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range program to assure American municipalities that they can obtain Federal financial assistance beyond their own capabilities to do the job.
It is true that existing legislation (Water Pollution Act of 1956) provides a system of grants-in-aid to localities for sewage treatment facilities. While this legislation has already stimulated increased interest and activity by communities in this problem, the need is so extensive that a Federal loan program to provide an additional source of capital funds is needed to complement it.
Incidentally, this approach was recommended in 1950 by the President's Water Resources Policy Commission.
Another critical area is the Nation's health facilities. The health needs of the U.S. population cannot be adequately met unless the number of hospitals that can provide up-to-date high quality care is increased, and unless more skilled nursing homes and diagnostic and treatment centers are built.
The hospital problem is twofold. While the Hill-Burton Act provides Federal grants for hospital construction, many critical needs still remain unmet.
In addition, administration of the Hill-Burton Act has emphasized construction of new hospitals to the almost complete neglect of modernization and replacement of obsolete hospital facilities. It is for this latter purpose that Federal financial assistance is desperately needed.
The shortage of skilled nursing homes is severe, and becoming more acute daily. Nursing homes care predominantly for aged, chronically ill people. The need for care for this category of persons is rapidly increasing, due to changing patterns of family living, longer life expectancy, greater numbers of aged persons, and the growing significance of the chronic diseases. This need is not presently being met.
According to the Department of Health, Education, and Welfare there are 0.7 acceptable skilled nursing home beds per 1,000 population, whereas 2.5 beds per 1,000 population, or 31/2 times that many, are needed.
During recent years there has been a growing recognition of the need for health services for ambulatory patients, as a result of an increasing awareness of the benefits of preventive medicine, and be cause outpatient diagnostic and treatment services present a means of dealing effectively with the problem of mounting hospital costs by providing an alternative to hospitalization.
Adequate facilities in which diagnostic and treatment services can be made economically available to ambulatory patients are exceedingly
The Department of Health, Education, and Welfare estimates that a total of 16,200 diagnostic or treatment centers are needed, about 51/2 times the existing number of 2,900.
The same picture could be painted with regard to other types of facilities. Take, for example, recreational facilities. Very few localities have had the foresight to set aside land for parks, playgrounds, or other types of recreational areas.
Instead, because of other pressing needs, communities find that they simply do not have the finances to purchase and develop the necessary land as a recreation area. Rather, they repeatedly tend to delay these purchases and in the end find that the price of such land has risen to the point that it becomes almost prohibitively expensive. At that
point the community finds it even more difficult to embark on such a project.
I have been reviewing the needs of these localities to point out how pressing the problem has become. The task before this committee is, first to grasp the magnitude of the problem and, secondly, to help devise methods for meeting it.
There are some who say that the Federal Government has no role to play in helping to meet these pressing needs. With this point of view, we emphatically disagree.
We think experience has shown that the States and localities have been trying their best to meet the problem. During the postwar period, for example, both income and expenditures of local governments have increased substantially.
The figures show that in the postwar period the following trends have occurred with respect to revenue and expenditures by local governments:
Revenues : Total revenues have more than doubled since 1946. Tax revenue has almost tripled since 1946 and has about doubled since 1950.
Expenditures: Total expenditures have more than tripled since 1946 and have almost doubled since 1950. Since 1946, highway expenditures have almost tripled, education expenditures have increased four times, hospital expenditures have increased four times, local park and recreation expenditures have more than tripled.
Capital outlays: Capital outlays have increased seven times since 1946 and about doubled since 1950.
Debt and interest: Interest payments on municipal debt have more than doubled. Total indebtedness of local governments has increased almost three times since 1946.
A further breakdown of the 1957 expenditures for capital outlays is available to show how the localities are attempting to provide for public facilities. The following figures show how $7.5 billion was spent in 1957:
Local government expenditure for capital outlays 1957
Source : Census Bureau, “Summary of Government Finances in 1957.”.
Amount $2,743 1, 263
778 659 467 340 130 121
These capital outlays required almost one-quarter of all local government expenditures. To finance these outlays, local governments have been forced to resort more and more to bond issues and, in addition, have sometimes financed these capital expenditures out of their current budgets. The volume of municipal bond sales has been rising and totaled about $7.5 billion in 1958. It is expected to rise in the future.
While local communities have been trying their best to meet the increased needs imposed by their growing population, their problems are as great now as they have ever been for the following reasons:
1. Population continues its explosive growth; 1958 was the fifth consecutive year in which more than 4 million births were recorded. Today's U.S. population of over 176 million is expected to rise to about 196 million by 1965 and 235 million by 1975.
2. Local communities do not have available sources of tax revenue that will yield substantially increasing income. The basis for practically all local governmental budgets is the real estate property tax. While these tax rates have been rising sharply in recent years, they are now coming close to the limits that can legally and effectively be imposed.
Practically every State imposes some type of limitation either by constitutional provision or statutory enactment on the property tax rate that can be levied by their local communities.
3. Communities are finding it more difficult to obtain sufficient funds at reasonable rates of interest through bond issues floated in the private financial market. It is true that the borowings of municipal financing has been increasing. However, these borrowings have become increasingly difficult because of the increasingly high interest charges which the local governments have to pay.
Of course, the securities of municipal authorities and other localities are exempt from Federal income tax and therefore carry a lower rate of return than securities issued by private concerns. On the other hand, these interest rates have risen substantially in recent years and today are at levels which have not been reached since the early 1930's.
4. Moreover, many smaller communities have to pay relatively higher interest rates. For them the bond market is an unfamiliar place and they often are not experienced in the process of issuing securities. Consequently, bond buyers may require higher interest rates on their securities.
For these reasons, we have reached the conclusion that only through the intervention of the Federal Government will these localities be able to finance these needed public improvemnts at a reasonable rate of interest.
This does not mean that we expect the Federal Government from its own resources to finance the entire amount or even a large proportion of the needed community facilities in any one year. It does mean that the Federal Government can play a very important role by becoming a lender of last resort so that communities have available to them an alternative source of funds than simply the private bond market.
Moreover, the availability of financing through the Federal Government may exert an influence beyond the particular loans that the Federal Government will be able to make. For example, Federal financing may help to make possible many community projects affecting more than one locality for which financing is more difficult to arrange.
Moreover, because investors in local government bonds tend to exact a higher rate of interest for projects that are somewhat new or novel, the availability of government bonds might make it easier to finance various types of worthwhile projects for which private capital would be reluctant to advance the funds.
A Federal program need not be an expensive drain on the U.S. Treasury. Because the projects which the Government will help finance, will be soundly based and because the Federal loan agency will be able to provide technical advice and assistance to the localities concerned, we would think it quite likely that the Government would be able to resell its loans to private capital over a period of years as the value of the project and the soundness of the community's finances become apparent.
The legislation now before you represents a start toward meeting the hard-pressed needs of communities for financial assistance for various types of community facilities and public works projects.
We are heartily in accord with the objectives of this legislation and, in fact, the AFL-CIO executive council at its most recent meeting in February approved a special statement on the problem of community facilities, a copy of which I am attaching to this testimony, and request that it be made part of the record, Mr. Chairman.
Mr. SPENCE. It may be made part of the record. (The document referred to is as follows:)
STATEMENT OF THE AFL-CIO EXECUTIVE COUNCIL ON COMMUNITY FACILITIES
SAN JUAN, P.R., February 24, 1959. America continues to expand at an unprecedented rate. The demands of a growing population together with rising living standards create new pressures throughout the country for roads, schools, hospitals, and community facilities of all sorts.
In many cases the expanding population catches the local communities throughout the country unprepared to meet this crisis. The inadequacy of school facilities is well-known. A specialized accelerated program of highway construction has been inaugurated to meet the shortage of useful highway facilities.
Similar problems apply to many other types of facilities. Water and sewer lines, bridges, libraries and other public buildings, airports, hospitals, nursing homes and other community facilities have become overcrowded, inadequate, and obsolete.
Local communities, hard pressed to make current revenues equal current expenditures, find it increasingly difficult to finance the necessary programs to expand or rehabilitate these needed facilities. In many instances, the localities concerned find that because of a limited property base, constitutional limitations, or other factors, that they are either completely unable to borrow necessary funds from private sources or that such funds are available only at an exorbitantly high rate of interest.
In such cases, the Federal Government must shoulder the responsibility for helping these communities to overcome these financial obstacles.
This is not to say that the Federal Government should directly undertake the construction of these special community facilities that serve only local need. However, the Federal Government can help by embarking on a program of loans at a reasonable rate of interest to local communities for these needed projects.
The AFL-CIO strongly endorses a loan program by the Federal Government at the lowest possible nonsubsidized rate of interest to help local communities finance needed programs of community facilities.
Because the problem of school construction is being handled separately, we do not think it necessary to include schools in such legislation.
In addition to meeting this critical need for community facilities, such a program could serve a dual purpose as an antirecession device in the event of another downturn in the economy. This objective could be achieved by providing that a portion of the loan funds could be made available only during a recession period. In this way the funds would provide additional jobs when they are most needed.
The need for such community facilities legislation is acute. The total need could be met only over an extended period of time, but we would favor an immediate start with a program of approximately $2 billion, half of which would be immediately available with the remainder made available in the early months of a recession.
While the amount of funds may seem substantial, it is but a small proportion of the need. Moreover, these funds, all of which would be returned to the U.S. Treasury, are critically needed if America's communities are to be able to meet the demands of America's growing population.
Mr. BIEMILLER. Thank you.
I want to call your particular attention to the importance of the formula for determining interest rates in this program. The formula included in the proposed legislation is generally known as the college housing rate because for a number of years it has been incorporated into the Federal program providing loans for college housing
It is not a subsidized rate of interest. It is a rate of interest calculated by averaging the annual interest rates on all interest-bearing obligations of the United States forming part of the public debt.
This seems to us an eminently fair method of determining interest rates for a Federal program. An additional charge of one-fourth of 1 percent is added to this interest rate to cover the cost of administration.
While we endorse the objectives of this legislation, we believe that language in the Spence bill is unduly restrictive in the following two respects:
1. Its scope is unnecessarily limited to water, sewer, and certain public health facilities. It does not include such other facilities as parks and recreation areas, libraries, bridges and public buildings, for which the needs are just as acute. While hospitals and nursing homes are included, diagnostic and treatment centers, equally needed, seem to be omitted.
There is no reason why the scope of the bill should be so narrowly restricted. In fact, some of the most critical needs in terms of community facilities are for areas that are not included in the legislation. We particularly think it is important to include diagnostic and treatment centers, public buildings, parks, and recreational areas.
2. There is nothing in the bill that would allow its use as an important antirecession device stimulating the construction of public works in the event of another recession. This Nation is just now recovering from the effects of the most severe postwar recession. There are still 4.3 million fully unemployed workers in the country, a large proportion of whom have been out of work for 6 months or longer.
This present legislation can be useful in providing job opportunities for some of these workers, but it can be even more useful as a device for protecting the economy in the event of another recession.
There is little reason to doubt that the Nation's economy will experience another recession in the relatively near future. Judging by the frequency with which the previous recessions have occurred, it is almost safe to say that such a recession will begin sometime during the
One way in which our economy can become better prepared for such an eventuality would be to have available Federal programs of public works and Federal aids to local public works programs, that can be accelerated at the first sign of a downturn.
We urgently recommend the modification of this legislation to include provision for accelerating Federal assistance in the event of a general decline in the economy.
The most effective way to do this, in our opinion, would be to make another $1 billion available in loan funds that could only be utilized