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you want to abandon the Alaska Railroad. If it were not feasible to operate it commercially, it would still be wise from a defense standpoint to maintain it in operating order.
Mr. ABBOTT. The manager of the Alaska Railroad is scheduled to appear here for 35 minutes.
Mr. BARTLETT. For clarification, do you mean closing the railroad from
Mr. ABBOTT. The complete railroad.
Mr. OWEN. No, I don't think that would ever be wise, and I will tell you why. With the establishment of a port here in this area, we should be able to tap a market for coal in the Orient, and possibly for some types of our coal in the Pacific coast which we are precluded from now, and I foresee the time when this Alaska Railroad could very well be a coal road in the sense that some of your stateside are.
Mr. BARTLETT. If a port were established here in full flower, what percentage of the cargo which now comes to Anchorage and which comes through Whittier and/or Seward, destined for the interior or Anchorage, would come to this port?
Mr. Owen. Well, my understanding is that currently now, and it is only an understanding, only 20 percent of the Alaska Railroad's tonnage goes beyond Anchorage. But today it is a one-way haul from the seacoast into the interior; while with a closer port to the sea, I think you are going to find that you are going to have cargo coming back to the seaport to enter into world trade. And again, the thing that is going to make that possible is your power.
Mr. BARTLETT. Is Japan an importer of cool?
Vr. OWEN. I can't tell you where it gets the bulk, Mr. Bartlett, but I know that they bring their coal, or they load coal in Norfolk, Va., bring it through the Panama Canal and to Japan.
Mr. BARTLETT. And you believe with cheaper transportation costs with the establishment of a port here that the Alaska coal mines could be made competitive?
Mr. OWEN. My understanding is that we look to lay it down to Japan at roughly $17.50 a ton, and I believe that the time will come in the not too distant future when we will compete with that figure.
Mr. UTT. Japan does import all its coke and coal from Norfolk, Va., and there is a tremendous market for coke and fuel coal, and if you lay so close to Tokyo, you would capture that coking market if you have coking coal.
Mr. OWEN. I can't tell you how much coking coal we have, Mr. Utt, but I do know that the soft coal demands, of which we have coal that is suitable, amount to about 400,000 tons per year, and that is the market that I am thinking of particularly, because I don't know about the coking coal.
I think the Director of the Bureau of Mines yesterday gave testimony to the effect that very little is known about our anthracite coals.
Mr. ABBOTT. Senator, we are planning to shorten up our time. Could you state some conclusions on your other points, if there are any others?
Mr. Owen. Yes. The other one has to do with financing in Alaska.
Every year I am sure the Congress feels that Alaskans are coming in there for a handout, and I simply wish to point out that for some
80 years after the United States acquired Alaska very little was done here, very little money was expended, very little was known about the Territory as a matter of fact. Then along came the period just prior to World War II, and from a defense standpoint Alaska became important. And as a result, you know what you have appropriated to do things here in Alaska. The population growth has been tremendous. And I rather think that when you make an appropriation or lend your support to bills that make appropriations that you should consider that a portion of that money is simply defense insurance for the total United States. It is not just that you are giving Alaska something, you are buying some insurance for all of yourselves. That is the gist of the point. That is all I have on that.
Mr. ABBOTT. I would like to make an off-the-record observation, Mr. Bartlett.
(Discussion off the record.)
Mr. BARTLETT. On the record, I shall like to endorse with counsel for the committee, Mr. Abbott, as to the capacity of the witnesses who have appeared before us here in Anchorage, certainly not excluding Senator Owen, very definitely including him. Thank you very much. Mr. ABBOTT. Mr. Croul, I believe.
STATEMENT OF JOHN E. CROUL, JR., MANAGER OF THE ANCHOR
AGE CHAMBER OF COMMERCE, ANCHORAGE, ALASKA
Mr. CROUL. Mr. Chairman.
Mr. CROUL. No, sir, not for my part of this testimony. We thought for the sake of brevity we would just hit on some of the high spots, call on a few of our witnesses, and file more complete written statements a little bit later.
Mr. BARTLETT. I am sure that procedure will be agreeable to the committee. You will proceed then.
Mr. CROUL. We have a number of problems that we would like to call to the committee's attention, and I would like to have first Mr. Robert Baker, who is chairman of our industrial committee and resource committee, come up and testify on some of the problems of risk capital and venture capital in the Territory of Alaska. Mr. Baker is vice president of the First National Bank of Anchorage.
Mr. BARTLETT. Identify yourself.
STATEMENT OF ROBERT A. BAKER, MEMBER, ANCHORAGE
CHAMBER OF COMMERCE, ANCHORAGE, ALASKA
Mr. BAKER. Robert A. Baker.
Mr. BAKER. I have discussed many of these matters with Delegate Bartlett in his office in Washington, and I have prepared a statement here which I sat up until midnight writing. It is very poorly written, but rather than read the entire statement
Mr. BARTLETT. How long is it, Mr. Baker?
Mr. BAKER. I have been asked to testify as to the problem of financing the economic development of the Anchorage area. It is difficult to go into much detail inasmuch as each financing situation presents problems peculiar to the business involved.
The basic problems, as I see them, can be enumerated as follows: 1. Sufficient local investment capital is not available
2. Local banks do not have adequate loan funds and legal limits prevent extension of the needed credit.
3. Stateside investors and lenders are unwilling to venture investment and credit except on a limited basis.
In discussing the basic problems, we find that the reasons we do not have local investment capital are quite obvious. The city of Anchorage is approximately 40 years of age. Most of the growth has resulted during the past 15 years and was caused almost entirely by the establishment of military bases at Elmendorf and Fort Richardson and through Government spending in the area. This growth is further evidenced by comparing bank deposits in Anchorage as of June 30, 1940, of $2,794,459.87 with bank deposits as of June 30, 1955, of $71,744,108.63. The responsibility for this expansion has been assumed largely by local merchants who have been obliged to invest heavily in their own businesses after taxes, in order to keep pace with the demands. Obviously, they have had limited funds to invest in new
industries or enterprises. Referring to the inadequacy of loan funds and the banks' problems in lending, we find that as of June 30, 1955, local banks have extended credit in the amount of $22,523,027.43. As you probably know, national banks are limited by law in lending in excess of 10 percent of their capital and surplus to any one borrower. The maximum loan in the Anchorage area on the basis of 10 percent of capital and surplus would be $112,500, which does not allow for the financing of larger businesses without participation by stateside banks or agencies. In addition to the problem of legal limits, the national banks are criticized for a high percentage of loans to capital. The capital structure development, through the retention of earnings, has not kept pace with the asset and deposit growth, and the Comptroller is requesting a curtailment in lending or a substantial increase in invested capital.
Investors from outside the Territory have made substantial investments in certain sections of Alaska, but to date have not invested heavily in the Anchorage area, with the possible exception of oil exploration. The limited investment in our area is probably due to the fact that we are considered a service and trading area and that our existence is dependent upon Government spending. Both outside investors and lenders calculate their risk on future Government expenditures. We may be destined to be the shopping center" of western Alaska, but we do desire certain basic industries to insure our economy and growth.
There are many natural resources which could be developed if invested and borrowed capital were available. Business requires both types of capital, but it would appear that we should consider borrowed capital only in this discussion. Invested capital might be forthcoming if we have a reasonable economy and prospects of financing. Recognizing that banks are not in a position to supply any great portion of the funds that might be required, it may be necessary to consider an agency that can guarantee or make direct loans. The
Small Business Administration has not proved too helpful and it would be my suggestion that your committee consider legislation which would create an agency that would guarantee Alaskan business loans. This agency would be alert to the problems of the Territory, and their functions would be geared entirely to the requirements and conditions of the Territory. It would be my suggestion also, that the lending be handled by the banks within the Territory on a deferred participation basis, with the sponsoring bank participating for a reasonable amount, depending upon the circumstances.
In cases where the local bank is unwilling or unable to participate, the agency should be authorized to make direct loans.
Your committee must understand that the bankers throughout Alaska realize their responsibility and wish to do their part conscientiously in attracting business and promoting development. I have pointed out how difficult it is for them to handle the situation without some assistance, and it is felt that special legislation will be required to take care of the peculiar Deeds of Alaska. You are familar with the Federal National Mortgage Association special assistance program. We do not need this type of assistance. Would it not be possible for the Interior Department to establish an office in the Territory with an Assistant Secretary in charge? This man could work with committees on these various matters and allow our people some voice in legislation.
Many of us feel that Alaska has not been recognized for its great resources and potential wealth. For the most part we are obliged to compete on the world market and very few incentives or advantages have been offered for development of these resources. Our businessmen in the Territory are engaged primarily in servicing businesses which are not capitalized in the Territory and maintain their principal offices elsewhere. It has been stated many times that our natural resources are being exploited, and I personally feel that businesses operating in the Territory, and taking advantage of our resources, should maintain their principal office in the Territory and that such investors should be afforded some incentive for furthering their development and investment in the Territory. It must be appreciated that tremendous amounts of money are required for exploration and establishment of industry and a tax incentive program would not appear unreasonable. Any benefits allowed should be in relation to the capital investment and would unquestionably aid in the development of the Territory.
Our biggest asset is young, aggressive people anxious to accomplish something within their lifetime.
I sincerely hope that these hearings will assist you in assisting us.
Mr. BARTLETT. Mr. Baker, your statement is interesting and the midnight oil was not wasted.
Mr. BARTLETT. Mr. Baker, you mentioned on page 2 that the Small Business Administration has not played too much of a part to date, at least. Could you tell us what effect the withdrawal of the Reconstruction Finance Corporation has had upon the supplying of capital within the Territory?
Mr. BAKER. A great many industries, small industries, were financed by the RFC, and I bave personally made a great many RFC
loans with considerable success. It is true that they were marginal loans that could not be handled on a conforming loan basis by banks, and some of them got into difficulty. But I do not believe that the Reconstruction Finance Corporation will eventually lose on any of the loans.
Mr. BARTLETT. Those loans in aggregate amounted to a good many dollars?
Mr. BAKER. That is right.
Mr. BARII ETT. And there has been no successor on the level of the Federal Government to the RFC?
Mr. BAKER. The Small Business Administration has been its successor, but it is quite difficult to put a loan through them.
Mr. BARTLETT. Do you know the total volume of loans in the Territory in which the Small Business Administration has participated?
Mr. BAKER. No; I do not.
Mr. BARTLETT. ou have said in your statement that there are many natural resources here, and I assume you would agree with me that labor is available or could readily be made available. Would you agree with me further, then, that the one leg of the triangle which is missing is capital?
Mr. BAKER. I think capital is the most essential leg.
Mr. BARTLETT. And it is capital which cannot be supplied for the obvious reasons that you mentioned by the Territorial banking system.
Mr. BAKER. For the people within the Territory.
Mr. BARTLETT. Mr. Baker, you alluded to the Federal National Mortgage Association's special assistance program and have stated that here in Alaska we do not need this type of assistance. I wonder if you would elaborate on that a bit.
Mr. BAKER. I was hoping that. This file is—I am president of the Alaska Banking Association, so all of the bankers throughout the Territory send me their complaints, and I have corresponded with a great many people regarding the special assistance program.
Effective July 1, 1955, the Federal National Mortgage Association set up the special assistance program.
I am not going to read the entire bulletin, but the purpose of the program was to provide a secondary market for Federal housing loans. The Federal housing loans in Alaska are no different than the Federal housing loans, insured loans any place within the continental United States. They have agreed to purchase the loans from Alaskan mortgagees.
Mr. BARTLETT. "They" being Fannie Mae.
Mr. BAKER. Federal National Mortgage Association. the paragraph on that.
The prices that Fannie Mae will pay for mortgages and 20 percent of immediate participation of mortgages purchased under the special assistance program will be at the following rates: Mortgages, 98 percent; 20 percent immediate participation mortgages, 99 percent.
In effect, the Federal National Mortgage Association, which is under HHFA, the same as FHÀ, lave concluded that their paper which is insured by FHA is only worth 98 cents on the dollar.
Mr. BARTLETT. Mr. Baker, who would take that loss, the home builder or the home buyer, necessarily?
Mr. BAKER. In case he is where there is a purchaser and a seller, the seller would have to assume the 2 percent discount. In the case
I will quote