aggregate amount not to exceed $1 billion to finance the construction or improvement of community facilities for water, sewer, public hospitals, and nursing homes or nonprofit hospitals. The Federal loans, with maturities up to 40 years, could be made at an interest rate determined under a formula in the bill (which at present would be 2% percent) if the loan cannot be obtained from other sources on equally favorable terms and conditions. The bill would also authorize an increase of $50 million (from $48 million to $98 million) in the funds for advances to public agencies under section 702(e) of the Housing Act of 1954 for planning a reserve of public works. (1) The volume of municipal financing for construction of water and sewer facilities reached a record high in 1958. The sale of municipal bonds to provide long-term financing for the construction of water and sewer facilities reach an all time high in 1958 when the sales of such bonds aggregated over $1,085,300,000. In the preceding year, 1957, the sales of such bonds aggregated over $1,009,900,000. This high level of financing for water and sewer facilities has continued this year when the sale of such bonds in the first 3 months (January-March 1959) aggregated over $294 million. The picture for hospitals and related institutions financed through the sale of municipal bonds is much the same. The total sales of such bonds in 1958 aggregated over $212,435,000, compared with the sale of over $135,200,000 of such bonds in 1957, and a high level of such bond sales is continuing this year with an aggregate of over $28,400,000 sold in January and February. These facts demonstrate that municipalities are obtaining the financing for growing programs of construction of water and sewer facilities and of hospitals and related facilities without the Federal assistance proposed in H.R. 5944. The bill proposes to include in the declaration of policy a statement that The Congress finds that in many instances municipalities or other political subdivisions of States, which seek to provide essential community facilities, are unable to raise the necessary funds at a reasonable cost. It appears that there is no factual basis for such a statement with regard to those municipalities which have attempted to obtain financial assistance of the type proposed in the bill through the sale of their bonds. During the 6-month period from July 1 through December 31, 1958, when over $507,500,000 of municipal bonds were sold to finance water and sewer facilities, the amount of such bonds offered but not sold was only about one-half of 1 percent of the bonds sold. Now, if I may digress from my statement for a moment, Mr. Chairman, I would like to supplement that a little more specifically. Mr. SPENCE. You may. Mr. CALVERT. In reaching the percentage, that of the bonds offered during that 6-month period less than one-half of 1 percent of those offered were not sold, the less than one-half of 1 percent was made up of only 11 issues of bonds aggregating around $1,443,000. Since our statement was prepared, we have checked into some of those 11 issues and find that 5 of those issues, aggregating over $1,111,000, have since been sold, leaving of the total bonds offered during that 6-month period, only 6 issues totaling $332,000 that were not sold. The more accurate percentage is now that less than 0.7 of 1 percent of the bonds that were offered for water and sewer facilities during that 6-month period were not sold. And that figure can be explained away still further, because we did not have time to check all of the issues and it is probable that some of those six issues have since been sold. Going back now to my prepared statement Mr. SPENCE. How many municipalities endeavored to get loans but didn't get to the point of issuing the securities? How many of them failed in their attempt before the securities were issued? Have you any statement of that? Mr. CALVERT. The information we have presented shows that only six issues that were offered during the last 6 months of 1958 have not been sold. There is no way of measuring the municipalities that consider financing and don't actually offer the bonds. The investment banker has no opportunity to buy the bonds unless they are offered. Those municipalities that cannot get a rate in the private market that they think would be favorable can go to the existing Federal program for loans for community facilities; and there have been very few applications there. So that that leads to the conclusion that there are very few municipalities that want to obtain this type of financing that have tried and have been unable to get it. Mr. SPENCE. But you have no record of that whatever? Mr. CALVERT. No, sir; no record of issues that were not offered. Mr. SPENCE. I don't think the number of applications under the existing program would be any guide to that. Mr. CALVERT. Again, the only real measure of whether they are unable to get the financing is whether they offer their bonds. In most cases they are offered at compulsory competitive bidding, they are required to so offer them, and until that has been done, one cannot say that they have been unable to sell their bonds. Mr. SPENCE. You may proceed. Mr. CALVERT. Since there are other bills before the committee which propose a broader Community Facilities Act to authorize $2 billion of Federal loans for all types of community facilities-not limited to water, sewer, and hospital facilities-it is also significant to note that the volume of sales of State and municipal bonds for all public facilities in 1958 reached a record high with an aggregate amount of over $7,400 million and have continued at high levels this year when the volume of such sales during the first 3 months-January-March 1959-aggregated over $2,100 million. These facts demonstrate that States and municipalities are obtaining the funds for growing programs of public facilities construction without the Federal aid proposed in the various bills. Appendix A lists the number of issues and total amount of State and municipal bonds sold in each State in 1958. Appendix B lists the number of issues and total amount of municipal bonds sold in each State in 1958 for water and sewer facilities. Appendix C lists by State each issue of water and sewer bonds sold COMMUNITY FACILITIES ACT OF 1959 FRIDAY, APRIL 24, 1959 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, SUBCOMMITTEE No. 1, Washington, D.C. The subcommittee met, pursuant to adjournment, at 10 a.m., in room 1301, New House Office Building, Hon. Brent Spence (chairman). presiding. Present: Mr. Spence (presiding) and Messrs. Brown, Reuss, and Ashley. Mr. SPENCE. The committee will be in order. Mr. Gordon Calvert of the Investment Bankers Association is our first witness. 1 We are glad to have you with us, Mr. Calvert. If you have a statement you may read it without interruption, and then subject yourself to interrogation. Mr. CALVERT. Thank you. That will be fine, Mr. Spence. Mr. SPENCE. You may proceed. STATEMENT OF GORDON L. CALVERT, MUNICIPAL DIRECTOR AND ASSISTANT GENERAL COUNSEL, INVESTMENT BANKERS ASSOCIATION OF AMERICA Mr. CALVERT. My name is Gordon L. Calvert. I am municipal director and assistant general counsel of the Investment Bankers Association of America. With me this morning is our research director, Mr. Frank Morris. The Investment Bankers Association of America is a voluntary unincorporated trade association of investment banking firms and securities dealers who underwrite and deal in all types of securities. Our association has over 800 member firms engaged in one phase or another of the securities business in the United States and Canada, including about 100 commercial banks. Our members have, in addition to their main offices, over 1,500 registered branch offices. The underwriting and distribution of State and municipal bonds in the United States are done by firms which, with a few exceptions, are members of our association. SUMMARY OF H.R. 5944 H.R. 5944, in the proposed Community Facilities Act of 1959, would authorize Federal loans to municipalities and other political subdivisions of States, including public agencies and instrumentalities, in an by municipalities during 1958, with the amount and net interest cost of each issue. Appendix D lists by State each issue of municipal bonds sold to finance water and sewer facilities in January and February of 1959 with the amount and net interest cost of each issue. (2) H.R. 5944 would not provide any appreciable amount of additional construction of water, sewer, or hospital facilities but would merely substitute Federal financing for private financing. If H.R. 5944 had been in effect during 1958 and the first 2 months of 1959, the Administrator would have been authorized to make the proposed Federal loans, if the loans could not be obtained from other sources on equally favorable terms, at 3 percent during the first 6 months of 1958, and at 27% percent during the last 6 months of 1958 and the first 2 months of 1959. If H.R. 5944 had been in effect during the 14-month period from January 1, 1958, through February 1959, over 80.5 percent-over $1,019,800,000 of the $1,267,400,000 of municipal bonds that were sold during that period for water and sewer facilities without Federal assistance would have been eligible for purchase by the Federal Government, because they were sold at an interest cost above the rate which would have been applicable under the proposed Federal program. This demonstrates that if H.R. 5944 had been in effect, the entire $1 billion authorized in Federal loans would simply have been substituted for financing that was done without the proposed Federal program. And the entire amount could have been used for water and sewer facilities, completely aside from any part for hospital and related facilities. Similarly, if the bill had been in effect during the first 2 months of 1959, 100 percent of the $28,400,000 of municipal bonds sold to finance hospitals and related facilities would have been eligible for purchase by the Federal Government, because they were sold at an interest cost above the rate which would have been applicable under the proposed program. Consequently, the proposed program would simply have substituted Federal funds for financial assistance that was obtained without the proposed program. (3) H.R. 5944 would provide a wasteful and inefficient overlapping of present Federal programs providing similar assistance. (a) The Federal Water Pollution Control Act adopted in 1956, authorized the appropriation of $50 million for Federal grants in each fiscal yearup to an aggregate of $500 million-to States, municipalities, or intermunicipal or interstate agencies for the construction of necessary treatment works to prevent the discharge of untreated or inadequately treated sewage or other waste into any waters and for the purpose of reports, plans, and specifications in connection therewith. Limitations on such grants include requirements that the project shall have been approved by the Surgeon General, and that no grant shall be made for any project in an amount exceeding 30 percent of the estimated reasonable cost or in an amount exceeding $250,000, whichever is the smaller. (b) Amendments to the Federal Watershed Protection and Flood Prevention Act adopted in 1956 authorized Federal loans to local organizations to finance the local share of costs of carrying out works |