These people are living in districts and the district is responsible for the financial indebtedness, for the entire indebtedness.

In addition to being a crime against our civilization and a rank injustice to the thousands of people who have given their energy, their ability, their money, and the best part of their lives to developing this country, it would be a great economic waste to allow these districts to go back to swamps. We, however, are at the end of our row. We have exhausted our resources. We are helpless in the matter and are at your mercy. As the representatives of a great and wealthy Government, we do not believe you are going to permit our people who have made such a marvelous record pay such a terrible price for their progress.

I am reading this statement to endeavor to enlighten the Committee as to the importance of this relief legislation, and then I will discuss the legislation.

Here is the testimony of Mr. J. A. Melville, chairman of the legislative committee of the Utah Association of Drainage Districts, from which I quote:

In one district I represent, as an attorney, the district has now taken title to nearly 50 per cent of the lands in the district, because the farmers were unable to meet their obligations. Unless some relief is given these good people they will have to go. These have spent 10 or 15 years there building their homes and improving their farms. They are getting advanced in years. Farming is probably the only occupation they know. They can not go into industrial avocations and compete with those there, because they are not familiar with them; and, as I said, they are getting to be old men. One of our supervisors, approaching 70 years of age, had to take title to his own farm in the name of the district. It is really a pitiable condition. There are many people there waiting to see what is to be done, if anything. They have asked us, Shall we plant crops this year, or shall we go? We have hesitated about advising them, but we have told them to remain there, believing that some relief will come. Those who own the bonds secured by the land say, let them remain upon the land; but they can not remain there permanently because the bondholders are entitled to their money, or as much of it as they are willing to accept. We can not hope to keep those people permanently upon that land without some relief because these lands are security for the bondholders. Our bondholders have been very generous. They realize they face a loss; that their securities, like all other farm securities, have depreciated in value, and some of the bonds have been sold to farmers for 50 per cent of their face value. A few of the more prosperous farmers have used these to pay off their drainage taxes and in this way a few of them have cleared their farms. If we had a fund from which these people could borrow, we could make a nice settlement with the bondholders and it would not be an injustice to them, because their losses would be minimized if they could get a cash settlement.

Mr. PURNELL. This proposition does not provide credit facilities for individual farmers?

Mr. SMITH. No, sir; not at all. We deal with the district, with a quasi-public utility. We are not dealing with the individual as we are doing under the Federal Farm Loan System, indirectly. This money is to be loaned to the districts. When you refer to the bill you will observe that it is provided that when the Government comes into these districts, the Secretary has authority to negotiate with the bondholders who may be glad to make concessions, probably sometimes as low as 25 cents on the dollar, in order to put the project on its feet. Otherwise the bondholders stand, in many instances, to lose everything they have in it.

Mr. MICHENER. The real distinction between the individual and the people for whom you are appealing, is that the individual borrows money on his farm and gives a mortgage?

Mr. SMITH. Yes, sir.

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Mr. MICHENER. It is subject to foreclosure if he does not pay it. In your case the people went together in a group and borrowed their money through the bond system, as groups?

Mr. SMITH. That is right.

Mr. MICHENER. And now you want the groups given relief, as distinguished from the individuals who borrowed?

Mr. SMITH. That is the plan.

Mr. MICHENER. In other words, you do not contemplate doing anything for the farmer who worked for himself and borrowed his money and now loses his farm, but you do differentiate in favor of the corporation which was formed and issued bonds which are in reality nothing more or less than notes secured by the mortgages?

Mr. SMITH. I will support any legislation to lower the interest rate to the individual farmer but the pending bill deals with districts.

Mr. MICHENER. A group mortgage?

Mr. SMITH. Yes. It is the same thing as a village or town issuing bonds to put in a sewerage system or water works; the whole city or town is responsible to the bondholders for the payment of the loan. It is on the same principle.

Mr. MICHENER. But there is a little distinction there, is there not, because this is a project, a money making project; this corporation, this drainage district, was formed for the purpose of making money for those who formed it; they expected to profit by it?

Mr. SMITH. They are making a living, and of course, if they can sell their crops at a good price they will have a little more at the end of the year than when they started in, but it could not be considered a money-making or speculative organization in any sense of the word, any profit comes to the individuals who live upon these lands.

Mr. BANKHEAD. Mr. Smith, is it the purpose of this bill that the Federal Government shall loan the money to these local entitiesthey are creatures of the State government, are they not?

Mr. SMITH. Yes, sir.

Mr. BANKHEAD. Is it the purpose of the bill to have the Federal Government loan money to these drainage districts, so that the drainage districts may pay the bondholders; is that the purpose?

Mr. SMITH. The Government steps in and takes the place of the bondholders and new bonds are issued in an amount commensurate with the value of the land and the security offered.

Mr. BANKHEAD. Just what will be done with the money, for instance?

Mr. SMITH. The money coming from the Government will be used to take up these outstanding bonds.

Mr. BANKHEAD. It will be paid over to the individual bondholders?

Mr. SMITH. And to pay the accumulated interest.

Mr. BANKHEAD. That money will pass from the Federal Government, through the drainage districts, into the citizens, and they may be far removed from the drainage districts; is not that true?"

Mr. THURSTON. They take the place of the banks?

Mr. SMITH. That is practically so. We take the place of the banks. The Federal Government through the farm board, under the farm relief act, loans money to cooperatives which are not in exist

ence, and to people who are not in danger of losing their homes. But this bill does not do that. This law if enacted provides for loaning money on farms already established; communities that are already built, where they have roads and schools, which they are likely to lose, in which case the lands would go back to the same swamp condition in which they were before. The occupants of the land would have to go to the cities to seek employment. In some cases the bondholders may take over the lands and farm them en masse. I am told they are doing this in Illinois now, where the bondholders foreclosed and took over the property and farm it en masse, and hire these farmers as laborers to do the work which they had been doing as independent farmers.

Mr. MICHENER. That is what would have to be done unless this legislation is enacted?

Mr. SMITH. In many instances, undoubtedly.

Mr. MICHENER. Of course, I happen to have none of these swamp lands in my district, but I know a number of individuals who bought these bonds, and representatives of these bond companies, as you know, have been down here urging this legislation, and more propaganda comes from the bondholders. I have a number of individual friends who invested, and now they want us to take the thing over, and I could hardly see why, for instance, if I invested in a mortgage on a farm and take my chance and loan a man money, and he does not make a go of the farm and must lose the farm, I do not see much difference between that fellow and the other fellow who makes a bad investment and now wants the Government to pay him. Mr. SMITH. Did you vote for the farm relief act?

Mr. MICHENER. Yes, sir.

Mr. SMITH. Well, it seems to me it is no more inconsistent to support this legislation than that legislation.

Mr. MICHENER. I think there is a distinction.

Mr. SMITH. I wish to say this, that no representative of any bondholder, to my recollection, appeared before our committee.

Mr. MICHENER. Well, they were here. You will not deny that? Mr. SMITH. They may have been.

Mr. MICHENER. Because a dozen of them saw me.

Mr. SMITH. But the testimony at our committee hearings came from people who were on the farms.

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Mr. MICHENER. But these people did not go in the hearings; they were too shrewd to do that. I am speaking of the bondholders. could name the companies that dealt in these bonds; they bought them and sold them, and now they are owned by individuals throughout the country, and the dividends or the interest has ceased, and the bondholders are not receiving their interest. Of course, they want their money; they want their interest, and they are coming in, through the farmers, and asking to have the Federal Government pay the bondholders their money, as a matter of relief. In other words, when the farmer gets through he finds that he owes the Federal Government instead of the bondholder, the bond company, which he owes to-day. I think this is a bill largely for the relief of the bondholders.

Mr. SMITH. Well, I am sorry that you have that attitude, I am just wondering if you have read section 4 of this bill?

Mr. MICHENER. Yes, sir.

Mr. SMITH. It provides that the Secretary of the Interior is hereby authorized and directed, and so forth, to negotiate with the various districts hereinbefore referred to, for the purpose of reducing the amount of existing indebtedness, both of principal and interest, and he is given full power and authority to make such adjustments before the loans provided for are made. If the bondholders do not make the concessions, this law would not be made to apply to that district. Mr. MICHENER. Well, the money going to the bondholders, if this money is loaned-when we get right down to brass tacks-the money is not really going to relieve the farmer, in the way of furnishing seeds, or anything like that, it is going to the bondholder. It is shifting the loan burden from the bondholder, the individual who bought the bond and made a poor investment, it is shifting that burden to the Federal Government.

Mr. SMITH. Well, if you want to insist on that, we will let it rest there.

Mr. MICHENER. Well, is it true?

Mr. SMITH. No, because the bondholder has to make a concession. The farmers have lost their labor for years, and in many instances have encumbered themselves with other obligations which will result in their being driven from these districts. They will be foreclosed upon. The bondholder is not relieved 100 per cent by any means, because this legislation applies to the districts that are in financial distress, where foreclosures are likely to result in the very near future, so that a bondholder would not get the benefit that you intimate. He has got to make a concession, he has got to discount. sometimes as much as 50 per cent. I remember in one case where the bondholders had $1,500,000 invested in a district and they were willing to compromise for 10 cents on the dollar in order to save themselves, even that amount. They saw that the district would be wrecked financially, and they accepted 10 cents on the dollar in order to get out from under. This is not intended to benefit the bondholder. We are not interested in the bondholder here although it is a fact, and everyone knows it, that many people who own bonds have all their money invested in that way. Widows and orphans oftentimes have $100 or $500 or $1,000 invested in bonds of a municipality which has defaulted. So that I do not think you could argue that the bondholders would be benefited directly.

Mr. SPROUL. This money would go to pay the bondholders, would it not?

Mr. SMITH. Yes, it would go to take up the indebtedness.

Mr. SPROUL. Would it not be just as right for the Government to pass a bill here to reimburse the men that have loaned money on buildings in our cities and the mortgages are being foreclosed?

Mr. SMITH. Oh, no, those are individual cases, Mr. Sproul.

Mr. SPROUL. I understand that, but there are thousands of those cases where mortgages are being foreclosed and men are being forced out of their homes.

Mr. SMITH. That is true, but we are not dealing with individuals; we are dealing with a group, just as you are dealing with a group under the Federal farm relief act. You deal with a group in that case. You are encouraging people to go out and build warehouses which are intended to benefit certain kinds of agriculture, and in many instances where they never thought of borrowing the money

until this law was passed. But here people who are down and out financially are being driven from their homes, and they are in a worse condition, so far as these districts are concerned, than those who come under the farm relief act.

Mr. SPROUL. But the question is, is it going to help the farmer or the bondholder?

Mr. THURSTON. Would it be in order to offer an amendment to extend the same privilege to farmers throughout the country who are distresssed by their outsanding obligations?

Mr. SMITH. Why limit it to farmers? Why not extend it to everybody, then?

Mr. THURSTON. But the idea is, why limit it to drainage districts? Mr. SMITH. Because of the conditions in those districts.

Mr. THURSTON. But are they not just as severe in the farm districts generally as in the drainage districts?

Mr. SMITH. Well, we are helping the farmers elsewhere, through the Federal farm loan banks, the Federal Farm Board and where they have unusual conditions in the way of droughts and floods. Mr. THURSTON. Not in this respect.

Mr. SMITH. Well, it is in the same respect. We are loaning them money without any security whatever. Right now, millions of dollars are being paid out through the Department of Agriculture to people who cannot give any security whatever.

Mr. MICHENER. Suppose one of these districts, if they come within the proper area, and they do in these states, wants to borrow money, can it borrow money from this drought relief fund the same as individual farmers?

Mr. SMITH. I do not think so. I do not think it would extend to them. I do not think they would stand a very good chance except in an emergency.

Mr. MICHENER. Well, this is an emergency. They have got the land and they have no crops and they need money.

Mr. SMITH. But that is not sufficient to save their homes. The obligation rests entirely on the district and not on the individual. Now, I wish to read from the statement of Mr. L. L. Hidinger, President of the Morgan Engineering Co. of Memphis, Tenn. He gives statistics with reference to conditions in certain states. He says that in Missouri there are about 3,500,000 acres in drainage projects, in Arkansas about 4,500,000 acres, in Mississippi 2,500,000 acres. In referring to Arkansas he says the population in the drained area is about 400,000, in Missouri 325,000, and in Mississippi 200,000. He also states:

More farmers are losing their homes every year. To show the rapid increase within the last few years, the history of a large drainage district is here reviewed. This district began collecting taxes in 1910. For the first 16 years it enjoyed a good market for its securities, it always paid its interest coupons and bond requirements when due, and it had accumulated a reserve for interest and bond requirements of nearly $300,000. However, in 1926 a large number of farmers were unable to pay their taxes

that is because of the constantly decreasing price of farm products— and a big percentage of the total collections became delinquent and it became necessary for the district to begin drawing on its reserve to meet the bond and interest requirements and to continue to do so until, in the fall of 1929. the reserve fund had become exhausted, and there was insufficient money to pay the interest and retire the bonds that fell due, and the district defaulted in its payment.