Thus construed, this portion of the bill would effect no change in existing law. Concerns which buy agricultural products for resale are clearly engaged in commercial, rather than agricultural, enterprise. They may, if otherwise eligible, obtain business loans from this agency. We have made hundreds of such loans to wholesale and retail grocers. Since this portion of the bill gives the Small Business Administration authority which it already possesses, I do not recommend its enactment. The Bureau of the Budget has no objection to the submission of this report. Sincerely yours, WENDELL B. BARNES, Administrator. Re S. 3319, to make the provisions of section 3466 of the Revised Statutes inapplicable to debts due the Small Business Administration. Hon. J. W. FULBRIGHT, Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR FULBRIGHT: Further reference is made to your letter of February 21, 1958, requesting my views of the captioned bill. In a statement inserted in the Congressional Record of February 20, 1958, Senator Payne, the author of the bill, explained that his intent is to give priority to State and local tax liens over mortgage claims asserted by the Small Business Administration against the property of a borrower who is in default on a loan made by the Administration. I favor such a reform; but I do not believe that the bill, as drafted, will accomplish it. S. 3319 excludes the Administration from use of the priority enjoyed by the United States, under the provisions of title 31, United States Code, section 191, in the distribution of the unencumbered assets of any debtor of the United States who has become insolvent or who has made an assignment for the benefit of creditors. This priority is not applicable to property which is subject to a lien of any kind. The captioned bill, therefore, offers little of practical value to local taxing authorities. As explained below, the real conflict between their rights and ours lies in areas which are not affected by the priority contained in title 31, United States Code, section 191. On the other hand, we often find it necessary to assert that priority against creditors other than State or local taxing authorities. Although the Administration attempts to secure its loans by mortgages on the plants or other properties of its borrowers, the proceeds from the sale of such collateral may be insufficient to pay our claims, particularly in the liquidation of disaster loans. If the debtor is insolvent, or otherwise within the terms of title 31, United States Code, section 191, we assert the priority against his unpledged assets. In this manner, we have recovered large amounts of money which would otherwise have been lost to the Government. By depriving the Administration of the priority, the bill prevents all further recoveries of this nature. For the foregoing reasons, I am opposed to the enactment of S. 3319. In its stead I wish to make a proposal which will, I believe, accomplish the reform desired by Senator Payne. The real source of conflict is property which is subject to both an Administration mortgage, or deed of trust, and to a local tax lien. Since such property is encumbered, the priority of title 31, United States Code, section 191, does not come into play. Until recently, we avoided difficulty in most of our summary foreclosures (sales made pursuant to a power of sale contained in a mortgage) by yielding to the demands of local tax authorities. Normally their claims are small in relation to the total amounts involved and, in such cases, we considered it to be in the best interests of the Government to avoid the expense and delay entailed in litigating the matter. In following this practice, we recognized that, in many cases, our mortgages might be superior to such tax liens. It has long been an established rule that, as between a Federal tax lien and a State or local tax lien, the lien which attaches first in point of time is the superior. No State can deprive the United States of the benefit of this rule unless permitted to do so by Federal legislation. United States v. New Britain (347 U. S. 81 (1954)). However, there was doubt about the applicability of this rule to our mortgages; and, as long as this doubt existed, we felt justified in our policy of avoiding challenge to local tax authorities. On January 20, 1958, the United States Court of Appeals for the Third Circuit decided, in a case involving another agency of the Government, that a mortgage lien held by the United States stands in the same position as a tax lien held by the United States, and is therefore superior to State or local tax liens, which are later in point of time (United States v. Ringwood Iron Mines, Inc., 251 F 2d 143, affirming 151 Fed. Supp. 421 (D. C. N. J.)). In view of this holding, we reluctantly concluded that we have a duty to insist upon the superiority of our mortgages in all cases where they are prior, in point of time, to State or local tax liens. In consequence, we are being compelled to institute judicial foreclosures, as distinguished from summary foreclosures conducted pursuant to a power of sale contained in a mortgage, in numerous cases where local tax authorities question our rights under the Ringwood decision. In order to eliminate this situation, I recommend an amendment to the Small Business Act of 1953, as amended, which will make it clear that an interest in property now or hereafter held by the Administration, as security for a loan, is subordinate to any lien on such property for taxes due to a State or local government, provided that such tax lien would, by applicable State law, be superior to such interest if such interest were held by any party other than the United States. For the accomplishment of this purpose, I submit herewith a draft of a bill. I should be glad to discuss this proposal further with the committee or with its staff. The Bureau of the Budget has no objection to the submission of this report. Sincerely yours, WENDELL B. BARNES, Administrator. A BILL To amend section 205 of the Small Business Act of 1953, as amended Be it enacted by the Senate and House of Representatives of the United States in Congress assembled. That section 205 of the Small Business Act of 1953, as amended, be amended by adding the following new subsection: "(d) Any interest now or hereafter held in property by the Administration, as security for a loan, shall be subordinate to any lien on such property for taxes due on such property to a state or to a political subdivision thereof provided such lien would, by applicable State law, be superior to such interest if such interest were held by any party other than the United States." SMALL BUSINESS ADMINISTRATION, OFFICE OF THE ADMINISTRATOR, Re S. 3434, S. 3453, S. 3664, and S. 3791. Hon. J. W. FULLBRIGHT, Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR FULBRIGHT: Further reference is made to your letters of March 11, March 14, April 28, and May 14, 1958, respectively, requesting my views of the captioned bills. In effect, these bills authorize the Small Business Administration to make disaster loans, under the provisions of section 207 (b) (1) of the Small Business Act of 1953, as amended, to small business concerns which have suffered economic injury as a result of federally aided highway construction programs (S. 3434); as a result of programs administered by the Secretary of Agriculture under the provisions of the Soil Bank Act (S. 3453); as a result of the foreign trade policies of the United States (S. 3664); and as a result of urban renewal activities under the Housing Act of 1949 (S. 3791). The purpose of section 207 (b) (1), as originally enacted, was to provide financial assistance to persons whose business premises, residences or other property is destroyed or damaged by the physical impact of a flood, hurricane or similar disaster. The emergency nature of the measure is manifested by the presence of a provision limiting interest on such loans to 3 percent and by the absence of any requirement for collateral. A businessman whose property was not damaged by such impact was not eligible for a disaster loan, under the original provisions of the Section, even though he suffered economic injury as a result of a disaster. In 1955, numerous small dealers in farm implements and supplies were in serious difficulty. Farmers, to whom such concerns had extended credit, were unable to meet their obligations because their crops, which had been expected to yield the necessary funds, were ruined or spoiled by drought conditions. Moreover, since the disaster had brought sales to a virtual standstill, the dealers were caught with mounting inventories which they had no means of financing. Congress considered the urgencies of this situation such as to justify an amendment to section 207 (b) (1) authorizing the Administration to make disaster loans to any small-business concern located in an area where a drought is occurring, provided that such area has been officially declared a disaster area and provided that such concern has suffered economic injury as a result of the drought. For approximately 2 years this drought provision constituted the only exception to the rule of section 207 (b) (1) that disaster loans can be made only to persons whose property has been damaged by the physical impact of a disaster. Lately, however, an increasing tendency has developed to call for further exceptions. Early this year, the Congress amended the provisions of the section to cover small-business concerns suffering economic injury resulting, either directly or indirectly, from excessive rainfall. In addition to the captioned bills, a number of legislative proposals have recently been made for further expansion of the disaster loan program. For example, Congress has been urged to provide such loans to business concerns located in an area determined by the Secretary of Labor to be an area of substantial surplus, if the Administration determines that the granting of such assistance will tend to alleviate unemployment in such area (S. 244, H. R. 179, H. R. 2150); to small-business concerns suffering economic injury as a result of any catastrophe affecting the areas in which they are located (S. 2959, H. R. 9926, H. R. 9727); and to business enterprises and communities adversely affected by economic conditions resulting from the trade policies of the United States (S. 2907, H. R. 9505). In my view, these proposals should not be considered on an individual basis. Their relationship is such that the adoption of one would lead inexorably to the adoption of some, perhaps all, of the others. The aggregate effect of all these amendments would be to to change section 207 (b) (1) beyond recognition and to write into the act a new type of economic disaster assistance totally different in concept from the original disaster program. I personally question the advisability of instituting Government programs to protect against all types of risks and economic disasters. Accordingly, I do not recommend the enactment of any of the proposals listed above, including the captioned bills. The Bureau of the Budget has no objection to the submission of this report. Sincerely yours, WENDELL B. BARNES, Administrator. Hon. J. W. FULBRIGHT, TREASURY DEPARTMENT, Washington D. C., October 23, 1957. Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. MY DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 2825, to amend the Small Business Act of 1953 to include within the definition of a small business concern certain agricultural enterprises. The bill would amend the Small Business Act of 1953 to include specifically within the definition of a small business concern (1) any corporation engaged in the raising of agricultural products (including livestock, poultry, bees, or birds), the processing or canning of such products for sale, or the developing, leasing, or sale of farms, or lands for the production of such products, or (2) any individual, cooperative, partnership, association, or other entity engaged in the sale of such products. The Department is of the opinion that if there is any need for loan assistance to the foregoing types of agricultural enterprises beyond that already provided for in existing legislation, such assistance should be furnished by the Department of Agriculture, rather than by the Small Business Administration. The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee. DEAR SENATOR: This is in response to your request for the views of the Department of Justice concerning the bill (S. 3319) to make the provisions of section 3466 of the Revised Statutes inapplicable to debts due the Small Business Administration. Section 205 (b) (2) of the Small Business Act of 1953 (15 U. S. C. 634 (b) (2)) empowers the Administrator of the Small Business Administration to collect debts arising from Administration loans until such time as the obligation may be referred to the Attorney General for suit or collection. The bill would amend section 205 (b) (2) so as to provide that any such debt due the Administration shall not be entitled to the priority accorded the United States pursuant to section 3466 of the Revised Statutes (31 U. S. C. 191). Section 3466 provides that in cases of insolvent or deceased debtors, debts due the United States shall be satisfied first. A debt due the Small Business Administration would appear to be a debt due the United States under section 3466, Revised Statutes. Whether the bill should be enacted involves a question of policy concerning which the Department of Justice prefers to make no recommendation. There are certain aspects of the proposal, however, with respect to which it is believed the committee may wish to give further consideration. In addition to eliminating the priority rights of debts due the Administration under section 3466 of the Revised Statutes, the bill would appear also to eliminate the priority which such debts apparently are accorded under section 104 (a) (5) of title 11, United States Code, which sets forth priorities established by the Bankruptcy Act. Under section 104 (a) (5), debts owing any person, including the United States, who by the laws of the United States are entitled to priority, are given priority after the payment of certain other obligations which are specified. Also, it might be advisable to make clear whether the removal of any priority for debts due the Administration is intended to extend to the debt after it has been reduced to judgment. The Bureau of the Budget has advised that there is no objection to the submission of this report. Sincerely yours, Hon. J. W. FULBRIGHT, LAWRENCE E. WALSH, DEPARTMENT OF AGRICULTURE, OFFICE OF THE SECRETARY, Washington, November 7, 1957. Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR FULBRIGHT: This is in response to your request of August 22 for a report from this Department concerning S. 2825, a bill to amend the Small Business Act of 1953 to include within the definition of a small business concern certain agricultural enterprises. We do not recommend the enactment of the proposed bill. Under the proposed amendment of the Small Business Act of 1953, loans would be specifically authorized to 1. Corporations engaged in the raising of agricultural products for sale; 2. Corporations engaged in the processing or canning of agricultural products for sale; 3. Corporations engaged in the developing, leasing or sale of lands for the productions of such products; and 4. Corporations, individuals, cooperatives, partnerships, associations or other entities engaged in the sale of agricultural products. We are informed that the Small Business Administration now has authority to make loans to corporations engaged in the processing or canning of agricultural products for sale, to corporations engaged in the developing, leasing, or sale of lands for the production of such products, to corporations, individuals, cooperatives, partnerships, associations or other entities engaged in the sale of agricultural products. It appears, therefore, that the amendment of the Small Business Act of 1953 with respect to these items would not be necessary. Commodity Credit Corporation makes price support loans to cooperatives and other corporations engaged in the production or marketing of agricultural commodities and makes farm-storage facility loans to such concerns engaged in the production of grain. Existing statutory authorities of this Department's other regular loan programs contain positive prohibition against making loans to any corporations or cooperatives for any purpose, or to any person, including corporations, for the purpose of carrying on any land-purchase or land-leasing programs. The Department does have authority, however, under its emergency loan programs to make loans to corporations already engaged in the raising of agricultural products for sale. These loans are available in areas designated because of widespread production losses or economic conditions which create a need for emergency credit and are made for the purpose of assisting such corporations to continue their normal operations. In view of this Department's emphasis on family-type farming operations we would not recommend that the Government finance corporations engaged in the production of agricultural products except as presently authorized. The Bureau of the Budget advises that there is no objection to the submission of this report. Sincerely yours, TRUE D. MORSE, Hon. J. W. FULBRIGHT, THE SECRETARY OF COMMERCE, Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR MR. CHAIRMAN: This letter is in reply to your request of August 22, 1957, for the views of this Department with respect to S. 2825, a bill to amend the Small Business Act of 1953 to include within the definition of a small business concern certain agricultural enterprises. Enterprises which would be included within the definition of a small business, under this bill, would be those engaging in the raising for sale of agricultural products (including livestock, poultry, bees, or birds); in the processing or canning of such products for sale; in the developing, leasing, or sale of farms or lands for the production of such products; or any individual, cooperative, partnership or association engaged in the sale of such products. It is the view of the Department of Commerce that these enterprises now have access to necessary assistance of the types provided under the Small Business Act. Those raising agricultural products presently have access to subsidies, loans, management, and technical aids provided by the Department of Agriculture. Processing of agricultural products is now considered a business enterprise and has available the benefits of the Small Business Act. Real-estate operators dealing in the developing, sale or leasing of farmlands are presently considered as service trades and have Small Business Act benefits available. Further, it appears to be in the best interest of good government, and in the overall public interest as well, that business (industry and commerce), and agricultural ventures, as these are commonly defined and understood, be served through their respective agencies as established. For these reasons the Department of Commerce recommends that S. 2825 not be enacted. We have been advised by the Bureau of the Budget that there would be no objection to the submission of this report to your committee. Sincerely yours, SINCLAIR WEEKS, Secretary of Commerce. |