RESOLUTION OF THE CITY COMMISSION OF THE CITY OF JACKSONVILLE, Fla. FROM THE MINUTES OF THE CITY COMMISSION, JACKSONVILLE, FLA., SPECIAL MEETING, MONDAY, JANUARY 23, 1939

Whereas this board is informed that the Federal Government contends. under a decision by the United States Supreme Court in Helvering v. Gerhardt "that the principle of immunity protected the Federal Government against taxation by the States but did not necessarily shield the States against the exercise of the delegated, and supreme, taxing power of the Central Government," that it has the power to tax outstanding as well as future issues of municipal and county bonds; to impose the Federal corporate income tax on the revenues of State, county, and municipal agencies such as power, lights, and gas, water supply, and other revenue producing functions; and to tax the salaries of municipal, county, and State employees, even so far as to make same retroactive over a period of more than 10 years: Now, therefore, be it

Resolved by the City Commission of the City of Jacksonville, Fla., in special session this 23d day of January, A. D. 1939, That if municipal, county, and State securities are to be taxed by the Federal Government the consent of the States should first be obtained through a constitutional amendment permitting the reciprocal taxation of Federal securities in the State, and including an absolute prohibition against any Federal taxation of any of the revenues of the States, counties, and municipalities, and their respective agencies; be it further

Resolved, That congressional legislation should be passed at the present session of the Congress to prevent the retroactive application of any Federal tax upon the officers and employees of municipalities, counties, and States, and their respective subdivisions and instrumentalities; and be it further

Resolved, That the financial loss to local units of government and their agencies through any Federal tax upon their bonds and securities and the salaries of their officers and employees should be offset by making adequate provision for local taxation of Federal property, or service charges in lieu thereof; or for a municipal share of Federally collected income taxes, or otherwise and be it further

Resolved, That a copy of this resolution be sent to each Senator and Representative of Florida in Congress, and to the Council on State Defense, whose objectives are hereby endorsed insofar as they coincide with the objectives of this resolution. [SEAL] M. W. BISHOP, Secretary, City Commission.

RESOLUTION OF THE MAYOR AND CITY COUNCIL OF THE CITY OF HARTSHORNE, PITTSBURG COUNTY, OKLA.

That whereas it has come to our knowledge that the United States Treasury and the United States Department of Justice, has made a ruling that the income from municipal-owned utilities, also bonds of municipalities, are subject to and have for the past 12 years been subject to a Federal income tax; that this has abrogated a long understanding that the same were exempt from said tax; that if this is sustained, or if Federal legislation is enacted carrying into effect this ruling it will work a great hardship on municipalities, and especially those whose income in the past few years have not been sufficient to carry on municipal affairs: Therefore be it

Resolved by the mayor and City Council of the City of Hartshorne, That they protest and seriously disapprove the enforcement of this rule, and protest the enactment of any legislation carrying the same into effect. That a copy of this resolution be transmitted to the Honorable Elmer Thomas, to the Honorable Josh Lee, United States Senators, and to the Honorable Wilburn Cartwright, Congressman from the Third District of Oklahoma. Passed this 3d day of January 1939.

RESOLUTION OF THE COMMISSION OF CORAL GABLES, FLA.

RESOLUTION NO. 1875

Whereas the Federal Government contends under the decision by the United States Supreme Court in the case of Helvering v. Gerhardt that the principle of immunity from taxation protects the Federal Government against taxation by

the several States but does not necessarily shield the States and their governmental units against the exercise of the delegated and supreme taxing power of the Federal Government; and

Whereas the Federal Government now claims the power to tax the outstanding issues of municipal bonds and securities, as well as future issues; and

Whereas the Federal Government also claims the power to impose the Federal corporate income tax on the revenues of municipal proprietary revenue-producing functions and operations; and

Whereas the Federal Government further claims the power to tax the salaries of municipal employees, and that such authority may include the back assessment of such taxes for each year back to 1926: Now, therefore, be it

Resolved by the Commissioner of the City of Coral Gables, Fla.:

1. That if municipal, State, and county securities are to be taxed by the Federal Government, the consent of the several States should be obtained first through a constitutional amendment permitting the reciprocal taxation of Federal securities by the several States.

2. That congressional legislation should be enacted specifically relieving from Federal taxation any and all revenues of municipalities and their agencies.

3. That congressional legislation should be enacted to prevent the retroactive application of any Federal tax upon the officers and employees of municipalities. 4. That the financial loss to the States and their local units of government through any Federal tax upon their bonds and securities and the salaries of their officers and employees should be offset by making adequate provision for local taxation of Federal property, or service charges in lieu thereof, or for the municipalities to share in the federally collected income taxes, or otherwise.

5. That a copy of this resolution be sent to each Senator and Representative of Florida.

I, G. N. Shaw, clerk of the city of Coral Gables, Fla., do hereby certify that the above and foregoing is a true and correct copy of Resolution No. 1875, passed and adopted by the commission of said city on December 13, 1938.

Witnesseth my hand and the official seal of the city of Coral Gables, Fla., this 20th day of January A. D. 1939.

[SEAL]

G. N. SHAW, City Clerk.

STATEMENT OF Clifford W. HAM, EXECUTIVE DIRECTOR, AMERICAN MUNICIPAL ASSOCIATION

RECIPROCAL POWERS OR RECIPROCAL BENEFITS

In common with the League of California Municipalities and many other organizations of municipalities and public officials, the American Municipal Association has considered carefully the proposals for reciprocal taxation of State and municipal securities and of the incomes of State and municipal employees. Throughout, the association has considered the municipal effect of this proposal. As originally proposed, three elements were involved which, fortunately, in subsequent discussions have been separated. It is essential that each of these elements be considered as a separate proposal and reviewed on its own and separate merits: (1) That by proper congressional action the Internal Revenue Department be authorized to not make any claims for retroactive assessment and collection of taxes on incomes of State and municipal employees heretofore earned; (2) the application of the Federal income tax to salaries of State and municipal employees; (3) the application of the Federal income tax to income derived from State and municipal securities.

The President has recommended to Congress on two occasions that the Federal Government should be given the power to tax the employee incomes and securities of States and their subdivisions, and that the States should be given like, or reciprocal, power to tax Federal securities and salaries. With the President's proposal before it, the American Municipal Association, by resolution of its annual conference in October 1938, proposed that "any changes in the present tax-exempt status of municipal salaries and bonds should be reciprocal." The association has taken this position because (1) "in the past, practically all changes in taxation methods, and exemptions incident thereto, have discriminated against municipalities by constantly reducing the local tax base in the face of continuing demands for essential governmental services;" and (2) because "Federal or State taxation of municipal salaries and bonds will raise municipal costs for these purposes― costs which should be offset by revenue sufficient to meet them."

Cities are concerned, too, with possible future interpretations of the phrase of the sixteenth amendment "from whatever sources derived," as applied to the power of the Federal Government to lay income taxes. Does a next step after the taxing of salaries and incomes from securities mean the taxing by the Federal Government of the income from State and municipal corporations and utility services? Does it mean reciprocally that they must consider at a future time taxation by the States and cities of the Federal governmental corporations and properties? Some Federal agencies now pay local taxes on real-estate holdings; others do not; while still others (the Federal Housing Authority, for instance) urge the waiver of local taxes on local housing projects as a subsidy for improved housing.

The association has come to the conclusion that an important point around which the whole argument revolves is the interpretation of the word "reciprocal.' There is a great difference between the interpretation of the word "reciprocal" as discussed in connection with the proposals before Congress and as contained in the resolution of the American Municipal Association. From the Federal standpoint, reciprocal taxation has been taken to mean that the Federal Government shall undertake a type of income taxation which shall be open in equal measure to the States. In other words, the Federal Government is interested primarily in the power to tax, but as the American Municipal Association uses the phrase from the municipal standpoint, reciprocal taxation means the provision of offsetting or compensating revenue from whatever source derived. The association believes that what American cities must have are reciprocal benefits. This great variance in the meaning of “reciprocal” has a simple explanation— namely, that the Federal Government may levy an income tax, while as a practical proposition a municipality may not. In order to secure revenue sufficient to offset increased costs, therefore, municipalities have got to look to "local taxation of State and Federal property, a municipal share of State or federally collected income taxes," or to other sources, as the American Municipal Association's resolution puts it. The Federal Government, on the other hand, needs only extend the scope of its income-taxing power.

It should be axiomatic that the basic objective of any change should be more equitable taxation, and not merely the substitution of one set of inequities for another. Any change in the present situation which does not make offsetting revenue as readily available to municipalities as the income tax is to the Federal Government will neither be "reciprocal" nor equitable. On the other hand, any change that reduces inequalities as the result of a fair and unbiased examination of the whole problem of intergovernmental tax immunity will be welcomed as a real first step toward more orderly taxation in the United States.

What is needed and what the cities have been urging for many years is a complete revision of the whole tax structure, Federal, State, and local, looking toward the elimination of overlapping and conflicting tax provisions. To attempt piecemeal adjustments of these inequalities but confuses the issue more.

The cities also insist that the establishment of proper machinery for the administration of the tax is one problem, but that it does not follow that that unit of government which is best equipped to administer the tax is therefore necessarily best equipped to spend funds derived therefrom and to render public service financed thereby. Coincident with the readjustment of the tax structure and the elimination of overlapping and conflicting tax problems should and must go, the redistribution of revenues and the realinement of governmental functions among the levels of government to the end that those levels which can best administer and collect any certain tax should be charged with that duty and that the funds collected thereby should be distributed to the different levels of government in proportion to their abilities to best render the functions and spend the public funds in support thereof.

The CHAIRMAN. Mr. Costello.

STATEMENT OF JOSEPH K. COSTELLO, GENERAL MANAGER OF THE DELAWARE RIVER BRIDGE, REPRESENTING THE PUBLICLY OWNED TOLL BRIDGE COMMITTEE OF THE AMERICAN TOLL BRIDGE ASSOCIATION

Mr. COSTELLO. Mr. Chairman and gentlemen of the committee: The committee on publicly owned toll bridges of the American Toll Bridge Association has asked me to appear before this committee to present certain facts for consideration by your honorable body.

The publicly owned toll bridges of the country are vitally interested in the proposal to impose a Federal tax upon the income of bonds issued by the States and their subdivisions. Nothing in recent years has disturbed the management of these bridges so much as this proposal. We submit that these bridges are a most important factor in the economic life of this country. In every case, they were built in response to a demand from a public handicapped by lack of means of crossing rivers swiftly, advantageously, and safely. When the country became a nation on wheels, the ferries could not accommodate the demand upon them. Out of sheer necessity, great bridges and tunnels were constructed and there can be no doubt that these have contributed materially to the progress and prosperity of the Nation.

These bridges could not be built by private capital. Even under the most favorable conditions, a new bridge is not to be classed as a prime investment. Were it otherwise, of course, private capital, seeking a means to put its funds to work, would have forestalled the State governments in undertaking these projects. The usual history of a bridge is that many years elapse between the original demand for the project and the actual construction thereof. For example, in the case of the Delaware River Bridge between Philadelphia and Camden, with which I am most familiar, the first plans were prepared in 1818 and ground was broken in 1922. While it does not always take 104 years to crystalize the demand of the public into concrete and steel, it nevertheless remains that much arduous work must be done by the proponents of the enterprise before anything is accomplished.

Regardless of how scientifically calculated, forecasts of future traffic are notoriously often unsound. Estimates of costs and probable return are prepared. There may be no doubt that the bridge is urgently needed but the question arises as to whether it can pay its own way. Private investors show no disposition to gamble their dollars and they cannot be blamed because the country is dotted with bridges that have failed financially.

When the public demand grows great enough, the aid of the States is solicited. Sometimes, when the bridge lies between States separated by a river, the two join and appropriate from their own hard-pressed treasuries toward the cost of the structure. Up to the last 15 years, this was the common procedure. Bridges were built on the understanding that tolls would be charged until the original cost was met and the structure would be free to the traveling public. With the tremendously increased burden of taxation in recent years, many of the States found this procedure no longer possible.

The Port of New York Authority and, later, the Delaware River Joint Commission introduced a new development in the financing of great river crossings. The Port of New York Authority issued its own bonds and repaid New York and New Jersey for the appropria

tions which made the Holland Tunnel possible. The Delaware River Joint Commission followed suit and issued its own bonds to repay Pennsylvania, New Jersey, and the city of Philadelphia every dollar, with interest, that was advanced for the building of the Delaware River Bridge. This was followed in other parts of the country.

These bonds were sold to the public with nothing behind them but the revenues of the structures. In the case of the Delaware River Bridge, the Commonwealth of Pennsylvania and the State of New Jersey retain title and no mortgage was created upon the structure. If the bridge continues to enjoy sufficient traffic to meet operating and maintenance charges, the bondholders receive their semiannual interest and, each year, some of the bonds are matured.

The States, by legislative enactment, expressly forbid the commission to levy any taxes other than tolls upon vehicles using the structure. The purchasers of these bonds might be said to be adventurers. They invested in a rather hazardous field. They knew, if the bridge were to be a gold mine, that the shrewd scouts of private capital, presumably, would have seen the treasure before the States did. In calculating the return from their investment, they weighed heavily the consideration that, inasmuch as the bridges were to be public enterprises, the income from the bonds would be immune from Federal taxation. You might go so far as to say this immunity was the bait. In any event, it was an important consideration. The people who bought bonds backed only by bridge revenues were courageous.

The various commissions and authorities in control of these enterprises the country over gave as much thought to designing the financial structure as their engineers did in designing the towers, anchorages, and cables. Interest rates upon the bonds had to be calculated carefully to attract investors but the authorities and commissions figured that successful operation of their enterprises would provide a seasoning for the bonds and, in nearly every case, provided that the original bonds could be called within a reasonable period.

In the case of the Delaware River Bridge, our interest rate is 4%1⁄2 percent, entirely too high in view of the present market conditions. At the present time, we have outstanding $37,000,000 bonds but they are callable in 1943.

Senator TOWNSEND. May I ask the total cost of the bridge?

Mr. COSTELLO. The total cost of the bridge originally was $50,000,000.

Senator TOWNSEND. And you now owe $37,000,000?

Mr. COSTELLO. We now have $37,000,000 of outstanding indebtedness. We have paid off as you see $13,000,000.

Every other commission and authority has in mind the refunding of their issues at the callable date. If the Federal Government is to tax income from bonds issued by these State agencies, the prospects of refinancing are decidedly dimmed. The bankers with whom we have been in contact advise that removal of the immunity from bond income will result in an increased expense of from one-half to 1 percent. If the immunity is lost, it will be a difficult question as to whether it would be advantageous to recase the financial structures of these bridges at the callable date or whether it would be better to permit the original issue, which I assume will remain immune, to continue until all the bonds are paid off.