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We are asking for tax replacement before this committee on the public power properties that have been acquired by this governmental agency of T. V. A. That is an agency which we can't tax. We are not asking that this committee replace tax losses on municipally acquired systems nor on systems acquired by the cooperatives. That is a problem that will be worked out and will have to be solved as a State problem.

But we are here asking that the Federal Government replace taxes on the T. V. A. properties, and we think we are only asking for fair and equitable treatment to be accorded to Tennesseans, and that we are not asking in any way any sort of a special privilege.

We don't believe that this committee should take into consideration elements and benefits that are not considered against other citizens of the United States in adjusting tax-replacement problems.

Mr. Elston. Right there. What benefits do other citizens of the United States outside of the T. V. A. area get by way of T. V. A. electric rates?

Governor COOPER. Take, for instance, the replacement of taxes on oil lands, replacement of taxes on grazing lands or on forests. It may be arguable that these States are receiving certain benefits from conservation savings and so on, yet your charge against the local citizens is a very negligible proposition and we think that in weighing these matters that you should take into consideration the Nation's benefit. You should consider the national asset of a great national defense development down in the valley. You should consider navigation and flood control.

Now, to charge the people on the banks of the Tennessee River out of proportion to what you charge the people on the banks of the Mississippi or the Missouri or on Lake Michigan or anywhere else where navigation has been improved; on rivers, where flood control is involved, is a rank injustice to the citizens of Tennessee.

Now, if I got the force of your question it is something of this nature: “That you people down there in Tennessee are getting the benefit of this development and you have smaller electric bills," but as I say that should not be charged against us because our position on that has been demonstrated, we believe, by the experience of the T. V. A., that we were being charged an excessive bill. And if I may say this: I, as a municipal attorney of Tennessee, became acquainted with certain municipally owned systems which were in existence before the Tennessee Valley Authority was ever heard of or came into existence.

Well, in those towns that owned their own systems in Tennessee and had not sold out to the private utilities, invariably were yielding a very fine profit-such as Tullahoma, Tenn.; Lebanon, Tenn., and I could mention a number of them. They were yielding a substantial profit. The people were enjoying a low tax rate. Streets were well cared for. The towns were well lighted and were enjoying a low rate. Whereas, when the Commonwealth & Southern came in and acquired the municipally owned systems, why, their rates would go up and people would have to pay excessive electric bills. That created a great deal of dissatisfaction in Tennessee. So much that in the town of Lewisburg, which I represented, we tried to build and employed engineers to investigate the cost of constructing a steam plant. About the time that was to go into effect the T. V. A. came along and so we began to hold elections and try to acquire the T. V. A. electricity for the city. I think it was commonly recognized in Tennessee that the charges made by the private utilities were far in excess of what they should be.

Now, in correcting that wrong you should not figure that in this tax adjustment.

Mr. ELSTON. Just one other question: Were your rates in Tennessee paid to the Commonwealth & Southern any higher than they were elsewhere in the United States?

Governor COOPER. Well, I don't know about that. I know that they were higher than the rates that we have to pay now and I also know that the service was very poor. On that point you will pardon another personal illustration. I had something to do with forming what is, I believe, the largest farmers' cooperative. I live in a rural community-Shelbyville, Tenn.-and our farmers could not get any electric service. They might be living right under a transmission line, but the Tennessee Electric Power Co. wouldn't serve them. They were not interested in serving farmers, and when farmers would come in and apply for service they would fix some arbitrary charge, charging each man $1,000, in one instance, and making them bear their own expense of building the electric line out to his place and then require that the whole line be immediately transferred and deeded back to the private power company before the man could ever get service.

By the time they put on all those burdens the farmers found it impossible to comply with those very stringent conditions. But here was the effect of it: As soon as the T. V. A. came in the private power companies immediately lowered their rates to the T. V. A. rates, even in municipalities not affected. They began to want to extend their power lines out to serve the farmers.

I know that in one locality that I helped to organize and which could never get service before from the private power companies, the private power companies, after the T. V. A. came in, were duplicating our lines and they claimed that they were serving these localities. They showed an unusual interest that they never showed before.

The CHAIRMAN. Governor, I don't want to interrupt you but I think you are going over a matter that has already been covered. You want to get away and I want to accommodate you.

Governor COOPER. Well, I appreciate that very much. The CHAIRMAN. But if you insist on repeating these things I am afraid you will not get away.

Mr. ELSTON. Governor, regardless of your views as to the quality of service, the fact remains that the State of Tennessee is receiving benefits more than double your losses in taxes?

Governor COOPER. No, sir. I would like to again say that what we are asking today does not increase the Federal taxpayer's burden by so much as one penny.

Mr. Elston. Now, Governor, you have been over that a number of times, and that isn't the point I am making at all.

Governor COOPER. But we are not asking for Federal revenue. We are asking for our own revenue to come back to Tennessee. We are asking for the credit for the power money-credit for the money we are now paying in for power.

Mr. ELSTON. All right. You wouldn't get the low rate you are getting in the Tennessee Valley area today if it were not for the hundreds of millions of dollars that the taxpayers of the United States—the entire United States--have dumped into the T. V. A. area, would you?

Governor COOPER. We are expecting and hoping that you gentlemen will accord Tennesseans the same treatment that you give to the people who live near Bonneville or Grand Coulee or Boulder Dam or any other great dams in the country. We will bear our just burden.

The CHAIRMAN. That is not a direct answer to the gentleman's question at all, Governor. You have told us that before.

Governor COOPER. Of course, we have admitted, Mr. Chairman, and it is just as much in the record as what I am saying, that when we receive benefits, of course, we are willing to pay for those benefits by the State of Tennessee giving up half of its revenue derivable from the public utilities; we are willing to give up half of that and willing to give up 60 percent of the value of the reservoir lands, and we think that far exceeds the contributions now made by the citizens anywhere else in the United States for such comparable Federal benefits.

Mr. Elston. The benefits today exceed your losses. Isn't it possible within your own State to so adjust your tax structure that the losses in taxes can be met ?

Governor COOPER. No, sir; it is not possible. Mr. ELSTON. Why isn't it possible? Governor COOPER. Because it is not possible and it is not just. You take the citizens of the counties. They are paying in now to the Federal Treasury the property tax that they ought to have credit for. For us to now impose again on those citizens an equal burden of taxation would be to tax them all twice, which isn't just or any kind of consideration.

Mr. ELSTON. You maintain it isn't just for the person who gets the greatest benefits to pay the greater part of the tax?

Governor COOPER. I don't believe, with all due respect to the committeemen, that you understand the real situation in Tennessee.

We have 95 counties in the State. Eighty of them will lose substantial revenue on account of the transfer of these utilities. Now, the only source of taxation for revenue for the country is the property tax. That is all they have got. And when you take away 40 percent of the taxable property in a county, why, you ruin the county unless it is replaced.

Mr. ELSTON. Well, it is within the power of the State legislature to adjust the tax structure any way they see fit.

Governor COOPER. No; it is an impossibility for us to restore the tax loss in these scores of Tennessee counties. There is no way to do it. They have had taken from them their only source of taxation. They cannot levy privilege taxes under the cồnstitutional structure of our State and for many other reasons it would be an absolute impossibility. If the taxable property is gone it is just gone unless it is replaced somewhere.

Mr. ELSTON. You mentioned in some other part of the United States payments are made in lieu of taxes.

Governor COOPER. Yes, sir.

Mr. ELSTON. In each of those instances the adjustments are made because of the fact that they are disposing of capital assets, isn't that so?

Governor COOPER. I don't believe so. I think that the payment is made back to the local governments which represents certain percentages of money that is derived from the management of those properties. Take grazing land, for instance. They pay back, I believe, 25 percent.

Mr. ELSTON. Well, they are not operated as corporations for profit, are they?

Governor COOPER. Well, they may be in some instances. Now, in that connection I would like to call your attention to the fact that a good many Federal agencies that temporarily have custody of property, make certain payments back. If you will allow me to refer here to my notes for just a minute I think I can cite you an instance or two.

The Federal Home Loan Bank Act of 1932, the Healy Act of 1936, relating to low-rent houses and slum clearance projects; United States Housing Act of 1937, Home Owners' Loan Corporation Act, and the Bankhead-Black Act of 1936 relating to ruraï resettlement projects, all provide either for waiving the Federal Government's immunity from taxation, or for agreements for payment in lieu of taxes. And as I have been furnished the information, millions of dollars were paid for the fiscal year 1938 for tax replacements in all but 5 of the 48 States—all but 5 in the entire United States received money back from the Federal Government for tax replacement.

What we are asking here today is in line with past established Federal practice. We are not asking for revenue from the Federal Government but for revenue out of the monies that are already collected from Tennesseeans to come back to Tennessee and be used to carry on the governmental services that that same money paid for taxes with their electric bills has always been used for.

Mr. ELSTON. I believe you said that the T. V. A. added 121/2 percent to the wholesale power rate?

Governor COOPER. Yes; that is correct.

Mr. ELSTON. They don't do that by authority of law, do they ? Nothing in the law covering that?

Governor COOPER. Yes; I think that is certainly within the spirit of the law because they were asked to establish a yardstick rate, and, of course, it wouldn't be any yardstick unless they figured in a proper allowance for taxes. They have always in the electric rates reflected the charges for taxation.

Mr. Elston. The 121/2 percent is not fixed by statute, is it?
Governor COOPER. No, sir; it is not fixed by statute.

Mr. Elston. It is purely within the discretion then of the T. V. A. as to whether or not that rate shall be increased or decreased, isn't it?

Governor COOPER. I think it is. I think the Authority is acting within the law in adjusting that allowance for tax purposes.

Mr. Elston. That may be but it is entirely discretionary with the T. V. A., isn't it?

Governor COOPER. Yes. But I think it is a proper exercise of their discretion. It is within their discretion.

Mr. ELSTON. Well, if it is left entirely to their discretion you are really at the mercy of the Tennessee Valley Authority, aren't you? Governor COOPER. No. I think that this bill would adequately take care of the situation. I would restore to the counties of Tennessee their losses. It is true that it would not restore all their losses. I can think of some counties where they have large reservoir lands where they would still suffer considerable inconvenience; Meigs County, for instance. That county seems to be in the position th the only beneficial results it could obtain from this bill would be to restore to the county enough money for them to operate and carry on their usual county governmental services which were heretofore financed in large part by utility revenue. And then if the amendment or a similar amendment is adopted, such as we are recommending today to not require the State of Tennessee to lose 100 percent of its utility revenues, but to restore to them 50 percent of the revenues, why, we will try to get along and find some way of trying to supply the balance, although it will be a very difficult and vexing problem for the State of Tennessee to try to replace the losses that will accrue to the State and to the counties even if this bill is passed as recommended. But we are willing to shoulder that burden and, I think, to cooperate in a very fine way with the Federal Government and with the Tennessee Valley Authority.

Mr. Elston. If you can assume it in part why can't you assume it in its entirety?

Governor COOPER. Just because we don't have the means to. It is just like a man may want to buy a property worth $100,000 but if he doesn't have the money he just can't do it. He might have to take property only worth half that much. We have to act in accordance with our means. Because we might be able to assume a portion of the loss it would not necessarily follow that we could sustain the whole loss.

I have just pointed out how it is absolutely impossible for the counties of Tennessee to accept the loss that they will have to stand unless you gentlemen restore these taxes. They can't function as counties any more. They can't operate their schools. They can't carry on county business unless the revenue is restored.

Mr. Elston. Governor, you knew that before you came up here and urged this committee to pass the bill authorizing the purchase of the Tennessee Electric Power properties, didn't you?

Governor COOPER. Well, we knew this: We knew that a good number of the members of this committee have advocated tax replacement and we have heard and we have read about the Members of Congress who felt that taxes should be replaced.

This committee-I think the chairman has advocated that and I think it is just and fair that the taxes be replaced.

I could refer you here to a hearing of the subcommittee of the Military Affairs Committee of the House of Representatives for the Seventy-sixth Congress, first session, on Senate bill 1796, page 316.

The CHAIRMAN. What volume is that?

Governor COOPER. Well, I don't know what volume. As I understand there is only one volume.

The chairman of the committee proposed this amendment, section 3 : That the Tennessee Valley Authority shall and is hereby required to pay into the treasury of every State, county, municipality, school, or other taxing district in which it has acquired or may hereafter acquire and own any franchise or property, real, personal, or mixed, a sum of money equal to the sum or sums

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