May 27, 1965
Page 11910
AMENDMENT NO. 2
Mr. HRUSKA. Mr. President, I call up my amendment No. 2 and ask that it be stated.
The PRESIDING OFFICER. The amendment will be stated by title for the information of the Senate.
The LEGISLATIVE CLERK. The Senator from Nebraska proposes the following amendment:
On page 11, line 4, after the semicolon, insert the word "and".
On page 11, beginning with the semicolon on line 12, strike out all through the period on line 24.
Mr. HRUSKA. Mr. President, I yield myself 3 minutes.
The PRESIDING OFFICER. The Senator from Nebraska is recognized for 3 minutes.
Mr. HRUSKA. Mr. President, this is the provision which provides that the Secretary shall be authorized "to contract to pay, and to pay annually, for not more than ten years, to or on behalf of private business entities amounts sufficient to reduce by 2 percentage points the interest paid by such entities on loans which are obtained from non-Government sources, which are not guaranteed by any Government agency, which provide for annual amortization of principal, and the proceeds of which are used for purposes for which the Secretary is authorized to purchase evidences of indebtedness or make loans under this section: Provided, however, That subject to limitations in annual appropriation Acts, the annual cost of new contracts approved in any one year shall not exceed $5,000,000."
Mr. President, we have had some experience under the Area Redevelopment Administration Act, in which subsidies for this type of business met with a sorry reception at the hands of communities where the subsidy of business was practiced.
All of us can sympathize most earnestly and sincerely with the establishment of businesses which will result in the formation of new jobs. But it comes with poor grace and a great deal of resentment to those businesses in a given area when they witness the formation of a competing business in their own area., which will have a subsidy from public funds. This is one form of subsidy. Assume a situation in which perhaps the newly founded business would find it necessary to borrow money at 6 percent. The Secretary would be authorized to pay the equivalent of 2 percent of that interest, thereby giving a net interest rate of 4 percent to the newly formed business.
Mr. President, consider the plight and feelings of the man who has put his own money on the line, who has established his own line of credit in a bank and must pay the 6 percent. It does not sit well with him to not only have a new direct line of competition with a man who is being subsidized, but that man is being subsidized in part by the taxes which he has to pay.
To use a homely illustration, a man making broom handles, for example, in the States of Nebraska or Missouri
The PRESIDING OFFICER. The time of the Senator from Nebraska has expired.
Mr. HRUSKA. Mr. President, I yield myself 3 additional minutes.
The PRESIDING OFFICER. The Senator from Nebraska is recognized for 3 additional minutes.
Mr. HRUSKA. Mr. President, this man making broom handles has a little factory employing 12 or 14 persons. Along comes a man who would get the benefit of the provisions of the bill. The broom handle manufacturer finds himself paying 6 percent interest, whereas the new man will have a head start of 2 percent and so will pay only 4 percent.
It is that situation which I believe is unwarranted and certainly would work a greater hardship than any corresponding benefit which would be obtained.
If that business will not be able to make a go of it at the rate of 6 percent, it would not help any to have a reduction to a rate of 4 percent as in the hypothetical instance which was given.
There are other alternatives for handling the situation. It was pointed out in the supplemental views in the committee report that one way to handle the problem would be for the Federal Government to insure the loans made by private lending agencies. However, in the short time allowed for preparation of the bill, it was not possible to work out any proper reference in this regard. It could be done, and it would achieve the same purpose; namely, where credit would be guaranteed by the Government, each man could get a lower rate of interest. We would not get into the discriminatory subsidy which is provided under the present bill.
That language is found on page 37 of the committee report and I ask unanimous consent to have printed in the RECORD the text of that page, beginning with the words "section 202(b) (8)," in the fifth paragraph of that page and the two succeeding paragraphs.
There being no objection, the excerpt was ordered to be printed in the RECORD, as follows:
The GAO recommended that in section 202(b) (8), a fixed charge (subject to change with experience) should be added to the interest costs on the business loans to cover operating costs of the program. There was considerable support for the recommendation of a fixed charge in our committee.
Section 202(a) (3) of the bill provides authority for the Secretary to pay to or in behalf of private business entities, amounts sufficient to reduce by 2 percentage points, interest paid on loans obtained from nongovernmental sources.
If the purpose of this section is to draw capital into areas which have economic possibilities which the administrators of the program are convinced will support long-term employment, a Federal insurance program to insure the loans made by private lending institutions would perform the same function at no cost to the Government. Such insurance could draw capital from central money markets to an area selected for assistance as has been demonstrated in the FHA program.
Mr. HRUSKA. Mr. President, I reserve the remainder of my time. It is my expectation to call for the yeas and nays on my amendment.
Mr. MUSKIE. Mr. President, this provision in the bill is designed as an experiment, the objective of which was well described in the testimony of the Secretary of Commerce before the Committee on Banking and Currency. I read his language on page 11 of the hearings before the subcommittee of the Committee on Banking and Currency:
In addition, the new interest rate rebate provision would provide a new means of bringing more stable and promising business enterprises, which are able to obtain private financing, into depressed areas.
What is proposed is not a subsidy for a business but an inducement for strong and stable businesses to move into an undeveloped area. It is geared not to any supposition as to what may be the need of business for assistance, but rather to what may be the needs of the area for assistance by strong and viable companies.
On page 15 of the same hearings there is found a colloquy which I had with Secretary Connor on this point. I was interested, as I am sure all members of the committee are, in the validity of the device which is included in the bill.
I said this to the Secretary:
The rationale that you gave on page 5 of your testimony for this provision is that some incentive is absolutely essential to attract the sounder and more viable firms into the areas where new industry is most needed.
Now, no one can quarrel with that objective -- certainly not I. It isn't going to help an undeveloped economic area to bring in weak economic units and weak industries to try to build it up. So I wonder if you could build up the record with further comment.
Is this one of the incentives which would indeed attract sounder and more viable firms? What are the reasons why sounder and more viable firms are not as likely to go into these undeveloped areas as we would like to see?
I quoted my question, because I believe my question reflects some of the same concern which the distinguished Senator from Nebraska has reflected in his comments. Secretary Connor's reply was:
Secretary CONNOR. Senator Muskie, a large national manufacturing organization, for example, in considering its expansion plans, has many alternative choices as to where it can locate one new plant and then another and so forth. And it is usual that as part of its planning activity it would be taking various sections of the country into consideration and making comparative judgments as to the relative advantages and disadvantages of locating new plants in many different sections.
Now, in one of these, shall we say, underdeveloped parts of the country, there are some obvious economic disadvantages for such a company locating its plant there. And in the competition with other communities or localities that have a greater infrastructure in depth, or better transportation facilities, or are in a physical location that is closer to the market, one of these redevelopment areas might well lose out in the competition unless there is some kind of added incentive.
The experience in several European countries, particularly Belgium and West Germany, is that if there is some public need for assisting and giving incentives for the location of new industries in locations where there are some problems such as higher rate of unemployment, then an incentive of this kind can be instrumental because a company in looking at the competitive advantages and disadvantages can be attracted to an area where there is, say, a labor surplus and some other advantages that would be helpful in the long run, if it can get some incentive that would offset the immediate economic disadvantages of such an area. We think this is a good experiment to try. We, of course, are not sure of its success because it never has been tried, but after looking at the various types of incentives that would bring these stronger, large national corporations into these areas where their help is needed most, we think this has a reasonably good chance of success.
I then asked the Secretary whether there were other kinds of incentives that were considered to achieve the same objective. The Secretary's reply was:
Secretary CONNOR. Well, other kinds have been considered, Senator MUSKIE, but the ones considered would involve greater financial outlay by the Federal Government. We think that this leverage effect that we obtain from the use of the 2 percentage points with the company putting up its own money will do at least as effective a job as the others and at least cost to the Federal Government.
Senator MUSKIE. Did you test this out as an incentive -- the objective I don't quarrel with, the purpose I don't quarrel with, the need I don't quarrel with, but I am wondering whether the incentive will work. Have you tested it in any way?
Secretary CONNOR. We have had discussions. Of course, something like this can be tested only in the facts of a particular situation by a company that is considering its location in one of these redevelopment areas in competition with an area where greater public services and facilities are available.
I have quoted from the hearing record because I think this makes the best case that can be made for this provision of the bill. It is an experiment worth trying.
The distinguished Senator from Nebraska has raised the alternative, which is included in the supplemental views of the minority, that of an insurance program. This does not meet the need which this device is designed to serve, because the companies we are discussing do not need credit insurance to obtain credit. We are talking about companies that can get credit on their own, because they would not qualify under the industrial loan provisions of the bill. There is no appeal to them under any of the other provisions of the bill, nor under the proposal the Senator from Nebraska has advanced.
The only device we have to deal with this particular problem is the one that is before us. It is the one which was considered with others, as the Secretary said, by the Department in preparing the legislation. This was the one involving the least cost to the Government and which, at the same time, would serve the objective.
The cost to the Government is reflected in the fact that if it works, an expenditure of $5 million will generate $250 million in private funds to stimulate their movement into these underdeveloped areas.
There has been a great deal of discussion about the claim that the Federal Government cannot create prosperity. I agree. The Federal Government can help stimulate the private sector to move into those areas.
After considering everything carefully, in the light of the argument presented to us by the Secretary, we also felt that it was an experiment worth trying. That is why we bring it to the Senate and urge its adoption.
Mr. PROXMIRE. Mr. President, will the Senator yield to me?
Mr. MUSKIE. I yield to the Senator from Wisconsin.
Mr. PROXMIRE. Is it not true also that Secretary Connor was able to give a specific example of how this idea has worked. I asked him whether it would work with a big corporation such as General Motors, and whether it would be an incentive to General Motors. He said:
Secretary CONNOR. You mentioned General Motors and in the public announcement they made about the location of one of their plants in Antwerp, Belgium, it was noted that one of the factors they took into consideration, although no indication it was the determining factor, nevertheless the location of the plant in Antwerp took into consideration this 2-percent incentive.
That statement by the Secretary is found at page 38 of the hearings before the subcommittee of the Committee on Banking and Currency.
This is something that has been tried by American corporations, as the Secretary said, in countries overseas.
Mr. MUSKIE. Yes. In addition, I point out also that the Secretary comes from the field of big business. In our discussions he spoke as a businessman operating a big company, and the question was raised with him whether in that capacity he thought this was a worthwhile incentive to try to attract a viable company. His answer was in the affirmative.
Mr. CARLSON. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield.
Mr. CARLSON. I have a comment to make with reference to the Secretary's statement at page 15. 1 shall not read all of it, because the Senator has read it: "If it can get some incentive that would offset the immediate economic disadvantages of such an area."
I emphasize the word "immediate." That is the word that concerns me. Does this mean that the company will get a 2-percent subsidy for as long as it is operating, or is there a limitation?
Mr. MUSKIE. The limit is 10 years.
Mr. CARLSON. I thank the Senator.
Mr. DOUGLAS. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield to the Senator from Illinois.
Mr. DOUGLAS. I am sorry that our good friend from Nebraska has disturbed the happy harmony which has characterized our proceedings up to this moment by striking a body blow at one of the essential features of the bill. The inducement of meeting 2 percent of the interest cost on investments in depressed areas is one of the most vital features of the bill. It would result in a potential maximum investment of private capital with a minimum of Government expenditure.
The 2 percent interest inducement means that for an expenditure of $2 million we can hope to induce $100 million of private investment. The proposal would be authorized for 5 years at $5 million a year. We believe $5 million would induce $250 million of investment. Carried out over 5 years, it would mean a potential investment of $1.25 billion in depressed areas. This is really the most economical way to get a large volume of private capital to start producing and to employ people in areas where there is high and persistent unemployment.
Mr. BASS. Mr. President, will the Senator from Illinois yield to me?
Mr. DOUGLAS. I yield.
Mr. BASS. I should like to ask a question of the Senator in charge of the bill. I should like to find out if there is to be a vote on the pending amendment today, and, if so, at what time.
Mr. MUSKIE. We are pressing for as early a vote as we can.
Mr. MANSFIELD. In view of the commitment made yesterday, when we have the vote, it will be the last vote.
Mr. BASS. The commitment was that the Senator would try not to have any votes after 2 o'clock.
Mr. MANSFIELD. That is correct. There will be a little flexibility.