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I am from Louisiana and you had mentioned the LaFourche Telephone Co. and a supposed substantial profit they had made. Is it not true, that they are a capital company! That is a stock company?

Mr. HARRIS. Yes, sir; and this is a part of what I suggest that the committee should look further into if a company like LaFourcheand I am taking it all

Mr. RARICK. They do have Federal funds; do they?
Mr. HARRIS. Yes, sir.
Mr. RARICK. They do have a Federal loan?

Mr. HARRIS. They had—this is the basis of my quarrel. At the end of 1967 the owners of the proprietary capital from the report, it would appear, had put $55,400 into the business. They borrowed from the REA $112 million, commulatively to the end of 1965. So this is about, say, 98 percent, 99 percent federally financed.

Now, when the LaFourche Telephone Co.—this is the basis of my calling it to your attention-when the LaFourche Telephone Co. had put at risk $55,000 and even assuming that the $33,000 of prior year retained earnings were at a legitimate level, the earning of $129,000 in 1 year, 145-percent return on the net worth in 1 year, is an unconscionable use of Federal aid.

Mr. RaRICK. Have you reported this to the Louisiana Public Service Commission?

Mr. HARRIS. Well, sir, I do not have a direct customer responsibility for these subscribers. I have not reported this to anybody, Mr. Rarick, except right here for the first time because it seemed to me, in reading the hearings on the separate telephone legislation which we filed only a written statement on without appearing, and I did not attend the hearings 2 years ago in the fall of 1967, I did not follow those hearings specifically, but in preparing to come here today, to try to make some constructive contribution to your deliberations, it seemed to me, in reading those hearings that some points were not fully developed.

So, I point this out to you as something that I believe with all of the facilities that you have, this ought to be checked. If I am wrong, then I will take it back. I will apologize for the reference if I have steered you wrong.

Mr. RARICK. You do not know whether this was reported to the Louisiana Public Service Commission?

Mr. HARRIS. It would seem to me that somebody that subscribes to this service

Mr. RARICK. Have you considered there might be an explanation? Do you know where the LaFourche Parish is?

Mr. HARRIS. No, sir.

Mr. RARICK. It is in the deep bayou section where the facilities are damaged by hurricanes. In the past several years the area was completely destroyed. Almost every vestige of both power and telephones were wiped out. Is it not possible that the Public Service Commission may have made an exception in this case ?

Mr. HARRIS. I have nothing except the REA statistical report. Mr. RARICK. Also you made comment on the Dow Chemical Co. in Iberville Parish. You realize in the South we are fighting poverty. We are bringing Federal funds in to investigate malnutrition and encourage work efforts of the poor people. We are trying to upgrade our people.

Are you not aware that Dow Chemical has to have these Federal subsidies to give our poor people jobs? Mr. HARRIS. No, sir: I am not familiar with that. Mr. RARICK. Well, let me ask you this. Mr. HARRIS. Let me say this further.

Mr. RARICK. I agree with your criticism on public power going to Dow without any showing of unavailability of other services. I thought this was an outrage. Senator Ellender from Louisiana is investigating this deviation and I think there is litigation growing out in Louisiana. Would your feelings be the same should one of the independent telephone companies go over to place telephones at Dow Chemical!

Mr. HARRIS. I have to give you a general response, that I have said in here that the Government assistance ought to be extended only on the basis of need.

Now, I could not for the life of me see why anybody, any of the taxpayers of this country, need to help pay a part of a telephone bill for Dow Chemical.

Mr. RARICK. But we do not know what the need and the facilities available were at that time in this hearing, do we?

Mr. HARRIS. You asked me the hypothetical question if I would disagree.

Mr. RARICK. You are aware that South Central Bell is the investor owned utility for telephones in that part of Louisiana. There has been no adverse testimony from them nor have I ever received any communication from them. I have no way of knowing who was or is supplying telephone service to Dow. But you would say that if South Central did not have any facilities into Dow, it would be wrong for, say, the East Ascension Parish Telephone Co. to service Dow, merely because the phone company received a Federal loan.

Mr. HARRIS. Mr. Rarick, I do not know that I am completely with you on the set of facts that you have in your mind you ask me to speak to, but let me try to speak to it this way.

If the Dow Chemical Co. went down there in the bayou and built a big plant, and employed a lot of people; and attracted a lot of population you may have a changed condition, so that from that point forward there would be no occasion for the Federal Government to aid in providing telephone service. It might be able to carry itself.

This is one of the reasons we have suggested the change of this program to the insured loan plan. You have a way to create the mechanism for the transition out to the market when the economic conditions change built right into the program. Today you have no way to move out into the market. And one of my quarrels with the bank approach is that you retain too much aid in the beginning. Admiral Mott says they have got money running out of their pockets in some instances. I am not talking about LaFourche or anybody else. I do not know the ones he is talking about but he says they have got money running out of their pockets and they would like to pay the full bank rate, full commercial market rate, and there is no mechanism in this bill as it is now passed, to let them get out into the market, and there needs to be a transition, the mechanism for a transition out to the market when these people become able to pay.


Mr. MONTGOMERY. Mr. Chairman, would the gentleman yield? Would it be possible to make the names of these telephone companies a part of the record, not just the few he mentioned ! Can it be made part of the record ?

The CHAIRMAN. If you want to insert a list of additional names, we will gladly give you permission to do so, but we cannot snatch out of the air and put into his testimony a list of names that

Mr. MONTGOMERY. Mr. Harris, would you like to submit the names that you mentioned as part of the record ?

Mr. HARRIS. Well, now, Mr. Montgomery, of course, I read into the record the names I have immediately before me that illustrate my proposition that there is something to find if the committee goes to investigate.

Now, the real way to get at the heart of what I suggest to you is the basic issue that you ought to be concerned about is to go back in these annual reports, the annual statistical reports on REA telephone borrowers, from the time that each telephone company became a borrower.

Now, this is a little bit of an accounting tabulation job but it is not beyond reasonable attainment at an early date. It does not involve a great deal of delay to get done. Take each borrower, put down the risk capital that that telephone company had in the business when it began and trace it through the years to see what the earnings were, what the retained earnings were, and what value has been built up by the use of 2-percent money.

Now, you can take the annual reports from the beginning of the telephone lending program and establish that on all 900 borrowers. Mr. ABERNETHY. Would the gentleman yield?

The CHAIRMAN. The gentleman from Louisiana has the floor.
Mr. RARICK. I will yield.
Let me ask just one question.

The CHAIRMAN. Wait just a minute. The Chair is going to say for about the fifth time certainly the gentleman from Mississippi has got a right to ask him to yield for a question or anything of that kind, but if it comes to just yielding the floor, the Chair is going to determine. If you have a question, certainly. Mr. ABERNETHY. I will wait.

The CHAIRMAN. Are you through? Mr. RARICK. I wanted to ask one more question. May I ask whether or not your source of information on the Dow Chemical case you referred to in Louisiana was from Drew Pearson's column or did you have other material!

Mr. HARRIS. Mr. Rarick, I did read that column when it came out, I think, fairly early in January, but I have been aware of the litigation in Louisiana over G. & T. loans.

Now, I am not in a position to recite date and case history, and so forth, but I am aware of that loan being one of those which many of us in our industry feel is an unconscionable use of Federal funds.

Mr. RARICK. Your answer, then-
Mr. HARRIS. From many sources.
Mr. RARICK. Your answer, then, is no.
Mr. HARRIs. You asked me if my source was Drew Pearson.
Mr. RARICK. Yes.

Mr. HARRIS. I said I read that but I read many others as well. Mr. RARICK. That is all. The CHAIRMAN. Mr. Mayne. Mr. MAYNE. I just want to commend the chairman on establishing so clearly through his questioning just who it is that this witness represents. I think this is very important and should be known as to any witness and I hope it is an indication that similar inquiry will be permitted of other witnesses as to their representation during the course of the 91st Congress as they appear before this committee.

Mr. TEAGUE. Would the gentleman yield, not for a question. I would like to call to your attention, Mr. Mayne, that in the opening sentence of Mr. Harris' statement he says,

CI am Shearon Harris, president of the Carolina Power & Light Company. I appear today on behalf of the Edison Electric Institute.” He certainly made it clear himself.

The CHAIRMAN. He showed very little basis for interest on the part of the power companies in this legislation which relates entirely to a group of people he says he does not represent.

Mr. MÁYNE. I do think, however, he showed a complete willingness to reveal his representation and that he also should be commended for that candor because knowledge of who witnesses are representing is something that is really essential to the legislative process. The CHAIRMAN. Thank


Mr. Mayne. Mr. Abernethy.

Mr. ABERNETHY. Mr. Harris, I understand you made reference to some company known as the Delta Telephone Co., or something. Where is that located.

Mr. HARRIS. Mr. Abernethy, I do not know. The references that I gave were extracts from the ŘEA telephone borrowers annual statistical report issued by the Rural Electrification Administration. Now, from that annual report there was information to show statistically, and the column that is headed does have the address but I just do not have that book before me to tell you where it is.

Mr. ABERNETHY. I thought maybe you had a table in front of you and the identity of the company.

Mr. HARRIS. I just have notes made from examining the statistical report and I did not put down the addresses, only the States. Mr. ABERNETHY. That is all right. Thank you very much. The CHAIRMAN. Mr. Jones.

Mr. Jones. Mr. Harris, on page 6, middle of the page, you state: “But it is my understanding that loans for those purposes have resulted in many criticisms of the REA telephone program.”

Would you care to comment on that?

Mr. HARRIS. Here, Mr. Jones, my reference is to general criticism of the use of the Federal subsidy and what I am specifically referring to, you have to take two or three of these things and put them together.

In the prior hearings on the telephone, separate telephone bank legislation in 1967, a gentleman named Philip Lucier, as president of the Continental Telephone Co., testified and he was questioned as I recall, by Mr. Dole and Mr. Kleppe about some of the bases on which Continental had acquired some of the properties that had previously borrowed REA money.

In the course of that testimony Mr. Lucier says: "If the company is extremely well run, has taken advantage of all of its opportunities, then the price in relation to earnings would be lower, perhaps 10, 15, perhaps 20 times earnings."

Now, if you take my most extreme illustration of the LaFourche with 145 percent return, and apply the lowest multiple that Mr. Lucier said that when a company is well run, then you would take the $129,000 that was earned in 1965 at a multiple of 10, and by that formula you would establish a purchase price of over a million dollars, which is represented only by $50,000 of the original risk capital in the capital stock account.

Now, what I say is that there have been articles written in Forbes magazine that referred to some of this. There have been articles in the Wall Street Journal about this. There was an insertion in the Congressional Record on December 11 by Congressman Nelsen of Wisconsin-and I may put him in the wrong State-Mr. Ancher Nelsen is the man I refer to, Minnesota-he said this in his statement inserted in the Congressional Record December 11, 1967:

It was never the intention of the REA Act to make telephone loans to companies well able to finance their own operations. However, it seems that this policy has been departed from and large companies now seem to have latched on to the below cost interest rates to expand not just rural telephone service, but total overall system operation.

Now, this is the sort of criticism that I referred to.

Mr. Jones. I believe Congressman Nelsen at one time was REA Administrator?

Mr. HARRIS. He was in the early sixties, as I recall it.
Mr. JONES. Thank you very much.
The CHAIRMAN. Mr. Goodling.

Mr. GOODLING. Mr. Chairman, I do not want to prolong this hearing, but I was going to ask the same question asked by Mr. Price when the witness spoke about the flagrant abuses in the telephone program.

The name Continental has come into this hearing, into these hearings, both last year and this year, and I would like to read one statement from Forbes, July 1, 1967:

And in bidding for the remainder independent telephone companies it has paid prices to get them that have surprised and horrified conservative people.

Now, as I understand it, Mr. Chairman-correct me if I am incorrect-most of these companies that were acquired by Continental had rather large REA loans. I believe that is correct, is it not?

The CHAIRMAN. I think that is correct. I do not have any specific information but that is my recollection.

Mr. Goodling. The point I would like to make is that a company would be pretty stupid if it did not pay off its 7-percent loans when money becomes available and continue to get 2-percent money from the Government.

I would like to read one statement from the minority report of last year:

This proposal comes at a most distressing fiscal period when governmental revenues are falling far short of governmental expenditures and our economy is facing serious economic and financial instability.

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