If, however, your in the same fields in the administration of any such proposal. committee should be disposed to give detailed consideration to this bill, we should appreciate an opportunity to comment on these questions. In conclusion, we recommend against enactment of this bill for the reasons above mentioned. We are advised by the Bureau of the Budget that enactment of the bill would not be in accord with the program of the President. Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: This is in response to your request for the Board's views on S. 1955, cited as the "Community Facilities Act of 1959." This bill, as explained in the Senate at the time of its introduction, would make five principal changes in existing law relating to the public facility loan program of the Community Facilities Administration of the Housing and Home Finance Agency. It would (1) remove restrictions which have caused the rejection of loan applications filed by communities with a population in excess of 10,000; (2) remove language from existing law which in practice has limited loans primarily to projects for water and sewer systems; (3) increase the loan fund from $100 million to $1 billion and permit $400 million to continue on a revolving basis; (4) provide an interest rate formula requiring a charge to borrowers of one-quarter percent added to the current average yields on all outstanding marketable obligations of the United States; and (5) raise the maximum loan term from 40 to 50 years, with provision for a 2-year postponement of principal and interest payments where circumstances warrant such action. The past few decades have witnessed not only large increases in the population of the United States, but also substantial extensions of urban and suburban areas and a growth in the complexity of these areas. In this period, old problems of State, local, and metropolitan government have been intensified and new ones created. Solutions for these problems deserve serious thought. The Board has grave doubts that the approach represented by S. 1955 is sound either for taking care of immediate problems or as a basis for longer run solutions. It questions whether the solution for these problems is to be found in a further shift of responsibility from State and local governments to the Federal Government. The time when Federal credit could be used, practically without cost, to carry new burdens is past, as recent developments in debt management and credit management have demonstrated. If, after careful consideration, the decision is made that the use of Federal credit is to be extended further along the lines of S. 1955, the Board suggests that the Congress turn its attention to means of defraying the costs that will clearly arise, remembering that such programs, once enacted, are more likely to expand than to contract. The most obvious means of meeting such costs is to increase Federal taxes, thereby requiring Federal taxpayers to yield the necessary economic resources to the Federal Government for reapportionment among State and local governments. Another approach, supplementing the first, might be to require substantially faster repayment of the loans contemplated in S. 1955 so that taxpayers of the borrowing governments may help other jurisdictions toward solution of their problems. If, as we all hope, the American economy is going to continue to yield an increasingly high output of goods and services, we should expect to be confronted by a relative scarcity of capital for some time. Should Congress decide that an increasing share of the available capital must go for public facilities of the type that would be financed under S. 1955, it must also face the need to keep other uses-private capital formation, for consumption, for example-from bidding for this capital. Otherwise, public debt management and credit management will become even more difficult than they have been in the recent past. Sincerely yours, WM. MCC. MARTIN, Jr. Hon. A. WILLIS ROBERTSON, COMPTROLLER GENERAL OF THE UNITED STATES, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: Your letter of May 29, 1959, requests our report on S. 1955, a bill to expand the public facility loan program of the Community Facilities Administration of the Housing and Home Finance Agency. The purposes to be accomplished by the proposed legislation would be to authorize the extension of credit to assist in the provision of essential public works or facilities by States, municipalities, or other political subdivisions of States, where such credit is not otherwise available on equally favorable terms or conditions. The authorizations contained in the bill would be equally applicable to nonprofit hospitals and the bill would authorize the extension of credit to assist in the provision of those facilities. We have no special knowledge as to the need or desirability of the proposed legislation and as this is primarily a matter of policy for determination by the Congress, we offer no recommendations as to the merits of the bill. We have, however, the following comments to make concerning the legislative proposal. Section 202 (a) authorizes the Administrator to purchase the securities and obligations of, or to make loans to, nonprofit hospitals to finance specific projects. With respect to construction we would like to point out that title VI of the Public Health Service Act (42 U.S.C. 291) authorizes the Surgeon General, Department of Health, Education, and Welfare, to pay as grant-in-aid as much as 66% percent of the construction cost of public or private nonprofit hospitals. The proposed legislation contains no limit on the portion of the hospital construction cost for which a loan may be made and it is conceivable for a nonprofit hospital to borrow from the Government, the remaining portion of the construction costs. We believe the proposed legislation should be clear, where a grant-in-aid is available, as to the portion of the remaining construction cost for which a loan could be made. It would seem appropriate to provide that the Government would be limited to making a loan for only that portion of the construction cost which could not be raised from the community or other sources. Section 202 (b) (3) would require the Administrator to charge interest on loans at a rate determined by him which shall not be more than the total of onefourth of 1 percent per annum added to the rate of interest paid by the Administrator, on funds obtained from the Secretary of the Treasury. The bill is not clear as to the purpose for the additional charge of an amount up to one-fourth of 1 percent over the cost of funds borrowed from the Secretary of the Treasury. If this additional income is to provide funds for the purpose of defraying administrative and other costs in carrying out this program and to provide reserves for losses, this should be clearly indicated in the proposed legislation. Also, if it is intended that the program be self-supporting it might be advisable that the Congress consider requiring the Administrator to charge interest at a rate which would cover all administrative and other expenses, provide a reserve for losses and cover the cost of funds borrowed from the Secretary of the Treasury. Section 302 (b) (4) would authorize the Administrator, under certain conditions, to postpone annual payments of principal and interest during an initial period not exceeding the first 2 years after the assistance is furnished. We raise the question as to whether the deferred interest during this period should not be added to and considered part of the unpaid principal on which the borrower would be required to pay interest. Otherwise, the Government would be providing funds without interest and without a corresponding reduction in the payment of interest on funds borrowed from the Secretary of the Treasury for this purpose. Section 203 (a) would authorize the Administrator to issue to the Secretary of the Treasury, from time to time, notes or other obligations for purchase by the Secretary of the Treasury in an amount not exceeding $1 billion. For such purpose the Secretary of the Treasury is authorized to use, as a public debt transaction, the proceeds of the sale of any securities issued under the Second Liberty Bond Act as amended. Authorizations to finance programs and activities through public debt transactions are usually stated in terms of continuing maximum amounts of obligations in the Treasury which can be outstanding at any time with no annual limitation. The authorizations are contained in substantive legislation origi nated in legislative committees instead of appropriation legislation reviewed by the appropriation committees. The continuing feature of these authorizations avoids the need of annual appropriations, and thus there is less compulsion for careful evaluation by successive Congresses of the need for continuing particular programs. We believe that the financing of loan programs through public debt transactions, by combining program authority with funding, tends to perpetuate programs that might not otherwise stand the test of recurring congressional review. The General Accounting Office has for many years stated objections to this method of financing, and recommends that funds to finance Government activities should be made available to the agency responsible for administering the program through the normal appropriation processes rather than through authorizations to finance through public debt transactions. Section 203 (a) also provides that the interest rate on loans to the Administrator will be 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, adjusted to the nearest one-eighth of 1 percent. We believe that the rate of return on the notes or other obligations issued by the Administrator should be at a rate equivalent to the current average yields on outstanding marketable obligations of the United States of comparable maturity. We believe also that the frequency of borrowings from the Treasury would be reduced if the interest rate was determined annually or semiannually, rather than monthly as the bill proposes. Section 203(b) provides that 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 purpose of this title. If it is intended that funds not to exceed $400 million are to be placed in a revolving fund, the proposed legislation is not clear as to what disposition the Administrator would make of the remaining $600 million which he is authorized to borrow from the Secretary of the Treasury. If it is intended that only $400 million of the funds borrowed are to be loaned and reloaned through the revolving process, this section of the bill should be rewritten to clearly state that the remaining $600 million be available for making loans only once and the repayments together with the proceeds therefrom would be returned to the Treasury for the purpose of canceling a like amount of notes or other obligations issued by the Administrator to the Secretary of the Treasury. If this is the intent the section as presently written does not accomplish its purpose for as long as the Administrator permitted the revolving fund to drop below $400 million it could be augmented by proceeds received from loans made with the remaining $600 million and it is conceivable that the entire $1 billion could be loaned and reloaned through the revolving fund as long as the fund did not exceed $400 million. Section 204 of the bill provides that 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. While the bill does not so state, it is assumed that such administrative expenses would be paid from funds held in the revolving fund. If it is not intended that this program be self-supporting, it might be advisable that the Congress consider authorizing appropriations of such sums as may be deemed necessary for administrative expenses of the Administrator in connection with the performance of his functions as authorized by the proposed legislation. As a protection against waste or improper use of the funds loaned by the Government, we suggest that a section be added to the proposed legislation requiring borrowers to keep records to enable audits to be made by the Administrator and the General Accounting Office. Such records would also enable the Administrator to see whether the recipients have complied with the requirements of the act and the provisions of the loan agreements. Under the anthority of the section the Administrator would be expected to audit the books and records of each recipient, leaving to the General Accounting Office the right to audit as many recipients each year as determined necessary by the Comptroller General. The following language to accomplish this is suggested for your consideration: RECORDS AND AUDIT "Sec. 206. (a) Each recipient of assistance under this title shall keep such records as the Administrator shall prescribe, including records which fully disclose the amount and the disposition by such recipient of the proceeds of such assistance, the total cost of the project or undertaking in connection with which such assistance is given or used, and the amounts and nature of that portion of the cost of the project or undertaking supplied by other sources, and such other records as will facilitate an effective audit. "(b) The Administrator and the Comptroller General of the United States, or any of their duly authorized representatives, shall have access for the purpose of audit and examination to any books, documents, papers, and records of the recipient that are pertinent to assistance received under this title." Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. [S. 2911, 86th Cong., 2d sess.] A BILL To amend the Housing Act of 1950 to authorize additional loans for college housing, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 401(d) of the Housing Act of 1950 is amended as follows: (a) By striking out "$1,175,000,000" and inserting in lieu there of "$1,425,000,000"; (b) By striking out "$125,000,000" in the first proviso relating to other educational facilities and inserting in lieu thereof "$150,000,000"; and (c) By striking out "$50,000,000" in the second proviso relating to hospitals and inserting in lieu thereof "$75,000,000". S. 2911 DIGEST OF BILL Increases the college housing loan authorization by $250 million upon enactment. Reserves $25 million of the new authorization for "Other educational facilities," and reserves $25 million for housing for nurses and interns. HOUSING AND HOME FINANCE AGENCY, Re S. 2911, S. 2912, and S. 2950, 86th Congress. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: This is in further reply to your requests for our views on the three subject bills relating to the college housing loan program. Two of these bills, S. 2911 and S. 2950, would increase the authorization for this program by $250 million and $500 million, respectively. We recommend against enactment of these bills, and I have been authorized to advise that their enacment would not be in accord with the program of the President. As you know, the college housing loan program was established pursuant to title IV of the Housing Act of 1950. That act authorizes the Housing Administrator to make loans to assist institutions of higher education to provide housing and related facilities for students and faculty where such assistance is not otherwise available on equally favorable terms. To date, funds committed under the program provide assistant for about 1,200 projects, including housing accommodations for about 285,000 students and faculty and also over 100 related facilities such as student unions, dining halls, and health centers. As of April 1, 1960, about $740 million had been disbursed for these loans, of which about $16 million had been repaid, without any defaults. Nearly all the rest of the $1,175 million authorized for the program has now been committed. In recognition of the limited financial resources of institutions of higher education, the Administration has developed a new type of program to help these institutions meet their increasing needs. As set forth in S. 1017, this new program would provide Federal grants to help cover part of the cost of needed new classrooms, dormitories, and other facilities. The grants would be in the form of commitments to pay 25 percent of the principal on long-term borrowings of the educational institutions, with the payments to be made in 20 equal installments over a 20-year period. In addition, the proposed new program would authorize Federal guarantees of bonds of the institutions, where the income from the bonds was subject to Federal taxation. In the current capital market it is expected that such a Federal guarantee would reduce interest rates payable by private educational institutions. In contrast to those provisions, S. 2911 and S. 2950 would continue the present program under which the educational institution would be required to repay the entire Government loan. The third bill, S. 2912, would increase from 10 percent to 122 percent the limit on apportioning loan funds to any one State under the present program. The present 10-percent limit has been virtually reached in the case of New York and may soon be reached in the case of California. About 121⁄2 percent of all U.S. college and graduate students are educated in New York, and over 10 percent more are educated in California. If no further authorization is provided for the present program, then of course a change in this State limitation would serve no purpose. If, however, additional authorization is provided, it would be helpful if the State limitation were also changed as proposed in S. 2912. We have been informed by the Bureau of the Budget that this report is without objection insofar as the Bureau is concerned. Sincerely yours, NORMAN P. MASON, Administrator. Hon. A. WILLIS ROBERTSON, TREASURY DEPARTMENT, Washington, D.C., May 6, 1960. Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C. MY DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 2911, to amend the Housing Act of 1950 to authorize additional loans for college housing, and for other purposes. The proposed legislation would increase by $250 million the authorization under title IV of the Housing Act of 1950 for direct loans to educational institutions to provide housing and related facilities for students and faculties. The bill would earmark $25 million of the increase for "Other educational facilities," which includes cafeterias, student centers, health facilities, and other essential service facilities, and another $25 million for housing for student nurses. The President in his budget message for the fiscal year 1961 stated that no additional authorizations are proposed for the existing college housing direct loan program. He further stated that he had recommended the termination of the college housing program and the enactment of legislation authorizing a new program of grants and loan guarantees for college facilities. To help colleges finance academic, housing, and related facilities, this program would authorize Federal guarantees of $1 billion in bonds with interest subject to Federal taxation, and would provide Federal grants, payable over 20 years, equal to 25 percent of the principal of $2 billion of bonds. In view of the foregoing, the Department would be opposed to the enactment of S. 2911. 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 the enactment of the proposed legislation would not be in accord with the program of the President. Very truly yours, JULIAN B. BAIRD, Acting Secretary of the Treasury. (See report of Department of Health, Education, and Welfare on S. 914, p. 8.) |