Virgin Islands all my life and I think I am qualified to answer that question. The United States Government is not trying to force anything upon the people of the islands, or any American ways that are not already a part of the culture of the people.

With regard to the general program of the islands, Mr. Chairman, let me say that the program of my administration is definitely committed to reducing the dependence of the islands on the United States. I have definitely committed my administration to that in my inaugural address. I have stated that we must produce more food in the islands, we must import less. We must gradually reduce the amount of money which the United States is putting into the islands, and increase the amount of taxes which we, the people of the islands, are putting into the government there.

It is a difficult situation. The islands have been very poor for quite some time. As Mr. Davis has said, however, in the past 10 years we have increased our local taxes from about $300,000 to close to $1,000,000 or a little over $1,000,000, as a matter of fact. We do pay the United States income tax-at our request. It was our own request back in 1921. I was in the Government then as a chief clerk in the naval administration. Our own request was that the Federal income tax should be applied by an act of Congress. We asked for it, because we in the Government there wanted the people of the Virgin Islands to pay the same type of taxes as the people in the United States pay.

The CHAIRMAN. You did not know they were going to go up so high, though, did you Governor?

Governor DE CASTRO. Yes; you see we anticipated it. I think that is a good point you have made, sir. One of the reasons that we asked for the Federal tax to be applied there is that we did not want that stable source of revenue to be subject to the whims of the local legislators. I want to make that perfectly clear. We wanted to be sure that we paid the same taxes you pay in the United States.

It happens that the economy was very poor and we asked that instead of asking Congress each year to reappropriate that money that we be allowed to spend it in the Virgin Islands.

Now, the difference in Puerto Rico is that Puerto Rico does not have the Federal income tax. Puerto Rico has its own insular income tax. The Federal income tax is our insular income tax. We pay it. We do not have two taxes, we can't have, we pay the Federal income tax. But we keep the money by a special act of Congress passed in 1921.

Now, in improving the economy of the islands it is very important that we improve the agricultural economy of the islands. We are building the islands for tourism, for the tourist trade.

I hope the committee will come down this year, but I do hope it will not defer action on this bill, because we need it very badly and I will tell you why: We are building the islands for the tourist trade. New hotels private, I am talking about, private capital is investing in the islands now. Private capital is putting on the islands a new 130-room hotel at a cost of about $2,000,000. Private capital is putting into the islands now another 64-room hotel that will probably cost close to $1,000,000 when it is finished.

Mr. HOEVEN. How much additional tax revenue do you anticipate from that new construction?

Governor DE CASTRO. Immediately we will have no additional revenue. Over a period of 5 years or more we will have considerable revenue not only from the properties being built there but from the tourists and other people who come into the islands and spend money

there.

We believe that eventually, based on that program—but it must be a rounded program; we must build up the economy-we will reduce our dependence upon the United States.

Mr. HOEVEN. Is that one of the reasons for saying they shall not be taxed for 5 years?

Governor DE CASTRO. One of the inducements there is a very small program of tax exemptions for new industry for eight years. Puerto Rico has a 12-year program. We have an 8-year program but it is not 100 percent. It is a 75-percent tax rebate, but based only on new industry, and it must be industry that is not already in the islands. That is the only way we could induce new industry to come to the islands and provide new capital and new investments. It is something that is going to pay off. We do not have it now but if we can induce these new industries to come in, at the end of eight years we will have a stable source of revenue. We are not going to lose anything. We are not getting it now.

On the agricultural stations, we ourselves have operated an agricultural station there in the islands, well ever since we were taken over by the United States. There the Department of Agriculture maintained an agricultural experiment station from 1917 to 1931. We took it over under Interior in 1931. We are dissatisfied with the results of our operation of that station. We have stated clearly that we can't operate it. We do not have the personnel and we do not have the know-how. We have asked the Department of Agriculture, with the cooperation of Interior to come in and take the station over and point the way to improvement in our agricultural economy.

The Federal Government now spends $50,000 a year on that agricultural station. We are not asking for experiment stations. Frankly we cut that out over 5 years ago. Our station is doing demonstration work. We have three extension agencies. None are on St. John. St. John is served from the island of St. Thomas.

Mr. POAGE. You have those agencies. Why can you not meet the same requirements required of counties and States in the United States? Why would not a mere extension of the extension service and experiment station work in the United States carry over to the Virgin Islands? I am perfectly willing for you to have what we have in the United States-why would not an extension of that to your territory serve your needs? You are spending money and you could match apparently the expenditures of the Federal Government and why would that not be a sound way to do it?

Governor DE CASTRO. Let me answer that by saying that money we spend on the agricultural development in the islands now, is Federal money, it is not local money. This $50,000 is a direct appropriation by Congress and all we are asking is that that $50,000 or whatever may be needed-it may be a little more, it may be a little less-to operate this program of agricultural extension and minor experiments-because I agree that most of them can be done in Puerto Rico, but all that is done should be done by the Department

of Agriculture which has the personnel and better supervision than we can give it.

Now to answer your question directly, why the Extension Service could not operate in there now as it operates there: My understanding is that in the United States it operates through land-grant colleges. We do not have those colleges. Eventually we might have but our economy has not been able to support that type of program.

The Agricultural Extension Service of the Department of Agriculture, if it extends just under its own organic act would not be able to function in the Virgin Islands. That is why a new act is needed, to permit the Department of Agriculture merely to do the things that we are doing now under the Interior Department, but to do them better, because we have failed. We feel we can't do it.

Mr. POAGE. You say you can't do it, but why can't you contribute the same percentage in cost in the Virgin Islands as is contributed everywhere else except Puerto Rico?

Governor DE CASTRO. What percentage did you say?

Mr. POAGE. It is normally 50 percent.

The CHAIRMAN. Would you yield a minute? What difference would it make after all, in view of the fact that you are getting Federal money year after year anyway? If you were required to match this fund it would just deplete your resources to that extent, which would have to be replenished by further grants from the Federal Treasury, woud it not?

Governor DE CASTRO. Yes, sir. If we contributed 50 percent now it would mean either that our deficit would be increased by that amount to be paid by the Federal Government, or we would take that money which is now being spent for health or eduction or social welfare and put it to agriculture.

Mr. POAGE. Isn't that just what North Carolina, and every State in the Union does? Do they not take that money that otherwise would be spent for something else, and spend it to match these Federal funds?

The CHAIRMAN. Yes; but that remainder is not being furnished out of Federal funds.

Governor DE CASTRO. We do still have a deficit economy there and the Federal Government has recognized in the past its desire and responsibility to do something to improve the islands. This is one of the ways of improving the economy. This should eventually lead to a reduction of the amount which the Federal Government puts in.

Furthermore I would be quite willing to do exactly what you say in a few years from now, if we can get the economy built up there well enough to bring more revenue into the islands.

Mr. POAGE. You may not be Governor a few years from now. I don't know.

Governor DE CASTRO. Probably not, sir.

Mr. POAGE. I think you are doing a good job from all I hear but a few years from now there may be somebody else there who would not be willing to make these contributions. However, if we have provided by law that your locality shall make the same local contribution that the localities in Iowa and in Louisiana make, then when you cease to be on a deficit basis, you will be made to do it whether you or your successor or anybody else takes any affirmative action.

On the other hand if we just make this a grant without any local contribution then somebody is going to have to take a political whipping in order to put that burden on the local people, and having had a little first-hand acquaintanceship with politicians for a great many years, I know that nobody likes to do it and I do not see any reason for inviting it.

Governor DE CASTRO. Congressman, I think we should remember this: The amount of money to be spent in the Virgin Islands each year, the appropriation that will be given to the Department of Agriculture for this must be reviewed on the Committee for Appropriations each year.

Mr. POAGE. I understand all that but I also know that once this committee has authorized unlimited appropriations that they are a lot more likely to be made than if we do not authorize them.

I know that if we require a contribution, even though the Federal Government pays the contribition out of another pocket for the time being, I recognize that if and when you get off of that deficit economywhich I join you in the hope that you will-then you will be paying it automatically, as soon as you are able. But if we pass this thing without putting you on that, you will never automatically do it. You say if you are Governor you will advocate it. However, you may not be Governor and there may be somebody else who will not advocate it.

Governor DE CASTRO. I think we should go a little further, sir. If you will put into this bill a provision that the Government shall match these appropriations, the local government and we have to attempt to get it from Federal funds the Comptroller General of the United States will never consider that as matching funds. We are not allowed to match Federal funds with Federal funds. The net effect will be that we will have no program. We are going to lose something. We will lose what we are now trying to do.

I ask you to give us a few more years of the type of program we now have, but improve it under expert management which we now do not have.

If you put a provision that the local government must match it we will have to get that money from Congress on the deficit and then we can't match it, so we will have no program at all.

Mr. POAGE. Governor, all I would propose here is to require of you the same thing we require in every State, that the locality match the funds.

Now, then as far as the Department of Agriculture is concerned, if your Government writes them a check for $25,000 they cannot go in and find out where you got the $25,000, and neither can anybody else. As far as that is concerned, it is nothing but a bookkeeping transaction. I recognize that and you recognize that. You are collecting, you say, over $1,000,000 locally. Well, you use out of that million dollars $25,000 to match this. It is true that that creates an extra $25,000 deficit that the Federal Government has to dig up and add to that $400,000 or $800,000 that the Federal Government is putting in there. They have to add to that. That is perfectly true. But nevertheless you have used your own dollars to do the matching with, and you make the Federal Government bring it in for something else. I know that the Federal Government in the final analysis puts in just as much money.

Governor DE CASTRO. I am afraid, Congressman, if that were done we would have no program because I do not think we would be able to get the Appropriations Committee to increase the deficit of the local government. They are committed to reducing the deficit. If we asked the Appropriations Committee now to give us a larger appropriation for our deficit, which is something that is frowned upon anyway, at all times, we are not going to get it.

The CHAIRMAN. If you went before the committee and asked for an additional $25,000 to match this program, the Comptroller General would hold you have no right to use Federal funds to match Federal funds and therefore your program would fall.

Governor, DE CASTRO. He has already held it in the case of the Public Health Service. We get grants from them and from the Social Security Administration for certain things like health control and TB control and you get the regular grants-in-aid you get in the United States. But the Comptroller General says we cannot use any part of the deficit as matching funds.

Mr. POAGE. You are talking about the way the law is written. I am talking about writing a law that will let you go ahead and match this. I am not talking about using Federal funds. You have $1,100,000 down there which is money taken from the citizens of the Virgin Islands. Out of that you pay $25,000 on this. It is true you have $25,000 less to pay on your schools or on health or on something else. I recognize that reduces the amount there. I recognize the $25,000 will have to be put up by the Federal Government for other services. However, it is not a matter of any legality, it is not a matter where the Comptroller General is required to hold that Congress did not mean what it said when Congress says that this is the way we are going to do it. The Comptroller General just tries to see that you do what Congress says for you to do. If we tell you to do it this way the Comptroller General will not knock it down on that ground.

Governor DE CASTRO. We will take our local revenues to match this program. Then we go to Congress and say, "Give us $25,000 more for education or health."

Mr. POAGE. That is right.

Governor DE CASTRO. We won't get it because the Appropriations Committee has defnitely committed itself to reducing the annual deficit rather than increasing the deficit. We do not want to go to Congress to ask for more money.

Mr. POAGE. If they will not give you any more money then they will not give you this $50,000 you are talking about because the Appropriations Committee has to appropriate this money.

Governor DE CASTRO. Yes, but this precedent has been established. We have been getting the $50,000 for a direct program for the agriculture station. We are not asking for anything new. We are asking that this program be transferred to the Department of Agriculture and let the Department of Agriculture maintain it through a coordination and integration of all its own services there.

Mr. ABERNETHY. Will you yield to me?

Mr. POAGE. Yes.

Mr. ABERNETHY. Does that mean that the appropriations will be reduced that much?