Hearings, Reports and Prints of the Senate Committee on Agriculture and Forestry

The subcommittee met, pursuant to notice, at 10 a.m., in room 324, Old Senate Office Building, Senator Herman E. Talmadge (chairman of the subcommittee) presiding.

Present: Senators Talmadge, Holland, McGovern, Allen, Miller, and Dole.

Also present: Senator Bellmon.

Senator TALMADGE. The subcommittee will come to order.

The subcommittee is holding hearings today on S. 1684, introduced by Senator McGovern, and S. 2202, introduced by Senator Dole. These bills would create an REA telephone bank revolving fund and a rural telephone bank.

I believe the members of this subcommittee are quite familiar with the REA telephone loan program. In 1949, the year the REA loan program was amended to include rural telephone loans, only about 38 percent of our farmers had telephones. Today, about 80 percent of our farmers have telephone service. Over 2 million rural subscribers, or some 6 million people, enjoy the benefits of modern telephones.

However, the telephone service available to our rural citizens is far from adequate. It is, in fact, plagued by poor service and overloaded party lines. Eight telephone subscribers per rural line was the standard set by the REA when the rural telephone loan program was started. Although this standard represented a substantial improvement over the service then available. I don't believe that any modern family-urban or rural-would consider telephone service adequate when it must be shared with seven other families. To the modern farmer the telephone is as important as it is to any other businessman. In my view, good telephone service is a vital part of efforts to make rural areas attractive places which will slow the trend of outmigration from our farms. Effective telephone service is essential if we are to make these areas attractive and prosperous places for new industries and businesses to locate.

No longer should rural residents be required to settle for less than quality telephone service.

Of course, it is difficult for any telephone company to provide the same quality service to rural residents that is available to city dwellers. On the average, REA telephone borrowers have only 33.8 subscribers

per mile of line as compared to a subscriber density of 16 for the totally independent telephone company and over 40 per mile for the Bell System companies. If rural telephone companies are to provide the additional lines that are needed to give adequate telephone service to all rural subscribers, they will need a great deal of capital. This capital is not available through normal channels and the needs of REA telephone loan borrowers exceed the amounts which can be obtained through appropriations for the 2 percent REA loan program.

The telephone bank of the bills we are here to discuss this morning would provide supplemental financing at higher rates of interest.

The bills before the subcommittee today are quite similar, and I believe that they have a great deal of merit. Both would go a long way toward meeting the pressing capital needs of rural telephone systems. The bank would be financed through the purchase by the United States of a total of $300 million of class A stock over a period of 10 or more years, and by sale of debentures and class B and C stock.

The bank would make "intermediate" loans at a subsidized interest rate of 4 percent or less, and "other" loans at a rate reflecting the cost of money.

Loans would be made by the bank to existing on approved REA borrowers for the same purposes as under the 2-percent loan program, or to finance system improvement or the purchase of class B stock.

The bills look to eventual retirement of the Government investment and conversion to private ownership. The bank would, however, continue as an instrumentality of the United States exempt from taxation. The bills are identical, except for the inclusion in S. 2202 of a section 412, which prohibits 2-percent loans to borrowers with subscriber density of more than three per mile, having net worth in excess of 20 percent of assets, and able to obtain loans elsewhere on reasonable terms.

Copies of the bills, the report of the Department of Agriculture, and a committee staff explanation will be inserted in the record at this point.

(The documents are as follows:)

[S. 1684, 91st Cong., first sess.]

A BILL To amend the Rural Electrification Act of 1936, as amended, to provide an additional source of financing for the rural telephone program, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That it is hereby declared to be the policy of the Congress that the growing capital needs of the rural telephone systems require the establishment of a rural telephone bank which will furnish assured and viable sources of supplementary financing with the objective that said bank will become an entirely privately owned, operated, and financed corporation. The Congress further finds that many rural telephone systems require financing under the terms and conditions provided in title II of the Rural Electrification Act of 1936, as amended. In order to effectuate this policy, the Rural Electrification Act of 1936, as amended (7 U.S.C. 921-924), is amended as hereinafter provided.

SEC. 2. The Rural Electrification Act of 1936, as amended, is amended by adding the following two new titles:

"TITLE III

"SEC. 301. RURAL TELEPHONE ACCOUNT.-(a) There is hereby established in the Treasury of the United States an account, to be known as the rural telephone account, consisting of:

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