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Mr. EMERSON. In 1952. Senator, I think it may explain it a little more clearly if I say I also own Emerson & Co., which is a small investment banking organization. The college section of our business, which has been the smallest part of our business until the last few years, is handled now under College and University Finance Associates, a separate partnership.

Senator MONRONEY. How many people in it?
Mr. EMERSON. Two men. Two partners.

Senator MONRONEY. You and another gentleman?
Mr. EMERSON. S. E. Macklin, also of San Antonio.
Senator MONRONEY. Also of San Antonio?

Mr. EMERSON. Yes, sir.

Senator MONRONEY. I see. You may proceed.

Mr. EMERSON. I am here to testify with respect to S. 1744, under the terms of which the existing college housing program would be extended and liberalized.

Under title IV of the Housing Act of 1950 the Federal Housing Administrator is authorized by the Congress to sell notes to the Secretary of the Treasury and to loan the funds thus obtained to colleges and universities. Such loans are to be for housing purposes, and the amount of notes is limited to $300 million to be outstanding at any one time. A Housing and Home Finance Agency release in January 1955, stated that as of the end of 1954, 158 loans aggregating $124,445,000 had been made and 49 additional applications had been given preliminary approval and reservation of funds in the amount of $31 million while more than $70 million in loans or reservations of funds had been rescinded or withdrawn in favor of some form of private financing.

S. 1744 proposes important amendments to this program, including: (1) The purposes for which loans may be made are expanded to include other facilities than housing, such as food service facilities, student centers and unions, infirmaries, and other essential service facilities;

(2) The interest rate to be charged by the Treasury on notes of the Federal Housing Administrator is limited to not more than the higher of 22 percent per annum or the average annual interest rate on all (not long-term) interest-bearing obligations of the United States, adjusted annually to the nearest one-eighth of 1 percent;

(3) The interest rate to be charged by the Federal Housing Administrator on loans to colleges and universities is to be fixed by him, but is not to exceed the higher of 234 percent per annum or one-fourth of 1 percent above the rate paid on funds obtained from the Treasury;

(4) The maximum repayment term is raised to 50 years and the maximum total authorization to $500 million with a maximum authorization within this amount of $100 million for facilities other than housing; and

(5) The Federal Housing Administrator is authorized to make such loans unless loans under equally favorable terms and conditions may be obtained from other sources.

The Report on Lending Agencies made to the Congress in March 1955, by the Commission on Organization of the Executive Branch of the Government (the Hoover Commission) included a statement that the President has released but $200 million of the $300 million total authorization. The report further stated that at December 31, 1954,

loan applications totaling $124,445,000 had been approved while funds had been reserved on 49 additional applications for $31,306,000. Deducting the total of $155,751,000 for these 207 projects, it was concluded that there remained an uncommitted balance of $44,249,000 of the $200 million released. No reference appears as to the $100 million not as yet released, but I understand that appropriation or other action by Congress is not requisite to release. The report recommended that the program of loans for college housing be terminated.

On March 18, 1955, an article carried in College and University Bulletin during that month was printed in the appendix of the Congressional Record. Three comments made in this article appear factually incorrect.

First, it stated that 5 of the 12 members of the Hoover Commission dissented from the majority report on certain recommendations, leaving an implication of dissent to recommendation No. 15, which was that the program of loans for college housing be terminated. No member specifically dissented from this recommendation, although Mr. Fleming disqualified himself from voting on it and Mr. Holifield objected to the lending agencies report in general.

Second, the article noted that the Hoover Commission had pointed out that interest rates under the college housing program were only one-fourth of 1 percent above those of long-term Government bonds, and alleged that actually the rates are substantially higher. The Hoover Commission statement appears correct, the current college housing program rate being 314 percent, while interest rates borne by long-term United States bonds are as high as 3 and 34 percent. Possibly reference is intended to an average rate or a current yield to maturity figure.

Finally, the article states that inquiries indicate that on December 31, 1954, applications for $47,600,000 of loans were on file with the HHFA rather than the $16,300,000 figure of the Hoover Commission. It appears that the publication has classed the $31 million having preliminary approval and reservations of funds as applications. In any event, the Hoover Commission total figures would not be changed, and are in accordance with HHFA releases.

S. 1744 expands and liberalizes title IV of the Housing Act of 1950 not only by specifying additional purposes for which loans can be made, extending the maximum repayment period from 40 to 50 years, and adding $200 million to the total authorization, but by fixing the maximum interest rate by formula. It should be noted that at present loans are made by the Administrator at 314 percent unless private sources will make them at 31⁄2 percent, which he has fixed as a comparable rate.

A statement by Senator Fulbright in the Congressional Record of April 20, 1955, pages 4033-4035. points out that a recent survey resulted in 630 institutions of higher learning reporting plant expansion, improvement, equipment and maintenance needs of more than $212 billion over the next 10 years. S. 1744 does not appear to amend present restrictions against loans for equipment purposes. The Senator also states that "if colleges need long-term loans at 234 percent interest, and I believe they do, then I think private lenders should meet this need or stand aside for the Federal loan." The concluding paragraph of the statement sets out as facts that the expansion of the facilities of colleges and universities is central to continued free

dom and prosperity, that the programs of these institutions must be available to ever-increasing numbers of students at prices they can afford to pay, that the public interest demands that this expansion occur, and that the Federal Government can assist by outright gifts, by subsidizing students, or by lending at low interest rates.

The recommendation of the Hoover Commission on the one hand that the program be terminated, and the provisions of S. 1744 on the other that it be expanded and liberalized, indicate a wide divergence of views on the question. S. 1744 points up two fundamental questions which have remained unanswered since the college housing program was adopted. These are:

(1) To what extent will the initiation of a program of Federal loans result in demands upon the Treasury to finance college and university plant expansion and improvement?

(2) Is a program of direct Federal loans the best form of aid which may be granted by the Congress?

Up to the present time, policy appears to have been dictated by expediency, but the expansion and liberalization contemplated by S. 1744 indicates a necessity for careful appraisal of trend.

Consideration of the first proposition reveals some perplexing questions. The United States Office of Education Directory lists more than 1,800 institutions of higher learning. Under the present college housing program 207 projects have been given final or preliminary approval as of last December 31, 1954, and a number of institutions have had two or more projects so approved. It therefore appears that only about 10 percent of the total number of institutions have participated in the program, regardless of the reasons. Since not much more than half the total authorization has been used, it does not appear that colleges and universities are unanimous in either their necessity or desire for Federal loans. The difference between loans for 50 years at 234 percent (proposed under S. 1744) and loans for 40 years at 314 percent (available under the present program) would not appear great enough to bring in the 90 percent of presently nonparticipating institutions.

No information is at hand as to the number of institutions who have been denied loans for credit reasons, although it is common knowledge that the standards set up by HHFA are substantially those of private lenders. The Hoover Commission report states that applicants for no more than $24 million have been unable to obtain credit from any source, and it is believed that unwillingness to accept credit on the terms obtainable has been a more potent factor than actual inability to obtain financing on any terms. The question of the actuality of need then arises, since experience has shown that willingness to undertake financing depends directly on the true need.

One of the characteristics of colleges and universities generally is a lack of pattern, a feature which the public generally and educators particularly wish to preserve. As a result, it appears doubtful that the changes recommended in S. 1744 represent the unanimous views of our colleges and universities. Indeed, it can be safely stated that there is no such thing as an unanimous view, since there is not a common viewpoint. Both the large State university and the little liberal arts college may have plant-expansion problems, but there is little. resemblance in these problems and great differences of opinion as to

proper methods of solving them. There are undoubtedly many who do not believe in borrowing from the Federal Government.

A further factor must be considered in any attempt to evaluate the demands which may eventually be made on the Federal Treasury. Senator Fulbright has stated that he believes our colleges and universities need 24 percent loans and that private lenders should meet this need or stand aside for the Federal loan. Since investors generally and institutional trust-fund buyers particularly must be governed by other considerations as well as the needs of borrowers for funds at any given rate of interest, and since S. 1744 proposes a rate of 234 percent, it may be assumed that if S. 1744 becomes law private lenders with rare exception will be forced to stand aside while loans which might have been made by private capital at reasonable rates are made by the Federal Government at an arbitrarily fixed rate.

Under the present program, all eligible private college and university financing is being taken by HHFA, while that of most Stateowned-and-operated institutions is being taken by private investors due to the income-tax exemptions feature. Also, private investors are taking bonds issued and loans made for purposes other than housing, whether self-liquidating or otherwise. However, if S. 1744 becomes law, it follows that the Federal Treasury will be called upon to furnish substantially all funds required to finance future borrowings by colleges and universities. The exact size of the burden is not apparent, but surely the increase of $200 million authorized by S. 1744 will be but the first of such requests for increases.

Inasmuch as estimates of necessary plant expansion run into billions of dollars over the next few years, ruling out private lenders appears to imply the assumption of a very considerable money responsibility by the Treasury at the direction of the Congress. S. 1744 represents the first intimation of such a policy, and it seems doubtful that educators themselves wholly favor it.

Parenthetically, if S. 1744 becomes law, those engaged in efforts to widen the public markets for college and university financing to obtain more favorable terms for the borrowers will perforce turn their attention elsewhere. As an obvious result, progress achieved to date will be lost in the competition for private funds, and the demands upon Government will be intensified. It looks very much as though the Treasury would take over in a field where private investment might well supply much of the required financing.

If it be assumed that it is undesirable for college and university plant-expansion borrowings to be wholly financed by the Treasury, it must follow that a program of direct Federal loans at 234 percent interest for 50 years is not the proper channel for Federal aid which may be granted by the Congress. Indeed, if it be assumed that aid is desired to be granted, it appears highly questionable that any program of direct loans is the best form of aid regardless of maturity or interest rate. Senator Fulbright has stated that the Federal Government may assist by outright gift, by subsidizing students, or by lending at low interest rates. Lending at low interest rates is actually a loan of the credit of the United States, which must itself borrow in order to have funds to lend. When the question of a loan of the credit of the United States arises, it puts the Government in the position of a finance company if such question is answered in the affirmative.

Since proponents of such action lay stress on the essential soundness of the operation, pointing out the difference between giving and lending, it seems reasonable to expect the Congress to inquire as to the full facts and the steps taken by the prospective borrowers to help themselves before asserting flatly that private funds may not be made available under feasible terms and conditions.

The best available information discloses no action on the part of educational institutions of higher learning beyond inquiry by individual prospective borrowers as to terms offered by prospective lenders, and a reluctance to make even such simple inquiry has been observed. No proposals for any form of concerted action have been apparent. No studies or recommendations of long-term financing methods and alternatives appear among the many studies of building problems made by colleges with or without educational foundation aid. Much consideration has been given to various methods of obtaining gifts, particularly from corporate givers, but the problem of obtaining long-term financing appears to have been immediately resolved by requests for Federal assistance, a procedure not favorably regarded by those very corporations from whom gifts are earnestly solicited. Even the rather simple alternative of concerted action through a mutual surety association or corporation has not been proposed.

The conclusion remains that no intensive effort to obtain private funds at favorable terms has yet been made by the colleges and universities themselves, either through contacts with those in the field of finance or otherwise.

In addition, suggestions that a program of federally insured loans would better serve the public interest have aroused no perceptible enthusiasm, which is understandable as long as direct loans are available. If the colleges and universities can prevail upon Government to assume the entire burden through long-term and low-rate loans, this is the simplest solution from their point of view.

From the point of view of the Congress, however, an insurance program has ample precedent and will result in the use of substantially fewer tax dollars. Other advantages include less administrative cost, less Federal debt, removal of Government from business, avoidance of discrimination between institutions having the power to issue taxexempt bonds and those not having such power, and avoidance of the holding by the Federal Housing Administrator of a large volume of securities not marketable except at large discounts. In considering other forms of Federal aid which might be extended by Congress, an insurance program appears to be a clearly superior form to the present direct loans program.

In point of fact, the essential difference between State-owned-andoperated colleges and universities having the power to issue bonds exempt from Federal income taxes, and privately owned-and-operated institutions whose obligations are a form of corporate loan bearing taxable interest is nowhere more marked than in the ability of finance plant expansion and improvement. It is entirely within the power of the legislatures of the various States to furnish funds by appropriation for such purposes. Beyond that point, it is the decision of the taxpayers of the particular State as to whether or not State bonds shall be issued for the purpose.

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