126 



In conclusion, we believe that Federal credit assistance sliould be 

 authorized only for programs of high national priority and only for 

 borrowers who are unable to meet their needs in the private financial 

 markets. In those cases where the need for Federal credit aid is 

 clearly established, we believe that the financing should be conducted 

 in the most efficient manner available and in the taxable rather than 

 in the tax-exempt market. 



I would like to stress again that legislation will be proposed to 

 facilitate overall review and coordination of both the fuiancial and 

 budgetary aspects of the various Federal credit programs whicli 

 are financed outside the budget. Until the enactment of this legis- 

 lation, we recommend against the establislnnent of additional pro- 

 grams of Federal credit aid except for the most urgent credit needs. 



Mr. Chairman, this concludes my formal remarks. I would be glad 

 to answer any questions. 



Senator Stevens. Thank you very much Mr. Secretary. 



1 could ask a semiembarrassing question since I support both the 

 bill and a proposal to help Lockheed. I assume what you are saying 

 relative to the Lockheed situation is they do not have any private 

 money available. 



Mr. Weidenbaum. I was wondering when you said embarrassing, 

 whether you meant embarrassing to me or you. 



Senator Stevens. Embarrassing to me. I think we ought to help 

 Lockheed, but I think we ought to do this, too. I am just wondering 

 how do you justify the approach to aid Lockheed in terms of the 

 private guarantee of their securities and say, at the same time, 

 that this is an unreasonable one ? 



Mr. Weidenbaum. Of course, we are still drafting the Lockheed 

 legislation ; but, in this case, we are talking about guaranteeing tax- 

 exempt securities, and in the Lockheed case everytliing is fully taxa- 

 ble. So our basic Treasury objection here is not to the guarantee, but 

 to the guarantee of tax exempts. 



The other point that I make in my testimony is that, like our EFA 

 proposal, there should be a demonstration that private credit is not 

 available. That, of course, clearly is the case in the case of Lockheed. 

 Private credit is not available without a loan guarantee. 



Senator Stevens. I think that could be demonstrated for Lock- 

 heed. But I think it could be demonstrated for these small munici- 

 palities or local governments equally as well. Doesn't the nontaxable 

 status of the local governments derive basically from their situation 

 as a government entity as opposed to Lockheed, which is a normally 

 taxable entity ? 



Mr. Weidenbaum. Well, the key point I tried making in my testi- 

 mony is that the benefit to the State and local governments issuing 

 the security, which is an important benefit we want to maintain, 

 is far less than the cost to the Treasury. It is not 1 for 1. In other 

 words, as I point out in the case in my testimony, where a State 

 saves 2 percent of interest through the tax-exempt feature, the Treas- 

 ury loses 3% percent of tax revenues on interest. 



Senator Stevens. You made a very valid point. The only problem, 

 it would seem to me, is that we ought to be able to find some way 

 to make the impact of the guarantee of tax-exempt securities issued 

 by local governments equal on the Treasury without regard to who 

 purchases them. 



