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Now, with specific regard to Mr. Martin's testimony, I think, and coming to a couple of the points of the Secretary, I noticed that he thought it was incorrect or against precedent that an authority should be provided for in Federal legislation prior to its conclusion amongst the States. But I think the facts would not support you in that, and I cite here:

The bill (87th Congress, first session, Report No. 450) granted the consent of Congress to interstate compacts for the development or operation of library facilities and services.

It is a little remote, maybe, but the same question of precedent.
And in it, on page 3, it says:

It is further noted that this is a consent in advance of the actual negotiation of an interstate compact. However, there is precedent for this procedure. Public Law 85–684 granted the advance consent of Congress to future State compacts for the promotion of highway traffic safety. As long ago as 1911, under the so-called Weeks Act, Congress gave advance consent to several States to enter into compacts or agrements for conserving forests and water supplies. Other examples are found in the case of the interstate agreements for prevention of crime, for the control of tobacco production, park and recreational area planning and flood control.

So I do think, while I understand the natural reluctance of the administration in this matter, that perhaps the legal advice that has been given to Mr. Martin is not as accurate as it should be. What would be your view on that!

Mr. MARTIN. Well, Senator Pell, we are not questioning the legality of it, we are questioning the ordinary procedure of it. We think that the formation of a compact is of major importance. It is the No. 1 objective here, and if you can get the compact formed faster this way, the speed and rapidity with which it is put together is the essential element and we wouldn't have any objection.

The normal procedure when these compacts are formed, they are submitted to Congress for ratification, which is all it takes under the law and the Constitution to make them valid.

Senator PASTORE. If I understood you correctly, Mr. Martin, the main objection that you have on this procedure is the fact that it does involve Federal guarantee.

Mr. MARTIN. Yes, sir.

Senator PELL. But this question, then, of precedent is one that obviously

Mr. MARTIN. He was just speaking, I understood, from the compact phase of it.

Senator PASTORE. Yes.

Senator PELL. As this particular one goes, this is not hard and fast precedent, because, as we see, there are precedents the other way as well.

Mr. MARTIN. I wouldn't have any quarrel with that. It is a bit unusual, Senator Pell.

Senator PASTORE. If I may interrupt at this point, to come back to the argument that is being raised by Mr. Pell—and I think that we are in agreement here that there is no legal limitation. I mean you can do it one way or the other. Mr. Martin brought up the fact that, of course, the ordinary procedure is for the States to get together and then come in and have the compact ratified. But you do have the unusual situation here. You see, there is the element of a Govern

ment guarantee, and I think the Government would be justified in adopting this procedure if it were satisfactory for other reasons, because, after all, it does spell out the limits within which the Government itself would be willing to lend its credit. Do I make that clear?

Mr. MARTIN. Yes, sir.

Senatore PASTORE. I mean, I do not think the States could sit down and tell the Federal Government what the guarantees of the Federal Government were going to be. I think the justification for coming in this way is the fact that you do have an element here that involves the obligation of the Federal Government itself, and I think the Federal Government ought to initiate the guidelines within which it desires to become responsible. Although I don't think that is the main point of your objection.

Senator PELL. No, I realize that, but I wanted to dispose of that particular point first.

The "guts” of your objection basically is the Treasury Department's objection, as Senator Pastore brought out, to the nontaxation of the bonds, as I understand it. In other words, the Treasury feels there is a double kick here, both the guarantee and a nontaxation.

Senator LAUSCHE. May I-
Senator PASTORE. Let us get an answer to this question first.

Senator PELL. This is the essence of the objection of the administration; is that not correct?

Mr. MARTIN. That is correct, Senator.
Senator PELL. Right.

Mr. MARTIN. I also might add that we in the Department don't really see what your proposal of the Federal guarantee of the bonds would do in addition. As I understand it, the proceeds from your financing in the States would only go for capital improvements. That program is available under Federal law now.

Senator PELL. In what way, under HHFA?
Mr. MARTIN. Under the Urban Mass Transportation Act of 1964.

Senator PASTORE. Wait a minute, Mr. Martin. Now, are you right in that? You will pardon my interruption. The Urban Mass Transportation Act has to do with commuter travel, it has nothing to do with the long run. Am I correct?

Mr. MARTIN. That is correct. Senator PASTORE. Therefore, you are incorrect in your statement. There is nothing under the Urban Mass Transportation Act that has to do with the run from Boston to New York. Am I right or wrong? Let's get that straight.

Mr. MARTIN. You are correct.

Senator PASTORE. All right, all that the Urban Mass Transportation Act can do is give relief with reference to regular commuter service. Are we in accord on that?

Mr. MARTIN. That is correct.

Senator PASTORE. So when you say there are existing Federal programs, it is not true. We have no existing Federal program that can take care of the long run from Boston to New York, with the exception of the loan on which there is now remaining about $4 million. Is that correct?

Mr. MARTIN. Four and a half million dollars.

Senator LAUSCHE. May I ask, what about the 1958 loan guarantee program? Has that come to an end, or is it still in existence ?

Mr. MARTIN. That expired on June 30, 1963.

Senator PELL. Now, the main objection is more, as I understand it, not to the guarantee principle, but to the principle of the tax exemption. Would that be correct? or just equally to one or the other but not both ? Mr. MARTIN. I don't think I follow

you,

Senator. Senator PELL. Does the Treasury Department object to both being put together, or does it object more to the guarantee principle, or more to the tax exemption? Which is the main objection?

Mr. MARTIN. I understand the Treasury Department has sent a letter in to the record which describes their objection. I wouldn't want to speak for the Treasury's views. It is a slight detail of a feature of the financing that they object to.

Senator PELL. I think the record should show it. This point should be brought out that as far as the guarantee principle is concerned there is ample precedent. As you know, you have aircraft loan guarantees of some $26 million and Maritime Administration of some $515 million, and that has been established and is already a matter of fact. So, presumably, since that is already in existence, the objection must be to the tax exemption or to the combination of the two.

Now, in connection with the tax exemption, we have had verbal conversation with the Treasury Department in the last day or two, and the Department of the Treasury has given us assurance, verbal assurance, that if the compact bill is amended to provide that the authority's bond should be subject to Federal taxation, in other words, if this point is removed, although continuing to be exempt from State taxation, the Department of the Treasury would withdraw its objection. In other words, they would not object to the guarantee.

The authority's bonds under these conditions would carry an interest rate of about 412 percent and would not be, hence, more attractive on the market than other Federal bond issues, and the point was brought up yesterday by the chairman as to what the effect would be if these bonds with the double kick would enter the market in competition with obligations of law which would drive out many other Federal bonds, and I can see that.

Another alternative that I had hoped the Treasury might consider is the thought of having very low interest so that you might be able to have a double kick in here as a form of Federal support and still have less of an overhead for the authority, maybe have 3-percent bonds, or even 212-percent bonds.

What I am trying to do is to keep the Federal general financial contribution down, because a guarantee program means there is a continuous pressure for economy and efficiency in operation. Once a subsidy is decided on, then that money is gone and spent, as we have seen. For this reason, as you know, in our own conversations previously, I keep coming back to the idea of guarantees as costing less money in the end to the Federal Government.

I was wondering if this change were made, however, and if it were subject to Federal taxation, if the essence of your objection would be removed.

Mr. MARTIN. Well, Senator Pell, I would have to defer to the views of the Secretary of the Treasury on this.

Senator PELL. But you are speaking for the Secretary of the Treas

ury on these.

Mr. MARTIN. That is correct, but you are putting in a lot of “to wits" and "whereases" and "whens”.

Senator PASTORE. All right, let's get all the whereases out and let's get this record correct, because I like simplicity and language that is understandable.

The gravamen of your argument is to the effect that there should be no Federal participation, and that would be inimicable to the policy of the Government in the event that we did have any element of subsidy in the question of transportation; is that correct?

Mr. MARTIN. Operating subsidy, yes; that is correct, sir.

Senator PASTORE. Yes. Now, the Pell bill specifically requires that operating deficits shall be assumed by the States. Are you clear on that point?

Mr. MARTIN. Yes, sir.

Senator PASTORE. Therefore, that overcomes your objection. Am I correct?

Mr. MARTIN. That is correct, sir.

Senator PASTORE. Now, Mr. Pell has brought up the argument that he has been in consultation with the Department of the Treasury and that if we make certain amendments or modifications with reference to the tax status of the $500 million bond issue for modernization that they will remove their objection. Do you understand that?

Mr. MARTIN. Correct, sir.

Senator PASTORE. All right. Now, if that should happen, if we can reach an understanding with the Treasury Department insofar as the sole responsibility of the Federal Government is concerned with reference to the guarantee element and tax status of the $500 million bond issue and the bill already provides that the deficit shall be met by the States and not by the Federal Government, what would your position be then!

Mr. MARTIN. If the Treasury Department had no objection to the guarantee features of the bonds, I would certainly have no objection.

Senator PASTORE. You would have no objection to the Pell bill?
Mr. MARTIN. That would be correct, sir.
Senator PASTORE. That is all.

Senator LAUSCHE. May I ask a question on this? Would it be possible for the authority to use the moneys which it had on hand to pay for current operating expenses and not set aside any funds to meet the obligations under the bonds and the interest accumulation. Thus, the States would definitely be held harmless, because they would use the revenues to pay the operating expenses and put nothing into the sinking fund to meet the bond obligation principal payments and interest payments. Is that contingency likely to happen unless you guard against it?

Mr. MARTIN. I understood, Senator Lausche, from Senator Pell's statement and the provisions of the bill there was no possibility of any of the guaranteed bond moneys would go toward operating expenses, deficits, or otherwise of the road. It was to go for capital improvements, capital equipment. Is that correct, sir?

Senator PELL. No, no, no. The operating costs—this I tried to make clear—include, to my mind, both the actual operating costs of the railroad and the debt servicing, both together.

Senator PASTORE. I think we ought to get that point clear—there,

again, simplicity. It has been conceded by Mr. Pell that the debt services would be assumed as part of the operating costs.

Senator LAUSCHE. That answers my question, then.

Senator PASTORE. That is right, and if the Government were called upon to meet its guarantee obligation, it would become a lien upon the railroad assets. Are we clear? Is that your concept, Mr. Pell?

Senator PELL. Yes, that is right, sir.

Senator PASTORE. All right. Now we have got that straight. In other words, this committee is considering seriously—that is, I am speaking now for myself—that there shall be no misunderstanding with reference to the debt services. That question was raised the first day. I raised the question. There was some doubt as to what actually was intended. We have clarified that point, and the sponsor of the bill has agreed that insofar as he is concerned, the debt charges shall be charged against the operating expenses of the railroad which, in turn, is to be assumed by the States. And the only purpose of doing this is to achieve a reasonable rate of interest so as to make these bonds attractive by Federal guarantee. But in the event that the Federal Government were called upon to pay this obligation because the States themselves did not meet it and the bonds became in default, it would be chargeable against the assets of the railroad; is that correct?

Seantor PELL. That is correct.
Senator PASTORE. Now, how can anybody object to that?
Now, that takes care of the Pell bill. Have you any other questions?
Senator PELL. I do not.
Senator PASTORE. Better quit while we are ahead here.

Senator PELL. I would like to again refresh my recollection. There was a bill passed a while ago calling for a compact with the District of Columbia, Maryland, and Virginia, and that also was passed in advance of the conclusion of the compact between the three participants. So there is precedent for that.

Senator PASTORE. Well, Mr. Martin is not making too much of that. Senator LAUSCHE. May I ask a question?

Senator PASTORE. Mr. Lausche, you have the floor as long as you want.

Senator LAUSCHE. I am not going to take too long. I would like to have the record clearly show how much money we have put into this railroad since the initial flood damage aid that was given. Now, it appears

from
your

statement that there are three sources from which the help came. In one, the 1954 flood control under which we gave $13 million under the Defense Production Act; is that correct? I am looking at page 2.

Mr. MARTIN. Correct.

Senator LAUSCHE. Was there any more than $13 million given under the authority of the Defense Production Act?

Mr. MARTIN. These are figures that were given us by the Department of Treasury, and we will recheck these, if you would like, Senator Lausche.

Senator LAUSCHE. I would assume that is all that was given under the Defense Production Act.

Then in 1958 was passed the Transportation Act, which had in it, I believe, guaranteed loans up to $500 million.

Mr. MARTIN. Right, sir.

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