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official capacity and this is why you are up here, by and large the provisions of H.R. 7 will go a long ways in providing some help, financing additional REA co-ops in the extension of building of telephone lines do you believe that to be true?
Mr. HAMIL. In my opinion, I believe it to be absolutely true.
Mr. GOODLING. Mr. Hamil, I regret I did not hear all of your testimony. I am one of these rare individuals, along with Mr. Teague, who does not agree with everything he hears in this committee, and I am inclined to agree that we are going to have 2 percent money from here on out. I am sorry to say that I do agree with that. Under this bill are we not proposing to give this bank $300 million of Government money at 2 percent?
Mr. HAMİL. Yes, but to be repaid, Congressman.
Mr. GOODLING. What period of time? That is what I am trying to find out.
Mr. HAMIL. I cannot answer that for sure, but I will get the information and give it to you to the best of my ability.
Mr. GOODLING. Is there any requirement in this bill that says the REA Bank must pay this money to the Government?
Mr. Hamil. I do not know, but you are a member of the committee, you are a Member of the Congress, and I imagine that you could add
amendment to it. Mr. GOODLING. Well, Mr. Teague and I have tried to add amendments on a good many cases but we have never been very successful, as he has just told you.
In other words, the taxpayers are going to pick up the difference between 2 percent that is going to be paid by the REA Bank and 6 or 61, or maybe 634 percent and the taxpayers are going to pick up the difference. Money today is costing the Government 6 percent or more. Now, how can we justify having the taxpayers pick up that additional money, that additional burden?
Mr. HAMIL. Congressman, I think it has been stated here before today, but I will restate it again, the Rural Electrification Act was passed in 1936, and the Pace amendment figuring the rate at 2 percent was adopted by the Congress in 1944. The telephone amendment was adopted by the Congress in 1949 establishing these rates. I am the administrator of that program. I do not even have a vote as to what it is, but I do want to make a statement here that I have not made up to now, and that is that in practically every State in the Union the borrowers from REA for telephone purposes are under the jurisdiction of public utility commissions or bodies similar to that and a reasonable rate of earning is provided to them and not an unreasonable rate, Congressman, because under the rural electrification program, you pay off your entire loan. And there are no dividends permitted by REA on those loans until a rate, or until a maturity of 10 percent is achieved. And I would think that what the Congressman said here that it is total subsidies, may be a little unrealistic. I am also a money borrower in my own right, Congressman. I run a cattle business in Colorado. I know something about the cost of money. So I am aware of that.
I would agree with what the Chairman has said. We have $112 billion loaned in the rural telephone program, and the objective of the program was to provide and improve telephone service, and I am here to state I believe the mission is being accomplished. Telephone service is very necessary in the United States today, and it is being done. And the rural electrification telephone program has provided some considerable impetus to getting this job done.
One thing I must call to the attention of the committee is that this program of going through the bank has been endorsed by the biggest telephone entities in the United States of America, hoping I am sure, knowing I am sure that in the end it will be an improvement to the service for the Congressman. If you want to dial one of your-I am not familiar with your territory, Congressman, but I am familiar with Congressman Belcher's territory. And if he wants to communicate with some of his constituents out there by telephone, he is in a much better situation to do it today than he was prior to the time of the adoption of the rural telephone amendment. There have been other testimony given to you by other people in the industry. I have seen none of them up to this time which has indicated that REA and its telephone program has not been providing additional services to rural America that are not worth the investment that the people have made in them.
Mr. GOODLING. There is not a member of this committee, there is not a Member of the Congress that would take exception to one word that you just said, but we have come a long way since REA was instituted. At that time money cost the Government 2 percent. Now we are being very unrealistic. I do not know why 2 percent happens to be a magic number. Why don't we get away from that 2 percent magic number?
Mr. HAMIL. Congressman, you are only repeating some of the things that I repeated as Administrtor of the REA as far back as 1958.
Mr. GOODLING. Do you have any provisions to eliminate 2-percent money from some of the financially sound companies that are using 2-percent money today?
Mr. HAMIL. I think that this bank proposal that you have before you is the best step that I know to take care of that interest rate, which apparenly is quite irritating and does provide a means for continuing to develop the rural telephone systems.
Mr. GOODLING. What about some of our large utilities that are using 2-percent money? Do you have any provisions for prohibiting large companies from buying out little independent companies that have 2-percent money and then continue to use that 2-percent money?
Mr. HAMIL. Congresman, the loans have been made for a period of years set by the Congress and by the Administrator. And as long as they are providing service in the rural areas of the country, and it is filling that need, as the Administrator of REA I do not see where I can make a differential between a little bankrupt outfit or one of the better organizations as long as they're going to do the job. I think that there is ample information that can be put in the record, and I will put it in the record if you want it, to show that on the rural programs their earnings are reasonably well-controlled throughout the United States by the public utilities commissions to see that there is not an unreasonable amount of earnings made on moneys made available by this Congress at 2 percent for the Administrator to loan for the development of rural telephones.
Mr. GOODLING. That is all.
The CHAIRMAN. Mr. Hamil, is it not true that these loans are originally made on the basis of the need of the community and not on the basis of the need of the company that proposes to give the service, that we are not maintaining the REA program for the purpose of supporting any company, whether it be the Bell Co. or whether it be the smallest cooperative company, but that we are maintaining this
program to provide for the fulfillment of the needs of the community? Is that not the basis on which we make these loans ?
Mr. HAMIL. That is the basis, Mr. Chairman.
The CHAIRMAN. And having made the loan, having made the loan and the equipment having been placed in the field and serving the people that were intended to be served, then do you have any right to repudiate that because somebody else later acquires title to it? The service was given. Is that not the basis on which we leave these loans?
Mr. HAMIL. Well, I would say, yes, Mr. Chairman, and I would think the administrator had made some pretty lousey loans over the period of 20 some years since its start, if there had not been some strength developed in the rural telephone program. It has developed strength. And I am hopeful that we can provide a financial vehicle such as is set up in H.R. 7, so that they can completely go free from Treasury support to outside support.
Mr. BELCHER. Will the gentleman yield !
Mr. BELCHER. Mr. Hamil, awhile ago my good friend from Pennsylvania here indicated that we are going to put $300 million in this bank at 2-percent money. Well, the limitation in the bill is $30 million a year, and we are now loaning at $125 million a year at 2 percent directly to the companies. If we put $30 million of that $125 million back into a bank and they borrowed $8 for $1, there would be $240 million available in the bank for the $30 million the Government put in, but of the $125 million that we loan each year now, we just get 2 percent and the loan cannot ever exceed the 2 percent.
Now, again, on this question of whether a company because it's got $100 million or $5 billion is not entitled to take over a little company that was justified in getting 2 percent money, well, do you know, Mr. Hamil, I lived on a farm when these companies were all in existence, and I will tell you the kind of telephone service we had out on that farm. The wire was run on the top wire, the top barb wire of a fence, and when you come to an intersection you just run a wire
in the air on a one-by-four and across and down again to the top wire of the next man's fence and it would go clear on to the next one and then you would go up and down. Well, there was 12 subscribers on our telephone line, and every once in awhile you could through cross-talk-you don't hear that word cross-talk very much anymore, but some of
you older people know what cross-talk means. You can take down your telephone and hear conversations for 50 miles in every direction. And when that happened somebody would say, well, somebody's cow jumped over the fence and tangled up the wire. And so each farmer then would have to run his fence to see which fence had been wound up with the next one.
Now, that is the kind of telephone service we had, and we still had these companies in existence in all of the cities of the United States, and the reason we could not get any better service than that, these big companies regardless of their assets could not make a profit and could not afford to give service in an area where it took so much line and so far to reach these various subscribers. Now, when it comes to a question of subsidies, you know I am rated as one of the most conservative members of this Congress. I am so much more conservative than the gentleman here from California that I vote against a whole lot of boondoggles that he votes for. The only difference between us is I pick my boondoggles and he picks his. But it does not mean that my boondoggles that give this 2-percent money to run a wire out to a farmer that is 4 or 5 miles away from anybody else, so that if he happens to have sickness in the middle of the night he can call a doctor, that is the kind of a boondoggle if you want to call it as such that I vote for.
Now, he votes for foreign aid to build all these dams and so forth all over the world. You know I take care of my rural subscribers back home. That is the only difference between us.
Now, I hope the day arrives when it will not be necessary for this Government to subsidize any single industry, but since the beginning of the Government we have subsidized various industries in order to get them underway. We subsidized airline companies when they had millions of dollars in assets. IVe subsidized the railroads. We have subsidized the shipping companies. We have subsidized almost at sometime or other every industry in the country. And so I would like to get clear away from the 2-percent money. I know that I cannot get enough votes in Congress to eliminate 2-percent money per se. But I just hope there is some way that we can transfer these loans over to this bank and loan $8 for $1 instead of just loaning the $30 million and eventually get away from it. I think the only way we are ever going to get away from 2-percent money or any part of it is in some method such as this. Now, I want to get rid of it just as badly as he does. The only difference is we just want to take a different method to do it.
Mr. TEAGUE. Will you yield ?
Mr. TEAGUE. I have a suggestion. You mentioned a few minutes ago that if we took $30 million out of this $125 million that would be a step in the right direction. Will you support a move along those lines ? Let us reduce the present $125 million program by $30 million each year.
Mr. BELCHER. Yes, if you will quit voting for foreign aid I will be glad to do that. And I will save $21, billion to your $30 million, which is a darn good bit for you, I think. But here is the thing. I would say to the gentleman that every dollar that is borrowed from the bank would not be borrowed from the REA. And if we have $210 million there to loan, every single dollar that is borrowed out of there will not be approved and loaned by the administrator. So regardless of the amount of money that you appropriate, the amount of loans are going to be less with a bank with that kind of money than it is when you do not have any other method at all. Now, the administrator can do one of two things. He can either make a 2-percent loan or tell the people you cannot get service. Under the bank and the 2-percent loan, too, if they can afford to pay, if they are convinced that a company, cooperative can pay the rates of the bank, he can send them to the bank and save the 2-percent money. If he cannot, he will still have those places out in the country, and there are still places in various sections of the country that still need 2-percent money, as the days go by and there is more efficiency in the telephone systems, and so forth, we may be able to get completely out of it.
The CHAIRMAN. Are there any further questions of Mr. Hamil? Mr. Hamil, we are very much obliged to you. We appreciate your appearance. We will probably be hearing from you again, but we always welcome you back here.
Mr. HAMIL. Thank you very much, Mr. Chairman and members of the committee. And we are down there at REA to provide you with any service or information that the members of this committee want, and we will try to provide it to you as quickly as it is physically possible.
Thank you for permitting us to testify before you today.
Mr. Chairman, at my right sits Mr. Everett Weitzell, the Deputy Administrator. I have Mr. George Herzog, who is the budget officer; Mr. Joe Vellone, regulatory specialist, and Mr. Frank Renshaw, who is the Assistant Administrator, telephone.
The CHAIRMAN. Well, we are acquainted with most of your staff, and we are delighted at the staff that u have selected.
Mr. HAMIL. Thank you.
(Following are additional statements and a letter submitted to the committee:) STATEMENT OF HON. WILLIAM R. ANDERSON, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF TENNESSEE Mr. Chairman and members of the committee, I appreciate the opportunity to present my views in support of H.R. 7, Mr. Poage's excellent measure to establish a Rural Telephone Bank. I have sponsored similar supporting legislative proposals in the 90th and 91st Congresses. I believe that we have had very few comparable legislative opportunities to further the cause of modern American rural development. This is a cause second only to national defense and domestic order in my own scale of national priorities.
The R.E.A. telephone co-ops have done a magnificent job in making small town and rural America an attractive and productive place to live. They have made modern communication conveniently and reliably available at reasonable cost to the remotest farms, ranches, churches, schools and rural factories. Without these accomplishments, we would now be seeing a great deal more of those “Siamese-twin” horrors of our time—the decayed and deserted rural community, and the wretched, hive-like urban slum. Similarly, if we are indeed serious about the hope to renew and revitalize rural and small town America-serious about the hope of making these communities attractive, modern, vigorous contenders for the jobs, investment and youth of this era, then H.R. 7 is the basic first step. It is as basic to rural development as good communication is basic to modern business.
Our present R.E.A. telephone loan program has been, and will continue to be for some years, the financial foundation upon which the rural communications system is built. Rural co-ops, operating with growth capital from the R.E.A. 2% loan program, now serve between 75% and 80% of America's farms, and hundreds of small communities where consumer density is too low for profitable ventures in private enterprise telephone service. In the last four years R.E.A. telephone loans to co-ops serving my District have amounted to $2.5 million. I can attest to the acute need met by those dollars, and to the equally severe rural communi. cations needs still remaining unmet.
My own experience in this regard is anything but unique; across the Nation there are pending rural telephone loan applications amounting to more than $300 million for which no funds are available. These applications reflect system ex