an appendix to my statement an operational budget released to the press at that time. 4. Extensive activities toward industrial development have produced only small results. The size of the government installation, their wage rates, and the indefinite status of continued financial support for local government represent significant "road-blocks" for industrial attraction. It has been a community where initially no private industry was allowed, and where only commercial enterprises necessary to serve the basic needs of scientists and employees were permitted. It has been a community dominated by the federal government with its large tax exempt industries, and a community with warbuilt homes, dormitories, businesses, schools, and other public facilities. At present it is a community with the highest effective property tax rate in the state and with costly capital improvements still on the horizon. A careful look at both history and the present emphasizes that this community cannot easily overcome its parental upbringing and establish a healthy investment climate, while facing a termination of financial assistance from its only industry. As a member of many committees and advisory boards seeking industrial diversification for the City of Oak Ridge, and as an attorney representing clients seeking mortgage money, I have observed several major obstacles to normalcy for the City of Oak Ridge. 1. Lack of fiscal stability has been created by an established cut-off date to "in-lieu-of-tax" payments from this vast tax-exempt industry. Potential investors in the form of industrial site locators, business financiers, or municipal bond investors shy away from Oak Ridge investments because of the uncertainty of the financial structure. Locally there exists a strong belief in the future of the community, as evidenced by home ownership and improvement and the location of a few, small home grown industries, but realism requires a recognition of the attitude assumed by the potential investors. The city's fiscal agent, Equitable Securities Corporation, with offices in thirteen cities throughout the United States, is having serious difficulty in placing general obligation bonds sold by the city on February 8 to finance needed construction. A copy of a letter from this firm explaining the problem is attached to my statements. I would like to quote a few key sentences. "The federal properties, being atomic energy facilities, are not taxable. The federal government renders substantial in-lieu-of-tax payments which are essential to the municipality's operation. However, the difficulty arises out of the fact that the payments are not on a long-term contract basis but rather on a ten-year basis. As municipal bond issues are generally of much longer term, twenty-five to thirty years, in keeping with the life expectancy of the public works thereby financed, the question arises in the mind of the investor as to whether or not the in-lieu payments will be continued upon expiration of the ten-year terms. The experience of this syndicate with this bond issue will undoubtedly influence their bidding and all other bidders in subsequent financing until and unless a more permanent type of arrangement with the federal government can be made for in-lieu-of-tax payments." 2. Private industry is unwilling to build a substantial installation in a community with an unstable tax base. Private industry is also hesitant to compete for labor with the federal government. This recent personal experience is typical-I was asked by officials of our county seat, located in the city of Clinton, to visit the president of a large important industry in Milwaukee who was interested in expanding in the South. He had indicated he was very seriously considering Clinton. When I entered his office and placed my card on the table, he saw Oak Ridge, Tennessee on it. He immediately exclaimed, "Is that the federal installation near Clinton?" When I told him we were just twelve miles away, he was amazed. While he was very courteous and we spent some two and one-half hours together, he made it very clear that he was unwilling to compete with the federal government for labor or compete with our labor scales, or risk the uncertain tax base. We never heard from him again until we learned that the company did move South, but to a western portion of Tennessee. The City of Oak Ridge cannot survive in a healthy fashion without continuing financial payments from the industry for which the community was originally created. The city of Alcoa, Tennessee, some twenty miles from Oak Ridge, is dominated by the Aluminum Company of America, from which it has its name. This one company contributes over 75% of the total revenue received by the city of Alcoa. To understand the plight of Oak Ridge, one only has to recognize the chaos in Alcoa if the Atomic Energy Commission for some reason purchased that industry and asserted its federal tax immunity. A comparison of tax rates with the Tennessee city of Kingsport, the home of Tennessee Eastman, shows that an Oak Ridger pays 49% more for a $20,000 home than does a resident of Kingsport. If financial assistance were cut off, a local resident would pay 126% more than a Kingsport resident on an identical $20,000 home. This is obviously an untenable position. By way of summary, Mr. Chairman, it is the strong recommendation of the City of Oak Ridge that financial assistance payments continues as long as Atomic Energy plants are owned, and tax-exempted by the federal government. This is not a request for a permanent tax or for a fixed dollar figure. It is a request for a commitment from the federal government that will enable the community to take positive steps toward real normalcy by removing the fear of fiscal instability, the deterring of financial investments and the roadblocks to private industrial development. In 1955 it was this subcommittee's unanimous decision that no time limit be placed upon subsistence payments to Oak Ridge. The full Joint Committee reported this to the Senate. Time and experience have substantiated the wisdom of your recommendation in 1955, and have shown the ten-year limit to be unsatisfactory. It is the sincere wish of the City of Oak Ridge that in the light of developments in the past ten years, you will make the same recommendation today that you did ten years ago. The City of Oak Ridge has great respect for the integrity of the Atomic Energy Commission, and there exists an eightyear record of fine working relationships with the Oak Ridge Operations Office. This cooperative relationship can only be enhanced by your approval of this recommendation for continued financial assistance. [The Knoxville Journal, 1953, Knoxville, Tenn.] OAK RIDGE TOWN COSTS CLIMB TO $25,287,340-ATOMIC CITY'S REVENUES TOTAL $7,124,914 To BRING $18,162,426 NET COST, SOLONS TOLD WASHINGTON, MARCH 30.-The House Appropriations Committee was given the following record of Oak Ridge town costs and revenues for the past fiscal year: $4, 100, 000 600, 000 720,000 2, 110, 000 1,575,000 2,975,000 775,000 540,000 704, 196 700,000 240,000 640, 000 105, 000 200,000 700, 000 1, 130, 000 1,370,000 135, 000 1, 030, 000 275,000 1,790,000 2,873, 144 25, 287, 340 4,000,000 1. 100,000 500,000 800, 000 724, 914 7, 124, 914 18, 162, 426 Mr. CARLETON MCMULLIN, EQUITABLE SECURITIES CORP., City Manager, Municipal Building, Oak Ridge, Tenn. DEAR MR. MCMULLIN: We have been asked to run down an opinion concerning the ability of the City of Oak Ridge to finance necessary public works by the issuance of municipal bonds. In this connection we have a long term contract with the City to serve as their financial advisors. The City has many favorable aspects conducive to financing on attractive terms. The government is very progressive in its outlook and is organized along the most modern lines. It is particularly well staffed with dedicated and qualified personnel. The City, being relatively new, is made up of sound, modern and well maintained buildings, both in the public and private sectors. The ratio of its bonded debt to its assessed valuation, or tax base, and population is very low. One aspect, however, is quite detrimental. It is a one industry town essentially as it is the birthplace of the atomic energy program and the largest concentration of activities by the Commission. I think the investing public generally recognizes that atomic energy and the facilities at Oak Ridge are permanent. However, the Federal properties, being atomic energy facilities, are not taxable. The Federal Government renders substantial in lieu of tax payments which are essential to the municipality's operations. However, the difficulty arises out of the fact that the payments are not on a long term contract basis but rather on a ten year basis. As municipal bond issues are generally of much longer term, twenty-five to thirty years, in keeping with the life expectancy of the public works thereby financed, the question arises in the mind of the investor as to whether or not the in lieu payments will be continued upon expiration of the ten year terms. The municipality sold its first large bond issue February 8 of this year at very attractive interest rates. The syndicate that bought the bonds has not yet been successful in placing all of them. The reasoning outlined above is essentially the difficulty they have encountered. The experience of this syndicate with this bond issue will undoubtedly influence their bidding and all other bidders in subsequent financing until and unless a more permanent type of arrangement with the Federal Government can be made for in lieu of tax payments, which for the year ended June 30, 1966 accounted for some 24% of total revenues. Very truly yours, Representative HOLIFIELD. Mr. McMullin? Mr. McMULLIN. Thank you, Mr. Chairman. ROBERT F. STAMPS, Since our statements are part of the record, I would like to only excerpt a few pertinent facts from the statement for the committee's benefit. First of all, I would like for the committee to recognize that basically cities are established for three purposes-for trade, industry, and a place to live as a way of life. I think it is important, while perhaps oversimplified, to recognize that Oak Ridge, Tenn., a city having been created from raw farmland, that the purpose of trade and industry did not exist and has not existed in our community in the normal sense that most of us experience in our trade and industry in communities. As a result, we do have a very large-billion and a half dollarstax-exempt Federal industry in our community. I would like to comment in retrospect as we look back over what has happened during the past 10 years that we have worked with the Atomic Energy Commission, and have had good relations with them, that the original proposal made by the Commission was in fact more wishful thinking in terms of what might happen to Oak Ridge, in terms of becoming self-sufficient, then based on actual knowledge of urban economics. As a matter of fact, gentlemen, we are only asking for that which this committee and the Joint Committee on Atomic Energy in 1955, in their own wisdom sought to place before the Congress. I would like to comment further that, specifically, while it has been developed here this morning that we have reappraised our property, and the city of Oak Ridge in its existence has gone through two professional appraisals-one at the beginning of its history and one a year ago as a result of this, the private residential properties and private commercial properties experienced an increase in the valuation of their properties of 24 percent. The present taxpayment since 1960 with reappraisal has jumped 57 percent. We now lead the State, as has been commented, and we are some 15 percent higher in our tax rate than the next highest city in Tennessee. We are 40 percent higher than the average Tennessee city over 20,000 population. Representative HOLIFIELD. That takes into consideration the same type of appraisals? Many times property can be appraised high, as you know, with a lower rate than if it is appraised low and given a higher rate. This is a comparison across the board? Mr. McMULLIN. This is the effective combined city and county tax rate. It is equalized to take into consideration the fact that we assess at a hundred percent. The county assesses at 15 percent, as do other cities. Senator GORE. You mean your comparison is a realistic one? Representative HOLIFIELD. Compared with Knoxville and Nashville and other cities in Tennessee? Mr. McMULLIN. That is correct. We have commented about the war-built public facilities in our community. We have already authorized $4.3 million. We anticipate an immediate need of another $5 million in order to replace our schools, our fire stations, and other public facilities—as well as something like $2.3 million for utility expenditures. It has been commented this morning that there was some difference between the Richland situation as far as bonding capacity and that in Tennessee. I think for the record, gentlemen, we must recognize that in the State of Tennessee we also have a 10-percent bonding limitation on assessed valuation. In addition. facing the city of Oak Ridge-since we are one of the few cities in the State, one of three, that assesses at 100 percent of actual cash value of the property-is the prospect in 1972, because of a State law recently passed, of having our assessed valuation dropped to 50 percent, which would mean that effectively at this time we could only have some $5 million of bonding capacity, when in fact, we are talking about the need of $10 to $11 million of bonding capacity. Senator GORE. So in this light your situation is not greatly different from the one faced by Richland, which in fact faces a legal estoppel. You face a legal estoppel but of a different kind. Mr. McMULLIN. That is correct. DELETION OF TERMINATION DATE FOR AEC ASSISTANCE Representative HOLIFIELD. What evidence do you gentlemen believe is available to show that the removal of the termination date in this legislation will give you the bonding status that you want? Mr. McMULLIN. I think the question we are dealing with is not the faith of AEC or the faith of community leaders in our community in the future, but in terms of the private investors and how they look at a Government community. Senator GORE. You are really talking about the faith of the investor who is not as knowledgeable of the relationship between AEC and Oak Ridge as we are. Senator BAKER. May I inject a question, which I think is highly pertinent to this point? I have information to the effect that on the previous bond issues that Oak Ridge had undertaken that there has been some difficulty in the final placement to purchasers of these bonds because of the uncertainty of continuing Federal participation in these types of activities. In that substantially so, Mr. McMullin? Mr. McMULLIN. This is correct. Representative HOLIFIELD. Have your bond underwriters brought this to your attention, that if this date was removed, that they would be in a better position? Mr. McMULLIN. If I may, Mr. Chairman, I might read a couple sentences from the successful syndicate on our last bond issue. It states as follows: From an investor standpoint it is extremely difficult to justify the purchase of securities issued by a city that mature in 1994, for example, when the basis of their entire economy many 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. A couple of sentences from a letter from Mr. Robert B. Few, one of the partners in Henderson & Few Co., Atlanta, Ga., the successful syndicate that purchased our bonds. (See p. 112.) Senator GORE. I can't go along with his suggestion. He is aiming at the same thing at which we are driving, but the Congress could not put it in those terms. Mr. McMULLIN. That is correct. Senator GORE. The Federal Government could not-and I would not-recommend legislative language that goes that far. Even if I did, and no matter how hard my colleagues and I tried, we would not be able to obtain passage of legislation guaranteeing payment of any and all debt that Oak Ridge might have, or obligating the Federal Government to continue payments so long as Oak Ridge had debt outstanding. I realize what the underwriter has in mind. I think we can achieve it in a different way, but not with this kind of binding obligation. Senator BAKER. I might say to Senator Gore, and with the chairman's consent, that I do agree. I think it would be impractical to try to reach an accord of the type suggested by the underwriter. But I do |