merely because of their independent corporate structure and their pattern of financial operation.

6. Tuition payments to so-called private schools are to be distinguished from payments to the type of schools represented in the National Union. The latter payments of tuition are, in effect, contributions to support a movement endorsed and strongly advocated by a church body. Tuition payments for a private school-and I mean strictly a private school-are to cover the cost of an education designed for personal advantages. A parent elects to send his child if he can afford it. The question of religious conviction is not involved.

I would like to make a comment on section 151. The National Union also wishes to take cognizance of the provisions in H. R. 8300, namely section 151, which broadens the earnings test for dependents. This amendment admittedly affords some tax relief to parent taxpayers in the case of dependents who are college students, as tuition payments will constitute a substantial factor in determining the degree of their support. Our problem, however, lies below that level, primarily in the area of grammar and high school pupils where the economic factors weigh even heavier.

The fact that the Ways and Means Committee deemed it equitable to include in H. R. 8300 both sections 151 and 170 is a gratifying indication of the concern of Congress with the problem of educational expenses of taxpayers.

We appreciate the opportunity of presenting our problem to you. We trust that it may receive your serious consideration and that steps will be taken to remove what we consider to be an inequity to the constituency of our nonparochial Christian school system in America. We feel that this can be accomplished by a simple amendment of the definition of "contribution," to include the amount paid by parent members of the nonparochial Christian schools.

Thank you.

The CHAIRMAN. Thank you very much. We are glad to have you. Thomas J. White. Sit down and be comfortable, Mr. White and identify yourself to the reporter.

STATEMENT OF THOMAS J. WHITE, ATTORNEY, REPRESENTING THE COMMISSION OF PUBLIC DOCKS OF THE CITY OF PORTLAND, OREG., THE PORT OF ASTORIA, OREG., THE OREGON STATE PUBLIC PORT AUTHORITIES ASSOCIATION, AND THE PORT OF NEW YORK AUTHORITY

Mr. WHITE. Mr. Chairman, my name is Thomas J. White. I am an attorney from Portland, Oreg., representing the Commission of Public Docks of the City of Portland and Ports of Astoria, Longview and Vancouver, Wash., the United States members of the Pacific Coast Public Port Authorities, which consists of the principal public ports of California, Oregon, and Washington.

In the interests of time of the committee, I am also here representing the Port of New York Authority, the Airport Operators Council, which operates the principal airports of this country, and the American Association of Port Authorities, which represents the principal public ports of this country.

Both the airports and the public ports administer assets totaling many billions of dollars. Seated with me is Mr. Daniel Goldberg, assistant general counsel of the Port of New Your Authority.

We are appearing here, asking the committee to delete section 274 of H. R. 8300. This section, which is very brief, provides that no deduction shall be allowed for amounts paid or accrued to a State or any political subdivision for the use or occupancy of the property acquired or improved out of the proceeds of any industrial development revenue bonds.

Then there is a definition under that subsection, which defines industrial development revenue bonds. It states that these are, when they are issued, to finance the acquisition or improvement of real property which is to be used to any substantial extent by nonpublic lessees for manufacturing articles.

Mr. Chairman, the effect of that section would disallow, as the deductible business expense, rentals paid by an industry, manufacturing lessee, to a municipality, which issues revenue bonds as a method of financing used extensively by the public ports and airports of this country, and its future use is even more encouraging.

There are four main points in our objection, and I might say, Mr. Chairman, I am also speaking for Mr. Tobin of the New York Port Authority, who is the following witness, and covering orally the remarks in a statement previously submitted to this committee.

There is nothing in this legislation which would protect or which would tend to limit it to the relocation of industry. The ostensible reason for this legislation was to prevent the alleged rating of industries from New England States to the Southern States. The public ports and airports seem to be caught in the middle. However, this legislation also applies to the establishment of new industry, or the improvement of existing facilities.

My second point, and which is highly important to the public ports and airports, is that there is no definition contained in the law as to what a manufactured article means. This becomes quite important, because in the House report issued it is stated:

The term "manufactured articles" is used in a broad sense and includes processing and related activities, such as canning, tanning, and so forth, the result of which is to make available for sale an article or product.

I have researched the question and definition of the term "manufactured articles" which I have included in my written statement. There has been actual litigation in the courts of our country over such terms as to whether or not taking ice from a river and storing the same for sale is manufacture; blending and packaging tea, blending and packaging coffee; treating oranges to avoid blue mold, and sorting, processing, and treating redried tobacco; storing and sorting and packing apples; finishing rough lumber and shelling and sorting peanuts.

Some of these have been classified by the courts as being within the terminology of "manufacturing" or "manufacturing articles." When you are issuing revenue bonds, there can be no doubt as to whether or not these articles come within the term of "manfactured" or whether or not the facility which the tenant tends to lease would be a manufacturing facility.

To show the committee that this is no problematical or theoretical problem, the city of Portland, Oreg., has stopped right now, just on the threat of this litigation, the addition of a large grain storage facility to its existing grain terminal. This storage would comprise 6,500,000 bushels, which, added to the existing facility, would make it the largest watertight grain terminal on the Pacific coast.

And I would like to read for the record the essence of a letter from one of our distinguished and largest law firms in Portland, representing the 10. These negotiations have already been concluded prior to the introduction of this evidence. This letter is addressed to myself, as counsel for the Commission of Public Docks:

Reference is made to the proposed lease from the city of Portland, Oreg., acting by and through its the Commission of Public Docks, to our client Kerr Gifford & Co., Inc., covering the present grain elevator and storage bins located at Municipal Terminal No. 4, Portland, Oreg., together with additional grain elevators at this terminal which are to be constructed as an annex thereto.

We have given careful consideration to the provisions of section 274 of H. R. 8300. If this section or a section of substantially the same import should become a part of United States Revenue Code of 1954, we will be constrained to advise our client that it would be placed in an intolerable situation if it consummated the proposed lease, and we must recommend that it must not do so. The CHAIRMAN. What are the terms of that lease?

Mr. WHITE. The terms of that lease—————

The CHAIRMAN. I mean as far as taxes are concerned.
Mr. WHITE. As far as taxes are concerned?

The CHAIRMAN. Yes.

Mr. WHITE. The taxes are included in the rental. In other words, the commissioner of public docks for the city of Portland charges a rental to this form, which allows and includes an estimated amount for taxes.

The CHAIRMAN. Who pays the taxes?

Mr. WHITE. There are no taxes on municipal port properties any place on the Pacific coast that I know of, and I believe that is generally

true.

The CHAIRMAN. Is your point to protect the exemption of the tax? Mr. WHITE. No, sir. Our point is to find desirable tenants to lease facilities, such as grain elevators, and induce them to enter into longterm leases which will retire or amortize the facility.

The CHAIRMAN. I understand that, but what is the tax angle that you are trying to protect?

Mr. WHITE. Sir, there is no tax angle. Obviously, one of the advantages in doing that-and while we are able to in Portland, as in Seattle and San Francisco, get these grain elevators to attract the grain from the hinterlands, that is a definite advantage. That is one of the reasons why the public builds them. They feel it is an advantage to them.

The CHAIRMAN. I don't believe I made myself clear. Why is your problem of interest to this committee?

Mr. WHITE. Beg pardon, sir?

The CHAIRMAN. Why is your problem of interest to this committee? There must be a tax angle or you wouldn't be here.

Mr. WHITE. No, sir. The reason we are here, we are just giving the committee a particular point, and it affects all other ports. We cannot find a tenant who will enter into a long-term lease if his lease money that he pays to the municipality is not deductible

The CHAIRMAN. That is a tax angle, isn't it?

Mr. WHITE. Yes, sir. Excuse me. I thought you meant a tax on the facility itself. No; obviously, the point, as I opened my statement, was that the effect of this is to refuse to allow the rental payments to be tax deductible. The airports in Seattle, Wash., and Denver, Colo., have similar problems in negotiations concerning the building of facilities there and leasing them out.

The third point is that the purpose of this legislation, as I explained, was to stop this rating of industry from the North to the South. It doesn't, however, accomplish that. It encourages the use of general obligation bonds. In a survey made by the Port of New York Authority, it was found that all that we are talking about-the purpose of this legislation is about $3 million worth of revenue bonds issued by certain southern communities. There was approximately about eight issues and there is a much larger sum in which they have done the same thing-in which they issued general obligation bonds. In other words, it puts a penalty on revenue bonds. It is just as simple, if the facility can't sustain itself and pay its way out by revenue bonds, then it goes to general obligation bonds, in which many more in 'dollar amounts have been issued for this purpose.

The legislation doesn't accomplish, as a result of our survey, the purpose for which it was intended.

Now, the fourth and last point

The CHAIRMAN. How do you feel about that, Mr. Stam?

Mr. STAM. I think the committee over there, when they considered this problem, felt if they extended it to the general bonds of the State, there would be some question about the thing actually being bonds of the State. I mean where the State is willing to assume full faith and credit for the bonds, it was pretty close to a State obligation. The CHAIRMAN. Yes.

Mr. STAM. But where they didn't assume the full faith and credit of the so-called revenue bonds, which was dependent entirely upon whether the operation was producing revenue, they felt they could reach that without raising any constitutional question. That is the reason they limited it that way.

Mr. WHITE. The fourth point, Mr. Chairman-and we feel this is quite important and perhaps the major thing—is that affects the basic philosophy of our Government. That is Federal and State rights. We may not, any of us, agree with the policy of municipalities in attracting industry from other sections of the country, but it is our contention that the Federal Government should not step in and through a device of eliminating the tax deductions, take away that power of the State to determine what they will do to attract industry.

In other words, we might condemn that practice, but I think we should defend the right of the State to do as it chooses.

The CHAIRMAN. We also must defend our Federal revenues. That is our job.

Mr. WHITE. There is no revenue involved here.

The CHAIRMAN. You have a tax exemption.

Mr. WHITE. Of course the answer is as far as the public ports and airports, there is not going to be any lease available. There will be no financing for additional facilities. And, as I gave an example earlier, a large grain elevator in Portland, Oreg., is stopped right now

because of that reason. So there wouldn't be any tax revenues, because you can't get a company to enter into a lease with this provision here. The very threat of it has stopped our elevator in Portland, Oreg.

The CHAIRMAN. Your elevator depends upon the tax exemptions? Mr. WHITE. That is right.

The CHAIRMAN. And that is what you are trying to protect, and it is the business of this committee to protect the revenues. The more exemptions we give, the less we protect the revenues.

I have no opinion on this. I am just trying to get at what the meat of it is.

Mr. WHITE. Yes, sir. Mr. Chairman, may I say it is not a tax exemption. It is tax allowance as a business expense.

The CHAIRMAN. It all comes to the same thing: less taxes.

Mr. WHITE. If this grain company out in Portland, Oreg., rented this facility from the Prudential Life Insurance Co., it could deduct its rental payments as a business expense. Under this provision, if it rents it from a port, it cannot. We claim that is discrimination. It deducts its office rent that it pays as a business expense, but it cannot under this legislation deduct the rental it pays for our municipal elevator there.

Thank you very much, Mr. Chairman.

The CHAIRMAN. You are welcome, indeed. We are glad to have you here.

(The statements of Mr. White and Mr. Tobin follow :)

STATEMENT OF THOMAS J. WHITE, ATTORNEY, REPRESENTING THE COMMISSION OF PUBLIC DOCKS OF THE CITY OF PORTLAND, OREG., THE PORT OF ASTORIA, OREG., THE OREGON STATE PUBLIC PORT AUTHORITIES ASSOCIATION, THE PORt of VANCOUVER, WASH., THE PORT OF LONGVIEW, WASH., AND THE UNITED STATES MEMBERS OF THE PACIFIC COAST ASSOCIATION OF PORT AUTHORITIES, WITH RESPECT TO CLARIFICATION OF THE DEFINITION OF "MANUFACTURING ARTICLES" AS USED IN SUBSECTION (B) OF SECTION 274, H. R. 8300

H. R. 8300 has passed the House of Representatives and is now before this committee for consideration.

Section 274 of the bill provides as follows:

"(a) GENERAL RULE. No deduction shall be allowed for amounts paid or accrued to a State, a Territory, a possession of the United States or any political subdivision of any of the foregoing or the District of Columbia for the use or occupancy of property acquired or improved out of the proceeds of any industrial developments revenue bonds authorized after February 8, 1954.

"(b) DEFINITION. For purposes of subsection (a) the term "industrial development revenue bond" means any obligation

"(1) Issued (whether before or after the acquisition or improvement of the property concerned) to finance the acquisition or improvement of real property which is to be used to any substantial extent by nonpublic lessees for manufacturing articles; and

"(2) Which does not pledge the full faith and credit of the issuing authority for the payment of interest and principal."

Chapter 1 (B) IX of the portion of House Report No. 1337 entitled, "Detailed Discussion of the Technical Provisions of the Bill," discusses the purpose and legislative intent of section 274 in the following language which is set forth below to show its broad, inclusive scope:

"This is a new section which disallows as a deduction any amounts paid or accrued to a State. Territory, possession of the United States, or a political subdivision thereof, or the District of Columbia, as payments for the use or occupancy of property acquired or improved by such State or Territory with the proceeds of any industrial development revenue bond.

"The bonds covered by this section are any obligations issued to finance the acquisition or improvement of real property which is to be used to any substantial extent by nonpublic lessees for manufacturing articles and which do