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contractor, or whatever you want to call it, must live up to the standards set for a fiduciary. That is what it means.

Mr. WOLVERTON. In other words, you mean that a bureau here in Washington would be better able to say whether an independent contractor was capable of giving honest service to the municipality that employed him?

Commissioner DOUGLAS. Well, I say this: That the interests between the debtor and the creditor are just as conflicting in the municipal situation as in the corporate situation.

Mr. WOLVERTON. Would you put the municipality in the same category as those who have mismanaged a corporation's affairs so as to require reorganization?

Commissioner Douglas. May I say—I do not know-but I would say this: There is one common element running through these reorganizations; we have the creditor interests that want their pound of flesh; and on the other hand we have the debtor interests that want to get the debts reduced just as much as possible, the interest and the principal cut down as much as possible. I say that the corporate and municipal situations are very nearly analogous.

Mr. WOLVERTON. As to conflicting interests?
Commissioner DOUGLAS. Yes.

Mr. WOLVERTON. The reasons that you have developed in connection with this language and the experience you have had does not seem to me to apply to municipal authorities and they should not be placed in the same category as those who are interested in corporate affairs. Public officials should be assumed to have a responsibility to the people and the people are able to observe whether they are fulfilling that responsibility. I cannot see any reason for assuming that the municipal authorities would not exercise their duties just as honestly in the matter of reorganization or refinancing as they would in other municipal activities. The selection of an independent contractor for this purpose is just as much a part of their duties as the selection of a contractor to do ordinary or usual work for the municipality. Why should the independent contractor selected to assist a city in refinancing be subject to supervision here in Washington anymore than any other individual contractor to do certain types of work for the city should be subject to supervision in Washington.

Commissioner Douglas. Well, I would agree with the latter statement. But do you not think there is a basic difference when the individuals or the independent contractors who are selected to act as a protective committee, are representative not only of the municipality but of bondholders all over the country?

Mr. WOLVERTON. The basic objection, in my opinion, to that section is this: You recognize at the commencement of the section the limitation of the constitutional right to effect municipalities and yet by bringing in the provision relating to independent contractors you practically accomplish the same purposes as if there was no exemption of municipalities as provided in the section.

Commissioner DOUGLAS. Well, insofar as that goes, would not that lead to an exemption of the municipal protective committee? Insofar as the independent contractors of the municipality are acting in a fiduciary capacity as respects bondholders, they should not be exempted any more than there is reason for exempting committees. There is

no reason to exempt those who are not regular employees of the municipality where those persons are representing bondholders as well as the municipality. As respects the exemption of regular employees, the bill follows the rulings of the Supreme Court in the tax cases.

Mr. MALONEY (acting chairman). Have you finished?
Mr. WOLVERTON. Yes.'

Mr. MALONEY (acting chairman). The committee will stand adjourned until 10 o'clock tomorrow morning.

(Thereupon at 12 noon an adjournament was taken until 10 a. m. of the following day, Wednesday, July 14, 1937.)

TO AMEND THE SECURITIES ACT OF 1933

WEDNESDAY JULY 14, 1937

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C. The committee was called to order at 10 a. m., in the committee room, New House Office Building, Hon. Clarence F. Lea (chairman) presiding.

The CHAIRMAN. The committee will come to order.

Gentlemen of the committee, Mr. McCall, of Dallas, Tex., asked permission to be heard for about 15 minutes this morning and Commissioner Douglas has kindly consented to suspend his statement to permit the committee to hear Mr. McCall.

Mr. McCall, you may proceed.

STATEMENT OF JOHN D. MCCALL, DALLAS, TEX. Mr. McCALL. Mr. Chairman and gentlemen of the committee, my name is John D. McCall. I am a lawyer whose business is confioed to the law questions pertaining to municipal and corporate financing; 95 percent of my business being concerned with municipal financing.

This statement is presented by me primarily as counsel for Cameron County, Tex., Brown County water improvement district no. 1 of Brown County, Tex., and Cameron County water improvement district no. 1, of Cameron County, Tex., and incidentally in behalf of the various municipal corporations and political subdivisions situated in the States of Texas and Florida, more particularly described in the schedule attached hereto, made a part hereof, and marked schedule A.

(The schedule referred to is as follows:)

SCHEDULE "A"

JULY 12, 1937. Memorandum to: Mr. John D. McCall. From: John D. McCall's office.

The following is a statement of the municipal refunding programs that are in the process of completion out of this office, all of which, we think, will be affected adversely from the standpoint of the communities by the passage of H. R. 6968.

TEXAS Mineral Wells. This program involves the refunding of approximately $800,000 of the city debt, including a reduction of interest and extension of principal to relieve the tax burden. The city commission has approved the plan and authorized refunding bonds to be delivered to all holders. A majority of the creditors have approved the plan. It would seem, therefore, that the entire operation meets almost unqualified approval of the citizenship of the city as well as the creditors generally. This plan has been submitted to and approved by the United States district court.

City of Ennis, Tex.- This program involves the refunding of approximately $500,000 of the city debt, including an extension of principal and reduction of interest. The responsible citizenship of the city of Ennis as well as the city officials themselves have approved the plan. It is believed that in the due course of business a majority of, if not all of, the holders of the city of Ennis debt will approve the plan. It is expected that this plan will be submitted to and approved by the United States district court.

City Breckenridge, Tex.—This program involves the refunding of approximately $640,000 of the city debt, including an extension of principal and reduction of interest. It is now in the process of completion. Upon completion, it will result in a reduction in the tax levy required against the Breckenridge property to support the debt. We believe that the citizenship of Breckenridge as well as the holders of the bonds are in a happy frame of mind with respect to the same. This plan has been submitted to and approved by the United States district court.

City of Belton.—This plan involves the refunding of approximately $600,000 principal amount of the Belton debt, including an extension of principal for 30 years and reduction of interest to as low as 14 percent per annum for the initial period. It likewise involves the release and cancelation of something over $100,000 of accrued and unpaid interest. The citizenship generally of the city has approved the plan, and it is believed that a majority of the Belton creditors will approve it. If the same can be completed, it will end approximately 15 years of expensive litigation by the composition of the differences heretofore existing between the creditors and debtor.

City of Harlingen, Tex.—The contemplated program here involves approximately $750,000 of debt. The plan is expected to extend the principal and reduce the interest, thus relieving the debt burden on the citizenship. We anticipate that & majority, if not all, of the creditors will approve the plan. Harlingen in now in default and unless and until a debt readjustment program is consummated, holders of the bonds as well as the property owners will suffer.

City of Stamford.—This plan contemplates the refunding of approximately $650,000 of the debt of the city and is now in the process of completion. It includes an extension of principal and reduction of interest. It will occasion considerable tax relief to the citizenship of this community and we think will prove acceptable to a majority of the holders.

City of Electra.- This plan involves the refunding of approximately $1,000,000 of the outstanding debt, including a very material extension of principal and reduction of interest to relieve the tax burden of the citizenship of this community and likewise satisfy the holders of its obligations. The city has been in litigation in the Federal courts for 2 or 3 years, and it is anticipated that this settlement will be adjudicated by the United States district court.

City of Childress. This program involves the refunding of $235,000 of city debt, including an extension of principal and reduction of interest, thus relieving the tax burden on the citizenship of the community.

Kent County.--This program involves the refunding of all the outstanding road and bridge fund debt, aggregating $41,500 providing for a reduction of interest from 6 to 4 percent and an extension of time on principal. The refunding bonds have been authorized by the commissioners' court, pursuant to a special road law enacted by the legislature at the request of the county and proceedings are now pending in the attorney general's office for approval. The county has been in default on warrants for at least 5 years and a 15-cent limited tax will not retire the debt except on the basis provided in the refunding plan.

Motley County.This program involves the refunding of all the outstanding road and bridge fund debt, aggregating $54,700, providing for a reduction of interest from 6 to 4 percent and an extension of time on principal. The refunding bonds have been authorized by the commissioners' court, pursuant to a special road law enacted by the legislature at the request of the county and proceedings are now pending in the attorney general's office for approval.

Stonewall County, Tex.-Stonewall County refunding involves all three constitutional funds; that is, road and bridge, permanent improvement, and general fund. The refunding has already been completed with the exception of a few of the warrants outstanding against each of the road and bridge and general funds, and the balance represented by scrip warrants. The total amount of all issues is about $300,000, of which approximately $100,000 remain to be delivered.

City of Turkey, Tex.—The refunding program for the city of Turkey involves all the debt of the city which is represented by $42,000 of waterworks bonds and $41,000 of warrants issued for various improvements, all of the debt now bearing 6 percent interest and all being refunded at substantially reduced interest rates, in order that the city may be able to service and redeem the bonds on the basis

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