We are not interested in the perennial tramp or the hobo, but we are interested in these people who take to the road on account of circumstances over which they have no control. You know as well as we do that those citizens lose their residence status in the States from which they have come, and do not gain residence in another State for years. Millions of our people are thus made Stateless, homeless, and voteless.

It is interesting to note, Governor, that there are 28 States in the Union which make it a crime to transport a poor or indigent person across State lines.

We have reported to Congress on the problems arising from that situation. The committee was continued this session to investigate and report on the migration of workers as a result of the nationaldefense program. And that is why we are in Detroit. In this latter phase of our inquiry, we have held similar hearings in San Diego, Hartford, Trenton and Baltimore, and in Washington. We are trying to pin down the factors of danger and risk to both your own community and the national welfare, as they are uncovered in our investigation of national-defense migration. One thought I wish to convey at the outset is that we have come here to Detroit not to "show up" Michigan, or Detroit, but simply, in a cooperative way, to get the facts. We have never issued a subpena. We have never attempted to cross-examine anyone. In other words, Governor, we are in Detroit for these purposes: First, to find out the character and extent of this shift from nondefense to defense areas as it affects the State of Michigan; and second, to see if we cannot in some way bring out a plan to cushion the shock when the national-defense program is completed.

To my right is Congressman Arnold of Illinois, and to my left is Congressman Osmers of New Jersey. Congressman Curtis will be here shortly.

Governor VAN WAGONER. Mr. Chairman and members of the committee, I would like to put in the record, if I may, the fact that I think your committee is moving on very sound ground in going about from State to State and getting the facts in regard to this problem, rather than requiring the people of the States to go to Washington to give their testimony, as is so often done. I am sure that the witnesses feel more at liberty to say what they want to And then there is also, of course, the cost. It involves a considerable expenditure of money and time in requiring people from the various States to travel great distances in order to cover this problem.

say.

This is my first experience in testifying before a congressional committee in the State of Michigan, and I want to compliment you and the members of your committee for taking this broad-minded stand and going about the country to seek this information.

(The statement submitted by Governor Van Wagoner is as follows:) STATEMENT BY HON. MURRAY D. VAN WAGONER, GOVERNOR OF THE STATE OF MICHIGAN

As the first witness at the Michigan hearing, I understand my best service to this important inquiry will be in presenting an over-all account of how the defense program in all its ramifications is affecting the normal economy of Michigan.

During the past year there has been an almost uninterrupted rise in employment and production in Michigan's factories. Thousands of workers have been

absorbed in defense work, as Michigan plants took part in the expanding production of tanks, planes, and other defense materials. At the same time a rising national income has raised our production of automobiles and consumers goods to boom-time levels.

With thousands of new jobs created by these two forces, Michigan's factories have served as magnets for the migration of thousands of workers from rural Michigan and other States. Many of these migrants have been unsuccessful in the search for work, since our employers have given preference to local workers in filling new jobs. In some cases, where the local labor supply was insufficient, migrants did find work and settled near the new defense plants, creating serious problems of overcrowding, and pressure on inadequate facilities for sanitation, schools, roads and other public services.

A new type of migration will be our principal problem in the immediate future. Production quotas for the automobile industry, which will reduce the output of automobiles by 48 percent in December and perhaps as much as 75 percent by next spring, will eliminate at least 150,000 or 200,000 jobs in nondefense production. Shortages of critical materials must be expected to cause serious lay-offs also in nonautomotive industries.

Increases in defense employment during the next few months will fall far short of offsetting the displacement of workers from civilian production. Without additional contracts, close to 100,000 may be unemployed in January. This dislocation will create a very real danger of outward migration, as industrial workers move back to their former homes or travel to other areas in search of work. One of our main problems will be to prevent this out-migration from having undesirable results and in leaving a shortage of workers when our defense production reaches its peak in 1942.

The shift from civilian to defense production will also cause major problems in this State by cutting into expected revenues from the sales tax and other sources; by greatly expanding the cost of relief and Work Projects Administration employment; and by endangering the small nondefense industries which furnish the lifeblood of the smaller towns and cities throughout the State. I think that these problems can be solved, but the solution will require the whole-hearted cooperation of Government, industry, and labor.

MIGRATION AND GROWTH OF POPULATION

From

Migration has played a vital part in Michigan's growth from a population of 2,420,982 in 1900, to 5,256,106 at the time of the 1940 Federal census. 1900 to 1930, the rise of large-scale industry and the decline of agriculture, lumbering, and mining caused not only a vast influx of labor from outside the State, but also caused migration of rural Michigan residents to the industrial areas of southern Michigan. In that period, Michigan changed from a rural people to one 66 percent urban.

The depression years from 1930 to 1935 reversed this trend to the cities and reduced the urban population to 65.7 percent of the total. Since 1935 the resumption of industrial expansion again has reversed the trend, so that today nearly 75 percent of Michigan's population is concentrated in cities of 2,500 or more. Nearly half of Michigan's present population today is in the five contiguous counties of the Detroit metropolitan area in the southeastern corner of the State. This industrial empire has two thirds of the State's 6,000 factories, two-thirds of the State's 200,000 workers engaged in manufacture, and two-thirds of the State's 225,000 industrial defense workers.

Of

The importance of automotive manufacture, Michigan's leading industry, is best shown by industrial distribution of Michigan's pay-roll totals for 1940. the $1,908,000,000 total of all State pay rolls covered by the Unemployment Compensation Act for 1940, $1,200,000,000, or 63 percent, was in wages in the automotive industry and those steel and machinery plants which depend almost exclusively on the auto industry for markets.

INDUSTRIAL EMPLOYMENT IN MICHIGAN

Three-quarters of all industrial employment in Michigan is either in the automobile industry or in groups directly dependent on automobile manufacturing. If industrial transition unemployment is large, or of long duration, at least 40 nonmanufacturing jobs are wiped out for each 100 factory jobs which are elim

inated.

Outside of the five-county southeastern industrial area, other major defense and manufacturing centers are in Flint, Saginaw, Jackson, Kalamazoo, Bay City,

Lansing, Grand Rapids, and Muskegon-all in the southern half of the Lower Peninsula.

This lower section of Michigan, containing the bulk of population and manufacture, also has the larger share of the State's 225,000 farm families.

North of the Bay City-Muskegon line, and including all of the Upper Peninsula, about half of the total acreage has reverted to the State through property-tax delinquency. This is the cut-over timberland. In the last decade, it has shown a general revival of growth because of new agricultural activities and increasing tourist and resort trade.

Northern Michigan's chief industry-which now has become second only to automobile manufacture as a source of income to the State's residents-is this tourist and resort trade. The recent season was the best in history, with twice as many tourists motoring to Michigan each year as come to Arkansas, the second largest mecca of motoring vacationists. Fully 80 percent of our population in the northern part of the State depends on tourist business to sustain itself.

For many years certain Upper Peninsula counties have had a widespread unemployment problem because copper mining had reached unworkable levels for the price of the production. Because of the importance of copper to the defense program, Michigan recently has received promises of a price differential which will permit reopening of the mines, and employment of the workers. There is need for quick action here, because wholesale and undesirable emigration from the copper area will result otherwise, to the detriment of the defense program needs.

STATE TAX REVENUES AND DISTRIBUTION

Two financial trends in Government highlighted the last decade.

First was the demand for more social assistance, which increased expenditures by Federal, State, and local Governments in Michigan $200,000,000 a year, so that by 1940 the combined governmental expenditures for all purposes topped $550,000,000.

Second was the ineffective public demand for economies, which resulted only in the shifting of financial burdens from local government to State and Federal agencies.

By 1934, the break-down of the general property tax resulted in Michigan becoming one of 13 States which now leave this source of taxation entirely to local governments. Whereas school property taxes previously had been as high as 22 mills, today the average is about 7 mills. Whereas total property tax formerly reached up to 40 mills, today, by State constitutional amendment, 15 mills is the limit to which the real property tax can rise.

Ten years ago, State contributions to local government were $33,000,000 a year. For the last fiscal year, ending June 30, 1941, State aid to local units of government totaled over $121,000,000 and represented 60 percent of all State operating costs. Federal grants represented nearly $13,000,000 of this State-aid total and does not include other Federal expenditures for such enterprises as Work Projects Administration, Public Works Administration, and Civilian Conservation Corps. The State deficit amounted to nearly $30,000,000 on last January 1, and today has been reduced to about $12,000,000, chiefly because of a spurt in sales-tax collections.

Michigan's State tax sources are the most sensitive to economic conditions of any State, because we are unique in depending on the sales tax for 69 percent of general fund revenues.

Automobile license fees and gasoline taxes are reserved by constitutional amendment exclusively for road building and maintenance, and cannot be used for general governmental purposes.

Four functions account for 87 percent of State expenditures-education, social aid, highways, and institutions such as hospitals and jails.

State governmental administration costs have increased only 1 percent in the last decade. The remainder of the 100-percent increase in State expenditures in the last decade was taken up 75 percent by aid to local governments and 24 percent by State purchasing and new revolving funds, the principal one being for the Liquor Control Commission.

EFFECTS OF DEFENSE PROGRAM ON STATE FINANCES

Since Michigan depends so heavily on the 3-percent sales tax, and since this tax cannot be collected on defense items or even on federally sponsored defense plant construction materials, Michigan's financial stability depends on whether our citizens are permitted to continue spending a reasonable percentage of their wages on nondefense items.

Food sales today bring in 29 percent of the sales-tax revenue; automobiles and accessories, 21 percent; building materials, 6 percent; wearing apparel, 6 percent; furniture and household appliances, nearly 4 percent; general merchandise, 14 percent, and miscellaneous items, 20 percent.

Durable goods thus constitute roughly 40 percent of the total sales-tax source. Any drastic curtailment of such production will directly and most adversely affect the main source of State revenue, unless a reasonable buying shift results to nondurable goods.

The sales-tax picture has been bright this year. For the 1942-43 period, the outlook is definitely dangerous for Michigan finances. Our budget requires an annual sales-tax revenue of nearly $70,000,000.

Because of Michigan's dependence on tourist income as its second largest industry, and because highway travel is the main method of generating this tourist business, severe rationing of gasoline or complete shut-down of the production of new cars, would have critical reactions on the State welfare picture.

Welfare appropriations, paid jointly by the State and counties, will be adequate for the expected hardships of the 50-percent automobile production cut in December, which we estimate will add 25,000 families temporarily to the relief rolls. But if defense employment does not absorb the slack in a reasonably short time, supplemental welfare appropriations will be necessary. Relief rolls are at a 10-year low today, although that is partly due to the shift to categorical relief and Work Projects Administration.

Our own

There is no gasoline shortage apparent for Michigan or the Midwest. oil fields are expanding production. We look for a good tourist year in 1942, but if adverse conditions develop, our welfare and unemployment load will rise tremendously.

Higher wages and rising costs of living due to defense influences are creating strain on State pay rolls and social programs. Recently our State civil-service commission found it necessary to adjust upward to a $100 minimum increase, all lower-bracket State salaries.

We are surveying all State departments in an effort to reduce personnel to offset these salary increases, and I am confident that some success will be had in this effort. However, understaffed and underbudgeted State institutions will require supplemental appropriations in the near future, and total State operating costs are bound to rise if we are to meet our responsibilities fully.

In the State-Federal fields of categorical assistance, rising costs of living are creating a real injustice to 30,000 children outside of the Detroit area, on the aid-to-dependent-children rolls. Federal grants do not match the State grants, and should be adjusted immediately to follow the old-age assistance pattern of equal contributions by State and Federal agencies.

The plight of a mother trying to provide for her child on an inadequate allowance, at a time when the child needs the moral and physical strength of good food and decent clothing and housing, is to me the most pitiful plight that can exist in our social-security program. In Michigan, the deficiency is entirely a Federal one. Adjustments should be made at once.

The old-age-assistance program now presents a State financial problem. Michigan this year has wiped out almost its entire old-age waiting list of 25,000 persons. Our efforts to stabilize the program at around 100,000 persons now are endangered by rising costs of housing and food. If present trends continue, we will have to allocate an additional $1,000,000 a year to this program or revert to the waitinglist plan. Food costs have risen 14 percent and our program now does not provide a minimum adequate food budget for old-age pensioners.

EFFECTS OF defense PROGRAM ON ECONOMIC AND SOCIAL STRUCTURE OF MICHIGAN By the end of November, it is estimated that at least 33,000 automobile workers will be unemployed in Detroit because of the automobile-production quotas. By January 1, it is estimated that this total will reach 45,000. These estimates are based on present indications. The picture was darker 2 months ago, but has been improved by additional defense contracts and by speedup of the rate of induction of workers into defense plants. We hope the hardships now looming can be further alleviated. The problem is being tackled intelligently today by Federal and State agencies and by employers and labor unions. A 32-hour week would prevent any unemployment until December, and would cut the unemployment total to 16,000.

The city of Flint faces a greater relative defense unemployment than any other in America, unless given additional defense contracts quickly. By November Flint faces an employment decline of 8,100 on a 40-hour week, or no decline on a

60396-41-pt. 18-2

32-hour week. By January the totals will be 16,800 or 11,700.

Entirely an automotive town, Flint has 45,000 industrial workers and only 2,000 on defense assignments.

Other Michigan industrial centers can transfer to defense jobs with less difficulty, but still need added contracts to absorb enough employees.

CONTRACTS AND SUBCONTRACTS

The most threatening social and economic problem in Michigan today is the fate of the 2,000 small- and medium-sized factories scattered throughout every city in the State.

Subcontracting was widely practiced by the automobile industry during all the years of its civilian growth. Michigan's manufacturing empire cannot be looked upon as confined to one area of the State. The variety and intensity of industrial activity made possible the existence and self-sufficiency of hundreds of communities, scattered throughout the Lower and Upper Peninsula. If they were not directly allied with larger manufacturing plants through subcontracts, at least they existed through the trade, the accessories, the markets created by automobile manufacture.

Today production quotas and defense priorities over essential materials threaten, within 3 months, to wipe out many small businessmen and industrialists of Michigan and of the Nation.

Michigan ranks fifth among the States in total prime defense contracts, and first in the Nation in total ordnance contracts and subcontracts. Prime contracts total $1,500,000,000, and subcontracts bring the total to well over $4,000,000,000. Much of this work extends over a 2-year period. The total is exceeded only by coastal shipbuilding States.

And yet Michigan could produce 50 percent more for defense if the energies of our small industries were tapped. And unless the priorities starvation now facing our small industries in rural Michigan is relieved, Michigan faces a welfare and economic problem of serious consequences.

DEPRESSIONS START IN SMALL TOWNS

The problem is national and results from overlooking a fundamental economic truth-no American community can exist without a trading area equal in population to the community itself. The big city needs small towns. The small town needs a local rural trade.

Depressions start in small towns, because small towns exist on the trickle of cash from one main industry. When that trickle of cash stops, the town has nothing to fall back on.

The town's life-giving income stops when, for some reason, the main business loses its customary business orders from the larger cities. In the present instance, defense priorities, ignoring small towns, stops the flow of orders from the city.

As a result, the residents of the small community cannot continue to buy products from the larger manufacturing areas. Its markets declining, the larger producing area must curtail other manufacturing, which again strikes a blow at the small town.

Although small towns have not the industrial resourcefulness of larger communities and thus create depressions when business stops, the small-town resident personally is more resourceful than the city worker. Lower costs of living and ability to turn to "depression farming" keeps the small-town resident going without the tremendous and immediate need for welfare assistance that characterizes our city populations.

I am not an alarmist. I know the problem is complicated. I know that national defense deserves the right-of-way. I know that the larger plants are better equipped to speed defense production, and that subcontracting of defense work is not possible or practical in every instance. I know that the problem is receiving sympathetic and intelligent attention today from both governmental and private sources. I think the threat to our entire national economy will be licked.

But I know also that unless civilian labor priorities and civilian materials priorities are not granted quickly to those areas which cannot participate in national-defense business, Michigan and the Nation will see severe economic dislocation within 3 months.

If we are to pay the new Federal taxes, and avoid widespread hardships amidst boom, our defense economy must be adjusted quickly to save those who either cannot, or as yet have not, participated in defense work.