Mr. AUSTIN, from the Committee on the Judiciary, submitted the

following

REPORT

(To accompany S. 672)

The Committee on the Judiciary, to whom was referred the bill (S. 672) for the relief of the city of Baltimore, having considered the same, report favorably thereon with the recommendation that the bill do pass without amendment.

Said bill reads as follows:

That the Secretary of the Treasury be, and he is hereby, authorized and directed to pay, out of any money in the Treasury not otherwise appropriated, to the City of Baltimore the sum of $171,034.31, being the balance of the amount incurred and expended by said City of Baltimore to aid in the construction of works of national defense in 1863, at the request of Major General R. C. Schenck, United States Army, and as found and reported to the Senate on May 3, 1930, by the Comptroller General of the United States.

An identical bill was reported favorably by your committee in the previous Congress, passed the Senate, and was favorably reported to the House.

By virtue of Senate Resolution 246, which passed the Senate on May 28, 1928, the Comptroller General of the United States was directed to readjust the claim of the city of Baltimore for amounts advanced at the request of Maj. Gen. R. C. Schenck, dated June 20, 1863, to aid the United States in the construction of works of defense, as allowed by the accounting officers of the Treasury and reimbursed pursuant to the Sundry Civil Act, approved March 3, 1879 (20 Stat. 385), and to report the amount so ascertained to the Senate for consideration.

On February 28, 1929, the Comptroller General of the United States submitted to the President of the Senate a preliminary report (S. Doc. 662, 70th Cong., 2d sess.), and on May 3, 1930, submitted a final report.

These reports of the Comptroller General to the Senate disclose as follows:

1. That, to enable the city of Baltimore to provide funds called for by Maj. Gen. R. C. Schenck for the use of the Federal Government for the national defense, the amount of $96,152 was temporarily withdrawn from the general funds in the city treasury during the period from June to August 1863, and reimbursed by the city to said general funds in the city treasury from the proceeds of a bond issue, dated September 1, 1863. That said amount of $96,152 was reimbursed to the city in the Sundry Civil Act of March 3, 1879, as a certified claim. (See debate in the Senate Feb. 28, 1879, Congressional Record, pp. 2064-2065, and Mar. 3, 1879, Congressional Record, p. 2297; also 20 Stat. L. 385).

2. That the bonds issued by the city of Baltimore to provide said $96,152 ran for a period of 30 years, and that the bonds were redeemed on September 1, 1893. That during the period September 1, 1863, to September 1, 1893, the city expended for interest payments on the bonds which yielded the said $96,152 advanced for the use of the Federal Government, the sum of $173,073.60, from which amount so expended as interest the Comptroller General deducted the sum of $2,039.29, being the amount of premium which the city received on the $96,152 in bonds at the time of selling the same in 1863; and in submitting his audit to the Senate on May 3, 1930, the Comptroller General therefore certified that there is due the city of Baltimore the sum of $171,034.31, in order to fully adjust the city's account_with the Government on the basis of the decision of the Supreme Court of the United States in the case of the State of New York, and of the decisions of the accounting officers of the Government in the cases of the State of Indiana and the other loyal States.

At the time the above payment of $96,152 was made to the city of Baltimore, it was the declared policy of the accounting officers not to reimburse moneys paid out by the several States for interest paid on bonds issued by said States to raise funds to be advanced to the Federal Government for the national defense. January 6, 1896, this policy was changed by a decision of the Supreme Court of the United States in the case of the State of New York v. United States (160 U. S. 598), after which the settled accounts of the various other States which had issued bonds and paid interest thereon for the purpose of utilizing the proceeds in making advances to the Federal Government for the national defense during the Civil War, and which accounts had only been settled on the basis of the principal sum that had been advanced by said States to the Government, were, by special acts of Congress, reopened, and said States were refunded the amount of interest paid on so much of the proceeds of said bonds as the States had utilized by way of advances to the United States for the national defense.

Inasmuch as the several States have been refunded the amount of interest paid by them on so much of the proceeds of said bonds as the States had utilized by way of advances to the United States for the national defense during the Civil War, your committee feel that the city of Baltimore should likewise be refunded the amount of interest paid out by the city for like purposes.

The report of the Comptroller General of the United States to the Senate, dated May 3, 1930, certifying the balance due the city of Baltimore in the sum of $171,034.31, is hereto attached (exhibit A).

Your committee also append the following exhibits:

A memorandum setting forth in more detail the established precedents upon which the Comptroller General approved the claim of the city of Baltimore (exhibit B).

A letter dated February 6, 1935, from the Comptroller General of the United States to Senator Tydings, author of the pending bill, wherein the Comptroller General points out that, if, instead of auditing the claim upon the precedents above cited, he had audited the same upon the commercial rate of interest, there would have been found due the city of Baltimore a sum equal to more than double the amount provided in the pending bill (exhibit C).

A memorandum showing that, on the same basis on which it is now proposed to reimburse the city of Baltimore, the several States have been refunded an aggregate sum in excess of $10,000,000 (exhibit D).

EXHIBIT A

The PRESIDENT OF THE SENATE.

GENERAL ACCOUNTING OFFICE,
Washington, May 3, 1930.

SIR: Reference is made to my report of February 28, 1929, under Senate Resolution No. 246, Seventieth Congress, first session, dated May 28, 1928, authorizing and directing the Comptroller General of the United States to readjust the claim of the City of Baltimore for amounts advanced to aid the United States in the construction of works of defense of the city in 1863 and to allow reimbursement for interest paid on its bonds issued to raise amounts advanced to the United States, adopting and applying for the purpose the rule established in the cases of the State of New York v. United States, 160 U. S. 598, and of the State of Indiana, 8 Comp. Dec. 714.

In my report above referred to it was stated that as the city of Baltimore failed to show by competent evidence that it had incurred any expense for interest or otherwise to enable it to advance the funds in question to the United States, there appeared to be nothing due to the city for certification to the Senate for consideration under the resolution in question, but that in the event proper evidence should be furnished thereafter showing amounts due the city of Baltimore under the rule of the New York and Indiana cases, a further report under the resolution would be made.

There has now been submitted to this office a report of April 1, 1930, by the chief, bureau of disbursements, city of Baltimore, to the comptroller of the city of Baltimore, containing the following statements:

"It has been shown on the part of the city that expenditures for this work were practically all made between June and August of 1863, while the bonds issued for this purpose were dated September 1, 1863. The Comptroller General has taken the stand that the hiatus that existed between the expenditures and the issuance of the bonds precluded the possibility of using funds so obtained for this purpose. I had no doubt from the beginning that the city proceeded in this instance, as it now frequently does; that is, borrowed from the general funds of the city, the money necessary for this work and later reimbursing the general funds when the bonds were sold and paid for. A typical illustration of this practice is had in the case of harbor serial 1933-67 loan, with which you are familiar. It is against this loan that the charges for the erection of the McComas Street Terminal for the Western Maryland Railway are made, which to date aggregate approximately $8,250,000. The bonds for this so far issued only amount to $7,000,000, so that we are now carrying a debit or an overdraft in this account of approximately $1,250,000. The money for this purpose was taken from the general funds of the city, and as soon as it is determined what this project will cost, the city will issue bonds sufficient to cover the balance required, and the general funds will be reimbursed.

"My theory has proven entirely correct, for the ledger found in the old office of the comptroller on page 154 shows an account entitled 'City Defense No. 2', reproduction of which is appended hereto. The entries are in summary form and the numbers appearing in the folio column refer to the pages in the journal, which shows the details. You will observe that from June 30, 1863, to September 8. Repts., 74-1, vol. 1

49

30, 1863, there was charged against this account $240,885.35, which amount as of September 30 represented the debit balance or overdraft in this account. The cash book and journal show that there is included in those expenditures items aggregating $96,000 which were paid out as per Ordinances Nos. 51 and 52 of 1863. The balance of the amount expended by the city, as per the request of General Schenck, or $152, appears in the entry of December 31, and was, according to the cash book and journal, expended on December 3, 1863. * * ** The exhibits show in fact that under the account "City Defense No. 2", debits are entered beginning in June and ending in December, 1863, and that credits are not entered until October. There should be noted, however, the statement made in the first quoted paragraph of the report that the funds advanced were borrowed from the general funds in the city treasury and that subsequently bonds were issued to cover. This appears to present a different situation than that involved in the two cases to be taken as a basis for the statement of an account, particularly the Indiana case in which evidence was submitted showing that there were no funds in the State treasury and that the issuance of bonds was necessary to raise funds for advances to the Federal Government.

In the case of the city of Baltimore the issuance of the bonds does not appear to have been for the purpose of advancing the funds to the Federal Government, and while the advances made may incidentally have helped to deplete the city treasury to such extent as to make necessary the issuing of bonds to replenish the city treasury, it is doubtful whether the rule in the two cases cited governs. If, notwithstanding the distinction herein pointed out, the rule in the two cases referred to is to be held applicable, the city of Baltimore is entitled to the interest paid on such bonds, that being the only item of expense claimed, and as to which this office is to report under Senate Resolution No. 246. The bonds, it appears, were issued as of September 1, 1863, and redeemed as of September 1, 1893, a period of 30 years, and interest was paid at the rate of 6 percent per annum over that period. Interest on $96,152, the amount recognized by the accounting officers of the Treasury, as having been advanced to the Federal Government at the request of Maj. Gen. R. C. Schenck, June 20, 1863, at 6 percent per annum for a period of 30 years amounts to $173,073.60.

It is noted, however, that the bonds issued and sold by the city of Baltimore in 1863 were sold at a premium varying from 2 to 5 percent, and in accordance with the rule of the two State cases herein taken as a basis for the statement of account, the amounts received as premium on the amount of bonds equaling $96,152 should be charged to the city. The amount of bonds sold in October 1863, was $96,300, and on this amount there was received a total premium of $2,042.25. Taking into consideration the first bonds issued and sold in October up to an amount of $96,152, the premium received is $2,039.29, which should be deducted from the amount shown as due for interest.

A recapitualtion of the two items discussed above is as follows: Interest on bonds to the amount of $96,152 for 30 years, at 6 per cent...

Less premium received upon sale of bonds in that amount..

Balance due the city of Baltimore...
Respectfully,

$173, 073. 60

2, 039. 29 171, 034. 31

J. R. MCCARL,

Comptroller General of the United States.

EXHIBIT B

ESTABLISHED PRECEDENTS UPON WHICH THE COMPTROLLER GENERAL APPROVED THE CLAIM OF THE CITY OF BALTIMORE FOR REFUNDMENT OF INTEREST PAID ON ITS 30-YEAR BOND ISSUE

AUTHORITY OF THE COMPTROLLER GENERAL OF THE UNITED STATES TO

MAKE THE AUDIT

Authority of the Comptroller General of the United States to readjust the claim of the city of Baltimore is contained in Senate Resolution No. 246, adopted on May 28, 1928, reading as follows:

"That the Comptroller General of the United States be, and he is hereby, authorized and directed to readjust the claim of the city of Baltimore for amounts advanced at the request of Maj. Gen. R. C. Schenck, dated June 20, 1863, to aid

the United States in the construction of works of defense, as allowed by the accounting officers of the Treasury and reimbursed pursuant to the Sundry Civil Act approved March 3, 1879 (20 Stat. L. 385), and to allow the city of Baltimore reimbursement for interest paid on its bonds issued to raise amounts advanced to aid the United States, and in so doing the Comptroller General of the United States shall adopt and apply the rule established in the case of the State of New York against the United States (160 U. S. 598; decided Jan. 6, 1896), and the case of the State of Indiana (VIII Decisions of the Comptroller, p. 729, Apr. 14, 1902), and report the amount so ascertained to the Senate for consideration."

RULE ESTABLISHED BY THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF THE STATE OF NEW YORK, JANUARY 6, 1896

During the Civil War, the State of New York had issued bonds to raise funds to equip troops afterwards employed in suppressing the insurrection against the United States in 1861-65, and had paid out interest on said bonds, for which interest the State sought reimbursement.

Application for the reimbursement of the interest so paid by the State of New York had been rejected by the Accounting Officers of the Treasury, and the State filed suit in the United States Court of Claims therefor, and recovered judgment thereon

The United States appealed the judgment so rendered, to the Supreme Court of the United States, which on January 6, 1896, (160 U. S. 598), awarded judgment to the State of New York for the full amount of the interest sued upon by the State.

In referring to the interest thus adjudged to be reimbursed to the State of New York, the Supreme Court of the United States said:

At page 621: "So that the only inquiry is whether, within the fair meaning of the latter act, the words, 'costs, charges, and expenses properly incurred', included interest paid by the State of New York on moneys borrowed for the purpose of raising, subsisting, and supplying troops to be employed in suppressing the rebellion. We have no hesitation in answering this question in the affirmative. * * * Such interest, when paid, became a principal sum, as between the States and the United States, that is, became a part of the aggregate sum properly paid by the State for the United States. It is as if the United States had itself borrowed the money, through the agency of the State.

RULE ESTABLISHED BY THE COMPTROLLER OF THE TREASURY IN THE CLAIM OF THE STATE OF INDIANA, APRIL 14, 1902

The rule established by the Comptroller of the Treasury in construing the decision of the Supreme Court of the United States in the case of the State of New York, supra, as applicable to the claim of the State of Indiana, was directed to the question of terminating the running of interest on long-term bonds issued for the same purpose as those issued by the State of New York. The question there involved was whether the Comptroller of the Treasury should stop allowance of interest on the principal sum from the date same was reimbursed to Indiana, or allow interest to continue to run for the life of the bonds. On this question, the Comptroller of the Treasury, Tracewell, in construing the intent of the decision of the Supreme Court of the United States in the New York case, held: (VIII Decisions of the Comptroller, pp. 714-730).

At page 722: "As I understand this decision it announces the doctrine, in language that cannot be misunderstood-*

* *

"That interest paid by States in procuring means with which to raise and equip troops is not considered as interest, but as part of the costs, charges, and expenses properly incurred in raising and equipping troops.

At page 727: "It seems perfectly clear to me that to reimburse the State of Indiana on account of its expenditures because of this bond sale that it will be necessary for the United States to repay to it every dollar it legitimately expended on account of principal and interest, together with all expenses in the negotiation of their sale. * * *""

At page 729: "Stopping the interest accruing on bonds which neither the State nor the United States could have paid without the consent of the bondholder at the time a partial payment was made to the State necessarily to reimburse it for moneys which it had actually expended and which it was obligated