in the management and control of the banks for cooperatives. This was to proceed along with the gradual retirement of Government capital. The law is clear on this. The chief advocates of these laws, including the President of the United States together with bipartisan support in Congress, made these objectives abundantly clear. There was very little opposition to the legislation on final passage in Congress. It is to be recalled that, in signing the Farm Credit Act of 1953 which laid the basis for the 1955 act, the President said he was meeting objectives he had announced at Omaha in the 1952 Presidential campaign. What he said at Omaha on September 18, 1952, on the subject was, in part, this: "We will remove the Federal domination now imposed on the farm credit system. Employees of these farmer-owned self-supporting institutions should not be Federal appointees. A Federal farm credit board, elected by farmer members, should be established to form credit policies, select executive officers, and to see that sound credit operations will not be endangered by partisan political influence." In signing the Farm Credit Act of 1953 into law he explained : "The Farm Credit Act of 1953 meets many of the objectives which I announced at Omaha. It provides for a Federal Farm Credit Board. The President is required to consider nominations of the farmer and cooperative members of the Federal farm credit system in choosing that board. It authorizes the board to select its principal executive officers. It vests in the Board the power to adopt policies to guide the operations of the farm credit system within the framework of the law. "The farm credit system has a splendid record of service to the American farmer. A part of the credit for that service goes to the farmer participation in the membership of the district boards. The extent of that participation on the district boards is also increased by the Farm Credit Act of 1953 *** "The signing of the farm credit bill marks another milestone in our march toward an agriculture which is productive, profitable, responsible, and free from excessive regulation." The 1955 act established, pursuant to a study instituted by the act of 1953, the principle of action for putting the Cooperative Banks on the road to greater independence-ownership and control by its borrowers, farmers and their co operatives. At that time the cooperative borrowers had approximately $20 million invested in "borrower" stock, necessary to make them eligible for loans but which was convertible into cash upon repayment of the loans. Instead of converting such capital into cash, most cooperatives enthusiastically enlisted this and additional capital in the support of the new act heralded by the President himself as the "road from Federal domination." As of December 31, last, farm cooperatives had invested $15,100,000 in B stock and $10,300,000 in C stock, or in excess of $25,400,000 in all. The retains on bank earnings on the capital provided and from loans outstanding to cooperatives, including those I represent, add steadily to the capital of the 12 district banks and the central bank, thus advancing the program of retiring Government capital over a period of time. The bill before you, H. R. 8332, would change the situation completely. A. It would increase "Federal domination," as that term is generally used, by subjecting these banks not alone to the supervision of the Farm Credit Administration, a Federal agency which is fully adequate and competent. It would increase "Federal domination" greatly by bringing these banks, which are mixed-ownership corporations, under the control of the Budget Bureau. The Banks for Cooperatives have never been under the Bureau of the Budget in the 24 years of their operation. This is because they have been mixed-ownership corporations. The banks for years have conserved the Government capital and built up substantial surpluses. They are carefully examined by independent Farm Credit examiners each year. They are also subject to examination by the General Accounting Office which makes reports to Congress which are brought to the attention of your committee. The proposed budget provision would require the banks to submit budget programs and to have the amount of their funds which may be spent for administrative purposes authorized by Congress each year so long as the banks are eligible for Government subscription to their capital stock and notwithstanding that a bank has retired all of its Government capital. The implication of this requirement is that it would require the officers of the banks to forecast a year and a half to 2 years in advance loan volume, the amounts of debentures to be issued, and thereby the amount of money to be borrowed. This is practically impossible in connection with complex agricultural operations which are subject to weather and other hazards of nature. It would straitjacket the operations of the banks, thereby reducing their value and utility so far as agricultural producers, operating through their own institutions, are concerned. It may be possible to make accurate long-range forecasts in some fields of activity, but it is impossible at this moment for anyone accurately to forecast the volume of the various crops this year or the course of prices or the storability and other quality factors incident to marketing these products next fall and winter. Thus, credit requirements cannot be precisely forecast for long periods of time in advance. The budget requirement would mean that salaries, expenses, and operating details would be subject to review, recommendations vetoed, and the risk would be run from time to time of flat percentage curtailments of expenditures even after congressional action on budgets had been completed. B. It would extend the control of the Secretary of the Treasury over bonds, notes, debentures, and other instruments of indebtedness issued by the Banks for Cooperatives and Federal intermediate banks, authority as to which now rests with a Federal official, the Governor of the Farm Credit Administration. Such control would be centered in the Treasury Department on borrowing and interest rates, even though such obligations are not an obligation of the Government of the United States. C. It would reverse the objectives of the 1955 act-ultimate ownership and control of these institutions by their borrowers. H. R. 8332, if enacted, might well serve as a precedent for subsequent proposals delimiting the authority of boards of directors and officers of the Banks for Cooperatives in a way so as to completely set aside the objective of reducing Government domination. D. It would stop at once, in my opinion, further investment by farm cooperatives in the permanent capital of the banks beyond the minimum required for eligibility in obtaining loans, thus destroying the incentive in expediting the retirement of Government capital. Further, it would induce widespread regret with respect to the permanent investments farm cooperatives have already made in permanent capital, leaving them with the conviction that the Government has not acted in good faith by changing the rules and objectives subsequent to the passage of the 1955 act. It was after the passage of that act that these cooperatives agreed in good faith to make investment in permanent capital. E. It would transfer and concentrate in the Budget Bureau and the Treasury Department authority which the 1955 act contemplated would be vested in the farmer-members of the boards of directors of these banks-boards which farmers and their institutions are having a larger voice in selecting. Indeed, it would reduce the status of these boards, mostly very able and outstanding farmers, as makers of policies and decisions to approximately the status of a board of visitors. They would be reduced to the function largely of making some recommendations and observations, but real control would center in agencies in Washington which typically have few men who have any outstanding interest in, or competence in, farm matters, including farm credit. Personally I was not entirely surprised to see the Budget Bureau draft. which I understand you, Mr. Chairman, introduced "by request," and a Bureau witness urge passage of H. R. 8332. It was exactly in anticipation of this type of bill that I indicated some misgivings with respect to the 1953 act. I have long been aware of the persistent, institutional aspirations for highly centralized control of the Government within the Budget Bureau-the strong approach to central management. These aspirations persist and multiply, no matter what man or whatever party is in charge of the agency for the time being. Decentralization is contrary and suspect to management concepts typically advanced by the Bureau for many years. With the same relentless pace of a huge glacier, it tends to move ahead, sweeping aside all other concepts before it to assure conformity with its massive concept of central control. I have talked with the men, whom I found quite "far down the line" in the Budget Bureau hierarchy, who deal with the subject of farm credit and the co-op banks system. I have found nothing in their backgrounds or interests which indicated any significant comprehension of farm affairs superior to the bona fide farmers who man the district and national farm credit boards. Yet, effective veto and thereby control would be vested effectively in these men. I submit that the decentralization concept which runs throughout the 1953 and 1955 acts relative to the cooperative banks system is sound, if permitted to develop. The Government's interest will be well safeguarded. If it was sound in 1952, 1953, and 1955, why should it suddenly be unsound now? The 1955 act took into account that ownership and control by farmers and their cooperatives could not be realized in a day or a year or even a decade. The act, therefore, contemplated a gradual development, a gradual transfer. This was acceptable. Now we are barely in the early stages of this gradual transition. There is nothing new or evident to support a conclusion that the 1955 act was in error or that the Governor and the Farm Credit Administration have failed to provide adequate supervision-that the sound, safe road to decentralization enunciated in the 1955 act is no longer warranted. The bill would cut through the progress made and halt effectively further free-will investments by cooperatives in these banks and, in effect, change the status of these banks from the limited control long effective with respect to mixed-ownership corporations to Government-dominated wholly owned corporations. I have asked experienced cooperative executives who are trustees of the assets of their farmer members if they would recommend to their boards of directors a further investment of permanent capital in these banks after passage of such an act as this. They have told me uniformly they would not so recommend but would, instead, regret the investment made to date. It seems to me that this demonstrates that the ideal of increased ownership by farmers and their cooperatives and a reduction in the Government capital would be, in fact, delayed by such legislation as H. R. 8332. These cooperative leaders believe that the bill would in the process of centralizing control endanger the banks to a new high degree of political control, which they have escaped heretofore. If the motivation of the bill is to insure central Government control of credit available to cooperatives, as would be the end result, let us face up to this issue squarely and frankly. Farm cooperatives in all fields are growing and as they grow will inevitably require more credit. They desire to have cooperative bank institutions in a positions to grow also, to meet the needs of the future. Passage of the bill would reduce the possibilities of such growth, as well as the usefulness of these institutions which have, generally speaking, functioned well for many years. The President, in a television address at Bradley University, Peoria, Ill., on September 25, 1956, said: "Today the farm credit program is the best in history. The farm people have more say about the farm credit management than ever before." It was a political speech, to be sure. I believe the statement he made was true and that both political parties, through their Members in Congress, have contributed to this result by the passage of the 1955 act. Since nothing has entered the picture which proves the necessity of repeal or reversal or change in a new direction at this time, so far as farmer-member ownership-control of the system is concerned, we urge that the bill be disapproved by the committee. The CHAIRMAN. We will now adjourn until this afternoon at 2 o'clock. (Whereupon, at 12:15 p. m. the subcommittee was recessed until 2 p. m. of the same day.) AFTERNOON SESSION The CHAIRMAN. We will resume the hearing on H. R. 8332. Our first witness will be Mr. Blalock. He is a committee member of the Baltimore farm credit district. Mr. Blalock was introduced this morning to us by the Congressman from Virginia, Mr. Abbitt. STATEMENT OF H. G. BLALOCK, MEMBER, NATIONAL ADVISORY COMMITTEE OF PRODUCTION CREDIT ASSOCIATIONS Mr. BLALOCK. Mr. Chairman and members of the committee, my name is H. G. Blalock. I am a farmer and reside at Baskerville, Va. I am a member of the board of directors and president of the South Hill (Virginia) Production Credit Association. I also represent the second farm credit district on the National Advisory Committee of Production Credit Associations. I am here today at the request of the chairman of the national advisory committee to present a statement on behalf of that committee. The statement is based on action of the committee taken at a meeting held in Washington, D. C., on February 12, 1957. The National Advisory Committee of Production Credit Associations consists of 12 members, one from each of the 12 farm credit districts, each member being selected by the directors of the production credit associations of his district. The purpose of the committee is to present the views of the production credit associations in matters affecting their interest, encourage increased member participation in the affairs of the association, and promote more efficient administration and better service to agriculture by that part of the farm credit system concerned with short-term credit. The full membership of the committee is as follows: District No. 1: William Wadsworth, Farmington, Conn. District No. 10: Grover C. Impson, Beeville, Tex. Mr. Harris is chairman of this committee, Mr. Chairman. Continuing: District No. 12: Jack Arnold, Birney, Mont. You have already had described for you the policies and objectives of the Farm Credit Act of 1953. The Farm Credit Acts of 1955 and 1956 were passed to give effect to those policies and objectives. Our committee supported both of those measures and both were enacted with almost unanimous support by the users of the farm credit system. Those measures were passed by overwhelming majorities in both Houses of Congress. While our committee supported both the 1955 and 1956 acts, the production credit associations were more directly concerned with the 1956 legislation. Under the 1956 act, you will remember, the production credit associations are now purchasing capital stock of the Federal intermediate credit banks with a view to complete ownership of the banks and the retirement of all Government capital in them. One of the big issues in connection with the 1956 legislation was the matter of continuing budget control by the Bureau of the Budget over the Federal intermediate credit banks. Our committee, speaking through its chairman, told the committees of Congress during the hearings on the 1956 legislation that we would prefer that no legislation be enacted rather than have the provisions requested by the Bureau of the Budget become law. As you know, the views of the Bureau of the Budget did not prevail and we were higly pleased with the provisions of the law finally enacted. Our committee feels that the 1956 act amounts to a compact between the Government and the production credit associations. We are now carrying out our part of that compact by purchasing stock in the credit banks, the proceeds of which are being used to retire Government capital in the banks. We expect to retire every dollar of Government capital over a reasonable period of years. The Congress, by enactment of the 1956 legislation, agreed to free the banks of budget control by the Bureau beginning January 1, 1959. Mr. Chairman, we are here today asking only that Congress keep its part of the agreement and not enact the bill requested by the Budget Bureau. We believe our request is consistent with the principle of fair play and we have every confidence that the Congress will not reverse the decision it made less than 2 years ago to free the banks from the budget procedure under the Government Corporation Control Act. The additional Federal controls which the Bureau of the Budget seeks to impose upon the farm credit banks are apparently thought to be necessary, in part, to protect Government funds invested in the banks. The officers and directors of these banks are now under Federal supervision by the Farm Credit Administration. The Farm Credit Administration has done, and is now doing, a fine job in supervising the banks and associations in the farm credit system. If the banks had squandered their funds or recklessly embarked upon transactions which were questionable either from the standpoint of good judgment or legality, there would be some justification for additional Federal controls proposed by the Bureau of the Budget. It is a well-known fact that the banks have done none of these things. On the contrary, they have operated strictly within the regulations and laws applicable to them and have served agriculture well. The Federal land banks have done an outstanding job for more than 40 years and they have never been under the budget procedure provided in the Government Corporation Control Act. We believe the same can be said for the banks for cooperatives during the 25 years they have been in operation. It is apparent, therefore, that there is nothing in the record over the years to indicate that Budget Bureau control is necessary to protect the Government's investment in these banks. The provision in the bill which would place in the hands of the Secretary of the Treasury power to control the issuance of farm credit debentures is objectionable for two reasons. First, this provision would give the Treasury Department the power to control funds but would leave the Farm Credit Administration with the responsibility for seeing that the credit needs of farmers are adequately served. It seems apparent that this division of authority and responsibility could only operate to the detriment of the farm credit system without accomplishment of any overall worthwhile objective. Secondly, the granting of power to the Secretary of the Treasury to control the source of loan funds for the farm credit system could |