committees are not compensated, and there can be no legitimate criticism leveled at their operations; I have never heard criticism of their operations, and I do not believe there are any criticisms of their operations.

The remaining municipal defaults are comparatively small, individually and in the aggregate, and furnish no incentive for compensated committees; the work of rehabilitation must be performed by the investing agencies and their officers, in connection with the cooperating efforts of the municipalities and the taxpayers thereof; returning prosperity has created an impelling motive on the part of the home owners, businessmen, and taxpayers to regularize the debt and tax conditions of their communities, so that there is now cordial cooperation, as a general thing, between municipalities and the investing agencies; the situation is directly reversed from what it was in the early days of the depression.

That the home owners and taxpayers fear legislative interruption of the rehabilitation activities is disclosed by the photostat of clipping from the Miami Herald, March 30, 1937, attached hereto; and that the fraternal investors, at least, are opposed to this legislation is established by the attached copy of resolution adopted by the National Fraternal Congress in New York in August 1936.

The provisions of H. R. 6968 are so drastic that committee activities would be practically eliminated and destroyed and some new method of cooperation would necessarily have to be devised; the effect would be necessarily to delay and add to the inconvenience and expense at a time when all interested parties are anxious to expedite the debt and tax adjustment.

4. The provisions of H. R. 6968 are unnecessarily drastic and severe and, as already observed, practically destroy all committee activities.

I refer particularly to section 14-B, whereby the Securities and Exchange Commission is authorized to review the reasonableness of the expenditures of any committee; the question of fees is not here important, but the question of expense is vital; this provision transfers to Washington complete control over all committees because the expenses incurred and disbursed are taken out of the power of the committee and of the municipality and vested in a Washington bureau; it would be pretty difficult to imagine a more crippled device.

The same section provides that the Securities and Exchange Commission is authorized "to supervise the activities of any declarant (committee) and the exercise by it of any rights, powers, or duties."

This provision directly transfers the powers of the committee to the Securities and Exchange Commission and is equivalent to a requirement that the Securities and Exchange Commission is acting as a committee in all refundings where a committee is desirable; legislation so unreasonable defeats its ostensible purpose. Section 10-B (1) further cripples refunding activities by hampering and preventing the employment of national bond attorneys; the effect is to impair the value of the refunding bonds as well as to cripple the efforts of the committee; unless national bond attorneys approve the refunding, the refunding bonds would be unmarketable; the expense of national attorneys would be greatly increased if their employment was forbidden during the process of refunding.

I do not think further reference to the extraordinary and drastic provisions of the bill are necessary to establish that its drastic provisions practically eliminate all committee activities; the effect of the bill is not to protect investors but, on the contrary, its effect is to injure, damage, and destroy investors as well as the taxpayers of the communities now anxious to regularize their debt and tax situations.

5. H. R. 6968 is entirely unnecessary; the valuable functions performed by the committees are conceded; there are no serious criticisms or changes leveled at such committees.

During the 2 years ending March 31, 1937, 42 percent or more of the counties and 21.3 percent of the cities and towns in default were restored to currency and the rate of restoration since that date has been no less and probably considerably more rapid than prior thereto; the report of the North Carolina Local Government Commission, made public June 15, 1937, reflects high satisfaction touching rehabilitation results in that state and shows progress even more favorable than the above ratios; the Commission reports an interest saving of $40,000,000 resulting from these refunding operations; surely there is no room here for criticism. 6. The legislation is of most doubtful legality and would be provocative of litigation for reasons as follows:

(a) It runs directly in the face of the Cameron County decision holding that municipal bankruptcy legislation is in conflict with our governmental theory; that Congress is without authority to regulate or interfere with the internal affairs of the subordinate governmental agencies of the States having particular application to bonds and other municipal debts.

(b) The tax almost universally required to be levied as a condition precedent to the issuance of the bonds stands with respect to the bond in precisely the same relation as a mortgage stands to a note secured by it; H. R. 6968 intends to and does impair the rights and remedies of the owners of the bonds in entering into contracts with respect to and realizing upon their securities, to wit, the precedent tax so levied.

(c) H. R. 6968 is obviously an attempt to regulate the user of postal and interstate commerce facilities rather than to regulate such facilities or the commerce transacted thereby; the soliciting of proxies or deposit agreements is not commerce whether or not made within a State and it does not become commerce when state lines are crossed; the proxy or deposit agreement becomes effective only upon delivery which, like the insurance policy, is local and not interstate.

The doubtful legality of the legislation and of attempts to make it effective would necessarily delay refunding activities and the innocent victims of the depression would have their injuries increased by this thoughtless attempt to protect them against imaginary evils.

I submit that the bill should be amended by striking out all reference to municipals and exempting them from its operations precisely the same as the municipals were exempted from the original Securities and Exchange Commission legislation. Resepetfully submitted,

GEO. A. BANGS, Managing Director, American United Life Insurance Co.

[From the Miami Herald, Mar. 20, 1937.]

CITIES TO ASK FINANCIAL AID OF ASSEMBLY-PART OF GAS TAX TAX FUND IS EYED BY FLORIDA MUNICIPALITIES-OTHER REVENUE SOURCES SOUGHT— LOSS THROUGH HOMESTEAD EXEMPTION AMENDMENT IS CITED

[By the Associated Press.]

TALLAHASSEE, FLA., March 19.-Florida's organized city officials will ask the legislature for part of the gasoline-tax revenue and money from at least two other sources to help make up losses they attribute to the amendment exempting homesteads from taxation.

The Florida League of Municipalities has been working steadily since its December convention lining up support for a bill to permit the cities to levy a 2-cent gasoline tax-which would be deducted from the State tax.

Mayor A. D. H. Fossey of Miami, said this part of the cities' program probably would be supported by Gov. Fred P. Cone.

The chief executive has made no direct public statement on this particular feature, but has expressed warm approval for the league program in general. In contrast with other sessions, the legislature will hear little from municipal officialdom this year about bond legislation. The league in December went on record strongly against any attempt through State law to solve bond debt problems that occupied days of legislative attention in 1933 and 1935.

The city officials decided they could approach solution of their remaining debt difficulties better by negotiation with their own creditors than by any legal help that might be achieved. Sharp tax collection increases and, in several instances, favorable refunding programs were credited with this change of policy.

Several planks in an extensive league platform, however, are aimed at getting State assistance, directly and indirectly, to fill the loss charged up to the amendment exempting homesteads from taxation up to $5,000 value.

The gasoline-tax plank called for an indirect "cut" on the State's most lucrative source of revenue when league attorneys said the fund could not legally be distributed directly to cities.

They said only two funds-that derived from inheritance taxes and that from intangible property taxes-could be divided among the cities. Bills were drawn to give these to each municipality in proportion to its exemption losses.

Several statutes extending the right to cities to charge licenses on businesses and professions were included in the program.

The league also asked that cities not be required to pay the State tax on gasoline used for governmental purposes.

Another attack on the problem, the league decided, will be in the form of a bill requring the State road department to repair and maintain all city streets that serve as connecting links for main State highways.

The league was somewhat divided on its attitude toward the 1934 constitutional amendment requiring adoption of uniform charters for cities in various population groups. The members defeated a proposal to back repeal of the amendment

as unworkable, voted cooperation with the house and senate committees now seeking to classify cities and prepare charters for them, but favored resubmitting the entire question to the voters in a new amendment.

The league program included planks aimed to give cities the right to set up housing authorities for slum clearance and to permit cities to borrow federal money for construction of electric-light plants.

H. R. 12078. RESOLUTION By National FRATERNAL CONGRESS AT NEw York, AUGUST 26, 1936

Whereas the great fraternal societies, with a membership of 7,000,000 men and women, to whom is furnished by such societies, life-insurance benefits at a minimum of cost and a maximum of safety, have largely invested the accumulation of funds entrusted to them by their members, for the sacred purpose of protecting their dependents, in municipal bonds, such investments aggregating approximately $500,000,000 being made—not only with the approval of the Federal and State Governments-but through their active encouragement and aid, for the purpose of providing funds for public works and improvements, as a result of all of which such fraternal societies and their members are deeply and vitally interested in any measure affecting the integrity, value, and welfare of such bonds; and

Whereas H. R. 12078, regulating bondholders' committees, forbids any person representing the owners of municipal bonds without a certificate of authority granted (conditioned as below) by the Securities and Exchange Commission, under penalty of $5,000 or 1 year, to use the telephone, telegraph, or any instrument of interstate commerce or the postal facilities either to demand payment, negotiate any settlement, prosecute any claim, collect any money, accept or receive refunding or renewal bonds, or otherwise to service such bonds; and

Whereas the Securities and Exchange Commission certificate or authority thus required is conditioned

1. That no auditor, accountant, clerk, attorney, consultant, or other official or employee shall be retained until after the Securities and Exchange Commission shall have approved the individual, the duties, and the compensation;

2. That no expenses of operation or otherwise can be paid until approved by the Securities and Exchange Commission;

3. That no suit can be inaugurated until after approved by the Securities and Exchange Commission;

4. Other rigorous requirements, including—

5. Possible cancelation upon 5 days' notice;

6. A bond in an amount and conditions fixed by the Securities and Exchange Commission; and

Whereas said H. R. 12078, if valid, and enacted practically

1. Prevents the enforcement of all municipal bonds, particularly those owned by individuals of modest means who are dependent upon cooperation with others to minimize expense;

2. Prevents all practicable contact between the bondowners and the financially embarrassed municipality because of the wide distribution of the bonds in small blocks or amounts;

3. Prolongs the depression by retarding, opposing, and hampering rehabilitation activities in the smaller communities and taxing districts, thereby impairing the credit of businessmen with their banks and wholesalers and clogging and preventing the sale and mortgaging of real estate at fair prices; and

4. Increases the burdens upon such small or taxing districts by reducing and impairing the desirability and attractiveness of municipal bonds by increasing the difficulties of enforcement.

Now, therefore, be it

Resolved by the National Fraternal Congress assembled, this 26th of August, A. D. 1936, in the city of New York, and State of New York:

1. That H. R. 12078, insofar as it applies to the bonds of municipalities and other subordinate governmental agencies, is opposed to a wise public policy and should not be enacted.

2. That the Senators and Representatives in Congress assembled be respectfully petitioned not to enact said H. R. 12078, in a form applicable to municipal

bonds.

3. That the chairman and the secretary of this conference be authorized and instructed to cause copies hereof forthwith to be sent by mail to each of such Senators and Congressmen.

1508-37-36

[H. R. 12078, 74th Cong., 2d sess.]

A BILL To regulate bondholders' committees acting in interstate commerce or through the mails, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

DEFINITIONS

SECTION 1. The term "bondholders' committee" as used in this Act means any person or group of persons, firm, association, or corporation representing or assuming to represent or acting for or on behalf of the owners or holders of any bonds, certificates of indebtedness, securities, promissory notes, or other obligations issued by any corporation or by any city, town, borough, tax district, improvement district, county, State, or other political subdivision.

The term "interstate commerce" means trade, commerce, transportation, or communication among the several States, or between any foreign country and any State, or between any State and any place outside thereof.

The term "any means of communication" shall include any communication by telephone, telegraph, radio, or by written memorandum, whether sent through the mails or delivered in person.

The term "Commission" means the Securities and Exchange Commission. The term "corporation" wherever used in this Act shall include also any receiver or trustee of any corporation appointed by court order.

BONDHOLDERS' COMMITTEES MUST HAVE CERTIFICATE OF AUTHORITY

SEC. 2. Unless a certificate of authority has been issued in accordance with the provisions hereinafter set forth and is in effect, it shall be unlawful for any bondholders' committee, directly or indirectly

(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to solicit the deposit with said bondholders' committee or any agency designated by said bondholders' committee, of any bond, note, certificate of indebtedness, security, or other obligation issued by any corporation or any city, town, borough, tax district, improvement district, county, State, or other political subdivision;

(2) to carry or cause to be carried through the mails or in interstate commerce by any means of transportation or communication any advertisement, prospectus, letter, circular, or communication in which such bondholders' committee is designated, described, represented, or held out as an agency to act for or on behalf of the holders of any bonds, notes, certificates of indebtedness, securities, or other obligations issued by any corporation or by any city, town, borough, tax district, improvement district, county, State, or other political subdivision;

(3) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to act for or on behalf of the owners or holders of any bonds, notes, certificates of indebtedness, securities, or other obligations issued by any corporation or any city, town, borough, tax district, improvement district, county, State, or other political subdivision, in negotiating for any settlement thereof or in prosecuting any claim thereon or in making any demand for payment thereof in whole or in part; or

(4) to receive or collect any money upon any bond, note, certificate of indebtedness, security, or other obligation, or to receive or collect any refunding bond or renewal of any such bond, note, certificate of indebtedness, security, or other obligation from any corporation or any receiver or trustee for any such corporation or from any city, town, borough, tax district, improvement district, county, State, or other political subdivision for distribution to any person, firm, association, or corporation whose legal residence is in any State other than the State in which the corporation or political subdivision as the case may be, from which such money or refunding bond was collected is domiciled.

Exceptions: (a) The provisions of this section shall not apply to administrators, executors, guardians, or trustees, created either by will, trust deed, or court order, in the collection of or prosecution of claims based upon bonds, notes, certificates of indebtedness, or other evidences of indebtedness owned by the estates represented by them respectively.

(b) Nor shall the terms of this section apply to bona-fide officers and attorneys of any corporation in the collection of or prosecution of claims based upon any bonds, notes, certificates of indebtedness, or other evidences of indebtedness actually owned by the corporations of which they are officers or attorneys.

COMMISSION TO ISSUE CERTIFICATES OF AUTHORITY

SEC. 3. Upon written application signed and filed in manner and form as provided in section 4 hereof, the Commission may issue certificates of authority to bondholders' committees.

Each such certificate of authority shall specify the names of the members of the said bondholders' committee and shall be issued subject to the following conditions:

(a) That prior to the employment of any secretary, auditor, clerk, accountant, adviser, consultant, attorney, assistant, or other official or employee, said bondholders' committee shall submit to the Commission the name or names of any such person or persons intended to be retained, employed, or hired together with a statement of the duties to be performed by him or them and a statement of the salary, wages, fees, or compensation proposed to be paid by the bondholders' committee and shall not enter into any contract or agreement for the employment of any such person until the contract or agreement of employment and the salary, wages, fees, or compensation proposed to be paid has been approved by the Commission;

(b) That no compensation shall be paid to or retained by the respective members of said bondholders' committee except in strict accordance with the terms of the deposit agreement entered into between said bondholders' committee and the respective owners or holders of the bonds, notes, certificates of indebtedness, securities, or other obligations deposited with said bondholders' committee;

(c) That said bondholders' committee shall file as often as required by the Commission, at least twice each year, a detailed report in which shall be set forth (1) a list of all persons employed or retained by said bondholders' committee together with a statement of the full compensation paid or agreed to be paid to each, (2) a full and accurate statement of all money collected by said bondholders' committee and a full and accurate statement of all disbursements made by said bondholders' committee and the names of the persons to whom paid and the purposes for which paid, (3) a full statement of all litigation inaugurated by said bondholders' committee, and (4) such other and further information and data as the Commission shall require;

(d) That no suit at law or in equity shall be instituted or inaugurated by such bondholders' committee unless and until a full statement of the necessity for such litigation and the object sought to be accomplished has been filed with and approved by the Commission;

(e) That said bondholders' committee shall promptly, and not less than twice each year, distribute pro rata to the owners of the bonds, notes, certificates of indebtedness, securities, and other obligations deposited with said bondholders' committee all funds and moneys on hand after payment of expenses which have been approved by the Commission; and

(f) That said certificate of authority may be revoked by the Commission at any time after five days' written notice to the chairman of said bondholders' committee for any violation of any of the terms and conditions of said certificates or for any violation of any of the terms of this Act or for malfeasance, misfeasance, or nonfeasance in office.

APPLICATION FOR CERTIFICATES OF AUTHORITY

SEC. 4. Applications for certificates of authority shall be signed by each member of the bondholders' committee and shall be filed with the Commission and(1) shall set forth with as much particularity as possible: (a) whether the issuer of the bonds or other obligations is a corporation or a political subdivision, and if a corporation whether it has been placed in receivership or bankruptcy; (b) the nature and amount of the indebtedness and the amount thereof which is in default; and (c) the nature and extent of the security pledged for the payment of the indebtedness;

(2) shall set forth the reasons why it is claimed a bondholders' committee is necessary and the action proposed to be taken for the protection of the creditors of such corporation or political subdivision, as the case may be;

(3) shall state the business affiliation of each member of such bondholders' committee and such relevant facts as may be necessary to enable the Commission to pass upon the qualifications and financial responsibility of the respective members of the bondholders' committee;

(4) shall have attached thereto as an exhibit a true copy of the deposit agreement which it is proposed to execute with the owners or holders of the bonds, notes, certificates of indebtedness, securities or other obligations to be handled by said bondholders' committee; and