STATEMENT OF CARL H. CHATTERS, COMPTROLLER, CITY OF CHICAGO, CHICAGO, ILL. Mr. CHATTERS. My name is Carl H. Chatters. I appear as comptroller of the city of Chicago. The CHAIRMAN. Mr. Chatters, you have very, very fine representa tion on this committee from the State of Illinois both in Mr. O'Brien and Mr. Mason. You can feel right at home with us. Mr. CHATTERS. I do. I have appeared before the committee many times and I know both the gentlemen in question. The CHAIRMAN. We are glad to have you with us. Do Do you have Mr. CHATTERS. Yes, sir; I will file the statement and I will take maybe 3 minutes. a statement that you want to appear in the record? The CHAIRMAN. Without objection, the statement will appear in the record. (Mr. Chatters' prepared statement follows:) STATEMENT OF CARL H. CHATTERS, CITY COMPTROLLER OF THE CITY OF CHICAGO Eight or nine years ago when I was director of the American Municipal Association, the proposal was made to permit regulated investment companies to pass on to their shareholders as tax-exempt dividends the income derived from municipal bonds. Now, as comptroller of the city of Chicago the proposal, as somewhat extended by H. R. 8702, seems even more necessary and desirable than it did then. Competent estimates forecast the issuance of $11.4 billion of new State and local bonds in 1963 compared with $6.9 billion in 1957 and $3 billion in 1948. The increase will be due to skyrocketing construction prices, to new types of public facilities, and to the tiresome process of catching up on the public-construction lag which blanketed this country from 1929 to 1948. As a footnote, please record that the city of Chicago reduced its general obligation bonded debt from a peak of $140 million in 1932 to only $34 million in 1945. Construction just stopped. But higher interest rates on municipal borrowing have multiplied the effects of higher construction costs and increasing volume of work to overcome the lag of two decades. For our interest-cost figures we will cite the index of the Bond Buyer, the index most widely accepted. This shows the yield on the bonds of 20 large cities. The low point in borrowing costs, according to this index, was 1.29 percent on February 14, 1946. The recent high point was 3.56 percent on September 5, 1957. Let me illustrate graphically the cost in interest rates to a city like Chicago. On November 13, 1957, we sold $20 million of water revenue bonds at an interest-cost basis of 3.96 percent. Total interest cost on these 20-year bonds-assuming they matured in equal amounts each year-would be just a little less than $8,400,000. A reduction in interest rates of 1 percent would have saved $2,100,000-contrariwise, an increase of 1 percent would have added $2,100,000 in interest costs. The situation is even more dramatic when you realize that 1 week after our sale and the change in Federal Reserve rediscount rates, we could and would have sold the bonds at an interest cost of about 3.26 percent-a cash saving of $1,500,000. When you apply figures like these to the $200 million general obligation bonds, the $150 million water bonds, and the $80 million airport bonds which the city will issue in the next 5 years, the saving is multiplied. For on the assumption that the bonds would average only 10 years outstanding (actually it would be much longer) 1 percent difference in the interest rate would mean $43 million in interest costs. The Chicago commissioner of planning, Mr. Ira J. Bach, estimates that Chicago alone will spend $688 million on public construction from 1958-62, most of it from bonds. Do not misunderstand me and think I am saying that we will save 1 percent interest by H. R. 8702. But I am saying most emphatically that Chicago is doing things in a big way and that the volume of new bonds to be sold requires the broadest possible market for these new issues. The figures I have cited for new bond issues by the city of Chicago do not include the issues of the board of education, the Chicago Park District, the Chicago Sanitary District, nor Cook County. These latter will at least double the amount for the city of Chicago alone. Lest you think these figures are high, the city of Chicago alone in 1957 sold $100,095,000 of water bonds, general tax bonds, and parking revenue bonds. The construction needs for cities, counties, and schools throughout the Nation parallel Chicago's needs. Nearly every State, every county, every city, every school district was at a standstill in public construction for 20 years while the public plant was falling apart, maintenance was almost negligible, and population grew by leaps and bounds. Now our needs for credit are great, credit is understandably being restricted and new pools of investment funds must be located. My firm belief is that H. R. 8702 is a long step toward this pool of available funds. Finally, may I urge you to pass this bill because it will help to keep the fianancing of local improvements at the local and State level. Some projects do require some Federal assistance and are so entitled because of their nature. State and local debts are not inflationary to the extent that Federal debt is because they do not increase the money supply. Pressure on the Federal debt and Federal finances are kept down by the ability of States and cities to finance their own projects through their own bonds. Since 1933 or 1934 I have appeared before your committee on many occasions in the interest of local governments which I represented. All that I said in those earlier appearances is consistent with my suggestion to you today. With little or no cost to itself, the Federal Government can help keep local borrowing costs down. The necessity for such savings at the local government level grows more argent as the volume of debt, the volume of construction, and the level of interest rates all increase. By the same token the broader bills such as H. R. 8702 will give greater help than the more limited bills. The niceties of the situation and the contrary arguments, if any, are left to others. I just know the necessity for a broader market exists and sincerely hope you will help make it possible. The CHAIRMAN. You may proceed. Mr. CHATTERS. This proposal as embodied in H. R. 8702 was first made 7 or 8 years ago when I was director of the American Municipal Association. I think it was made, as I recall it, by Beardsley Ruml, who has appeared before you on many other questions. This proposal of course to permit regulated investment companies to pass on to their shareholders as tax-exempt dividends the income from municipal bonds has been somewhat extended by H. R. 8702, although it appears also in H. R. 8811, and 8812, I would certainly like to endorse H. R. 8810, 8811, 8812, as well as H. R. 8702. I think the legislation is desirable because of the tremendously increased volume of State and municipal debt. In 1948 new State and local issues amounted to about $3 billion. In 1957 they were about $7 billion, and competent estimates with which I agree would place them in 1963 at $11.4 billion. I think those figures are reliable. The difficulties that cities and States have now comes in part from the fact that they are having to do a tremendous amount of work that was delayed during the long period from 1930 on through 1948 at least, when practically no construction work was done. None was done in our own city and during that time the debt of the city of Chicago was reduced from $140 million from 1932 to only $34 million in 1945. Construction simply stopped. Now we are trying to catch up at a time when costs have skyrocketed, when the volume of work is great, and when interest rates have tremendously increased from their low point. The low point, according to the index we usually rely on, was reached right after the war, that is, in 1946, when it stood at 1.29 percent. That compares with its alltime peak of about 52 percent, and a recent peak in the index of about 3.56, last September just before the Federal Reserve loosened up on credit a little. To show how this affects us, we sold water bonds 2 days before the interest rates started to go down. We paid 3.96 percent on $20 million of water bonds. Our interest cost over the period was $8.4 million. A week later we could have sold the bonds for about 3.26 percent compared with 3.96 on the day we sold them. One percent difference of interest on this issue alone would have made $2.1 million difference to us. One percent lower would have saved us $2,100,000. One percent higher cost us $0.1 million. This is on one issue. We wish we would have sold 2 days later, but we did not have a crystal ball. When you apply these figures to the total that we have to do in the next 5 years, any savings in interest is substantial. At a minimum we will probably sell for the city of Chicago alone, not including the other public bodies, not including Cook County, not including the sanitary district, not including the board of education, or any of the other public bodies in the city, at least $500 million in bonds. This may seem high to you, but actually last year, in 1957, we sold $1,193,000 in bonds, partly general obligation bonds, partly water bonds, and partly revenue bonds for parking purposes. We are building a water plant for which we will need $150 million in the next 5 years. Construction needs for cities, counties, and schools, I think, throughout the country parallel our own. I have followed this carefully as a means of making a living in various ways for the last 30 years, and I am thoroughly convinced that other people have the same needs we do. Our needs for credit are great. Our credit is understandably restricted, and new pools of investment must be located. My belief is that H. R. 8702 as well as the other bills along these lines will help to get available some of the money we need. I think it will help to some extent in avoiding Federal aid. If we have a choice any time between issuing Federal bonds and issuing State and local bonds I would hope that we could issue State and local bonds because it seems to me that they are not inflationary to the extent that the use of Federal debt instruments are. Since 1933 or 1934 I appeared before this committee many times, mostly with Mr. Tobin, who is my former boss and who will follow me in our opposition to the taxation of the income from State and municipal bonds. Everything that I believe today and say today is consistent with all those appearances. It seems to me that the Federal Government with little or no cost to itself can help the localities save money, and the necessity for such savings at the local government grows greater as construction costs, the volume of construction, and the volume of debt and the level of interest rates goes up, so I would hope that we could have this legislation, which seems to me desirable. The niceties of the situation and the contrary arguments, if any, I would leave to others. All I know is that I feel the legislation is necessary and is desirable and I would hope it would pass. Thank you very much, sir. The CHAIRMAN. Mr. Chatters, we thank you, sir, for coming to the committee and giving us the benefit of your views. Mr. CHATTERS. Thank you, sir. (The following letters were received by the committee:) Hon. WILBUR D. MILLS, CITY OF BURBANK, CALIF., Chairman, House Ways and Means Committee, January 31, 1958. DEAR SIR: The Curtis bill (H. R. 8702) now being considered by the Ways and Means Committee is in the best interests of the city of Burbank and all cities which find it necessary to borrow money and issue bonds. A favorable market for municipal bonds results in lower interest rates to be paid by the public. H. R. 8702 will help accomplish and maintain a favorable market for municipal bonds, by permitting investment companies to distribute the interest on municipal bonds to their shareholders without loss of the tax exemption. The city of Burbank is engaged in an extensive capital improvements program and will soon be offering bonds for public sale. In my opinion, the bill is reasonable and is needed to maintain a firm market for municipal bonds. I urge a favorable vote by the committee for approval of the bill. Very truly yours, EDWARD C. OLSON, Mayor. CITY OF HAYWARD, CALIF., January 31, 1958. Hon. WILBUR D. MILLS, DEAR SIR: The City Council of the City of Hayward, Calif., wishes to go on record with the House Ways and Means Committee in favor of H. R. 8702. Because of this city's intent to present a bond issue to its voters this year, in order to effect a capital improvements program totaling approximately $13,000,500, we are naturally interested in broadening the market for municipal bonds. Respectfully yours, Hon. WILBUR D. MILLS, JOHN J. PURCHIO, Mayor. CITY OF SAN DIEGO, CALIF., January 14, 1958. Chairman, Ways and Means Committee, House of Representatives, Washington, D. C. DEAR MR. MILLS: It has been brought to my attention that H. R. 8702 can, if enacted, aid greatly in broadening the market for State and local government bonds. I know that you are aware of the steadily increasing volume of new bond offerings. This trend is going to continue at an accelerated rate. It appears to me that H. R. 8702 will effectively fulfill its intended purpose. Therefore, as mayor of the city of San Diego, I urge you to do everything within the authority of your chairmanship of the Ways and Means Committee to expedite the enactment of this legislation. Sincerely, CHARLES C. DAIL, Mayor. CITY AND COUNTY OF DENVER, COLO., Hon. WILBUR D. MILLS, Chairman, House Ways and Means Committee, DEAR MR. MILLS: As the mayor of the city and county of Denver I should like to go on record before you and your committee as being in favor of H. R. 8702. The major provisions of this bill are definitely in the best interest of local governments, especially municipalities. The adoption of this bill would make municipal bonds more attractive on the bond market. Most municipalitiese are experiencing rapid population growth which results in tremendous increases in expenditures. This bill would definitely assist municipalities in the financing of essential capital improvements. I sincerely urge your favorable action on H. R. 8702. Sincerely, W. F. NICHOLSON, Mayor. JANUARY 15, 1958. Hon. WILBUR D. MILLS, Chairman, Ways and Means Committee, House of Representatives, Washington, D. C. DEAR SIR: As mayor or the city of Rockford, I am very interested in favorable action on H. R. 8702. During 1957 and 1958 our city has passed, or will probably pass, bond issues totaling $18 million. Despite our enviable credit rating, we notice increasing difficulty not in marketing our bonds, but in obtaining a satisfactory rate of interest. Anything which can be done to improve the municipal bond market would certainly be appreciated and would be reflected in increased municipal improvements. Yours very truly, BEN T. SCHLEICHER, Mayor, City of Rockford. CITY OF GREAT BEND, KANS., February 4, 1958. Hon. WILBUR D. MILLS, Chairman, House Ways and Means Committee, DEAR MR. MILLS: The city of Great Bend wishes to go on record as approving the policy of the American Municipal Association urging the Congress to enact legislation which will broaden the market for municipal bonds by permitting regulated and unregulated investment companies to distribute the interest on such bonds to their shareholders without loss of the tax exemption. Very truly yours, R. E. MORRISON, Mayor. CITY OF NEW ORLEANS, January 29, 1958. Hon. WILBUR D. MILLS, Chairman, Ways and Means Committee, House of Representatives, Washington, D. C. DEAR MR. MILLS: The Ways and Means Committee will hear testimony on January 31 in respect to H. R. 8702, the pass-through bill designed to broaden the market for State and local bonds. I cannot emphasize too strongly what the passage of this bill would mean to the State and local governments, because a short market for our bonds necessarily results in increased interest costs. Here in New Orleans, the revenue from our general obligation bonds makes up the lion's share of our capital budget each year. Our tax structure provides for a 7-mill levy dedicated for the specific purpose of liquidating the principal and interest on the city's outstanding bonds. Therefore, it is imperative, if we are to get the maximum mileage out of this tax levy, that our bond interest be held to a bare minimum. As chief administrative officer for the city of New Orleans, on behalf of Mayor Morrison as well as myself, I urgently seek a favorable report from your committee for H. R. 8702 and subsequent enactment into law by the Congress. Thanking you for your influential help in this matter, I am Yours very truly, DAVID R. MCGUIRE, Jr., Chief Administrative Officer, |