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Now that formula is agreed to in a contract between the city and AEC, which will expire on June 30, 1969.
Chairman PASTORE. As far as that is concerned, all we are asking for is a continuation of that contact ?
Mr. ERLEWINE. Whether we continue that formula or not has not been decided. It will be open to negotiation again with the city as to whether that is an appropriate formula or not.
Chairman PASTORE. What is the guideline for determining what is fair and not fair?
Mr. ERLEWINE. These are set out basically in the statute itself under section 91 a.
Chairman PASTORE. So it is not a case of tremendous dispute ?
Mr. ERLEWINE. No. There are differences of opinion. I would not want to say there are not.
Chairman PASTORE. I suppose they are out to get as much as they can, and you are out to cut it down as much as you can, and somewhere in between you do equity and justice.
Mr. ERLEWINE. We try to achieve reasonable justice.
Mr. JOHNSON. Mr. Chairman, it should be made clear that there is nothing in the proposed bill that states what the numbers will be. This is yet subject to negotiation.
Chairman PASTORE. But it is within the range of about a million and a half, up or down between a million and a million and a half?
Mr. ERLEWINE. Yes, sir.
PROGRESS AT OAK RIDGE TOWARD FINANCIAL INDEPENDENCE
Senator GORE. Mr. Erlewine, what efforts have you witnessed with respect to the efforts of Oak Ridge to achieve financial independence?
Nr. ERLEWINE. I think we can say without any reservation, Senator, that they have made a very determined effort in regard to the management of community affairs, the handling of taxes, and the efficiency of the Government; that we have no fault to find in their effort to make themselves self-sustaining.
Senator GORE. You describe their efforts as determined and commendatory. What are the actual figures involved?
PERCENTAGE OF AEC ASSISTANCE TO OAK RIDGE DECLINING ANNUALLY
Mr. ERLEWINE. Taking current levels, AEC assistance constitutes approximately 26 percent of the city's revenues. This has been a declining percentage over recent years, so that it has been a decreasing percentage. But based on information that we have to date for the coming years we cannot say that we can foresee the city becoming self-sustaining, independent of AEC for some years.
Senator GORE. You say it has been a declining percentage. Can you give us an order of that?
Mr. ERLEWINE. Yes, sir. In 1962 the AEC payment was 28.4 percent. By 1966, it had become 23.6 percent. I believe I misquoted and said 26 percent. It is 23.6 percent.
Senator GORE. How has the city or the people of the community achieved this greater degree of self-reliance ?
Mr. ERLEWINE. They have gone about it in a number of ways. In the area of the tax base, itself, of course the community has continued to grow and new houses have been built. They have added to the tax base. In addition, the community has recently reappraised the value of its property that added some 17 percent to the tax base. They have also sought to promote a commercial industrial base for the city, and in this the Commission has cooperated with them, trying to attract industry to the area to add to the tax base.
Senator GORE. The last time I was there, and I think it is still that way-I expect to be there again next Tuesday—a great many of the buildings that the city is using are the old World War II wooden-type buildings. It seemed to me that there was need for some urban renewal, so to speak. With this small payment on the part of the Commission, how will the city go about building new community facilities?
Mr. ERLEWINE. The city of Oak Ridge does not have the same legal limiting problem from the standpoint of being able
to bond itself as does the city of Richland. So, a very likely way would be selling of bonds to finance municipal improvements, which the city
Senator GORE. I notice you say that Oak Ridge has increased its assessed valuation for tax purposes. Has it not also increased its tax rate?
Mr. ERLEWINE. It has increased its tax rate.
Mr. ERLEWINE. Primarily upon the residential property as it applies to the tax base of the city.
Senator GORE. The overwhelming proportion of the property there is purely residential, is it not? Mr. ERLEWINE. Yes.
OAK RIDGE MUNICIPAL BOND ISSUE
Senator GORE. You envision that Oak Ridge will be selling bonds, revenue bonds I suppose
Mr. ERLEWINE. Yes, sir. However, strictly speaking these will be general obligation bonds for which the full credit of the city is pledged and which will be retired through the city's general revenues.
Senator GORE (continuing). To improve its community facilities. Do
you think that this 10-year proposition in the pending bill would have an effect upon the ability of the city to sell its revenue bonds?
Mr. ERLEWINE. I think it would. I think that just the bill alone would not be the complete answer. There would be the need to do what we have done under present law, negotiate an agreement with the city which would provide a greater knowledge of what the assistance would be. Based on that, it would be a basis for planning and understanding of the AEC contribution. Mr. Johnson. Senator, I would like to touch on that, if I may. Senator GORE. Yes, Mr. Commissioner.
SALES OF MUNICIPAL BONDS
Mr. JOHNSON. The matter of bonding capacity of course comes in, and if the city is willing to put its bonding capacity on the line, in other words, guarantee the bonds in that way, it probably would have no difficulty selling them. The city of Richland is a little bit different, because their bonding capacity is limited. We may have to make it clear that we will provide support in case of need in order for them to get favorable interest on the bonds.
Senator GORE. I was thinking, Mr. Commissioner, of a possible purchaser of a bond, say, in New Jersey or New York. Would this cutoff date of aid, though it is not in fact a cutoff, it is an authorization to the Commission to continue to assist these cities for a period of 10 years--nevertheless, a man in New York who was thinking of buying á municipal bond might look at that and say, “What is going to happen to my bond at the end of 10 years?"
I am just wondering if that would have some effect.
Chairman PASTORE. I think Senator Gore has brought up a very important point here. Have we had any experience at Oak Ridge with reference to selling municipal bonds thus far?
Mr. ERLEWINE. Yes, sir; they have sold bonds.
Mr. WENDE. I think it is around 3.7 percent, in that vicinity. They sold about $212 million worth as the first step in their school program recently.
Senator Jackson. What grade bond are you talking about?
Mr. McMULLIN (City Manager of Oak Ridge). This is a grade A bond.
Chairman PASTORE. That is not bad.
Senator Jackson. When was that sale accomplished? That would probably answer the chairman's question. Obviously the market now and as of a year ago is very high on interest rates. So when was the sale?
Mr. WENDE. 1966. Senator JACKSON, What time in 1966 ? Mr. McMullin. If I may comment, we had a sale on February 8. The interest rate was 3.66. To date the syndicate still has $650,000 they have not been able to dispose of. (See p. 112.)
Senator GORE. I raise this question, Mr. Chairman, because since this 10-year proposition has been suggested the syndicate has not been able to complete the sale. Oak Ridge is, I won't say "direly," but almost direly in need of new community facilities. You have been there and seen these old wooden structures that they are in. As I understand it, the city has been advised that they are unable to sell any more bonds
with this, I keep trying to call it a cutoff date. It is not that, and the Commission does not intend it as that, and I am sure that the Congress does not, but I am not sure that the purchaser would not be fearful that this would be a cutoff date. I think this can be gone into farther when the municipal authorities who are with us today come up to testify.
Please understand, Mr. Commissioner, and Mr. Administrator, that I raise no complaint with the Commission. The Commission and Oak Ridge have had a very happy and fine relationship. Oak Ridge has made very great progress from the time it was a wholly owned government city until now. I think the city has the highest percentage of homeownership in America. While all the houses used to look alike, these women have gotten into their husbands' pocketbooks and into the lending institutions and they have remodeled and put out shrubs and flowers
. And you drive through Oak Ridge and they look like different homes, so many of them have an entirely different appearance.
They have increased the tax rate, until, as Mr. Erlewine says, there has been a steady reduction on the percentage of municipal revenue that comes from the Commission. Yet, with 99 percent of its tax base in homes and its entire industry, practically its entire industry, owned by the Government, it is just not possible for it to be in the foreseeable future fully sustaining and maintain the type of schools that are necessary to attract the type of people you have to have to have a successful
Unfortunately, the entire State is unable to have the type schools you have at Oak Ridge. I regret this. Yet from the standpoint of the Commission and this committee, it is absolutely necessary to maintain a high level of educational opportunity there, or else the scientists and engineers that we simply have to have will not go and live there.
Would you mind if I interrupted to ask Mr. Joyce, the city attorney, or somebody back here to tell us what is your recent advice with respect to the sale of general obligation bonds by the municipality?
Chairman PASTORE. Why don't you come forward, sir? Give us your name.
Mr. JOYCE. My name is Eugene Joyce. The bonds, as Mr. McMullin has said, were sold in February of Senator JACKSON. I thought he said February 1966. Mr. MCMULLIN. February 8, 1967. Mr. JOYCE. Let me explain the differential with reference to the interest rate. At that time a superficial look at the community by Standard & Poor gave us a good rate. As a result, the bonds sold well and sold at an appropriate time for the interest rate and we had a very fine experience there. But the group that purchased them, when they went out to sell them, found a completely different climate. As a result, the $2.5 million that were purchased—they had great difficulty in selling them to the extent that $650,000 of them cannot be sold. This information was not revealed until just the other day. We received this from the organization Henderson, Few & Co. in Atlanta.
(Correspondence on this subject follows:)
HENDERSON, FEW & Co.,
Atlanta, Ga., August 18, 1967. Hon. Mayor and Members of the City Council, City of Oak Ridge, Oak Ridge,
Tenn. GENTLEMEN : As you know, on February 8, 1967, our firm managed an account that purchased $2,500,000 Corporate Purpose Bonds issued by your City. As of this date, August 18, we have $640,000 bonds still unsold.
I have been asked by Mr. Robert D. Grewell to comment on (1) the stability of your tax base; (2) how the City's borrowing power is affected by the fact that it is a Federally owned, one industry town; and (3) what effect the poor merchandising results of the last issue of Oak Ridge bonds will have on the saleability of your coming bond issue,
The stability of your tax base, of course, speaks for itself. As I remember, Oak Ridge had an assessed value at that time of approximately $90,000,000, and owed only $235,000 in general obligation debt, which gave you a direct debt ratio to your assessed value of only 3%; this being one of the very lowest debt ratios of any city in the country. Although these figures, on their face, are very impressive, and the fact that the City owns its water, sewer, and electric systems debtfree, the economy of Oak Ridge is 100% Federal Government controlled. Our experience in the past has been that it is extremely difficult to market long term debt of any Federally impacted area, for example, Huntsville, Alabama and Smyrna, Tennessee.
Recent proposed and actual cutbacks in Federal spending make long term investments on Federally owned, one industry towns much less attractive than cities with more diversified industry.
It is my understanding that Congress is going to debate the extension of your current agreement wtih the Atomic Energy Commission to FY 1979. From an investor's standpoint, it is extremely difficult to justify the purchase of securities issued by a city that mature in 1994, for example, when the basis for their entire economy may be legislated in or out in 10 years.
In my opinion, in order for your City to be able to come to the market and borrow money at a livable interest rate, your agreement with the Atomic Energy Commission should be extended through the time that you have any debt outstanding.
I am not at all sure this is the type of information you want, but I hope it will be of some service to you. Very truly yours,
ROBERT P. FEW.
IMPACT ON BOND MARKET OF ASSISTANCE TERMINATION DATE
The reason is obvious, and they have given it to us in writing that because of the 10-year cutoff and because it is normal for a bond issue to go for 20, 25, 30 years, that the people who are going to invest are unwilling to put their money in a bond when they find that the very heart of the revenue base of that community might be relieved in 10 years. So, he suggests voluntarily that we would have great difficulty in selling these bonds at all at any rate in the future with the 10-year cutoff included.
Chairman PASTORE. You mean that the experience they have had now with their being unable to sell $650,000 of these bonds will make it tough when the new issue comes up?
Mr. JOYCE. Precisely. They are critical because of the war-built construction.
Chairman PASTORE. Then, in the face of this, why are we asking for this legislation?
Mr. Joyce. If I might state in a word our position on it, we have no quarrel with the cutoff as far as the review is concerned. We have established confidence in the Commission and Congress, and we feel that a review at any time will justify a continuation because the Commissioner-I was happy to hear him today confirm what they have told us, and that is that we have done a good job.