality is not able to obtain the funds from other sources "on equally favorable terms and conditions," to purchase the bonds of, or make loans to, States and municipalities, up to an aggregate amount of $2 billion at any one time, to finance the construction, repair, and improvement of public works and public facilities at an interest rate not to exceed the rate determined under a formula in the bill. Loans by (or bonds purchased by) the Administrator could have maturities up to 50 years, and the Administrator would be authorized to agree that no payment of principal or interest be made by the municipality during the first 5 years after the loan is made (but the postponed interest must be paid over the balance of the life of the loan, in addition to the interest regularly accruing during such subsequent period).

The interest rate at which the Administrator would make loans could not exceed one-quarter of 1 percent plus the average annual interest rate on all interest-bearing obligations of the United States then forming part of the public debt as computed at the end of the month next preceding the date on which the funds are obtained from the Treasury Department (adjusted to the

nearest one-eighth of 1 percent). At present the Administrator would be authorized to make loans to States and municipalities for the construction of public works and public facilities at not exceeding 3-percent interest if the State or municipality cannot obtain the funds from other sources on equally favorable terms.

Mr. CALVERT. Beginning then, near the bottom of the first page: 1. The volume of financing by States and municipalities for constructure of public facilities reached a record high in the last 2 months.

The sale of bonds by States and municipalities to provide longterm financing for the construction of public facilities was higher in January and February 1958 than in the same 2 months in any prior year. The sale of such bonds in January aggregated $767 million in 505 issues and in February aggregated $918 million in 514 issues, so that the total for the 2 months aggregated over $1,685,000,000 in 1,019 issues. This financing is compared with financing in the same 2 months in each of the preceding 9 years in the table below. Again, I will ask that that table be included in the record, but I will not read all the figures at this point.

The CHAIRMAN. That may be done.

(The portion of the statement referred to follows:)

Sale of long-term bonds by States and municipalities

Mr. CALVERT. You will note from that table that the sale of longterm bonds by States and municipalities in January exceeded that of January in any prior years.

In February this year they exceeded that in February of any of the prior years, and accordingly, the total for the 2 months of January and February of 1958 exceeded the total for the corresponding 2-month period in any of the preceding 9 years.

This record volume of State and municipal financing of the construction of public facilities in January and February of 1958 follows a steady large volume of such financing over the past several years. For example, the volume of such financing in each of the last 3 years has been as follows: 1955, $5,976,503,000; 1956, $5,446,419,000; 1957, $6,824,557,000, in 6,864 issues.

These facts demonstrate that States and municipalities are obtaining the financing for growing programs of construction of public facilities without the Federal assistance proposed in S. 3497. The bond sales referred to above have financed the construction of educational facilities, roads and bridges, water and sewer facilities, health, welfare, and recreational facilities, ports, airports, and other public facilities. Even during the period of relatively high money rates in

the latter part of 1956 and throughout most of 1957, the volume of State and municipal financing continued at a high level.

In appraising the employment and purchase of materials created by the financing in 1957 and in January and February of 1958, it must be noted that, (1) the financing of State and municipal facilities almost always precedes the construction; and (2) construction on many projects cannot be carried on during the winter months, so that the impact in employment and purchase of materials for the projects financed in recent months will not be fully evidenced until at least the spring and summer season.

Senator BRICKER. Do you have a breakdown of the January and February issues?

Mr. CALVERT. Yes, sir; we do.

Senator BRICKER. It is in your statement!

Mr. CALVERT. It is broken down by issues in appendix C, but it is not broken down to show the use of proceeds. We have that information here and can give it to you.

The CHAIRMAN. Can you supply it for the record?

Mr. MORRIS. We can supply it for the record.

The CHAIRMAN. Very well.

(The information referred to follows:)

State and municipal bonds sold, January and February 1958, by use of

Mr. CALVERT. S. 3497 proposes to include in the declaration of policy a statement that

The Congress finds that in many instances municipalities or other political subdivisions of States, which seek to provide essential public works or public facilities, are unable to raise the necessary funds.

It appears that there is no factual basis for such a statement with regard to those States and municipalities which have attempted to obtain financial assistance of the type proposed in S. 3497 through the sale of their bonds. During the period from July 1956, through February 1958, when $11,298,495,000 of bonds were sold by States and municipalities, the amount of State and municipal bonds offered but not sold constituted only 1 percent of the total of the bonds sold. Furthermore, it should be noted that some of the bonds which were not sold when originally offered (a) have subsequently been sold in private sales of which we have no record; and (b) were not sold simply because the issuer rejected the bids, when it appeared that interest rates

might be going down, with the hope of subsequently obtaining a lower interest rate.

Senator BRICKER. That might cover situations such as were mentioned here by the gentleman from Michigan?

Mr. CALVERT. Not exactly, Senator Bricker. He had not even offered those bonds for sale.

Senator BRICKER. That is right; he said that.

Mr. CALVERT. These are situations where the bonds were offered but were not sold.

Senator BRICKER. What was the reason they were not sold?

Mr. CALVERT. That varies, Senator. If I might depart from my statement a moment, I noticed that at the hearing yesterday where a statement was made that $4 million of Norfolk, Va., bonds were offered about a year ago, and that the bids were rejected and the bonds were not sold. That is not the whole story. The bonds were reoffered a few months later and were sold, in July 1957, at a net interest cost of about 3.62 percent.

Senator BRICKER. Were the first bids rejected on the basis of rate? Mr. CALVERT. Yes, that was the statement yesterday. I think the first bids were at 4 percent. The bonds were sold a few months later, in July of 1957.

Senator BRICKER. Thank you very much.

Mr. CALVERT. Appendix A lists the number of issues and total amount of State and municipal bonds sold in each State in 1957. Appendix B lists the number of issues and total amount of State and municipal bonds sold in each State in January and February of 1958. Appendix C lists, by State, each issue of State and municipal bonds sold during January and February of 1958.

Senator BRICKER. Do any of these appendixes show the interest rates?

Mr. CALVERT. No, sir, they do not, but on any specific one on which you have a question, we can supply it to you right now.

The CHAIRMAN. I hesitate to take the time on it. I wonder if you could supply, for the record, samples on these, picking out, say, the first 2 or 3 under each. You can take the first two, Alabama and Arizona, just some typical interest rates charged.

Mr. CALVERT. All right.

The CHAIRMAN. Thank you. Take the first three items and insert the interest rate in there for the record.

I do not want to take the time right now, because I would rather hear your discussion.

Mr. CALVERT. All right, we will supply this to you in the form of a new appendix C.

Mr. CALVERT. 2. S. 3497 would not provide any appreciable amount of additional construction of public facilities but would merely substitute Federal financing for private financing.

If S. 3497 had been in effect during 1957 and January and February of 1958, the Administrator would have been authorized to make Federal loans to States and municipalities, if the loans could not be obtained from other sources on equally favorable terms, at 2% in January and February of 1957, at 3 percent in March through August of 1957, at 3% percent in September through December of 1957, and at 3% in January and February of 1958.

If S. 3497 had been in effect in 1957, over 84 percent (over $5,746 million) of the $6,824,557 of State and municipal bonds that were sold in 1957 without Federal assistance would have been eligible for purchase by the Federal Government, because they were sold at interest rates above the rate which would have been applicable in the particular month under the proposed Federal program.

The CHAIRMAN. You might be interested to know that yesterday one of our Senators made the allegation that this bill would not be of much use because all Aaa communities and others had an interest rate below what the bill provided, so he was against the bill because it would not be of any use.

Mr. CALVERT. We have checked each issue, Senator Fulbright, and we have compiled the data for each month.

The CHAIRMAN. I am not disputing what you are saying, but saying that here is one Senator who makes the argument the bill is no good because the rate is too high; that all Aaa interest rates are 234 percent.

Mr. CALVERT. One of the primary reasons we wanted to testify today was because we had factual information available and wanted to bring it before the committee.

The CHAIRMAN. We are very glad to have it.

Mr. CALVERT. Again departing from the statement, as an extreme example, we found in August of 1957 about 99.7 percent of the State and municipal bonds that were actually sold that month would have been eligible under this program for purchase by the Federal Government if it had been in effect.

The CHAIRMAN. They were all above 3 percent?

Mr. CALVERT. That percentage of them were; yes, practically 100 percent.

The CHAIRMAN. Go ahead. I did not mean to interrupt you. I just thought it was curious that these two opposite arguments were made aganist the bill-one that it is too high, and one that it is too low.

Go ahead.

Mr. CALVERT. Similarly, if S. 3497 had been in effect in January and February of 1958, over 45 percent (over $766 million) of the $1,685 million of State and municipal bonds that were sold in those months without Federal assistance would have been eligible for purchase by the Federal Government, because they were sold at interest rates above the rate which would have been applicable under the proposed Federal program.

The CHAIRMAN. Do you think if this Federal program were activated the private rate would stay the same, or would the private rate come down if there were some competition?

Mr. CALVERT. I do not think it would affect the private rate at all. The CHAIRMAN. You think interest rates are administered like the price of automobiles; they do not respond to any competition?

Mr. CALVERT. No, sir, I think they are subject to competition, considering the risk involved in each issue; that is the reason you find municipal rates varying so for different municipalities, because of the credit and risk involved in each particular situation. And we do not think the adoption of this bill would change the private rates, because the risk would still be the same in each situation for the pri vate investor.