The CHAIRMAN. Let the Chairman make an observation, Governor. The time has arrived when the House is in session, and unfortunately we can not sit during the sessions of the House. I am going to try to obtain that permission. There is a resolution còming up on the floor now that is controversial, has to be voted on, and all the members of this committee want to be on the floor, and I want to ascertain what is the pleasure of the committee and the Governor with respect to when we will reassemble this afternoon.

Mr. THOMASON. I wonder if the Governor expects to be here tomorrow morning?

Governor COOPER. Not if I can help it. It will inconvenience me somewhat to stay tomorrow, although I can do so if necessary.

The CHAIRMAN. We do not want to inconvenience you at all, Governor. We have some idea of your responsibilities, but what I want to do is to arrange, if I can, to complete your testimony this afternoon.

Mr. THOMASON. I am very much interested in hearing the Governor's very informative statement, but I do not believe we can come back this afternoon. I move that we adjourn until 10 o'clock tomorrow morning, when we will hear the Governor further.

The CHAIRMAN. Without objection, the motion is adopted and the committee stands adjourned.

(Whereupon, at 12:05 p. m., the committee adjourned until 10 a. m., Wednesday, January 24, 1940.)

TO AMEND THE TENNESSEE VALLEY AUTHORITY

ACT OF 1933

WEDNESDAY, JANUARY 24, 1940

HOUSE OF REPRESENTATIVES, COMMITTEE ON MILITARY AFFAIRS, Washington, D. C.

The committee met at 10:30 a. m., Hon. A. J. May (chairman) presiding.

The CHAIRMAN. "The committee will please be in order. The Chair assumes that a quorum is present and, in order to expedite these hearings as rapidly as possible and to accommodate the Governor of Tennessee, who was on the witness stand when we adjourned yesterday evening, we will proceed with the hearing.

Governor Cooper, will you please go ahead with your statement? And may I suggest to the members of the committee that it might be desirable to let the Governor continue with his statement until he is through with his general statement, and then to question him and avoid, as much as possible, interruption?

STATEMENT OF HON. PRENTICE COOPER-Resumed

Governor COOPER. Mr. Chairman and gentlemen of the committee, I would first like to call the attention of the committee to this significant fact, which is that what Tennessee is asking will not be any burden whatsoever to the Federal Government, or cost the Federal taxpayer one penny. In other words, our program for tax replacement here will not cost the Federal taxpayer a penny. Now, of course, that is a significant statement and it ought to be emphasized, that what Tennessee is asking of the committee will not cost the Federal taxpayer a penny. The reason for that is that when T. V. A. fixed its wholesale power rate, taking into consideration the amortization of the power properties and other considerations-when they fixed their wholesale power rate, then they added to that rate an additional 12.5 percent for tax purposes, which the people of Tennessee, the consumers in Tennessee, are paying today. That is where the tax replacement we are asking for will come from. That is not from the Federal Treasury, but from the Tennessee consumers' tax. We are not asking anything here that will add one penny to the Federal taxpayers' burden; we are asking that the Tennessee consumer be given credit for the tax that he is now paying to the T. V. A.

Mr. ANDREWS. Will the gentleman permit an interruption?
Governor COOPER. Yes, sir.

Mr. ANDREWS. Be given credit by whom?

Governor COOPER. Here is what I mean by "being given credit": The Tennessee consumer is paying 12.5 percent for tax purposes. That is going now to the Federal Government.

Mr. ANDREWS. 12.5 percent is going to whom?

Mr. COOPER. It is going to the T. V. A. and is added to the wholesale rate of T. V. A., which additional 12.5 percent is for tax purposes, which the consumers of Tennessee are paying today. That money is being taken out of their pocket every day, and has been for some time, on the wholesale power rate.

Mr. ANDREWS. And when he gets through paying, the consumer who pays that rate and then adds 12.5 percent to that-when he gets through paying both of those, how much is he paying compared to what he paid to the Commonwealth & Southern Co. before it was taken over?

Governor COPPER. He is paying the same amount.

Mr. ANDREWS. He is paying the same amount?

Governor COOPER. Yes, sir. The Tennessee taxpayer is paying the same taxes today, insofar as the ad valorem tax goes, that he paid when the Commonwealth & Southern was a private-ownership system. Mr. ANDREWS. Then, where does Mr. Rankin's statement come in, that he is getting power a lot cheaper?

Mr. SPARKMAN. Will you permit an interruption there, Governor? Governor CoOPER. Yes, sir.

Mr. SPARKMAN. You did not mean he is paying the same rate for electricity; you mean he is paying the same tax?

Governor COOPER. No; not the same rate.

Mr. SPARKMAN. The rate is lower, but he is paying the same tax? Governor COOPER. The same tax. The power rate is considerably cheaper; but, as I said, he is paying the same tax now in his rate that he paid before T. V. A.

Mr. ANDREWS. Where is he going to get the money to compensate him for this 12.5 percent; where is the taxpayer going to get the money?

Governor COOPER. It would go to Tennessee under the pending bill. Mr. ANDREWS. Who would pay it?

Governor COOPER. It would be T. V. A., in effect, refunding the tax money to be used for taxation purposes.

Mr. ANDREWS. T. V. A. would be refunding to the State of Tennessee?

Governor COOPER. No; to the counties. Under this bill, as I understand, it is contemplated it will be paid to the counties. In other words, if I may illustrate this, take Polk County, Tenn.: The consumers in Polk County today are paying 12.5 percent for tax purposes down there in their electric bills. Now, under this bill, the Norris-Sparkman bill, that tax money would come back to Polk County to be used for Polk County schools and carrying on the usual county services. That is the way the refund would be made, as I understand it.

Mr. ANDREWS. What I am getting at is, where does this 50 percent of your $700,000 business tax come in?

Governor CoOPER. If the member of the committee would allow me to discuss that when we get to that, we are talking now about the ad valorem and property tax, and, if you would permit me to reach that a little later, I would be very glad to discuss it fully.

The CHAIRMAN. All right, Governor, go ahead.

Governor COOPER. So we have here a situation where we are not asking anything from Congress that will add a penny to the Federal taxpayers' burden; we are asking that the Tennessee taxpayer be given credit for the 12.5 percent that he is now paying, just as he did pay when he was served by the Commonwealth & Southern. And, if we do not get that replacement this would be the effect on the Tennessee consumer: He would pay 12.5 percent additional on his electric bill for tax purposes and then he would be taxed again by the State of Tennessee, and the result would be he would be doubly taxed.

Mr. ANDREWS. And when he got all through he would not pay any more than he was paying for electricity to the Commonwealth & Southern, would he?

Governor COOPER. Well, I think this is a good and sufficient answer to that question. We think that the citizens of Tennessee had been paying excessive electric bills. We think that the T. V. A. yardstick is a just and fair one.

Mr. ANDREWS. What is the $40,000,000 that we just appropriated to meet the T. V. A. deficit in the House? What is that for?

Governor COOPER. I do not think national assets, such as T. V. A., should be charged to the local taxpayers of Tennessee any more than national assets should be charged to the local taxpayers any place else in the Nation.

Mr. ANDREWS. New York is not getting any benefit, is it?

Governor COOPER. I think we should be treated equally with other citizens all over the United States, and we are not asking any special privilege here of Congress; we are merely asking that we be accorded equal treatment with other citizens of the United States. And we do not think the consumers in Tennessee should have to pay their taxes into T. V. A. now, and then have no tax replacement, and then be subject to double taxation. We think they ought to get credit for the 12.5 percent they are now paying in their electric bills.

Mr. ANDREWS. In other words, you would like the taxpayers of Tennessee to get power cheaper than they used to get it from the Commonwealth & Southern, and then you would like the State of Tennessee to get all of the benefit of the development down there. You cannot have your cake and eat it, just as the President said; still you want the taxpayers to get their electricity for less, with the benefits accruing to the State, and you want the Federal Government to make up the deficit?

Governor COOPER. We think this is in no sense comparable to the case you put. Tennessee is not trying to have its cake and eat it, too. That is not the situation at all. The situation, as we see it, is that formerly we were subjected to excessive electric charges which we are now freed from and, at the same time, figured into the present T. V. A. yardstick is a sufficient amount to take care of taxes and we think that either one of two things should happen-either we should be given credit for the taxes we are now paying, or else the electric rate should be still further lowered by the amount of 12.5 percent. Because we do not believe that the Tennessee consumers should be taxed twice, and we think in the present yardstick, inasmuch as it is sufficient to take care of Federal and local taxes, that our consumers should not be charged a second time for taxes.

Mr. ANDREWS. If it does not cost the Federal taxpayer anything, where does this money come from?

Governor COOPER. Well, you are asking in that question that Tennessee foot the entire bill for national defense, flood control, and navigation, and every other benefit that might be accruing to the Federal Government through the whole T. V. A. program, which is a very unfair question.

Mr. ANDREWS. Well, the capital investment has already been put up; it has already been paid for.

Governor COOPER. Well, we do not think, in considering the pending bill for tax replacement, as in your question, that you should ask, at the same time, that all of the indebtedness that may be chargeable to T. V. A. for its entire program should be charged back to Tennessee and that should offset the plea we are making here today for tax replacement.

Mr. ANDREWS. Do not you think its operative program should be taken care of?

Governor COOPER. It is taken care of in the wholesale rate that has been figured out by the best engineers that this Government can employ, that fixed a fair wholesale rate. In addition to that rate, they have added an additional 12.5 percent for local taxation, as well as the Federal taxes. The local rate takes into consideration, as I understand, 10 percent of the rate to be allocated for local tax purposes, and 2.5 percent to go back to the Federal Government, which is enough to replace the tax formerly paid by Tennesseeans, under the private utility system, as far as the ad valorem tax goes.

Mr. ANDREWS. Let me ask you one more question: If the T. V. A. collected purely for operation, if T. V. A. collected from the taxpayers of Tennessee and paid to the State of Tennessee an amount equal to the tax paid by the Commonwealth & Southern, and prorated that charge to the citizens of Tennessee, they would pay just as high an electric rate as they did before; is not that true? Governor COOPER. No; they would not.

Mr. ANDREWS. Why would it be cheaper?

Governor COOPER. Well, I base my statement on the present T. V. A. wholesale rate, fixed by their expert engineers which, I understand, takes care of amortization of the power properties, fully takes care of every legitimate charge that can be made and, in addition to that, there is added an additional 12.5 percent which they figure is the correct percent to take care of all taxes.

Mr. ANDREWS. You already have all in the State of Tennessee that you want?

Governor COOPER. Of course. We are not asking here-I want to make this plain, that we are not asking anything in our program that will add to the Federal taxpayers' burden one penny, and what we are asking will cost the Tennessee taxpayer considerably more, and for this reason: We are standing a 60-percent loss on all lands used for reservoir purposes. And that is a very significant thing, because reservoir lands are going to be greatly increased in Tennessee. But we will get back on those lands 40 percent of the lost taxes. We are willing to stand for that, although it is going to work a very great hardship on the counties and all parties concerned; but we are willing to give that up.