Mr. MARTIN. Why do you not put distress in it?

The CHAIRMAN. From the wording of that section alone I would say he was recommended to take them over as good going propositions rather than distressful ones.

Mr. SMITH. That is what the Secretary would do if the districts are in such condition that the settlers are not able to pay the assessments, and the property would be likely to go into the hands of the bondholders or back to swamp conditions. This law would then be called into operation.

But the whole tenor of the bill shows that it is the desire of the committee to have first consideration given those districts which are liable to be complete failures unless relief is afforded to them. Now, Mr. Chairman, I would like to have the committee hear Mr. Brand of Ohio.

The CHAIRMAN. We will be very glad to hear Mr. Brand at this time.

STATEMENT OF HON. CHARLES BRAND, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. BRAND. Mr. Chairman and gentlemen of the committee, I find that in Ohio we have about $30,000,000 of these outstanding drainage bonds, and to my surprise Ohio is right up at the top in the amount involved.

I think if this bill had come to my attention 10 or 20 years ago I would undoubtedly have opposed it. But I believe this committee and every Member of Congress must take into consideration what has happened. I believe that when these drainage projects were originally proposed they were sound, economically, as a rule, surely, and they went into it and obligated themselves at a time when they were receiving a fair return for the money invested in the land and the land was desirable as an investment and as a thing to improve.

But there has been a radical change. I do not believe, if you were opening up Oklahoma now, you would have anybody running out there for the land.

The income from the products of this soil has decreased. The expense of carrying on the farming operations has steadily increased. The taxes on the land are three times what they were.

You have some upkeep on the land; you have to buy posts and fences, and you have to buy some lumber.

I used to pay $20 for lumber for which I pay $60 now. The cost of fencing is twice as high, and the cost of posts is three times as high as formerly. The cost of machinery used on the farm has trebled, and now additional machinery is needed because the boy, when he is grown, leaves the farm and you must have machines so that one man can do as much as two used to do, because the boy has gone. And you have to buy gasoline to make the machine run. In these drainage districts they have all these expenses, and they have in addition to that the expense of paying for this drainage project. I can see from my own experience in farming that they are going to break down.

I know in my own community this is a serious question, the question of financing agriculture. I know building and loan asso

ciations there are seriously considering doing something which is altogether uneconomical, reducing their interest rates radically so they will not make much, will not pay much in the way of dividends. But they do not see any sense in trying to collect 6 or 7 per cent when they can not do it.

Now, some here say this will not benefit small farming. But this is going to become a general condition of all farming. The farm loan banks are not going to be able to collect 6 or 7 per cent. They are reaping a harvest of thousands of farms every year that are in bankruptcy.

The CHAIRMAN. Is it a fact that the farm loan banks are collecting 6 or 7 per cent interest?

Mr. BRAND. I think it amounts to about 6. They pay 52, I believe, and it costs a good deal to get it.

The CHAIRMAN. I do not know of any loans in our section that are over 512 per cent.

Mr. BRAND. It costs enough to get it to bring it up to 6.

Mr. BANKHEAD. The only additional cost is the fee they charge for the preliminary investigation.

Mr. RANSLEY. There are the expenses of drawing up the necessary papers.

Mr. BRAND. That would amount to full one-half of 1 per cent. The CHAIRMAN. If you were borrowing the money from a private company, you would have to pay the expense for the papers.

Mr. BRAND. Yes. The Government is in a position to borrow money at a low rate. I do not know how long that would continue. I am not sure that I would fix this rate at 3 per cent; I think it might be amended in that regard so the Government might not lose in its operation at any time if interest rates increased.

If we are going to have agriculture continue, we have to find some way to be an actual help, and it seems to me this is one of the ways that we might use.

I thank you very much.

Mr. O'CONNOR. Do those drainage bonds have any tax-exemption feature now, either local or otherwise?

Mr. SMITH. No, I do not think so.

Mr. FORT. A lot of them are.

Mr. SMITH. Under the State law.
Mr. FORT. Under the Federal law.

Mr. SMITH. It is possible these districts may come under some provision of tax exemption.

Mr. FORT. Almost all of them.

Mr. SMITH. I do not know about that. These are different from municipal bonds, applied to towns and cities. I am not so sure that these districts are exempt from Federal taxation.

Mr. FORT. From both income tax and State tax, many of them. Mr. MICHENER. On what theory?

Mr. FORT. Like municipal bonds.

Mr. SMITH. I do not think so.

Mr. O'CONNOR. They are not private enterprises.

Mr. FORT. A lot of them are tax exempt; I know some of them that are.

Mr. SMITH. These are different from State bonds. I think Mr. Fort is mistaken in that respect. If he has any authority for it, I would be glad to know what it is.

Mr. FORT. I know of one issue in Florida like that, of which I happen to own some.

Mr. SMITH. That is rather unusual.

Mr. O'CONNOR. Of course the new bonds will be tax exempt. Mr. SMITH. Certainly, as they are payable to the Government. Mr. O'CONNOR. I think that enters into the question quite a little. M. BANKHEAD. May I ask one question in reference to the bill? In section 2 you provide a scheme for redeeming the bonds and also the certificates of indebtedness, or other lawful indebtedness, unpaid judgments, warrants, accrued interest, and so un.

Does that mean that you are proposing in this settlement not only to make a settlement with the bondholders, but to undertake to take care of outstanding judgments or secondary liens?

Mr. SMITH. Only against the district, not against the individual property.

Mr. FORT. You mean judgments on the bonds themselves?

Mr. SMITH. Yes, where the district has assumed obligations it can not meet and judgments have been rendered, those judgments will be taken up.

Mr. MICHENER. It is refinancing the district.

Mr. SMITH. Yes.

Mr. MONTET. In other words, the drainage district may have a big fuel bill which it can not pay, and that will be taken care of. Mr. BANKHEAD. The proposition is to clean it up and give them a new start.

Mr. SMITH. Yes, so the Government may have a first lien on all property in the district.

Now, Mr. Chairman, I will now ask the committee to hear Mr. Fulmer.

The CHAIRMAN. We will be glad to hear Mr. Fulmer.

STATEMENT OF HON. HAMPTON P. FULMER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH CAROLINA

Mr. FULMER. Mr. Chairman, I live within about 7 miles of a drainage district at Orangeburg, S. C. I want to confine my statement largely to this district so that I might give you a real picture of the situation, which will also apply to the rest of the districts in South Carolina, and I imagine to the rest of the districts in the South.

In this district we have hundreds of some of the best farmers to be found in South Carolina. They have splendid 'homes; fine wood lots, pastures and farm implements.

They mostly inherited their lands from their fathers and their grandfathers, and they are there, ready to continue their agricultural pursuits.

It is a matter, as far as this district is concerned, whether they are going to get this relief or whether they will have to abandon all of these necessary things, leave their homes and pass out of the

picture as independent farm units and move into some other line of occupation or into the already large line of unemployment.

They have splendid school buildings, with a number of consolidated schools, and good churches. In this district they had a splendid little town. In 1920, before the boll weevil came along, and the farmers were very prosperous and able to take care of the situation. They have a hard-surfaced road leading from my home town through this district into the city of Charleston.

This drainage district starts at the begining of this level land and stretches out toward Charleston on the coast.

Let us compare one of these farmers with one of the farmers on the outside, so that we may clear up, if possible, a wrong impression in the minds of some of the committee, for instance my good friend from Michigan, Judge Michener.

Inside the line of this district we have a farmer owning 500 acres, and outside of this district we have a farmer owning 500 acres of land.

The farmer on the inside, as shown by his actual tax receipt, is taxed $165 for county, State, school and all other purposes. The farmer on the outside is taxed $165 for these purposes.

The farmer on the inside is taxed or assessed to take care of this bonded indebtedness, $249. The farmer on the outside is not taxed to that extent, therefore, this extra burden on the farmer within the district, is equal to a mortgage on the farm on the inside, of $4,500. at an interest rate of 6 per cent.

The CHAIRMAN. Are there any benefits to the farmer on the inside that the farmer on the outside does not enjoy?

Mr. FULMER. There are none. In the meantime farmers on the outside enjoy in an indirect way, through the drainage canals, wonderful benefits without any cost whatsoever. Naturally these canals will assist in carrying off flood waters from streams miles beyond the district lines.

Now, Mr. Michener might say that the farmer on the outside could be carrying a mortgage of $4,500 at a rate of 6 per cent and therefore be bearing the same burden. The farmer on the outside has the right to-day to go to the Federal land bank and relieve himself of this mortgage in the hands of private interests where he is paying a very high rate of interest. It is no fault of the farmer on the inside because that mortgage happens to have been made by the farmer on the outside when values were very high, and the Farm Board now refuses to make a sufficient loan to the farmer on the inside to take up his mortgage. Mr. Michener, this is a group proposition, and the individual farmer on the inside is unable to go to an individual or to the Federal land bank and negotiate a loan to take care of his proposition. We have thousands of good farmers who have paid their assessments and they would like to go to individuals, banks, or Federal land bank and negotiate loans individually, but because this is a group proposition, they can not do it.

In connection with the question you raised about the banks, that this legislation would discriminate against them by making these special loans on the inside and not to their customers on the outside. I want to give you a picture of this same district that I believe will largely apply to all drainage districts in the agricultural sections of the South and other sections.

In 1920 the little town in the midst of this district had two good live banks. Three or four years ago they passed out of the picture with the savings of these farmers wiped out.

Two miles south of this district there is a splendid little town that had two banks, and they have gone the way of the others. On the west there was a little town with one bank, and it has been closed.

In the town I live in, 7 miles from the district, the county seat, in 1920 they had five good strong banks, and to-day they have two old banks, one new bank organized since that time, but they are not doing very much loaning to agriculture in or out of the district. During the past 10 years three banks went down in this town. You will find no bank kicking about this legislation. In the meantime any relief you might give to these districts would extend quite a lot of relief to these remaining banks.

Now, Mr. Michener stated yesterday or the day before that it would be unfair for the Government to make loans to just a few farmers in these districts, and not to the majority of the farmers on the outside. I want to ask you, what you are doing under the Federal marketing act?

The board to-day has invested $500,000,000 with about 8 per cent of the farmers of the nation, and the other 92 per cent of them can not even get a dime.

Mr. MICHENER. I listened to the gentleman from South Carolina in the debate on that act and he made such a favorable impression that he convinced me it was a good thing, and I voted for it. But I am beginning now to think that he was wrong.

Mr. FULMER. I want to say to the gentleman it is a good act, and it is the only way you are going to solve the agricultural problem on a sound basis, unless you pass Mr. Haugen's bill. However, to make the marketing act successful you have got to organize the farmers, and you never will unless you give them something to induce them to come into the organization, which the board has not done up to this time. I am sorry that I haven't the time to enlarge on this subject. You have to create a new marketing system, the thing that the Board claims it is doing now.

Mr. MICHENER. That act starts with an organization. They start with something.

This tends to relieve people of debts, private debts.

The Federal Farm Board's operations with the co-ops, which as stated represents about 8 or 10 per cent of the cotton farmers in the South, is identical with what we are trying to do here for 5,000,000 farmers living in the distressed districts, which compose a rather small percentage of the farmers as a whole. Why, one of the first things the Farm Board did was to advance thousands of dollars to the cotton co-ops and I believe to everyone of them except perhaps one or two, to pay their indebtedness so as to place them on an operating basis. I know that they paid the indebtedness of the South Carolina co-ops which amounts to over $120,000, and accepted a scrap of paper, a plain note, as collateral. It is a known fact that had this board not paid the indebtedness of the cotton association practically all of them would have gone to the wall and the indebtedness would have been assessed on the members of the association.