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community, the particular project, and the preparation of a bid in themselves constitute an expensive process that would not be justified unless the buyer stood to make a considerable profit by buying at a big discount. On the other hand, the larger communities that already have outstanding bonds and are known in the bond market would not be faced with the same problem, although here again a broadening of the market would be desirable in order to get the most favorable terms.
It appears that the mere existence of the Public Facilities Credit Corporation proposed in this bill would be desirable, particularly since it is specifically required that before any financial assistance can be extended under this bill the financial assistance applied for is not otherwise available on reasonable terms.
Senator CAPEHART. Back on page 2 you talk about the Oregon plan. What is that? You talk about the experience in the State of Oregon. Are you going to elaborate upon that?
Mr. HEALY. I was going to.
Senator CAPEHART. Do they have a State plan of their own? Is that it?
Mr. HEALY. They have a State plan which I have outlined here later.
Senator CAPEHART. I see.
Senator CAPEHART. You are going to cover the plan? In other words, they have a State plan that is similar to the Ŝ. 1524?
Mr. HEALY. Yes, sir.
Senator CAPEHART. And it has worked very well out there? Is that right?
Mr. HEALY. It has worked very well.
Mr. HEALY. They set up a revolving fund from which the small municipalities under 3,500 can borrow.
Senator CAPEHART. The State does that itself?
Under Senator Long's bill, a municipality would first have to exhaust every effort to sell its bonds to private investors at reasonable terms before it would be eligible to sell them to the Federal agency. Even then the agency would be required to make loans only where they are of such sound value or so secured as reasonably to assure retirement or repayment. By placing the administration of this proposed corporation under the Housing and Home Finance Administrator, a nationwide field force is already available to investigate the applications for financial assistance. Through FHA regional and State offices and other agencies under HHF., officials already familiar with the local community would be available to investigate the applications at little extra cost to the Federal Government. Such complete and widespread investigating facilities are not available to private bond buyers in every little community throughout this country.
The March issue of the United States Department of Labor and Commerce's "Construction Review” reveals estimates of water and sewerage improvements costing $25 billion over a 10-year period. That is, the next 10 years. The funds are needed to provide water and
sewerage and to meet the needs of rapidly increasing requirements of the Nation's expanding urban and suburban areas. Based on 1954 costs, this job would entail $10 billion of construction to take care of accumulated backlog, plus $15 billion in requirements adequate to offset obsolescence and depreciation and to keep pace with population growth and increased per capita use. The estimates were based on studies of conditions as of January 1, 1955, and were released in early April. United States officials say they are convinced the requirements are realistic and point out that the staggering total of sewer and water supply needs would be difficult to obtain primarily because of local financing problems. Warns the Department of Commerce, however, "If the needs are not met, the result may mean increasing water shortages or restrictions on water use and increasing stream pollution.
The Water Pollution Control Act of 1948 authorized loans by the Federal Government to municipalities for construction of sewerage treatment works, but no funds were ever actually appropriated to implement the provisions of that act of Congress. However, I point it out to indicate that the passage of this bill would not be setting a precedent as far as the idea of Federal loans to municipalities is concerned.
Of course, we can find other examples, including the one Senator Long pointed out about the RFC loans.
Particularly in the case of water and sewerage systems for small communities having a low tax base, revenue bonds offer a means of financing these badly needed improvements. Revenue bonds are growing in use for three reasons. They are used most generally to get around an arbitrary and restrictive debt limit which prevents a municipality from extending its water plant, electric plant, or sewer system. Such revenue bonds may be issued without a vote of the people in many cases and usually without inclusion in the constitutional or statutory debt limit. Then there has grown up the theory that the revenue bond, payable only from the earnings of an enterprise, places the burden of debt, not on the property owners, but on the users of a particular service, such as water, or a public facility, such as a bridge. It is this type of financing in the smaller communities that I believe would be most stimulated by the passage of this bill.
I made reference earlier to the State or Oregon. Similar legislation has existed there on a State level since 1949, except that it is applicable only to cities of 3,500 population or less. According to a report to us by the League of Oregon cities :
The fund was amplified somewhat in the 1951 session and $1,750,000 was the total amount available, and of that fund there is presently $208,553.75—you can see that the moneys have been used by the smaller cities. To date, there have been seven cities that have utilized it including Waldport, Myrtle Creek, Stanfield, Empire, Carlton, Rockoway, and Sutherlin. Without this assistance these cities could not have sold their bonds, and the act has worked very successfully.
As a matter of fact, we are trying this session of the legislature to again supplement the fund since there are some 40 cities of less than 3,500 population that need sanitary facilities urgently. Of course, not all of these 40 would be required to take advantage of this act since they could sell their bonds on the open market but a number of them do not have assessed values that would make the bonds attractive to the purchaser and those cities would probably like to use this facility.
An estimate by the State board of health indicates that presently in these 40 cities there is a total of $5,606,000 worth of work to be accomplished.
By way of summary, I think it may be said that this act has been of material advantage to the smaller communities.
I have set forth here comments relative to Senator Long's bill as received by us from State municipal associations in support of such legislation. These comments apply both to a bill introduced last year by Senator Long, S. 3315, which would provide Federal guaranty of certain municipal bonds, and the bill currently before you, S. 1524, providing for direct loans.
If it is all right, Mr. Chairman, we can just let the record show those and skip over the reading of them unless you particularly want to hear them.
Senator LEHMAN. Yes, it will go in the record. (The comments referred to follow :)
Senator Sparkman has been sent a statement in support of this legislation by the Alabama League of Municipalities with a copy to the American Municipal Association. If Senator Sparkman has no objection, it might be appropriate to insert that letter in the record (see p. 143).
You can certainly put the League of Alaskan Cities on record as favoring the enactment of the legislation. * * * The proposed legislation will probably do more for Alaskan cities than for any communities in the continental United States.
“You may enter Arizona as supporting the bill. I am not too sure that it would be helpful in reducing the interest rate on improvement bonds, but my thought is, should the bill pass, it would be available, should any of our cities desire to make use of it."
"The Arkansas Municipal League wishes to go on record as endorsing this legislation. Also we request AMA use its full facilities in aiding passage of this bill."
“There is considerable pressure at the present time on city officials to do something about the sewage disposal problem, and in view of the pressure, this bill, if enacted into law, would undoubtedly prove to be extremely helpful to our cities and towns under 10,000 population. As you know, there are a number of municipalities in this population group in Colorado. I had an opportunity during our annual convention a couple of weeks ago to discuss this measure briefly with several of our key people, and they seemed to be very favorably impressed with the bill."
“We believe that this would be very helpful, especially to the smaller cities of the State."
“I have come to the conclusion that the municipalities in Georgia which would be affected by this legislation would favor same and you may record accordingly.”
“If enacted * * * would be used by a number of the municipalities of Iowa having 10,000 or less."
“Due to the fact that the Kentucky Anti-Pollution Commission is urging immediate public works to relieve pollution of our streams, and the fact that many Kentucky cities are not able financially to attack this problem, we would look with favor on the passage of S. 1524, the public facilities loan act. When discussing pollution and its abatement, we have always felt there was State and national financial responsibility.”
“* * * endorse it with special attention to urging you to push it.” “The Louisiana Municipal Association is in favor of Federal aid to municipalities in need of sanitary sewage and request that the necessary Federal legislation be enacted to support the same.”
"In general I approve of Senator Long's proposal.”
“I think AMA could very well support it because I believe that once the aid is available, the municipalities will surely use it. Here, we are faced with building sewage treatment plants in practically every community in the State, as a result of the findings of our State Stream Sanitation Committee, and I can see this as a great aid in financing that program.”
“The executive committee suggests that the American Municipal Association support the bill, unless subsequent hearings bring out defects in it.”
“* * * the bill has considerable merit, and we believe, would warrant AMA support.”
"We do not have any expression from any of our cities concerning this subject ; however, we believe that some of the smaller cities would be interested in having such a bill become a law. Therefore, you may count us as being in favor of S. 3315."
"You can register our league as favorable to S. 3315.”
"1. Cities urgently need funds for capital improvements. Many cities find it difficult to issue sufficient bonds to make the improvements most essential to community well-being. Many of these can be financed only by general obligation bonds and with present indebtedness limits, basic city improvements become impossible. It is therefore recommended that the legislature establish a fund from which the cities may borrow for capital purposes at a low rate of interest and on a long-term basis.
"2. Congress should adopt the municipal improvements act of 1954 to provide a Federal guaranty of municipal bonds issued by municipalities of 10,000 populalation or less, and broaden the scope if possible to include all classes of cities.”
Mr. HEALY. I appreciate the opportunity to appear before this committee to present these comments on this bill in behalf of the municipalities of those States which favor such legislation. As I pointed out at the beginning, the American Municipal Association has not taken a stand on the proposal one way or the other, but
you can see that there is a substantial demand and need for such action by Congress.
Senator LEHMAN. Have you had any adverse reports from any of the States in which you have associations or from the State officials?
Mr. HEALY. Not on this particular bill. Not on this S. 1524, no, sir. The State of Alabama, the league of municipalities there, has written a letter to Senator Sparkman and sent a copy to the American Municipal Association, and I believe to all members of this committee, and they asked me to ask Senator Sparkman if he would place it in the record at this point.
Senator LEHMAN. Unless there is objection, we will place it in the record. (The letter referred to follows:)
ALABAMA LEAGUE OF MUNICIPALITIES,
Montgomery, Ala., May 11, 1955. In re Senate 1524 (By Sparkman, Hill, and others). Hon. John SPARKMAN, Banking and Currency Committee,
United States Senate, Washington, D. C. DEAR John: First, I wish to express appreciation on behalf of Alabama's municipalities for your interest in and sponsorship of S. 1524 which was introduced on March 22 by you, Senator Hill and 23 other Senators. I know that the municipalities of other States are equally as pleased that you desire to help them deal with one of the most important problems facing them at this time-arranging for credit to assist in financing vitally needed public works.
Also let me discuss the need, as we see it in Alabama, for passage of your bill by the Congress.
Senate 1524 authorizes extension of credit to assist municipalities or other political subdivisions of States to finance vitally needed public works. The bill as drawn appears to be designed especially to assist small towns and cities. Most of the municipalities in Alabama are considered small and may be greatly benefited from such a bill. Alabama is in need of such financial assistance in securing badly needed improvements to the existing and new water works and sewerage works systems for the protection of our citizens.
The State at this time has 336 water supplies classified as public. Forty-three of these are classified as dependent systems as they obtain their water from another public supply source. The drought of 1954, as you know, was the most severe on record. Twenty-four of the municipalities with public water supplies suffered from water shortage. This is the largest number of shortages on record during any single year. This shortage brought to the attention of responsible municipal officials, the need for additional sources of supply. Some of the municipalities are now making arrangements to correct their deficiency. Other municipalities, however, are not financially able to provide these needed additions and this may create a critical hazard unless some financial assistance is provided.
There are numerous supplies in the State that do not have adequate distribution systems due to the abnormal increase in population. As more people are served by a system, larger mains are required to furnish adequate water to meet the demands in the improved areas. This increase in population has placed a heavy demand on the existing water systems. The cost of the new mains in many cases prevent their installation and it is possible that a public health hazard will be created due to the low or negative pressures in these areas.
There are 50 or more towns in the State that do not have public water supplies. The drought last year dried up most of the shallow wells which are used by individuals in the communities and which are their sole sources of supply. This condition has been extensively studied by municipal officials and they are trying with limited success to finance a public supply. It is felt that the assistance furnished in this proposed Senate legislation will provide a number of these towns with financial assistance permitting them to construct the necessary waterworks facilities.
For the small municipalities where their credit has not been established or where the improvements appear to be excessive for the number of customers served, the rate of interest on financing is excessive and the initial financial load is beyond the municipality's capacity to construct the facilities. As an example of the excessive cost in making such loans, one town in the State had expenses such as: bond discount, 1 year of interest during construction, local legal fees, operating funds set aside, and miscellaneous expenses which came to 22.5 percent of the total cost of construction. It is felt that such examples could be eliminated