tives that cannot afford higher interest rates and also as far as the bank funds are concerned. We would have to take a good look at the final version, sir, before we could make a final statement on that. Mr. ZWACH. Mr. Matson?

Mr. MATSON. As Mr. Partridge said, and we subscribe to that, too, we believe that the amendment in the bill that you are looking at this morning meets many of the things that we feel are absolutely vital. It does not have all the goodies in it that we would certainly like to have, but we understood that the committee wished us to come up or to participate in a realistic compromise and we believe that this is. We would support this bill in its present form.

Mr. ZWACH. My time is very limited.

You are from North Dakota?

Mr. ERNST. I am Lloyd Ernst, that is correct.

Well, quickly to repeat, prior to coming here yesterday afternoon at about 4 o'clock, we had not had an opportunity to see this new amendment. The members of Basin Electric have for many years by resolution supported the creation of a revolving fund. My understanding is that this amendment would create such a fund.

We understand and we assume that under this amendment, Basin Electric would receive the $51 million loan which the Administrator, in writing and verbally, pledged on numerous occasions would be made to Basin Electric. We assume that in this new amendment, that would be possible out of 2 percent loan funds.

Mr. ZWACH. Thank you.

Mr. Fullarton?

Mr. FULLARTON. Yes, Mr. Zwach. I think Mr. Bass stated the position of the National Telephone Cooperative Association. He was the first gentleman to speak.

Mr. ZWACH. This does protect, as I understand it, the telephone bank?

Mr. FULLARTON. As my testimony stated, we would prefer that the lending program of the telephone bank remain as is. This proposal would change it.

Mr. ZWACH. Thank you.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. Zwach.

Mr. Jones?

Mr. JONES of Tennessee. Thank you, Mr. Chairman. I want personally to thank you and Mr. Nelsen and the others who have spent many working hours working on this important legislation. I feel as though we may be approaching the point that there will be some area of agreement. I did have one question for Dave Fullarton and I am not sure if it has been completely answered or not.

I think for the benefit of the committee, we need to ask Mr. Fullarton to go into detail a little bit more on section 9 on page 14 of the new revision and let us know exactly what he does want there or what he opposes.

Mr. FULLARTON. Gentlemen, section 9 essentially amends section 408 on the Rural Electrification Act. Section 408 deals with telephone bank lending. It does not have reference to the electric program at all. That third paragraph that has been stricken basically says that money will be loaned by the bank at varible rates of interest based on criteria

of a lending level of $150 million coverage, et cetera, with a minimum lending rate of 4 percent. The way that has been interpreted in use since the rural telephone bank became law has been that loans have been made at 4 percent and all percentages up to about 8 percent. This would strike that provision and provide, as you can see, that loans in this section would bear interest at the cost of money rates. The cost of money rate is defined as the average cost of money by the bank as determined by the Governor, but not less than 5 percent. There will be a single bank rate.

The rural telephone bank has made $160 million or something in loans since it started operation at an average rate of about 612 percent. This can be considered the average cost of money to a rural telephone bank. What this would do is make all loans at a single rate. Our position is that this would penalize those who can fully pay for it by insisting that they pay 61/2 or whatever if they have to go to the telephone bank and would help those who can actually pay 8 and have been paying it by dropping their interest rate down to 62. We think it would be appreciated to leave the bank lending program as at present. That is our position.

The CHAIRMAN. Would the gentleman yield?

Mr. JONES of Tennessee. Yes.

The CHAIRMAN. The figures that we have on that, and of course, I do not want to be absolutely certain about this figure, but the figure we have from the Rural Electrification Administration is that this would result in an interest rate that would be 6.17 percent at a lending level of $180 million. You have to take the lending level into account and the rate will differ depending on the lending level that you have. So that frankly, it does raise the rate. These calculations from downtown would indicate that it would not raise the rate that it might appear― and without going into those figures, to just better than 6 percent. Mr. JONES of Tennessee. Thank you, Mr. Chairman. That is all. The CHAIRMAN. Mr. Sebelius?

Mr. SEBELIUS. Mr. Chairman, I want to thank you and Mr. Nelsen for the hard and long hours you have put in on this. My only feeling is that I want a bill and my people want a bill and I want to do what I can to help get one. I would like to yield the balance of my time to Mr. Mayne.

Mr. MAYNE. Thank you, Mr. Sebelius.

Thank you, Mr. Chairman.

Mr. Nelsen, referring again to the very illuminating comments which have been made by the chairman this morning, he expressed concern that the Rural Electrification Administration funds should under no circumstances be commingled with other funds and emphasized the need for clear segregation of those funds and preserving their integrity. Now, it is true that in the administration bill that you have introduced, in section 306, there is some provision that these funds are to be paid for rural electrification purposes. It says they may be used for all purposes relating to rural electrification and telephone loans, but it does seem to me that that may not be tight enough, that that language should be tightened up to make absolutely sure that the money is not used for other purposes. And I am wondering if you wouid favor adding some language there in that paragraph at the top

of page 5 that would make this segregation of rural electric and rural telephone funds more complete?

Mr. NELSEN. I certainly would. It is my understanding from the Secretary of Agriculture that language would be written in for a separate account to prevent the possibility of Rural Electrification Administration loan funds and interest payments building sewers somewhere. This could easily happen. It is money that has been loaned to the farmers. They are paying the interest, they are paying the principal, and no situation should arise where they would lose track of the money because it was not properly earmarked. I am in total agreement with the chairman that this language should be written in a manner that makes that very clear and nails it down. Bob and I may have to sit down and write some language ourselves.

I agree with you.

Mr. MAYNE. So there could be separate checking accounts which would clearly segregate the rural electrification and telephone funds? Mr. NELSEN. I would say so. I think somewhere down the line, some comment was made that funds coming into this from all sources would commingle, but a separate account would have to be set up so that every dollar that comes in from REA payments would be accounted for. Now, I suppose it is pretty hard to take a dollar and route it all the way around, but if the account is doing the job, this is what I want and I think we should have.

Mr. MAYNE. Now, referring to this same section, 306, which provides that all collections representing payment of principal and interest on loans and proceeds from the sale of securities from such loans heretofore or hereafter made pursuant to title I and title II or insured pursuant to this title shall become part of the fund and may be used for all purposes relating to rural electrification and telephone loans-is that the language in the Administration bill which has been described as providing $6.7 billion for rural electrification and rural telephones over a period of some 35 years?

Mr. NELSEN. It is my understanding that it is; yes.

Mr. MAYNE. Now, as far as amounts made available for this purpose are concerned, how does that compare with what has been done in the past, $6.5 billion for this purpose under this section?

Mr. NELSEN. I do not know that I have those figures, but I do know this, that the chairman and I were amazed that interest payments would flow to this fund, because we felt that this was pretty generous and much more generous than had the impounded funds gone into this fund. So we thought we had made a pretty good horse trade in getting the interest payment instead of the impounded funds.

Mr. MAYNE. So it would represent, in your judgment, a very substantial or, as you say, generous approach to this problem?

Mr. NELSEN. Very much so. Very much.

Mr. MAYNE. And would it not be a rather substantial increase over what has been available in the past?

Mr. NELSEN. It is my understanding that it would be. I have never figured it out, but it is my understanding that it would.

Mr. MAYNE. Thank you, Mr. Nelsen.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. Mayne.

Mr. Denholm?

Mr. DENHOLM. Thank you, Mr. Chairman. I thank the witnesses that have appeared for excellent statements of record. I commend each of you for the logic with which you have approached a very difficult problem.

I have said before that if the yardstick is a measure of value, my bill stands at point 36 on that yardstick and the position of the Administration is zero. Mr. Poage, our distingished Chairman, and our colleage, Mr. Nelsen, have submitted a proposal that is near 18 on that yardstick. The witnesses today should be commended for conceding to that compromise. The chairman and Congressman Nelsen have worked in good faith in an effort to produce compromise. I was discouraged by the testimony of the officials of the Administration and the witnesses that appeared last week. They received at point zero on the yardstick of value and offered nothing in the way of compromise. Some things have been accomplished since then and the days that followed have resulted in concessions by the proponents toward compromise.

Now, I am at some loss this morning as to procedure. I ask my colleague, Mr. Nelsen, if you have introduced another bill or if you are offering different language as a substitute that should be before this committee, do witnesses have copies of your proposal to evaluate and what is your objective today?

Mr. NELSEN. I think that you are certainly aware of the fact that Mr. Poage and I have been trying to draft something that we think we can go all the way with. If you want a bill, we will introduce one and do it in a hurry.

But may I also say to you, Mr. Denholm, that I can well understand. your concern for the program and I can well understand the purpose of introducing a bill until a substitute has been developed. I think deserve our compliment for being willing to do exactly that.

you

But I think you can also imagine all the agonies that Mr. Poage and I have gone through in trying to get some language that we think can be sustained. I think we are approaching that goal judging from testimony that we hear, and I think it is a matter very much of language that does what we want to do. And I think we can do it. And I thank you for your interest.

Mr. DENHOLM. Are you offering it is a substitute ?

Mr. NELSEN. I will offer it as a substitute, yes; and then we can work from there, yes.

Mr. DENHOLM. May I ask you, Mr. Chairman, based on your remarks in response to Mr. Nelsen's testimony earlier, if you will explain for the record paragraph 2 on page 3 of the draft of March 9?

The CHAIRMAN. Paragraph 3 on page 2?

Mr. DENHOLM. Paragraph 2 on page 3, Mr. Chairman. It starts with-it is subparagraph 4. It is the second paragraph on the page. It reads "All appropriations for electric and telephone loans previously made under the authority of section 3 of this act and funds obtained in accordance therewith," and so on.

The CHAIRMAN. What that does, as I understand it, is to place the unobligated balances of the fiscal 1973 appropriations in this revolving fund. Now, I want it real clear that I am not contending that any party representing the Administration agreed to that. But they did

agree in writing that we would make moneys available to carry on the program.

In trying to draft that, and no effort was made to try to draft that by those who suggested this compromise, we came to the conclusion that you cannot get there from here, that you simply cannot put the repayments into this fund and put no cash in there now, none of the unappropriated funds, and have anything to operate on for the next several months. And it was to achieve the operating funds that we have simply written it this way, knowing that it does put more funds in there than the Secretary of Agriculture agreed to. And certainly, I would not for 1 minute want to see anybody believing that the Secretary suggested he would do it. But he did suggest that he would make it available immediately, the money. And this is the only way we found of making the moneys immediately available. Mr. DENHOLM. Very well, thank you.

The CHAIRMAN. Now, we have suggested and my letter to the Secretary did suggest that he come up with language that would make possible what was discussed, but he has not come up with that language. Consequently, we came up with language that makes possible a part of what was discussed.

There were two phases to the discussion and we take care of one of them; one of them we do not.

Mr. DENHOLM. Thank you very much for your explanation.
Do I have time remaining for further questions?

The CHAIRMAN. No; the time of the gentleman is up.

Mr. Mizell?

Mr. MIZELL. Thank you, Mr. Chairman.

I think that we are confronted here with at least one problem that came up in the last Congress and that is the proposed community development bill which would have jurisdiction over REA and which was not considered by Congress.

Now, from my own standpoint, I would much rather see REA being administered under Rural Development rather than under an agency that might be oriented toward metropolitan areas as might be possible under such legislation. So as far as transferring to rural development, I have no difficulty with that. I think we would rather be there than we would somewhere else.

Now, as long as the REA is administered according to REA criteria and that the program be administered according to the REA laws and guidelines rather than under rural development at the present time; is this the real concern with you?

Mr. PARTRIDGE. Well, speaking for the rural electric system. Congressman Mizell, yes, it is. There are requirements under the Rural Development Act, there for good reasons, for the purpose for which that law was intended by the Congress, which really do not fit the rural utility systems, such as electric and telephone. I know that the Congress had in mind specific purposes with that act. We were quite active in the support for that legislation and we appeared before this committee in support of it. I know what the Congress had in mind with respect to the Rural Development Act. I know that Congress did not intend that that money be siphoned off and that authority be used to the detriment of the other purposes, that the act was really