Mr. ICKES. That is right. Mr. CRAWFORD. You don't happen to have those balance sheets before you, do you, and the operating statements? Mr. LUCCHETTI. I can get it in just a few minutes. Mr. CRAWFORD. Let me ask you this, Mr. Chairman. Is it your plan to close these hearings today? The CHAIRMAN. No; we will give everybody an opportunity to be heard. Mr. CRAWFORD. I tried to get the figures before coming to the hearing and I was unable to do so. Otherwise I would have been better posted on this information. If you will give me that information then I will have an opportunity to look it over tonight. The CHAIRMAN. There are many witnesses who want to be heard, Mr. Crawford, and I think we should give them all an opportunity. Mr. CRAWFORD. Mr. Chairman, while Secretary Ickes is here I would like to get a little more detailed information on this $14,000,000 investment which has been referred to in his statement. Now, from the Secretary's testimony it appears that the insular government has invested in the U. W. R. system $3,400,000. What is the investment of the Puerto Rico Rail Light & Power Co? Do you happen to have that? Mr. ICKES. I haven't that. Do you have it, Mr. Lucchetti? Mr. LUCCHETTI. I could not testify exactly but I think it is around Mr. CRAWFORD. Well, we can get that from the record. Mr. Secretary, is the investment of the P. W. A. somewhat correlated and tied into or intermingled with the U. W. R.? Mr. ICKES. Yes, sir; I believe so. grants. That is also true of P. W. A. Mr. CRAWFORD. That explains it then because I was wondering if it was a separate ownership. Mr. ICKES. Oh, no. Mr. CRAWFORD. Now, is the P. R. R. A. $7,310,467 investment tied in through grants or otherwise to the $7,500,000 invested under U. W. R.? Mr. ICKES. That is right. Mr. CRAWFORD. So that is all an integrated unit, you might say? Mr. ICKES. That is right. Mr. CRAWFORD. So then in thinking of the U. W. R. system we really should think in terms of a $14,000,000 investment? Mr. ICKES. That is right. Mr. CRAWFORD. Now, in connection with H. R. 8239, as I read this bill, the bonds here proposed are strictly revenue bonds? The CHAIRMAN. What page is that, Mr. Crawford? Mr. CRAWFORD. The bill as a whole. They are strictly revenue bonds for which principal and interest the taxpayers of Puerto Rico and the Puerto Rican Government proper will in no way be responsible. Mr. ICKES. That is right.. Mr. CRAWFORD. The bondholders security depending entirely- Mr. CRAWFORD. Upon the revenue? Mr. ICKES. Correct. Mr. CRAWFORD. And the bondholders would have the right to take over the operations through receivership? Mr. ICKES. They have the general right of bondholders in case of default. Mr. CRAWFORD. And that is 30 days after default, is it not? Mr. ICKES. Thirty days after default they have a right to apply for a receiver. Mr. CRAWFORD. That is right. In reading this bill I gathered the impression that bonds can be issued with interest rates running as high as 6 percent if necessary. Mr. ICKES. Yes; the cost of money down there is generally higher than it is here, isn't that right? Mr. LUCCHETTI. Yes; 8 percent. Mr. CRAWFORD. I have gotten the imprssion in reading this bill that through our method of financing that these bonds would likely be disposed of or sold to the Reconstruction Finance Corporation. Mr. ICKES. I haven't any doubt there would be a willingness to do that. Mr. CRAWFORD. Has the R. F. C. financed any operations down there so far? Mr. ICKES. I don't know of any. Mr. CRAWFORD. What is the rate of interest now being paid on the old financing? Do I make myself clear? Mr. LUCCHETTI. For private business it is 5 percent. Mr. CRAWFORD. I am speaking now about the financing which has been done in Puerto Rico by the R. F. C. or the P. W. A. or of any of our governmental agencies-what is the highest rate of interest? Mr. THORON (Benjamin W. Thoron, Director of the Finance Division, P. W. A.). The Public Works Administration was the agency which made the loans in the first instance. They carried 4 percent interest. One of these loans was to finance the acquisition of the Ponce Electric Co. and was purchased from the Public Works Administration by the R. F. C. and was subsequently resold in the general investment market at a premium of, I think, 11⁄2 percent. Mr. CRAWFORD. So 4 percent then is the highest rate of interest which the R. F. C. has charged so far on its operations down there, so far as you know? Mr. THORON. Which has been charged on operations by any Government agency down there. Mr. CRAWFORD. What term paper was that, do you recall? Mr. THORON. Those were revenue bonds secured by the pledge of the revenues collected solely within the municipality of Ponce not over the whole system. Mr. CRAWFORD. Now, those were sold by the R. F. C., weren't they? Mr. THORON. Yes, sir. Mr. CRAWFORD. Did the R. F. C. extend any kind of a guaranty as to principal or interest? Mr. THORON. No, sir. Mr. CRAWFORD. In other words, the sale was without recourse? Mr. THORON. Yes, sir. Mr. CRAWFORD. And stood entirely on the revenues behind them? Mr. THORON. On the revenues available for the bonds. Mr. CRAWFORD. Now, what control over management would the R. F. C. exercise in the event this bond issue or this expansion was acquired by R. F. C.? In other words, what I am trying to get at is, to develop here the control which R. F. C. or our Government agency could exercise over the management of this operation contrary to the wishes and desires of the Puerto Rican people. Mr. THORON. As I understand this bill no Government agency would have any rights other than any bondholder would have, which I believe are included in section 17 or 18 of the bill, which are the usual remedies which the holders of revenue bonds under various statutes which have been enacted in a number of the States of the United States have as a matter of course. There is no particular reference that I know of to the purchase of these bonds by any agency of the Federal Government. Mr. CRAWFORD. There wouldn't be any reference like that in the bill but we have got to make a practical application here as to what is likely to happen and what the general scheme is. Mr. THORON. If I may volunteer something, sir. This bill provides for the issuance of bonds of a type which have found a ready market without recourse to any Government agency. There is no reason to expect that it would be necessary for the Insular Government to have recourse to a Government agency to finance with this type of bond. Mr. CRAWFORD. Have any of the obligations of the U. W. R. system at any time been other than revenue bonds or have they ever issued any obligations? Mr. THORON. I don't know. I believe they issued certain bondsthe Insular Government issued certain bonds prior to P. W. A., which carried the full faith and credit of the Insular Government, and also a pledge of the revenues of the U. W. R. Mr. Lucchetti would probably be better informed on that than I am. Mr. CRAWFORD. This book that has just been handed to me, I find on page 68 that The CHAIRMAN. Would you excuse us a second? Mr. CRAWFORD. I don't know of any other questions I have to ask the Secretary. Mr. ICKES. These men have all the technical knowledge anyhow. Mr. CRAWFORD. I would like to ask the Secretary this: I don't know whether he is prepared to answer it or not, but in the Secretary's presentation he spoke about the technical defects. I assume he referred to the Senate bill-the February 27, 1940, bill. Mr. ICKES. Is that the Puerto Rican bill? Mr. CRAWFORD. Yes. Would you mind giving us additional light on what you mean by technical defects in this bill as compared to the bill under consideration this morning. Mr. ICKES. Subject to the correction of those here who know more in detail the terms of the bill than I. I think the principal objection was that that contained political control of this Authority which the Government thought was an unsound theory. Mr. CRAWFORD. In other words, the Puerto Rican bill would go directly to the question I raised a few moments ago. Mr. ICKES. The Legislature would have to approve all transactions. It kept it within the control of the Legislature. Mr. CRAWFORD. Mr. Secretary, in connection with that I notice that H. R. 8239, on page 5, section 5, provides for an executive director to be appointed by the Board. Assuming that the services of that executive director proved to be very unsatisfactory to the Puerto Rican people, would they have any recourse at all or would he not be absolutely under the control of our authorities up here? Mr. ICKES. I think he would be just like a general manager of any corporation who runs the physical plant. Necessarily his responsibility would go to the members of the Authority. Mr. CRAWFORD. Well, except this, unless I am mistaken in my approach. Now, it appears to me that we are setting up, we will say, a Federal control operating out of Washington in carrying on operations in Puerto Rico. Mr. ICKES. No Federal control, Congressman. The members of the Authority have absolute control, independent of the Department of the Interior or any agency in Washington. Mr. CRAWFORD. Well, I understood in S. 166, one of its technical defects, as viewed from your Department, was that it does maintain control in Puerto Rico while Mr. ICKES. Control by the Legislature. Mr. CRAWFORD. Well, of course, you would have to be controlled by the Legislature because individuals could not control it. Mr. ICKES. Well, you set up an Authority. Those who constitute the Authority would exercise the control, and that would be the Governor of Puerto Rico, the Attorney General of Puerto Rico and the Commissioner of the Interior of Puerto Rico. That is local control. Mr. CRAWFORD. Now, who appoints those three parties? Mr. ICKES. They are named in the bill. Mr. CRAWFORD. No. Mr. ICKES. The Governor of Puerto Rico. Mr. CRAWFORD. And who appoints the Governor of Puerto Rico? Mr. ICKES. The President of the United States. Mr. CRAWFORD. And who appoints the Attorney General of Puerto Rico? Mr. ICKES. The President of the United States. Mr. CRAWFORD. And who appoints the other party mentioned? Mr. ICKES. The Legislature, I believe. Mr. LUCCHETTI. The Governor of Puerto Rico. Mr. ICKES. Yes. Mr. CRAWFORD. Then where do the Puerto Rico people have any say whatsoever about this proposition as presented to us here in this bill? Mr. ICKES. Well, they are officials of Puerto Rico. Mr. CRAWFORD. Officials of Puerto Rico but political appointees of whatever administration happens to be in power. Mr. ICKES. Their appointment is in conformity with the Organic Act which was passed by the Congress. Mr. CRAWFORD. That may be true, but we can get additional information on that. Do you know whether or not this provides for straight revenue bonds or for a combination mortgage and revenue bond? Mr. ICKES. I do not know. Mr. CRAWFORD. Well, that is all I will bother the Secretary with at this time. The CHAIRMAN. Are there any other questions to be asked at this time by the members of the committee? Mr. Secretary, we thank you for your presence here. Now, we will hear Mr. Lucchetti again. You may proceed, Mr. Lucchetti. Mr. LUCCHETTI. Since the year 1915 the Government of Puerto Rico has been developing and operating an electric system which has gradually extended to cover an area which is 50 percent of the area of the island. Sheer necessity for bringing the blessings of electric service to the 750,000 population living in that area led the Government into such undertaking. No one else had ever before cared to provide that service. The bill which is before you for consideration seeks primarily to safeguard the economic stability of that system by providing a legally safe, reliable course for financing the further extension of plant and facilities which are unavoidably required to maintain it up to the size and efficiency exacted by the growing demand of the growing number of consumers. Without the legal authority for such financing, the system facilities are bound to lag behind service requirements, and eventually the people of that island might find themselves in the loathsome predicament of being deprived of their undertaking, forced as they would be to dispose of it by sale to the highest bidder. Most likely it would then pass to the hands of foreign absentee capital. The revenue producing assets which have been developed and the high standard of business prestige and service efficiency which have been maintained, have given the undertaking a self-sustaining and self-propelling financial power. To exercise that power, however, for financing the new projects, it must have the requisite legal enfranchisement. The proposed measure, as already stated, is intended primarily to provide such legal enfranchisement or authority. The course provided in the bill for such financing is established through the vesting of the necessary power and authority to issue revenue bonds. For clearness sake, and to avoid misunderstandings, let me stress the fact that the bill does not in any way contemplate the raising of funds except through operation of the business itself. It will not impose a single burden on taxpayers either here or in Puerto Rico. Of course revenue bonds will be bought by investors only when the undertaking producing the revenues is so constituted that they, the investors, can clearly and positively count on a proper functioning of the business under an organization and procedures governed strictly by the terms of a legal charter framed in definite form. The proposed bill will furnish such a charter. It provides: For the creation and functioning of an Authority to be composed of the three officials in the Government of the Island most directly concerned at present with the administration of its electric system; for the powers of the Authority, vesting it with the same powers which the executive part of the Insular Government now exercises or has a right to exercise in the construction and operation of its electric system, plus the additional power for issuing revenue bonds on the general market, for the appointment of the executive director and of the rest of the personnel of the Authority. With the exception of the director, all the personnel must be in accordance with the rules and classification of the Puerto Rico Civil Service Commission. However, a proviso is made in that part of the bill relative to the appointment of personnel to the effect that when the Authority finds it necessary for the conduct of its work to employ expert engineers, lawyers, or special assistants, who are not available locally and cannot be obtained from the Puerto Rico Civil Service rolls, the board of the Authority may employ them without regard to civil-service laws. |