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the growth potential of the American economy. In this connection, the Subcommittee on Economic Progress of the Joint Economic Committee issued earlier this year a two-volume study on "State and Local Public Facility Needs and Financing." The first volume estimated capital requirements over the next decade for essential public facilities, and the second volume analyzed the prospective sources of credit funds to finance construction of these facilities.

This study focused attention upon an often neglected, but highly important sector of our economy; namely, the provision of adequate public facilities in the Nation's communities. Our cities, suburbs, small towns, and even rural areas are dependent upon the availability of public facilities. Industrial plants, commercial establishments, and farms need an ever increasing supply of water, adequate sewage collection and disposal, electric and gas power. They need a modern network of streets, roads, and highways to bring in materials and labor and to ship out finished products.

Within the larger cities, with their complexes of office buildings, factories, and downtown shopping, there is a need for urban mass transportation, offstreet parking, airports, and marine shipping facili ties. Modern schools are needed to educate our children, and wellequipped hospitals are needed to help care for the sick. We need parks, playgrounds, libraries, neighborhood centers, museums, and related recreational facilities; and our police and fire departments, as well as other public service units need to be housed in up-to-date buildings. All told, the estimated capital requirements reflecting the Nation's public facility needs for the decade ending in 1975 total $499 billion; of this amount, $328 billion are estimated for State and local public agencies. For these State and local public agencies, about half of their capital requirements, are expected to be financed by borrowings in the tax-exempt municipal securities market. Volume 2 of the committee's study concentrated upon the capacity of the municipal securities market to meet these anticipated capital requirements.

The subcommittee's study was addressed to three basic questions: First, is there likely to be an adequate supply of investment funds in the municipal securities market, or, to put it more succinctly, who will buy the expanding volume of tax-exempt municipal bonds?

Second, is a tax-exempt security best suited to obtain the requisite funds needed to meet projected future capital requirements?

Third, can the existing marketing machinery expand sufficiently to accommodate an increasing volume of securities?

With respect to the first question, the projections underlying the committee's study indicated that sufficient funds would be available for the requirements projected, if commercial banks continue to acquire most of the municipal securities issued. In spite of the unexpectedly heavy volume of corporate bond flotations, the committee's projections for 1967 municipal security issues, which were made over a year ago, are coming out close to realization by actual developments. For 1967, the study projected that long-term municipal debt issues would total $15.1 billion, without regard to industrial development bonds. In terms of municipal bonds tabulated by the Bond Buyer, this works out to $13.4 billion of bonds sold. On the basis of 10 months' actual data, municipal bonds sold in 1967 are expected to total about $14.5 billion, including about $1 billion of industrial development bonds. Subtrac

tion of these tax-exempt bonds for private purposes results in traditional municipal bond sales of about $13.5 billion, or very close to the $13.4 billion projected in the committee study.

Our hearings today and in the next 2 days are concerned with the difficulties experienced by small municipalities in marketing their bonds and with the consequences of bond ratings. We plan to hear from several mayors and other municipal officials on how these institutional forces have affected their own cities. It is appropriate that we hear first from those who are directly affected by bond ratings and the credit problems of small municipalities-the mayors and municipal officials. Turning first to the credit problems of small municipalities, our subcommittee study found that small municipalities tend to pay higher interest rates on their long-term bond issues because of such factors as unfamiliarity by large investors, inadequate financial information supplied to investors and bond analysts, failure to obtain expert advice regarding bond specifications and mechanics of sale, absence of a bond rating and high overhead costs in bond marketing relative to the small size of the bond issue. The relatively small size of bond issue and infrequent sales by the small municipalities, in turn, lead to unfamiliarity, lack of technical know-how as to bond marketing, and to comparatively high marketing and advisory costs on a per bond basis.

The subcommittee study also found that, out of a total of approximately 92,000 issuers of municipal bonds, ratings have been assigned to only about 20,000, leaving many issuers, generally small communities, in the nonrated category. Approximately 70 percent of the bond issues rated by the two rating services have similar ratings, but the other 30 percent have different ratings. The difference of a notch in a rating, or the fact that bonds are unrated, may cost the public agency as much as one-quarter to one-half percent in the annual interest cost on its borrowing.




Representative Wright Patman (D-Tex.), Vice Chairman of the Joint Economic Committee, and Chairman of its Subcommittee on Economic Progress, today announced the witnesses for the forthcoming hearings on municipal finance.

The hearings will be held at 10 a.m. on December 5, 6, and 7, 1967, in the Atomic Energy Committee hearing room in the Capitol (room S-407). The witnesses are as follows:

Tuesday, December 5, 1967, 10 a.m.

J. CLIFTON HURLBERT, Mayor of Aberdeen, South Dakota.
ROY M. GOODMAN, Director of Finance, New York City.
Wednesday, December 6, 1967, 10 a.m.

TRAVIS H. TOMLINSON, Mayor of Raleigh, North Carolina.
HERBERT H. BEHREL, Mayor of Des Plaines, Illinois.
ELMER H. DODSON, Mayor of Charleston, West Virginia.

Thursday, December 7, 1967, 10 a.m.

CHARLES W. WHALEN, Jr., U.S. Representative from Ohio.

DAVE HALL, Mayor of Dayton, Ohio, accompanied by GRAHAM WATT,
City Manager, and WINTON PARENT, Finance Director.

VERN MILLER, Mayor of Salem, Oregon, accompanied by DOUGLAS AYRES,
City Manager.

DUANE SCOTT, Executive Director of Ohio Municipal Advisory Council,

Chairman PATMAN. Our first witness today is J. Clifton Hurlbert, mayor of Aberdeen, S. Dak. Mayor Hurlbert, we are delighted to have you here, sir. You may proceed in your own way.


Mayor HURLBERT. Mr. Chairman, I am J. Clifton Hurlbert, mayor of Aberdeen, S. Dak.

By way of background, and for your information, I graduated from Pace Institute, now Pace College, New York City. I am a licensed public accountant in the State of South Dakota, and for 20 years have been engaged in general contracting. For the past 12 years, on a part-time basis, I have been serving as mayor of the city of Aberdeen, S. Dak.

Aberdeen has a population of approximately 25,000 people. It is a wholesale, retail, cultural, and medical center. It is placed in a predominantly agricultural area.

I personally, on behalf of Aberdeen and the other small communities, wish to stress our thanks for being given this opportunity to come to you and talk about a subject that has become so important, I am sure, to all municipalities.

It is of vital interest to me, as mayor of the city of Aberdeen, and because of that I am here today.

Certainly, after serving 12 years as mayor of the city of Aberdeen, I come and speak from experience, not from what I have learned in the textbooks.

Mr. Chairman, my written testimony will follow; I was in a big hurry to leave Aberdeen, and I was not able to bring it with me. It will be coming soon.

Chairman PATMAN. It will be inserted in the record.

Mayor HURLBERT. Those of us who are involved in local government often ask ourselves how-how are we going to finance the many facilities that are requested, desired, and needed by the citizens of the community if we are to keep progress? And we also ask ourselves how can we stretch the real estate and property tax dollar to cover all of these needed facilities-always keeping in mind, of course, that in South Dakota, the city of Aberdeen and I speak about Aberdeen, because this I know-only about 40 percent of the tax dollar that is raised goes to the municipalities. The balance goes to the schools and counties.

To illustrate the problem that we have-and again, I will speak about Aberdeen, because it is the community I know, and also because I feel that Aberdeen is an average community-the question that you want answered today-or one of the questions-is: What does the bond rating mean to the city of Aberdeen; what does it mean to the small community?

In Aberdeen, we are sort of on the breakpoint. We are above the small, the real small communities, and we are, of course, at the bottom of the larger communities.

We in Aberdeen have always had an A rating. How we have actually obtained this, and why we have maintained it, seems to be something none of us really know. Without much effort, we have maintained it.

It is my understanding from the experts, from those who know the difference between an A and a double A rating, it would mean approximately one-fifth of 1 percent. On the face of it, this does not seem like much. But if we were to go the other way, of course, we would run into a lot more trouble-if we went to the BAA, BA, and then on down to the unrated. So although we are not too concerned possibly right at this moment, we seem to hold a good A. However, you never know what might come.

I have some figures that I have quoted that will bear out this problem, this question of the bond rate.

In Aberdeen, S. Dak., we have an assessed value of approximately $80 million. We have a current bonded indebtedness today of $2,319,000. We are well within our statutory limits. So we have no particular problem there.

The levy to pay off this bond debt and interest retirement for 1968 is $220,422.

Now, roughly speaking, approximately $70,000 of this is interest, the balance is the capital retirement.

If we had had a double A rating, this interest figure, I gather, would be approximately $65,000. So we are talking about a $5,000 difference between the A and the double A which we cannot understand why we do not have and certainly we will attempt to get.

Now, you go over a 20-year period-again realizing that your interest payments are not constant, but it conceivably would be a hundred thousand dollar savings to the city of Aberdeen, over a 20-year period.

Further, the total tax levy for Aberdeen in 1968 is $1,427,000 plus, just under $1,500,000. Therefore, approximately 15 percent of this tax levy is used to pay for the capital facilities that we have-the interest and bond redemption.

Leaving those figures for just a second-2 years ago the city of Aberdeen did employ the Leo A. Daly Co. of Omaha Nebr., professional planners, to develop a comprehensive plan for the city of Aberdeen. Two reasons possible-one, because we figured we needed it for orderly growth. The second, if we were ever to get into urban renewal, or make application for other Federal grants, one of the things you have to show is your comprehensive plan. We did use the 701 funds on this. We worked through the Government.

Among other things that they provided was a 5-year capital improvement program. They estimate the cost-and this is the minimum cost that the city of Aberdeen should expend for capital improvements over the next 5 years-to be $8,614,500. This, together with our present bonded indebtedness and I believe we can safely use this, because the majority of the present indebtedness is not to be paid off until 1987, so the bulk of this will carry through. If this were to happen on one day, it would give us approximately $11 million bonded indebtedness. This, too, would come just within the statutory limits. So from a statutory position we could issue this amount of bonds.

Basically the debt retirement, if we were to go into a program such as this, would be somewhat over a million dollars a year. That would be increased from the $220,000, and also, then-it would go from 15 percent of our tax money to actually 50 percent, or approximately 50 percent would be required.

To bring that closer to home, and to point out where the problem actually comes in, we feel-and I am sure all communities do-that the

real estate and property tax has reached its maximum-just about as high as we can go.

A home in Aberdeen today that would sell for approximately $20,000 will pay about $600 real estate tax. If we were to make this increase, it would increase to approximately $800 to $900. The reason it is almost double on the tax-only about a third of this $600 tax is actually municipal financing. The other is for the county and the schools. And we must keep in mind that the school, too, is faced with an expansion program according to Leo A. Daly, something over $4 million to $5 million in the next 5 years. This added to the tax load would be absolutely beyond our ability to pay. We just cannot proceed with this type of a program without another method of finance.

So then we might ask ourselves what is the answer; where do we go from here? Are we going to give up and allow ourselves just to drift along, or are we to put our shoulder to the wheel and do everything possible to accomplish these goals if our society is to improve? We must continue to work.

I have listed three items that I think we should be giving some serious thought to, and one, of course, is your bond ratings.

If it is true and apparently it is-it is almost impossible to sell bonds without some kind of a rating, and preferably an A rating or above. To the communities in South Dakota that are smaller than Aberdeen, this is almost an impossible accomplishment, because they do not have a $600,000 bond issue, and they do not have and cannot have a million dollar bonded indebtedness. So it is impossible for them to get a rating.

It would seem to me that somehow we would have to make bond rating a more exact science. If we, the seller, we the cities depend upon the bond rating, if the investor depends upon the bond rating, it must be more exact instead of as it is today, apparently an estimate, or based upon figures that are not too exact.

I feel that we must continue the small municipalities must continue to look to the Federal Government for loan programs. In this case I am thinking of the Housing and Home Finance Agency. I know this has worked, and quite successfully, throughout South Dakota for the building of dormitories, and for the building of union buildings at our colleges.

Not included in our capital improvement plan as outlined by Leo A. Daly is the construction of a sports complex that we may be forced into within the next year or two. If this should come to pass, we certainly hope and plan to look to the HHFA for funds to supplement what we have in the building.

I think also that we must look to the Federal grant to help us through this program.

I feel that somehow or other it would be good for us if they could simplify the application for Federal grants. We have just completed, in Aberdeen, the construction of an airport improvement, just slightly under a million dollars, with about 52 percent of it paid by the Federal. And but for that grant, I do not know how we could have done it. I do not think we could have accomplished it, because you are going to the bond issue which requires, in South Dakota, 60 percent election approval, and you are selling something, although very much needed for the community, that possibly is not felt so by many of the people that seldom use the airlines. But for the Federal grant,

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