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program. That is all. It is a practical matter. Yet we do have a 

 disagreement in one sense, and that is that I commend the adminis- 

 tration for what it has done in tenns of recognizing the needs of 

 local governments in terms of revenne sharing. But I do not think 

 that there has been an adequate treatment of increasing the ability 

 of small local governments to finance their own programs without 

 the necessity of Federal grants and aids. We have, I believe, an 

 efficient way of doing this through guarantee, assuming as we do 

 that you have made a very valid point about the cost to the tax- 

 payer, the difference between purchaser "A" and purchaser "B" and 

 their own income tax bracket. But I think we ought to be able 

 to work that out and we would truly welcome it if j^ou could do that. 



Do you have any last comment ? I must tell you that I would like to 

 recess for just 5 minutes. I have to go up for a quorum so they can 

 report out one of my bills. 



Mr. Weidenbaum. I just want to say that the Treasury would be 

 pleased not only to work with your staff but with you or members 

 of the committee and the staff, and if you have further questions, 

 please do not hesitate to call upon us. We would very much like to hi 

 helpful to you. 



Senator Stevens. I think that is a very constructive attitude and 

 I feel certain we can work it out because I am sure we want to 

 have a Federal guarantee of these and permit the local governments 

 to go out into the bond market themselves. Whether the Congress as 

 a whole agrees is another matter. 



We will take about a 5 -minute recess. 



[The statement follows:] 



Statement of Hon. Mtjrrat L. Weidenbaum, Assistant Secretary of the 

 Teeasxtry fob Economic Policy 



Mr. Chairman, I am pleased to be here today to express the views of the 

 Treasury Department on S. 582, a bill to establish a national policy and develop 

 a national program for management, beneficial use, protection, and development 

 of the land and water resources of the Nation's coastal and estuarine zones. 



The Administration has provided this Committee witli comments on S. 582 

 and its relationship to the legislation proposed for the Administration, the Na- 

 tional Land Use Policy Act, which has been introduced in the Senate as S. 992. 



My comments will be addressed to the issues raised by the provision in 

 S. 582 which would authorize Federal Government guarantees of obligations 

 the interest on which would be exempt from Federal income taxation. 



S. 582 would add a new title III to the Act of October 15, 1966, and the 

 proposed new section 307 would authorize the Secretary of the Interior to 

 , guarantee obligations issued by coastal States for the purposes of land acquisi- 

 tion, or land and water development and restoration projects. The total amount 

 of guaranteed obligations outstanding at any time could not exceed $140 million. 



As stated in the Treasury Department's report of April 14, 1970 to Chairman 

 Magnuson on S. 3460. 91st Congress, which is similar to S. 582. the Treasury 

 Department opposes Federal guarantees of tax-exempt obligations because of 

 four fundamental problems raised by such guarantees : 



1. The guarantee of tax-exempt obligations is an inefficient form of subsidy 

 since the Federal tax revenue loss exceeds the interest savings to the borrower 

 because of the tax-exempt feature. For example, a guaranteed bond might sell 

 in the current market at 5 percent on a tax-exempt basis and 7 percent on a 

 taxable basis, in which case the tax exempt feature would result in a savings 

 to the borrower of 2 percent. Yet an investor in the 50 percent Federal income 

 tax bracket would net only 3*4 percent after taxes on a 7 percent taxable bond. 

 Thus, only 2 percent of the 3% percent Federal revenue loss would be realized 

 by the borrowing public body. 



