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The CHAIRMAN. You just threw them out to cause delay, did you not? Mr. HARRIS. No, sir. I would welcome if you saw fit to give early hearings so we could testify completely on the insured loan plan. We will try to be ready for it.
The CHAIRMAN. Mr. Harris, when have we failed to give you fair hearings here? Have we cut you off ?
Mr. HARRIS. No, sir. I said in my testimony that no hearings were held. The committee did not consider the insured loan bills that were in the committee during the 90th Congress.
The CHAIRMAN. That is right. There were over 20,000 bills introduced in the last session of Congress. Mr. HARRIS. And I am not criticizing you for that.
The CHAIRMAN. And there were hearings held on about 1,800 of them, I believe. It is the ordinary procedure that about nine-tenths of the bills never reach hearings. That depends on how much support there is for a bill, does it not?
Mr. HARRIS. Well, I think probably you and the committee are also interested in how much merit may be in them and I know you cannot get to all of them. I have not criticized you for not putting on hearings. The only thing I am saying is that if you infer our position is one of delay only and not of substantial resolution of the problem, then that is not a fair characterization. We welcome early resolution of the problem in a proper way.
The CHAIRMAN. I would certainly agree that you would welcome a resolution of the problem the way you would like to see it resolvedand so would anybody else. I do not know anybody who is interested in legislation either for or against that would not always welcome a resolution in his favor.
You would not welcome a resolution of this problem if it turns out against you, and that is no criticism of you. That is true of me. It is true of all the rest of us. We all welcome a resolution in our favor. Of course you do.
Mr. HARRIS. This is in the great American tradition.
The CHAIRMAN. But let us get back to this proposition, that you as a representative of power companies come here to tell us the details of a telephone bill which cannot possibly affect the power companies unless it proves to be a successful approach to financing. If it is successful, as many of us think it will be, it might at some future date be used as a model for electrical financing.
It is not going to be so used at this time. You know that. We have all stated time and again that we are not going to try to tie an elecrical bill onto this telephone bill.
Mr. TEAGUE. Would the chairman yield at that point?
Mr. TEAGUE. Just to make this observation. It seems to me it is not accurate to say these people have no worries unless the telephone bank program should be a success. We might not know for 10 or 15 or 20 years whether the telephone bank program is a success. In the meantime, there, of course, would be great pressure on Congress by the electric cooperatives that you have done this for the telephone people, you have got to do it for us. So, I do not think we can know whether the program will be a success for a long time.
The CHAIRMAN. Of course, we do not know whether universal suffrage or public free schools are a success. We will never know it, of course, because always somewhere in the future conditions might change, but what I am saying is, if this telephone bill is not a success a few years from now, it is not going to be any precedent that is going to lead anybody to support an electric bill. If it is a success, it may be such a precedent, of course, just as the land bank bill and the farm credit bills are now used as precedents.
Now, Mr. Harris tells us in one breath that the thing cannot be a success, that the thing is visionary and it is not workable. If he did not fear the success and if he is merely representing electric companies, and not trying to run the telephone companies' business, then obviously he could not have any interest whatever in it because if this thing is as foredoomed to failure as he points out, then it obviously cannot hurt the electric companies.
Now, there is an old story that I will not have to repeat but Aesop did telí you about, people who involve themselves in other people's business, and I think that we have seen an example of it this morning.
Yes, Mr. Kleppe.
Mr. Harris, on the last page of your testimony you used the words that you recommend this committee conduct an exhaustive review of the existing REA program. Somehow or another I had the feeling last year that we did have an exhaustive review. I sat down in that chair through many hours of hearings, many hours of executive session on the REA question, on the 2-percent question, and you know what I am referring to.
I was one of those members of this committee that voted against that REA bank bill—there are a number of others here—because that was carried by a rather small margin. It only carried 19 to 15, but when we took out the telephone portion of it, it then passed this committee 23 to 5. So to me, there was a difference between the REA program for electricity and power on the 2-percent basis versus the telephone program, and this is one difference that I represent.
I was against that other one because of many complications that arose, but I am for this one. As you will notice, I have introduced one of these bills.
The other thing that I wanted to mention is that is seems to me that the precedents of the establishment of these banks that we have operated with in the past did not help the passage of the REA bank program, and so I wonder if the precedent of passing this telephone bill is in any way going to help it in the future. The REA program I am talking about. I do not think the relationship there is direct.
So really, what I am trying to get at is that there is much in your statement, I think, that I agree with, but the fact that you set aside the question that we have not given the whole program an exhaustive review is a little puzzling to me because I know you are aware of what developed last year. My own personal feelings differ from you in this. I wonder if you would care to respond to that.
Mr. HARRIS. Mr. Kleppe, I was here during a great deal of the time that those hearings were conducted and I certainly do not infer in any statement that you have not given consideration to such information as was developed here, but that there is some of the information
that was developed on the electric side that I do not think has really been as fully developed as it ought to be.
Dr. Thornborrow-in his testimony-put in a survey of the equity in the electric co-ops and other information which dealt with the ability of the electric co-ops to pay more than 2 percent, and it did not seem to be reflected in the narrow margin bill that was first reported out.
Now, when I talk about an exhaustive review here, and in keeping with the chairman's early admonition, I think probably I am referring more to further in-depth study of the administration of the telephone company as to why you should no longer support the telephone bank concept.
Now, that, in my judgment, has not been reviewed for your full enlightenment.
Mr. KLEPPE. Were you in the hearing room yesterday? Mr. HARRIS. Yes, sir. Mr. KLEPPE. Then, you heard some of the banter that went back and forth regarding sparsely settled areas and where we needed telephones and other areas where we have a greater density of population.
I come from one of these areas that has five times as many cattle as it has people and cattle do not need telephones, but ther are farmers and ranchers out there, of course, who do not have telephones. I am well aware and I am sure you are well aware of the fact that they are not going to get telephones under any conditions of having to pay the rates necessary to finance the construction of such a program. And so, this is a great deal of the motivation of my support behind this program.
I think that—when I think back to the countryside before we had REA and before we had these lights dotting the countryside, there was a great deal of difference from what it is today and I look at that in relationship to the telephone program and to the telephone aspect of these farmers and these ranchers having a way to communicate. So this is why I think this has some merit, aside and separate from the REA 2-percent program which I consider and I agree with you is greatly involved, and certainly we did give it a thorough study last year. But I want to set that difference aside because I happen to be one that agrees and believes that there is a separation between the two and we are considering the telephone portion. We took it out of the program last year that was defeated and we introduced it individually and we got a great deal more support within the committee itself, and now we have reintroduced it this year to see if we cannot go further than we did last year. This is more a statement than a question and other than that, I have no other questions. Thank
you. The CHAIRMAN. Mr. Teague. Mr. TEAGUE. I think it is generally known that I take a rather dim view of this whole telephone bank approach, but I do want to commend Mr. Harris on his statement and suggestions, many of which I think are constructive, and I will say to you right now if you will have someone prepare amendments to accomplish what you do suggest, I will offer some of them anyway when we get into executive consideration on this bill.
Mr. HARRIS. Thank you, sir.
The CHAIRMAN. Mr. Price. Mr. PRICE. Mr. Chairman, I would like to ask Mr. Harris a couple of questions.
On page 8, Mr. Harris—and I am going to confine my remarks to the telephone program that we are trying to talk about you say:
Flagrant abuses have occurred in both the telephone and electric programs. In the telephone program, companies and individuals have been permitted to receive excessive returns on invested capital, and have utilized 2-percent money to make large profits.
Do you have specific examples and names of individuals and companies that you can document for the record ?
Mr. HARRIS. I have some, yes, sir, and let me say this, Mr. Price. I have not undertaken to preempt what I would consider to be the investigatory duties of the committee. I have undertaken in this reference and in the specifics that you inquire about to limit it only to the fact that there are some that exist and to point the committee to the need for doing its own investigation.
Would you believe 145 percent return in 1 year on stockholders' equity?
Mr. PRICE. Can you name the company and the individuals when you are making these observations?
Mr. HARRIS. From the REA's annual statistical report on rural telephone borrowers for the year 1965, the LaFourche Telephone Co. of Louisiana is reported there as having capital stock of $55,400 and surplus or margin of $33,867, and after paying all costs including taxes and interest, it had a net income of $129,453 in the calendar year 1965, which was 145 percent return on the net worth as stated in the statistical report.
Now, other high level rates of return reflect-one can flip through this book about so thick and pull them out—that have caught my attention, and I have not undertaken a very exhaustiveMr. PRICE. What book is this?
Mr. HARRIS. REA's annual statistical report for rural telephone borrowers for 1965. The Tuolomme Telephone Co. of California on the same basis earned a 67.8 percent return.
Mr. PRICE. In one year?
Mr. HARRIS. In one year. The calendar year 1965. The Gem State Utilities Corp. in Idaho earned 66.2. The rural Telephone Service of Kansas was reported as earning 49.7. The Delta Telephone Co. in Mississippi, was shown in that report as earning 41.7.
Now, there are many others that would range down to the 25 to 30 percent level before you ran out of that level.
In the 1967 report, and I do not have available—I mean, it is available in the sense that I could have gotten it and examined all of it, but in the 1967 report for REA borrowers, you will remember that in 1965, if a company earned $129,000 on 80,000 or $90,000 capital and retained that in the business, then the base gets larger as these earnings are retained in the business. So these numbers tend to decline, say, 2 years later when the base on which it is computed has grown.
But even in 1967 the Home Telephone Co. of Mississippi (in the 1967 statistical report on REA borrowers) the Home Telephone Co. in 1967, which at that time had a $1,888,000 of REA loans, showed
that it had risk capital put in by the owners of the venture of $13,980. It had from prior years surplus or margins retained in the business of $85,000, and after paying all expenses including taxes and interest, it had'a net income for 1967 of $44,836, or a return of 45 percent on the net worth.
Mr. PRICE. All of these examples that you are giving have access to 2 percent money?
Mr. MONTGOMERY. Will the gentleman yield ? Is that the Home Telephone Co.? Mr. HARRIS. Home Telephone Co. of Mississippi, yes.
Now, in that same year, the same statistical report will reflect such examples as the Powell Telephone Co. of Tennessee, 35.5 percent annual rate of return. Clarks Telephone Co. of Nebraska at 31.6 The Silver Star Telephone Co. of Wyoming at 31.4, and so on.
Mr. PRICE. Mr. Harris, I think we have enough examples there. I would like to ask you one other question.
On page 2 in your testimony, referring to Mr. McMillan's and Mr. Teague's bills, to provide a program for insured loans for both REA electric and telephone borrowers—I am speaking primarily of telephone borrowers—is it a fact that the distribution cooperatives will have more 2 percent funds available under the insured loan plan than the present plan or proposed plan?
Mr. HARRIS. Well, Mr. Price, the insured loan concept that we have spoken of as reported and reflected in these bills is applicable in those bills both to the electric program and the telephone program.
Now, in the telephone program there is not the distinction between distribution and generation as there is in the electric program. The great pressure today on funds in the electric program is the competition between provision for generation and transmission which has been used in recent years to deprive the distribution cooperatives of adequate supply.
Now, under the insured loan plan as I see it, with the Administrator guaranteeing for the Government the securities issued by the borrowers, the only limitation in their being able to get adequate funds is the availability of funds in the total market.
Now, today in financing in the electric business we have all the money that we want to get but today it happens to cost an awful lot to get it. So, I would say that if you go the insured loan route and you take the problems and the complications of Federal budget out of it—there is a requirement in that legislation as drafted that the Congress would annually authorize the amounts that the Administrator could insure and guarantee, but there would be no budget pressure because of funds needed in other places in government to put that limitation anywhere except to meet the full needs of the distribution co-ops, and I would predict they would find their needs much more adequately taken care of, this is one of the reasons why I think that is the superior approach. Mr. PRICE. Thank you, Mr. Harris. That is all, Mr. Chairman. The CHAIRMAN. Mr. Rarick.
Mr. RARICK. Mr. Harris, I certainly enjoyed your testimony today and I think you have made some very good suggestions on some needed controls.