our people to dig into their pockets and buy defense bonds to the utmost. I am wondering whether or not this might come in and interfere with the defense effort of the Nation by the issuance of these bonds, which would be placed upon the market for sale.

Senator BONE. We are trying, at least, to avoid that. We cannot however eliminate all forms of private investment during the war. Companies are continually refunding their bonds, and they go through precisely the same procedure when they refund a bond issue, when they call it in and issue other bonds. That is in practical effect what this amounts to.

This would offer to investors a very legitimate form of investment. Unless we are going to abolish all forms of private investment, I would think that this would be a most attractive form of private investment.

Mr. DONDERO. The thing that I have in mind is this: We are trying to lay everything aside in this country temporarily in order to continue a successful defense effort. We are all for that. So the question in my mind is, Would this place upon the market for sale to the public any appreciable degree or amount of bonds that would interfere with our defense effort at this time?

Senator BONE. No more than the usual normal forms of private investment. If we are going to follow this argument through to a logical conclusion in the fear of the consequences that it would have to the war effort, we would be forced abolish every form of private investment. If we do that, I do not know what would happen.

Mr. SMITH. Isn't it a fact-at least, it has been my opinionthat there is a vast reservoir of surplus funds in this country seeking investment; that banks and investment companies are loaded with idle funds which have been seeking an outlet?

Of course, we are assuming now that they are going to invest entirely in Government securities, which is being done, I think, to a great extent. But nevertheless, I frequently read in the financial pages that there is a vast amount of private capital that is seeking investment and is unable to find investment.

If that is so, then this should not seriously interfere with the marketability of the Government securities to finance the war, it seems to me.

Senator BONE. It must be borne in mind that this is largely an exchange operation. If you wash out the investments of all private companies and substitute for them merely another form of the same investment, you have not materially changed the picture.

If I have $100 invested in the securities of the Puget Sound Power & Light Co., and that company is acquired and I get my $100, and I proceed to immediately reinvest it in bonds against the same property, I have not changed the picture to the detriment of the Nation or its people. The investment is still there. It is not a new thing. It does nothing to change the picture appreciably.

Mr. DONDERO. What you have in mind is that the Government would merely exchange bonds of the stockholders of this corporation, which may sell out to the Government, and let the Government bonds take the place of their investment in the present private company. That is the exchange which you have in mind.

Senator BONE. Here is what will be done under this operation: If this Government agency acquires the Puget Sound Power & Light Co.-I use that as an illustration-it would pay that company for its physical property. It would issue and sell revenue bonds to secure the money to buy that property.

The bonds issued would be revenue bonds. Some would be callable. Some short-term bonds would have to be used because this Federal agency would immediately sell part of that physical property back to these local districts, cities, towns, and power districts. They are all set up and ready to go and want to buy the property. They want to use the Government agency as a purchasing agency so that they can get away from paying severance damages in biting off chunks of this system because of that process.

They in turn would sell their bonds to finance their acquisitions. These would be term bonds; probably long-term bonds. They would run for terms under the State law.

If they sold their bonds and got cash, they would pay that cash to the Columbia Power Authority, and the Authority here would use that money to retire the revenue bonds that it had issued to acquire the private power system.

So that when we get through with this process, the Federal Government would have retired much of the bond issue originally required. The only part of the revenue-bond issue then outstanding would be that part of the revenue-bond issue reflected in the cost of the power plants retained.

Perhaps 50 percent of this acquisition might ultimately get back in the hands of these public bodies in the States of Washington and Oregon in due time. The distribution systems would go back at once. Senator OVERTON. Isn't it true that the investment that is represented by these bonds would be used in the production of war materials, such as aluminum?

Senator BONE. Oh, yes.

Senator OVERTON. Have you any idea how much of it would be used for that?

Senator BONE. Around 90 percent of it is now being devoted exclusively to war production. Those power facilities will go, those of all of this system, into one giant power pool.

Senator OVERTON. So that the investment will really be used to further the war effort.

Mr. SMITH. In answer to Senator Overton's question I might say that two firms which happen to be in my district, one the Aluminum Corporation of America at Vancouver, Wash., and the other the Reynolds Metal Co. of Longview, Wash., will produce this year 240,000,000 pounds of aluminum for the manufacture of airplanes. It is that vital to the successful prosecution of the war.

Senator BURTON. This does not contemplate the construction of any new distribution systems or power systems other than what now exist?

Senator BONE. That is right; the bill does not.

Senator BURTON. Therefore it is not a use of capital for some purpose other than the war, but merely an acceptance of new securities in place of existing investments.

Senator BONE. It is largely a mechanical operation.

Senator BURTON. For that reason it does not take away an investment that otherwise might go into Federal securities to finance the

war.

Senator BONE. That is right.

Mr. SMITH. And even if it were, if there were a part of it, as the Senator stated, I think there still is a reservoir of money and funds seeking investment in this country. I do not think that we should assume that that has been dried up entirely by the financing of Federal securities, because I do not think that that is true.

Senator BURTON. I do not believe that we need to immediately face that issue at this time.

Mr. SMITH. That is very true.

There might be 15 percent that would have to seek new investment, that would require the investment of additional funds.

Mr. ANGELL. Mr. Smith, it is true that none of these funds would be used to construct new plants?

Mr. SMITH. That is right. We are going to acquire plants already constructed.

Senator BONE. If any new construction occurs, the proper authorities would have to come to Congress and ask for the money. The proceeds of these bonds that are issued could not be used for new construction. They would be utilized to buy the private systems. The distribution facilities would be immediately sold back to public bodies, and from the proceeds of that sale the Administration would retire its revenue bonds and get them out of the picture. So the Federal Government would be out of the distribution picture in a short time. This bill specifically provides for that. That is the very reason that this bill is before the committee.

If the owners of the private power companies want to buy Government bonds, they can take the money they get from the Government for these private plants and put all of it into defense bonds if they want to. It is a happy suggestion.

Mr. DONDERO. The committee would be interested to get the financial mechanics of the operation, if you can explain that.

Senator BONE. A bill of this kind has not been before Congress before, because Grand Coulee was incomplete. But we must now set up out there the machinery which is vitally necessary.

яс

Bonneville is there. Grand Coulee is there. They are an complished fact. We cannot let them hang suspended in space, like Mohammed's coffin. If we do not pass this legislation, we must continue to try to operate under handicaps that are unnecessary.

This bill improves this operation by requiring the sale of power from Grand Coulee by the Administrator. This is now being done under an Executive order, but it is not an orderly procedure. It should be validated by statute.

Mr. SMITH. If I might add there, Senator, this, which I think is very important: It is going to assist in facilitating the amortization of the cost of this project and the repayment to the Federal Treasury of the money that has been expended to construct Bonneville and Grand Coulee.

As a matter of fact, when we first authorized the Bonneville project, it was estimated that it would require 40 years to amortize that project. At the rate that are going now and the market that we have

74169-42-pr. 1———4

found for this power and the receipts that are being derived, and will be derived from the operation of the project, it is anticipated now, I have heard it stated, that it will be amortized perhaps in 25 years instead of 40 years. We are going that rapidly and making that satisfactory progress.

Of course, this legislation will facilitate that entire procedure. Senator BONE. This proposal does that. It has been calculated to do that very thing.

It capitalizes on the books of this Administration the cost of the power facilities involved. Federal expenditures allocated to power are charged to this Administration and will be its obligation to the Treasury.

The Administration is required to pay as much as it can each year to the Federal Government on the principal of that investment. In other words, it is capitalized on the books and set up as its figure of capital investment; and each year a percentage of its revenues will be paid to the Federal Treasury, and in addition, an amount of interest equal to the average interest rates received by the Federal Government from all of its issues.

Our purpose is to amortize out this capital investment just as rapidly as possible.

There is also a provision in the bill that the rates must be lowered as fast as they can be lowered consistent with good business operation. Any surplus revenue which they derive shall be utilized to anticipate the payments on the capital debt to the Federal Government, and also utilized to retire any outstanding revenue bonds.

In other words, the idea is to amortize this capital debt as fast as possible. We have even gone beyond the formula of cities out West, because as a rule they issue bonds in series payable so many each year, and they generally have fixed maturities. In other words, you cannot call them. But we contemplate here that these bonds shall ordinarily be issued in callable form, so that suplus revenue may be used to call some of these bonds in and retire them.

Mr. SMITH. That would make it easier to reduce the rates, so that the Government will not do what private companies have been doing, paying interest and having it pile up and be carried along and the consumers of power having to pay that carrying charge. What we want to do is to make it possible to liquidate the indebtedness as rapidly as possible and then give the public the benefit of cheaper rates. Mr. DONDERO. If this should all be amortized in 25 years, do you not think that we may run some danger of setting too good an example to the rest of the country?

Mr. SMITH. I believe that these are both exceptional projects. And I am sure that the gentleman from Michigan is gratified that he gave his support when these projects were before this committee years ago. I believe that this has proved to be one of the soundest Federal projects that has ever been undertaken. I think that the judgment of our committee has been amply vindicated by everything that has happened.

Senator OVERTON. Will the Federal Government be reimbursed for any of the appropriations that it has made for these two projects?

Senator BONE. We have a provision in this bill that there must be a determination by the Administration, which would come from the

Government books, of all moneys appropriated by Congress and expended by Congress to install these power facilities. When that figure is determined, it is set up on the books of this Administration as a debt to the Federal Government.

This agency will be set up in that manner. It owes the Federal Government for these power installations, and against that capital debt item on its books it would begin to make payments to the Treasury to amortize it out as it goes along, with payment of interest. It is a cold-blooded operation.

It would do, of course, what no private power company does. It would amortize out its capital investment. I never heard of any private power corporation doing that..

Senator OVERTON. Is there any such provision in the existing law? Senator BONE. A very general provision. I do not like it. I want a specific provision here that would do, as nearly as possible, what my city of Tacoma has done, which has been above reproach, I think, in its fiscal operations.

We have a plant worth about $30,000,000. It has never cost the taxpayers 1 penny. It was financed by precisely this kind of operation.

That plant operation is fundamentally sound. It is so sound, in fact, that not long ago we sold $4,000,000 worth of Tacoma Revenue Light & Power bonds to expand the system, at an interest rate of 1.74. And that is lower than any Government term issue that has come to my attention. I do not know of any long-term Government issue that ever sold at that rate.

Those Tacoma bonds are secured only by a pledge of revenue, precisely as we prescribe in this bill..

I want to assure the committee that we tried to cling to the idea that has been so useful in my State. In the darkest period of this country's depression those municipal revenue power bonds never defaulted. There is not a history of a default in any of them. At the same time, there were hundreds of defaults on bonds of municipalities all over the country which were secured by general tax obligation arrangements.

Mr. ANGELL. Senator, and in addition to that, this program provides for payments to the State that are equivalent to taxes to the State and local tax districts, does it not?

Senator BONE. That is right.

If this institution takes over the Puget Sound Power & Light Co.you will forgive me for using that as an illustration, but it provides an example that company is now paying a certain amount of taxes to the State and its subdivisions, and it is specifically provided in the bill that the Administrator, from power revenues, shall pay to the State and its political subdivisions an equal amount.

That amount would be ascertained by reference to the tax books. It is a simpler procedure. I spent many years representing taxing bodies, and I know that the determination of a tax is a very simple matter, as we have prescribed it.

That will get us away from the tax argument, because in the end. all taxes are enshrined in the light bills, as you know. But upon the acquisition of these portions of the system by the local public utility districts, which are the little fellows out there, the State law prescribes how they shall pay taxes.