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Mr. Lynn. That is right. We think the insured loan suggestion has real merit and there might be a way to combine some of the provisions of this legislation.

The CHAIRMAN. I think the greatest problem there is getting votes for it. Am I not right in saying that the great and fundamental merit to the banking system is the ability to multiply your loans, that is with $1 of capital, you can provide approximately $8 of lending power which you cannot do under these other systems? Mr. Lynn. That is right.

The CHAIRMAN. Now, of course, if you combine a guarantee with the banking system, then the banking system could get its capital money cheaper than it can get it otherwise, and obviously, it would be possible to make more loans at a lower interest rate if you had that guarantee.

Mr. LYNN. I was thinking in terms, Mr. Poage, of, for example, if you should determine or if this committee should determine that maybe 4 percent would be a more defensible rate than 2, that we might think in terms of using the insured loan approach for that. I am sure we as farmers and you as representatives in Congress, would like to get off of this 2-percent figure if we could, particularly in the light of the situation we now have with the cost of money. We find it hard to defend and I am sure you do, too, but we also recognize at the same time that there is a need that we have some obligation to try to help fill.

The CHAIRMAN. Mr. Price. Mr. PRICE. Mr. Chairman-Mr. Lynn, as always you have been very cooperative with the committee in your testimony on page 3 you 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.”

Evidently in the preparation of your testimony you say here there is some indication that there may have been abuses under the present system.

I am simply trying to get to the facts to expose these abuses. Do you have any individuals or companies, which you want to submit for the record ?

Mr. Lynn. We are using as a source of our information for this the REA report which is available to you. I do not have the document before me but this is

Mr. PRICE. The same as Mr. Harris? Mr. Lynn. Yes. That is the same one that Mr. Poage referred to as being available to all the members of the committee. Mr. PRICE. That is all, Mr. Chairman.

The CHAIRMAN. Mr. Lynn, I think Mr. Price's question about your statement raises what I thought I perceived in Mr. Harris' testimony, too. The real question is, What is the purpose of these subsidies! İs the purpose to get service to rural people or is the purpose to feather the nest of some particular telephone company? And my view, of course, has always been that it was for the purpose of expanding service into the communities that need it. And if some of these telephone companies, and he is talking about Continental, of course—and I do not see any reason for all of you sticking your heads under the table and refusing to use the name. It is a perfectly good name and as far as I know, Continental Telephone Co. is a perfectly honorable, legiti

mate operation. But the fact that we made these loans to expand service in thin areas or to improve service in areas that did not have good service, was not made in order that Continental or Bell or anybody else could pick up those companies.

It was made to enable somebody to bring that service to rural people. They brought it. Then, after they brought that service, if somebody else comes in and buys out the system and continues to give the service, I do not see that we have any right to complain about that as long as the objective of carrying good service to rural people has been met. And it was met.

Now, it is perfectly true that Continental or General or Bell could not qualify under the terms of this bill to get the cheap interest rate. But, they can qualify under the existing law. Please understand that Bell Telephone Co. can qualify under the existing law just as truly as anyone could as an individual, but they cannot qualify under the terms of H.R. 7 because obviously they have got the assets which would make them go to the bank. They have got far more than the 20 percent that we were talking about. So, they would not qualify for an original loan, but if you deny to this individual who originally provided the service the opportunity to dispose of his property when he wanted to, he probably would not provide the service in the first place. And I think that we are simply saying that we do not believe in the right of private industry to make a profit, and I believe in it. Mr. Lynn. You know we do too, sir. The CHAIRMAN. I think you do.

Mr. Lynn. We had thought of something like this, Mr. Poage, that if a cooperative is formed out here in order to provide service as provided in the REA Act, that you might consider suggesting that they would have to maintain control and operation of this cooperative for a period of 5 years after any 2 percent loan had been made.

The CHAIRMAN. Well, substantially that is in the bill now. In fact, the present law provides that they cannot sell the operation without the approval of the Administrator and this has a further provision in there, the Dole amendment that was put in there, to protect against that very thing, so it seems to me, that we have got about all the protection in this bill now that you can write in there without simply saying that an individual cannot make a profit in excess of a certain amount.

Mr. Lynn. Well, we are not on record for that and I am sure you understand that, but what we are trying to do, if we are going to continue this program, and we are, we ought to try to eliminate as far as we can the criticisms that are aimed at it which we find and you find hard to defend sometimes.

The CHAIRMAN. I am in full accord with you on that. Mr. Lynn. That is all we are suggesting. We will work with the committee in helping to accomplish that objective.

The CHAIRMAN. Mr. McMillan?

Mr. McMILLAN. Mr. Chairman, I want to congratulate Mr. Lynn on the fine job he is doing with the Farm Bureau. He is one of my constituents. I am always happy to hear his opinion on farm legislation.

I would like to ask one question. You were in the room when Mr. Harris made his statement, were you not?

Mr. LYNN. Yes, sir.

Mr. McMillan. Would you feel free to say whether your organization agrees with the suggestion made by Mr. Harris?

Mr. Lynn. Well, I could not say that we do because I had not seen them until this morning.

I think he made some good suggestions and two or three of those are consistent with some of the suggestions we have made here, but we would have to analyze each of them in relation to our policy before we could comment.

Mr. MCMILLAN. I just wanted to find outMr. LYNN. I think he was a very effective witness. Mr. McMILLAN. I just wanted to find out if your organization had checked into the problems he mentioned in his statement.

Mr. Lynn. Some of them, yes, sir, and that is the basis for some of our recommendations. Mr. McMILLAN. Thank you.

The CHAIRMAN. Mr. Lynn, would you agree with Mr. Harris' suggestion that we should not do anything? Mr. Lynn. No, sir. We would not. Our delegates have said The CHAIRMAN. You are in favor of passing the bill. Mr. Lynx. We are in favor of passing a bill.

The CHAIRMAN. If you cannot get all that you would like to get, you would like to get something. Mr. Lynn. We will work with the committee to that end.

Mr. MONTGOMERY. Mr. Chairman, either Mr. Haynes or Mr. Lynn could help me out to try to answer this question that I have. You mentioned in here about cooperatives and about setting up of different types of boards. Of course, most of the loans as I understand it, are made to private companies. If we set up this bank, what is the American Farm Bureau Federation's stand on private companies, to clear up my own mind who can get the 2-percent money and under this bill who is required to go to the bank?

Mr. Lynn. Under our suggestion, Congressman Montgomery, if a borrower's net worth was 15 percent or more of his assets he would not be eligible for subsidized interest and, therefore, would have to go to the bank or other institution that may be set up.

Mr. MONTGOMERY. Does that apply to cooperatives as well ?

Mr. Lynn. Yes. That would have to apply to both, and as I indicated, Mr. Montgomery, this makes the situation somewhat more difficult than it is with regard to the rural electrics because you are dealing with a majority of commercial companies in case of the telephone legislation.

Mr. MONTGOMERY. Well, in Mr. Poage's bill, he said that, he indicated 21 percent. Is it written in there or is that left up to the Administrator? Maybe Mr. Haynes

The CHAIRMAN. Mr. Montgomery, I have not had time to read it and I do get confused as to what we put in at various times and took out at various times.

Basically, what I know was that there was a general feeling that there should be a proviso in here that if there was more than 20 percent—if they had more than 20 percent equity, that—or at least if they did not have as much as 20 percent equity, they were guaranteed the right to borrow from the bank.

Mr. LYNN. Mr. Poage, I think this was in the other bill, last year, but I believe it has been an oversight in the drafting of this one and it is not contained in this bill. This was one of the reasons that we made our recommendation.

The CHAIRMAN. It might have been, but there was general discussion and I think

Mr. Lynn. It was in the bill that you got to the Rules Committee

last year.

Mr. MONTGOMERY. Possibly then, Mr. Chairman, this would have to be put in the bill.

The CHAIRMAN. Possibly so, it may be that it should be put in there. I think as I said to Mr. Lynn, we are all in pretty general agreement that those cooperatives and privately owned corporations that have sufficient assets to enable them to borrow on the general market should be required to do so and only those that find it needed, such as Mr. Kleppe's cooperatives, only those that do not have the opportunity to pay

the higher interest rate are the ones that should get the subsidized interest rate. I do not think there is any disagreement on that.

Mr. GOODLING. Mr. Chairman, one of your last statements raised this question in my mind. You spoke of the larger companies acquiring the smaller companies to give service. All of us are for that. I think we are agreed on that. The question that your statement raises in my mind, if these smaller companies had been allowed to continue as they were, would they not have furnished this service?

The CHAIRMAN. They have furnished the service and are furnishing the service. Many of the smaller companies are now in such a situation that they cannot go on and improve the service without additional capital.

Now, that capital can either be obtained oftentimes by additional borrowing, and many of them do make additional loans. Others sell out. That is just the same thing with anybody in the farming business. Some will borrow additional money and expand his operations, others will sell out. And the same thing has happened to these smaller telephone companies. Some sell out, some borrow additional money.

Mr. GOODLING. The greatest objection as I see it, to the present method of operation is the fact that a lot of these larger companies are using what is apparently a loophole to get cheap money. That is the thing to which I object.

The CHAIRMAN. I think that the possibility exists. I do not know how much of it is being done but the possibility exists because the law clearly authorizes the American Telephone & Telegraph Co. to borrow from REA at the same rate that it authorizes the smallest cooperative or the smallest privately owned company.

Now, I want to point out as far as I know, Bell has never made such a loan, but they have the power to do it, and the Administrator could not turn them down just because of their size or their assets.

Mr. GOODLING. I did not want to create the impression that it is not legal. It is. But I question whether it is ethical.

The CHAIRMAN. I agree it is not desirable that it be done and I do not think much of it is being done. The testimony of General here yesterday was that, as I recall it, they had not made any such loans from RÈA, but that they had acquired certain properties on which

such loans existed and that they were making the payments on those loans.

I do not think there has been any practice on the part of the Administrator to make loans to the large companies. I do not think they have asked it, as a matter of fact. Just like Mr. Harris' electric company, he has got a right to borrow from REA. He has not done so because he thinks it is unwise to do it but he has got a perfect right to do it on exactly the same terms that any cooperative in the United States can and for the same purposes, and I think the large telephone companies, possibly for much the same reasoning as the large power companies, have not availed themselves of these loans and most of them have been made to smaller companies, but the real problem, it seems to me, lies where the smaller companies are selling out and how far do we want to go to prevent them from selling their business which has a loan on it?

Now, if you keep a man from selling his business you probably cannot get him to go in there and do anything in the first place, and that seems to be the problem. Mr. JONES. Mr. ChairmanThe CHAIRMAN. Yes, Mr. Jones. Mr. JONES. Mr. Lynn, today I sit in the chair sometimes occupied by another during the 90th Congress and I believe if he were present he would ask this. Does the American Farm Bureau alone have any interest in a telephone company?

Mr. LYNN. No, sir. I hope not too much rubs off from that chair on

you, sir.

The CHAIRMAN. Are there any other questions of Mr. Lynn? If not, we thank you very much, Mr. Lynn. We appreciate your attendance. Mr. LYNN. Thank you.

The CHAIRMAN. Now our next witness will be Mr. Don Smith, of the Public Service Commission of Arkansas, and I have a letter from our colleague, Mr. Bill Alexander, in which he says:

One of our fine public service commissioners from Arkansas, Don Smith, is scheduled to testify before the Committee on Agriculture on your proposal for a rural telephone bank Friday morning. It was my intention to be present to introduce Mr. Smith to the members of my committee, but unfortunately, previous commitments will make it impossible for me to be present at Friday's committee hearing. Please express my regrets to the other members of the committee.

Signed by Bill Alexander.
Mr. Smith, we will be glad to hear from you, sir.

STATEMENT OF DON S. SMITH, PUBLIC SERVICE COMMISSION OF

ARKANSAS, ACCOMPANIED BY EMON MAHONY, JR., OF THE PUBLIC SERVICE COMMISSION OF ARKANSAS

Mr. SMITH. Thank you, Mr. Chairman.

My name is Don S. Smith. I am one of three members of the Arkansas Public Service Commission, and reside in Little Rock, Ark. Accompanying me today is Mr. Emon Mahony, Jr., of Little Rock, a consulting attorney for my commission. I wish to thank you on behalf of the Arkansas Public Service Commission and the State administration for permitting me to express to you the view of one of the State commissions charged with the responsibility of regulating, set

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