nominal fee-let us say $1-it would be turned over to the jobber or service station operator. So, this would in that way allow him access to the machinery without taxing his credit situation, because he would be leasing it from a Government body.

Mrs. FENWICK. Will the gentleman yield?

Mr. CORMAN. Yes.

Mrs. FENWICK. In New Jersey, I was the sponsor of the Industrial Pollution Financing Act, which has operated very successfully in New Jersey, due to an authority set up by the act to issue tax-exempt bonds and provide it, and it comes under the Internal Revenue Code, provided that this equipment is not used in any way to increase production, but only for air and water pollution control and elimination. And that is how it is done. The authority can--the company applies to the large or small-applies. And I write New Jersey Economic Development Authority asking them for their opinion of H.R. 78, and they are delighted at the idea of its being nationwide. We already have it in New Jersey. And that is how it functions.

Mr. CORMAN. How would this work in New Jersey? Let us take this $100,000 investment that the small jobber needs. Now, where does he go to get that money and how is it financed in New Jersey?

Mrs. FENWICK. He goes to the authority-it is a small company, right? He goes to the authority and he says, look, I would like to well, now, is this the company that is going to use it, or the company that is going to produce it?

Mr. CORMAN. The company that needs to use it.

Mrs. FENWICK. Use it; right. That is what it is for. The company goes in and says, look, your terribly strict regulations require me to get a whole lot of new machinery which I cannot afford at the rates at which I have to borrow to do it. So the authority looks at the company and says, now look, you are going to have to get this equipment and we think you are in a good financial condition, so that you can stand the more modest interest rates this is going to require. And they float the bonds. Economically, the authority floats the bonds for the company. It is based on the financial capacity of the company to pay back.

Mr. CORMAN. Does the authority guarantee the bond to the bond buver?

Mrs. FENWICK. It is guaranteed by the assets of the company, and the authority-I have the whole thing here. Would you like to see this letter?

Mr. CORMAN. I will study it later; I was intrigued. As I say, we are really doing our best to eliminate all tax-free bonds other than for State and local government. I am not sure we will succeed, but I just did not know how much further we were opening the door here.

Mrs. FENWICK. What it does, you see, it makes it possible-we lost, the head of the Rubber Workers Union and I-I asked him to cosponsor it with me-we lost one company after another-400 jobs in his district, as a matter of fact he is a State senator now-and it was just maddening because Pennsylvania did not have the environmental protection that we had. We are so crowded we have it. So, we got it. through with comparatively no objection.

Mr. CORMAN. But from the point of view of the authority, they operate very much as the normal industrial bonds?

Mrs. FENWICK. Yes.

Mr. CORMAN. Thank you.

in some

Mrs. FENWICK. As you see, I am not an expert on the final end of the financing; it is the theory that interests me. I am sorry. I missed so much of your testimony. I wonder if you could tell us what practical problems you have run into. I mean, what practical situation do you think this legislation would render? What is the practical situation? Mr. Love. Yes, ma'am. The problem that our members face-small oil jobber has had in complying with the EPA requirements-has been that he is forced to spend a considerable amount of money, cases projections that run in excess of the net worth of his company, to comply with no anticipated return on the investment that he has got to make, and the very practical result of this particular legislation would be that a mechanism would at least become available, perhaps available, for him to finance the improvements that are described by the EPA. It still would not provide for any return on the investment, but at least the financing would become available, because at this time, if he is unable to obtain financing for the equipment and he falls within the purviews set up by the EPA requirements, he has no choice but to go out of business.

Mrs. FENWICK. Which do you think would be better? I mean, the direct loan from SBA, or this bond authority bond business?

Mr. Love. We would probably view either one as better than the situation that we find ourselves in today. Unfortunately, neither one is available to us. In the first instance, a direct SBA loan because we are not described as I pointed out in my testimony--we are not included, and then No. 2, in the second situation

Mrs. FENWICK. What do you mean, you are not included? What does that mean?

Mr. Love. Well

Mrs. FENWICK. The definition of a small business does not apply to you, or what?

Mr. Love. Well, as far as pollution, in this particular languageand it is similar for unleaded requirements-it defines pollution control facilities eligible under the act as property which will abate or control air and water pollution by removing, ordering, disposing, or storing pollutants, and in the case of unleaded, as an example, it does not do that, so we suggest, we have suggested in our appendix, in one of the appendixes to our written testimony, language that would broaden it sufficiently to include us.

Mrs. FENWICK. What would that language be?

Mr. Love. It is very simple. It is it adds simply: "or any other means." It is appendix A to the written testimony. But that would provide a remedy at least for that.

Mrs. FENWICK. I see.

Mr. SMITH. Mr. Goodling.

Mr. GOODLING. Just one comment in relationship to Mr. Love's news release. It says, "Love first cited the history of the now suspect catalytic converter," and I am here to testify that it is beyond suspect. My car caught on fire twice within 3 hours because of a catalytic converter getting that hot. It burned the rug underneath my seat and I had to call the fire truck twice within 3 hours-so it is beyond suspect. Mr. Love. I appreciate that, Mr. Goodling.

Mr. GOODLING. I have no questions.

Mr. SMITH. Thank you very much, Mr. Love. Your testimony was helpful.

Mr. Love. Thank you, Mr. Chairman.

Mr. SMITH. Before we call our next witness, I would like to make Congressman Clausen's statement a part of the record at this point. He was to testify here today but he could not make it. Hearing no objection, it is so ordered.

[The prepared statement of Representative Clausen follows:]

PREPARED STATEMENT OF HON. DON H. CLAUSEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Chairman, thank you for giving me this opportunity to appear before the subcommittee to outline a serious problem which faces the dairy farmers in my district and to stress the need for legislation to correct this problem. I commend you for your decisive action in calling these hearings and I feel certain we can arrive at an equitable solution.

As you know, Mr. Chairman, the problem stems from the provision of the Water Pollution Control Act which requires that dairy farmers provide pollution control facilities which will prevent cow wastes from entering our water supplies. The deadline was set in advance of the rainy season when this problem becomes particularly acute. This deadline for compliance is rapidly approaching and many dairymen in my area have indicated to me that they simply cannot meet it without assistance from SBA in the form of small business loans for the purchase and construction of the facilities.

The dairymen have told me that the cost of complying with the Act could cost them $40,000 and in some cases as much as $100,000. It is obvious that these small family enterprises cannot possibly come up with these funds on their own. Our present economic situation has placed severe burdens on all small farming operations but particularly the small family farm. The majority of dairy farms in my area are marginal operations and without the help of loans from SBA their own government could force them to go out of business.

We in the Congress have stressed the need to prevent further unemployment and have taken great pains to create programs which will provide jobs. The SBA can do its part in this effort by allowing these people to help themselves. They are not asking for a handout or a gift-they are seeking loans which will be repaid over a 30-year period at 61⁄2 percent interest.

The SBA has administratively determined that it will not make loans available to the dairymen on the grounds that they are prohibited from doing so by the duplication provision of the Small Business Act. The Appropriations Committee attempted to remove this uncertainty by including language in the Committee Report which accompanied the State, Justice, Commerce, Judiciary Appropriations bill (on page 39), which clearly stated that it was the intent of the Congress that the law be interpreted to permit the granting of the loans and this action should be taken immediately.

Legislation which will mandate SBA assistance to dairy ranchers for the purpose of complying with the Water Pollution Control Act would further remove any question as the authority of the SBA in this matter.

My bill which is similar to Congressman John Burton's proposal would accomplish this end by simply amending the Small Business Act, Section 7(g) (1), to include, “establishments primarily engaged in production of cow's milk.” This section is the one wihch specifically applies to the requirements of the Water Pollution Control Act.

My decision to sponsor this legislation is the culmination of numerous lengthy discussions with the dairymen in my area as well as Federal government representatives. My constituents must have these loans in the very near future in order to be able to start building the facilities in time to meet the deadline. Without our help in enacting this legislation many of them will lose their land. The fate of the small family farm is at stake and it is imperative that we prevent the further destruction of this mainstay of our society. I urge my colleagues on the subcommittee to move swiftly on finding a solution to this problem.

Again, Mr. Chairman thank you for allowing me to appear before you today. I am aware of your deep concern over this matter and your own personal efforts to correct this problem. I am confident that we can resolve it.

Mr. SMITH. The next witness is Mr. John B. Adams, director of environmental and consumer affairs, National Milk Producers Federation, accompanied by our former colleague, Mr. Lynn Stalbaum.

TESTIMONY OF JOHN B. ADAMS, DIRECTOR, ENVIRONMENTAL AND CONSUMER AFFAIRS, NATIONAL MILK PRODUCERS FEDERATION; ACCOMPANIED BY LYNN E. STALBAUM, LEGISLATIVE REPRESENTATIVE

Mr. ADAMS. I am John Adams, director of environmental and consumer affairs for the National Milk Producers Federation. We appreciate this opportunity to testify on legislation which is of vital concern to dairy farmers across the country.

The National Milk Producers Federation, as spokesmen for the Nation's dairy farmers, wholeheartedly supports bill H.R. 5675 and related bills which would permit dairy farmers to be eligible for Small Business Act loans to assist them in meeting the requirements of the Federal Water Pollution Control Act of 1972.

Congress has been well aware that dairy farmers have been caught in a cost-price squeeze. In December 1974 and again early in 1975 it passed, by overwhelming margins, legislation to increase the minimum dairy price supports, only to have the legislation succumb to a Presidential veto. Yet during this same period farmers have been required to give consideration to installing facilities, primarily to handle animal wastes, as required by water pollution control laws.

This expenditure, it must be pointed out, does not basically improve the income potential of the farm. It is an expenditure the farmer must make to improve our general environment. This is not necessarily unique to dairy farmers. Other business operations have had to make similar outlays for similar purposes without corresponding direct benefit to themselves. Farmers, generally, have not opposed these types of laws. But they have often wondered how they can finance them and remain solvent. This is particularly true to the smaller farms.

Due to the lack of specific information on the costs of installing such control facilities on dairy farms, the federation, in cooperation with the Economic Research Service of USDA and the Environmental Protection Agency, undertook a survey of dairy farms across the Nation in 1973 seeking to measure this impact. Based on the information developed from that study, a farmer with a 35-cow herd would face an expenditure of almost $165 per cow. For 100-cow herds, this total would decline to just under $70 per cow.

These are substantial outlays for any dairyman. The inflation of materials and construction cost in the last 2 years simply means that the cost of such installations today would be much higher. An alarming part of this study was the response received to the question relating to what actions these dairymen would take if the needed outlays for this work reached various levels.

Over 65 percent of those responding said they would discontinue their dairy operations if the expenditure were in the range of $51 to

$75 per cow and 91 percent stated that this would be their decision if the needed outlay reached $150 or more.

This is pretty well borne out by the experience and observations to date of individual dairy farmers. Mr. J. H. Mendoza, a dairy farmer from Point Reyes Station, Calif. and a leading spokesman for dairy farmers in that State recently made the following observation on this situation:

The amount of non-productive funds required by dairy farmers to invest in their dairy farm operations to qualify under new EPA regulations is going to put a large percentage of dairymen out of business. One example I have spent $100,000 on a winter loafing barn, liquid manure pit, pumps and pipe with sprinklers. I am sure that it will require an additional $30,000 to completely qualify the additional calf raising areas and corrals.

A study of the economic impact of controlling surface water runoff from U.S. dairy farms conducted by USDA's Economic Research Service in 1974 indicated that the required investments would add substantially to the cost of milk production on U.S. farms. Depending on herd size, region of the country and type of control system selected, the additional cost would run from 6 cents per hundredweight of milk produced to as high as 84 cents per hundredweight. The lower cost figure, of course, would apply to herds generally in the range of 250

cows or more.

With the cost-price squeeze dairy farmers have faced in recent years and with little prospect for any relaxation, it would be doubtful that many of the smaller producers would choose to make this basically nonproductive investment if they had any realistic production alternatives available to them.

This being the case, the production of milk would be severely curtailed. As this happens, the prices consumers pay for milk and dairy products will rise. Thus, this becomes a problem not only for the dairy farmer, but for the individual consumer as well. It is essential that steps be taken to make it possible for dairy farmers to meet these requirements and continue in production.

Based on these factors we consider H.R. 5675 to be necessary and worthwhile legislation in meeting this problem. Funds for these programs from other governmental sources, such as USDA are very limited, both by availability of funds and the types of loans which USDA can make. Therefore, a broader program is needed. We believe that SBA loans can do this.

Mr. ADAMS. Mr. Chairman, I have only one other comment to elaborate on the situation that we are facing. USDA has just announced their agriculture conservation payment program for the coming year. It makes available $190 million for all types of soil conservation practices and it includes pollution control practices relating to storm water runoff control.

There is a maximum payment limitation under the appropriations act itself limiting any payment to any individual to $2,500. We are facing today cost installations for liquid manure systems, spray irrigation systems, ranging from $16,000 to $50,000. Now, this is out of the question for the particularly small farmer who has a herd size in the area of 50 to 100 head.

But, for this herd size, in particular, we are concerned because he is going to face, depending upon his location-and many of you must realize some dairymen are located right on a stream or waterway.