Mr. RUPPE. Are all of the financial obligations of the Corporation in any of the borrowings from the Treasury or any capital derived from any source whatsoever, all subject to the appropriations review of the Congress?

Mr. CASSELMAN. I would defer to the Treasury on the technicalities of that. My understanding is that it would be, but again I must defer to Treasury on the specifics.

Mr. RUPPE. Is there anyone else here that would care to comment on that?

VOICE. The answer to that question, Congressman, is "Yes."

Mr. RUPPE. No obligations whatsoever can be incurred today or in the future?

VOICE. That is right.

The CHAIRMAN. To keep the record straight, I think we'd better confine the answers to witnesses here and to other witnesses asked the - the same question.

Mr. CASSELMAN. I believe the gentleman who just spoke to be the Treasury witness, so he should know.

Mr. RUPPE. I notice that the Corporation can, among its top staff people and director, initiate such salary schedules as they choose or feel are suitable for, I presume, the encouragement of trained people and experienced executives for implementation?

Mr. CASSELMAN. Yes, sir. The Executive Director and the two other officers of the Corporation, reading from the language of the bill, "may be compensated without regard to the provisions of title 5." The other employees would fall within the competitive service and receive general schedule.

Mr. RUPPE. Is an open salary schedule for employees of the Corporation of this type a normal part of typical legislation?

Mr. CASSELMAN. I can't testify to that, Congressman. I would say, because of a desire to keep the seed money to an absolute minimum, that there would be no exorbitant salaries to be paid.

The Director, in our costing out of the first year of expenses, would be compensated at $29,678, as a target figure.

Mr. RUPPE. Thank you, Mr. Chairman.

The CHAIRMAN. Gentleman from Kansas.

Mr. SEBELIUS. I have no questions, Mr. Chairman.

The CHAIRMAN. Let me call this language to you. The bill provides that the Corporation do nothing which would interfere with or be incompatible with Pennsylvania Avenue national historic style.

Now, does this mean that in case of conflict, the Secretary of Interior would have a last word?

Mr. CASSELMAN. There is language beginning on page 11, line 4, Congressman, which states that the Corporation may not-this is new language, new from the prior bill-initiate or authorize any action that would diminish or dilute the authority and responsibility of the Secretary of Interior with respect to the National Historical Site area. In other words, the Corporation can do nothing inconsistent with the development of the national historic site portions of the area outlined in the bill.

The CHAIRMAN. One other question. This legislation, of course, provides that the plan be submitted to Secretary of the Interior and the government body in the District, and the Planning Commission for approval or disapproval or modification.

Now, do you interpret this to mean that either one of these would have a veto power?

Mr. CASSELMAN. Yes, sir. I would interpret that to be a veto power; and in fact, the development plan may not go forward-referring now to page 11, line 18-from the Secretary of Interior, the District government, or from the National Capital Planning Commission to the Congress until such time as the plan may have been approved. If it's not approved, it does not move; and hence, that has the effect, in my mind, of being a veto.

The CHAIRMAN. In other words, if we pass the legislation, the plans are worked up, we'll say the governing body of the District doesn't approve it, then it's vetoed.

Mr. CASSELMAN. Yes, sir; that's my reading of it. However, I would call attention to the language respecting modifications of the plan, and I would hope, of course, that nobody of the District of Columbia government would veto it nor would any other body in the section I've just cited.

The CHAIRMAN. Would this remain then if one of these bodies, say the government of the District, took a positive position, it's got to be this or else you would have to give in to them or no plan?

Mr. CASSELMAN. Again, sir, I would hope that the Corporation would seek modification of the plan.

Mr. TAYLOR. Now, that concerns me because the responsibility of the governing board of the District is to look out for the people of the District. The responsibility of Congress is to look out for people of the Nation and sometimes there's going to be a certain conflict of conclusions.

I just hate to see us set in motion in a Federal plan wherein the District would have the last word and not the Congress.

Mr. CASSELMAN. Well, that was certainly not the legislative intent. It was not the intent to provide a mechanism for the prevention of a plan going forward. Our thinking is that we will work together in a cooperative endeavor. The board of directors is composed of both private members and public officials of the Federal Government, and the District government, and together we can work out a plan which we can put before the Congress and which Congress hopefully will have no objection to.

Mr. TAYLOR. Well, if there are no other questions, we thank you, Mr. Casselman, for your testimony.

Mr. Dick Adams, Special Assistant to the Secretary of Debt Management, U.S. Treasury.

STATEMENT OF RICHARD V. ADAMS, SPECIAL ASSISTANT TO THE SECRETARY OF THE TREASURY (DEBT MANAGEMENT); ACCOMPANIED BY FRANK CAVANAUGH, DEPARTMENT OF THE TREASURY

Mr. ADAMS. Thank you, Mr. Chairman. I have my associate, Frank Cavanaugh, from the Treasury with me today.

Mr. Chairman, I am pleased to be here today to express the views of the administration on the borrowing provisions of bill H.R. 10751, the Pennsylvania Avenue Bicentennial Development Corporation Act.

Before that I should, perhaps with your permission, speak briefly to the subject of the Treasury Building itself which seems to have been the subject of a great deal of discussion here today.

On February 23 of this year, the Department of the Interior, the Secretary of the Interior, declared the Treasury Building qualified as a national historical landmark under the Historic Sites Act of 1935. It was previously included on the National Register of Historic Places and deemed a building of great historical importance which contributes significantly to the national cultural heritage, as well as to the District of Columbia and its environs, and one which must be preserved and the words "must be preserved" are underlined.

Further, I understand that the Treasury Building is one of the three oldest public buildings in Washington. Mr. Cavanaugh tells me that President Ulysses Grant held his inaugural ball in the Cash Room area. There are some of the things I think are important in considering the historic significance of the Treasury.

Mr. TAYLOR. Do you have information as to when it was constructed?

Mr. ADAMS. In the 1830's On this subject President Nixon has said that President Jackson built the present Treasury Building at Pennsylvania Avenue and 15th Street and, although ostensibly blocking passage from the White House to the Capitol, the Treasury, in fact, forms a necessary buffer to the residential character of the White House. That's a statement by President Nixon on September 8, 1970; so he has expressed himself on the subject. I must say, as a day-to-day inhabitant of the Treasury Building, it's an elegant building and I think a fine one to work in.

Mr. SKUBITZ. When did you say the Secretary declared it a national historic landmark?

Mr. ADAMS. The Secretary of the Interior's letter was dated February 23, 1972.

Mr. SKUBITZ. To serve as a buffer, is that correct?

Mr. ADAMS. The President's statement was September 8, 1970. And Secretary Morton's decision to make it an historic site was this year. I didn't mean to imply a relationship between the President's statement and the Secretary's decision.

Now, on the subject of the borrowing provisions of H.R. 10751, I have a statement which I would like to read.

Subsections (9) and (10) of section 6 of the bill would authorize the proposed development corporation to borrow money either from the Treasury Department or from the private market. We have no objection to the proposal to borrow from the Treasury, but we strongly recommend against the proposed authority for the Corporation to borrow in the private market. Such market borrowings would clearly be substantially more costly than borrowings from the Treasury, and the additional borrowing costs would be borne by the Federal taxpayer. While the Congress has authorized a number of Federal and federally sponsored agencies to borrow in the private market to finance privately owned or self-supporting business-type activities, market borrowing authority is not authorized for Federal agencies performing governmental functions financed by the general taxpayer.

Subsection (g) of section 2 of the bill states a congressional finding "that the powers conferred by this Act are for public uses and purposes

for which public powers may be employed, public funds may be expended, and the power of eminent domain and the police power may be exercised, and the granting of such powers is necessary in the public interest."

The public character of the proposed development corporation is also evident from the facts that the Corporation would be included in the Federal budget, would be wholly owned by the Government, and would be conducting Government functions with Government employees and with appropriations from the general fund of the Treasury. We believe that every effort should be made to minimize the costs to the Government of financing such an activity.

Here I might digress for a minute to mention the fact that the legislation does subject the Corporation to the congressional appropriations process. It does so in section 6, subsection (9)—which we propose to delete but move the provision providing for congressional appropriations to section 6, subsection (10). Also, the appropriations process is brought into play in section 15, which subjects the Corporation to the Government Corporation Control Act and requires in effect that the budget of the Corporation be submitted to Congress for approval. So it is clearly within the authority of the Congress to control the expenditures and borrowing of this Corporation.

It has been estimated that the Corporation would borrow approximately $125 million between the time of enactment of this legislation and July 1, 1981, and the bill provides that the maturities of such borrowings shall not be in excess of 40 years.

The actual cost of market borrowing by the Corporation would depend upon conditions in private financial markets and or such market factors as the amounts, maturities, timing, and other terms and conditions of each borrowing. However, based on our experience with other direct and guaranteed borrowings by Federal and federally sponsored agencies, the interest rates which the Corporation would be required to pay on obligations issued in the private market would probably be at least a full percentage point above the Treasury's current borrowing cost.

Assuming that the Corporation issues 8-percent bonds in the amount of $125 million amortized over a period of 40 years, the Corporation would be required to pay an extra $43 million in interest because of the additional 1 percentage point on market borrowings as against borrowings from the Treasury. Thus, since the Corporation's outlays would be included in total Federal budget outlays regardless of whether it borrows from the Treasury or from the market, actual Federal outlays over the life of the Corporation's borrowings would be increased by $43 million. If you discount this $43 million to its present value the cost would be $14 million.

In addition to the extra interest costs, the Corporation would also incur additional personnel costs because of the debt management functions which the Corporation would be required to perform in connection with its private market borrowings. Preparation of each market financing over the authorized 9-year-borrowing period would require a considerable financial expertise and a considerable expenditure of time by the staff and officers of the Corporation. We believe these essentially debt management functions of the Federal Government should be performed by the Treasury Department, which is already equipped to do the job.

Another significant cost item would be the payments by the Corporation to private financial advisers, bond counsel, and underwriters necessary to successful placement of the Corporation's securities in the market. While these costs vary considerably, they may well average from one-half to 1 percent of the total amount borrowed, or from $625,000 to $1,250,000 on the estimated borrowing of $125 million. Such payments would not be required if the Corporation were to borrow only from the Treasury.

In short, Mr. Chairman, market borrowing by the Corporation would be very costly to the Government, and we see no offsetting benefits from such borrowings.

We are also concerned with the undesirable precedent which would be established by enactment of market borrowing authority for the proposed Corporation. Because of the marketing and other problems resulting from the present proliferation of borrowing activities by Federal agencies, largely in connection with loan guarantee programs financed outside of the Federal budget, Secretary Connally submitted proposed legislation to the Congress in December 1971 to establish a Federal financing bank to coordinate and consolidate such borrowings. We believe that our overall efforts to achieve greater efficiency in the financing of Government programs would suffer a setback if the Congress were now to authorize market borrowings by Federal budget agencies financing subsidized activities.

Consequently, the Treasury Department has submitted specific amendments to your committee which would delete the market borrowing authority contained in subsection (9) of section 6 and make conforming changes to subsection (10) so that the Corporation would be authorized to borrow from the Treasury in the manner proposed by the administration and provided for in an earlier version of this legislation, H.R. 18677, 91st Congress.

If amended, as suggested, the Department would have no objection to the financial provisions of the bill.

Thank you, Mr. Chairman.

If there are questions, we would be pleased to answer.

Mr. TAYLOR. Thank you, Mr. Adams. I think you and the other witnesses have convinced us of the wisdom of striking out subsection (9) of section 6 which permits borrowing on the market. I'm still concerned as to regard with borrowing from the Treasury.

Explain the procedure as to the steps that would be taken in order that the Corporation borrow money from the Treasury.

Mr. ADAMS. The first step would be appropriations action from Congress authorizing the borrowing and then it would be a simple matter for the Corporation at its meeting of the Board of Directors to indicate that the borrowing was required by a vote of

Mr. TAYLOR. But normally the Corporation would make its request to the Treasury. It would go through the full budget process, consented to by the Office of Management and Budget, be a part of the budget to Congress, and it would have to be approved by the Appropriations Committee in the Congress.

Mr. ADAMS. That is correct.

Mr. TAYLOR. And then the money would be loaned by the Treasury? Mr. ADAMS. The Secretary of the Treasury would be

Mr. TAYLOR. It could be handled on an annual basis?