have the key to

If for no other reason, Putnam County's legislative delegation, which includes Sen. Vernon Neal and Rep. Tommy Burks ought to sit down and take a close look at the very real, bind that the state's bankers find themselves in.

Indeed, the immediate future of the school board's building program faces an uncertain road because no later than last week the county cancelled a bond sale because

1. The bond resolution passed called for a ceiling of six per cent interest annually.

2. Nobody in the money market wanted the bonds at that rate, thus nearly $4 million worth of school construction has been delayed, possibly for the remainder of the year.

There is some important background information the people ought to be aware of when we talk of bankers and interest rates. The 1870 Tennessee Constitution put a 10 percent lid on interest rates and it has stood the test for more than a century. Now, however, with the sort of inflation being experienced around the world, that interest rate lid is similiar to looking through a glass darkly. In a word, the framers of the Constitution did not forsee such inflationary sisituations as is the case today.

Simply said, interest rates on on corporate borrowing in most of the states today have been pushed close to 12 percent. When Tennessee banks have to go out of the state-to "buy" money to loan to their corporate customers, they lose money. In their present financial condition, few banks are in a position to absorb the loss. So they curtail loans. Tommy Lynn, president of the

First National Bank of Cookeville; Charles R. Miller Jr., president of the Citizens Bank of Cookeville, Bob Hudson, president of the Bank of Cookeville and the words of these men can be believed because, aside from desiring to build sound financial institutions, they have a vital stake in the welfare of the believe the community-all

situation is serious enough for a special call of the General Assembly in order that special legislation could be enacted to lift the constitutional lid on the interest rates.

They believe that Putnam County and in fact the entire state is being placed at a serious economic disadvantage, and so do many other businessmen.

What does damage to the state's economic health also does damage to the pocketbooks of each individual. Being placed in the position of curtailing or even not loaning money at all for corporate construction for new structures or for expansion can rapidly cause economic decay. And thus the pocketbook power of families follows a parallel pattern.

Senator Neal and Rep. Burks and all other men running for public office ought to forgo the temptation to use this as a political issue and take a hard, firm and realistic look-and do what's best for the economic health of the state and our county.

The legislature has the key to unlock a dangerous door. If used properly everyone will benefit; if twisted into a political football, then short-term political gain will speed up economic dry rot.

14

Bristol Virginia-Tennessaan

June 11, 1974

As We
We See It

A Tennessee Crisis

An ancient provision in an outmoded state constitution has Tennessee bankers in a serious bind and if the critical emergency isn't corrected soon, it will have serious consequences for the state's economy.

An analogy perhaps best explains the problem. Assume you sell shoes and only shoes and it costs you $10 to buy wholesale a pair of shoes and yet assume a state law prohibited you from charging more than $8 retail for that same pair of shoes. You would lose $2 per pair and it wouldn't matter if you sold one pair or one million pairs a week, your loss would still be $2 per unit.

That, in essence, is the problem facing Tennessee bankers. And if it just pertained to the profit made by the banking institutions, we wouldn't be nearly so concerned but it goes far beyond that.

A provision written into the state constitution in 1870 sets a ceiling of 10 per cent on business loans. That means that banking institutions lending money in Tennessee to corporations can only charge a maximum of 10 per cent interest on that money.

For more than a century, Tennessee got away with that. But the state finds itself now in the midst of a construction boom by corporations new plants, expansions, etc.—which is one of the most impressive in the nation.

Tennessee corporations and even many of the new plants coming into the state logically turn first to Tennessee banks for their loans for capital needs.

And that's the rub. The increasing demands for money for lending purposes is forcing the Tennessee financial institutions - banks, mortgage bankers, savings and loan associations - to go out of state to "buy" the necessary money where the interest rates are currently 11% or higher. Indeed, only Tennessee, Arkansas and Montana, of the 50 states, suffer from outdated constitutional provisions limiting interest on corporate loans at 10 per cent. It's like the pair of shoes: Tennessee bankers have to pay 112 or more interest on money they "buy" but they can only charge 10 per cent interest on that same money after they loan it to Tennessee corporations.

What is this situation doing? Tennessee financial houses are being forced to curtail loans, thus bringing about the obvious slowdown to Tennessee construction. J. Robert Cannon, of Nashville, president of the Tennessee Mortgage Bankers Association recently said that $50,000,000 in construction projects

are being delayed in Tennessee because of a lack of financing.

A grade schooler can soon surmise the consequences. Unless relief is forthcoming soon, Tennessee will experience its own recession with continued high prices but sharp reductions in construction industry employment, lost jobs, stagnating industrial activity and expansion, goods and services curtailed, fewer consumer loans and general economic chaos.

Unless there is emergency relief, it won't be long before Tennessee's economic boom turns into a bust.

There are solutions. The most obvious, of course, is to amend the constitution and remove that restrictive interest ceiling provision. But a constitutional convention could not even be called under state law until 1977 to consider the matter, and the state's economic experts not just bankers say that will be too late.

The Tennessee legislature this year had the problem before it but as it has done in many areas over the past four years, it looked the other way.

So what bankers and many economists in the state are calling for now is a special legislative session to enact legislation which would permit corporate borrowers to contract for the payment of interest rates higher than the 10 per cent limit. It would have to be tested in the courts but it appears the only logical and immediate solution to a problem which needs immediate attention.

This appears an equitable solution because such a law would apply only to corporate loans which, of course, involve the big money demands for Tennessee financial houses. The proposed law would have no effect on smaller consumer loans which don't pose a problem anyway because the state's banks are forced to "buy" money from out-of-state to meet the smaller consumer demands anyway.

Proponents of the change are correct when they say the present situation is making Tennessee a financial island in the large financial market sea. The big money lenders are not going to lower their interest rates to Tennessee banks simply because the state banks can't charge enough interest to the corporate borrowers to recover their losses. The time has come for the governor and the legislature to acknowledge the crisis and do something about it.