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pansions into previously unserved, now populated but isolated regions, and a broad attempt to upgrade the antiquated eight party lines now in general use. No one acquainted with the conditions of rural life and knowledgeable about the relationship of public utilities to economic development could seriously object to these purposes. The growth capital requirement to achieve them is reliably estimated at a minimum of $3.5 billion, more than double the total of 2% telephone loans made by R.E.A. during the past 15 years. In the next ten years it is expected that the annual requirements for new loans will approach $300 million, which is almost two and one-half times the amount of loan funds presently being made available.

The solution proposed is a sound, supplemental source of credit financing, which minimizes reliance on federal dollar participation.

Enactment of H.R. 7 will assure rural telephone systems access to reasonable cost growth capital through private sources by establishing a Rural Telephone Bank to which the borrower systems may turn for all or a part of their future capital requirements, thereby reducing the drain on the Treasury both for loan funds as well as subsidies. The proposed Rural Telephone Bank is patterned on an eminently successfull precedent-the Federal Land Banks. This mechanism promises the gradual and orderly phase out of federal participation in the bank, the repayment of the federal share, and conversion to borrower ownership and control.

This legislation has been hammered out over four years of intense Congresssional struggle, research, revision and perfecting. It is tightly written and even the smallest details have been examined, debated and settled in pragmatic fashion. I respectfully urge early Committee approval of H.R. 7.


Mr. Chairman and members of the committee, I am John W. Scott, Master of the National Grange, with offices at 1616 H Street, NW., Washington, D.C.

The National Grange is more than a farm organization. Its purpose is to serve the total interest of the rural community and the Nation.

Self-help programs planned, controlled, conducted and financed at the local level are a primary objective of Grange policy; the Grange has held-and now holds that Government involvement in all such programs should be the minimum necessary to provide equitable opportunities for all Americans.

The National Grange represents 7000 local community Granges from Maine to Florida and from the Eastern Shore to the great West and Northwest. Throughout rural America, Grange halls can be found servicing the 600,000 members living in rural communities.

As responsible members of rural America, the Grange has had a vital interest in an adequate rural telephone system and has been a strong supporter of the REA telephone programs from their inception in 1949.

In 1951, at the 85th Annual Session of the National Grange, in Atlantic City, New Jersey, the Delegate Body passed the following resolution:

"The development of an adequate rural telephone system is just beginning. We commend the Rural Electrification Administration and the telephone companies for the progress made.

"The principle of area coverage on a uniform class rate basis should be adopted for all rural telephone projects. We recommend that Congress make sufficient appropriations to meet the loan requirements for the development of adequate telephone service throughout the rural areas of America."

As early as 1958, the Grange, seeing that there was need for additional supplemental financing for REA to meet the necessary loan requirements, supported by resolution the request for such financing to—

1. Continue the present statute-set 2 percent interest rate on REA loans. 2. Provide sufficient REA loan and administrative funds necessary to meet all the needs for additional borrowed capital on the part of telephone cooperative borrowers.

This still remains basic Grange policy. An adequate, dependable and reasonably-priced telephone service is essential to the social and economic well-being of the nation's rural residents. Many REA-financed cooperatives serve thinlysettled areas and are not yet able to provide service at rates on a parity with those of urban people. For such systems, we urge that REA loans be made avail

able at the present 2 percent interest rate. We further urge an early establishment of a suitable and fair supplemental banking program for the rural telephone systems with the necessary federal financing assistance and the right of future ownership and control by participating systems and a continuation of adequate federal appropriations at an interest rate which will permit continued telephone service in the very sparse customer areas.

The legislation you are considering during this session of the 91st Congress regarding supplemental financing of REA telephone systems has the vigorous support of the National Grange. H.R. 7, introduced by the distinguished Chairman of this Committee, meets all of the objectives of the National Grange policy; therefore, we urge speedy action by this Committee and request that this Committee provide the leadership to bring about affirmative action by both Congressional bodies of the Federal Government.

It would be presumptuous of us to sit as experts on telephone systems. In fact, at times we have great difficulty in just direct dialing; however—you have heard from many expert witnesses who represent the rural telephone companies that are servicing rural America and who are in a far better position than we to document the urgent need for supplemental financing and the best method of structuring the telephone bank. Therefore, we will rely on the wisdom of this Committee and its staff to present to the House a bill containing the features necessary to meet the financial needs of the REA Telephone Bank.

This Committee is very aware of the tremendous strides made in improving the telephone service in rural America. In fact, it has been because of this Committee that such progress has been possible. We commend you for your foresight and concern in providing legislation to enable rural America to keep abreast in telephone communications.

We ask that you continue your good judgment and provide the supplemental financing necessary to enable the rural telephone systems to enter the second phase of the great transformation in rural telephony; namely, upgrading of service and extending such service to the most remote area of rural America.

In conclusion, please allow me to stress the urgent need for accelerating the drive for recreational, commercial and industrial development in rural areas. Improved telephone service must assume new significance, if we are to reach the goals of a redeveloped rural America and slow down the mass migration to our overpopulated urban centers.

Having served as the State Master of the Pennsylvania State Grange for six years, I am well acquainted with the needs of rural residents. Steady progress is being made toward our goal of modern, all-dial rural telephone service under rates and conditions comparable to those available to urban subscribers. For example, in my own home state of Pennsylvania, the Otto Telephone Company, Duke Center, Pa., a small independent company, is upgrading telephone service for all its subscribers. The hand-crank wall box telephone once a familiar sight in farm and rural homes, is now a collector's item. The last of these antiquated instruments came down from a farm wall in October 1968, marking the beginning of a new era for the company's 437 subscribers. When the upgrading is complete, 80 percent of the subscribers will have single-party service and the rest will have two-party service. Direct distance dialing will be available to all.

This type of service is needed if we are going to keep people in rural areas. It is needed for the family farm, rural residents and most of all, to attract small and light industry to rural areas. To provide such telephone service to rural areas an REA Telephone Bank is a must.

Mr. Chairman and members of the Committee, the National Grange is pleased to be able to support this legislation and is appreciative of the opportunity to thank you and the Rural Electrification Administration for the excellent leadership you both have provided in bringing modern communication to the residents of rural areas. Thank you.


This statement is filed on behalf of the National Association of Manufacturers, a voluntary association of business enterprises, large and small, located in every State.

We appreciate this opportunity to express our views on H.R. 7 which would establish a new government corporation to be known as the Rural Telephone Bank.

On April 4, 1967, we filed with the Committee on Agriculture a statement on H.R. 1400, a bill to establish both a Rural Electric Bank and a Rural Telephone Bank. That bill did not reach the House floor. Although our previous statement dealt only with the Rural Electric Bank provisions of H.R. 1400, we wish to incorporate it by reference into this record because we believe the reasons why a Rural Electric Bank is unnecessary and undesirable are equally applicable to the proposed Rural Telephone Bank.

We wish to state again our policy position on "Federal Business-Type Activities" as it deals with Federal lending activities:

"Substantive legislation for Federal business-type activities involving credit should provide that interest rates and maturities be based on market realities, except where a subsidy is expressly specified and measured. All such Federal lending programs, including those which are self-supporting, should be reviewed periodically with a view to discontinuing the activities when possible. Any lending operations caused by circumstances which are no longer present should be discontinued as soon as possible without causing sudden or undue hardship to those sectors of the economy which have become dependent on this form of governmental support. Necessary lending operations of the government should be so conducted as to avoid confusion of the activity and its purposes with political motives and purposes."

We believe that H.R. 7 does not incorporate any effective steps in the direction of terminating Federal lending in the telephone field, but moves in the direction of further massive Federal involvement by institutionalizing the activity.

The bill would authorize the appropriation of $30 million per year for a total of $300 million. The Rural Telephone Bank corporation would issue Class A stock to the United States in exchange for this money. Class A stock would be entitled to a return, payable from income at the rate of 2% per year.

The bill provides that "such Class A stock shall be redeemed and retired by the telephone bank as soon as practicable after June 30, 1984, but not to the extent that the Telephone Bank Board determines that such retirement will impair the operations of the telephone bank; .." Thus, elimination of Federal involvement would not even begin until June 30, 1984. In the meantime, the present Rural Electrification Administration program of 2% loans to rural telephone systems would also continue.

In summary, the bill would authorize the commitment of $300 million of government funds at a time when fiscal restraint is imperative. It would expand rather than constrict Federal activities in this field, and would postpone lessening of Federal involvement to a date far in the future.

In addition, the creation of a new government corporation is not necessary to meet the needs of rural telephone cooperatives; such a government Bank would compete unfairly with tax-paying private financial institutions; and a Rural Telephone Bank would create a precedent for a Rural Electric Bank, which would also be undesirable.

For these reasons, we strongly urge the Committee not to report H.R. 7.

Glasgow, Ky., February 28, 1969.

Hon. W. R. POAGE,
Chairman, Committee on Agriculture, House of Representatives, Rayburn Build-

ing, Washington, D.C.

DEAR MR. POAGE: The following statement is offered in support of H.R. 7 in respect of the rural telephone bank bill.

The bill in the form submitted to the Committee appears to be complete and it should be enacted into law.

There is great need for a rural telephone bank which H.R. 7 would authorize. The rural telephone program, administered by the Rural Electrification Administration, has been very successful and organizations which have been financed by REA have been so broadly accepted by the rural people that their growth has exceeded expectations of the most enthusiastic supporters of the rural telephone act. In fact the growth of the REA financed rural telephone systems has been so phenominal that continued financial support under the rural telephone amendment to the RE Act of 1936 is, and will continue to be, so burdensome on rural telephone loan fund appropriations that supplemental financing is urgently needed to meet the rapidly mounting need for construction capital funds required by the expanding demands for rural telephone development.

The rural telephone act has done more good for more rural people than perhaps any other single program with the exception of the rural electrification projects, and at the least cost to the government. Despite the fact that rural telephone loans are made at two per cent interest, the treasury has not been as heavily burdened as some program critics would have one believe. The loan funds are promptly expended through channels which produce income taxes and permanent jobs are created which form a perpetual source of income taxes and of course, increase the standards of living for the jobholders' families. Moreover, the federal excise taxes on telephone service produces more income to the treasury than the two per cent interest on the rural telephone loans. For example, during 1967, the most recent year for which statistics are available, the interest payments by REA borrowers was approximately $20.4 million and the federal excise taxes on the telephone service provided by the same borrowers amounted to approximately $23 million. There is approximately $1.35 billion of taxable property which these borrowers list on the local government tax rolls, thus the support of public schools and all other departments of local and state governments is substantial.

If H.R. 7 is enacted into law and supplemental financing provided, the expansion and improvements of the rural telephone program will go forward at a more rapid rate than has been possible under the limited financing available through congressional appropriations. Therefore, the burden on the United States treasury would be eased and the borrowers could go ahead with capital construction programs which would extend facilities to unserved rural establishments and improve the service to many rural telephone subscribers who are being served by overloaded party lines. The use of rural telephone service has increased to the extent that party line service is, in many instances, no longer capable of meeting the needs of rural people.

I urge each member of the Agriculture Committee to support H.R. 7. It is a much needed piece of legislation and if enacted into law will benefit millions of rural American homes and business establishments.

If appropriate, I should like for this statement to be filed in the Committee hearing record.

Sincerely yours,

General Manager.

The CHAIRMAN. The committee will go into executive session. (Whereupon, at 10:50 a.m., the committee adjourned, to reconvene in executive session.)


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