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Mr. Smith. Well, that was the argument, Mr. Snell, that Mr. Purnell gave to us on the floor of the House in such an eloquent way that it made us all vote for his farm relief bill.

The CHAIRMAN. Well, the joint-stock land bank bonds were for the benefit of agriculture, were they not?

Mr. SMITH. Yes.
The CHAIRMAN. And a large number of them were in default.

Mr. SMITH. Yes; but what did the Federal Government do with reference to them? What did it do? It started out, in the first instance, with an appropriation of $1,500,000 to organize and put the proposition on its feet, and then they authorized the advancement of $100,000,000 a year for the purchase of these bonds.

The CHAIRMAN. Was that in connection with joint-stock banks?
Mr. SMITH. Yes; joint stock and Federal land banks.
The CHAIRMAN. There is a difference between the two.

Mr. Smith. The Government came to the rescue of those organizations to help the farmer, and my contention is that these farmers that I am arguing for and that my colleagues here are arguing for, are not embraced in any existing law, and are just as deserving and probably more needful of assistance than the others, because they are losing their homes, and the result would be that all of these lands would go back to their former worthless condition, and all of this wealth that has been created would disappear.

The CHAIRMAN. A lot of farmers have lost their homes under landbank mortgages, and they want relief. If we come to the relief of people who hold these bonds, why would it not be necessary to come to the relief of the people who hold the other bonds?

Mr. Smith. My information is that there are comparatively few loans made through farm-loan banks that are delinquent, where parties are being sold out, because they gave the farms as security and the banks are getting their money back and their troubles are being straightened out.

The CHAIRMAN. But the people who have invested in land-bank bonds are appealing to Congress at the present time for relief; not the joint-stock banks.

Mr. SMITH. Well, they could not come under this law.

The CHAIRMAN. I can not tell you what they would get under this law, but you know that they have had their agents here soliciting support of this bill.

Mr. Smitu. I know; but we have hundreds of men running around this Capitol wanting legislation that we do not give any serious consideration to. We go down to the fundamentals and the merits of a bill, disregarding what these paid lobbyists or representatives of bondholders may advocate.

The CHAIRMAN. I know that these people had some influence, because the people that they influenced came to me and asked 'consideration of the bill.

Mr. Smith. You did not give this hearing at the request of any bondholders? The CHAIRMAN. No, sir; I did not. I gave it upon your request.

Mr. Smith. That is mighty fine, and I appreciate your consideration and courtesy.

Mr. MICHENER. Does this bill have the unanimous support of your committee?

Mr. SMITH. Absolutely so.

Mr. MICHENER. I do not want you to understand that I am opposed to including the irrigation districts in this bill.

Mr. SMITH. No; I understand that.

Mr. MICHENER. Because I think they should be all included. I think the irrigation districts should be included if the bill goes through

Mr. Smith. This bill specially excepts Federal irrigation projects. This in no way at all is concerned with our Government reclamation policy. It excludes Federal projects entirely. We do not want it for that purpose.

The CHAIRMAN. Did you tell the committee how many bonds are at the present time outstanding, for instance, in these private projects?

Mr. SMITH. Well, it would be impossible to do that.
The CHAIRMAN. I thought you might have a general estimate.

Mr. Smith. We have, on about 8,000,000 acres, $2,131,000 outstanding, but we have less than 8 per cent of the information on all of the districts.

Mr. THURSTON. How did you get your $95,000,000 ?

Mr. Smith. That amount was fixed arbitrarily, because we did not know just how extensive this would be. We figured that the proposition would have a fair trial over five years at $19,000,000 a year.

Mr. PURNELL. Is there any relief under this bill for a farmer who has already lost his farm?

Mr. SMITH. No; I do not believe there would be any relief of that kind, unless he is already on these projects and has been foreclosed on by the bondholders. There is a provision here which would protect him for two years after he is foreclosed upon, so that he can come back and get the benefit of the law.

Mr. BANKHEAD. Now, for my benefit, Mr. Smith-I am not familiar with this bill, or this legislation; I glanced over it hurriedlywill you assume a case of a particular drainage district that is in difficulties, where the farmers who compose the membership of the district can not pay their assessments, and where default has been made in the payment of the interest charges on the bonds; and apply this bill to the particular relief that you are seeking, to a particular district? That is what I would like to get at.

Mr. SMITH. All right. In a case of that kind the officers of that district would apply to the Secretary of the Interior, under the provisions of this law

Mr. BANKHEAD. The officers of the drainage district ? Mr. SMITH. Yes, sir. They would apply for relief to the Secretary of the Interior, and the Secretary would then have an engineer and someone posted as to the value of the land and property, go into that district and make an investigation of its financial status, and also of the possibility of its being able to meet its obligations, if it had the benefit of this law. Then if the Secretary of the Interior felt that the bondholders had made a sufficient concession and that the values afforded ample security to prevent the Government from suffering

any loss, he would authorize this district application to be accepted as one of those which would have the benefit of this particular law. The bonds of the private bondholders would be turned in and other bonds would be issued and put in the Treasury of the United States as security for the money that the Government would advance. The bondholders would be paid off. The amount would be agreed upon, with deductions which the Secretary would necessarily insist upon in order to bring it within the proper security value, and also he would arrange to take up the other indebtedness against the district, which would be in the way of drainage assessments to the district. Then with that sort of protection the district would go ahead and function.

Mr. BANKHEAD. Does the bill contemplate not only the payment of the defaulted bond by the Government but also for the assessments of the individual farmers who are in arrears!

Mr. Smith. Yes, sir.
Mr. BANKHEAD. That is to be paid to the bondholders?

Mr. SMITH. The bondholders would be paid on surrendering the bonds and the district would be paid the delinquent assessments.

Mr. BANKHEAD. Who is that to be paid to?

Mr. SMITH. The delinquent assessments are to be paid to the district, from the fund that the Government would advance, so as to put the district on a sound financial basis, so that it could proceed to perform its duties to the people of the district.

Mr. BANKHEAD. As I understand it, in the first instance, the Secretary of Agriculture, or the Secretary of the Interior

Mr. SMITH. The Secretary of the Interior.

Mr. BANKHEAD. He would investigate the solvency of the property owned at the present time by the drainage district ?

Mr. SMITH. Yes, sir.
Mr. BANKHEAD. And determine its value?
Mr. SMITH. Yes, sir.
Mr. BANKHEAD. Determine the equity of the property?
Mr. SMITH. That is right.

Mr. BANKHEAD. And then he enters into negotiation with the owner of the bonds to see how much the owner is willing to scale the value of the bonds, the face value of the bonds for a cash settlement?

Mr. SMITH. Yes, sir.

Mr. BANKHEAD. And after such negotiation, if the Secretary agrees with the holder of the bonds as to the price, then he is to pay out of this fund the face value of the bond, on the basis of the agreement with the bondholder!

Mr. SMITH. Yes, sir; the actual value.
Mr. BANKHEAD. Then what becomes of the bond?

Mr. SMITH. The bond would be canceled and a new bond would be issued, payable to the United States, and on these bonds would be written that they are a lien on this district, and these bonds would be deposited in the Treasury and held there to be paid for over a period of years.

Mr. BANKHEAD. In other words, the original private bondholder would get out of the picture?

Mr. SMITH. Absolutely out of the picture.

Mr. BANKHEAD. And the Government steps in and takes it over!

Mr. SMITH. Yes, sir. Now, we passed a bill in the last Congress that is almost identical along this line. It was introduced, I think, by Mr. Leavitt, of Montana. They had a private irrigation district where they were in debt, I think over a million dollars; the money, however, to take up the indebtedness came from the reclamation fund. They bought out the bondholders and paid up the debts and refinanced this district, and it is going ahead now, where otherwise they would not have been able to carry on or keep up these assessments and the operation of their irrigation system. Now, the plan of drainage is not so extensive, from an engineering standpoint, as irrigation, so that the expense of operating and maintaining is comparatively small per acre. We have a precedent for this.

Mr. O'CONNOR. You have a number of precedents. You have the Cape Cod Canal.

Mr. SMITH. But outside of the merits of this bill, I do not see how any member of Congress can look with complacency on the factand they have not been doing it, because they have been passing legislation for the benefit of people in distress—you can not look with complacency on the fact that here is a great group of farmers that has labored for 10 years in making their homes in a drainage district and are about to lose their homes and be crowded off of the district and go into the cities to compete with the unemployed. In my opinion, this is a splendid and logical method to stabilze a lot of our people who otherwise would become just simply drifters.

Mr. BANKHEAD. Pardon me just a moment. Let us come back to your bill, because I want to understand what it means. After you have made this agreement with the bondholders and the Treasury assumes the new obligation, what is the nature of the contract between the Treasury and the owners of these lands with reference to future payments on the new bonds, which are spread over a period of 40 years?

Mr. Smith. Well, the bill provides that these payments shall be extended over a period of 40 years at 3 per cent interest.

Mr. BANKHEAD. At what rate of interest? Mr. Smith. At 3 per cent interest. The Senate passed this bill without any interest, and to show that we are not trying to put over anything that is not conservative, our committee amended the bill and put in the provision as to interest. It passed the Senate without any interest provision at all. It was originally drawn as a bill providing for noninterest-bearing bonds. We have a bill here now that is conservative and should appeal to every Member of Congress who is interested in the welfare of these people. As I say, we have many precedents for this legislation.

The CHAIRMAN. Approximately how many individual farmers would be relieved by this plan?

Mr. Smith. We could only approximate the number. It has been stated by those who have studied the situation that about 5,000,000 people would be benefited by legislation of this character.

Mr. MICHENER. How are you going to answer this question? Here is a drainage district, one of these districts that you refer to, which has metes and bounds, and there are farmers in there. Now, just outside of that drainage district is another farmer, who is not in the district, who has been financing his own project. He goes to his own

local banker, he goes to his bank and that bank charges him 5 per cent or 6 or 7 per cent interest on money loaned. That bank has tried to help him and they have loaned every dollar they could to him. Now, the farmer outside of the district finds himself in exactly the same condition as the farmer across the line within the district. The individual farmer who is not in the district goes over to his local bank and asks for relief. The bank has extended all the relief it can. It carries the burden of the loan. Now, the Federal Government comes in and takes care of this selected group of farmers, who happen to be in a group or corporation, and furnishes them with money at 3 per cent for 40 years to finance their projects, leaving the other man out in the cold. How can you justify that situation?

Mr. SMITH. In the first place, the Federal farm loan act is intended to take care of men in that situation, and if they have security, they can mortgage it at 5 per cent.

Mr. MICHENER. Well, these people had security or they would not be here-I mean, your people.

Mr. SMITH. Well, they will have security if a proper deduction is made in the bondholder's security. At this point I yield to my friend from Nevada, Mr. Arentz.

Mr. ARENTZ. Assume that one has two districts, such as you speak of, Mr. Michener, one in a drainage district and one outside of a drainage district. The landowners within this drainage district may have the same amount of private borrowings from private banks, joint stock or land bank, as you mention, as those outside of the district, but on top of that, what do they have? Within the district they have been compelled to construct ditches, to construct levees, to do every thing that the people on the outside of this area did not have to do, so that on top of the work that the people outside of the district have done, the people within the drainage district have carried the added burden of 6 per cent or 7 per cent of the cost of putting in drainage canals and building levees, doing the things necessary to reclaim the land from swamps or the inroads of a river. Now, the Federal Government is going to step into the picture, and do what? It is going to relieve the farmers within this drainage district who have the added burden, above those outside the district, to finance them to the extent of relieving them of the amount of the bonds that they can not charge off, because it is not a going concern, refinance such indebtedness, decrease the interest from 6 per cent to 3 per cent and through this aid release the farmers of some portion of their burden. Now, the same thing applies to the districts all over the United States, and the people within these districts have an added burden of having to pay for these drainage projects and levees, which the people outside do not have to pay for. Now, that is an answer to your question.

Mr. BANKHEAD, Mr. Smith, what is the amount of interest paid by the landowners now?

Mr. Smith. It runs from 41/2 per cent to 6 per cent, and in some instances 7 per cent, but in some cases the bonds were sold away below par, so it really averages much more than that.

Mr. BANKHEAD. Well, in these particular districts, have any parcels of the property constituting a project, or any individual lands, been sold! For instance, where default has been made by an indi

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