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APPROPRIATIONS-CROP PRODUCTION AND HARVESTING

LOANS; ADMINISTRATION OF SUGAR ACT OF 1937

(H. J. Res. 571)

HEARINGS CONDUCTED BY THE SUBCOMMITTEE, MESSRS. EDWARD T. TAYLOR (CHAIRMAN), CLIFTON A. WOODRUM, JOHN J. BOYLAN, CLARENCE CANNON, LOUIS LUDLOW, THOMAS S. MCMILLAN, J. BUELL SNYDER, JOHN TABER, ROBERT L. BACON, AND RICHARD B. WIGGLESWORTH, OF THE COMMITTEE ON APPROPRIATIONS, HOUSE OF REPRESENTATIVES, IN CHARGE OF DEFICIENCY APPROPRIATIONS, ON THE DAYS FOLLOWING, NAMELY:

JANUARY 19, 1938.

FARM CREDIT ADMINISTRATION

STATEMENTS OF S. M. GARWOOD, PRODUCTION CREDIT COM

MISSIONER, AND PEYTON R. EVANS, GENERAL COUNSEL

FARMERS' CROP PRODUCTION AND HARVESTING LOANS, FISCAL YEARS

1938 AND 1939

The CHAIRMAN. We have a Budget estimate for crop loans submitted in House Document No. 479.

If you care to make some preliminary statement concerning the matter you may do so.

Mr. GARWOOD. As to the legal part of this, Mr. Chairman, I would like to have our general counsel, Mr. Evans, tell you the whys and wherefores. I can answer on the administrative problem.

The Chairman. Do you desire to have him tell us the whys and wherefores first? Mr. Garwood. Yes, sir. The CHAIRMAN. All right, sir. Proceed. Mr. Evans. Last year, Mr. Chairman, Congress passed the usual crop-feed and seed-loan bill, and the title to the bill read as follows: "To provide for loans to farmers for crop-production and harvesting purposes during the year 1937, and for other purposes."

The body of the act did not contain any limitations as to time in making these loans. Had it not been for the title, there would have been no question that the law could have been used continually until Congress saw fit to repeal it.

Mr. Cannon. It is well established, is it not, that the title has no force and effect?

Mr. Evans. That is true. Vir. CANNON. And that the text governs. Vr. Evans. That is perfectly true. When the appropriation act was passed, the appropriation contained the title, and also referred to the payment of expenses

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Mr. CHAIRMAN, The act is limited by the amount that was authorized.

Mr. Evans. That is right, and the history of the law cast a serious doubt on whether or not it was intended by Congress that this should be a continuing law, or whether it should be confined to the calendar year 1937. Part of the appropriation was to be left available until July 1, 1938, for the payment of expenses.

Due to the uncertainty of the situation, I discussed the matter with Mr. Shield, with the General Accounting Office, and with the Bureau of the Budget, and it was felt that there was a serious question as to whether the power to lend did not cease and determine as of December 31, 1937.

For that reason it was deemed advisable to make specific provisions for continuing the appropriation after January 1938, and it is for that purpose that we are here this morning. A resolution has been drafted

The CHAIRMAN. You do not seek to have it unlimited or in perpetuity? Mr. Evans. Not in perpetuity.

Mr. CANNON. I notice that you have recommended a limitation in this provision be made for the period July 1, 1938, to June 30, 1939.

Mr. Evans. Yes, sir. If the resolution is adopted as it was sent up in the President's message, the appropriation and the right to make loans will cease and determine as of July 1, 1939.

May I say that the legal situation as it developed makes it a matter of appropriation rather than of substantive law, so this resolution would merely make the appropriation available longer than it was originally provided.

Mr. CANNON. The act of January 29, 1937, undoubtedly is a continuing act. In paragraph (c) of section 2, Mr. Chairman, as the clerk has just pointed out, there is specific language that bears that out. Here is the section:

No loan made under the provisions of this act to any borrower shall exceed $400, nor shall a loan be so made in any calendar year which, together with the unpaid principal on prior loans so made to such borrower in that year shall exceed $400 in amount.

So it is very evident that the act of January 29, 1937, does not expire and this would make the latter part of the suggested provision in the budget estimate extending the act of January 29, 1937, until June 30, 1939, unnecessary. That would be superfluous, would it not?

Mr. EVANS. That would be superfluous, if you want to leave the original law in its present form.

Mr. CANNON. All we need to do is extend the money. Of the original fund, how much is now available?

Mr. GARWOOD. Here is the detail, in these tables. I do not know how much of that you wish me to go into, but that will cover everything that I can say.

Answering the question as to the amount available, as of December 31, there was $32,000,000 available, and there will be collected during this year approximately $2,500,000 in time to be reloaned in 1938. That gives the Administration a total of $34,500,000 for loans.

The annual cost of handling the crop loan system is approximately $4,000,000.

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Mr. Ludlow. What percent of these loans are paid on maturity, approximately?

Mr. Garwood. Our past collections have averaged, from 1921 through 1936, about 66 percent. We have outstanding crop loans uncollected of $114,516,169, numbering 1,119,510 loans, and the drought feed loans that we made in 1934 and 1935 are uncollected to the extent of $57,113,320, representing loans numbering 233,077.

That represents a total in loans outstanding of $171,629,489, numbering 1,352,587 loans.

Mr. WiGGLESWORTH. Does that mean that those loans are delinquent?

Mr. Garwood. That means that they have been in existence from 1921 through 1937.

Mr. WIGGLESWORTH. What percentage of them may we expect to
collect?
Mr. Garwood. A small percentage of them.
Mr. Taber. What do you mean by that?

Mr. Cannon. As a matter of fact, that amount might as well be charged off, might it not?

Mr. GARWOOD. No, sir. We collected last year, on 1936 and prior loans, $6,993,000, and on the drought loans $3,412,398 We are collecting around ten or fifteen million dollars on old loans some of which were made in 1921.

The Chairman. What is the nature of the security that you have for these loans?

Mr. Garwood. None. We take a first lien on the crop for that year. When the crop is gone, there is no security.

Under the drought loans, we loaned $70,000,000 on open notes, with no collateral. Of that, we have collected about $15,000,000, so that you might say that on these loans it is a question of good faith of the borrower whether he pays.

The CHAIRMAN. You have no security at all.

Mr. GaRwOOD. In very few cases. In the years prior to 1932 there were a few loans on which there were liens on dairy livestock, but a very small percentage; not over half a thousand.

Vír. Ludlow. Does the Government attempt, where the borrower does not pay, to realize on the crop security at all?

Mr. Garwood. Yes, sir; we do. We collect many of those accounts. If they have a good crop year our collections on old loans would probably run up to $20,000,000. If you will look at the maps that I have handed you you can see where the

It is in the area colored blue. That is the reason why I have said that it is doubtful, because it is in the Middle West in the drought States.

The CHAIRMAN. That takes in the dust bowl."

Mr. Garwood. Yes, sir. There is about $70,000,000 outstanding in five States.

Mr. Cannon. Are there any requirements in connection with your current soil-conservation agreements with these farmers which make it obligatory for them to liquidate these bad obligations in order to take advantage of payments?

Mr. GARWOOD. No, sir. In case of a default of a crop-loan borrower—where he has made a crop and has not paid us--the procedure is to turn it over to the Comptroller General for an offset, but only in cases of bad faith.

Mr. Cannon. The law provides that discrimination shall be made

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in connection with the drought areas, or the areas to be selected by the Government. What discretion have you made as to areas in making these loans?

Mr. GARWOOD. We did not understand that the law meant that. We make no discrimination. The President can remove that limit of $400, as I understand it, in areas that he decides are drought areas, but every farmer who can show that he has the facilities and ground, and that he cannot obtain credit from any other source, is eligible to receive a crop loan.

Mr. CANNON. Under what circumstances and in what cases have you exceeded the $400 provided for under that act?

Mr. GARWOOD. None that I know of?

Mr. CANNON. You have never taken advantage of that provision in the act at all?

Mr. GARWOOD. No, sir. Our average loan runs around $200 throughout the United States.

Mr. CANNON. There is quite a disparity as to the amount loaned in the various States.

Mr. GARWOOD. Yes, sir.

Mr. CANNON. I notice from some data submitted here that your loans in excess of $500,000 have been confined to 15 States.

Mr. GARWOOD. $500,000 in total amount; yes, sir.

Mr. CANNON. And that the largest amount has been loaned in the State of North Dakota, where you loaned $5,523,415. The larger loans in some States are merely due to the fact that you have had more applications from those States, and that the situation in those States justifies more loans?

Mr. GARWOOD. No, sir. I do not think that those States are entitled to that amount of money. But there is nothing that I can do about it under the law. If a man qualifiies, there is nothing in the world that we can do, because he has produced evidence that he cannot get credit anywhere else, and he has the ground and the equipment and we have to make the loan to him.

This year we put 17 percent of our total amount of money in North Dakota. They had a fairly good crop, but the minute we started collecting, the Governor issued a moratorium, which was given wide publicity. He sent a copy to the emergency crop loan office, which gave the people absolute protection. Whether the moratorium was justified or not, we could not collect. The moratorium is there.

The CHAIRMAN. And everybody takes advantage of it?
Mr. GARWOOD. Yes, sir; and there is no cooperation.

Mr. CANNON. In your opinion, the farmers of North Dakota are in a position to liquidate as large a percentage of their loans as the farmers in the rest of these 15 States?

Mr. Garwood. This year in North Dakota the farmers, according to a check that we have made, could have liquidated on their crop basis as well as the farmers in the South could have, on 7-cent cotton.

The CHAIRMAN. They were relieved of that payment by the action of the Governor of the State?

Mr. GARWOOD. Yes, sir; and I would like to make this statement, that under this resolution and this law, as long as the Governor's moratorium in North Dakota is outstanding, administratively I would not be justified in making a loan in that State this year.

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Mr. Ludlow. Do we understand that in North Dakota they have not liquidated anything at all?

Mr. GARWOOD. We have collected, out of the $5,000,000 about a million and a half, but you can see from the statement the total

amount of money loaned in North Dakota. The collections are just ht out of all proportion to the balance of the United States. ndi

Mr. Cannon. Under the law, have you authority to exercise disce, cretion to refuse to make loans where a farmer complies with all of

the requirements of the law? Have you authority merely on the ground of this moratorium to decline to make further loans?

Mr. GARWOOD. I take this position, that Congress has said in this

act that I must get a first lien on the crop, and in appearing before sion the Agricultural Committee last year, I asked directly and specifically

if it was intended that these loans should be collected, and their 200 answer was that it was. Knowing that this moratorium is there, I

know that I cannot collect the money, even though they make the ned

crop and we have a first lien.

The CHAIRMAN. Are you not justified in refusing to make a loan where they have a moratorium and declare in advance that they can beat the Government out of it?

Mr. GARWOOD. That is my position, sir, that the moratorium was put in effect, after we made the loans, for the purpose of tying up collections, so I take the position administratively that I cannot carry out the provisions of the act. Therefore I cannot make any loan in North Dakota until that moratorium is rescinded.

Mr. Cannon. Unquestionably, the committee would agree with you that you have that authority, and that you are warranted in taking that position. The CHAIRMAN. Has any other State taken that action? Mr. GARWOOD. No, sir. Mr. CANNON. I notice that the second State in size of loans is the State of Texas, where you have made loans in excess of $4,000,000. Is that due to the large area covered in the State, or is it due to more acute conditions in that State than in adjoining territory?

Mr. Garwood. The large area covered, and due to the conditions in the Panhandle. Mr. Cannon. It seems to be in the western part of the State. Mr. Garwood. The Panhandle is the problem, but last year, after a number of years of crop failure that resulted in large outstanding wheat loans, they made a crop just about like that whole section did, and they came in and paid back 72 percent. When they make it,

Those loans are principally in the Panhandle, in the wheat area and in the eastern part.

Mr. Cannon. Is it your opinion that conditions justify a continuation of this loan program?

Mr. GARWOOD. We have about $171,000,000 out. If you notice om the figures there, the large percentage of these loans in the South are

less than $100. Probably 25 to 30 percent of them are under $50. There is no agency lending that small amount of money in the South, except at prohibitive cost. In the Middle West, there are practically

no credit agencies. This money is put out quickly. It must be put ald

out in about 90 days to get a crop started.

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