B-145812, JUN. 1, 1961

B-145812, JUN. 1, 1961

TO ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY:

REFERENCE IS MADE TO YOUR LETTER OF MAY 9, 1961, REQUESTING A DECISION CONCERNING THE APPLICATION TO CERTAIN EXISTING AGREEMENTS COVERING LOANS OFFERED BY THE COMMUNITY FACILITIES ADMINISTRATION, HOUSING AND HOME FINANCE AGENCY, TO STATE AND LOCAL PUBLIC AGENCIES UNDER AUTHORITY OF TITLE II OF THE HOUSING AMENDMENTS OF 1955, 69 STAT. 642, 42 U.S.C. 1491, ET SEQ., OF AN ADMINISTRATIVE REGULATION REDUCING EFFECTIVE FEBRUARY 2, 1961, THE RATE OF INTEREST APPLICABLE TO SUCH LOANS.

THE CITED ACT AUTHORIZES THE HOUSING AND HOME FINANCE ADMINISTRATOR, ACTING THROUGH THE COMMUNITY FACILITIES ADMINISTRATION, TO PURCHASE THE SECURITIES AND OBLIGATIONS OF, OR MAKE LOANS TO, STATES, MUNICIPALITIES, AND OTHER PUBLIC AGENCIES TO FINANCE SPECIFIC PUBLIC PROJECTS UNDER STATE OR MUNICIPAL LAW. RESTRICTIONS ARE PLACED UPON STATES AND LOCAL PUBLIC AGENCIES DESIRING ASSISTANCE UNDER THE PROGRAM TO THOSE THAT ARE UNABLE TO SECURE SUCH FINANCING PRIVATELY ON REASONABLE TERMS. THE LOANS MUST BE OF SUCH SOUND VALUE AS TO GIVE REASONABLE ASSURANCE OF REPAYMENT AND MATURITY DATES OF THE LOANS MAY NOT EXCEED 40 YEARS. THE INTEREST RATES APPLICABLE TO THE SECURITY OFFERED FOR THE LOANS ARE ESTABLISHED BY THE ADMINISTRATOR.

YOU STATE THAT IN ACCORDANCE WITH THE DIRECTIVE OF THE PRESIDENT CONTAINED IN HIS MESSAGE TO THE CONGRESS RELATIVE TO PROPOSING A PROGRAM TO RESTORE MOMENTUM TO THE AMERICAN ECONOMY, PAGE 5 OF HOUSE DOCUMENT NO. 81, 87TH CONGRESS, A REDUCTION WAS MADE EFFECTIVE FEBRUARY 2, 1961, OF 1/4 OF 1 PERCENT IN THE INTEREST RATES TO BE CHARGED ON NEW LOANS UNDER THE PUBLIC FACILITY LOANS PROGRAM. THE NEW INTEREST RATES ARE 4 1/8 PERCENT FOR GENERAL OBLIGATION BONDS AND 4 3/8 PERCENT FOR REVENUE BONDS.

YOU FURTHER STATE THAT PRIOR TO FEBRUARY 2, 1961, APPROXIMATELY 51 LOAN AGREEMENTS TOTALING ABOUT $17 MILLION HAD BEEN APPROVED, BUT THAT THE LOANS HAD NOT BEEN CONSUMMATED BY THE PURCHASE AND DELIVERY OF BONDS REQUIRED AS SECURITY FOR THE LOANS; AND THAT CONSTRUCTION OF THE PROJECTS HAD NOT BEEN UNDERTAKEN. THE PROSPECTIVE BORROWERS, YOU SAY, IN MANY INSTANCES HAVE REQUESTED YOUR AGENCY TO APPLY THE LOWER RATES OF INTEREST TO THOSE LOAN AGREEMENTS. IT IS SUGGESTED THAT IF THE REQUESTS ARE DENIED, IT IS LIKELY THAT THE BORROWERS WILL WITHDRAW THEIR APPLICATIONS FOR LOANS, WHICH MAY BE DONE UNDER EXISTING PROCEDURES, AND FILE NEW APPLICATIONS WHICH WOULD BE ELIGIBLE FOR THE NEW INTEREST RATES.

YOU EXPRESS THE VIEW THAT IT WOULD BE IN THE GOVERNMENT'S INTEREST TO AMEND THESE LOAN AGREEMENTS SO AS TO AFFORD THE BORROWERS THE BENEFIT OF THE NEW INTEREST RATES. THIS CONCLUSION IS BASED UPON THE FOLLOWING CONSIDERATIONS:

"/1) THE REDUCTION OF INTEREST RATES WILL SERVE AS A STIMULUS TO EARLY START OF CONSTRUCTION OF THE PROJECTS IN QUESTION, AND THUS ACCELERATE ECONOMIC ACTIVITY, RECOVERY, AND GROWTH, THEREBY ACCOMPLISHING THE PRIMARY PURPOSES OF THE PRESIDENTIAL MESSAGE AND DIRECTIVE.

"/2) THE REDUCED INTEREST RATES WILL ENHANCE THE SOUNDNESS OF THE LOANS AND ADD TO REPAYMENT ASSURANCE.

"/3) IT MAY BE POSSIBLE TO EFFECT REDUCTIONS IN THE PRESENT MATURITY SCHEDULES OF THESE TENTATIVE LOANS BY VIRTUE OF THE SMALLER ANNUAL DEBT SERVICE CHARGES RESULTING FROM THE LOWERING OF THE INTEREST RATES.

"/4) INCREASED ADMINISTRATIVE EXPENSES (WHICH WOULD ARISE IF THE BORROWERS WITHDREW THEIR CURRENT APPLICATIONS AND FILED NEW ONES) WOULD BE AVOIDED.'

FROM THE FOREGOING IT APPEARS THAT THE ESTABLISHED PROCEDURE FOR MAKING PUBLIC FACILITY LOANS TO STATES AND LOCAL PUBLIC AGENCIES CONTEMPLATES THE ENTERING INTO OF A LOAN AGREEMENT WHICH IS CONDITIONED UPON THE SUBSEQUENT PURCHASE BY THE GOVERNMENT FROM THE BORROWER OF BONDS ISSUED AS SECURITY FOR THE LOAN. THUS, UNDER THE TERMS OF THE LOAN AGREEMENT EXAMPLES OF WHICH WERE MADE AVAILABLE TO US INFORMALLY, IT IS CLEAR THAT NO ENFORCEABLE OBLIGATION ATTACHES TO EITHER THE GOVERNMENT OR THE BORROWER IN RESPECT OF GRANTING OR ACCEPTING THE LOAN REQUESTED UNTIL THAT CONDITION HAS BEEN PERFORMED.

IN VIEW THEREOF AND HAVING REGARD FOR THE FACT THAT, AS INDICATED IN YOUR LETTER, THE BORROWERS LEGALLY MAY ELECT TO WITHDRAW THEIR APPLICATIONS FOR LOANS AT ANY TIME, EVEN AFTER APPROVAL THEREOF BY THE GOVERNMENT BUT PRIOR TO THE PURCHASE AND DELIVERY OF BONDS ISSUED AS SECURITY FOR THE LOANS, AND FILE NEW APPLICATIONS WHICH WOULD BE ELIGIBLE FOR THE LOWER INTEREST RATES, WE AGREE WITH YOUR VIEW THAT AMENDMENT OF THE LOAN AGREEMENTS UNDER CONSIDERATION SO AS TO APPLY THE LOWER INTEREST RATES WOULD NOT OPERATE TO THE DETRIMENT OF THE GOVERNMENT. ACCORDINGLY, IN SPECIFIC ANSWER TO YOUR QUESTION YOU ARE ADVISED THAT WE SEE NO OBJECTION TO APPLICATION OF THE NEW REDUCED INTEREST RATES WITH REFERENCE TO THE SUBJECT LOAN AGREEMENTS IN THE CIRCUMSTANCES OUTLINED ABOVE.