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who will be unable to carry on, and therefore we feel safe in assuming that he will confine his attention to the petitions for relief from the districts that are actually in default.
Mr. PURNELL. Judge, what percentage of these districts are in default?
Mr. DRIVER. It was stated a year ago that 8 per cent were at that time in default. I very frankly say to you that there are to-day others who are in default, because this condition has gone on progressively, and the conditions, as you all know, have gone from bad to worse. When my colleague, the former chairman of the irrigation committee, said that he received at the hands of the executive a sympathetic statement, I believe that I am safe in assuming that that sympathetic statement was followed up by saying that the condition of the Treasury, probably, would not permit the indorsement of this particular legislation. Well, to-day we know that conditions in the Treasury are even worse, and therefore we can fairly well assume that that sympathetic expression would be offered, but nothing in the way of material aid, and that is the thing that is required here for these people.
Now, remember this, gentlemen: The richest lands of your Nation are in these reclamation districts. When they were opened up and improvements were made, they just changed almost overnight into the richest and most highly developed lands that you will find anywhere. They were inviting to the people who saw them, and they simply rolled in on those lands, they took a chance there, and the have now created these great values.
By the way, I will pause here and make this statement, because of a suggestion that has been made: It has been said that this legislation seeks to promote the development of additional land: not at all, not an acre of it. But it is merely to protect those who have gone on this land and developed it, and built their homes, who are trying to keep their homes in the face of these bad conditions, with only a resort to the credit of the Nation, because no other avenue is available to them.
Mr. O'Coxxor. If there was a drainage district that had no encumbrance, or bonds, or indebtedness, they could not borrow money if they needed it, under this act, could they?
Mr. DRIVER. Not at all. It only applies to existing conditions in the districts I have described.
Mr. O'Coxxor. That is so because the act says that the only purpose for which the money can be used is to pay off the bonds.
Mr. DRIVER. Exactly, and before paying the bonds, gentlemen, if there is one single word that can safeguard the credit that we ask for that should be added to this bill I am unable to place my hand on it.
We say that the Secretary shall not only appraise the values of the property, but he must take into consideration the economic conditions existing and determine whether or not the works are sufficient to function beneficially to the land that is concerned. When he examines carefully all of these instances, he then reports the appraisal of the property, and that appraisal must be such that a sinking fund may be created and placed in the Treasury, and the works brought to the standard necessary to guarantee the pro
tection of the properties. When all of those things are done, he then determines how much money he will loan on the land.
Mr. MICHENER. In other words, if he finds that a certain district has the necessary value, and that, if properly managed, it can pay itself out, does he take it or leave it?
Mr. DRIVER. He leaves it entirely.
Mr. MICHENER. Now, that it just what I am getting at. I have in mind the situation in my State
Mr. DRIVER. That is our purpose, Mr. Michener, in bringing about that situation. We do not want to help the fellow who can help himself.
Mr. MICHENER. Now, in my State, some of the best lands in my district, they are ordinary drainage propositions, are not coming back. According to the statement you have made, those people could not get any help, even if this law becomes effective.
Mr. DRIVER. That is exactly the position I want to place myself in. In other words, gentlemen, I am taking this view, and in saying this I am merely repeating what I said to you before: Who in the world, holding a bond paying 6 per cent, wants to convert it into a bond paying 3 per cent?
Mr. CHENER. No; the bondholder does not, but the fellow who pays the interest, by not paying his taxes next year, if he could convert it, by, so doing, and the appraisement would not prevent him, possibly he would do it.
Mr. Driver. Possibly there may be some people who would take advantage of that suggestion, but still, here is the Government agency, the member of your cabinet, a man in whom we have confidence, who must determine that in the final hour. Certainly he knows, from the hearings we have had before the Committee on Irrigation, and the hearings before the Committee on Rules, that the purpose of this bill is to hold the man who is already on his land and enable him to work out his own salvation upon his own land.
Mr. LOZIER of Missouri. May I suggest that we vest in the Secretary of the Interior the widest discretion conceivable as to how he will administer this act, to grant or refuse loans. At least in nine sentences in this bill that discretion is vested in the Secretary of the Interior, on the theory that he will administer it sympathetically, withholding relief in cases in which, as the bill says, he is not satisfied that it is justified. There are at least nine provisions in this bill that vest the Secretary of the Interior with that wide and wise discretion.
Mr. DRIVER. I will say to you, gentlemen, that when you read this bill carefully, you will not charge those who are interested in this legislation with failing to provide every safeguard that can be thrown around it, and there is a reason for the intensity of my plea. We find these people on their farms, the victims of the worst conditions that have ever existed, people who, by virtue of the liens they have been forced to place upon their property, are denied any financial relief to assist them in this hour of their distress. They are facing the loss of their property and, if there is no relief for them, they will have to go to multiply the thousands of people that are walking the streets to-day in idleness in the industrial
sections of our Nation, and we all know that is true. Shall we throw more thousands into the lines of idle people whose steps are treading the streets of our cities? Where are these people going, if you do not help them to remain on their own land?
Mr. BANKHEAD. Let me ask you a question right there:
Suppose a bondholder holds bonds on a tract of 1,000 acres of reclaimed land organized into a drainage district. Suppose the people in that district default in the payment of their installments. Of course, the bondholder has a lien upon all that property until it is discharged. Under this bill the owners of the property who constitute the drainage district would make an application to the Secretary of the Interior for this relief, but before any relief could be obtained, as I understand the bill, he would have to bargain with the bondholder as to the amount that the bondholder is willing to take. Is that true?
Mr. DRIVER. No, sir. The Secretary of the Interior and the bondholders must get together.
Mr. BANKHEAD. That is what I mean.
Mr. BANKHEAD. In other words, they would have to reach an agreement as to the amount that the bondholder would be willing to accept as a final discharge of the bondholder's part of the matter, and of course the debt would still be on the district, and the owners of the land, if the loan was made, but the bondholder would be out of the picture?
Mr. DRIVER. Entirely so.
Mr. BANKHEAD. Now, do you think that there might be extreme difficulty where a man had put up 100 cents on the dollar to buy these bonds, and that it might be in a great many cases impossible for the Secretary of the Interior to reach an agreement with the bondholder as to the value of his security, and therefore indefinitely delay the relief that you are seeking?
Mr. DRIVER. I will frankly state to you that I had anticipated some difficulty, and more now than at any other period' since we have attempted to promote this legislation, for the reason that we are to-day putting the bondholders out of the picture. We have made provision for the bondholders. Only the individual who holds onto his bond is unable to get into the credit structure that we have erected for him. Every bank, every trust company, every organized entity in our business structure is given credit, and he can take his bond there and secure money on it.
Mr. BANKHEAD. Now, did the Irrigation Committee give any consideration to the question of undertaking to incorporate in this bill some set-up by which the bondholder could not hold up the entire transaction by refusing to accept the appraisal value, some structure whereby the question could be submitted to arbitration or adjudication to ascertain the actual value of the bonds, rather than to leave it to the caprice or individual judgment of the bondholder? You see what I am getting at.
Mr. DRIVER. I understand what you are getting at. You mean, to force the bondholder to come into the picture!
Mr. BANKHEAD. Yes.
Mr. MICHENER. But you could not do that, because that would be impairing a contract, and that could not be done.
Mr. DRIVER. It could have been done; some such provision could have been written into the bill, but we realize the fact that the bondholder is a party to a contract, and you can not force him, you can not coerce him. Of course, it is possible to follow the suggestion of the gentleman and to provide some board of arbitration, but we think we have sufficiently provided for taking care of that situation, and we have gone as far, possibly, as the exigencies of the situation will require, by saying that the commissioners of these districts, those gentlemen who are charged with the duties and responsibilities of administering these local interests, shall enter into an arrangement with the Secretary of the Interior and he shall fix the value on the basis of the ability of that district to pay, which is the basis of the credit which he is going to extend to the district, and then calling a conference of the bondholders, where he can say, “I have so much money that I am prepared to loan on the security of this district. Are you willing to take it?”
Mr. BANKHEAD. And if the bondholder says “ No," what then?
Mr. DRIVER. If the bondholder says “No," then we are shot, we are toppled over. What we want is something that will enable us to work out our own salvation upon these lands.
The CHAIRMAN. Your hope is that as the bonds have depreciated in value, undoubtedly, and might depreciate more, the bondholder would be open minded ?
Mr. DRIVER. Mr. Chairman, our whole calculation is based upon that. We know they have depreciated, as all such values have depreciated. Mr. Smith says he knows of some bonds that could be purchased to-day, if available, possibly as low as 10 per cent or 15 per cent of their par value. I know myself of a bond that could, in all probability, be purchased at 25 cents on the dollar. Now, these are districts that are in default to-day, where receivers are in charge of the affairs of the district. We have seen foreclosures and evictions of thousands of these people, who are remaining idle and further complicating the conditions in this country. Now, these people are able to make their bread and meat, if they never make a dollar off these lands, and they ought to keep their lands, where they will be able to make their bread and meat, and not be thrown out upon the world to join the army of unemployed.
Mr. MICHENER. I have a very important question with reference to the provision which has been added to this bill.
Mr. DRIVER. I thought we took care of Michigan.
Mr. MICHENER. If what you say is correct, having in mind the fact that our Michigan bonds provide, first, that the district is liable, and then, if the district defaults, the entire county is liable
Mr. WOLCOTT. That is in the statute.
Mr. MICHENER. Yes; that is provided in the statute. Now, that being true, then, there is not a single bonded district in Michigan that could receive a dollar of aid under this bill unless the entire county was in default, because those bonds are good, 100 cents on the dollar, as long as that county is good.
Mr. DRIVER. Then you are entirely out of this picture.
Mr. MICHENER. I just wanted to get that straight, that they could not profit by it.
Mr. DRIVER. We do not want to provide for a district that will take care of its own credit. They ought not to have it. We want
to provide for the man who is about to be foreclosed and not for the man who is able to take care of himself.
Mr. MICHENER. That is why I asked the question. Michigan is one of the States that has been referred to. Under the state, they create a district and it is administered by the county drainage commissioners. If there is a default and that district can not pay, the whole tax is spread over the entire county. Therefore, those bonds are still good.
That is correct, is it not?
Mr. WOLCOTT. That is true, primarily. Under our statute, the county treasurer collects the money from the drainage district and retires its bonds. There is a provision in the statute which says that if there is not enough money in the district funds, then it shall be retired out of the general fund of the county. However, that is merely temporary, because the assessing officers are compelled to reassess this property which may be affected in the district.
Mr. MICHENER. Well, the man who bought the bonds has a contract and the legislature can not change it, nor can the board of supervisors change it. In other words, every man who has a Michigan district bond has got 100 cents on the dollar coming to him.
Mr. BANKHEAD. Now, has there been any evidence before the irrigation committee of any general attempt to foreclose these liens that the bondholders have?
Mr. DRIVER. Yes, sir.
Mr. BANKHEAD. Now, as in the case illustrated by Mr. Smith, where the bond has deteriorated from 100 cents down to 5 cents on the dollar, does that indicate that the lands themselves have been reduced that much in value?
Mr. DRIVER. No; it does not mean that. It means that the returns from the taxes levied on that property are insufficient to pay, and the bonds will go down in accordance with the scale of taxes that they are able to collect. In other words, Mr. Bankhead, here is the situation : Suppose 50 per cent of the lands in the district are in default. We only have one-half of the revenues required in order to keep our annual interest and accruing principal paid. That runs along for two or three years. That has grown up from 10 per cent four years ago, 20 per cent two years ago, 30 per cent last year and 50 per cent this year. Down and down go these revenues. Now, those bonds depend not on the intrinsic value of this property, but on the amount received from that property.
Mr. BANKHEAD. Does that carry any privilege of an equity of redemption in case of foreclosure under the State laws!
Mr. DRIVER. Yes, sir; but that equity only extends from the date of the sale until the court confirms the sale.
Mr. BANKHEAD. Now, what happens in a bankrupt district, after foreclosure? For instance, take the land in my district. If that land was put up for sale to-day, it would bring a very small price. Would there be any possibility of the farm owners themselves getting any advantage by allowing a foreclosure at a low price, with the hope of getting rid of that lien.
Mr. DRIVER. No, sir.
Mr. BANKHEAD. There would be, then, no opportunity for them to get back their property unencumbered at a figure much lower than the original assessment.