"(4) At the request of a municipality or other political subdivision made at the time of its application for financial assistance under this title, the Administrator shall establish with respect to the securities, obligations, or loan involved an amortization schedule which, during an initial period not exceeding the first two years after the assistance is furnished, either (A) requires only the interest payments to be made or (B) provides that no payments of either principal or interest need be made, as the municipality or political subdivision may elect: Provided, however, That if the municipality or political subdivision elects to postpone the payment of interest during an initial period of up to two years under clause (B), the interest so postponed shall be paid over the balance of the life of the loan, in addition to the interest regularly accruing during such subsequent period. "(5) No financial assistance shall be extended under this section for the construction, repair, or improvement of any public or nonprofit hospital involving an increase in the number of beds, or for the construction of any public health center, unless the Surgeon General of the Public Health Service finds, and certifies to the Administrator, that the project is in conformity with the applicable State plan approved under section 623 of the Public Health Service Act (42 U.S.C. 291f). "(6) No financial assistance shall be extended under this section with respect to any public facility which would compete with an existing privately owned public utility rendering a service to the public at rates or charges subject to regulation by a State regulatory body, unless the State regulatory body determines that in the area to be served by the public facility for which the financial assistance is to be extended there is a need for an increase in such service (taking into consideration reasonably foreseeable future needs) which the existing public utility is not able to meet through its existing facilities or through an expansion which it is prepared to undertake. "SEC. 203. (a) In order to finance activities under this title, the Administrator is authorized and empowered to issue to the Secretary of the Treasury, from time to time and to have outstanding at any one time, in an amount not exceeding $1 billion, notes and other obligations. Such obligations shall be in such forms and denominations, have such maturities and be subject to such terms and conditions, as may be prescribed by the Administrator, with the approval of the Secretary of the Treasury. Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treasury which shall not be more than the current average yields on all outstanding marketable obligations of the United States as of the last day of the month preceding the issuance of such notes or other obligations adjusted to the nearest one-eighth of 1 per centum. The Secretary of the Treasury is authorized and directed to purchase any notes and other obligations of the Administrator issued hereunder and for such purpose the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under such Act, as amended, are extended to include any purchases of such notes and obligations. The Secretary of the Treasury may at any time sell any of the notes or other obligations acquired by him under this section. All redemptions, purchases, and sales by the Secretary of the Treasury of such notes or other obligations shall be treated as public debt transactions of the United States. "(b) Funds borrowed under this section may be used by the Administrator in the exercise of his functions under this title. Of such funds, not to exceed $400 million, together with the proceeds therefrom, shall constitute a revolving fund for the purposes of this title. "GENERAL PROVISIONS "SEC. 204. In the performance of, and with respect to, the functions, powers, and duties vested in him by this title, the Administrator shall (in addition to any authority otherwise vested in him) have the functions, powers, and duties set forth in section 402, except subsection (c) (2), of the Housing Act of 1950. Funds obtained or held by the Administrator in connection with the performance of his functions under this title shall be available for the administrative expenses of the Administrator in connection with the performance of such functions. "SEC. 205. (a) As used in this title, the term 'States' means the several States, the District of Columbia, the Commonwealth of Puerto Rico, and the Territories and possessions of the United States. "(b) As used in this title, the terms 'public works' and 'public facilities' include the construction, repair, and improvement of public streets, sidewalks, highways, parkways, bridges, parking lots, airports, and other public transportation facilities; public parks and other public recreational facilities; public hospitals, rehabilitation and health centers; public refuse and garbage disposal facilities, water, sewage, and sanitary facilities, and other public utility facilities; civil defense facilities; public police and fire protection facilities; public schools, libraries, offices, and other public buildings; and public land, water, and timber conservation facilities. "(c) As used in this title, the terms 'hospital,' 'nonprofit hospital,' and 'public health center' have the same meaning that they have in title VI of the Public Health Service Act (42 U.S.C., ch. 6A, subch. IV)." S. 1955 DIGEST OF BILL Section 1: Entitles the act as the "Community Facilities Act of 1959." Section 2: Amends title II (public facility loans) of the Housing Amendments of 1955 by rewriting the entire title as follows: Declaration of policy Section 201: Declares it to be the policy of the Congress that the immediate construction of essential public works and public facilities by States and State agencies would enhance the health and welfare of the people of the United States and would reduce unemployment and stimulate business activity. Federal loans Section 202: (a) Authorizes the Housing and Home Finance Administrator acting through the Community Facilities Administration to purchase the securities and obligations of, or to make loans to, State and local public bodies to finance specific public projects: (b) Sets forth the following restrictions and limitations: (1) Prohibits financial assistance if credit is otherwise available on equally favorable terms and conditions, requires that the policy on purchases and loans be such as to assure retirement or repayment, and permits loans to be made directly or in cooperation or participation with other lending agencies. (2) Authorizes loans with maturities up to 50 years. (3) Establishes an interest rate ceiling as the rate of interest paid by the HHFA Administrator on funds obtained from the Secretary of the Treasury, plus one-fourth of 1 percent. (4) Authorizes the Administrator, at the request of borrowers, to postpone payments of principal or interest or both for up to 2 years, but without reducing the total of principal and interest to be repaid. (5) Prohibits financial assistance for the construction, repair, or improvement of public or nonprofit hospitals, or construction of any public health center unless the Surgeon General finds and certifies that the project is in conformity with applicable State plans approved under section 623 of the Public Health Services Act. (6) Prohibits financial assistance for any public facility which would compete with an existing privately owned public utility rendering service to the public at rates regulated by a State regulatory body, unless the State regulatory body determines there is a need to increase such service which the existing public utility is not able to meet through its existing facilities or through expansion which it is prepared to undertake. Financing Section 203: (a) Authorizes and empowers the Administrator to issue to the Secretary of the Treasury up to $1 billion in notes and other obligations, at a maximum interest rate of not more than the current average yields on outstanding marketable obligations of the United States of comparable maturities, at the end of the preceding month, adjusted to the nearest one-eighth of 1 percent. (b) Establishes as a revolving fund $400 million of the total authorized. General provisions Section 204: Gives the Administrator general powers and functions necessary to administer the public facility loan program. Section 205: (a) Defines "States" as including the several States, the District of Columbia, the Commonwealth of Puerto Rico, and the territories and possessions of the United States. (b) Defines the terms "public works" and "public facilities" to include the construction, repair, and improvement of public streets, sidewalks, highways, parkways, bridges, parking lots, airports, and other public transportation facilities; public parks and other public recreational facilities; public hospitals, rehabilitation and health centers; public refuse and garbage disposal facilities, water, sewage, and sanitary facilities, and other public utility facilities; civil defense facilities; public police and fire protection facilities; public schools; libraries, offices, and other public buildings; and public land, water, and timber conservation facilities. (c) Defines the term "hospital," "nonprofit hospital," and "public health center" to have the same meaning as defined in title VI of the Public Health Services Act. HOUSING AND HOME FINANCE AGENCY, Re S. 1955, 86th Congress. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in further reply to your letter requesting the views of this Agency on S. 1955, a bill to expand the public facility loan program of the Community Facilities Administration of the Housing and Home Finance Agency, and for other purposes. Under that program, as established by title II of the Housing Amendments of 1955, our Community Facilities Administration aids municipalities and other local government units to finance essential public works where such assistance is not otherwise available on reasonable terms. Processing priority is given to applications from communities which had a population of less than 10,000 at the time of the 1950 Federal census, for loans to provide urgently needed basic public works such as water, sewage, and gas systems. Loans are made for periods up to 40 years, at an interest rate set by the Administrator. The interest rate formula now being used for setting the rate is designed to reflect changes in the muncipal bond market, both in new issues and in outstanding bonds. For bonds with maturities of 30 years or more current interest rates under the current formula are 44 percent for general obligation bonds and 5 percent for revenue bonds. These rates are adjusted downward by one-eighth of 1 percent for each full 5 years differential from the 30-year maturity. For example, a 25-year general obligation loan would currently bear a 4%-percent interest rate. As of Title II established a revolving fund of $100 million to finance these loans. The money is borrowed from the Secretary of the Treasury at a rate of interest determined by him, taking into consideration the current average rate on outstanding marketable obligations of the United States of comparable maturities. March 31, 1960, $24 million of this fund remain uncommitted. Additional applications for about $23 million are currently under review. The President's budget message to the Congress this year advised that an additional $20 million of borrowing authority will be required to meet loan applications through 1961. It also recommended legislation to authorize the provision in annual appropriation acts of this amount and such future increases as may be necessary. Proposed draft legislation for this purpose has been submitted to the Congress by the Housing Agency. S. 1955 would increase the funds for public facility loans from $100 million to $1 billion, of which $400 million would constitute a revolving fund. The bill would eliminate the processing priority requirement, making loans equally avail able to communities of any size and for all qualified projects. These would include "the construction, repair, and improvement of public streets, sidewalks, highways, parkways, bridges, parking lots, airports, and other public transportation facilities; public parks and other public recreational facilities; public hospitals, rehabilitation and health centers; public refuse and garbage disposal facilities, water, sewage, and sanitary facilities, and other public utility facilities; civil defense facilities; puble police and fire protection facilities; public schools, libraries, offices, and other public buildings; and public land, water, and timber conservation facilities." In addition, the bill would authorize loans to private nonprofit hospitals. The maximum length of loans would be increased from 40 years to 50 years. The borrower, in addition, would have an option to postpone all payments on a loan during the first 2 years, with interest so postponed to be paid over the balance of the life of the loan. The bill would also change the formula for calculation of interest rates. All loans would be made at a rate not to exceed the current average yield on all outstanding marketable obligations of the United States as of the last day of the preceding month, plus one-quarter of 1 percent. On the basis of calculations for the end of March 1960, this formula would produce an interest rate of 4 percent. The Housing Agency recommends against the enactment of this bill. The proposed increase in authorization for public facility loans from $100 million to $1 billion would permit expenditures far exceeding those which are necessary for this purpose. The liberalized provisions of the bill regarding interest rates, types of facilities, and size of borrowing communities would immensely expand Government lending for public facilities, and unnecessarily substitute Government funds for available private funds. In the current bond market, a 4 percent Government interest rate would mean that most, if not all, of the general obligation bonds rated Baa or lower and the revenue bonds rated A or lower would be acquired by the Federal Government instead of by private investors. Of the $7.5 billion of municipal bonds expected to be sold in 1960, the issuers of about 15 percent, or $1 billion, would find the Federal Government interest rate more favorable. In addition, the bill is defective in its failure to provide for an interest rate differential between general obligation bonds and revenue bonds. The declaration of policy of the bill states that immediate construction of essential public facilities would reduce unemployment and stimulate business activity. The real effect of the bill would be to substitute in large part Federal credit for private credit so that the effect on employment would be relatively insignificant, particularly since the public facility loan applications tend to come in greatest volume from communities that are experiencing an upsurge of other construction and business activity. We have been informed by the Bureau of the Budget that it has no objection to the submission of this report, and that the enactment of S. 1955 would not be in accord with the program of the President. Sincerely yours, NORMAN P. MASON, Administrator. TREASURY DEPARTMENT, August 7, 1959. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, MY DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 1955, to expand the public facility loan program of the Community Facilities Administration of the Housing and Home Agency, and for other purposes. The proposed bill would expand the public facilities loan program of the Community Facilities Administration by authorizing the Housing and Home Finance Administration to make loans, in an amount not exceeding $1 billion outstanding, to State and local governments to finance public works projects. The program would be financed through borrowing from the Treasury at an interest rate not to exceed the current average yields on all outstanding marketable obligations of the United States adjusted to the nearest one-eighth of 1 percent. The interest rate on loans by the Administrator could not exceed this rate plus one-fourth of 1 percent. 55869-60 The Department is strongly opposed to further expansion of the public facility loan program. The potential $1 billion expenditure for loans would make the objective of a balanced budget more difficult to attain. Since there are already so many essential functions that can be financed only with Treasury funds, we see no justification for shifting the burden of State and local financing to the Federal Government when private sources of funds are available. The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee and that enactment of S. 1955 would not be in accord with the program of the President. Very truly yours, JULIAN B. BAIRD, Acting Secretary of the Treasury. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, May 17, 1960. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: This is in response to your letter requesting the views of this Department on S. 1955, a bill to expand the public facility loan program of the Community Facilities Administration of the Housing and Home Finance Agency, and for other purposes. The bill would amend title II, public facility loans, of the Housing Amendments of 1955 to expand the present $100 million authority for public facility loans which is now primarily oriented toward assistance in financing the construction of small community water and sewage facilities and gas distribution systems-into a $1 billion program-with a $400 million revolving fund-for Federal loans for the construction, repair, and improvement of a greatly broadened range of public works and facilities and of nonprofit hospitals. It would, at the same time, liberalize the conditions of eligibility for borrowers and the interest rates on such loans. This Department has a direct concern in this proposal, since it expressly includes within its scope loans for hospitals, both public and nonprofit; public rehabilitation and health centers; public refuse- and garbage-disposal facilities, and water, sewage, and sanitary facilities; public schools and libraries; and public recreational facilities. The proposed increase in the loan ceiling (from $100 million to $1 billion) would aggravate the difficulties now being encountered in the management of the public debt, and would seriously undermine the policy of the President's budget. Moreover, the proposed revision of the method for determining the interest rate on these loans involves a hidden subsidy, because the cost of the money to the Treasury for the purpose of these loans will be higher than the interest rate resulting from the application of the formula proposed. This is true because, under the bill, the rate of interest on these loans could not exceed one-fourth percent above the rate charged by the Treasury to the Housing and Home Finance Agency, and might even be lower than that rate, and the Secretary of the Treasury would be required to base his rate to the Housing and Home Finance Agency on the current average yields of all outstanding marketable obligations of the United States. Under present law, as you know, the rate of interest charged by the Housing and Home Finance Agency is fixed by the Administrator, who, in turn, borrows money from the Treasury at a rate determined by the Secretary, taking into account the current average rate on outstanding obligations of comparable maturities. The scope of this proposal and its above-mentioned financing provisions in themselves call for its rejection. We have, therefore, not attempted to analyze this bill from the point of view of its efficacy in meeting needs for facilities which would not otherwise be met and from the point of view of its relationship to pending administration proposals for financial assistance in the construction of such facilities. For the same reason, we refrain from burdening this report with a discussion of the question of the proper organizational placement of such a program insofar as it involves health, sanitation, educational facilities, the question of proper coordination of the program proposed by the bill with our own construction grant programs in these fields, and the question of utilization of the specialized competencies of this Department and of State and local agencies |