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been dropped to a BAA. I notice that Dayton was dropped by Moody's to-from AAA to AA. It apparently did not have any effect-that particular drop-but obviously a further reduction would.

This element could be eliminated by FDIC insurance. All kinds of other problems develop in connection with it. On the other hand, there has not been, as far as I know, any political influence with the FDIC operation.

Most people accept that-I think that was a bipartisan-Representative Patman knows much more about this than I will ever knowbut it seems to me there was both Republican and Democratic enthusiastic support for that.

Chairman PATMAN. Oh, yes. Senator Vandenberg from Michigan was one of the strong supporters of it.

Senator PROXMIRE. Everybody acknowledges now that it has been a great success.

Chairman PATMAN. We had to stop the adjournment of Congress at one time to get that bill through. We signed a petition that we would not authorize adjournment of Congress until that bill was passed-both Democrats and Republicans.

Senator PROXMIRE. So this is a possibility.

Mayor HALL. It seems to me the rating is almost like a human. I invest in real estate. When I go into a bank it is what I have done before, how I have repaid my loans and things of this sort. They do not tell me how I can do better. I suppose paying back faster or slower-I do not know which they would like.

Mr. Whalen happens to be one of the directors of our home bank. I go to him every day

Representative WHALEN. You are one of our favorite borrowers, I might say.

Mayor HALL. The bank president calls me every morning and asks me how I feel.

Senator PROXMIRE. Maybe when you go in there, it is the color of your shirt that impresses them. That lavender is pretty impressive. Mayor HALL. Thank you. I enjoy it, too.

Senator PROXMIRE. He might put your Moody rating from AAA down or up on that one. Which brings me to my last question.

I notice in your statement, Mr. Hall, that you indicated that you have been unsuccessful in finding out why your rating was dropped. What did you do? What steps did you take to find out?

Mayor HALL. Let Mr. Parent answer this, because he went to New York. I went with him once, but I think he can answer it better than I. Mr. PARENT. I have given this recitation just a minute ago.

I immediately went to New York when we heard we had been downrated to AA, and had a conference with Mr. Ellinwood and two of his staff. At that time I was told they did not have to defend their ratings, it was a matter of opinion, and I said, "You tell us where we are weak, and we will build toward strengthening that," and he said, "There is no formula for rating."

Being unsuccessful that time, before we sold

Senator PROXMIRE. Did you go any further? Did you go beyond Mr. Ellinwood?

Mr. PARENT. I understood Mr. Ellinwood to be the top of the municipal division in Moody's.

Senator PROXMIRE. And there was no appeal from the decision? Mr. PARENT. I knew nowhere to go. I have talked to Wade Smith of Dun & Bradstreet.

Senator PROXMIRE. Was there any change at all you could see in your national position? After all, AA is a very respectable rating.

Mr. PARENT. Yes, it is hard to be disappointed with a double A. But we are kind of a proud people back home.

Senator PROXMIRE. I don't blame you being concerned with any diminution. But you felt there was nothing else you could do-no other recourse, no appeal.

Mr. PARENT. That is right. Mr. Ellinwood did say our file would be reviewed annually, and that perhaps the AAA rating would be returned. But so far it has not.

Senator PROXMIRE. Did they indicate just in terms so that you could make your own judgment, just what their criteria were?

Mr. PARENT. No, no indication at all. He said "Your debt is growing." He referred to an article that was out of the bond dealer in Cincinnati, White & Co. It had reference to "Annie Doesn't Live Here Any More," or some such title. The theme was that the affluent city resident, was moving to the suburb, and that if you do not grow this way, you are losing your upper-class citizen.

Senator PROXMIRE. Do you have a rigidity, inability to annex? Mr. PARENT. No. Dayton has always had an open door for annexation.

Senator PROXMIRE. There is no State law that limits you.

Mr. PARENT. No. There is a procedure, though. It is 51 percent on a petition in the area to be annexed, and then a hearing before the county commissioners, which allows pro and con arguments from the public. And finally a decision from the commission that it can be or cannot be annexed.

Senator PROXMIRE. Have you lost some of your higher income people or industries because of moving out?

Mr. PARENT. The whole area is growing. Most assuredly some of the upper echelon, if that is the word, residents of Dayton have moved out to Washington township, and Kittering. I don't know where Mr. Whalen is now. But it is only natural that as the population grows, people like a little more elbow room, and they will move out where they can get it.

Senator PROXMIRE. Have you lost any industrial plants?

Mr. PARENT. We have lost some, gained some, and some that are there have expanded.

Senator PROXMIRE. It is conceivable, then, that they might have analyzed all this, and come to the conclusion that perhaps they ought to make it AA instead of AAA because your taxable base has been somewhat decreased.

Mr. PARENT. I would presume in their mind they had good material to make the judgment on. Although we would like to know what the judgment was based on.

Senator PROXMIRE. Just one other point. The chairman was right in indicating that Moody's apparently has 12 analysts who have thousands and thousands of issues to analyze. The Goodman paper showed that they would be able to spend about half an hour per issue. And that obviously they could not come to much of an analysis of the kinds of

things you and I are discussing now, without going back to you, getting more information, and sending an independent investigator out to spend some time there.

So it would seem their conclusion would have to be based on what you told them. And unless you gave them a basis for reducing the rating, it is hard to know how they could have done it.

Mr. PARENT. I talk so fast, I doubt whether they could have absorbed it in half an hour.

Senator PROXMIRE. Thank you very much.

Chairman PATMAN. Thank you very much, gentlemen, for your appearance. We appreciate your testimony. It will be helpful to this


If you gentlemen would like to remain in the audience, we would certainly be delighted to have you.

We have some other witnesses here.

We have the Honorable Vern Miller, mayor of Salem, Oreg., accompanied by Mr. Douglas Ayres. And Mr. Scott from Cleveland is here. Will you come around to the table, Mr. Mayor, and Mr. Ayres. We are glad to have you gentlemen.

Just take your places at the table, please.

We will insert in the record at this point a statement from the mayor of Denver, Colo., the Honorable Tom Currigan. He was unable to get here, unfortunately.

(Mayor Currigan's statement, referred to by Chairman Patman, follows:)


CITY AND COUNTY OF DENVER, COLO., November 30, 1967.

Chairman, Joint Economic Committee's Subcommittee on Economic Progress, House of Representatives, Washington, D.C.

DEAR CONGRESSMAN PATMAN: The National League of Cities was kind enough to invite me to testify before the Joint Economic Committee's Subcommittee on Economic Progress on December 5 or December 6 during the hearings on municipal financing problems.

My schedule prevents me from being in Washington on either date, but 'because the subject of the committee's hearings are so important to Denver and all cities, I am taking the liberty of sending you a prepared statement, that you may wish to include in the record.

May I thank you personally for your interest in obtaining the viewpoin

mayors on this most important subject..

Sincerely yours,





Chairman Patman, and distinguished members of the subcommittee, most cities, including the city and county of Denver, have very stringent charter and constitutional limitations on bonded indebtedness.

The city charter of Denver, under the section "Limitation of Bonded Indebtedness," provides as follows:

"A6.17 Loans and bonds authorized by ordinance, voted by taxpayers Limitation of issue. No loan shall be made and no bonds shall be issued for any purpose, except in pursuance of an ordinance authorizing the same, which ordinance shall be irrepealable until the indebtedness therein provided for and the bonds issued in pursuance thereof shall have been fully paid.

"A6.17-1 No loan shall be created nor bonds issued unless the question of creating the same and issuing the bonds therefor shall be submitted to the vote of such of the qualified electors of the city and county of Denver as shall, in the year next preceding such election, have paid a property tax therein and a majority of those voting upon the question by ballot shall vote in favor of

creating such debt and issuing such bonds, and the interest on all such bonds shall be payable semiannually.

"A6.17-2 The city and county of Denver shall not become indebted for any purpose or in any manner, to any amount which, including existing indebtedness, shall exceed three percent (3%) of the assessed valuation of the taxable property within the city and county of Denver as shown by the last preceding assessment of the city and county of Denver; provided, however, that in case section eight (8) of article eleven (11) of the constitution of the State of Colorado shall be amended at any time in respect to indebtedness of the municipality of the city and county of Denver, then and in such case the limitation of such indebtedness of the city and county, as above referred to, shall conform to any such an amendment so as to extend the provisions of said section 250 limiting the indebtedness of the city and county of Denver, as shall by such an amendment be provided for and authorized; and provided, further, however, that in determining the limitation of the city and county's power to incur indebtedness, there shall not be included within the estimate bonds issued for the acquisition of water, light, or other public utilities, works or ways from which the city and county will derive a revenue.

"(Sec. 3, charter amendment, February 17, 1914.)

"(Nota Bene: Section 250 referred to in the above section is now section A6.17.)"

It is important to note that this section of the charter was adopted by vote of the people of Denver on February 17, 1914. At that time, assessments were made on the basis of real value of property. Now, in 1967, under state law, assessments are made on the basis of 30 percent of the estimated sale value of the property. Denver's assessed valuation, in 1967, is approximately $1.1 billion. Thus, the city's maximum debt can only be $36 million.

It is the administration's belief that this limitation, while very realistic and proper in 1914, is too restrictive now, particularly in view of the fact that, in 1914, assessment was based on real value compared to a 30 percent figure in use in 1967.

Denver presently enjoys an AA rating for sale of general obligation bonds. Unquestionably, the 3 percent charter limitation is partially responsible for this excellent rating, plus the fact that the city has never defaulted on any bonds. We do not wish to jeopardize this rating.

If the 3 percent limitation is increased, either by a vote of Denver property owners to change the charter or by vote of the electorate throughout the State to change the constitution, our AA rating might drop and the city could find itself in the position of paying higher interest rates.

Discussing this with bond brokers, a rule of thumb increase for interest is 14 percent for each reduced rating point. For example, if our AA rating dropped to an A rating, we would experience an increase of $112,500 in interest over a 10 year period on our hospital bonds alone.

Bond brokers, under the present rating system, are guided almost solely by the ratings of individual municipalities. The real basic question, then, is how are these ratings set, by whom, and what ground rules are followed. For instance, one person may come up with a rating different than another due to his method of calculation. If ratings are established through a standardized, supervised procedure that is fair and unbiased, the broker could always rely on the rating as a guide. Municipalities would then save the expense of a detailed and comprehensive prospectus on each bond sale.

In Denver, we are limited by the constitution of the State of Colorado from entering th income tax field. Therefore, we have only two major sources of revenue property and sales tax-that can produce a sufficient amount of money to pay off bonds of any large amount.

One alternate method of financing capital improvements other than long-term bonds is the pay-as-you-go technique. Here again, cities are restricted until they have full taxing powers with which to provide the necessary funds. Cities, of course, are hard pressed to keep pace with the ever-increasing operating cost of doing business on a day-by-day basis.

Until such time when the local government has full taxing powers and cities receive a fair portion of the revenue collected within their boundaries by the State and Federal governments, the municipalities will always be in a financial crisis.

Chairman PATMAN. We now have Dr. Vern W. Miller, mayor of Salem, Oreg. You may proceed, sir.

Mayor MILLER. Thank you, Mr. Chairman.

STATEMENT OF VERN W. MILLER, M.D., MAYOR OF SALEM, OREG. Mayor MILLER. Mr. Chairman, Senator Proxmire, Mr. Staak and Mr. Diamond. Gentlemen, I am Dr. Vern W. Miller, of the city of Salem, Oreg., and vice president of the League of Oregon Cities, and this is Mr. Douglas Ayres, our city manager. It is a great honor to be invited to appear here, representing the smaller cities of the country. It is gratifying to me, as a citizen of this great country that you are concerned with the problems of local government, which is the base upon which our governmental structure stands. Crumbling of this base is threatened. God has placed in our hands the means of attaining heaven here, or elsewhere. The result will depend upon the use made of these powers by us. The responsibility is great. Mismanagement of our blessings will bring down upon us the fabled Four Horsemen of the Apocalypse: famine, pestilence, disease, and war; and our civilization will surely be destroyed.

That the events of recent months have amply demonstrated that our great cities are in the advance stages of a near fatal disease-namely, neglect of capital improvements in the the past and failure to match improvements with the speed of urbanization. The smaller cities are suffering from the same disease, but in most instances it is not as advanced, and preventive measure, if taken now, can prevent advancement of decay at a much less cost. In our attention to the fatal case, let us not neglect the salvageable.


There is much to be said for Secretary of Agriculture Freeman's idea of deurbanization. Programs that tend to increase the concentration of people in the great cities should give way to those that will make the small cities and towns more attractive. The land of opportunity should be the open spaces, an opportunity to work and produce food, for example, since nearly half the people in the world are undernourished-not be the land with the biggest welfare check and the opportunity to produce, only, more children on ADC.

There are vast areas of this land that with water and people would be a veritable paradise. Should we then spend billions to bring water past these lands to population concentration and promote a condition already out of control? Our plea is to not neglect the smaller cities and towns in this country.

Our own city of 67,000 people the capital city of Oregon, incorporated in 1857-is a fairly typical example. In order to maintain a reasonable environment and to prevent decay, our city must, at the minimum, spend $80 million in the next 15 years over and above the income we now can see. We are struggling with the problems of finding financing to accomplish this. The cities of our State working together are making every possible effort to get State law changes which will improve our chances.


Anyone who has thoughtfully toured the magnificent Smithsonian Institution down the Mall here, as I did with Mrs. Miller this summer, cannot help but be impressed with the speed of change in which

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