As far as this particular legislation is concerned, what will it do? The billion dollar loan fund, with interest charges at one-quarter of 1 percent above the Treasury's average interest cost, will be of real help only to local governments or agencies, which otherwise would have to pay higher rates.

Cities with Aaa credit ratings will find little advantage in the program. But the localities that have been hardest hit, either because of their size, or because of their chronically depressed situation, or because of newer dislocations, or because of past history of an unhappy nature in the loan market, are the communities in which capital investment for vital community facilities lags most. These are communities that need help most, and these are the communities which in fact will get most of the benefit of this bill.

I think that we ought to think of this bill not as a subsidy or a giveaway or anything of that sort, but primarily as a technical improvement, a real technological advance if we may use that term-in the mechanics by which government obtains capital. And here I use "government" with a small "g", including Federal, State and local.

This essentially is a new technical device for borrowing. The principle involved is not essentially new. It is nothing more, really, than the principle of Federal-guaranteed loans-the same kind of thing in many ways that we do for the FHA and VA programs.

The community facilities will still carry interest costs. But the effective marketing agency of their loans becomes the U.S. Treasury, and despite all the discussion that I have heard on the subject, I believe it is patently clear that the opportunity this bill promises for the most needy communities to borrow at a more reasonable rate, and under conditions which virtually eliminate their need to speculate on the market's receptivity to their bond issues-I think this was part of the question you addressed to Mr. Mitchell by implication, Mr. Chairman-will give them a tremendous boon, perhaps in some respects almost as important as the savings in any interest cost that might be available to them.

It will make it easier for these communities to plan their capital investment programs over longer periods of time, plan them more wisely, and certainly plan them without all of the hazards that are involved in every new attempt to go to the money market and see how well you can do on borrowed funds.

I might mention here, too, that in Massachusetts we have a port authority that was held up for several years because the legislature gave them authority to borrow on the something like 4-percent interest ceiling-this was several years ago and they couldn't borrow the money. It took us 4 years to unravel the mess and we finally ended up raising the interest they are allowed to pay, and so they are now about to get underway in a far more costly period. This is not an uncommon experience.

The Treasury in this sense becomes the intermediary between the most disadvantaged local communities and the private market for funds.

In my written testimony, I said the same total amount of public borrowing will take place. Only the marketing channels will be altered to the limit of the bill.

Actually, as I have earlier stated, insofar as local communities save interest payments, this allows either tax reductions or a broader scale program, and my own feeling is that we will not find the same amount of public borrowing, but a greater amount of public borrowing, and in this respect the investment banking industry will also be the beneficiary of the bill.

To the extent that communities can extend their capital investment programs, a good part of this will go through the customary channels, and I do not see any hazard here for the industry.

And there is certainly nothing in this process of using the U.S. Treasury as a more effective marketing agent than any local government can be for itself, which is in any way inimical to our system of private enterprise or to the operation of a free market in the money sphere. It just represents, it seems to me, a more intelligent and more efficient and economical way to handle this particular job.

The advantages to the people of the local communities also accrue to the Nation as a whole, because we are certainly intertwined in one great economy and one great Nation. What develops in the chairman's section of the State of Kentucky, is certainly of importance not only in Kentucky but elsewhere, and I think this is true for every local community in the country. And I think the advantages that we can get where we need these advantages most will outweigh any possible disadvantage to any particular group in the national community.

I think that the investment bankers will find themselves facing a very, very fine market situation for a great many years to come. And I do not think that they will be among those petitioning the Congress for any particular local aid program. It is a very fine business and a grand industry with a tremendous future, and I wish I could get into it.

Finally, I would like to say that on the basis of all my work in the field of local finance, it seems obvious to me that the future course of relations between our Federal Government and the State and local governments will depend basically on the degree of success we have in developing certain essential accommodations.

The real issue, I think, in pragmatic terms, is whether or not our localities and States, as well, can develop the fiscal resources they will need to finance a satisfactory level of services in those functions for which they are responsible.

We know for certain that Government spending for domestic purposes will have to go up by large amounts in the coming years. I don't have to cite the population statistics or the past trends or anything else. I think this we all generally accept.

To the extent that our localities fail to satisfy the need for vital local services, the Federal Government is going to find itself pressured more and more to get into the field. This has been our history over the past 50 years or more.

If we have any real regard for the value of strong and effective local government, then the kind of accommodation that is offered in this bill should be vigorously advanced. The local governments will end up the gainers.

We do not detract any from their power, from their authority, from their prestige. In fact, we give them the means by which they can exercise their functions far more effectively than at present.

And, as a last point, I think it is particularly important that this step be taken now, because of the overwhelming signs of our entry into a long period of rising interest rates.

The cost of money will go up, with minor drops here and there. But I think this is a long-term trend that we are on, and the problems of the localities are going to become more severe, rates of interest will rise, and at least this bill will give some relative advantages to the communities which otherwise would be most severly damaged. They would be the communities which otherwise would have to be paying the highest of these rising interest rates.

I thank you very much for this opportunity.

Mr. SPENCE. We thank you for your excellent statement.
Dr. SOLOWAY. Thank you, sir.

Mr. SPENCE. Are there any questions?

(No response.)

Mr. SPENCE. Mr. Soloway, you say that we have overemphasized the effect of the bill on employment. The bill would have a beneficial effect, would it not?

Dr. SOLOWAY. I did not mean to detract in any way from its effect on stimulating employment. My main point was that these programs, I believe, are worthy in and of themselves and should be followed through consistently without reference necessarily only to the employment problem.

But clearly, I think you would find some correlation with employment, too, as recovery picks up in certain areas of the country. There is still lots of unemployment, as you know, and this would be a stimulating kind of expenditure. I don't think there is any doubt but what it would help in this way, too.

Mr. SPENCE. Added water supplies and sewage disposal facilities would attract industries.

Dr. SOLOWAY. Well, I think if I may refer to the testimony of the previous witness, Mr. Chairman, I thought Mr. Mitchell did a splendid job on this subject, and I would just like to emphasize a couple of the things he said, and perhaps broaden it out to this extent: It isn't alone a matter of attracting industry. I think it will allow our national productivity to rise, allow our industries to grow.

These are not public investments which are in any respect down the drain. These are investments which will increase our productive potential. They will allow industry to expand. They are real economies. And I think these are the kinds of things that only governments can do.

And if the local governments are given greater ability to do them, then certainly all industry, and our ability for that matter to compete, any place in the world, is enhanced. When you have better water supply, better disposal facilities, and other features that go to make production easier and cheaper in the large sense, then you are helping yourself. There is no question about it.

I think these investments will repay themselves in real production improvement, yes, sir.

Mr. SPENCE. If there are no further questions

Mr. MILLER. Mr. Chairman, I would like to ask a question.
Mr. SPENCE. Mr. Miller.

Mr. MILLER. The previous witness was asked whether or not these programs would be inflationary. I wonder if you would care to comment on that, Dr. Soloway.

Dr. SOLOWAY. Like everybody else, I have my theory on this, too. I would like to say, first, I don't think that there is any threat of inflationary pressure in these programs now or for some time to come.

We are not facing nor have we faced for several years, or for a good many years indeed, the kind of inflationary pressure that comes because we are pressing so hard against our output potential.

We have excess capacity in our plants. We have excess labor available. There is no reason in the world why a program of this sort should really feed the fires of inflation.

I think it is conceivable that at some future date under great strain, when we are pressing against our last possibility for increasing our national output, that you could say anything is inflationary. And at such a time, I would like to suggest that some of the programs of lesser priority, both private as well as public, could be dispensed with and room be left for this kind of program, which is, I think, essential. Then there is a further point I would like to mention, too: inflation is both a short- and long-term problem. In a little longer sense, when you get better community facilities, you have increased your output potential, and therefore reduced the inflationary problem in a real sense again.

Mr. MILLER. That was the point I was hoping to come to, that actually the failure to build these may be more inflationary than the absence of them.

Dr. SOLOWAY. I couldn't agree with you more, Mr. Miller.

Mr. MILLER. That is all, Mr. Chairman. Thank you.

Mr. SPENCE. Thank you, Doctor.

Dr. SOLOWAY. Thank you very much, Mr. Chairman and members

of the committee.

Mr. SPENCE. Thank you very much for coming and giving us the benefit of your views.

Dr. SOLOWAY. Thank you, sir.

Mr. SPENCE. Mr. Whisman is the next witness. He represents Eastern Kentucky Regional Planning Commission.

Mr. Whisman.

Mr. WHISMAN. Yes, Mr. Chairman.

Mr. SPENCE. We thank you for coming here and giving us the benefit of your views. I know you have had great experience in the State of Kentucky, and we are very glad to hear you.

Mr. WHISMAN. I have a prepared statement, Mr. Chairman.
Mr. SPENCE. Identify yourself, Mr. Whisman.

Mr. WHISMAN. All right, sir.

STATEMENT OF JOHN D. WHISMAN, EXECUTIVE DIRECTOR, EASTERN KENTUCKY REGIONAL PLANNING COMMISSION

Mr. WHISMAN. My name is John D. Whisman. My position is that of executive director of the Eastern Kentucky Regional Planning Commission, and I will read my prepared statement, since it is fairly brief. I would like to introduce it.

Mr. SPENCE. You may read it, Mr. Whisman, or you may proceed as you please.

Mr. WHISMAN. All right, sir.

I will read it and I would like to make just a couple of comments before reading, because in eastern Kentucky and Kentucky generally, we have some special problems which you might say are regional in

nature.

Since I think that the complex of these regional problems makes up the national economic picture, I have concentrated on our regional situation, and I think that the points which I make here are transferable to many other regions, many other community areas in the country, and I do make reference to that point in the statement. But I simply wanted to anticipate the point that these arguments here are related to my region but are applicable to many other regions.

The Eastern Regional Kentucky Planning Commission is an advisory body to the Governor of the Commonwealth, established under Kentucky statutes, to assist in the physical planning and resource development of a 32-county area in the eastern section of the Commonwealth.

The planning commission is attached for administrative and research services to the Kentucky Department of Economic Development, which is charged by law with responsibility for research and promotional activities designed to achieve maximum beneficial utilizaton of the State's natural resources and to promote its industrial and agricultural growth.

In recognition of the fact that other witnesses in this hearing will set forth much technical and other testimony related to the need for community facilities in eastern Kentucky, I will not duplicate that testimony but will restrict myself to a brief statement upon each of the following three points:

1. The severe and chronic depressed status of the eastern Kentucky area and the great needs of its people.

2. The relation of this depressed status to the generally underdeveloped characteristics of the area with particular reference to the underdevelopment of regional transportation and water facilities to serve the area's people.

3. The effort which is being made now in this area under the direction of the Eastern Kentucky Regional Planning Commission, to formulate and implement a comprehensive and continuing program of development and the relationship of improved community facilities to this total program.

With reference to the severe and chronic depressed status of eastern Kentucky, a vast catalog of statistics could be recited to establish this point. However, since there is general public knowledge of this fact, I will simply outline certain statistical information here which tells not only of the severity in the depression in this area, but tends to draw a rather significant picture of the trends of the economy, both in regard to its effect upon the people of the area, and with regard to its effect to people in Kentucky and even beyond the borders of our State.

The 32 eastern Kentucky counties, with which the eastern Kentucky commission concerns itself, comprise one-fourth of the land mass of the State, with 23 percent or nearly one-fourth of the State's population.

This portion of the State's people pays less than 12 percent of the State's total revenue. The average per capita income for the area