Charles A. Buckley of the House Committee on Public Works, on the two TVA financing bills which have been introduced in the House of Representatives. Chairman, Committee on Public Works, House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN: The President in his last two budget messages has recommended that the Tennessee Valley Authority be authorized to finance new generating facilities by the sale of revenue bonds. In our opinion, the following principles should be embodied in any such revenue bond legislation: (1) The legislation should provide for executive and legislative review, as now applies to all wholly owned Government corporations under the terms of the Government Corporation Control Act, of proposed expenditure plans for new or expanded power facilities. (2) The legislation should provide for payment of interest on, and the orderly retirement of, the existing appropriation investment in Tennessee Valley Authority power facilities. (3) Legislation should be so drawn as to limit the maximum amount of bonds that may be outstanding at any one time, so that the Congress will be enabled to make a review of the effect of revenue bond financing after a reasonable period of time in operation. (4) The legislation should be limited to Tennessee Valley Authority's financing problems and should not alter Tennessee Valley Authority's presently authorized basic functions. Inasmuch as the provisions of H. R. 3236 and H. R. 4266 are inconsistent with these principles, their enactment would not be in accord with the program of the President. Sincerely yours, ROBERT E. MERRIAM, Hon. DENNIS CHAVEZ, COMPTROLLER GENERAL OF THE UNITED STATES, Chairman, Committee on Public Works, United States Senate. April 26, 1957. DEAR MR. CHAIRMAN: Reference is made to your letters of April 15, 1957, requesting our comments on the bills S. 1869 and S. 1855. The purpose of both bills is to provide for the financing of further expansion of TVA power-generating facilities by the sale of bonds to the public by TVA itself. As you know, bills for the same purpose were introduced in the 84th Congress, and we gave your committee our views on two of these bills (S. 2373 and S. 3964) by letters dated July 26, 1955, and June 20, 1956. Our position then, as now, was that the financing of Governmental activities of this character should be by appropriations made by the Congress. We believe that if, to obtain needed funds, borrowing from the public is necessary, it should be done by the Secretary of the Treasury under the authority of the Second Liberty Loan Act, as amended. That act provides, among other things, a limitation on the total amount of direct and guaranteed obligations of the United States which may be outstanding at any one time. While both S. 1869 and S. 1855 provide that the bonds to be issued by TVA shall not be of obligations of, nor guaranteed by the United States, we believe that the investing public would regard them otherwise. As a practical matter, they would be moral and equitable obligations of the Government, since they would be issued by a wholly owned corporate instrumentality of the United States. In our opinion, the exclusion of TVA borrowings from the public debt would obscure the true financial facts of the Government's debt position. Our further comments on the two bills are as follows: S. 1869 S. 1869 is essentially the same as S. 2373, 84th Congress. Differences in S. 1869 appear to be principally for purposes of clarification. One of these differences emphasizes sharply the reasons for our major criticisms of the previous bill. S. 1869 provides (pp. 3-4) that: "The issuance and sale of bonds by the Corporation and the expenditure of bond proceeds * ** shall not be subject to the requirements or limitations of any other law: * This language would grant practically unlimited authority to TVA in the expansion of its power program. We do not believe that any Government agency should be granted such freedom from the normal controls exercised over governmental activities. Because of the great dependence of the TVA system on the Government as a consumer (sales to other Government agencies constituted over 55 percent of total TVA power sales in fiscal year 1956) we believe the Congress and the executive branch should exercise unusually close control over any TVA expansion program. By using the appropriation method of financing, the Congress would be placed in a position to review, annually, TVA needs which can be weighed against the overall picture of revenues and expenditures of the Government. The Government Corporation Control Act, 1945, was enacted by the Congress in order to exercise better controls over the corporations of the Government. The proposed legislation would exempt TVA from the provisions of sections 302 and 303 of that act. Section 303 (a) of the act requires the Secretary of the Treasury to approve the form, denomination, maturity, interest rate, terms and conditions, manner of issuance, and price of all obligations issued by Government corporations. The purpose of this provision was to assure cooperation between Government corporations and the Treasury in the issuance of corporate obligations and unification of the financial policy of the Government. See House Report No. 856, 79th Congress, page 10. The overall Federal fiscal and debt management responsibilities of the Treasury Department might be seriously affected by permitting uncoordinated borrowings from the public by another Government agency. In addition to the foregoing major criticisms of S. 1869, we invite the committee's attention to our other comments on S. 2373 which are contained in the enclosed copy of our letter of July 26, 1955, to the committee, and which are equally applicable to S. 1869. For the reasons indicated, we do not recommend favorable consideration of S. 1869. S. 1855 S. 1855 is a compromise bill which attempts to resolve the divergent provisions of previous bills for TVA self-financing. While the bill meets some of the objections we have made to S. 1869, certain fundamental deficiencies remain. The reasons we believe S. 1855 is preferable to S. 1869 follow: 1. Provision is made for a definite plan for repayment of part of the Government's investment in TVA's power program. 2. A ceiling of $750 million is placed on the total amount of bonds outstanding at any one time. 3. The use of bond proceeds for purposes of expansion outside of TVA's present service area, as defined in the bill, requires Congressional authorization. 4. The use of power revenues for construction of new power-producing projects remains subject to congressional authorization under title II of the Government Corporations Appropriation Act, 1948. For practical purposes, however, such congressional control would lose its effectiveness since bond proceeds could be used for this purpose within TVA's existing service area without congressional approval. 5. The bill does not give TVA authority to convey real property and to perform engineering and construction work in connection with the lease or purchase of power facilities or the purchase of the output of such facilities. Our objections to S. 1855 are basically the same as those we have to S. 1869. We believe that prior congressional approval should be required for construction of new power facilities. TVA has stated that its anticipated need for financing expansion of its power facilities for the next several years is approximately $150 million a year. Further, we see no reason to exempt TVA from the provisions of sections 302 and 303 of the Government Corporation Control Act, and we are particularly concerned with its exemption from control by the Secretary of the Treasury as to the terms and conditions of the bonds to be 93483-57-2 issued. While we recognize that S. 1855 would give the Secretary of the Treasury authority to postpone the date of issuance or recall of bonds for up to 90 days, we do not believe this is sufficient to insure that the financing activities of TVA would not conflict with or hamper those of the Treasury Department. Finally, S. 1855 would authorize TVA to enter into binding covenants with bondholders with respect to, among other things, charges for supply of power, the application and use of net power proceeds, and other matters deemed necessary to enhance the marketability of the bonds. This broad authority might result in commitments by TVA which would give the bondholders a degree of controll over the power operations of TVA inconsistent with its status as a wholly owned Federal agency and the Government's present status as a consumer of over half TVA's total power output. Accordingly, we do not recommend favorable consideration of S. 1855. United States Senate, Washington, D. C. MY DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 1855, to amend the Tennessee Valley Authority Act of 1933 in order to authorize the Tennessee Valley Authority to undertake certain financing activities and to require certain payments to the United States, and for other purposes. The Treasury Department favors the objectives of the bill, i. e., to authorize the Tennessee Valley Authority to issue revenue bonds and sell them in the open market for the purpose of obtaining additional capital to finance its operations. However, the Department believes that S. 1855 should be revised in the following particulars: (1) The issuance of obligations by the TVA should be subject to the approval of the Secretary of the Treasury. (2) Funds of the Corporation should be kept in the Treasury, or, with the approval of the Secretary of the Treasury, in Federal Reserve banks or banks designated as depositaries of fiscal agents of the United States. (3) TVA should be required to submit a capital budget program for advance approval by the President and the Congress and its operations should be inIcluded in the budget. (4) TVA should be required to pay interest to the Treasury on the Government's appropriation investment in power facilities at a rate based on the average rate on marketable public debt obligations having a maturity of fifteen or more years. (5) Although there would be no objection to permitting national banks to deal in or underwrite TVA obligations, they should not be permitted to hold such obligations for their own account in amounts exceeding ten percent of unimpaired capital and surplus. The Department has been advised by the Bureau of the Budget that there is no objecton to the submission of this report to your committee. Very truly yours, W. RANDOLPH BURGESS, Acting Secretary of the Treasury. TREASURY DEPARTMENT, April 30, 1957. Hon. DENNIS CHAVEZ, Chairman, Committee on Public Works, United States Senate, Washington, D. C. Mr. DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 1869, to amend the Tennessee Valley Authority Act of 1933, as amended, and for other purposes. The Treasury Department favors the objectives of the bill, i. e., to authorize the Tennessee Valley Authority to issue revenue bonds and sell them in the open market for the purpose of obtaining additional capital to finance its operations. However, the Department believes that S. 1869 should be revised in the following particulars: (1) The issuance of obligations by the TVA should be subject to the approval of the Secretary of the Treasury. (2) A limit should be placed on the total amount of obligations that TVA may issue. (3) Funds of the Corporation should be kept in the Treasury, or, with the approval of the Secretary of the Treasury, in Federal Reserve banks or banks designated as depositaries or fiscal agents of the United States. (4) TVA should be required to submit a capital budget program for advance approval by the President and the Congress and its operations should be inIcluded in the budget. (5) TVA should be required to pay interest to the Treasury on the Government's appropriation investment in power facilities at a rate based on the average rate on marketable public debt obligations having a maturity of 15 or more years. (6) Depreciation accruals on the Government's appropriation investment in power facilities should be returned to the Treasury, rather than reinvested in power assets. 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. Very truly yours, W. RANDOLPH BURGESS, Acting Secretary of the Treasury. Senator KERR. We have Senators Hill, Kefauver, and Cooper here, and General Vogel. Also Senator Morton. Senator MORTON. I am just an observer. Senator KERR. Senator Ellender called me last evening and said he was going to have to be absent from the Subcommittee on Appropriations this morning and asked me if I would come over and fill in for him while he was away and I am, therefore, asking Senator Gore to take charge of this, and we are happy to have Senator Case here with us. All right, Senator Hill. STATEMENT OF HON. LISTER HILL, SENATOR FROM THE STATE OF ALABAMA Senator HILL. Mr. Chairman and gentlemen of the committee, almost 2 years have past since I was honored by having the opportunity to appear before this committee to testify in behalf of the Kerr bill, the bill that had been introduced by the chairman of this committee, to authorize the issuance of bonds by TVA. The bonds proposed were to be revenue bonds, their proceeds to be available to finance the additions to TVA's power facilities which annually are required to meet the growing load of the area served by TVA. In the months since I first testified there has been widespread discussion of the proposal embodied in the bill. I have endeavored to follow the course of the debate. I have tried to weigh the arguments presented from every point of view and to consider fairly statements made in opposition to the bill I then supported. Mr. Chairman, my convictions have not changed. You were right 2 years ago, you are right now, in the introduction of the Kerr bill, which is now before this committee. I want to tell you that I am proud that you permitted me to join as a cosponsor with you in the introduction of this bill joining with you and the other cosponsors, the distinguished Senator Gore, my colleague from Tennessee, Senator Kefauver, Senator Stennis, and Senator Eastland from Mississippi, and my colleague, Senator Sparkman, the junior Senator from Alabama. And I appreciate this opportunity very much to appear before you today now in behalf of the Kerr bill. In a few particulars the present Kerr bill differs from the Kerr bill in the last Congress, but essentially these bills are the same. The enactment of the Kerr bill now pending before this committee will give notice to the Nation and to the world. that the great power system of TVA has passed a milestone. It's management believes that in the future the capital requirements of the system can be met from current and from future earnings and that TVA can continue to promote the objectives laid down by Congress in its act without requiring the annual appropriation of funds by Congress for investment in power facilities. The record supports the recommendation of TVA. TVA can do this if the bill is approved without crippling amendments, without rigid restrictions and hampering limitations, without the creation of artificial barriers to effective operation. All of this is most important, Mr. Chairman, because enactment of this measure will put a new responsibility on the Board of TVA. It will make the job of power system management even more exacting than it has been in the past. TVA must find new ways to promote greater efficiency, to secure additional economies in order to offset at least in part the added costs which must be incurred as capital is obtained from private sources. In approving the assumption of such added costs Congress must not forget nor let the agency forget that its job remains unchanged, its mandate is the same to make electric energy available to the greatest number of people at the lowest possible cost, to encourage its abundant use by consumers, particularly in the homes and on the farms, and to continue policies adopted to foster the economic growth of the region it serves, and the economic growth of the Nation. In the Kerr bill we have not changed one objective of the TVA Act. The ends to be sought by this public power operation are, in fact, restated. I would not sponsor, nor would I support, any bill which did not seem to me designed to enable this great enterprise to advance, to continue to promote its accepted purpose, to lead the way that other power suppliers may follow in adopting higher standards of utility management and striving to provide better service to the people. May I say that I speak with deep personal feeling on this point because I am the only one of the men who sat in the conference that wrote the final bill creating TVA who is still a Member of the Congress. Senator GORE (presiding). I would like to add for the record that the distinguished senior Senator from Alabama was coauthor of the TVA Act. Senator HILL. I thank the chairman. Senator GORE. One of the many great milestones of a truly great career in public service as a Member of the House of Representatives and the United States Senate. Senator HILL. Thank you, Mr. Chairman. I am grateful to you, for your very generous words. When Congress created the TVA we told the agency to establish rates to encourage the use of electricity by the people of the area. |