ministrator of the Rural Electrification Act would be given discretion to apply a rate of interest compatible with the cost of money to the government in all cases except where the higher interest rate would adversely affect the feasibility of the project for which the loan is needed. The exercise of this discretion should in no wise interefere with the basic objective and intent of Congress as expressed in the original Rural Electrification Act nor would it permit the lending of money at less than two percent (2%). We realize, Mr. President, that exercising this discretion would add a burden on the REA Administrator, but it is a burden shouldered by many administrators of federal agencies and one which we think could be borne with credit to all. As the same time, it would allow you to effect an economy in government which we note with approbation is an aim of your administration. We feel that a borrower who can afford to pay the cost of money to his government to bring a service to rural America should not be prohibited from doing so by the Act. May we suggest that you refer this subject to the appropriate agency for study and recommendations. We would be pleased to encourage the support of our members for proposed legislation which could accomplish the twin objectives of economy in the administration of the REA program and the meeting of the expanding needs of rural telephone users. Sincerely your's, HAROLD G. PAYNE, Chairman, REA Borrowers Committee. JUNE 17, 1965. Mr. HAROLD G. PAYNE, Chairman, REA Borrowers Committee, DEAR MR. PAYNE: President Johnson has asked me to thank you for your letter of June 1, regarding the REA telephone loan program. He also wants you to know that he appreciates your Association's support of his recommendations for repeal of the excise tax on telephone service. I can assure you that your thoughtful views and the proposal to provide for modification of the REA telephone loan program will be given careful consideration as the Administration reviews and formulates its budgetary and legislative proposals. Sincerely, PAUL M. POPPLE, Assistant to the President. Mr. TEAGUE of California. Thank you, sir. I do have one more question, I find, Mr. Chairman. Admiral Mott, as you probably know, I have not been convinced that there is any need for the Federal Government to get into the electric or telephone bank operations. In our minority views that were filed, there were three main reasons set forth-very distinct oneswhich I will read to you, if I may, and ask you for your comments. I at least want to have them in the record. I do not expect you to agree with them. We objected to the electric and the telephone bank, No. 1, because of the onus of paying the subsidy on Government funds loaned to present REA borrowers and the telephone bank at 2 percent per year. We also objected to the very real risk of never seeing $300 million of Government funds returned to the U.S. Treasury because of loans running as long as 50 years and repayment of principal being deferred at the option of the electric bank board. We also object to the provisions for the indefensible transfer of control of $300 million of taxpayers' funds to non-governmental hands at the time of the bank's conversion to borrower control, without any assurance at the time or any guarantee at all that the Federal obligation would have been entirely repaid. In other words, in this case, the subsidy would be a gift, possibly a gift, you might say, of this amount to privately owned financial institutions of Government money. These were our objections and still are mine. If you do want to comment on those, I would like such comment as you wish to make. Mr. MOTT. Mr. Teague, first of all, the letter to the President of the United States, to which you referred a moment ago, was an effort on the part of the U.S. Independent Telephone Association to bring to the attention of the Chief Executive in as forceful language as we could that there were weaknesses in the REA borrowing system. Incidentally, it was sent just after he had come out with a statement giving all of the savings that he had made in Government and we thought it appropriate to go to the President of the United States and point out to him that in our judgment he had an economically unconscionable situation on his hands, because there were borrowers, and there are borrowers, who are perfectly able to pay more than 2-percent money. There are those who are able to pay the full cost of the money to the Government, and there are those who are able to pay what the full commercial bank rates would be under H.R. 12066. We said, in effect, "Mr. President, under the present law, if a borrower were to go down to the REA and say, 'Look, you have got me strapped in, because you own a first mortgage on my property and I cannot go to a commercial house to borrow money, but I have proposed; my telephone company is doing very well, and I have got money falling out of all my pockets, and I want to pay my Government what it costs my Government to borrow money, and they would say in horror, I am sorry, that law does not permit that. If you want. to borrow any more money from us, it has to be at 2 percent.'" We proposed to the President, with the full approval of our board of directors, that he ought to change that law and that he ought to introduce a needs test into the law whereunder a borrower would pay what he could afford to pay between 2 percent and the cost of money to the Government to eliminate a situation we considered to be economically unconscionable. I do not know all of the processes that go on in making up the President's mind as to what kind of legislation the President is going to sponsor, but I do know from conversations we have had with certain staff members that he was somewhat stunned by the fact that this situation existed and determined to do something about it. I now get into a little guessing game which you probably know as much or more about as I do, but I understand that the President rejected-or the White House, or the Bureau of the Budget rejectedthe proposal that we had made to him, because he wanted to wean these people away from Government financing he did not wish, I judge, to have to continue to come up to Congress year after year and justify appropriations in his budget which would go on, let us say, forever, and have no termination, and he did not want, presumably, the Administrator of the REA to be put on the spot as to who would be entitled to what loan, and at what percentage of interest. In other words, a sliding scale of interest in accordance with need puts the Administrator in a terrible spot. So the Bureau of the Budget, presumably in consultation with the chairman of your committee, decided that one way to lead these people on the path to economic independence was to have a bank bill which would wean them away as rapidly as possible as rapidly as they were able to pay-from the 2-percent money to a higher rate of interest and, eventually, away from the Government altogether. Mr. ABERNETHY. Will you yield there? That is, for one question? Mr. TEAGUE of California. Yes. Mr. ABERNETHY. Does not this bill do exactly what you have presumed that the President was trying to get away from, that is, to make a determination as to who would get the cheap money and those who would get the higher interest money? That one group would continue to get money directly from the Government, from the REA, from the Telephone Division, and that the other group would get it from the telephone bank, at REA rates? It does exactly that, does it not? Mr. Morr. It does it in somewhat a different fashion. It has an ending down the road to get it thoroughly out of the Government's hands which other programs do not have. Mr. ABERNETHY. It does not get it out of the Government's hands, because it still leaves some of them eligible to borrow directly from the REA. Mr. MOTT. Well, that is true, sir. I am speaking about the bank with which this bill is concerned. The last time I testified before this committee I gave my own view of how this would happen, and I think that it is, probably, fairly accurate. If a man came in to borrow directly from the REA after this bank bill went into effect, he would have to as they say in the law-show cause why he could not go to the bank. He would have to go to the REA Administrator and show that he was so poor that he could not possibly serve his area under the mandate of the original REA Act unless he was given the 2-percent loan. Now, of course, there would be a lot of factors coming in to keep direct loans at a minimum. Not only would borrowers have to show a need for direct 2-percent loans, but the Appropriations Committee would have to be convinced and the Congress convinced every year that this need was there. And I would think that all of the pressures would be to reduce direct loans to a minimum and keep reducing them as people qualified to go to the bank. When the prospective borrower was told, "No, there is no money for you here in REA, you go to the bank," I would think that under the terms of this bill he would have to show cause why he should not pay the full bank rate before he could qualify for the intermediate rate. At least, this is my interpretation of what would happen. And so, I think that our objective is to wean these people away from the 2-percent money by a device, a bill, a bank of this type. That is our objective, or one of our objectives. Mr. TEAGUE of California. That is all. Thank you. The CHAIRMAN. Are there any further questions? Mr. Dole. Mr. DOLE. There are many different telephone associations in the country. Mr. Lucier mentioned earlier that he was in accord with your statement. Mr. MOTT. Mr. Lucier is a member of our REA Borrowers Committee, which under our policy directive have the duty of commenting on the issues before this committee. Mr. DOLE. I make specific reference to amendment 18, about line 9 of the statement, where you indicate that you have no objection to the suggested amendment to eliminate the words, "a holding company." How do you view that amendment? Do you note any objection to it? Mr. MOTT. We think that it is rather unfair to single out holding companies to which this restriction should be applied and to allow a company which is not a holding company to escape. I think that this amendment broadens the impact. Mr. DOLE. This requires the approval of the bank. He indicated that. Mr. MOTT. Yes, sir. Mr. DOLE. It does not punish a holding company. It brings everybody under the tent. Mr. MOTT. This is the amendment, I believe, Mr. Dole, which we think is technically deficient because yesterday it was proposed to substitute for the Administrator the words, "Secretary of Agriculture, and the Telephone Bank Board." We have no objection to substituting the Secretary for the Administrator because they are alter egoes anyway; nor do we have any objection to the telephone bank board acting on section 408 loans, but to put the amendment in the conjunctive, instead of the alternative, would have the telephone bank board operating on section 201 loans, which is no concern of theirs. They are loans made under the original act. So it is our proposal in our statement, which does not violate the thought, as we understand it, of Mr. Bollinger and his associates, that this wording should be changed to read, "Without approval of the Secretary of Agriculture, with respect to section 201 loans, or the telephone bank board with respect to section 408 loans." Mr. DOLE. That is as to No. 15. I was directing my attention to No. 16. They are all in the same section. Mr. MOTT. We think it is a healthy change to eliminate the words "a holding company." Mr. DOLE. I suggested yesterday, and I have no real basis for this suggestion, that perhaps an alternative would be on line 3, page 22, to simply eliminate the words, "without approval of the Administrator," so that it would read, "Notwithstanding the provision of the law, no borrower shall sell or dispose of his property until all indebtedness shall be paid." Mr. MOTT. Mr. Dole, I heard your suggestion yesterday. I feel that you cannot avoid death and taxes, whether you are selling a company, such as Mr. Bollinger's or any other-you may remember yesterday he was asked why his company was sold-and his answer, really, was "death and taxes." You have death and taxes in REA companies, too. And if you were to circumscribe or to limit the class of persons to whom or the manner in which those people can sell their property, we might have put an end to all REA borrowings pretty quickly. Perhaps, Mr. Wilbourn would like to comment on that. We were talking about this last night without really having it before us. He is president of the Allied Telephone Co., of Little Rock, Ark. The CHAIRMAN. We will be glad to hear from you. Mr. WILBOURN. I am in the group that is working on these amendments. If that clause were there, I would not want the money—I would not borrow the money. I would just get out of business, simply because it would restrict me in the operation of my business and, particularly, in my personal affairs as a stockholder in the company. Mr. DOLE. I am not putting anything in-I am taking something out. Mr. WILBOURN. I know. But you are taking out, or, by taking out, you are putting in. You are making it so an REA borrower, as I understood what you said yesterday, could not sell." Mr. DOLE. The purchaser must pay the indebtedness first. Mr. WILBOURN. He has to pay it off. If he has to pay it off, where is he going to get this money? Mr. DOLE. From the bank, I presume. Mr. WILBOURN. Do you think that a borrower would do this? Mr. DOLE, I heard this morning that it does not make any differ ence I am wondering about that. Mr. WILBOURN. Now, then, you are back to the Public Service Commission. A borrower has to go to the Public Service Commission and ask them to support a loan at 6.5 percent, perhaps, which would automatically raise all the rates of that telephone company. I think that this has no-well, I think that the statement that you made yesterday would kill the REA bank bill. I would not borrow the money. I would not borrow the money to sell my plant- I would not do that. And I borrowed it in good faith some 12 years ago. Mr: DOLE. You would have no concern about this then? Mr. WILBOURN/Yes, I would; I would. Because I do not want any restriction on my company. me dijare The CHAIRMAN. Would you yield there? Mr. DOLE. Yes. The CHAIRMAN. I do not know a thing about the telephone business, Mr. Wilbourn, but I own a farm. The Federal land bank has a loan on it and has for quite some years. Would this not have the same effect on the telephone company that it had on my farm? I can sell that farm any day that I can find a buyer, and he can take up the Federal land bank note, carry it, or pay it off according to the terms-whatever he likes, but he does not have to dig up all the cash to do so. Mr. WILBOURN. Sure. The CHAIRMAN. I know that I can sell that place much more readily with that Federal bank loan on it than I could if a purchaser had to pay that Federal land bank note off. But he does not have to pay it off-anybody can buy that farm if it is all right with me. And then he has to pay whatever I am obligated to pay to the Federal land bank, but he does not have to pay it all in order to buy it. Mr. WILBOURN. That is quite correct. The CHAIRMAN. That is not exactly the situation here that Mr. Dole is proposing. And would not that cut your market down because it would affect the purchases? Mr. DOLE. You have the 2-percent money. I Mr. MYERS. Are we financing for sale or for operation? |