The rural electric cooperatives make up only one component-but a very valuable component-of the total membership of the cooperative league. Included also in our 18 million member families are the members of credit unions, housing cooperatives, farm supply and marketing, prepaid group health plans, groceries, insurance to name just a few of them. The league speaks through its congress which meets every other year. The latest meeting was 5 months ago-last October in St. Paul, Minn. There the hundreds of delegates representing all these different types of cooperatives, after full and free discussion, unanimously adopted a resolution in the support of its rural electric membership to achieve in substance what Chairman Poage's bill proposes to do. Members of every kind of cooperative under the sun, whether in the city or rural areas, can understand what rural electric co-op members are up against. You cannot be around a cooperative very long, in any capacity, Mr. Chairman, without realizing that one of the essential elements for its effective operation is an adequate supply of capital within reach of the membership at rates they can afford. A solid factor in the success of farmer cooperatives was the establishment over 30 years ago of the Banks for Cooperatives. They helped farmers when they needed it most. Their rate of loan repayment by any standard you apply had been superb. The best evidence of this is that four of the 12 banks now belong to those who borrow from them, the Government having been completely repaid for the money it put into them originally. Paralleling this achievement of the cooperative banks is that of the Production Credit Associations. Although it is not generally realized yet, all but four of the 479 of the PCA's belong to their members 100 percent. Now, the rural electric cooperatives come to their Government with a similar proposal. Their credit rating is also very good. Through the years they have repaid their REA loans well ahead of schedule and they, too, would look forward to the time when they will own. and control their credit system and free themselves from dependence on the Government. That will come for them in time, just as it has come and is coming for those who patronize the Banks for Cooperatives established earlier. In a country most of whose people have been born and reached maturity after the program of rural electrification was undertaken, it is necessary to review again for them what constituted the basic health of this great enterprise of lighting and energizing the American countryside. That health derives from one simple fact: it was that the people who were to be benefited organized themselves to get the job done, elected their own board, and hired the help they needed. Under strict criteria set up in the REA law, rural Americans showed what they could do for themselves. They were locally organized, locally built, and that's the way they are run today. The Federal Government has lost less than one-tenth of 1 percent of the $5 billion in capital it has invested in this program. Yet it was a program started by a depressionridden bunch of farmers said to be inexperienced in such business matters. No wonder they are proud of that record. Now, they come back asking to meet a new problem in the same way, through a credit system which they will eventually own and thus free themselves from need for Government funds not a day longer than their special circumstances require. The Congress took a chance on them once in the 1930's in much less favorable circumstances than exist today and they justified your faith magnificently. REA is one of the great success stories of Government and people tackling and licking a problem together. The problem of the 1960's is to afford the rural electric cooperatives the capital to equip themselves to meet the growing power needs of their members. This cannot be nurtured on a starvation diet when the whole field of electric generation and transmission is undergoing a technological revolution calling for costly adaptation by every part of the country's power distributing complex, including the rural electrics. Because I speak here not just for rural electric cooperatives but for all types, that is one reason I would emphasize that the true social necessity of this legislation must not be lost to sight while attention focuses on its real and imaginary fiscal complexities. These are details in which opponents seek to obscure its importance and literally talk it to death. The long-range social usefulness I speak of was illustrated only a few years after REA was established. American farmers were suddenly called on to feed a country at war and provide for many of our allies as well. Without the electrification of the farm to make up for the absent manpower in uniform, we could not have met that challenge. Now a quarter century later a new and somber challenge again faces us. There is a worldwide food shortage just down the road, and when it hits we cannot say we had no warning. With the lack of food causing social disruption, our food-growing capacity-an example to be applied in the food-short countries-must be geared to this new challenge. It will do more than bombers and battleships to help us in a situation we all know is coming, for it will be part of our moral armament. In our opinion it would be foolhardy for our country to leave undone the obvious steps to keep the agricultural sector of our economy moving toward higher levels of efficiency. When you discuss the principles of the legislation before you, you are discussing one of those steps. H.R. 1400 enables the two parties to the rural electric enterprise, the farmers and their Government, to plan for a time in the future when the Government can withdraw altogether from the financial arrangements which have made the program possible. This must be done in stages because different needs call for different treatment. In our opinion, this bill introduced by the chairman discriminates brilliantly among these differing types of need and marks a clear path leading toward the time when they will no longer have to call on their Federal Government, when the rural electric cooperatives will own and control their own credit resources. Help them speed that day. The CHAIRMAN. Thank you very much, Mr. Townsend. The next witness will be Mr. Angus McDonald of the National Farmers Union. We will be glad to hear from you now, Mr. McDonald. STATEMENT OF ANGUS McDONALD, DIRECTOR OF RESEARCH, NATIONAL FARMERS UNION Mr. McDONALD. Mr. Chairman and members of the committee, those of you who were members of the committee last year may recall that we appeared on June 1 and presented a statement pertaining to the bill introduced by the eminent chairman of this committee. We had certain suggestions to make with regard to this legislation then. I have attached to the statement that I am presenting today a copy of the statement which we presented last year, for the convenience of the committee. It is already generally known that the National Farmers Union has been interested in these proposals long before they were represented in legislative proposals. When the Kuhn, Loeb report came out some months before any legislation was introduced, we studied this 208-page document very carefully, and we were particularly concerned in chapter 13 that it was proposed to subordinate the REA cooperatives to, I would presume, the Wall Street investors. We condemned such a proposal. Later, there were discussions, and it appeared that, in our view, the National Rural Electric Cooperatives had approved all of these original proposals represented in the Kuhn, Loeb document. Later on, Mr. Poage introduced his bill, H.R. 14000, which represented a considerable improvement over the proposals that had been discussed. And, as I said, we testified in regard to this last year. I have today attempted to limit my discussion in this statement here. I have not gone into, except for one point, the proposals represented in the original Poage bill. I have concentrated mainly on those added provisions represented in the committee print of October 19, last year, and in the present bill before this committee. I might say that the Farmers Union is apprehensive of any proposal which might redound, ultimately, to the detriment of the members of the cooperatives in sparsely populated areas, such as North Dakota. We are in sympathy with the proposal of the Congressman from North Dakota to establish some kind of a criteria where members of the cooperatives, as in North Dakota, only have 1.3 members per mile of line-we are interested in seeing that these members, obviously not being able to pay even 4 or 5, much less 7 percent interest due to the Federal Reserve shenanigans-we are interested in preserving the right of our cooperatives to preserve the equities that they have built up over a period of many years. In regard to the added provisions in this bill-I am speaking of H.R. 14000 primarily-we are opposed to the paragraph on page 14 which would require the cooperatives to advertise for low bids. We think that the surveys required by the Appropriations Committee and the Administrator, that is, the REA Administrator, the supervision by the Appropriations Committee, and I might say parenthetically they have not been inhibited in their criticisms of the administration of the REA program, but we do object to this particular appropriation. To hurry on, we object to the court decision. We think it is an open invitation for every power company to go into court with every project authorized by this committee and this Congress. We are opposed to the certificates-of-ownership provision, because we think that when a cooperative has borrowed money and has repaid its loan, it is up to the cooperative to provide by its bylaws how the business of the cooperative should be carried on. We are in agreement with Mr. Carpenter on that point. We think that it is in intrusion into the affairs of the cooperatives. In regard to the provision-I believe it is on page 26 of the bill— that once a cooperative acquired a 40-percent equity that it is, except under special conditions, to be denied a loan. We disagree with that. We think it is in contradiction with the opening paragraph of the bill which says that the program should not be disturbed in any waythat is, the old program. As we interpret this provision, it would mean that the cooperatives in North Dakota or in other areas where the population is sparse could not obtain any more funds at 2 percent once they achieved 40percent equity in the facility. Thank you. (The prepared statement submitted by Mr. McDonald reads in full as follows:) STATEMENT OF ANGUS MCDONALD, DIRECTOR OF RESEARCH, NATIONAL FARMERS UNION Mr. chairman and members of the committee, as Members of the Committee who were present during the 89th Congres know, the National Farmers Union has been very much interested in the various proposals to set up a rural electrification program which would take care of the increasing needs of the farm population. However, since the bulk of the members of our organization reside in areas of relatively sparse population, we are apprehensive that if a supplemental financing program was inaugurated for those members of cooperatives who were financially able to pay the going rate of interest, that the new program would redound to their disadvantage. Emphasis during these hectic years has been toward getting the Government out of business. The Director of the Bureau of the Budget has stated repeatedly before Congressional Committees and in other places that he, by means of a participation sales program, proposed to take the Government out of the lending business. He further stated that the Government never should have been in the lending business anyway. These statements run counter to the philosophy of the members of the Farmers Union who strongly feel that the Government should provide a yardstick policy in regard to the sale of electric power and in the lending of funds. We believe that history substantiates our position in that interest rates have seldom been reduced nor electric power rates reduced except by means of Government programs or regulation. So-called "free enterprise" does not police itself. Government action is required both in regard to regulation and in regard to competition. Competition in electric power has been supplied by Federal, municipal and cooperative programs. This position of the Farmers Union is set forth more fully in a statement submitted to this Committee in 1966. We called attention to the fact that for more than thirty years it was the objective of the Congress, through various programs, to bring power to farmers and others at the lowest possible cost. We still believe those objectives are in the interest not only of agriculture, but of all segments of the economy. Our views in regard to the provisions of HR 1400 which were contained in the previous bill, are set forth in our 1966 statement. It is not necessary to repeat our comments further. I will, therefore, comment on the additional provisions of HR 1400 and on provisions in 1967 bills which were not contained in previous legislation. We are particularly concerned with the provision on page 14 of HR 1400 which requires loan applicants to advertise for bids. We believe that this provision is unnecessary and sets a very bad precedent which will result in delays in programs authorized by the Congress and, in the long run, will probably not result in electric power rates to members of cooperatives which are lower than rates established by co-op built facilities. History indicates that so-called "private electric power monopolies" will go to almost any lengths to harass and destroy rural electric cooperatives. If a rural electric cooperative were required to advertise for bids the adjacent private utility, in an effort to check rural electric cooperative expansion, might submit a bid which had little relation to the actual costs of supplying power to other customers of the utility. Attention is called to the opinion of the Federal Power Commission, No. 432, Wisconsin-Michigan Power Co., Docket E-7026 dated June 9, 1964. It appears that under existing law utilities may not discriminate except in unusual circumstances, between their customers. In the event that a private utility submitted an unduly low bid in regard to the building of a facility or the furnishing of power to a cooperative, it is probable that other customers of the utility would appeal to the Federal Power Commission or to some other instrumentality of Government to set aside the projected low rates to the cooperative proposed by the utility. The FPC or some other instrumentality of Government would require the utility to either lower its rates to customers other than the rural electric cooperative or raise the rates to the cooperative. In other words, what would appear to be a firm bid might not really be one in the long run. The history of the Rural Electrification Administration program has demonstrated the fact that the judgment of Congress and the Administrators has resulted in a rural electrification program which did not disadvantage any private group and has helped farmers immeasurably. No Congress or Administration has ever, as far as we know, attacked the administration of the rural electrification program either in regard to its efficiency, its economic soundness or as to the carrying out of the objectives and policies laid down by the Congress. Our second comment on the language which has been added to supplemental financing legislation during this Congress relates to the court review provision on page 14 of HR 1400. It appears that a private electric power company does not have to be injured to go to court-he merely has to allege that he may be injured some time in the future. This provision is an open invitation to every power company in the United States to hamstring and, if possible, destroy an adjacent rural electric cooperative by tieing up funds and arresting plans for the carrying out of a project authorized by the Congress. If those who caused this provision to be written into the bill are consistent, they will also advocate that every loan made by the United States Government should be reviewed in the courts. We suggest it could be alleged that great damage may be done to a Federal or state housing development. Why shouldn't the real estate interests who allege they might be injured by a low cost housing program be allowed to go to court and either hold up permanently the project which had been authorized by the Congress, or collect damages in proportion to the injury? Every loan program in the United States should be reviewed by the courts if this provision of the bill is sound. Projects and plans for the specific expenditure of money are under constant review by the Appropriations Committees and the General Accounting Office. The private electric power companies have not been reticent or unsuccessful in making their views known to Members of Congress. They are constantly attempting to convince Members of Congress. Executive Agencies and quasi-judicial agencies that there is something wrong in the expenditure of funds as administered by the Rural Electrification Administration. We look on this provision as an attempt to give the utilities a standing in court which they heretofore did not have. We refer to an opinion, U.S. Circuit Court of Appeals for the 8th Circuit, No. 18,519, February 28, 1967, which sets forth at some length reasons why a power company is not entitled to judicial review. We are also opposed to a provision in HR 7700 which would accomplish somewhat the same purpose as the provision in HR 1400 relating to court review. As we understand the procedure, this provision would entail, after a survey had been made by the Rural Electrification Administration, another survey or study |