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Mr. HAMIL. Personally, as I have previously stated, I think the concepts of this bill offer a positive and direct means for providing additional credit necessary in my opinion to properly maintain and develop the rural telephone program and at the same time provide a means for going from total Treasury support as it is now to a day in the future when all of the credit necessary to provide growth for rural telephones could come from sources independent of the Treasury.
The CHAIRMAN. Well, if we do not pass this bill, all of the money must come from the Government financing method, is that not right? Mr. HAMIL. There is no other method in force at this time.
The CHAIRMAN. Well, if we do not pass the bill, there will not be any other method, will there?
Mr. HAMIL. I would have to agree with you, Mr. Chairman.
The CHAIRMAN. If we do not pass this bill, all of the money financing the rural telephone system must come from the Government, is that not right?
Mr. HAMIL. That is correct, unless some other Member of Congress would present a measure, but there is none other to my knowledge before the Congress.
The CHAIRMAN. And do you know of any other method other than the method proposed here that could reasonably be expected to pass that would provide anything other than Government financing?
Mr. HAMIL. If I were making a judgment individually, Mr. Chairman, I would answer your question with this statement. There is no other method at the present time with which I am familiar that could provide the credit necessary to do the job that needs to be done in rural telephony other than the direct appropriation by the Congress to REA.
The CHAIRMAN. Therefore, we come to the proposition that if you want to continue direct appropriations, you would vote against this bill. But if you want to bring some private money in, you would vote for the bill.
Mr. HAMIL. That is correct.
The CHAIRMAN. Thank you very much.
Yes, Mr. Teague.
Mr. TEAGUE. Yes. Mr. Hamil, you, of course, are aware of the fact that I believe some 75 percent of the rural telephone companies in this country are corporations organized for profit, is that correct? Mr. HAMIL. That is approximately correct, Congressman.
Mr. TEAGUE. We have had some testimony before this committee that many of these companies, I cannot say all, have been making very good, even exhorbitant profits. Now, without putting this in the form of a question, I want the record to show again that in my opinion the Federal Government has no business further subsidizing companies of this type. Now, here is a question.
Would like this bill better if it were based on the same concept as most or all of our other farm loan programs are; namely, that loans be made at generally the cost of money to the Government rather than at subsidized rates?
Mr. HAMIL. At the present time the only rate that we have at which we can loan money is the 2-percent rate as fixed by the Rural Electrification Act. And in the bill that is proposed it would provide a rate which would be the rate at which the lending agency would be
able to obtain funds and with additional costs for administration. If I were to have the combination of the rural electrification, we will call it 2-percent money because that is what it is today, and the bank, it would be my intention that every loan application would be thoroughly scrutinized for feasibility, and it would be my intention that each loan would carry the maximum amount of the cost of money funds that they would be able to support and meet their service obligations and would be supplemented only with the 2-percent money as would be necessary to make a feasible operation.
Mr. TEAGUE. Well, it is my understanding that the bank for cooperatives and the Federal land bank in making its loans does so at the cost of the money to the Federal Government; is that correct?
Mr. HAMIL. Well, the Federal land bank, Congressman, has completely paid out its obligation to the Federal Government."
Mr. TEAGUE. Well, I understand that.
Mr. HAMIL. Yes.
Mr. TEAGUE. But it is not loaning money and has not loaned money at subsidized interest rates, has it?
Mr. HAMIL. Not for a long time. It did loan some money during the depressed years of the 1930's, but it has not recently.
Mr. TEAGUE. Well, that is exactly my point. If this is a good program, and it has been a good program, why should not a telephone bank program operate on the same basis?
Mr. HAMIL. Well, Congressman, somewhere I am losing my communication with you. I think we are talking in exactly the same vein. I would only want as the administrator of this program to have access to some money that would be at a lower interest rate in order to make feasible the operations of some telephone systems in this country which as of today, Congressman, are not feasible without some support from lower interest rates.
Mr. TEAGUE. All right. Well, you do not have any notion, do you, that we are going to do away, in the near future anyway, with the present program?
Mr. HAMIL. I would not think so in its entirety, Congressman.
Mr. TEAGUE. Well, I would not either. We are just affording an additional subsidy, much of which will go to companies which I doubt very much need it.
Thank you, Mr. Chairman.
Mr. BELCHER. Will the gentleman yield?
The CHAIRMAN. Mr. Belcher.
Mr. BELCHER. Well, Mr. Hamil, this bank is going to contain less subsidy than the 2 percent; is it not?
Mr. HAMIL. It surely would.
Mr. BELCHER. If you want to get rid of 2 percent to any extent, the bank will at least go in that direction.
Mr. HAMIL. In my opinion, Congressman Belcher, your statement is correct. This is the only means that I have seen presented to the Congress whereby the Rural Electrification's telephone program could go from its 2-percent interest rate to a time in the future when I would envision it would be capable of supporting itself at the cost of money on the open market and at the same time would repay the Treasury of the United States for the resources that had been provided to it in the beginning.
Mr. TEAGUE. Mr. Chairman.
The CHAIRMAN. Yes, Mr. Teague.
Mr. TEAGUE. I will make-I beg your pardon. I thought you were finished. I am sorry.
Mr. BELCHER. In your opinion, is there any other way at the present time to get away from any part of the 2-percent subsidy except this direction?
Mr. HAMIL. I would qualify my statement by saying that in my opinion this is the only method that I have seen that I could endorse with the idea that it would provide telephone service in the country and at the same time could eventually eliminate the support from the Treasury.
Mr. BELCHER. In other words, in the position of Mr. Teague, if he wanted to get rid of the 2-percent program, I don't believe he has a chance of the Congress getting rid of any part of that 2 percent except in this direction?
Mr. HAMIL. That is correct, in my opinion, Congressman Belcher. Mr. TEAGUE. Will the gentleman yield?
Mr. BELCHER. I will yield.
Mr. TEAGUE. Oklahoma is in the Sugar Bowl game every year and will be for the indefinite future. I will bet the gentleman from Oklahoma two tickets to the game in the year 2000, when our grandchildren can go, that the present 2-percent program which runs as I recall at about $125 million a year won't be reduced by a penny.
Mr. BELCHER. Well, I would say I would be perfectly willing to accept that bet if I knew there were enough Members in Congress like Mr. Teague who are not going to make any effort at all to get rid of the 2-percent money.
Mr. TEAGUE. Will the gentleman yield further?
Mr. BELCHER. Yes.
Mr. TEAGUE. I have had a bill in for several years to that effect, and at one time I had three votes on this committee, and I think I might only have two or three now.
Mr. BELCHER. Well, I understand that but, you know, it has been my experience that when I try to accomplish something I try to do it in a way that has at least the practical advantage of succeeding. And if I only had three Members in the whole U.S. Congress I would figure that in the year 2000 I would not succeed.
Mr. TEAGUE. Will the gentleman yield further?
Mr. BELCHER. Yes.
Mr. TEAGUE. I have far more than three Members in the U.S. Congress, but it is a little practical matter of getting the bill out of the Committee on Agriculture.
Mr. BELCHER. Well, I think you probably do have more. I think you may have six or eight in the Congress.
Mr. PURCELL. Mr. Chairman.
The CHAIRMAN. Certainly, Mr. Purcell.
Mr. PURCELL. I cannot add to the depth of the information just revealed.
Mr. Hamil, I realize we have got you up here at a real disadvantage and we are all regretful of the circumstances but this is the situation we find ourselves in.
Mr. MYERS. I am not sure we are.
Mr. PURCELL. Well, the folks down there cannot make up their mind whether they are going to have money or no money. But now with your knowledge and the study you have already given to this bill and the general aspects involving the financing of REA telephone cooperatives and other companies, are there any recommendations or suggestions that you could make at this time? It is difficult for us to get you back up here all the time, and we would appreciate your thoughts as to the methods that you think might improve the bill that Mr. Poage has introduced.
Mr. HAMIL. I have one suggestion, and I would like to read my comments concerning it.
In connection with the different levels of interest rates made possible by the bill, the committee may wish to reconsider the need for provision of an intermediate interest rate on bank loans. If this provision were eliminated, we believe sufficient flexibility in matching financing costs with ability to pay can still be achieved without any other change in the bill. It would be practicable to lend a borrower part of its loan needs at 2 percent under section 201 of the Rural Electrification Act and the balance at the bank's average cost of money rate. The relative amount of funds lent to a particular borrower by REA and the bank would depend upon that borrower's ability to pay a higher rate of interest than the present 2 percent statutory limit on REA telephone loans. We believe objective standards can be devised to determine the proper proportion of REA and bank funds which should be made available to any particular borrower. These standards can be revised from time to time to utilize a larger proportion of rural telephone bank funds as the bank's assets grow with a corresponding reduction in the proportion of capital requirements of these rural telephone systems which would have to be met by the 2-percent program.
That is the only comment that I would make at this time on the bank. I believe, Congressman Purcell, that the two interest rates could be amalgamated and it would be the administrator's obligation to review the feasibility and the possibility of each loan application and his responsibility to use good judgment in seeing that each borrower paid the maximum that he could support or his program could support at the bank's interest rate.
Mr. PURCELL. Your suggestion, then, is to take out the intermediate step that has been proposed in this bill?
Mr. HAMIL. I would take out the intermediate step, but I would just amalgamate the top and the bottom which would
Mr. PURCELL. And you take the blended price of money?
Mr. PURCELL. The top step would then be somewhere between what is now the intermediate step and the top step?
Mr. HAMIL. It could be this way. There are applications in REA right now that could probably sustain, let us say, 75 percent of the cost of money and 25 percent of the 2-percent money that would be made available and loaned under section 201. And there are others that might have to have 90 percent of the 2-percent money. In my time as administrator before, I made some telephone loans in some very sparse areas. I think of some in Wyoming and Montana. I think of another one in the corner of Oklahoma and Kansas and Texas. It was a long ways between customers, and the feasibility at that time was very stretched.
Today, Congressmen, both of those organizations are operating really not in a very affluent financial picture, but it is much better than it was 10, 12 years ago.
Mr. PURCELL. That is all I have.
The CHAIRMAN. Well, Mr. Hamil, can you not sum that up by simply saying that if you want to shift as much of these loans as possible into commercial market money channels, that this bill gives you a part of something, whereas if we do not do anything we have just got all of nothing? Is that not about what it comes to?
Mr. HAMIL. Your statement, in my opinion, is correct, Mr. Chairman. The CHAIRMAN. Thank you.
Mr. BELCHER. As I understand it, the suggestion you made would take the subsidy out of the bank as far as the Government subsidy entirely, would it not, except the original money that was put out? Mr. HAMIL. This is correct.
The CHAIRMAN. Is there anything further of Mr. Hamil?
Yes, Mr. Kleppe.
Mr. KLEPPE. Mr. Hamil, maybe my questions and my thoughts are a little bit unfair based on your situation here, but you were down here and testified on this bill last year, or in 1967, whenever it was we heard it, and of course your position was different then, but you were very much in favor of this concept. Today, I realize your situation and your position and really my main question is, What in your opinion is the length of time that you think we are going to need to wait to find out what the budgetary questions and problems are before the Department could specifically give us a recommendation in regard to this particular legislation?
Mr. HAMIL. Congressman, I wish I could give you a positive answer to that, but I can't. The only thing that I can say is that in my capacity as the administrator I will press for a position to be made as quickly as I can.
Mr. KLEPPE. Thus far you have received no indications as to when that may be?
Mr. HAMIL. I have no indication when it may be, but I will continue to press.
Mr. KLEPPE. Do you believe, Mr. Hamil, that this bill would be improved by having a provision that would preclude the acquisition of companies without outstanding loans of 2 percent, which is commonly referred to as the Dole amendment around here? Do you think this would improve the bill any? Do you think it would make it more palatable to some of the people that are prone to object to it?
Mr. HAMIL. I haven't a firm answer to that, Congressman, but I will review the question that you have asked me and provide information to the committee.
Mr. KLEPPE. As one member of the committee I would appreciate your views on that particular aspect of it when you have a chance to think about it.
Mr. HAMIL. We will provide it to you within the next couple of days, Congressman.
Mr. KLEPPE. I just want to repeat a question that I feel has been asked of you by the chairman and by Mr. Belcher, and that is from your own personal viewpoint now accepting the fact that you have an