Statement by Rollin F. Agard, Financial Consultant, Aviation Department, City of Kansas City, Missouri, to United States Senate Committee on Finances, September 23, 1969, re: H.R. 13270. "While the bill before this committee permits states and municipalities to continue with the issuance of tax-exempt bonds, the same act practically destroys the market for a tax-exempt security. The alternative of a Federal interest subsidy holds no assurance that such a plan will continue to exist. It will only be a matter of time before the legislation is changed in the press of events that no further subsidies will be granted on future municipal issues. "I think it is well to point out that any subsidy granted by the Federal level for municipal bond interest must be supported from taxes which originate from local residents and business. I believe very strongly that the cost of financing under the proposed legislation will be substantially greater than before. The income to be derived by the Federal Government from the taxable securities will by no means offset the subsidy and the higher rates that the municipal portion of the bond package would require. "Proponents for this legislation have advocated that there would be no Federal review of local projects. I find it difficult to accept this viewpoint. This has the effect of writing a blank check on the Federal Treasury for the sum of the subsidy to be provided from that source. The Federal Treasury is not a bottomless pit, and each session of Congress must, if this legislation is passed, appropriate the needed sums for the subsidy payments. There is little question but that eventually all local initiative would be a thing of the past. The cost at the Federal level for administration of such a program will be substantial as - 1 well as less effective than now exists. Also, the administrative cost at the local level will be much greater. "Events of recent months reveal the seriousness of impairment of the municipal market resulting from congressional action to this date. Hundreds of municipal bond issues have been grounded because of interest rates which would exceed legal limits. For those issues which could be marketed, the cost to the taxpayers will run into many millions of additional dollars. Each week many bond issues have failed to obtain voter approval. Only recently the voters of Texas refused to approve an increase in the interest ceiling. "The August 25, 1969 issue of the Daily Bond Buyer published information showing that in twenty-four states, statutes set interest rate ceilings at 6% or below for general obligation bonds. Six other states have a limit of 7%. For revenue bonds twenty states have a 6% ceiling. many cities establish interest rate ceilings as is the case in Kansas City. Ordinarily, charters can only be amended by a vote of the people. Moreover, the charters of Thousands of bond "The impact of this legislation has thrown the secondary market into a state of chaos. This phase of the municipal bond market has become increasingly important, with the municipal debt now at about $130 billion. holders, many of whom do not fall in the wealthy levels of our society, are seeing their lifetime savings being depleted by as much as 25 to 30%. This is destroying the faith of investors for municipal bonds. It is one of the major factors that have caused the interest rates to spiral in recent months to levels never before experienced. "If this bill is approved in its present form the Federal Government may find itself in the bond business, thus destroying another phase of this nation's private enterprise system. - 2 "There could also be a question in some of the states as to whether any municipality has the authority under the constitution and laws of the state, to issue taxable bonds without an amendment of the state constitution and the bond laws of the state. "In light of the serious need for local improvements to provide essential facilities for an expanding nation, this should not be the time for tampering with the local financing systems. America is great because it has had local freedom. If this is traded for a powerful central government we are doomed for destruction. If the tax-exempt status of municipal bonds is removed, a long period of litigation is inevitable. This, too, will stifle progress at the local level and could endanger the National economy." - 3 BEFORE THE SENATE FINANCE COMMITTEE ON SEPTEMBER PLATTE, NEBRASKA Mr. Chairman and Members of the Committee: The Mayor and Council of the City of North Platte, Nebraska, have gone on record as strongly opposed in principal to any language in H.R. 13270 or any other Bill which would in any way directly or indirectly tax the income of any bonds or obligations of any State, or any governmental subdivision of any State. They also have gone on record opposing any language in H.R. 13270 or other legislation which would in any way establish voluntary relinquishment by a State or subdivision thereof of the tax exemption for any reason, whether it be subsidy, aid grant or control. They have also gone on record as being opposed to any language in H.R. 13270 which might relate to the subject called arbitrage which in any way would give the federal government & right to question legitimate financing plans or programs, whether required to be in the form of advance refunding or other programs where the only logical investments, or the only legal investment, might be an interim investment in United States government bonds. This written statement is a brief summary of these objections and some of the reasons for the objections. This statement is made not only on behalf of the City of North Platte, but is authorized to be and is presented as the official expression of the School District of North Platte and of the Mid-Plains Area Vocational Technical School, a multi-county vocational technical school district is Western Nebraska, and that reference hereafter to the official body of North Platte, we refer also to the other political subdivisions above mentioned. First let us say that we do not believe that the inclusion of the taxation of the income of municipal bonds in H.R. 13270 is tax reform. We consider it to be more in the nature of the political or constitutional reform under the guise of tax |