That is just an offhand guess, but I think that would be pretty close to a typical situation.

Senator HOLLAND. And there will be effected the economy that would be represented by that reduced number of employees as well as by doing away with the necessity for having two set of executive officials?

Mr. TOOTELL. That is right.

Now the Federal Board authorized our office last fall to employ the Arthur Anderson Co., of Chicago, to make a study of the possibilities for streamlining and effecting savings in the operating costs of the intermediate credit banks and the corporations. That firm made a study in the Columbia and the Omaha Farm Credit districts. Then, from these 2, it generalized and projected and made estimates of what they thought might be a reasonable expectation of saving for the 12 districts.

They came up with a figure of eventual saving slightly in excess of a million dollars. That is, in institutions whose present budgets are, oh, about $3 million; is that right, Mr. Miles?

Mr. MILES. It would be nearer $4 million-between $32 millon and $4 million.

Senator SCHOEPPEL. Over what period of time?

Mr. TOOTELL. They did not say specifically. In talking with them, they recognized that it might be 2 or 3 years before most of these changes would be instituted, and they also recognized that there might be some districts in which the board of directors might not choose to go the full way on it.

Now our belief is that this is rather optimistic, that the saving would be something less than that.

We would think, however, something in excess of $600,000 within 2 years, and that the saving would be greater than that over a longer period of time.

In other words, it would be a consequential saving.

It would be, we believe, after a couple of years, something like a 25-percent saving in the budget of the 2.

Senator MUNDT. Your figure of reducing it from 25 to 16 would be more optimistic than the Chicago figure.

That is more than either 25 or 3313 percent.

Senator HOLLAND. Maybe that is accounted for by the fact that the reductions would come in the lower echelons of employment, except as to doing away with the president.

Mr. TOOTELL. You see, I did not check my signals on that, Senator Mundt, but I think that Senator Holland has come up with the answer on this thing. You would be cutting off half of your top echelon and you would be cutting off then, I think, pretty heavily from the lower, but there would probably be very little if any change

Senator MUNDT. At least it would indicate you could look forward with reasonable optimism to at least a 25-percent saving?

Mr. ToOTELL. I would say after a period of 2 years.

And you see, the boards I think would operate in a manner to try to make this reduction as nearly as they could from normal attrition. Senator HOLLAND. You mean retirements and deaths, and transfers? Mr. TOOTELL. That is right; and transfers-and, of course, that is easier in the lower echelons.

In your clerical help and folks in the lower echelons you have considerable turnover there anyway.

Senator HOLLAND. Presidents never die?

Mr. TOOTELL. They just retire.

Senator MUNDT. Like old soldiers, they fade away.

Mr. TOOTELL. I would like to emphasize again that the matter of who the employees will be, what proportion of them come from the present intermediate credit bank organization and what proportion from the present production credit corporation, is a matter for discretion of the district farm credit boards, and I have already explained how they are organized. It is true that as to the Senior officers of district institutions, the Farm Credit Administration has a veto power. They are employed subject to our approval. I do not know how many years it has been since the governor's office has vetoed any of the district boards employment plans for officers. Certainly not in the 2 years I have been in the office. I do not contemplate that there would be exercise of such veto power except in most unusual cases. Senator HOLLAND. Well, you have already stated that 88 percent of the loans under this merger would be made to the same group of people?

Mr. ToOTELL. Yes.

Senator HOLLAND. That is the lending institution and the borrowing institution?

Mr. ToOTELL. That is right.

Senator HOLLAND. So all of the economy that could be effected would be completely justifiable because the same people who were making the loans would be receiving 88 percent of the loans, is that right? Mr. ToOTELL. Yes, that is true.

While we are talking on this matter of economizing and streamlining, I would like to further illustrate our good faith in this by telling you a little of what we have accomplished in our own Farm Credit Administration organization here in the little more than 2 years since the Act of 1953 became effective and we have had the Farm Credit Board.

The personnel strength back in December 1953 was 322 employees. That has been reduced to 245 as of this date, and it involves not just a cutting out of positions in the lower echelons, but a very typical cross-section, because we have discontinued 2 deputy governor positions-2 out of 6 deputy governor positions.

We have absorbed the mandatory salary increases that came about through the salary increases decreed by the Congress a year ago last summer, I believe it was, the increase in travel allowance and these other costs, and then the step increases that come through longevity. We have been able to absorb all of those increases and to reduce our requests by $90,000.

Senator HOLLAND. You mean your operating budget?

Mr. ToOTELL. Our operating budget.

Senator HOLLAND. What is the present size of it and what was the size of it in 1953?

Mr. ToOTELL. The present size of it is $2,230,000, sir, so that would mean it was $2,320,000. We reduced it from $2,320,000.

Senator MUNDT. You mentioned the Farm Credit Board. That is the board of Mr. Sam Bober out in Newell, S. Dak.?

Mr. ToOTELL. That is right.

Senator MUNDT. At that point in the record I would like to incorporate a letter I received this morning from Mr. Sam H. Bober, of Newell, S. Dak., heartily endorsing the Holland bills.

I think I will have no difficulty getting this in the record. He gives some very valid and persuasive reasons why he supports it.

Senator HOLLAND. Thank you for introducing the letter at this time. Without objection, it will be printed in the record at this point. (The document is as follows:)

Hon. KARL E. MUNDT,

United States Senate,

Washington, D. C.

NEWELL, S. DAK., April 20, 1956.

DEAR KARL: Our farmer borrowers of Production Credit will appreciate very much your active support of S. 3564 introduced by Senator Holland, which should come before your Agriculture Committee one of these days.

This bill deals with the problem of merging Production Credit Corporations in the Federal Intermediate Credit Banks; provides means for retirement of Government capital and for farmer ownership of these banks. This is the big step, the vast majority of our farmer borrowers wanted, in the direction of farmer ownership of the farmer's own Farm Credit System.

The Federal Farm Credit Board has spent much time to develop this legislation. It has been developed in close cooperation with Production Credit Associations in every Farm Credit District throughout the country. All interested parties had full opportunity to participate in discussing every feature and in suggesting every item in this proposed legislation, before and after the final draft of this bill. We also had the advice of the National PCA Advisory Committee and of the members of District Farm Credit Boards.

Karl, I want to assure you that this piece of legislation is for the best interest of the folks connected with land, as well as for the Government that helped us get this good Farm Credit System going. We have grown, up, we have the experience and should be encouraged to full ownership and control of our own system. The enactment of this bill into law will permit more efficiency and economy in short-term credit lending. From past experience and our personal knowledge, we know that you will give us your full support on good legislation such as this.

With kind personal regards, I remain

Sincerely yours,

SAM H. BOBER.

Mr. TOOTELL. Mr. Chairman, on merger of these two institutions we would have about this situation: The day before the merger took place, we would have 12 intermediate credit banks that would have a consolidated net worth statement of approximately $110 million. That would be on December 31, 1956, we hope.

On January 1, 1957, the new credit banks would have a net worth of $149,186,000, in other words just a little more than $39 million increase in the capital structure of the intermediate credit banks, so definitely this would make for a stronger financial institution.

No only would the capital of the production credit corporations be transferred to the new institution, but also its surplus estimated at a little under $13 million.

Senator HOLLAND. How much?

Mr. TOOTELL. A little under $13 million of surplus in the production credit corporations. And the surplus in the intermediate credit banks themselves amounting to just under $50 million.

That is our best estimate of what it will be as of December next. Senator HOLLAND. Those figures are based upon your hope that S. 3564 will be enacted rather than S. 3550, is that right?

Mr. TOOTELL. That is correct. Well, in either event, sir, they would be the same. The difference between those two would be this, and I might just as well cover it at this point.

It is one of the three exceptions which the Bureau of the Budget took to the Federal Board's proposal. The Bureau would not prevent the surplus from the corporations and the credit bank from becoming part of the permanent capital structure of this new institution. Its proposal would take effect only in case of liquidation of the credit banks at some future time. If the credit banks should be liquidated at any time before all of the Government capital is entirely retired, you would have provision in the present law for the disposition of the surplus, if there were any remaining, because it would be prorated to the interests of the A and B stockholders. But if the credit banks were to be liquidated after all the Government capital were retired, the Budget Bureau would want to see the Government continue to have some interest in the surplus.

Senator HOLLAND. What interest under the requests of the Bureau of the Budget as represented in S. 3550?

Mr. TOOTELL. It did not specify except that it would have an interest in the surplus which was built up prior to the effective date of this legislation.

Senator HOLLAND. What interest?

Senator MUNDT. The surplus?

Mr. TOOTELL. It would be all of it.

Senator MUNDT. They would want the surplus returned.

Senator HOLLAND. And what does that amount to at present? Mr. ToOTELL. Just a little under $50 million. It is $50 million of the surplus in the credit bank plus a little more than $13 million in the production credit corporation.

Senator HOLLAND. Then the difference between the suggestion of the Bureau of the Budget and the suggestion of the directors of the Farm Credit Administration is this: that aproximately $63 million of surplus now belonging to the two institutions would under the recommendations of the Bureau of the Budget, belong ultimately to the Government, and that would be true even after the complete liquidation of the Government-owned stocks, whereas under the recommendations of the directors of the Farm Credit Administration, that $63 million would, after the complete retirement of the Governmentowned stocks, belong to and become the property of the new institution and its stockholders?

Mr. TOOTELL. That is right, sir.

Senator HOLLAND. And the stockholders would, upon retirement of the Government-owned stocks, be exclusively the users of the institution?

Mr. TOOTELL. And of course that is what they are desiring to accomplish, to become exclusively the owners of the system.

Senator HOLLAND. In other words, at present the users of the system are certain institutions who ultimately are farmers?

Mr. TOOTELL. That is right.

Senator HOLLAND. And one group of users own $50 million surplus and another group $13 million surplus, if the recommendations of the directors as embodied in 3,564 are enacted?

Mr. TOOTELL. That is right, sir; all surplus would be farmer owned.

Senator HOLLAND. They become the exclusive owners only upon the retirement of the Government-owned stock?

Mr. TOOTELL. That is right.

Senator MUNDT. But it actually makes a difference only in case the bank is dissolved?

Mr. ToOTELL. That is right.

Senator MUNDT. The situation runs along parallel under either of the bills with or without the recommendations of the Budget Bureau so long as the institution functions?

Mr. TOOTELL. That is right.

Senator MUNDT. The question arises if the bank is dissolved, Does the Government get back its money or does the surplus turn out to the farmers as dividends?

Mr. ToOTELL. That is right; and of course we think the question is academic.

Senator MUNDT. You do not intend to dissolve the bank?

Mr. TOOTELL. We are not planning the liquidation of the intermediate credit banks and we don't believe that they will be at any time in the foreseeable future.

Secondly, if they should be, they are going to be broke and there would be no surplus.

And, thirdly, the Congress would have to make specific provision for their liquidation because present law does not do so.

Senator HOLLAND. Well, isn't there this additional difference between the two points of view-that the question of dividends in the meantime would be affected?

Mr. TOOTELL. Senator Holland, as to the surplus which has been built up to date, as the effective date of the act, the Board's draft makes it very specific that none of this surplus could be paid out; and no dividends may be paid out of earnings so long as there is any Government capital in the system. That is sewed up tight and in a manner satisfactory to the Bureau of the Budget.

Senator HOLLAND. After the Government capital is retired then what?

Mr. TOOTELL. After the Government capital is retired the credit banks could, and we feel would, pay dividends either in cash or in additional B stock and participation certificates.

Senator HOLLAND. Would there be any control of their policy looking to payment of dividends from the Farm Credit Administration? Mr. ToOTELL. By law, yes.

Senator HOLLAND. That is included in this present legislation that you have suggested?

Mr. TOOTELL. I believe I am right on that, but that is one of the things which would be delegated to the district institution and its board of directors, and the authority of the Farm Credit Administration would not be invoked unless it was felt that there was serious mismanagement. Is that correct, Mr. Bagwell?

Mr. BAGWELL. Under this bill, Senator Holland, the surplus that we have been speaking of, the $62 or $63 million, could never be paid out as dividends either before retirement of Government stock or after.

It is always there. It can be used to meet losses, but earnings of the banks would have to be used to restore the fund if it should be depleted by losses.