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public bodies for hospital facilities. The administration submitted 

 legislation proposing guaranteed loans for private hospitals and, in 

 order to avoid guaranteeing tax-exempt bonds, direct loans for public 

 bodies. Yet both the Senate and House committees initially recom- 

 mended Federal guarantees of tax-exempt bonds. 



In the ensuing congressional consideration of that bill, there was 

 no disagreement between the administration and the Congress about 

 the problems of guaranteeing tax-exempt bonds, but the committees 

 felt that guaranteed loans to public bodies were essential to assure the 

 availability of credit to them. Under those circumstances, the ad- 

 ministration agreed to a Senate amendment to the House-passed bill, 

 which was subsequently enacted in Public Law 91-296. That amend- 

 ment provided that the obligations could be purchased by the Federal 

 Government from a revolving loan fund then resold in the private 

 market with a guarantee. 



^Mien resold, however, the interest on any obligations guaranteed 

 will be subject to Federal income tax. Similar provisions were later 

 enacted by the Congress for the rural water and sewer loans of the 

 Fanners Home Adininistration. Public Law 91- -617. A somewhat 

 different approach was taken for new connnunity loans guaranteed 

 by the Department of Housing and Urban Development, Public Law 

 91-609, and in that act, the new community obligations can be issued 

 directly in the market by the public bodies on a taxable basis. Thus, 

 the Congress in 1970 provided for the first time for Federal guar- 

 antees of taxable municipal obligations and did tliis in three separate 

 acts. 



Another approach to providing credit assistance to local bodies is 

 our Environmental Financing Authority, our EFA proposal. EFA 

 would purchase tax-exempt obligations issued by local public bodies 

 to finance their share of construction costs of waste treatment facilities 

 eligible for EPA grants. EFA could purchase only obligations guar- 

 anteed by EPA and only if the issuing public body is unable to borrow 

 in the market on reasonable terms. EFA would finance its purchases 

 hj selling its own securities in. the market, and appropriations would 

 be authorized to cover the difference between EFA's taxable borrow- 

 ing rate and its tax-exempt lending rate. 



The E_FA legislation, S. 1015, permits a more efficient method 

 of financing than the approach taken in the three bills enacted last 

 year. EFA, as a corporate body, has the power to issue its own obliga- 

 tions, has the advantages of consolidated financing and an ability to 

 adjust the timing, maturities, and other terms of its issues to changing 

 market conditions, and thus minimize its borrowing costs. 



Also, since there is an established market for the securities of Fed- 

 eral agencies such as EFA's, EFA would be able to raise quickly the 

 funds necessary to meet the urgent needs for waste treatment facilities. 



While the EFA approach may be the most efficient method, short 

 of direct Treasury financing, of providing Federal credit assistance 

 for certain programs, the administration considers that the use of 

 this approach beyond assisting the financing of waste treatment 

 facilities is not justified at this time. In this connection, I will stress 

 our objection to the use of the EFA approach on a program-by- 

 program basis, the inevitable result of which would be to move toward 

 the establishment of a number of small federally sponsored agencies, 

 hence inefficient, competing with each other in the capital markets. 



