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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.

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

This bill improves this operation by requiring the sale of pow" from Grand Coulee by the Administrator. This is now being 20" under an Executive order, but it is not an orderly procedure. licu be validated by statute.

Mr. SMITH. If I might add there, Senator, this, whirl. I thotels very important: It is going to assist in facilitating the alineet of the cost of this project and the repayment to the Facura ! re. of the money that has been expended to construct bullisen Grand Coulee,

As a matter of fact, when we first authorized the bord*500** ect, it was estimated that it would require 40 year. ka project. At the rate that are going now and the muzetan

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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 bther 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. .

So it is of no concern as a piece of Federal legislation how they handle it after they buy distribution properties from the Government agency.

Mr. SMITH. At this point it might be interesting to have appear in the record some of the figures on the revenues, because we have just been discussing that.

To June 30, 1943, it is estimated that the cumulative revenue derived will be $20,250,700; to June 30, 1914, $38,736,600.

The approximate plant investment for the war industries using Bonneville-Grand Coulee power as of 1943 is $159,000,000, and approximate annual value of the production is $661,000,000. There are 119,000 people employed by these war industries, showing how vital these projects are in connection with our war effort.

Senator BURTON. Do those figures that you gave include the Bonneville project?

Mr. SMITH. They are the estimated revenues of Bonneville and Grand Coulee. I think they are cumulative,

Senator BURTON. Since they started ?
Mr. SMITH. Yes.
Senator Burton. What was that first one that you referred to?
Mr. Smith. That was the one ending June 30, 1943, $20,250,700.
Senator BURTON. For how long a period !
Mr. SMITH. Since 1940.
Senator BURTON. What was the 1944 figure that you gave?
Mr. SMITH, $38,736,600.

Senator Burton. That indicates that the two projects would add $18,000,000 a year? Is that right?

Mr. SMITH. They would, Senator, yes.

We are going to furnish all those figures in detail before the hearings are concluded. But I thought that right at that point, in view of the fact that we have been discussing this, it might be well just to have a few brief figures in the record.

Senator BONE. I think that it is well to keep in mind in this hearing that there are two kinds of debts that will be handled by this agency. The first debt is the one arising out of the issuance of revenue bonds. That debt will be amortized out of the revenues of this system.

The second debt is the debt to the Treasury of the United States, which is set up on the books of the Administration. That debt arises out of appropriations that you gentlemen have voted to build the dams and to install the generating equipment.

That debt will be capitalized on the books. If it is $100,000,000, then it will be set up on the books as a debt of $100,000,000 to the Treasury. I could not give the figure now. But whatever debt is allocated to power will be set up as an item of capital debt on the books of this Administration, and each year out of its revenues, this institution will have to pay back to the Treasury a part of that debt, plus interest on the whole debt, or interest on the balance that is unpaid at that time.

Mr. SMITH. Of course, that is only a part, because there is only a part of it allocated to power. A part of it is allocated to navigation and a part to flood control where there is flood control. Then, of course, at Grand Coulee there is a part of it that is allocated to

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reclamation. So there is a segregation and an allocation of portions of the cost there that has to be taken into account, of course.

Senator OVERTON. It will only be the part that is allocated to power that will be reimbursed to the Federal Government from these revenues ?

Mr. SMITH. Yes.

And that is what I referred to when I stated that the power part of the project is apparently, from the present indications, going to be amortized much sooner than any of us thought who were most enthusiastic when we advocated this project at its inception.

Senator OVERTON. Then there will not be any reimbursement to the Government for the other parts of the cost?

Mr. Smith. No. But that will not be any more so than in other sections of the country, for navigation and flood control.

Senator BONE. I omitted one item. This is simply cumulative,

When I said that this item of capital debt would include the matters that I mentioned, I overlooked including another item, and that is these main transmission lines. These heavy transmission lines have been built through the State. They are very heavy, heavy enough so that they can carry voltages in excess of 200,000.

This debt would also be capitalized and set up on the books, because, although this Columbia Power Administration would own these main transmission lines, they would also have to be amortized out as a debt to the Federal Government. In other words, we are trying to set these things up so that the Administration will deal literally at arm's length with the Government. While the Government owns it, the system will have to pay its way along.

Mr. SMITH. Of course, the fact to emphasize, it appears to me, is that this is absolutely a self-liquidating project. We have every reason to believe that ultimately and finally this project is not going to cost the taxpayers of the United States one thin dime. It is a self-liquidating project.

Mr. DONDERO. Senator Overton remarked in regard to whether or not the flood control part of the cost would be amortized. That would also apply to the navigation part; would it not?

Mr. SMITH. Yes. They are not amortized here or elsewhere, as my friend from Michigan well knows.

Mr. DONDERO. The theory is that that part is returned to the people in lower cost of transportation and in safety and savings?

Mr. SMITH. Yes. That is the theory on which we construct all navigation and flood-control projects. The cost is returned to the taxpayers in savings from reduced freight rates, low-cost transportation, and benefits from opening up new markets, increased commerce and trade.

Mr. ANGELL. Of course, ordinarily there would be no direct returns to the Government on the flood control and navigation features.

Mr. SMITH. That is right.

Senator OVERTON. I think that there should be furnished for the record figures showing the percentages which are allocated to these different things, such as we have just mentioned.

(For the figures requested see appendix A, at end of hearings.)

Senator BERTON. Am I correct in understanding that in the event that the Columbia Power Administration does not make the pay

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