but now we take care of them. It is a wide-open place out in the fields, and they get away every once in a while. We want to build a wall to take care of the worst characters. Last summer we had to send 25 of them over to the Federal prisons on account of the trouble we had there. It is a tremendously serious matter, I assure you. That institution was built for 800 inmates, and now we have over 1,200.

Mr. SMITH. Have you any means of confining these prisoners now, in case of trouble; have you any cells or walls?

Commissioner HAZEN. Well we have some cells, but they are so poor that one of them dug through 6 of them the other day. He broke up some toilets in the toilet room and just dug his way through 6 different cells.

The CHAIRMAN. Dillinger is not down there, is he?

Commisioner HAZEN. I wish he was; he would never get away.

Mr. SABATH. So that is fairly safe, any way; it is safer than other places?

Commissioner HAZEN. We would chain him.

Mr. SABATH. But in view of what is stated here of the larger appropriations in years gone by, it seems to me there must have been gross mismanagement of the affairs of the District of Columbia in the last 10 or 12 years.

Commissioner HAZEN. Why?

Mr. SABATH. Well, immediately all these things are required, and here they have been spending large sums and had plenty of money; they have had as much as forty-two and forty-four million dollars appropriated, and still there are all of these deficiencies and all of these short-comings and all of these things that are coming forward now. So I cannot make any other deduction that that there must have been gross mismanagement of the affairs of the District of Columbia in the last 10 or 12 years.

Mr. O'CONNOR. Make it 12 years before March 4th last.
Mr. MAPES. How about Chicago?

Mr. SABATH. Well we are taking care of matters in Chicago; we are reducing expenses and improving conditions from time to time since the Democrats have come into power.

The CHAIRMAN. Now, Major, please give your name and official title.

STATEMENT OF MAJ. DANIEL J. DONOVAN, AUDITOR, DISTRICT OF COLUMBIA

Mr. DONOVAN. Daniel J. Donovan, auditor, District of Columbia. The CHAIRMAN. Now, Mr. Donovan, unfortunately we did not know, when we called this meeting, that Congress would meet at 11 o'clock this morning, and we have a matter that is coming up the first thing at 11:45 and I guess we will have to conclude the hearings at that time for this morning. I wish you would be as brief as possible in making your statement to the committee.

Mr. DONOVAN. Mr. Chairman, I just want to emphasize one point at this time; that is, that should this loan be made to the District of Columbia by the Public Works Administration there can be no

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doubt, as we view the matter, of the reimbursement of the amount of the loan with interest to the United States Treasury.

After all the District of Columbia, as the committee knows, is the creature of Congress. We cannot do a thing without the sanction and the approval of Congress. Now it seems, as I view it, that we have a somewhat parallel case with reference to reimbursement to the United States of moneys advanced to the District of Columbia, or loaned, rather, by the Federal Treasury to the District of Columbia, in the case of the Capper-Cramton Act passed about 4 or 5 years ago. Under that act, which provides for the development of the parkway and playground system in the District of Columbia, the United States in effect has loaned from the Federal Treasury to the District of Columbia the sum of $16,000,000. It provides in section 4 of that act that there shall be appropriations made by Congress from the Federal Treasury up to a total of $16,000,000 for the purchase of parkways, playgrounds, and parks, and that the District of Columbia shall reimburse the Federal Treasury at the rate of $1,000,000 a year, beginning on the 30th of June 1932.

The CHAIRMAN. Out of what funds?

Mr. DONOVAN. Out of the revenues of the District of Columbia. There has been spent in the District of Columbia up to this time, under appropriations made by Congress pursuant to authority of the Capper-Cramton Act, about four and a half million dollars. Now in the fiscal year 1931, again in 1932, again in 1933, and in the present fiscal year 1934 the District has paid to the United States Treasury in each of those fiscal years the $1,000,000 reimbursement required by that act, and the Budget for 1935 carries an item of $550,000, in round figures, as a further reimbursement to the Federal Treasury for expenditures by the National Capital Park and Planning Commission under the Capper-Cramton Act. That will liquidate the amount of the District's indebtedness to the Treasury on the basis of expenditures made up to this time.

Now we have in this proposed loan bill here, Mr. Chairman, the identical proposition involved in the Capper-Cramton Act, because t provides

The CHAIRMAN. Where are you reading?

Mr. DONOVAN. I am reading on page 4, about line 16. It provides that

** ** the total reimbursement required under both that act and this act shall be not less nor more than $1,300,000 in any one fiscal year.

Mr. O'CONNOR. That means it shall be exactly that, does it not? Mr. DONOVAN. No. If you will permit me to proceed just a

moment

** shall be not less nor more than $1,300,000 in any one fiscal year: Provided, That the Commissioner may, in their discretion, repay more than said amount.

Now that is put in there on the theory that should it develop in any of the fiscal years during which this loan exists that the District will have surplus revenues, they can pay back to the United States Treasury more than the $1,300,000, so as more rapidly to liquidate the indebtedness. And further on, at the bottom of page 4, in line 25, note particularly the proviso, somewhat identical as I recall it or rather

in substance identical with the language contained in the CapperCramton Act—

Provided, That such sums as may be necessary for the reimbursement herein required of or permitted by the District of Columbia, and for the payment of interest, shall be included in the annual estimate of the Commissioners of the District of Columbia, the first reimbursement to be made on June 30, 1936.

Therefore, Mr. Chairman, proceeding on the fact that the District of Columbia is the creature of Congress, how could there be any doubt of the requirement on the part of Congress to see that the District of Columbia does discharge this indebtedness, on the assumption, of course, they would get the loan? I do not see any, Mr. Chairman. Congress certainly trusted the District with the $16,000,000 indebtedness under the Capper-Cramton Act. Of course, all that money has not yet been appropriated, but it may be, and we are paying back that amount of money.

During the period between 1902 and 1910, the District was permitted by Congress to borrow funds from the Federal Treasury. We borrowed $5,000,000 and Congress required that that $5,000,000 should be repaid to the Federal Treasury with interest at 2 percent per annum. That money was repaid within a period of 5 years, and the 2 percent interest as well.

So, on that point, it seems there could be no doubt whatever as to the District's ability to pay, and I say they are able, if they obtain this loan, to make reimbursement, and also there is the fact that Congress can compel the District to pay it.

Now the Commissioners have, under the act of June 29, 1922, complete authority with reference to the fixing of the tax rate. If I may read two or three clauses from that, it provides:

* * and that for the purpose of defraying such expenses of the District of Columbia as Congress may from time to time appropriate therefor, there hereby is levied for each and every fiscal year succeeding that ending June 30, 1922, a tax at such rate on the aforesaid property (real and personal property subject to taxation in the District of Columbia, as well, when added to the other taxes and revenues of the District, produce money enough to enable the District to pay promptly and in full all sums directed by Congress to be paid by the District and for which appropriation has been duly made. And the Commissioners of the District of Columbia hereby are empowered and directed to ascertain, determine and fix annually such rate of taxation as will, when applied as aforesaid, produce the money needed to defray the share of the expenses of the District during the year for which the rate is fixed.

The CHAIRMAN. Now in view of that statute, what was the object of the recent effort made in the House District appropriation bill to reduce the amount of taxation in the District, if that was a matter left arbitrarily to the discretion of the District Commissioners?

Mr. DONOVAN. Of course I do no believe-and I will express my opinion on that matter-that the House committee should have taken that action; because the law imposes upon the Commissioners of the District the duty and responsibility of determining what the tax rate shall be, and that tax rate is predicated upon the amount of the annual appropriations made by Congress.

Now to answer specifically your question: At the time the budget for the District of Columbia for 1935 was submitted to Congress by the Budget Bureau, and on the assumption that the $1.50 tax rate would continue in 1935 and we would receive a Federal contribution

of $5,700,000 in that year, there would have remained a surplus of about $5,000,000 to the credit of the District in the United States Treasury. But following the submission of the budget, Congress. in the Independent Offices Appropriation Act, restored certain salaries, 5 percent on February 1 and 5 percent July 1, and also some longevity pay to teachers, policemen, and firemen, and that immediately reduced the $5,000,000 surplus about $2,000,000 and left $3,000,000 as surplus.

Later on the Budget Bureau submitted supplemental estimates for a million seven hundred thousand dollars additional money for emergency relief. That reduced the surplus to $1,300,000. Now the action of the Senate in adding a lot of items to the bill, beyond those carried in the bill as it passed the House, has entirely wiped out that million three hundred thousand dollars. But the House Committee on Appropriations reported out the $1.20 tax rate on the basis of the condition of the surplus to the credit of the District at the time the bill was considered by the House. That was $5,000,000. Since that time, as I say and I wanted to bring that point out-that surplus has been practically consumed-in fact, is entirely consumed-by the action of the Senate and the supplemental estimates, and by the action of Congress in restoring salaries.

Mr. O'CONNOR. When do you fix the tax rate?

Mr. DONOVAN. We fix the tax rate at the beginning of each fiscal year, beginning the 1st of each July.

Mr. O'CONNOR. Before you make the appropriations?

Mr. DONOVAN. No, sir; after the appropriations have been made by Congress.

Mr. O'CONNOR. Cannot you fix the tax rate the 1st of July so as to take care of that situation?

Mr. DONOVAN. To take care of which situation?

Mr. O'CONNOR. This possible deficit you have.

Mr. DONOVAN. If there is any deficit, of course it is made the duty of the Commissioners, under the act of June 29, 1922, to determine and fix the tax rate that is necessary to raise the required funds to defray the expenses as authorized by Congress under the appropriations. So the Commissioners would have to fix a higher tax rate if the appropriations demanded that action.

The CHAIRMAN. Since the passage of that act, have you changed the tax rate in any year?

Mr. DONOVAN. Since the passage of the act of June 29, 1922 ?
The CHAIRMAN. Yes.

Mr. DONOVAN. Oh, yes; the tax rate has been changed several times. In fact, the act of June 29, 1922, contains what we call the substantive law for the 60-40 division appropriation liability for the District of Columbia. Now the tax rate has been changed a number of times. From 1928 down to June 30th, last, the tax rate was $1.70; this year, 1934, the tax rate has been reduced to $1.50.

Mr. SABATH. You would then advise that we repeal the provision that reduced the tax rate from $1.70 to $1.50, and that will take care of the situation?

Mr. DONOVAN. There is not any provision, Mr. Congressman.

Mr. SABATH. Well, in the last bill reported by the Appropriations Committee they reduced the rate from $1.70 to $1.50.

Mr. DONOVAN. I beg your pardon. They proposed a reduction from $1.50 to $1.20 and that provision went out on a point of order on the floor of the House.

Mr. SABATH. But we still have time to increase it, so as to meet your deficit?

Mr. DONOVAN. Yes, sir. The Commissioners have full and ample authority in the premises to make the tax rates whatever may be necessary to raise the required funds carried in the bill for the District of Columbia.

Mr. SABATH. Then why cannot you provide for these things?

Mr. DONOVAN. Because, as a matter of fact, it would be inordinate, it would be harsh, to attempt to raise the tax rate at this time to raise some 20 million dollars for these projects here.

Mr. SABATH. The entire amount is not needed immediately; it will be needed and expended in the next four years.

Mr. DONOVAN. That may be; but, even assuming that, that would mean $5,000,000 a year and I do not think, under existing conditions, there is any justification or warrant for increasing the tax rate. We are going to try to maintain the tax rate if we possibly can

Commissioner HAZEN. We think that these large projects should be paid for by the future generations that are going to get the benefit of them.

Mr. DONOVAN. I want to bring that point out. There is not a city in the United States-I do not believe there is a city in the United States, from my recollection of having studied the statistics of the Bureau of the Census-that is without a large bonded indebtedness. Now practically all of the cities go into debt by the issuance of bonds to obtain funds to carry on their capital projects. The District of Columbia has been required up to this time to carry on whatever capital projects have been imposed on the District by Congress, out of current revenues. There is no indebtedness so far as the District is concerned; we do not owe any money. Now there is no reason why the District should not go in debt for these necessary projects.

Mr. SABATH. Do not you think that was a misfortune in this country, that many municipalities and States have gone on, because it was easy to obtain money, and have gone into debt which now they find it nearly impossible to pay, or even to meet the interest, and that is the reason we have so many defaults in municipal and State bonds?

Mr. DONOVAN. The trouble is they went too far into debt. There is no objection to the principle of a State going into debt, but it should be a reasonable debt that can be provided for under reasonable taxation.

Mr. O'CONNOR. What proportion do you think a reasonable indebtedness is-two to one?

Mr. DONOVAN. I do not know; I would hesitate to say, because I have not had occasion to go into a study of that particular matter. I would rather some of you gentlemen, who are acquainted with the conditions in the cities where they have debts, would express an opinion on that.

Mr. O'CONNOR. New York City has about two to one. New York City has about twice as much bonded debt as its annual revenues.