over and above these requirements shall be considered surplus and may be used for new electric system construction or retirement of system indebtedness prior to maturity. It also requires "that resale rates and charges shall be reduced from time to time to the lowest practicable levels***??

As a result, the consumer-members of the rural electric cooperatives in the TVA area are among the highest average monthly users of electricity, which they can purchase at about the lowest rates available in the United States. This has meant a tremendous lot to this low-income area, much of which had been starving from lack of industry.

Thus, the rural electric cooperatives in the TVA area are very concerned about the requirements of section 408 (b) (5) which would make a cooperative ineligible to borrow from the rural electric bank if they have not complied with its provisions within a specified time. It is their general understanding that under present policies and contractual agreements with TVA it would not be feasible for them to carry out the requirements of this section. It is also manifest that to go to patronage payment systems would add vastly to their administrative burdens. Therefore, I respectfully urge the committee to amend section 408(b) (5) by adding the phrase "and by the Federal power agencies supplying power for resale" after the word "law" on line 10 of page 25.

The CHAIRMAN. We appreciate your appearance and for you taking the time to be with us. We will be glad to have you stay if you can. We do not want to impose any burden on anyone.

When we get through with the statements, we hope there will be an opportunity for questioning, but we do not want to put a burden on anyone by asking them to stay here until that time, but if they can be here we will be glad to have them remain. You understand the situation.

Mr. ANDERSON. Thank you very much. I appreciate very much the opportunity of presenting the statement.

The CHAIRMAN. Our next witness will be Congressman Robert T. Stafford, of Vermont. We will be very glad to hear from you now. STATEMENT OF HON. ROBERT T. STAFFORD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VERMONT

Mr. STAFFORD. Mr. Chairman and members of this distinguished committee, I appreciate very much this chance to appear this morning. Really, I am here on behalf of Gov. Philip H. Hoff, of Vermont, who has sent a statement to me for delivery to this distinguished committee.

Mr. Chairman, I will not attempt to read Governor Hoff's statement to the committee, unless the chairman directs me to do so, or wishes for me to do so.

The CHAIRMAN. We will be glad to have you file it in the record and to make any comments that you care to make.

It will be made a part of the record at this point.

(The prepared statement of Hon. Philip H. Hoff, Governor of the State of Vermont, follows:)

STATEMENT OF PHILIP H. HOFF, GOVERNOR OF VERMONT

Mr. Chairman:

I appreciate this opportunity to express to the Committee my strong support of legislation before it to provide supplemental financing for rural electric systems, as proposed by Bill H.R. 1400 and others identical to it.

We in Vermont feel a particular kinship with REA because of the early leadership of Vermont Senator George D. Aiken, and the major contributions REA has made to the development of our state. REA, in my opinion, has been perhaps the most successful public program created by our government for social and economic advancement in rural areas.

The fiscal integrity of the program is evidenced by a nearly 100 per cent record of repayment of loans. The rural electric program, since it was created by Congress 30 years ago, has succeeded magnificently in doing a job which no one else had been willing to do.

There are some who now argue that because it has been so successful, its job must be completed and it should be phased out. I know, and I am sure all the members of this Committee know, that this is far from the truth. People in rural areas, just as their cousins in the urban areas, continue to require more electricity year after year from their power suppliers. In large measure this growth in demand reflects the technological progress of our civilization. It is a demand which must be met.

Rural electric systems can no more fail their consumers in this regard than can other types of electric systems. Compared to electric utilities they have to build and operate a disproportionate mileage of lines to customers. This and other related investments require increasing amounts of growth capital.

Vermont has three rural electric cooperatives, providing service in 110 of our state's 246 cities and towns. These cooperatives are not large. The largest has about 3,500 customers.

Each of these three associations has a similar ratio of four member-owners for each mile of line. This fact alone is sufficient to explain why they are doing a job which no one else has been willing to do. With such marginal operations it is self-evident that future growth is related directly to availability of adequate capital. This can only be obtained through supplemental financing.

With a very low ratio of customers to mile of line the three Vermont REA cooperative systems have made capital investments of over $62 million since their creation twenty-five years ago. They have accumulated less than $500,000 in members' equity in that same period of time. This would indicate to me that they will likely continue to be eligible for two per cent money.

Their support of supplemental financing, therefore, is not occasioned by the expectation that they would immediately be borrowers from the bank or credit system which is established. However, to the extent that other systems now borrowing money from the Rural Electrification Administration at two per cent interest with thirty-five year terms could turn to the Federal Electric Bank for their growth capital, systems such as ours in Vermont, and elsewhere, which show only marginal feasibility, would have better access to such two per cent funds as Congress makes available.

In closing, I would urge the Committee to consider the proposal before it as a "rural renewal" program. Rural electrification is one of the most viable and unifying forces in rural America today. It has raised the level of farm electrification from 11 per cent in 1935 to over 98 per cent today. In so doing, it has created a market for electrical appliances and machinery which exceeds $12 billion a year.

This market will continue to expand.

I am sure the Congress will want to make money available for capital expenditures by rural electric cooperatives so that their systems may be developed at the pace required to meet fully the expanding needs of our rural population.

Mr. STAFFORD. Thank you, Mr. Chairman. I did want the committee to know that Governor Hoff would have been here himself to make this statement to the committee were it not for the fact that the Vermont General Assembly is in the closing days of its session with about a week or so to go, and he has some very urgent matters which he feels that he should handle with the general assembly this and the follow

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ing week. That is the sole reason for his inability to be present here as a witness.

I have gone through the statement and, generally, can say-showing a bipartisan state of politics in Vermont-that I would concur in what the Governor has stated to your committee.

Thank you, Mr. Chairman, for letting me appear.

The CHAIRMAN. Thank you very much, Mr. Stafford. We would like to have you remain with us.

Mr. STAFFORD. Thank you, sir.

The CHAIRMAN. Our next witness will be Congressman Mark Andrews, of North Dakota.

We will be glad to hear from you now.

STATEMENT OF HON. MARK ANDREWS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH DAKOTA

Mr. ANDREWS. Mr. Chairman and members of the committee, I appreciate the opportunity to testify before you today. I am fully aware of the deep interest that you and the members of your committee have in seeing that the rural electric and rural telephone cooperatives are strengthened so that they may continue to bring dependable service to rural America. Representing this Nation's most rural State, I can certainly attest to the vital role of the REA's and RTA's in North Dakota and need look no further than my own farm to find how important they are to family living. As a REA patron myself I know how important dependable and fairly priced electric service is to the farm family on the land. My wife probably knows better than I, because she cooked on a combination coal and propane gas stove until REA got to us with service in 1949.

My purpose in testifying here today is to point out to you that my bill, H.R. 7521, was introduced to emphasize the importance of including a specific density factor in any plan you may adopt for supplemental financing for REA's and RTA's. It would be presumptuous for me to attempt from outside the committee to detail all of the features that an REA financing bill should have. But certainly there is a basic 31-year-old covenant between the Federal Government and rural electric cooperatives. Under this agreement, 2-percent loans have been advanced by the Government in order to make it possible for cooperatives to provide electric service for all people in rural areas where the population density is so sparse that normal electric utilities simply couldn't afford to build without charging exorbitant rates for electric power that farmers simply couldn't afford to pay.

My amendment honors this longtime principle of density. Certainly the major reason for the great acceptance of the REA program over these three decades has been the fact that it did indeed give the individuals living in sparsely populated areas central station electric service at rates competitive with their fellow Americans who are enjoying it in the cities. If it hadn't been for this program the migration of people from farms to urban areas might well have been doubled what it has been over the last 30 years.

My proposal would guarantee that the establishment of a so-called electric bank would not preclude the basic tenets of this 31-year-old

agreement and that the subsidy to allow them to compete would continue to be available to those rural electric and telephone cooperatives which could qualify as having a legitimate need because of low density. The criteria defined in my amendment assures continued eligibility for financing at 2 percent to those REA borrowers whose systems average not more than two consumers per mile of line and RTA cooperatives who average less than three consumers per mile of line. I would be the first to say that if this committee in its wisdom decided to change these figures to 211⁄2 to three consumers per line, this would be acceptable to me and the REA cooperatives that I represent, but I do think that this density factor should be in watever bill comes out. This would cover roughly 20 percent of the total cooperatives. These are the ones who have the legitimate need and must have the assurance that they would not have to sharply raise the cost of electricity to their farmer customers at this time when rural families are currently receiving income at only 74 percent of parity.

Almost a year ago, when the Congress first began to consider this type of legislation, I wrote Norman Clapp, Director of Rural Electrification Administration, to find out which cooperatives in my State would still qualify for the 2-percent loans under the vague generalization in the initial draft of the bill. The answer I received from Mr. Clapp, and the answer that the members of this great committee received from Mr. Clapp, indicated that he could in no way tell which cooperatives would get this. My concern, of course, is shared by all of the REA and RTA cooperatives in North Dakota, who feel as I do that a retention of a firm commitment to low density areas must be the solid foundation on which any REA legislation is based.

Certainly, a density factor is far more equitable and justifiable than to allow 2-percent-interest loans only to those cooperatives who by virtue of poor management or other reasons need this as a subsidy. Also, if Congress fails to completely define this criteria density, or leaves the determination up to the directors of the electric bank who will pass judgment on the individual cooperative's ability to pay, life and death discretionary power will be left in the hands of a small group of individuals. It would, furthermore, tend to encourage inefficiency and poor management by rewarding those borrowers with lower interest, and, actually, would put the cooperatives that are well run and well managed in the position of actually subsidizing those which are mismanaged.

Mr. Chairman, the Congress is now considering a major change in a program basic and fundamental to American agriculture. This change can be taken in a manner that breaks completely with the precedent and justifications of the past, or it can be taken in the context of orderly transition, which would be the case if my amendment were adopted. Those cooperatives still serving thinly populated areas, where some subsidy must be granted to provide equal electric service, would have that guarantee, while others who because of increased number of customers per mile of line have come to the point where they no longer need this type of subsidy to provide adequate, dependable, and fairly priced electric power to their consumers, would be served by the electric bank at competitive rates of interest, or whatever rates of interest the electric bank decided to give them.

I think, Mr. Chairman, that this type of transition would be the orderly process that such legislation should take, and I sincerely hope that this great Agriculture Committee will consider it in this light.

The CHAIRMAN. Thank you very much for giving us your viewpoints on this. We appreciate your statement. You have presented a good argument. We are glad to have it.

Mr. ANDREWS. Thank you, Mr. Chairman.

The CHAIRMAN. Our next witness will be Congressman Robert H. Michel of Illinois.

We will be glad to hear from you now.

STATEMENT OF HON. ROBERT H. MICHEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. MICHEL. Mr. Chairman and members of the committee, I have asked for this opportunity to appear before your committee to express some very serious concerns over what in my judgment are defects in H.R. 1400, the bill to establish supplemental financing of REA's.

As a member of the Appropriations Committee, and more particularly the Agriculture Subcommittee, I am surprised that there is no provision in this proposal to assure adequate congressional supervision of a Federal loan program which will directly or indirectly provide a multibillion dollar source for plans for Federal institutions.

You, Mr. Chairman, and the more senior members of the committee, are well aware that our Appropriations Commitee has had the annual responsibility of examining closely the expanding program of the REA.

Your great committee certainly has the legislative authority in this area, but I do not recall in my tenure in the Congress that your committee has had before it more than two or possibly three times in open hearings a review of the operations of the REA. I do not mean to imply in any way that your committee had the responsibility for annual review, but our committee has had that responsibility and it has kept us in very close touch with all of its operations.

H.R. 1400, as I see it, is seriously defective in removing a large part of the REA program from congressional oversight while at the same time substantially increasing its Federal subsidies. It seems to me that each of us has a solemn responsibility to protect the interest and the financial position of the Federal Government by being effective stewards of all Government programs, and this legislation does not permit that kind of stewardship.

H.R. 1400, as presently proposed, provides several new forms of subsidy for electric cooperatives, including such things as the initial $750 million capitalization with no payment of interest required, a future Federal guarantee of $6 billion or more of debentures, freedom from taxation for the proposed bank, and the right to use employees and facilities of Government agencies without cost.

The sum total of these new subsidies is difficult to estimate offhand, but they, obviously, would be equivalent to a windfall of many hundreds of millions of dollars. I say "windfall," because the justifications for subsidies of this magnitude have not been proven in the light of the present condition and needs of most of the rural electric coopera

tives.