BOARD01663

• Board Meeting Date: 8/6/1969
• Description: Agenda or Table of Contents, Minutes, Memos
• Board Meetings - Doc Type: Meeting

I

bothered me and I think a lot of other
people in this financing business is the
assumption that you are going to have to
repay the principal costs of irrigation
development over a relatively short period
of time. When I say a relatively short
period of time, I mean about a 40-year
period. This is not the technique that
is utilized by most industry in the financ-
ing of capital expenditures. Once the
capital expenditure is made, if it is a
revenue generating project, private indus-
try doesn't expect to repay that principal
as long as there is income being generated
from it.

It would seem to me that even on any
project which has a reasonable cost-bene-
fit ratio, a state could well afford even
a current high interest rate to guarantee
the repayment of interest, if they didn't
have to make any provision for the payment
of principal. With the federal guarantee
of principal payment, this would make this
possible for states to go ahead with con-
struction of projects without having the
cost of them charged against the federal
budget. Most of these projects are self-
liquidating so that over the long haul,
during the life of the project, it would
be liquidated and there wouldn't be any
burden on the federal government except
that the state that was borrowing the
money would have the benefit of the
guarantee of the federal government which
would be reflected in the lower interest
rate.

I

This would probably require constitu-
tional amendments in almost every western
state and it would require affirmative
action by the Congress to establish this
kind of guarantee. But it is one way
that has been proposed to get around this
continual problem of on-going appropriations.