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I would like to add this. After a $25.4 billion deficit in fiscal year 1968, our financial situation has certainly deteriorated even more than it was 1 year ago.
That is all, Mr. Chairman. The CHAIRMAN. Thank you, Mr. Goodling. Judge Rarick? Mr. RARICK. Mr. Chairman, the record of the LaFourche Telephone Co. continues to be brought up and I would like to ask the committee's permission that I might write to the Louisiana Public Service Commission and obtain their report as an explanation of the LaFourche Telephone Co. statistics.
The CHAIRMAN. You do not have to have the committee's permission, but
have it. Mr. RĂRICK. Pardon me?
The CHAIRMAN. You do not have to have any permission from the committee. You can write to your own State public commission any time you want.
Mr. RARICK. I would like the public service report to follow Mr. Harris' testimony so there would be some clarification of the activities in the hearing report.
The CHAIRMAN. It will be inserted at that point. Mr. Miller?
Mr. MILLER. Mr. Chairman, I did not hear an answer a few minutes ago about whether we would have prepared by the staff of this committee the facts and the figures pertaining to capital growth of REA telephone borrowers.
The CHAIRMAN. We will not have the staff rewrite this. That is published in the annual report of the Rural Electrification Administration and there is absolutely no purpose the Chair can see in having us simply repeat what is now available to every member who wants to read it.
Mr. MILLER. Then, if I have this prepared to show those companies that had above 30-percent return on capital as a percent of net worth, will I have permission to insert that in the record ?
The CHAIRMAN. You will get it if you ask it and nobody objects.
The CHAIRMAN. Without objection, the gentleman will have permission to insert it in the record.
Mr. MILLER. Thank you.
(The information referred to above appears in H. Rept. 91–101, March 18, 1969, on p. 26. In the interest of economy it is not reprinted at this point.)
The CHAIRMAN. Are there any other questions?
Mr. Zwach. One question. Mr. Harris, at one place in your testimony you complimented and paid tribute to the wonderful job the Federal land bank, the bank for cooperatives, PCA, and so on, have done.
1 See p. 65.
Then, in your conclusion you make a statement that I cannot understand. It looks like a prejudgment. You say:
The Edison Electric Institute opposes enactment of H.R. 7 because other approaches to future REA financing should be studied before deciding upon the discarded and
And then these words discredited bank approach.
Now, so far as I know, the farmers operating our banks have always done an outstanding job and I think you admitted this. Now, is this a prejudgment, using the words "discredited bank approach ?” Where has it been discredited ?
Mr. HARRIS. Mr. Zwach, that may be a little Harris overstatement in the zealous drafting. The reference I make here is to the fact that it was abandoned, and I say discarded, when it got to the Rules Committee, the double bank bill. I refer to that as the bank approach. When it got to the Rules Committee it seemed like everybody that had been either for it or against it at that time were no longer for it at all.
Mr. ZWACH. Then you really mean the bank bill that was not enacted into law, not discredited.
Mr. HARRIS. Then I suppose that I would go a little further and try to associate the telephone portion with that in order to try to put a little of the taint of discredit on the telephone side of it; yes, sir.
Mr. ZWACH. I am glad to have that explanation because I just could not understand whether you were prejudging here, just what was involved. Thank you.
The CHAIRMAN. Any further questions? If not, I wonder if I might ask you a rather irrelevant question, but speaking of "discrediting," do
you have succeeded in discrediting Dave Hamil enough that he will not be confirmed? What is your judgment on that? Mr. HARRIS. Mr. Chairman, I have made no reference whatever
The CHAIRMAN. I know you did not. I just asked your judgment Mr. HARRIS (continuing). To Mr. Hamil. Personally, I have no direction from the Edison Electric Institute. You see, this is the problem I have in your original rule, who I am with when I speak, and I would assume that that question is directed to me personally,
The CHAIRMAN. Well, I just asked if you thought you had succeeded in discrediting Mr. Hamil sufficiently to keep him from being confirmed.
Mr. HARRIS. Let me say this. I have addressed none of my comments in any way to Mr. Hamil. I have not related anything that I have said to Mr. Hamil. I have had no intention to speak one way or the other about his confirmation. If I were a Member of the Senate I would vote for his confirmation.
The CHAIRMAN. Thank you, sir. I would, too. I think Mr. Hamil made a good administrator and I think he will make a good administrator if confirmed this time.
Mr. MILLER. Mr. Chairman, may I make one statement on the net profit table that I spoke of a moment ago? It is not to discredit the bill or to oppose it. It is for information only. I feel that we need all the information we can possibly get in order to make an intelligent decision.
The CHAIRMAN. The only point is the information is already printed as a Government document and is available to everybody and the Chair is not going to just voluntarily fill our record with reprints of existing Government documents. But you have permission to put it in. Mr. MILLER. Thank you.
The CHAIRMAN. We thank you very much, Mr. Harris
The CHAIRMAN. Now, our next witness is Mr. John Lynn, of the the American Farm Bureau Federation.
STATEMENT OF JOHN C. LYNN, LEGISLATIVE DIRECTOR, AMERI
CAN FARM BUREAU FEDERATION, ACCOMPANIED BY KIT HAYNES, INFORMATION OFFICER, AMERICAN FARM BUREAU FEDERATION
Mr. Lynn. Thank you, Mr. Chairman.
The CHAIRMAN. We are always glad to have you appear before us, Mr. Lynn. Mr. LYNN. Thank
sir. We have a very brief statement since we presented detailed testimony on this in 1967.
We appreciate the opportunity to present views of the American Farm Bureau Federation in support of legislation providing supplementary financing for the rural telephone program.
Farm Bureau has supported and encouraged the rural telephone program since it worked diligently for enactment of the legislation establishing the program 20 years ago. Bringing telephone service to American farmers has contributed greatly to the efficient operation of the Nation's agricultural industry, as well as to bettering rural living. More than 2 million rural subscribers currently are using telephone services made available by systems obtaining financial support under this program.
The most recent report of the Administrator of the Rural Electrification Administration shows a total of $1,499,674,227 in telephone loans made between the beginning of the program and the end of last year. Of the 874 borrowers, 642 were commercial companies and 232 were cooperatives.
Mr. Chairman, if I might just insert here, I am glad that you have separated out the telephone from the rural electric cooperative because these figures here indicate the dilemma you get into when you try to mix the two. In one case, in the case of rural electric, you are talking about cooperatives, in the case of telephones you are talking about 642 commercial companies. And we welcome this opportunity to deal with these two problems separately.
Farm Bureau supported enactment of proposed legislation in the 90th Congress which would have provided supplemental financing for both rural telephone and rural electric cooperatives. That bill, H.R. 10190, failed to reach the House for consideration by Members of that body.
Subsequently, we supported H.R. 12066, which provided supplemental financing through establishment of a bank to provide financial
assistance only to the rural telephone system. This bill did not progress further than a favorable report by this committee.
Voting delegates to the most recent annual meeting of the American Farm Bureau Federation reaffirmed their support of a supplemental financing plan for a rural electric and telephone bank patterned after the Farm Credit System. This plan would include:
(1) A requirement that, to be eligible for bank loans, a cooperative must provide in its bylaws for the issuance of certificates of ownership stating each member's share in the net worth of the cooperative, except where prohibited by State law. Again, Mr. Chairman, I point out there are only 232 cooperatives who have loans from REA providing for telephones. The others are commercial companies.
(2) A provision that there shall be only two classes of loansthose made by the bank at the same rate of interest to all borrowers, and those made by the Rural Electrification Administration.
In our original testimony in support of establishment of a rural electric and telephone bank, on April 4, 1967, we made recommendations relative to the size and selection of the board of directors. These recommendations were included in subsequent legislative proposals, but the bill now before this committee would provide for the 13-member board, selected in the manner provided in the original H.R. 1400.
We, therefore, recommend that section 405 of H.R. 7 be revised to provide for a seven-member board let me hasten to add we would not quarrel whether it is seven or nine. The composition is really what we are talking about-four of which would be appointed by the President, with the advice and consent of the Senate, to serve for 2-year terms; and three members to be elected by borrowers from the bank. We also recommend that employees of the telephone cooperatives be excluded from serving on this board; and that after class B and class C stock reaches 51 percent of the total stock outstanding in the bank, six members of the board shall be elected by holders of class B and class C stock, and the seventh member shall be appointed by the President as a representative of the Government.
Simply stated this simply means after the subscribers have 51 percent of the stock, then they have a majority of the members of the Board.
There is some indication that there may have been abuses of the present system of REA financing of rural telephone systems at 2 percent interest rates.
We recommend that this committee seek the facts in connection with this matter and include in any legislation establishing a telephone bank language which will prevent recurrence of such abuses.
In our statement of April 4, 1967, we also recommended that some method be provided to encourage borrowers of low-interest funds directly from REA to “graduate” to using the bank as a source of funds after they no longer require subsidized credit to provide service to rural people. We now reaffirm that recommendation. We suggest that when a borrower's net worth exceeds 15 percent of its assets, the borrower would become ineligible for direct REA loans and would be required to obtain its financing either from the telephone bank or from other sources. I might just add here, Mr. Chairman, that this would mean as of the end of 1968 roughly half of the rural telephones would be ineligible for 2-percent money. The other half
you very much.
would continue to be eligible under this suggested amendment to the bill.
Other means may be developed by the committee to identify those borrowers best able to be required to use the bank or other sources, and we would support the addition of other reasonable criteria, because if I might add again, I think it is your desire and our desire to assist in this telephone program, but we are going to continue to be subject to great criticism and in some cases with some justification. If we do not provide some way for the rural telephone cooperatives or companies who have reason to see this criteria we suggest here, that they should not be permitted further subsidized loans.
There may be developed other sound means for meeting the needs of the rural telephone program and we will be ready to work with this committee in helping to formulate such programs to meet our broad policy objectives.
Let me add again, if I might, Mr. Chairman, that we have under active nsideration some different methods whereby the rural electrics might be financed and we will look forward to the time when the committee has those hearings and we hope to be able to make some constructive suggestions different from those made in 1967 and 1968.
Thank The CHAIRMAN. Thank you, Mr. Lynn. Now, you suggested that we would probably be under some justifiable criticism if we did not take some steps to remove from the 2percent loans some of those institutions which admittedly could afford to pay more than 2 percent. And with that I fully agree.
I want to ask you, though, if it is not a fact that if we do nothing, that all of the loans will continue to be made at 2 percent. Mr. LYNN. That is right, and
The CHAIRMAN. And is it not also a fact that if we pass this bill, which may not go as far as some people think we should go, we will at least move some of this lending into the higher interest brackets, will we not? Mr. Lynn. Yes, sir.
The CHAIRMAN. In other words, the passage of this bill will at the very minimum achieve some of the objectives that most everybody says they want to achieve. It will not achieve them all but it will move in the direction that even the most conservative member says he wants to move, and if we do not pass the bill, and do not do anything, we will not have moved one whit, will we?
Mr. Lynn. That is right. This 15 percent suggestion, Mr. Chairman, we believe would give the Administrator, whoever he might be, a real guideline
The CHAIRMAX. Well, I believe we use a 20-percent guideline in the bill. It is just a question of where you put it.
Mr. LYNN. Well, the difference is roughly 70 percent and 50 percent and we arrived at the 15 because we thought, based on our best analysis of the last report, that roughly half of these associations could go to the bank.
The CHAIRMAN. I mean, it is not any question of whether we agree or disagree as to the desirability of moving these people who can pay out of the direct loans, but it is just a question of where we think we should put the line.