provision to the end that after the completion of the project there shall be a review and readjustment of the cost thereof to the private contracting party on the basis that the private contracting party shall not in any event receive more than a reasonably limited percentage of profit above such cost.

"(10) Any governmental establishment in the executive branch of the Government is authorized to, and at the direction of the President shall, act as agent of the corporation in the administration of the functions vested in it by this act. The corporation may, in cooperation with any such governmental establishment, avail itself of the services and facilities of such governmental establishment in order to avoid preventable expense or duplication of effort.

(11) The President may, by Executive order, direct such governmental establishment to furnish the corporation with such information and data pertaining to the functions of the corporation as may be contained in the records of such governmental establishment. The order of the President may provide such limitations as to the use of the information and data as he deems advisable. "(12) The corporation may cooperate in any project with any State or Territory or any county, municipality, or any political subdivision thereof on the following basis: (1) That such State, Territory, county, municipality, or political subdivision thereof will deposit with the corporation as a guaranty fund its obligations determined by the corporation in its discretion to have a present value equal to 20 per centum of the estimated cost to the corporation of the project, in consideration of which the corporation will agree with any such State, Territory, county, municipality, or political subdivision thereof that in the event that the project shall return its cost to the corporation (including local taxes and a duly proportionate share of the overhead and general administration expenses of the corporation), plus interest thereon at 6 per centum per annum, plus a surplus profit equal to 10 per centum of such cost, the corporation will redeliver said obligations to such State, Territory, county, municipality, or political subdivision thereof, and will transfer and convey such project to such State, Territory, county, municipality, or political subdivision thereof, and all rights therein and thereto; and (2) that the State, Territory, county, municipality, or political subdivision thereof will further agree with the corporation that in the event that such project shall not return such cost or interest in full to the corporation, the State, Territory, county, municipality, or political subdivision thereof will pay to the corporation in turn the amount of the aggregate face value of such obligations plus accumulated interest thereon in an amount necessary to return to the corporation such cost and interest in full: Provided, That upon such return in full, such State, Territory, county, municipality, or political subdivision thereof shall have the option to acquire such project from the corporation upon payment to the corporation of a surplus profit equal to 10 per centum of such cost.

"(13) The corporation may cooperate in any project with any individual, partnership, or corporation on the following basis: (1) That such individual, partnership, or corporation will deposit with the corporation as a guaranty fund obligations of such individual, partnership, or corporation determined by the corporation in its discretion to have a present value of not less than 30 per centum of the estimated cost to the corporation of the project, in consideration of which the corporation will agree with such individual, partnership, or corporation that in the event that the project shall return its cost to the corporation (including local taxes and a duly proportionate share of the overhead and general administration expenses of the corporation), plus interest thereon at 6 per centum per annum, plus a surplus profit equal to 10 per centum of such cost, the corporation will redeliver said obligations to such individual, partnership, or corporation, and will transfer and convey such project to such individual, partnership, or corporation and all rights therein and thereto; and (2) that the individual, partnership, or corporation will further agree with the corporation that in the event that such project shall not return such cost or interest in full to the corporation, the individual, partnership, or corporation will pay to the corporation in turn the amount of the aggregate face value of such obligations plus accumulated interest thereon in an amount necessary to return to the corporation such cost and interest in full: Provided, That upon such return in full, such individual, partnership, or corporation shall have the option to acquire such project from the corporation upon payment to the corporation of a surplus profit equal to 10 per centum of such cost.

"(14) The corporation may also cooperate in any project with any individual, partnership, or corporation on the following basis: That such individual, partnership, or corporation will agree to pay to the corporation 50 per cent of the full cost of the project as above defined, or such greater portion thereof as maybe

agreed between the corporation and such individual, partnership, or corporation, such payment to be made in installments upon the call of the corporation as the work shall progress and in such a way that the corporation and such individual, partnership, or corporation shall each at the same time pay or cause to be paid its proportionate share thereof. Upon the completion of the project the corporation shall divide the net tolls, fees, rents, or other charges, after deducting local taxes and a duly proportionate share of the overhead and general expenses of the corporation attributable to the particular project, between itself and such individual, partnership, or corporation in the same proportion as they shall have respectively contributed to the cost of the project, until such time as the project shall have returned to the corporation its cost (including local taxes and a duly proportionate share of overhead and general administration expenses of the corporation), plus interest thereon at 6 per centum per annum, plus a surplus profit equal to 10 per centum of such cost. Thereupon the corporation shall transfer and convey such project to such individual, partnership, or corporation and all rights therein and thereto. If such individual, partnership, or corporation, after agreeing with the corporation as above provided, shall fail to pay any of the installments due under such agreement, the corporation shall at its option complete the project; when under such circumstances the corporation shall have completed the project and the project shall have returned its cost to the corporation (including local taxes and a duly proportionate share of overhead and general administration expenses of the corporation), plus interest thereon at 6 per centum per annum, plus a surplus profit equal to 10 per centum of such cost, the corporation shall, from time to time, pay over to such individual, partnership, or corporation, out of the net tolls, fees, rents, or other charges, if any, derived from the project amounts equal to the aggregate amounts of the installments previously paid to the corporation under such agreement by such individual, partnership, or corporation."

Section 9 is amended to read as follows:

"SEC. 9. The corporation is authorized and empowered, with the approval of the Secretary of the Treasury, to issue, and to have outstanding at any one time in an amount aggregating not more than three times its subscribed capital, its notes, debentures, bonds, or other such obligations; such obligations to mature not more than five years from their respective dates of issue, except as hereinafter provided, to be redeemable at the option of the corporation before maturity in such manner as may be stipulated in such obligations, and to bear such rate or rates of interest as may be determined by the corporation: Provided, That the corporation, with the approval of the Secretary of the Treasury, may sell on a discount basis short-term obligations payable at maturity without interest: Provided further, That its notes, debentures, bonds, or other obligations which shall be issued for the purposes of financing the construction of projects as provided by section 5b of this act shall mature at such time or times as the board of directors of the corporation shall determine and shall carry a cumulative sinking fund calculated to retire all such obligations at or before maturity. The notes, debentures, bonds, and other obligations of the corporation may be secured by assets of the corporation in such manner as shall be prescribed by its board of directors: Provided further, That the aggregate of all obligations issued under this section shall not exceed three times the amount of the subscribed capital stock. Obligations of the corporation of the aggregate face amount of $1,500,000,000 and $500,000,000 of the amount subscribed by the United States of America for the stock of the corporation shall not be used for purposes other than, and shall be available for, financing the construction of projects as provided by section 5b of this act, including local taxes thereon and a duly proportionate share of the overhead and general administration expenses of the corporation attributable to such projects. Such obligations as shall be issued for purposes other than those described in section 5b of this act may be issued in payment of any loan authorized by this act. Any obligations of the corporation issued pursuant of the provisions of this act may be offered for sale at such price or prices as the corporation may determine with the approval of the Secretary of the Treasury. The said obligations shall be fully and unconditionally guaranteed both as to interest and principal by the United States and such guaranty shall be expressed on the face thereof. In the event that the corporation shall be unable to pay upon demand, when due, the principal of or interest on notes, debentures, bonds, or other such obligations issued by it, the Secretary of the Treasury shall pay the amount thereof, which is hereby authorized to be appropriated, out of any moneys in the Treasury not otherwise appropriated, and thereupon to the extent of the amounts so paid the Secretary of the Treasury shall succeed to all

the rights of the holders of such notes, debentures, bonds, or other obligations. The Secretary of the Treasury, in his discretion, is authorized to purchase any obligations of the corporation to be issued hereunder, and for such purpose the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds from the sale of any securities hereafter issued under the second Liberty bond act, as amended, and the purpose for which securities may be issued under the second Liberty bond act, as amended, are extended to include any purchases of the corporation's obligations hereunder. The Secretary of the Treasury may, at any time, sell any of the obligations of the corporation acquired by him under this section. All redemptions, purchases, and sales by the Secretary of the Treasury of the obligations of the corporation shall be treated as public-debt transactions of the United States. Such obligations shall not be eligible for discount or purchase by any Federal reserve bank.”

Section 13 is amended to read as follows:

"SEC. 13. Upon the expiration of the period of one year within which the corporation may make loans, or of any extension thereof by the President under the authority of this act, the board of directors of the corporation shall, except as otherwise herein specifically authorized, proceed to liquidate its assets and wind up its affairs: Provided, however, That nothing herein contained shall be deemed to prevent the corporation from completing any projects begun within said period or any extension thereof. It may, with the approval of the Secretary of the Treasury, deposit with the Treasurer of the United States as a special fund any money belonging to the corporation or from time to time received by it in the course of liquidation or otherwise, for the payment of principal and interest of its outstanding obligations or for the purpose of redemption of such obligations in accordance with the terms thereof, which fund may be drawn upon or paid out for no other purpose. The corporation may also at any time pay to the Treasurer of the United States as miscellaneous receipts any money belonging to the corporation or from time to time received by it in the course of liquidation or otherwise in excess of reasonable amounts reserved to meet its requirements during liquidation. Upon such deposit being made, such amount of the capital stock of the corporation as may be specified by the corporation with the approval of the Secretary of the Treasury but not exceeding in par value the amount so paid in shall be canceled and retired. Any balance remaining after the liquidation of all the corporation's assets and after provision has been made for payment of all legal obligations of any kind and character shall be paid into the Treasury of the United States as miscellaneous receipts. Thereupon the corporation shall be dissolved and the residue, if any, of its capital stock shall be canceled and retired."

Section 16 is amended by adding thereto the following subsections (f) and (g): (f) The corporation may acquire by proceedings in eminent domain or otherwise all lands, rights of way, and other property necessary for the purposes of the corporation.

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(g) Notwithstanding any other provision of law it shall be lawful for the corporation to construct or commence the construction under the provisions of this act of any bridge, dam, dike, or crossway over or in any port, roadbed, haven, harbor, canal, navigable river, or other navigable waters of the United States."

The CHAIRMAN. The first witness will be Secretary Mills. Mr. Secretary, you may proceed.

STATEMENT OF HON. ODGEN L. MILLS, SECRETARY OF THE TREASURY, WASHINGTON, D. C.

Secretary MILLS. Mr. Chairman, and gentlemen of the committee S. 4755, the so-called Wagner bill, as I read it, seeks to accomplish four objects:

(1) To make grants or loans to the States aggregating $300,000,000 to furnish relief and work relief to the needy;

(2) To authorize the Reconstruction Finance Corporation to make loans in the aggregate amount of $1,460,000,000 (a) to political subdivisions and States and quasi-public corporations to finance projects self-liquidating in character; (b) to private limited dividend corpora

tions to finance projects self-liquidating in character; and (c) to private corporations to carry out certain specified projects, likewise selfliquidating in character;

(3) To authorize the Reconstruction Finance Corporation to advance $40,000,000 to the Secretary of Agriculture for the purpose of financing sales of agricultural products in the markets of foreign countries;

(4) To provide for the construction of authorized public works through the creation of an emergency construction fund of $500,000,000 to be financed through a special bond issue.

I approve of the above-menioned first three objects sought to be accomplished, subject to certain important suggestions as to structure and protective provisions.

That is a pretty good start, Mr. Chairman, when I can agree with 75 per cent of a Democratic bill.

Senator WAGNER. Well, it means that you are 75 per cent right. Senator WATSON. Well, Mr. Secretary, I am beginning to suspect

you.

Senator BARKLEY. There is hope yet for you, Mr. Secretary. Senator BLAINE. That is more than 75 per cent in the matter of amount.

Senator WATSON. Yes, perhaps that is so.

Secretary MILLS. The fourth proposal, however, is open to very serious objection. To reduce to the simplest terms the very complex provisions, what is actually contemplated is the creation of a special or extraordinary Budget in the amount of $500,000,000, to be covered by a special bond issue, the spending of approximately $300,000,000 additional for public works, and under certain conditions permitting the capitalization of approximately $200,000,000 of public-work items otherwise included in our ordinary Budget for the fiscal year

1922.

Assuming that the Congress adopts a revenue measure which will produce $1,125,000,000 of new revenue, and reduces expenditures below the Budget figures by approximately $350,000,000, we should balance our Budget for the fiscal year 1933 exclusive of provision for the sinking fund. If, however, this particular provision should become law, it will automatically unbalance that Budget by $300,000,000.

The device of creating an extraordinary Budget does not conceal this result; it accentuates it. And in the minds of all those who have knowledge of the unfortunate experiences of other countries with the doubtful expedient of an extraordinary Budget it raises fears—and fears which are justified-out of all proportion to the amount involved in this particular case. The reason for this is plain enough. For if we are justified in unbalancing our Budget by $300,000,000 through the creation of an extraordinary Budget, why not by $500,000,000, and if by $500,000,000, why not $1,000,000,000? Once we concede away the principle of a balanced Budget, all our defenses are down. With the sinking-fund provisions applicable to the existing_debt inoperative for the fiscal years 1931, 1932, and 1933, there can be no conceivable justification for capitalizing these expenditures, leaving aside all other basic objections to the abandonment of the policy consistently followed by the Federal Government.

At noon to-day the Senate, in completing the Budget balancing task, will resume the enormously difficult task of trying to reduce the

cost of Government by means of an emergency economy program approximating $238,000,000. Yet this very morning this committee is contemplating undoing all of the work of the Special Economy Committee and adding over $300,000,000 to our actual expenditures for the fiscal year 1933.

Providing for a special issue of bonds does not eliminate the deficit. It recognizes its existence. For how otherwise does a government meet a deficit save by borrowing? From the standpoint of the public finances and of cost it would be infinitely preferable, instead of limiting us to the issuance of special bonds, frankly to acknowledge the creation of this deficit and then permit the Treasury to borrow the $300,000,000 as part of its current financing program through the issuance of the most suitable securities.

There is another inconsistency to which your attention should perhaps be directed. The day before yesterday the Senate passed a tax bill with surtax rates so high as to invite the purchase of taxexempt securities. To-day, with gracious generosity it is proposed to make them available in the form of 25-year tax-exempt bonds.

This, however, is but an incidental objection. The fundamental objection to this section is that it unbalances the Budget; that it resorts to the unsound device of an extraordinary Budget; that it breaks down a sound financial policy pursued since the beginning of the Government; and opens a breach which I am fearful will be only too promptly widened.

Senator HULL. Mr. Secretary, are you now referring to the first section of the bill?

Secretary MILLS. I am referring to the public-works section, which I think is section 4.

Senator HULL. Pardon me for interrupting you, but I was unfortunate in being a little late arriving at the committee room.

Secretary MILLS. And for what purpose? For the humane and righteous purpose of creating employment. But does it actually accomplish that purpose in a way commensurate with the sacrifice of sound financial principles and commensurate with the expenditure of public funds involved? Let us consider the three main items of public works for which these funds are to be expended:

The bill provides approximately $136,000,000 for roads and trails. I have not the detailed figures covering the $16,000,000 for the construction of forest highways and trails, but I am submitting with this statement a table showing the allotment of $120,000,000 of road funds by States, the allotment per capita, and the total labor that would be employed directly.

The expenditure of $120,000,000 for road-building purposes would give employment directly to but 33,193 men.

Senator GORE. I didn't catch that number.

Secretary MILLS. I said it would give employment directly to but 33,193 men.

Senator WAGNER. Who were those figures given to you by?
Secretary MILLS. The Department of Agriculture.

Senator WAGNER. By Mr. McDonald?

Senator MILLS. I think they are Mr. McDonald's figures.
Senator WAGNER. Then he gave other figures to me.

Secretary MILLS. The maximum number of men who would receive employment in any one State is 2,130 in Texas, 1,683 in New York, 1,461 in Pennsylvania, 1,410 in Illinois, and 1,051 in Michigan;