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F

ed eral

Re

se r ve

Ba

n k

OF DALLAS

D allas, T e x a s, M a y 7 ,1 9 5 1

T o all F in a n cin g In stitu tion s in th e
E lev en th F ed era l R e se rv e D is t r ic t :

T h ere a ppears on th e fo llo w in g p a g e s th e te x t o f B u lletin N o.
3 o f th e n ation al V o lu n ta ry C red it R e stra in t C om m ittee, to g e th e r
w ith th e te x t o f a letter fr o m C harles E . W ilson , D ire cto r, Office
o f D efen se M ob iliza tion , to G ov ern ors o f all states, M a yors o f
m a jo r cities, and financial officers o f p rin cip a l cou n ties and p o lit­
ica l su bdivision s. T h is m a terial is issu ed f o r release in th e m orn ­
in g n ew spap ers, M on d ay, M a y 7, 1951.

Yours very truly,
R . R . G IL B E R T
P resid en t

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

B U L L E T IN N O. 3 OF T H E N A T IO N A L V O L U N T A R Y CREDIT R E ST R A IN T COM MITTEE

POSTPONEM ENT OF ST A T E A N D LOCAL G O V E R N M E N T BORROW ING

T h e V olu n ta ry C redit R estra in t C om m ittee, a t its latest m eetin g on M a y 3, 1951, d iscu ssed th e
m a tter o f cred its to state and loca l gov ern m en ts and un an im ou sly a dopted th e fo llo w in g s ta te m e n t:
In 1951, sta te and local d eb t ou tsta n d in g has rea ch ed an all-tim e h ig h a p p roa ch in g $22 billion .
Since K orea, n ea rly $2 billion o f p u b lic secu rities h ave been sold to ra ise new m on ey.
T o cu rb inflation in 1951, e v e ry segm en t o f th e econ om y , p u blic and p riva te, m u st red u ce e x ­
pen d itu res w h e re v e r p ossible. F in a n c in g in stitu tion s p a r tic ip a tin g in th e V o lu n ta ry C red it R e stra in t
P rog ra m sh ould ca refu lly screen loans to state and local gov ern m en ts as w ell as loans to oth er b o r ­
row ers. E x p a n sion p rog ra m s th a t u nder n orm al con d ition s w ould b e financed w ith ou t h esita tion
should be critica lly exam ined. O rdin ary gov ern m en t, as w ell as p riva te exp en ditu res, sh ould be m et
largely ou t o f cu rren t reven ue ra th e r th an financed b y n ew b o rro w in g . I f n o t u rg e n tly needed f o r
p reserv a tion o f p u b lic h ealth and sa fe ty o r f o r p u rp o se s d ire ctly rela ted to defen se, p u b lic w o r k s
should b e d eferred .
Long Term Borrowing
P r o je c ts f o r exp an d in g o r m od ern izin g m u n icip a lly ow n ed fa c ilitie s con stitu te th e m a jo r d e ­
m and f o r p u b lic capital b orro w in g . R oad s, sch ools, w a ter system s, d rain age and sew age p r o je c ts and
th e lik e a re th e p rin cip a l purposes. In th e m a jo r ity o f cases, local gov ern m en ts can b o rro w o n ly on
th e a pproval o f th e electorate, w h ich m eans th a t lo n g periods interven e betw en first p rop osa ls and
final fin ancin g. In m a n y cases, fu n d s w e re au th orized som e tim e a go to finance p r o je c ts th a t a re ju s t
b ein g p ut u n der w a y or w h ich w ill be sta rted sh ortly. S om e p ro j ects w h ich had v o te r approval b e fo r e
K orea are tu rn in g ou t to be under-financed at p resen t p rices and m a y req u ire addition al fin a n cin g
i f th ey a re ca rrie d fo r w a r d on th e b asis o f origin al plans. E xa m in a tion o f th ese plans m ig h t elim i­
n ate n on essen tial fe a tu re s and avoid m o re b orrow in g.
It is som etim es difficult in individual cases to d ifferen tia te essen tial fr o m n on essen tial ex p e n d i­
tu res and to s o rt ou t th o s e p rog ra m s w h ich sh ould be u n dertaken im m ed ia tely fr o m th ose w h ich it
w ould be desira ble to p ostp on e. T h e r e fo r e , certain tests are su g g e ste d to fin ancin g in stitu tion s c o ­
op era tin g in th e V o lu n ta ry C red it R estra in t P ro g ra m to be used in a rriv in g a t fin ancin g d ecision s in
discu ssion s w ith m u n icip a l a u th orities.
S oldiers’ bon u s issues a re in flation ary under to d a y ’ s con d ition s. T h e y add to th e spen din g p o w e r
o f th e p u b lic th ro u g h th e crea tion o f cred it. It w ould seem desirable to p ostp on e such issu es u n til a
tim e w h en im m edia te p u rch a sin g p ow er is needed to cou n tera ct u n em ploym en t and w h en it m ig h t
be m ore beneficial to th e veteran .
A m o n g th e ty p e s o f sta te and local g ov ern m en t cap ital ou tlays f o r w h ich , in th e ju d g m e n t o f
th e C om m ittee, th e fin ancin g sh ould be p ostpon ed a r e :
1. R eplacem en t o f a n y e x istin g fa cilitie s th a t can con tin u e to p e rfo rm th eir fu n ctio n
d u rin g th e e m erg en cy p eriod .
2. C on stru ction o f fa cilitie s o f th e ty p e s n ot recom m en d ed b y th e D e fe n se P ro d u ctio n
A d m in istra tion — su ch as recrea tion a l fa cilitie s and w a r m em orials.
3. A cq u isition o f sites o r rig h ts -o f-w a y n o t im m edia tely needed.
4. P u rch a se o f p riva tely-ow n ed utilities b y m u n icipalities, w h ich in volves b o rro w in g
to rep lace eq u ity capital.
Short-Term Indebtedness
L en d ers are u rged to en cou rage local gov ern m en ts to balance op e ra tin g bu d gets and th u s to
avoid a n y deficit b orrow in g.
B o rr o w in g in anticip ation o f ta xes o r o th e r reven u es should be held to th e m inim um a m ou n ts
and p eriod s requ ired f o r op era tion o f state and local govern m en ts. Such b o rro w in g sh ould b e d is­
cou ra g ed i f it exceeds reason able exp ectation s o f revenues, since th ere is alw ays th e d an ger th a t defi­
cits m a y th u s be concealed.
T e m p o r a r y b o r r o w in g f o r ca p ita l p u rp oses, unless a n ticip a tin g cu rre n t revenues, sh ould be
ju d g e d b y th e stan dards specified above f o r lon g -term capital loans.

Advance Clearance of Large Issues
R eg ion a l com m ittees h ave been establish ed f o r con su ltation as to w h eth er o r n o t p end ing fi­
n a n cin g is con sisten t w ith th e prin cip les o f th e V o lu n ta ry C red it R e stra in t P ro g ra m .
T h e C om m ittee recogn izes th a t th e estab lish ed p roced u re fo r o rig in a tio n and bid d in g on public
issu es o f sta te and local gov ern m en ts d iffers fr o m o th e r ty p e s o f financing. W e a re a dvised th a t f o r
th is rea son D e fe n se M obilization D ire cto r W ilson has req u ested public bodies to su b m it fin ancin g o f
$1,000,000 o r m ore to th ese reg ion a l com m ittees f o r a ru lin g as to co n fo rm a n ce w ith th e P ro g ra m
b e fo r e n eg otia tion o f p rivate sale or a d v ertisin g f o r p u b lic sale.
F in a n cin g in stitu tion s are req u ested to coop era te in th is m a tter b y n o t p a rticip a tin g in th e p u b ­
lic o r p riva te sale or p u rch a se o f su ch secu rities unless th e issue involved has been cleared b y th e
p ro p osed issu er, or as the resu lt o f an a pp lication f o r a ru lin g b y th e fin ancin g in stitu tion itse lf. A ll
su ch tra n sa ction s, regardless o f size, sh ould be screened b y th e financing in stitu tion s in a ccord a n ce
w ith th e sta tem en t o f principles o f th e P rog ra m , and m a y be re fe rre d to th e reg ion a l com m ittees if
th e fin a n cin g in stitu tion s so desire.
T h e reg ion a l com m ittees available to con sider th ese tran saction s are th e in v estm en t b an k in g r e ­
gion al com m ittees, as fo llo w s :
C O M M IT T E E

C H A IR M A N

T E R R IT O R Y

Percy M. Stewart,
Kuhn, Loeb & Co.,
52 William Street,
New York, New York

The Atlantic Seaboard to and
including Ohio, West Virginia,
Tennessee and Alabama.

M id w e s te r n

D. Dean McCormick,
McCormick & Co.,
231 S. LaSalle St..
Chicago 4, Illinois

Michigan, Indiana, Kentucky,
Mississippi, Missouri, Kansas,
Nebraska, the Dakotas, Minnesota,
Iowa and Colorado.

S o u t h w e s te r n

John H. Rauscher,
Rauscher, Pierce & Co.,
Mercantile Bank Bldg.,
Dallas 1, Texas

Texas, Louisiana, Arkansas,
Oklahoma and New Mexico.

W estern

Frank F. Walker.
Dean Witter & Co.,
45 Montgomery St.,
San Francisco, Calif.

The West Coast States along with
Arizona, Utah, Wyoming, Montana,
Idaho and Nevada.

E a ste rn

Text o f Letter from Charles E. Wilson, Director, Office of Defense Mobilization, to Gover­
nors o f all states, Mayors of major cities and financial officers of principal counties and
political subdivisions.

Gentlemen:
C on trol o f inflation is vita l to n ation al defen se. T h e n ation al d efen se ou tla y w ill g r o w m on th ly
to a p eak in 1952 or later. It w ill take a stead ily in crea sin g sh are o f ou r co u n tr y ’ s p rod u ction and
a bsorb a g r o w in g p ortion o f its m a n p ow er d u rin g th is p eriod . Th u s, to avoid a ru n a w a y rise in
p rices, it is vita l th a t all p ra ctica b le steps be taken t o red u ce o th e r dem and f o r g o o d s and labor at
th is tim e.
I am w r itin g to y ou as th e leader o f a g re a t m u n icip a lity to en list y o u r su p p ort and th e u n der­
stan d in g and coop eration o f y ou r con stitu en ts in th is o b je c tiv e w h ich is secon d o n ly to adequ ate d e­
fe n s e to th e fu tu r e w ell-bein g o f ou r people.
B o rro w in g — ban k loans, insu ran ce loans and b on d issu es— adds dollars o f b u y in g p ow er to t o ­
d a y ’ s incom e. In effect, th e y m o rtg a g e fu tu r e b u y in g p o w e r to spend to d a y . R ega rd less o f th e
soundness o f th e b o r r o w e r ’s cred it, it sh ould be used sp a rin g ly i f at all a t th is tim e. Y o u and th e
citizen s o f y o u r com m u n ities w ill a gree th a t th is ru le applies to state and m u n icip a l b o rro w in g as
w ell as to p riv a te b orrow in g .

On b e h a lf o f ou r G overn m en t I ask y o u to p o stp o n e b o rro w in g , n o m a tte r h o w w o r th y th e p u r ­
pose, i f th e p r o je c t is p ostp on able. W h ile m a n y m u n icipal p r o je c ts a re u rg en t, oth ers m ig h t b e set
b ack to a tim e w h en th e y w ou ld con trib u te to m a in ta in in g a h ig h level o f em p loy m en t in a p eriod o f
slack business. S oldiers’ bonu s p aym en ts, m a n y w ar m em orials, and m u n icipal recrea tion a l p r o je c ts
are b u t a fe w im p orta n t exam ples o f postp on ab le p r o je c ts w h ich w ill serve th e n ation b e tte r a t a
fu tu r e tim e.
Y o u r F ed era l G overn m en t h as set up m a ch in e ry f o r vo lu n ta ry scre e n in g o f loans as to d e sira ­
b ility in this d efen se p eriod . U n d er th e D e fe n se P ro d u ctio n A c t o f 1950, th e B oa rd o f G ov e rn o rs o f
th e F ed era l R eserv e S ystem h as a p p oin ted a V o lu n ta ry C red it R e stra in t C om m ittee. I am a tta ch in g a
bulletin fr o m th a t com m ittee w ith th e u rg e n t req u est th a t you read it and w ith th e h ope th a t y o u
w ill con d u ct y o u r co n stitu en cy ’ s fin ancin g in a cco rd w ith its spirit.
R egion a l com m ittees h ave been ch osen fr o m th e lead in g in vestm en t b an k ers o f th e n ation . T h e y
are at y o u r se rv ice to a dvise as to th e cu rre n t d e sira b ility o f y o u r fin a n cin g. T h e ir n am es a p p e a r in
th e attach ed bulletin.
It is m y earn est req u est th a t, d u rin g th e d e fe n se em ergen cy , e v e ry state and m u nicipal b o r r o w ­
in g o f $1 m illion or ov er receiv e th e a pp roval o f one o f th ese com m ittees b e fo r e b e in g con su m m a ted
eith er b y a sin gle lender o r b y p u blic sale. U n p reced en ted as th is req u est m a y be, y o u r p a trio tic c o ­
op era tion w ill b e a m a jo r con trib u tion to th e fu tu re w elfa re o f ou r cou n try . N o one could h a v e a
h ig h e r aim .
S in cerely,
(sig n e d )

C harles E . W ilson
C harles E . W ilson
D ire cto r