,En 1: 95- )33 N•1

MINERAL DEVELOPMENT IMPACT ASSISTANCE LOAN

WVEI(NMEN I UMENTS PROGRAM

Storage ckiM

P3 1q78 tk)

LIPRARY HEARING

KANSAS STATE UNIVERSITY BEFORE THE

SUBCOMMITTEE ON

PUBLIC LANDS AND RESOURCES

OF THE

COMMITTEE ON

ENERGY AND NATURAL RESOURCES

UNITED STATES SENATE

NINETY-FIFTH CONGRESS

SECOND SESSION

ON

ea S. 2913

" A BILL TO AMEND SECTION 317(c) (1) OF THE FEDERAL LAND

co • POLICY AND MANAGEMENT ACT OF 1976 TO CONFORM THE

u- INTEREST RATE THEREIN TO THE YIELD ON CERTAIN TAX

▪ rr EXEMPT BONDS, AND FOR OTHER PURPOSES cc 

- 0 S. 2914

cn 0- A BILL TO AMEND SECTION 317(c) (1) OF THE FEDERAL LAND

rg POLICY AND MANAGEMENT ACT OF 1976 TO CONFORM THE

rl INTEREST RATE THEREIN TO THE YIELD ON CERTAIN

UNITED STATES OBLIGATIONS, AND FOR OTHER PURPOSES

APRIL 26, 1978

Publication No. 95-133

Printed for the use of the

Committee on Energy and Natural Resources

U.S. GOVERNMENT PRINTING OFFICE

31-616 0 WASHINGTON : 1978
••

tvi .7%

COMMITTEE ON ENERGY AND NATURAL RESOURCES

HENRY M. JACKSON, Washington, Chairman

FRANK CHURCH, Idaho

J. BENNETT JOHNSTON, Louisiana

JAMES ABOUREZK, South Dakota

FLOYD K. HASKELL, Colorado

DALE BUMPERS, Arkansas

WENDELL H. FORD, Kentucky

JOHN A. DURKIN, New Hampshire

HOWARD M. METZENBAUM, Ohio

SPARK M. MATSUNAGA, Hawaii

WENDELL R. ANDERSON, Minnesota

JOHN MELCHER, Montana

CLIFFORD P. HANSEN, Wyoming

MARK 0. HATFIELD, Oregon

JAMES A. McCLURE, Idaho

DEWEY F. BARTLETT, Oklahoma

LOWELL P. WEICKER, JR., Connecticut

PETE V. DOMENIC', New Mexico

PAUL LAXALT, Nevada

GRENVILLE GARSIDE, Staff Director and Counsel

DANIEL A. DREYFUS, Deputy Staff Director for Legislation

D. MICHAEL HARVEY, Chief Counsel

W. 0. CRAFT, Jr., Minority Counsel

SUBCOMMITTEE OF PUBLIC LANDS AND RESOURCES

DALE BUMPERS, Arkansas, Chairman

JOHN MELCHER, Montana,

Vice Chairman

FRANK CHURCH, Idaho

FLOYD K. HASKELL, Colorado

WENDELL H FORD, Kentucky

SPARK M. MATSUNAGA, Hawaii

JAMES A. McCLURE, Idaho

PETE V. DOMENIC', New Mexico

PAUL LAXALT, Nevada

MARK 0. HATFIELD, Oregon

STEVEN P. QUARLES, COUrlSel

(II)
4

CONTENTS

Page

S. 2913 3

Department of the Interior report 7

S. 2914 9

Department of the Interior report 15

STATEMENTS

Brennan, Bill, commissioner, Rio Blanco County, Colo 24

Foster, Elmo, commissioner, Laramie County, Wyo., accompanied by Jim

Evans, associate director, National Association of Counties, Washington,

D.0 28

Hansen, Hon. Clifford P., a U.S. Senator from the State of Wyoming_ _ __ 26

Haskell, Hon. Floyd K., a U.S. Senator from the State of Colorado 1

Meierotto, Larry, Deputy Assistant Secretary for Policy, Budget and

Administration, Department of the Interior 23
•
MINERAL DEVELOPMENT IMPACT ASSISTANCE

LOAN PROGRAM

WEDNESDAY, APRIL 26, 1978

U.S. SENATE,

SUBCOMMITTEE ON PUBLIC LANDS AND RESOURCES,

OF THE COMMITTEE ON ENERGY AND NATURAL RESOURCES,

Washington, D.C.

The subcommittee met, pursuant to notice, at 9 a.m., in room 3110,

Dirksen Office Building, Hon. Floyd K. Haskell, presiding.

Present: Senators Haskell and Hansen.

Also present: Steven P. Quarles, counsel; and Ted On, deputy

minority counsel.

OPENING STATEMENT OF HON. FLOYD K. HASKELL, A U.S. SENATOR

FROM THE STATE OF COLORADO

Senator HASKELL. The hearing of the Public Lands and Resources

Subcommittee will commence. The subject of today's hearing is two

bills, S. 2913 and S. 2914, which will amend section 317(c) of the

Federal Land Policy and Management Act. S. 2913 is jointly sponsored

by Senator Hansen and myself, and S. 2914 is an administration proposal which Senator Hansen and I introduced by request.

The Federal Land Policy and Management Act is a landmark law.

For the first time it provides a comprehensive and modern statement

of authorities and responsibilities for our Nation's largest land manager, the Bureau of Land Management, which oversees approximately

two-thirds of our publicly owned land. As the primary sponsor of

this legislation in the Senate, I am pleased to see the Bureau taking

pains to implement the law as swiftly as possible. Of course, we always

hope for a quicker and smoother implementation process for new

laws than can in fact occur. But, by and large, I believe the Bureau

deserves good marks in its efforts to operate under this new comprehensive and complex statute.

Section 317(c) of the act has, however, not been implemented. This

subsection was offered as an amendment during committee markup of

the act by Senator Hansen, and was supported by former Senator Lee

Metcalf and me. The Mineral Leasing Act of 1920, as amended by

section 317(a) of the Federal Land Policy and Management Act,

provides State and local governments with 50 percent of the revenues

received by the Federal Government from the leasing of energy minerals on the public lands. In most circumstances, however, this money

comes too late. The communities are required to provide more sewer

and water facilities, greater police and fire protection, expanded park

(1)
2

lands, new schools, and the other myriad facilities and services necessary to mitigate the adverse impacts of energy development long before

that development produces the communities' share of Federal revenues

sufficient to pay for the facilities and services. Section 317(c) provides

for a loan program to the States and local governments to provide them

the "front-end money" to construct facilities and provide services in.

advance of the so-called energy boom. In essence, the State and political subdivisions would be borrowing now against future mineral

royalty entitlements.

Unfortunately, as one of the final acts of the Ford administration,

a proposal was submitted to the Congress by the Secretary of the

Interior to repeal section 317(c). I am, of course, grateful that my

colleagues concurred with me that this was simply a bad idea and that

no action was taken on the measure.

President Carter, in submitting the fiscal year 1978 budget pledged

support for section 317(c) but also made implementation of the program contingent upon the raising of the interest rate which the provision sets at 3 percent. On January 27, 1977, Senator Hansen, Senator

Metcalf, and I wrote Secretary of the Interior Cecil Andrus pledging

our support for the raising of the interest rate if that were necessary

to assure implementation of section 317(c).

On August 3, 1977, Assistant Secretary of the Interior Guy Martin

submitted a draft bill to raise the interest rate. Not only do Senator

Hansen and I believe that the interest rate requested by the administration is too high—above the interest rate normally available to the

State and local governments when they borrow money—but we also

found numerous other proposed changes to limit the impact loan

program's size, scope and, in our minds, effectiveness. Although we

introduced S. 2914, the administration's bill, I want to emphasize we

introduced it by request. We do not favor the administration proposal.

Instead we favor our own bill, S. 2913, which would raise the interest

rate to a rate comparable to that now paid by State and local governments when they borrow money and to make other changes suggested

by the administration or by other parties which do .not reduce the

impact loan program or otherwise alter the purposes of section 317(c).

I pledge my best efforts to achieve the early passage of S. 2913 so

that the impact loan program can be swiftly implemented.

I will insert in the record at this point copies of the bills and departmental reports.

[The texts of S. 2913 and S. 2914, together with Interior Department

reports follow:]
:3

95TH CONGRESS

2D SESSION S. 2913

IN THE SENATE OF THE UNITED STATES

APRIL 13 (legislative day, FEBRUARY 6), 1978

Mr. HASKELL (for himself and Mr. HANSEN) introduced the following bill;

which was read twice and referred to the Committee on Energy and Natural

Resources

A BILL

To amend section 317 (c) (1) of the Federal Land Policy and

Management Act of 1976 to conform the interest rate

therein to the yield on certain tax exempt bonds, and for

other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 That paragraph (c) of section 317 of the Federal Land

4 Policy and Management Act of 1976 (90 Stat. 2743, 2771;

5 43 U.S.C. 1701, 1747) is amended to read as follows:

6 " (c) (1) The Secretary is authorized to make loans to

7 States and their political subdivisions in order to relieve

8 social or economic impacts occasioned by the development

9 of minerals leased in such States pursuant to the Act of

TI
4

2

1 February 25, 1920, as amended. Such leans shall be con2 fined to the uses specified for the 54 per centum of mineral

3 leasing revenues to be received by such States and subdi4 visions pursuant to section 35 of such Act.

5 "(2) The total amount of loans outstanding pursuant

6 to this subsection for any State and political subdivisions

7 thereof in any year shall be not more than the anticipated

8 mineral leasing revenues to be received by that State pur9 suant to section 35 of the Act of February 25, 1920, as

10 amended, for the ten years following.

11 "(3) The Secretary, after consultation with the Gov12 ernors of the affected States, shall allocate such loans among

13 the States and their political subdivisions in a fair and

14 equitable manner, giving priority to those States and sub15 divisions suffering the most severe impacts.

16 "(4) Loans made pursuant to this subsection shall be

17 subject to such terms and conditions as the Secretary deter18 mines necessary to assure the achievement of the purpose

19 of this subsection. The Secretary shall promulgate such reg20 ulations as may be necessary to carry out the provisions of

21 this subsection no later than three months after the enact22 ment of this paragraph.

23 " (5) Loans made pursuant to this subsection shall bear

21 interest, equivalent to ilte lowest interest rate paid on an

25 issue of at least $1,000,000 of tax exempt bonds of a State
5

3

1 or local government or any agency or subdivision thereof

2 within the preceding calendar year.

3 "(6) Any loan made pursuant to this subsection shall

4 be secured only by a pledge of the revenues received by the

5 State or the political subdivision thereof pursuant to section

6 35 of the Act of February 25, 1920, as amended, and shall

7 not constitute an obligation upon the general property or

8 taxing authority of such unit of government.

9 "(7) Notwithstanding any other provision of law,

10 loans made pursuant to this subsection may be used for

11 the non-Federal share of the aggregate cost of any project

12 or program otherwise funded by the Federal Government

13 which requires a non-Federal share for such project or

14 program and which provides planning or public facilities

15 otherwise eligible for assistance under this subsection.

16 " (8 ) Nothing in this subsection shall be construed to

17 preclude any forebearance for the benefit of the borrower

18 including loan restructuring, which may be determined by

19 the Secretary as justified by the failure of anticipated mineral

20 development or related revenues to materialize as expected

21 when the loan was made pursuant to this subsection.

22 " (9) Recipients of loans made pursuant to this sub23 section shall keep such records as the Secretary shall pre24 scribe by regulation, including records which fully disclose

25 the disposition of the proceeds of such assistance and such

31-616 0 - 76 - 2
6

4

1 other records as the Secretary may require to facilitate an

2 effective audit. The Secretary and the Comptroller General

3 of the United States or their duly authorized representatives

4 shall have access, for the purpose of audit, to such records.

5 "(10) No person in the United States shall, on the

6 grounds of race, color, religion, national origin, or sex, be ex7 eluded from participation in, be denied the benefits of, or be

8 subjected to discrimination under, any program or activity

9 funded in whole or part with funds made available under

10 this subsection.

11. "(11) All amounts collected in connection with loans

12 made pursuant to this subsection, including interest payments

13 or repayments of principal on loans, fees, and other moneys,

14 derived in connection with this subsection, shall be deposited

15 in the Treasury as miscellaneous receipts.".
7

United States Department of the Interior

OFFICE OF THE SECRETARY

WASHINGTON, D.C. 20240

JUN 1 '3 1978

Honorable Henry M. Jackson

Chairman, Committee on

Energy and Natural Resources

United States Senate

Washington, D. C. 20510

Dear Mr. Chairman:

This responds to your request for our views on S. 2913, a bill

"TO amend section 317(c)(1) of the Federal Land Policy and Management

Act of 1976 to conform the interest rate therein to the yield on

certain tax exempt bonds, and for other purposes," and S. 2914, a

bill "To amend section 317(c)(1) of the Federal Land Policy and

Management Act of 1976 to conform the interest rate therein to

the yield on certain United States obligations, and for other

purposes."

We recommend enactment of S. 2914, the Administration's proposal,

instead of S. 2913.

S. 2913 and S. 2914 are designed to facilitate and insure implementation

of the mineral development impact assistance loan program authorized

by section 317(c) of the Federal Land Policy and Management Act of 1976

("FLPMA"). S. 2914, the Administration's proposal, contains various

provisions which we believe Should be included in an impact assistance

loan program.

S. 2914 is intended to target the mineral development impact assistance

loan picyLam to a reasonable time period and to community needs which

cannot be met from the usual sources of loans. The bill provides that

the mineral development impact assistance loan program shall end in

1988; that loans shall be available to States only when credit is

not otherwise available at reasonable rates; that program funds shall

be used only to provide new or improved public facilities or public

services; that program funds may be used to relieve social and economic

impacts associated with past mineral development only to the extent that

such mineral development was initiated or significantly expanded in

the 3-year period preceding enactment of the bill; and that use of

loan funds for public services (as opposed to capital facilities)

is limited to 5 years.
Other provisions of S. 2914 are designed to assure shared respunsibility

between the States and the Federal government and to minimize the cost

of the program. These are: that a loan for a project may not exceed

90 percent of the costs of the project, excluding operating and

maintenance costs; that loan maturities shall not exceed 20 years

or two-thirds of the estimated useful economic life of the facility

to be financed, whichever is less; and that the Secretary of the

Treasury may offset the amount of any default by withholding Federal

funds that would otherwise be transferred to the States under the

Mineral Leasing Act and the Revenue Sharing Act. This last provision

stops short of demanding the full faith and credit of a State behind

its loans.

S. 2914 provides that the Secretary of the Interior shall make loans

to States, and requires those States receiving assistance to allocate

pioyLam funds to units of local government in proportion to the local

governments' needs for the funds. S. 2913, on the other hand, provides

for loans to be made directly by the Secretary of the Interior to

political suhdivisions as well as to States. We believe that S. 2914,

the Administration's proposal, provides for equitable distribution

of available funds with a minimum of Department intervention in local

governments' administration of the loan program.

S. 2913 provides that impact assistance loans shall bear interest at

the lowest interest rate paid within the preceding calendar year on

an issue of at least $1 million of tax exempt bonds of a State or

local government or any agency or subdivision thereof. The Administration

believes that impact assistance loans should bear interest at a rate

determined by the Secretary of the Treasury, taking into consideration

the average market yield on outstanding marketable obligations of the

United States with comparable maturities, plus an allowance to cover

administrative costs and probable losses under the program.

The Office of Management and Budget has advised that enactment of

S. 2914 would be consistent with the Administration's objectives.

Sincerely,

SECRETARY

%.11)

Guy R. Martin
95TH CONGRESS

2D SESSION S. 2914

TN THE SENATE OF THE UNITED STATES

APRIL 13 (legislative day, FEBRUARY 6), 1978

Mr. HASKELL (for himself and Mr. HANsEN) (by request) introduced the

following bill; which was read t wice and referred to the Committee on

Energy and Natural Resources

A BILL

To amend section 317 (c) (1) of the Federal Land Policy and

Management Act of 1976 to conform the interest rate therein

to the yield on certain United States obligations, and for

other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 That paragraph (c) (1) of section 317 of the Federal Land

4 Policy and Management Act of 1976 (90 Stat. 2743, 2771;

5 43 U.S.C. 1701, 1747) is amended to read as follows:

6 "(c) (1) (A) The Secretary is authorized to make loans

7 until 1988 to any State to provide new or improved public

8 facilities or public services, or both, which are required as

9 a result of development of minerals leased pursuant to the
10

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22 "(4) Such loans shall be made only upon a finding by

23 the Secretary that there is reasonable assurance of repay24 ment. Such findings shall be based on a consideration of the

25 adequacy of mineral revenues expected to be received by the

2

Act of February 27, 1920, as amended, when such State

demonstrates that credit is not otherwise available on reasonable terms. Such loans shall be made solely pursuant to

this title.

"(B) (1) Loans may not be in excess of amounts sufficient to finance the planning for and the provision of

such basic public facilities, and for the provision of such

public services for a reasonable length of time but not to

exceed five years, as the Secretary determines are needed

to relieve social and economic impacts associated with mineral development initiated or significantly expanded in such

State subsequent to, or within the three-year period preceding, the enactment of this provision.

"(2) Loans to a State may not exceed 90 per centum

of project costs, including both initial planning costs and capital investments, but excluding the costs of operation and

maintenance of facilities.

"(3) Loan maturities shall not exceed twenty years or

two-thirds of the estimated useful economic life of the facility

to be financed, as determined by the Secretary, whichever is

less.
11

3

1 State, over the loan period, under section 35 of the Act of

2 February 25, 1920, as amended, to cover required a,mortiza3 tion payments plus interest.

4 "(5) Loan repayments shall be amortized over the life

5 of the loan in accordance with an amortization plan pre6 scribed by the Secretary.

7 "(6) The total amount of loans outstanding pursuant to

8 this subsection for any State in any year shall be limited to

9 the anticipated mineral leasing revenues to be received by

10 that State pursuant to section 35 of the Act of February 25,

11 1920, as amended, for the ten years following.

12 "(C) Notwithstanding any other provision of any other

13 Act, financial assistance under this Act may be used for

14 the non-Federal share of the aggregate cost of any project

15 or program otherwise funded by the Federal Government

16 which requires a non-Federal share for such project or pro17 gram: Provided, That such project or program provides

18 planning or public facilities otherwise eligible for assistance

19 under this Act.

20 "(D) Loans made from the fund shall bear interest at a

21 rate determined by the Secretary of the Treasury, taking into

22 consideration the current average market yield on outstand23 ing marketable obligations of the United States with remain24 ing periods to maturity comparable to the average maturities

25 of such loans, adjusted to the nearest one-eighth of 1 per cen-
12

4

1 turn, plus an allowance adequate in the judgment of the

2 Secretary to cover administrative costs and probable losses

3 under the program.

4 "(E) (1) If the Secretary finds that any State is un5 able to meet its obligations pursuant to a loan made under

6 this section because the actual mineral development antic7 ipated at the time the loan was made does not occur, and

8 conseqently does not provide adequate revenues to enable

9 such State to meet such obligations in accordance with the

10 appropriate repayment schedule, the Secretary may, after

11 review of the information submitted by such State take any

12 of the following actions:

13 "(a) modify appropriately the terms and condi14 tions of such loan; or

15 "(b) refinance such loan.

16 "(2) (a) In the event default by a borrower under a

17 loan made under this section, notwithstanding the provisions

18 of subsection (E) (1) of this section, the Secretary of the

19 Treasury, at the request of the Secretary, may offset the

20 amount of the default by permanently withholding Federal

21 funds that would otherwise be transferred to the State under

22 section 35 of the Mineral Leasing Act of 1920, as amended

23 (30 U.S.C. 191) ; the State and Local Fiscal Assistance

24 Act of 1972 (31 U.S.C. 1221-1264) ; and the Payments

25 in Lieu of Taxes Act (31 U.S.C. 1601-1607) .
13

5

1 "(b) Notwithstanding any other provision of law

2 relating to the acquisition, handling, or disposal of property

3 by the United States, the Secretary shall have the right in

4 his discretion to complete, recondition, reconstruct, renovate,

5 repair, maintain, operate, or sell any property acquired by

6 him pursuant to the provisions of this section.

7 "(3) Nothing in this section shall be construed to

8 preclude any forebearance for the benefit of the borrower

9 including loan restructuring, which may be determined by

10 the Secretary as justified by the failure of anticipated min11 eral development or related revenues to materialize as ex12 pected when the loan was made.

13 " (F ) Each State shall provide that financial assistance

14 provided under this subsection be allocated to the maximum

15 extent practicable to units of local government within such

16 State on a basis which is proportional to the extent which

17 such units need such assistance. Procedures for such alloca18 shall be subject to review and approval by the Secre19 tary.

20 "(G) Recipients of financial assistance under this sec21 tion shall keep such records as the Secretary shall prescribe

22 by regulation, including records which fully disclose the dis23 position of the proceeds of such assistance the total cost of

24 the provision of public facilities or services for which such

25 assistance was used, and such other records as the Secretary

31-616 0 - 78 - 3
14

6

1 may require to facilitate an effective audit. The Secretary

2 and the Comptroller General of the United States or their

3 duly authorized representatives shall have access, for the

4 purpose of audit, to such records.

5 "(II) No person in the United States shall on the

6 grounds of race, color, religion, national origin, OT sex, be

7 excluded from participation in, be denied the benefits of,

8 or be subjected to discrimination under, any program or

9 activity funded in whole or in part with funds made available

io under this Act.

11 "(I) All amounts collected in connection with this loan

12 program, including interest payments or repayments of prin13 cipal on loans, fees, and other moneys, derived in connection

14 with this section shall be deposited in the Treasury as mis15 cellaneous receipts.".
15

United States Department of the interior

OFFICE OF THE SECRETARY

WASHINGTON, D.C. 20240

AUG 3 1 1977

Honorable Walter F. Mondale

President of the Senate

Washington, D.C. 20510

Mt. President:

Enclosed is a draft bill. "Tb amend section 317(c)(1) of the Federal

Land Policy and Management Act of 1976 to conform the interest rate

therein to the yield on certain United States obligations, and for

other purposes."

We recommend that this pLLxJsal be referred to the appropriate

Committee and that it be enacted.

Section 317(c) of the Federal Land Policy and Ivaragi.,ent Act of 1976

(90 Stat. 2743, 2771; 43 U.S.C. 1701, 1747) generally authorizes the

Secretary to rake loans to States and their political sii-rlivi,ions

to neet the impacts of development of Federal mireral resources

before sufficient State and local revenues are generated by such

development to accommodate the impacts. It provides that all boars

shall bear interest at a rate not to exceed 3 percent.

This Department has sUbmitteci a proposal to repeal Section 317(c)

on January 18. Etver, the new Adrinistration recognizes the

States' need for funds to alleviate certain impacts of anticipated

Federal mineral development and also recognizes that the money may

help to Leuuve certain cbstacles to further necessary cnel develcpment under a Federal coal lpeqing program. Therefore, the Department

is hereby withdrawing the proposal to repeal Section 317(c) and is

submitting the attached bill in lieu thereof.

The interest rate of 3 percent currently provided for in

Section 317(c)(1) is substantially below that at which Federal,

State and local governments borrow. Thus, loans under Section

317(c)(1) would amount to a windfall to States and their subdivisions. This low interest rate would in effect create a

subsidy. The Treasury wouln borrow that money at the prevailing

interest rate, thus incurring a loss of the difference between a

rate of interest up to 3 percent and the current cost of borrowing
16

the funds. Any difference between the amount the Treasury would pay

for money it is borrowing to rake the leans and the 3 percent interest

rate to the western States would be borne by the taxpayers of all of

the States.

We therefore recent-end that Section 317(c)(1) of the Federal Land

Policy and Management Act of 1976 be amended as shown in the attached

draft bill to ccnform the rate of interest on a loan to the current

average rarket yield cn outstanding marketable obligations of the

United States of comparable maturities during the month preceding

issuance of such note and other obligations.

In addition, the draft bill offers other provisions to afford the

Secretary control over expenditures. These controls are felt to be

necessary for respci_sible administration of a special purpose Federal

loan program.

The bill would limit loans for relief frcut social and economic impacts

resulting fiat, minerals developrent cn the public lands to dulounts

sufficient to finance construction of basic public facilities, and

provision of public services for a reasonable length of time, up to

five years. The draft bill would designate States alone as recipients

of the loan funds. The Secretary's authority to make loans would

extend only until 1988. Loans are to be made for 20 years or less.

There are standard provisions for repaynent, including a general claim

on the States' revenues.

The draft bill also provides that financial assistance under the Act

may be used as a matching share. The draft includes provision for

modifying terms or refinancing the loan should mineral development

not occur as predicted at the time of the loan. There are standard

provisions included covering event of default. Assistance provided

is to he allocated by States proportionate to the needs of the

affected units of local government, with the procedure for so doing

subject to the Secretary's approval.

Other provisions include standard requirements for accounting and

auait, for equal opportunity, and for deposit of funds collected

into the Treaury.

It should be noted that the proposedanerilmants are structured to

fit within the scope of Section 317 as enacted. Implementation

of the loan authority given the Secretary by Section 317 as thus

amended can solve a nunber of the problems already evident fit

rapid development of minerals on Federal lands.
17

The Office of Management and Budget has advised that there is no

objection to the enactment of this draft bill from the standpoint

of the Pdministraticn's program.

Sincerely,

A

Ci R. Martin

Assistant Secrotari

Enclosure
18

August 17, 1977

A BILL

To amend section 317(c)(1) of the Federal Land Policy and Management Act

of 1976 to conform the interest rate therein to the yield on certain

United States obligations and for other purposes.

• Be it enacted by the Senate and House of Renresentatives of the 

United States of America in Concress assembled, That paragraph (c)(1) of

section 317 of the Federal Land Policy and Management Act of 1976

. (90 Stat. 2743, 2771; 43 U.S.C. 1701, 1747) is amended to read as follows:

(c)(1)(A) The Secretary is authorized to make loans until 1988 to any

State to provide new or improved public facilities or public services, or

both, which are required as a result of development of minerals leased .

pursuant to the Act of February 27, 1920, as amended, when such State

demonstrates that credit is not otherwise available on reasonable terms.

Such loans shall be made solely pursuant to this title.

•

(B)(1) Loans may not be in excess of amounts sufficient to finance the

planning for and the provision of such basic public facilities, and for the

provision of such public services for a reasonable length of time but not

to exceed five years, as the Secretary determines are needed to relieve

social and economic impacts associated with mineral development initiated

or significantly expanded in such State subsequent to, or within the three

year period preceding, the enactment of this provision.

(2) Loans to a State may not exceed 90 percent of project costs,

including both initial planning costs and capital investnents, but excluding

the costs of operation and maintenance of facilities.
19

2

(3) Loan maturities shall not exceed 20 years or two-thirds of the

estimated useful economic life of the facility to be financed, as determined

by the Secretary, whichever is less.

(4) Such loans shall be made only upon a finding by the Secretary that

• there is reasonable assurance of repayment. Such findings shall be based

on a consideration of the adequacy of mineral revenues expected to be

received by the State, over the loan period, under section 35 of the Act of

February 25, 1920, as amended, to cover required amortization payments plus

interest.

(5) Loan repayments shall be amortized over the life of the loan in

accordance with an amortization plan prescribed by the Secretary.

(6) The total amount of loans outstanding pursuant to this subsection

for any State in any year shall be limited to the anticipated mineral leasing revenues to be received by that State pursuant to section 35 of the Act

of February 25, 1920, as amended, for the 20 years following.

(C) Notwithstanding any other provision of any other act, financial

assistance under this Act may be used for the non-Federal share of the

aggregate cost of any project or program otherwise funded by the Federal

Government which requires a non-Federal share for such project or program,

Provided, That such project or program prcvides planning or public

facilities otherwise eligible for assistance under this Act.

(D) Loans made from the Fund shall bear interest at a rate determined

by the Secretary of the Treasury, taking into consideration the current

average market yield On outstanding marketable obligations of the United
20

3

States with remaining periods to maturity comparable to the average maturities of such loans, adjusted to the nearest one-eighth of 1 per centum, plus

an allowance adequate in the judgment of the Secretary to cover administrative costs and probable losses under the program.

(E)(1) If the Secretary finds that any State is unable to meet its

obligations pursuant to a ben made under this section because the actual

mineral development anticipated at the time the loan was made does not

occur, and consequently does not provide adequate revenues to enable such

State to meet such obligations in accordance with the appropriate repayment

schedule, the Secretary may, after review of the information submitted by

such State take any of the following actions:

(a) Modify appropriately the terms and conditions of such

loan; or

(b) Refinance such loan.

(2)(a) In the event default by a bortower under a loan made under this

Section, notwithstanding the provisions of subsection (E) (1) of this section,

the Secretary of the Treasury, at the request of the Secretary, may offset

the amount of the default by permanently withholding Federal funds that

would otherwise be transferred to the State under Section 35 of the Mineral

Leasing Act of 1920, as amended, 30 U.S.C. 191; the State and Local Fiscal

Assistance Act of 1972, 31 U.S.C. 01221-1264; and the Payments in Lieu

of Taxes Act, 31 U.S.C. E1601-1607.
21

4

(b) Notwithstanding any other provision of law relating to the

acquisition, handling, or disposal of property by the United States, the

Secretary shall have the right in his discretion to complete, recondition,

reconstruct, renovate, repair, maintain, operate, or sell any property

acquired by him pursuant to the provisions of this section.

(3) Nothing in this section shall be construed to preclude any forebearance for the benefit of the borrower including loon restructuring,

which may be determined by the Secretary as justified by the failure of

anticipated mineral development or related revenues to materialize as

expected when the loan was made.

-

-------------- _

(F) Each State shall provide that financial assistance provided under

this subsection be allocated to the maximum extent practicable to units of

local government within such State on a basis which is proportional to the

extent which such units need such assistance. Procedures for such allocation shall be subject to review and approval by the Secretary.

(G) Recipients of financial assistance under this section shall keep

such records as the Secretary shall prescribe by regulation, including

records. which fully disclose the disposition of the proceeds of such

assistance the total cost of the provision of public facilities or services

for which such assistance was used, and such other records as the Secretary

may require to facilitate an effective audit. The Secretary and the

Comptroller General of the United States or their duly authorized representatives shall have access, for the purpose of audit, to such records.
22

5

(H) No person in the United States shall on the grounds of race, color,

religion, national origin, or sex, be excluded from participation in, be

denied the benefits of; or be subjected to discrimination under, any program

or activity funded in whole or in part with funds made available under

this Act.

(I) All amounts collected in connection with this loan program,

including interest payments or repayments of principal on loans, fees, and

• ether moneys, derived in connection with this section shall be deposited

in the Treasury as miscellaneous receipts.
23

Senator HASKELL. I will ask the Honorable Larry Meierotto,

Acting Assistant Secretary for Policy, Budget and Administration

of the Department of the Interior, to go ahead and testify.

STATEMENT OF LARRY MEIEROTTO, DEPUTY ASSISTANT SECRETARY FOR POLICY, BUDGET AND ADMINISTRATION, DEPARTMENT OF THE INTERIOR

Mr. MEIEROTTO. Thank you, Mr. Chairman, I appreciate the

opportunity to present to the Senate the administration's views on

S. 2913 and S. 2914. The purpose of both of these bills is to facilitate

and insure implementation of the impact assistance loan program

authorized by section 317(c) of the Federal Land Policy and Management Act of 1976. S. 2914, the administration's proposal, differs in

several respects from S. 2913. I would like to point out why the

administration favors its approach.

S. 2914, the administration's bill, authorizes the Secretary of the

Interior to make loans to States to enable them to provide public

facilities and services required as a result of mineral development

pursuant to the Mineral Leasing Act of 1920. The administration's

bill requires States receiving assistance to allocate program funds

to units of local government in proportion to the local governments'

needs for the funds.

S. 2913, Senator Haskell's bill, provides for loans to be made

directly by the Secretary to political subdivisions as well as to States.

The administration believes that its proposal would provide for

equitable distribution of available funds, with only minimum departmental intervention in the day-to-day administration of the loan

program. This Department would thus not be dealing with individual

community applicants.

The administration's bill provides that the loan program shall end

in 1988; that loans shall be available to States only when credit is

not otherwise available at reasonable rates; that program funds shall

be used only to provide new or improved public facilities or public

services; that program funds may be used to relieve social and economic

impacts associated with past mineral development only to the extent

that such mineral development was initiated or significantly expanded

in the 3-year period preceding enactment of the bill; and use of loan

funds for public services (as oppposed to capital facilities) is limited

to 5 years. These provisions are intended to target the proposed program to a reasonable time period and to community needs which cannot be met from the usual sources.

The administration's bill includes several provisions which are

designed to insure minimum cost to the Treasury. These provisions

are: That a loan for a project may not exceed 90 percent of the costs

of the project, excluding operating and maintenance costs, so that the

State would contribute to total project costs; and that loan maturities

shall not exceed 20 years or two-thirds of the estimated useful economic

life of the facility to be financed, whichever is less.

S. 2914 also specifies that in the event of default by a borrower, the

Secretary of the Treasury may offset the amount of the default by

withholding Federal funds that would otherwise be transferred to the

state under the Mineral Leasing Act and the Revenue Sharing Act.

This provision stops short of demanding the full faith and credit of a
24

state behind its loans. We believe that this provision also allows for a

reasonable sharing of responsibility between the States and the Federal

Government.

Another significant difference between S. 2913 and S. 2914 concerns

the interest rates at which the Federal Government would make impact assistance loans. As you are aware, the administration's proposal

provides that loans are to be made to States at Federal borrowing cost.

This is consistent with interest rates charged under the coastal

energy impact program. At this time, the subject of interest rates is

being considered as part of the administration's overall review of

impact assistance programs. We anticipate the completion of this

review shortly and will be pleased to forward the results to your committee when the review is completed.

This concludes my prepared statement. 1 will be happy to answer

any questions.

Senator HASKELL. Thank you very much for appearing. I wonder

if you would mind sticking around while we hear from the National

Association of Counties so we can get their viewpoint. Perhaps, then

questions to you might be more pertinent.

Mr. MEIEROTTO. I would be pleased to, Mr. Chairman.

Senator HASKELL. Mr. Brennan, it is always a pleasure to have you

here. The first time you came was ftbout 5 years ago. If you would

introduce for the benefit of our reporter your associates, that would

be helpful.

STATEMENT OF BILL BRENNAN, COMMISSIONER, RIO BLANCO

COUNTY, COLO.

Mr. BRENNAN. Thank you, Senator. 1 have with me Commissioner

Elmo Foster from Laramie County, Wyo., and staff of NACO, Jim

Evans on my right over here.

Senator, 1 would like to present this statement followed by Mr.

Foster's which will go into some more detail in specific areas.

Mr. Chairman, the National Association of Counties is pleased that

the Subcommittee on Public Lands and Resources is holding these

hearings on S. 2913 to implement the public lands energy impact loan

program authorized by section 317(c) of the Federal Land Policy and

Management Act of 1976.

NACO believes that energy development is one of the most critical

issues facing this Nation. This legislation sponsored by you, Mr. Chairman, and Senator Clifford Hansen of Wyoming, will assist county

governments, along with the State and Federal Governments provide

the services necessary for adequate energy development.

Several case studies that we believe are representative of the social

and economic impacts facing county governments due to proposed

energy developments in the West.

NACO has done extensive research concerning the county planning

and development activities necessary to cope with growth caused by

Federal energy development activities.

We would like the subcommittee to have copies of three separate

case studies prepared by the National Association of Counties Research Foundation: (1) "Controlling Boomtown Development," a

case study of Sweetwater and Uinta Counties, Wyo.; (2) 'Preparing

for Anticipated Growth," a case study of Green County, Pa.; and

(3) "Development Impact of the Kaiparowitz/New Town Project," a

case study of Kane County, Utah.
25

These studies, and the experience in Rio Blanco County, Colo.,

and Laramie County, Wyo., demonstrate the serious social and economic impacts on county government when energy development

takes place.

In addition to reviewing these studies, NACO urges the subcommittee to review the results of the current efforts of the Federal

Office of Technilogy Assessment to study coal leases under the Mineral

Lands Leasing Act. Both the Federal Coal Leasing Amendments of

1975—Public Law 94-377—and the Federal Lands Policy and Management Act—Public Law 94-579—require the Office of Technology

Assessment to analyze receipts of the Federal Government from these

leases.

NACO believes the analysis of these lease funds is an essential

aspect of the OTA study. This analysis, however, should not only

include a projection of the future Federal lease revenues from a Federal

perspective, but it should include an analysis of the distribution and

use of these funds at the State and local levels.

This analysis is important because the Coal Leasing Act amendments, amended the Mineral Lands Leasing Act to increase the State

share to 50 percent of Federal mineral lease funds. That act, together

with the Federal Lands Policy and Management Act—Public Law

94-579—also eliminated restrictive requirements for the use of these

funds and instead directed States to establish a priority use for subdivisions of the State socially or economically impacted by energy

developments on the Federal lands.

This linkage of the mineral leasing funds to development of coal

and other Federal energy leases is an important element for general

purpose local governments to be able to participate and provide the

facilities and services required by Federal energy developments.

The NACO studies have demonstrated that the local property tax

base of county governments is inadequate to meet the financial requirements for law enforcement, social and medical services, roads,

et cetera, required for expanded coal and energy developments—

especially in public land counties.

The 94th Congress clearly recognized this linkage when it established a priority for the use of the mineral leasing funds and authorized

use of the funds for general local government services.

Section 317 of the Federal Lands Policy and Management Act also

provided for loans to local governments "in advance" of energy

impacts, with these loans to be paid off with future mineral lease

funds. These programs have been reflected in the Federal budget for

fiscal 1978. The Office of Technology Assessment study could have a

bearing on how they are implemented.

NACO believes the subcommittee should investigate the following

questions concerning this issue.

1. What portion of the Federal mineral leasing receipts were made

available to general purpose local governments prior to the amendments in the 94th Congress?

2. What portion of these receipts are now being made available to

general purpose local governments?

3. What mechanisms have the States enacted to establish the required priority for subdivisions socially or economically impacted by

Federal coal and other energy developments?
26

4. Will States deduct the energy impact loan amounts from mineral

leasing funds counties would ordinarily receive under provisions of the

Mineral Leasing Act?

5. Will the Mineral Lands Leasing Act loan program be implemented in time to help local governments provide needed local

planning, services, and facilities required by increased energy

development?

Enactment of the legislation sponsored by you, Senator Haskell,

and you, Senator Hansen, will be an important step to make sure

loan funds will be available when they are needed.

We urge you to ask the Office of Technology Assessment to consider

these questions in their study efforts so that this information will be

available in the implementation of the energy impact loan program.

Thank you, Mr. Chairman, for this opportunity to present testimony

for the National Association of Counties. We are available to answer

any questions on specific provisions in the proposed legislation.

I would like to turn to Mr. Foster for his specific statement.

Senator HASKELL. We are delighted to have you. We will hear

everybody and then ask questions. Is that all right with you?

First I would like to ask Senator Hansen if he has a statement.

STATEMENT OF HON. CLIFFORD P. HANSEN, A U.S. SENATOR FROM

THE STATE OF WYOMING

Senator HANSEN. Yes, Mr. Chairman. I do have a statement. Let

me say, Mr. Chairman, and to our distinguished panel as well, I have

been at an earlier meeting this morning and I am sorry I could not

have been here right at 9. I do join with you in welcoming to the

committee this morning two knowledgeable, extremely experienced,

and very skilled members of county government.

I might add, parenthetically—Elmo, you may not know this—but

back in 1943 I persuaded the State senator from Teton County to

introduce legislation which made it possible for counties in Wyoming

to pay dues to NACO. Prior to that time, it was against the law. It

may have even been unconstitutional, I have forgotten. But anyway

we got the necessary legislation enacted to enable Wyoming to join

with other counties in supporting the very worthwhile effort you have

carried on so diligently and successfully.

Mr. Chairman, the distinguished late Senator from Montana, Mr.

Metcalf, you, and I were sponsors of Public Law 94-579 amendments.

We are -pleased the see the administration support this concept in

principle.

Early last year we asked Secretary Andrus to seek funding for the

loan provisions in section 317(c) of the Federal Lands Policy and

Management Act. We also asked guidelines and regulations be written

to help the many communities and political subdivisions obtain loans

to address the multiple problems that face many of these areas as

energy fuels are extracted from the Federal estate, State, and private

lands.

The provision, section 317(c), permits these communities to borrow

against the future return of mineral royalties and allows these areas

access to the dollars needed up front when the need is the greatest

before production or extracting the revenues returned.

Mr. Chairman, we ask these questions in a letter which I would ask

be printed in the record along with the Secretary's response of February 23, 1977, which indicated support of the concept.
27

Senator HASKELL. Without objection, that will be done.

[The letters referred to by Senator Hansen follow

U.S. SENATE,

COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,

Washington, D.C., January 27, 1977.

Hon. CECIL ANDRUS,

Secretary, Department of the Interior,

Washington, D.C.

DEAR MR. SECRETARY: AS co-authors of the mineral revenue sharing section of

Public Law 94-579, the Federal Land Policy and Management Act, we are writing

to urge prompt implementation of the provision authorizing loans to States and

subdivisions for impact alleviation projects (section 317(c)).

This section permits States and political subdivisions to borrow now against

future mineral royalty entitlements so that there will be available the necessary

"front-end" money to deal with immediate and urgent impact problems. Section

317 also gives State legislatures more flexibility in deciding how this income will

be spent.

The legislatures of several States experiencing impact problems are now in

session or will be convening soon for limited periods of time. Proposals to allocate

the States' 50-percent share of royalties and to deal generally with energy impact

problems will be high-priority concerns during these legislative sessions.

In order for members of these State legislatures to do the best job of applying

the provisions of section 317 to existing and anticipated impact problems in their

States, they need to know how the impact loan program will be administered.

We urge you to develop Federal guidelines, at the earliest possible date, that

would indicate how the loan program would work.

Further, we urge you to recommend to the President that funding for the loan

program be included in the revised executive budget.

The need for loan provisions is not lessened by increased mineral receipts. These

increases are not realized immediately and the impact is being felt now. This is

the whole rationale for the loan provision.

We are aware that the previous administration felt the three percent maximum

interest rate was too low. We would be prepared to support a change in the law

to allow interest equal to the prime rate paid by the Federal Government.

With kind regards,

Sincerely,

Hon. CLIFFORD HANSEN,

U.S. Senate,

Washington, D.C.

DEAR SENATOR HANSEN: Thank you for your letter of January 27 concerning

section 317 of the Federal Land Policy and Management Act of 1976.

I agree with the principle of providing some form of assistance to States and

their political subdivisions where activities under the Mineral Leasing Act create

unplanned social and economic burdens. The problem is frequently magnified

by the long delay in local tax revenue increases after the impacts have occurred.

As you know, the budget submitted by the previous administration included

no funds for section 317(c) loans and proposed repeal of that subsection. However, implementation of section 317(c) is currently linder consideration by the

Department of the Interior and the Office of Management and Budget as part

of the process of developing 1978 budget amendments to be proposed by President Carter.

Officials of the Department have consulted with representatives of the western

Governors, the National Governors' Conference and local officials concerning

section 317(c) and other forms of impact assistance. These working relationships

will be maintained throughout the design and implementation of a program

pursuant to section 317(c).

We will continue to keep you informed as we progress.

Sincerely,

CECIL D. ANDRUS, Secretary.

CLIFFORD P. HANSEN, U.S.S.

LEE METCALF, U.S.S.

FLOYD K. HASKELL, U.S.S.

U.S. DEPARTMENT OF THE INTERIOR,

OFFICE OF THE SECRETARY,

Washington, D.C., February 23, 1977.
28

Senator HANSEN. Thank you, Mr. Chairman. I welcome my longtime friend, County Commissioner Elmo Foster.

STATEMENT OF ELMO FOSTER, COMMISSIONER, LARAMIE COUNTY,

WYO., ACCOMPANIED BY JIM EVANS, ASSOCIATE DIRECTOR,

NATIONAL ASSOCIATION OF COUNTIES, WASHINGTON, D.C.

Mr. FOSTER. Thank you, Mr. Chairman, and Senator Hansen.

I feel it a privilege to be able to come here and appear before you. I

have eight things here and I would like to present them. NACO's

preference would be for the low interest rate in the S. 2913 bill.

However, we do not oppose use of the prime rate if necessary to

fund this program. We believe it is critical to provide the loan funds as

up-front development money. NACO protested the linkage in S. 2914

to the general revenue sharing and payments in lieu of taxes for the

repayment of loans if default occurs because mineral leasing is stopped.

It would be a double burden on the local government. Repayment

should be limited to the Mineral Leasing Act itself.

Loans must be available to counties impacted no matter where the

energy activity takes place, such as Uinta and Laramie Counties.

The repayment amounts must not be deducted by States from the

counties' shares of current Mineral Leasing Act funds.

Under the priority provision for the local communities, the counties

are to receive funds for social and economic impacts. In Colorado,

counties now receive up to $200,000 per year of mineral leasing funds.

Wyoming is not included in such a thing as that.

The loan amounts should not be deducted from the payment in lieu

of formula; only direct allotment of mineral leasing funds should be

deducted. The committee should be aware that counties now receive

only a small portion of the mineral lease funds.

The committee should investigate the disposition of the 50-percent

share of the mineral lease funds to see that States give a priority use

to local communities socially and economically impacted by energy

development activities as required by the Federal Land Policy and

Management Act.

NACO supports provisions in both bills that State loans would be

for both planning and project costs. Loans would not exceed 90 percent

funding for a project. Loans would be repaid from mineral leasing Act

funds within 20 years. Loans would be available to use as matching

funds for other programs, Federal programs.

That is about the sum of it. Thank you.

Senator HASKELL. Thank you very much, Mr. Foster. I would like

to emphasize that, although Senator Hansen and I introduced the

administration's bill, it was by request and that does not mean we

endorse the bill. We obviously prefer our own bill.

Our bill has one particular variation that I do not believe has been

addressed. We allow loans both to States and local government whereas

the administration allows it only to States and then to be distributed

by the States to local governments. That is one area on which I would

like to hear from both of you gentlemen as well as the administration

and I am sure Senator Hansen has other areas. Could you gentlemen

comment on that particular difference?

Mr. BRENNAN. Senator, I think that is the critical point of both

bills. The implementation to give the money to the local governments.
29

For instance, Colorado last year received back from the Federal Government $14.7 million from the Mineral Leasing Act.

Those moneys were distributed into different funds. Twenty-five

percent of that money went to the State school funds. Ten percent

went to the conservation fund. Fifteen percent went to the new impact assistance program.

If, for instance, Rio Blanco County wanted to borrow $4 million,

could Rio Blanco County come and borrow the $4 million or is Rio

Blanco County going to have to go to the State to borrow this money,

which I foresee is going to be the bottleneck.

Where these funds are already allocated to these different funds,

in the sense we are borrowing money that is already allocated to go

to these specific funds, whether or not we can sell the Governor or

whoever is responsible at the State level to OK these funds, is going

to be the problem of the whole thing, as I see it.

Senator HASKELL. Thank you, Mr. Brennan. Mr. Foster, what

would be you opinion?

Mr. FOSTER. I believe we should have it provided directly to the

counties. It gets entangled in the States, if they have to set up another

agency and we get it lost if we go that way. It is seldom you ever get

it back down to the counties when you have it set up.

Senator HASKELL. I wonder if Mr. Meierotto would mind stepping

up here. I would like to get the administration viewpoint on that particular issue.

Mr. MEIEROTTO. Mr. Chairman, we have taken the view of having

funds go directly to the States and the States allocate according to

how they see the needs. From an administrative standpoint I think

we would have a problem, or we would have to look at the cost of administering the act with dealing with so many local units of government and so many hidden entities.

If we go to the States we are dealing with, say, a dozen States. If

we work with all of the counties and the various councils of government, we may be talking about 400 different units we would be dealing

with. Consequently the cost of our administration of the program

would go up.

As I said, we have had the position in the past, Mr. Chairman, of

dealing directly with the States and apportion as to how they feel

the impacts are.

Senator HASKELL. Your cost of administration would go up and

the States would go down. So it might be a tradeoff.

Mr. EVANS. Could I add one comment? As Commissioner Foster

indicated, one of our concerns is that the current history of the Mineral

Leasing Act program itself, very few dollars actually get through or

pass through to general purpose local government. That is one of the

reasons why this testimony supported the provision in your bill, that

local communities can apply directly for impact assistance. It could

be coordinated with the State program but the opportunity ought to

be available for direct application.

Senator HASKELL. I think the questions set forth in Mr. Brennan's

testimony, he would suggest the Office of Technology Assessment be

asked. I will ask that staff prepare a letter where we do ask those

questions of OTA.

I think that has quite a direct impact on how we do this thing.
30

Mr. BRENNAN. 1 agree with that.

Senator HANSEN. Mr. Chairman, I would like to compliment the

distinguished witnesses for their testimony and to underscore the

points they have made. One, the rate of interest that is to be paid.

That is critically important.

I appreciate the high priority you gave it in your testimony. Second,

in Wyoming, I am not certain of the situation nationwide, but in Wyoming we have constitutional limitations as I recall that govern the

bonding capacity of a unit of government. It cannot exceed a certain

percentage of assessed evaluation.

Obviously, Mr. Chairman, one of the goals that we sought to achieve

in the bill, you and I introduced on our own initiative—not by request—is to make certain as we do in subsection (c), subsection (6),

the loan will be secured only by a pledge of the revenues recieved by

the State or political subdivision.

That clearly differentiates and separates the repayment responsibility insofar as State and county government is concerned for the

overall limitation we have. That is of concern to you, too, is it not,

Elmo?

Mr. FOSTER. Yes.

Senator HANSEN. Otherwise, the opportunity a county might have

to take advantage of front-end money would be greatly minimized if

there were ongoing bond issues or schools or hospitals or whatever,

they reduce greatly the ability of a county, I should say, to use the

money that is so critically important early on.

I think also there is merit in the opportunity that our bill has and 1

would ask if that is also shared by the members of the panel? I think

you did indicate it. Let me read part of that:

Notwithstanding any other provision of law, loans made pursuant to this subsection may be used for the non-Federal share of the aggregate cost of any project

or program otherwise funded by the Federal Government which requires a nonFederal share for such project or program and which provides planning or public

facilities otherwise eligible for assistance under this subsection.

It occurs to me as I recall the problems of county government, oftentimes the ability of a county to take advatnage of a Federal program is

restricted by the matching funds that are required. When a county is

strapped, as indeed we know they are in Wyoming, when this impact

hits, when people move in and everything needs to be done quickly,

you just cannot come up with that kind of dough to match and qualify

for Federal funds that may have been tailored specifically for the purpose of one that is clearly of evidence in the county.

I would ask you, Elmo, is that about your opinion? That this provision by being able to use these funds will help?

Mr. FOSTER. Yes.

Mr. BRENNAN. That is a very good point.

Senator HANSEN. 1 think our witnesses have done an excellent job

in making a good case for our bill, Mr. Chairman.

Senator HASKELL. I think so, too. I would like to ask one question

of the administration. Our understanding of the President's position

is he stood ready to implement this program with just one change,

and that was the interest rate and we, and by "we" I mean Senator

Hansen and the late Senator Metcalf and myself, agreed to raise

that interest rate. We were considerably dismayed when the admin-
31

istration submitted a bill in August where significantly reduced the

scope of the program.

Maybe you had nothing to do with this. The President tells us one

thing and then something else comes from the Department of the

Interior. I wondered if you had any explanation for this difference.

The President says all we need to do is change the rate of interest.

Senator Hansen and the late Senator Metcalf and I agree. Now you

folks come in with a bill which substantially reduces the scope of the

program. Do you have any answer for that?

Mr. MEIEROTTO. I don't know if I can shed much light on that

other than we have had a commitment to this program. We have

included it in fiscal year 1979 budget currently pending before the

Congress.

Senator HASKELL. In view of the history of this, and speaking for

myself—and I imagine Senator Hansen might react the same way—we

are really not interested in doing much more than changing the interest rate here. Senator Hansen, Senator Metcalf, and I agreed the

interest rate would be changed but not the scope of the program. I am

afraid you have an unsympathetic committee. I have to let you know

that.

Mr. MEIEROTTO. Yes, Senator.

Senator HASKELL. I agree with Senator Hansen. I agree that our

witnesses have done an excellent job. I have no further questions.

Senator HANSEN. I have no further questions.

Mr. BRENNAN. I would like to emphasize, Senator, the implementation of this money is just as important as the money itself. The

mechanism is local forms of government.

Senator HASKELL. I understand that. We certainly thank all of

you for appearing. The hearing will now be adjourned.

[Whereupbn, at 9:35 a.m., the hearing was adjourned.]

[Subsequent to the hearing, the Department of the Treasury supplied

the following:]

Hon. HENRY M. JACKSON,

Chairman, Committee on Energy and Natural Resources, U.S. Senate, Washington,

D.C.

DEAR MR. CHAIRMAN: The Department would like to volunteer comments on

S. 2913, "To amend section 317(c) (1) of the Federal Land Policy and Management

Act of 1976 to conform the interest rate therein to the yield on certain tax-exempt

bonds, and for other purposes."

Under existing law, a portion of the Federal receipts from the development of

mineral resources on Federal lands is earmarked to the State in which the Federal

lands are located. Section 317(c) of the 1976 act authorizes the Secretary of

the Interior to make loans to State and political subdivisions in order to relieve

social or economic impacts occasioned by the development of mineral resources on

Federal lands. Such loans bear interest at a rate not to exceed 3 percent and are

repayable from the earmarked receipts. The introductory remarks of the sponsors

of the bill and budget documents indicate that (1) The program has not been

implemeted because of the 3-percent interest rate, (2) a supplemental appropriation of $40 million for fiscal year 1979 has been proposed for later transmittal

pending enactment of an amendment which would base the interest rate on current

market yields on outstanding Treasury obligations, (3) the administration has

proposed legislation (S. 2914) which would make the necessary amendments to

the interest rate provision and which contains other amendments to limit loans to

cases of demonstrated need and to more adequately protect the Government's

interests, and (4) S. 2913 is intended as an alternative to the administration's M.

DEPARTMENT OF THE TREASURY,

OFFICE OF THE GENERAL COUNSEL,

Washington, D.C., June 12, 1978.

Mar
32

S. 2913 would amend section 317(c) to provide that loans "shall bear interest

equivalent to the lowest interest rate paid on an issue of at least $1,000,000 of

tax-exempt bonds of a State or local government or any agency or subdividion

thereof within the preceding calendar year." The introductory remarks of the sponsors of the bill indicate concern that under the administration-proposed Treasury yields interest rate formula, States utilizing the program would be required to

pay higher interest rates than they could obtain on their own in the market. It

should be recognized that this result is consistent with the objective of the program.

The purpose of the program is to assure that an inability to borrow prior to receipt

of the earmarked mineral revenues does not preclude the provision of public facilities made necessary by the mineral development. Thus, borrowers that can obtain

more favorable rates on their own should not rely on Federal loans but should

seek financing in the private market. This will minimize the demands for Federal

loans and minimize Federal competition with and duplication of the activities of

private lenders.

The interst rate amendment proposed in S. 2913 is technically deficient and would

be extraordinarily difficult to administer. Market interest rates reflect the credit

rating of the borrower and the maturity of the loan. Under normal market conditions, the lowest interest rates are on bonds of shortest maturity and highest quality,

and highest interest rates are on bonds of long maturity and poor quality. Thus,

under the "lowest interest rate" language contained in the bill, all borrowers would

receive an interest rate associated with very short-term borrowings regardless of

the maturity of the proposed loans, which are expected to be long term. Moreover.

because of the various pricing practices and sales techniques used in the municipal

market, the nominal "interest rate" on a municipal bond issue may be substantially

different from the true interest rate or the "net interest cost" to the borrower.

In order to discharge properly his responsibility to determine the "lowest interest

rate paid" the Secretary of the Interior would have to divert substantial resources

to monitor the large volume of issues in the municipal bond market. In 1977 there

were over 5,000 issues of tax-exempt bonds.

The administration bill has amendments regarding loan to value ratios, loan

maturities, findings of reasonable assurance of repayment, and withholding Federal

payments in event of default. These amendments are essential in order to minimize

Federal exposure to loss. S. 2913 does not contain those safeguards.

In view of the foregoing, the Department would be strongly opposed to S. 2913

and would recommend instead prompt enactment of the administration's bill.

The Office of Management and Budget has advised that there is no objection

from the standpoint of the administration's program to the submission of this

report to your committee.

Sincerely yours,

HENRY C. STOCKWELL, Jr.,

Deputy General Counsel.