127 



That is a technical problem. But, it does seem to me that the guaran- 

 tee route in permitting the local government agencies to issue their 

 bonds, which is a very simple matter of guarantee, cuts clovrn — in 

 addition, you have not taken into account the total cost to the Federal 

 Government of the programing and the controls that we have over 

 local governments through our national bureaucracy and the cost of 

 that administration in terms of comparing the cost to the Treasury. 

 Certainly, it may cost 2 percent as opposed to 31/2 percent, depending 

 upon the tax bracket. But what about the 25 percent of the program 

 that goes to the administration costs if we issue all the bonds from the 

 Federal Government and then turn around and have approval and 

 everything else placed on the local governments ? 



Mr. Weidensaum. I suggest, Mr. Chairman, that the items I cite 

 in my testimony are examples of ways of achieving the objective 

 of getting needed capital funds into State and local governments 

 without an excessive cost to the Federal taxpa3^er. We have no 

 quarrel with the objective to put States and localities in a strong 

 position in terms of raising the capital they need for their high 

 priority programs. 



In other words, in the system in the Farmers Home Administra- 

 tion program I described, or the HUD program, the same benefit 

 in terms of low interest costs is available to the State and local 

 government and other public bodies, and yet the cost to the Federal 

 taxpayer is much less than contemplated under this bill. The dif- 

 ference, of course, is that the benefit to high bracket investors is 

 reduced. 



Senator Stevexs. I think what we are trying to work out is a 

 program whereby we can get a Federal subsidy to local governments 

 through a guarantee of their securities. This is not the same as the 

 housing program or the new communities program, with which I 

 am very familiar. Again, you are dealing primarily witli private 

 corporations which would be taxable anyway, and the subsidy there 

 is in the guarantee of the security in the first instance. We would 

 like to work out a program. Would the Treasury Department be 

 willing to work with our staff to see if we could work out a program 

 which would involve a uniform tax treatment of securities of local 

 government which, in fact, did include a subsidy but which would 

 be a constant subsidy no matter who purchased the bond? 



Mr. Weidenbaum. The Treasury staff certainly would be very 

 pleased to work with your committee, Mr. Chairman, to assist in 

 developing proposals which would meet those objectives. I really 

 do not want to commit myself on the specific recommendation that 

 we might develop, keeping in mind the need to raise funds at State 

 and local levels, coupled with the need for equity — and I have to 

 emphasize that — equity to the Federal taxpayer. 



Bear in mind, please, Mr. Chairman, this is the administration 

 that has been urging the Congress to expand Federal financial assist- 

 ance to State and local governments in a very major way. We are 

 sensitive to the financing problems faced by States and local gov- 

 ernments. 



To be very personal, I am the man in the Treasury Department 

 who developed the general revenue-sharing proposal jointly with 

 State and local officials throughout the countiy, and spent most of 



