Governor COOPER. Of course, the capital expenditure has been borne by the Federal Government, just as the capital expenditure in Boulder Dam, Grand Coulee, or any of the rest of them.

Mr. HARNESS. Then you do not figure the people of Tennessee have anything invested in T. V. A.?

Governor COOPER. Well, I think, of course, it is a Federal project to develop a national resource and a national asset, and I am perfectly willing that Tennessee citizens should bear their just burden of this, and whatever local benefits can properly be attributable to them and charged up to them the Tennesseans are willing and glad to bear. But our point is that when you consider the taxreplacement program that has been adopted by the Federal Government in respect to a great variety of national projects, that when we give up 60 percent of the value of our reservoir lands and, in addition to that, give you half of our State income from utilities, we have surpassed anything that local citizens have ever contributed to such a comparable national asset.

Mr. HARNESS. I thoroughly agree with you that the whole thing was a mistake.

Governor COOPER. But I do not agree with that. [Laughter.] Mr. HARNESS. And that they should not have taken over those private industries and permitted the Government to take all of this income.

Governor COOPER. On the contrary, my view is that the Nation is going to be proud of the Tennessee Valley Authority program and, as I think, the Nation will become convinced of its value as a national

asset.

Mr. HARNESS. You are not going to be proud of it unless we make some provision to pay back those taxes, are you?

Governor COOPER. They have made provision, as far as they have set up 12.5 percent to take care of those taxes, if you gentlemen will restore them to us.

Mr. HARNESS. Why do not we leave it alone, then?

Governor COOPER. Well, the reason is we have, under the present law, a very inequitable plan for distributing tax replacement. Georgia is not taken care of at all; Chairman May's State, Kentucky, won't derive a dime from Gilbertsville Dam, which is the largest of all, and these other States ought to be taken care of.

The CHAIRMAN. We do not want it. [Laughter.]

Governor COOPER. And the tax replacement ought to be distributed on an equitable basis among all of the States, and we believe this bill, with the amendments we propose, will accomplish that result.

Mr. HARNESS. There is another thing: I believe I understood you to say, from all the information you have received, that T. V. A. in the years to come would increase its profits year after year?

Governor COOPER. That is insured in the bill itself, because you pay out less and less.

Mr. HARNESS. Now, this bill proposes to give you 10 percent this year, then 9 percent, then 8 percent, and you also said, if I understood you correctly, that the State of Tennessee, or the counties, were still going to lose each year, because of the reducing percentage. Well, if the profits increase, you are going to be receiving more, are you not, or at least receiving as much?

Governor COOPER. The profits of T. V. A. will increase, but the But I payments to the State and counties will remain the same.

think that is taken care of, Mr. Harness, in this way, that the bill provides that after the lapse of a certain period this matter will be re-gone into, after the reports are made to Congress, to see how the proposition has worked. I think that is a very fair proposition and gives an opportunity to iron out any inequalities that may develop. Mr. HARNESS. I believe that is all.

Mr. ARENDS. Mr. Chairman, there are a lot of questions that pop into a man's mind concerning a situation such as this, and I believe, in keeping with what the President said to Congress in his message on the state of the Union on January 3, to the effect that "You cannot have your cake and eat it too," that brings this difficulty to light today.

One of the things that interested me a little was your mention of the fact that a lot could be attributed to fertilizer developed down there and that should be charged to something else besides power, and you said there was so much soil erosion going on on your good land down there that it was necessary to have this fertilizer, and I just wondered what kind of crops you raise on this particular land you are talking about.

Governor COOPER. It is largely a stock-grazing country, a dairy section. We raise sheep, cattle, hogs

Mr. ARENDS. You do not raise any forage crops like corn, or anything like that?

Governor COOPER. Yes; we raise corn, particularly on the flooded reservoir land.

Mr. ARENDS. I was wondering if the taxpayers, as represented by John Q. Public, that are paying out money for fertilizer purposes to raise crops in your State, are the same taxpayers that are giving money up, in our country, where we do not use fertilizer, to take our lands out of production?

Governor COOPER. What is your State?

Mr. ARENDS. Illinois.

Governor COOPER. I imagine you have some grazing lands and have a need for grass in Illinois. Is not that correct?

Mr. ARENDS. I am talking mostly about croplands.

Governor COOPER. This contribution, I think, has been made to the Nation in respect to phosphate fertilizer. I understand you need other elements for your crops in that country, and particularly need nitrogen, potassium, and phosphorus, and the phosphorus is highly exhaustible and a necessary fertilizer material. Now, this is what my understanding has been on this: that our present fertilizers have only had about 7 percent of soluable phosphate in the fertilizer mixture, and the farmers in Illinois, Tennessee, Texas, or wherever else they have been buying fertilizer, have had to transport a lot of dead materials that are not worth a great deal, just to get that 7 percent; whereas, under experiments of the Tennessee Valley Authority, for the benefit of American agriculture, they have developed phosphate fertilizer that is efficient as high as 65 percent, thus being of great benefit to the farmer, because he can transport 100 pounds or 1,000 pounds of that highly efficient fertilizer developed by T. V. A. which does not cost much more, but he gets many times the benefit. And that is just a fine illustration of how valuable this

program can be for national conservation and we need an agency like T. V. A. engineers to experiment intelligently to try to advance improvements in agriculture all over this Nation.

It is my belief that the beneficial result of T. V. A. will become more apparent each year. I think there has been a whole lot of talk about power, because it is a spectacular sort of thing and has to be one of the things solved first; but I think the power development is nowhere near the most important phase.

The CHAIRMAN. If it has to be solved first, I am afraid the other things will never be solved.

Governor COOPER. That is correct; that is the one that has to be solved first.

Mr. ARENDS. The thing I am trying to get at is with the condition of your soil, the sloping terrains, and things like that, you are benefited tremendously down in Tennessee by the development of fertilizer; whereas we, in Illinois, with our fertile soils and everything else, do not get so much benefit.

Mr. SPARKMAN. Will the gentleman yield?

Mr. ARENDS. Yes.

Governor COOPER. Will you let me make this statement right there: Those benefits, I must say, at the present stage are theoretical in this respect, that the Tennessee farmer, of course, has to pay for whatever fertilizer he gets.

Mr. ARENDS. That is true.

Governor COOPER. The educational program has not gone on yet to where that Tennessee farmer knows the value of this improved T. V. A. phosphate fertilizer. The farmers do not know it in Illinois; they do not even know it in Tennessee. But when this information is spread around, I think it is going to have a very beneficial effect on the agricultural sections of the entire country.

Mr. ARENDS. It will probably be a real benefit to Tennessee. Governor COOPER. No more so than to any other State, because the most of those fertilizer establishments are not located in Tennessee. Mr. SPARKMAN. Will the gentleman from Illinois yield?

Mr. ARENDS. Yes.

Mr. SPARKMAN. Is it not true that these phosphates that are developed and manufactured by T. V. A. are not restricted to any lands of Tennessee, or the Tennessee Valley States, but are used, as a matter of fact, all over the United States?

Governor COOPER. That is absolutely correct.

Mr. SPARKMAN. And are distributed through the A. A. A., of the Department of Agriculture?

Governor COOPER. That is exactly right.

Mr. HARNESS. How do you go about getting them?

Mr. SPARKMAN. Your Farm Bureau Federation will tell you how, even in Indiana.

Mr. ARENDS. What are you going to do if you do not need them? Governor COOPER. You need them everywhere where grass is

grown.

Mr. CLASON. Am I to understand that all of this State land which has been submerged or is going to be submerged is included in the lost taxes which are shown in your schedules?

Governor COOPER. Will you state that question again, Mr. Clason?

Mr. CLASON. One of the reasons you are asking for money to replace taxes that have been lost is on the basis of lands which have been submerged for reservoirs?

Governor COOPER. Correct.

Mr. CLASON. Now, do those lands cover 100 percent of all of the lands that have been submerged?

Governor COOPER. No, sir. Do you mean the lands on which we are asking tax replacement cover 100 percent?

Mr. CLASON. No; I am not asking whether you are going to get 100 percent replacement; what I am asking is if you are asking tax replacement on the same basis for all of the lands that have been submerged?

Governor COOPER. We have been willing to bear our burden in return for the benefits accruing to our section, the very substantial burden and contribution, by giving up 60 percent of our flooded lands, termed "reservoir lands," for tax purposes. In other words, we will just get for the counties, under the amendment-we are willing to put in 40 percent of the value. In other words, T. V. A. allocates, for tax purposes, only 40 percent of the lands taken for reservoir purposes.

Mr. CLASON. Does that indicate in your mind that the other 60 percent ought to be credited to navigation, or flood control, or what is the basis on which you arrived at that 40 percent?

Governor COOPER. That is the basis that has been arrived at by the Tennessee Valley Authority as being their view of the amount that would properly be allocable to flood control and navigation. They have only left us 40 percent of the value of this reservoir land for tax purposes, and we have been willing, because we sincerely want to bear our just burden and be fair to the rest of the country— we are not here, in our view, to ask any special privileges; we just want equality of treatment.

Mr. CLASON. On transmission lines, you are also given that 40 percent, are you not?

Governor COOPER. No, sir.

Mr. CLASON. What is it-100 percent?

Governor COOPER. On transmission lines-I believe the transmission lines and the dams are allocable to power and they are power properties, and I think we should have a tax replacement provided for in the bill against those properties.

Mr. CLASON. Of how much; what percentage?

Governor COOPER. Well, if you mean the percentage of all the properties acquired from the Commonwealth and Southern, I believe the dams and transmission lines represent, roughly, about 43 percent of the total Commonwealth and Southern properties transferred.

Now, may I make that clear by reciting, very briefly, just a few figures? We estimate that the total tax loss in Tennessee is $3,061,665. Now, the amount replaced to the cities is $872,000 of that tax loss. That comes about in this way: When T. V. A. sells power to the cities, they give them permission to collect their taxes in the rate from the retail customer. That replaces $872,000.

The CHAIRMAN. Pardon me for interrupting you again, Governor, but it is now 12:30 and I want to find out what is the pleasure of the committee with reference to coming back this afternoon.

(After informal discussion, the committee took a recess until 1:30 p. m.)

AFTER RECESS

STATEMENT OF HON. PRENTICE COOPER-Resumed

The CHAIRMAN. The hearing will resume. We are running a little late and of course the Governor is not through with his testimony yet. Is that the situation?

Governor COOPER. I have not quite finished.

The CHAIRMAN. It is my understanding, Governor, that you desire to yield to some other gentlemen at this time.

Governor COOPER. No, sir; I would like to complete my testimony if it is all right. I am trying to get away on a plane. But I would like for Mr. Hudson to be heard at the conclusion of my testimony. The CHAIRMAN. Very well. Mr. Clason is not here and I will ask Mr. Elston to question the witness, and so a proper sequence may be observed, insert Mr. Clason's examination at the proper place in the record.

In the absence of Mr. Clason, Mr. Elston will examine the witness. Mr. ELSTON. Governor, I wanted to ask you a few questions that are not entirely clear to me concerning this proposition.

How much do the people of Tennessee benefit in the way of rates? Governor COOPER. Well, I believe that the rates are considerably lower than those charged by the private utilities owned by the Commonwealth & Southern.

Mr. ELSTON. How much do you figure the people of your State are going to save in a year by virtue of those decreased rates?

Governor COOPER. I would prefer those questions to be answered by the T. V. A. experts and engineer. But I have understood that amount might run as high, when the program is fully completed and all the dams constructed, perhaps as much as seven million a year.

The CHAIRMAN. Pardon me, Governor, but that is set out in the memorandum which Mr. Fitts gave us as $7,000,000 for the year 1938?

Mr. ELSTON. Yes. And your loss in taxes amounts to, I believe you said, a little over $1,000,000 a year?

Governor COOPER. Yes. Well, the total tax loss to Tennessee is $3,061,655 per year.

Mr. ELSTON. So that your benefits are about twice what your losses amount to?

Governor COOPER. This would be my answer to that: We think that our electric rates were too high. We thought we had been the victim of paying excessive electric charges to a power monopoly. We think that that is one incidental benefit to be derived from this program, the establishment of a proper T. V. A. yardstick so as to safeguard the public against overcharges from electric monopolies, and we think that the T. V. A. yardstick is fair. We think that there is no reason for a continuation of any excessive electric charges. We think that the T. V. A. engineers and technicians can be faithfully relied upon to charge the public enough to take care of their needs. I have understood from Mr. Fitts and others that they believe that the present charges will yield a substantial profit after the proper amount has been allocated for replacement of taxes. In other words, if I can state our position again, our position is this: