Mr. TEAGUE. I have no questions but I would like to commend Mr. McCarthy for his statement and if by any chance, which I assume is rather a long one, these amendments were adopted by this committee, it is possible I could support the bill which I certainly cannot in the present form.

The CHAIRMAN. Mr. Goodling.

Mr. GOODLING. One question of Mr. Neumeyer. I must be very careful of what I say to General or they may cut off my service and I do not want that to happen.

I think I saw a financial statement of General just a few days ago. I am sorry I do not have it with me at the present time, but as I recall, you did pretty well last year. My question is, Does General have 2-percent loans?

Mr. NEUMEYER. Well, we have some 2-percent money. We have, I believe, four companies that we have acquired that did have REA

loans.

Mr. GOODLING. General, then, does have some 2-percent money.
Mr. NEUMEYER. It does have some.

Mr. GOODLING. And you will agree with me that General had a pretty good financial year last year. I assume you have seen the financial

statement.

Mr. NEUMEYER. Yes, sir.

Mr. GOODLING. I can understand why it would have with that 2-percent money when private utilities pay 6 and 7.

That is all, Mr. Chairman.

The CHAIRMAN. May I again comment here? This seems to be a matter that Mr. Goodling and I are debating but for our new members, we are good friends and just see things a little differently. But as I see it, as was explained by Admiral Mott a few minutes ago, in most States of the Union-I am sure that is not true of every commission in the Union-but in most States the rate that can be charged by these companies that are getting 2-percent money is less than the rate that can be charged if the company is paying 4, 5 or 6 percent, because they take into consideration the costs of operation and certainly the cost of money is one of the costs of operation. And certainly, it involves the question of what the rate can be.

Therefore, it does not necessarily mean that General or any other company is going to make 4 percent more return when they get 2-percent money.

On the contrary, if I understand the whole concept of utility regulation, and I, of course, do not claim to understand it because I come from one of the very few States in the Union that does not attempt to have any regulatory-State regulatory body. There is nobody in Texas that regulates from the standpoint of the telephone rates. But most States do. And if I understand the whole concept of this, that Board will determine a rate that will pay a reasonable return on the investment, and that if the cost of money goes up, then, of course, the charge to the consumer will ultimately go up and reflect that.

So that from the standpoint of the earnings of the company, except for a very limited period of time, but basically from the standpoint of the company, it does not make any difference what the interest rate is. It is the question of, as has been brought out here a half

dozen times, the availability of money. They have got to be able to get the money.

Now, if you can pass the cost of that money on to the consumer, to the subscriber of the telephone, it is not in the long run going to materially affect the earnings of the company whether you are getting that money at 2 percent or whether you are getting it at 10 percent. Mr. GOODLING. General in Pennsylvania, is regulated by our public utilities commission and it tells General how much it may charge me as a customer.

The CHAIRMAN. Yes, and I assume your utility commission takes into consideration what rate of interest General is paying, so it will not make any difference in their returns.

Mr. KLEPPE. Would you yield for a question, Mr. Chairman?
The CHAIRMAN. Certainly.

Mr. KLEPPE. Mr. Goodling, do you know if your public service commissioner or whatever commissioner you have in Pennsylvania, regulates the rates of REA co-ops?

Mr. GOODLING. I do not, Mr. Kleppe. I do not.

Mr. PAYNE. Mr. Chairman, may I answer that question? We do not have a telephone co-op in Pennsylvania.

Mr. KLEPPE. Thank you.

The CHAIRMAN. Any other questions? If not, we are very much obliged to you, Mr. McCarthy, and to your associates for your statement and explanation.

Now, our last witness today is Mr. David C. Fullarton, executive manager of the National Telephone Cooperative Association. He is accompanied by Mr. Robert E. Jamison, Mr. James L. Bass, and Mr. Ronnie J. Straw.

STATEMENT OF DAVID C. FULLARTON, EXECUTIVE MANAGER OF THE NATIONAL TELEPHONE COOPERATIVE ASSOCIATION, ACCOMPANIED BY ROBERT E. JAMISON, PRESIDENT, NTCA, CONWAY, S.C.; JAMES L. BASS, GENERAL COUNSEL, NTCA; AND RONNIE J. STRAW, STAFF ECONOMIST, NATIONAL TELEPHONE COOPERATIVE ASSOCIATION

The CHAIRMAN. We will be delighted to hear from you, Mr. Fullarton.

Mr. FULLARTON. Thank you, Mr. Chairman.

Gentlemen of the committee, my name is David C. Fullarton. I am the executive manager of the National Telephone Cooperative Association with offices here in Washington, DC. With me today, and I would like to introduce them at this point, are on my far left, Mr. James L. Bass from Carthage, Tenn. Mr. Bass is general counsel of NCTA.

On my right, Mr. Robert E. Jamison, of Conway, S.C. Mr. Jamison is president of the organization. And on my immediate left, Mr. Ronnie J. Straw, executive assistant and staff economist on our Washington staff.

Mr. Chairman, with your permission, Mr. Jamison would like to make a brief statement at this point.

The CHAIRMAN. We will be glad to have Mr. Jamison's statement. Mr. JAMISON. Thank you, Mr. Chairman.

My name is Robert E. Jamison. I am the president of the National Telephone Cooperative Association. I have served on the NCTA national board of directors for over 10 years. I live in Conway, S.C., where I am the manager of the Horry Telephone Cooperative, Inc., and from the local management level I know several of the problems of not being able to get sufficient capital to improve our services to our rural communities which we are so vitally interested in.

Speaking for the 232 telephone co-ops represented by NCTA, I want to say that we very much appreciate the opportunity of appearing before this committee to present our views. I have no prepared statement myself. Our executive manager, Mr. David C. Fullarton, will present that. I would simply like to say in behalf of our membership that the REA program has done a great deal for the development of rural America and that we feel passage of this supplemental financing bill is necessary for the progress to continue.

I would like to ask the chairman's permission to insert in the record at this point a resolution passed at our 15th annual meeting this January, which expresses the commitment of our membership in support of this legislation.

The CHAIRMAN. Without objection, the resolution will be inserted. (The resolution referred to follows:)

RESOLUTION ON SUPPLEMENTAL FINANCING

Whereas the REA 2 percent, 35 year loan program is vital to the development of communications in rural America, but has failed to provide adequate loan funds for rural telephone systems; and

Whereas the need for long term debt capital by the rural telephone systems of the nation is critical if these systems are to provide communications to rural America on a basis consistent with that available to urban and suburban residents; and

Whereas a telephone supplemental financing bill, H.R. 12066, was reported by the House Agriculture Committee of the 90th Congress, but failed to be reported by the Rules Committee of the House; and

Whereas Congressman W. R. Poage of Texas has introduced H.R. 7, a telephone supplemental financing bill with almost identical provisions to H.R. 12066; and Whereas certain provisions of H.R. 7 including an intermediate lending program that will allow more rural telephone systems to participate in supplemental financing, retirement of government capital with interest as viability allows, a Board of Directors that assures both equitable representation and protection of interests of all borrowers, a funding level that will allow reasonable volume lending programs, a restriction on transfer of mortgages that will discourage speculative use of bank loans, and a guarantee that systems with low subscriber density will be eligible for the lower cost 2%, 35 year loan program: Now, therefore, be it

Resolved, that NTČA, representing the telephone cooperatives of the nation, and every individual telephone cooperative devote maximum effort and resources to informing the Congress of the critical need for legislation with the provisions of H.R. 7 and solicit passage of such legislation; and be it further

Resolved, That all farm, consumer and other related interest groups National. state, and local be informed of the critical need for this legislation and their support for passage solicited; and be it further

Resolved, that President Nixon be urged to publicly and strongly support the rapid passage of H.R. 7.

Mr. JAMISON. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Mr. Fullarton, if you have anyone else

Mr. FULLARTON. Not at this point, Mr. Chairman. The other witnesses are available for questions.

I would like to request in the interests of time and since the previous witnesses have covered much of the material in my prepared statement, copies of which have also been supplied to the committee, that the prepared statement be made a part of the record at this point and that I be allowed to summarize it.

The CHAIRMAN. Without objection, so ordered.

Mr. FULLARTON. Thank you, Mr. Chairman.

As many members of this committee have heard in the past, NCTA represents the Nation's 232 telephone co-ops which provide telephone service to over 600,000 subscribers in some 31 States. We appear before you here today as we have in the past to support both the concept and specific provisions of H.R. 7 and the related bills which have been introduced by Mr. O'Konski, Mr. Kleppe, and Mr. Anderson.

I am also happy to say that we heartily endorse the statements made yesterday by Mr. A. Harold Peterson, executive director of the National REA Telephone Association and by Mr. Angus McDonald, director of research for the National Farmers Union.

I have heard the statements of Mr. McCarthy of United Utilities, Inc., and Admiral Mott, of the U.S. Independent Telephone Association this morning and in a few moments I would like to provide some additional information to the committee on their statements. But first, I think I would rather clarify the position of the National Telephone Cooperative Association in supporting this legislation.

As you have heard, REA telephone borrowers are faced with a critical shortage of long-term debt capital. As of June 30, 1968, there were telephone loan applications already in REA's hands totaling $302 million for which there were absolutely no funds available. The stimulation and the impetus given rural telephony by the 1949 amendment to the REA Act which allowed for telephone loans has resulted in continually increasing demands for growth capital, growth capital to build the facilities necessary to provide modern telephone service in the Nation's rural areas.

Since 1949 REA has loaned a total of over $1.6 billion to telephone companies, 869 of them, to provide this service and they in turn have used these funds to build 523,000 miles of plant and to serve about 2,300,000 rural families.

Capital requirements of these REA telephone borrower systems over the next 15 years will be almost double the requirements of the past 15. That is using the most conservative estimate of capital requirements. If some of the larger estimates are used it can be even four times as much in the next 15 years as in the past.

I have heard the discussions here of course. Are we getting away from the 2-percent program? What is going to happen? How much savings to the Government? The fact of the matter is that there is such a great need presently being unmet that, it is unlikely in my opinion, to be unmet by the present 2-percent program. We desperately need some supplemental, additional sources of capital.

The proposed bank, of course, as the chairman pointed out, is patterned after the Federal land banks, which have been successfully operated for more than 50 years and have long since paid out the Federal investment in them. In fact, they are now totally borrower

owned and controlled. That, of course, is the objective for the telephone bank that is proposed in this legislation.

Legislation of this type is not uncomplicated, as I am sure you are aware, and many people who are not intimately acquainted with the legislation have some difficulty understanding exactly how the telephone bank is supposed to work. For this reason I have included in my prepared statement at the beginning of the fifth page a conceptual analysis of the provisions of the bill and the various elements of the legislation.

As I said, the National Telephone Cooperative Association supports H.R. 7 and related bills as a suitable means of supplying supplemental, additional funds that will be needed if REA telephone borrowers are to be able to complete the task assigned to them.

There are two conditions for our support. I will remind you again we do support these bills. The conditions are that whatever mechanics are set up, the legislation must do two things. First, provide adequate capital, enough capital to meet the needs, and second, to provide this capital at rates and under terms and conditions that are usable by the borrowers.

I must say that adequacy and usability are the basis of our support and our support for this specific legislation for supplemental financing.

I would like to mention for a moment, as a matter of information to the committee, some of the remarks made by previous witnesses. Mr. Poage explained yesterday that he would allow submission of supplemental statements. I believe that section 406 which Mr. Teague read earlier, does provide considerable guarantee that the investment of the Government will be repaid. The language is very specific and requires repayment of the amount of class B stock paid by borrowers to the Federal Government after the $400 million level is reached.

One thing that was not mentioned and could be, is that it is also to be remembered that until two-thirds of the assets of the bank are borrower assets, not Government-this means some money has been repaid the bank board of directors is heavily weighted with Government representatives, they having a total of seven out of 13 members. I personally consider this an additional guarantee that the Government investment will be repaid.

I would like to turn now to the statements of the representatives of the U.S. Independent Telephone Association and Mr. McCarthy of United Utilities, Inc. We, of course, were involved in this legislation and appeared before this committee last year. At that time I believe there were 17 or 18 amendments suggested. I know from having talked to individual members of the committee, that the negotiation process and the bringing together of the different feelings was a long and not an easy one. I do think that the legislation finally agreed upon was good legislation and we gave that our wholehearted support also.

The apparent objections, if that is not too strong a word, of the last two witnesses, seemed to concentrate in three specific areas. I am not going to be argumentative or try to present a different point of view. I would simply like to point out one or two things about each proposed amendment.