annual report to Congress, however this is normal for all independent regulatory agencies and other instrumentalities of the Federal Government. This requirement to report and recommend legislative changes is not necessarily a guarantee of the faithful adherence of the Congressional intent. There should be a continuing control of such a large lending agency and it should be at a time when it would do some good and not after the fact. Section 410 (c) stating that Congress would continue to exercise a review over the bank is not effective control. We find several provisions confusing or ambiguous. We note that Section 503 (s) states the electric bank is under the supervision of the Secretary of Agriculture until converted as per Section 410(a); Section 410 (a) (3) says the bank would no longer be an agency of the U.S. but would continue in perpetuity to be an instrumentality of the government. In addition to slight control, if any, the bill greatly broadens loan purpose. Previously, generation loans could be made by the REA only if an adequate supply of power was not available or at a reasonable rate. But Section 408(a) (2) has a loan criteria that allows loans if they would improve the "efficiency, effectiveness, or financial stability of electric systems." Related to need for Congressional control we find that Section 405 deals with the composition of the Board of Directors. It states that the 13 member Board be composed of the REA Administrator; 3 from the Department of Agriculture, 6 additional members who represent entities eligible to borrow from the bank; 2 from the general public; and the Governor of the Farm Credit Administration. Therefore at least 10 of the 13 would be REA co-op related to some degree. Some impartial supervision is desirable.

While Section 408 (d) has the praiseworthy intent and attempts to limit 2% lendings to the less strong REA loop through prohibiting Section 4 loans to any borrower which during the immediately preceding year had a net worth in excess of 40 percentum of its assets, the application will appear meaningless, upon examination as to the number eligible, and the effect of other qualifying provisions restoring eligibilty. The use of the 40% criterion would mean that 75% of the REA co-ops would continue eligible for 2% loans. We question that 75% are needy. As one example The South Kentucky Rural Electric Cooperative Corporation in Kentucky, noted earlier as "buying" consumers, would qualify for 2% money. The 1965 REA Annual Statistic Report on Page 105, Column 54, shows on line 25 the total assets of this REA Co-op to be $8,710,023 and on line 28 a patronage capital of $2,983,460 or a net worth of 34.25% in excess of its assets. This, it is under the 40% figure found in Section 408 (d) of H.R. 1400. It would be eligible for a section 4 loan since it would be considered a "weak" cooperative. Yet it is strong enough to "buy" customers from taxpaying small businessmen with the support of governmental subsidy. We also note that the American Farm Bureau Federation apparently agrees in a lower criterion with their recommended 20% factor to the Senate Sub-committee on Agriculture and Forestry in hearings of August, 1966. The other qualifying provisions that permit the Administrator to make loans in his discretion and disregard this criterion are so broad and flexible as to make the net worth criterion meaningless. We also suggest that to place in the hands of the Administrator the decision as to who is to receive the bounty of a 2% loan can be undesirable without more definitive criteria.

4

We also note that the reference in Section 408 (d) is to Section 4 loans. We are not entirely clear as to whether Section 5 loans are to be continued, or if so, the proposed method of handling of Section 5 loans either under 2% lendings, or by the electric bank. However, it is our conviction that these lendings have been the subject of such substantial abuse in "buying" consumers as to justify discontinuance. Apart from this there appears to be little need for this type of loan in that lendings have fallen from a high of over $5 million to $2 million in 1964 and 1965. We recommend:

1. That any lendings under the existing Act be handled within the framework of this Act to effectively provide Congressional safeguards-and not through a loan account lacking in Congressional control.

Source: "Annual Report of the Department of Agriculture, 1965-Report of the Administrator, Rural Electrification Administration." p. 34.

4 American Farm Bureau Federation Statement in Hearings before Subcommittee of the Committee on Agriculture and Forestry. United States Senate. August 18, 1966. P. 346. Source: Senate agriculture appropriation hearings, 1964, Annual Report of REA.

2. That such loans be made at a rate equivalent to that paid by the government on its borrowings except where the borrower would operate at a deficit under which circumstance the rate could be 2%.

3. That any such loans be made only to the less strong and needy REA Co-ops who demonstrate this with a ratio of net worth to net assets of less than 20 percentum.

4. That Section 5 lendings be discontinued.

5. That as a preferred method new, not additional or supplemental, REA Co-op financing be provided through insured loans; or in the alternate any "electric bank" to be created be subject to stronger Congressional controls, and

reimburse the Treasury at a rate equivalent to that paid by the government on its borrowings.

make specified periodic repayments of principal

pay taxes

pay its own administrative costs to carry out the fine principal stated in section 401(b) "to conduct its operations to the extent practicable on a self-sustaining basis"

We believe these recommendations to be in the public interest, in prevention of agency duplication or proliferation through creation of an unnecessary, unwieldy and expensive instrumentality; in providing competitive equity for taxpaying private enterprise, with recognition of possible near term need for REA Co-op help, while firmly moving to minimize and ultimately eliminate governmental subsidy; and in protection of federal reveunes, through elimination of unnecessary governmental subsidy and maintenance of income through both minimizing tax erosion, and enhancing opportunity for increased tax revenues. Respectfully submitted,

ARTHUR C. KREUTZER.

Mr. KREUTZER. I am speaking for an association of over 3,000 member companies and 40 affiliated States. Our position also would reflect some 25,000 small dealers not engaged full time in the supply of LP gas. We serve some 12 million installations which means about 40 million people who use LP gas.

I direct our comments to the particular predicament of the LP-gas dealer.

I will, first, emphasize that we are not dedicated to any program that would prevent bringing electricity to rural America, neither are we trying to take anything away from the REA cooperatives, but we are not too sympathetic toward a competitor who is buying our customers with our tax dollars. That is the situation.

The LP-gas dealers compete with the REA co-op in serving the rural communities with fuel that is used for many of the same purposes. As taxpayers, they are concerned with governmentally subsidized competition. It may be a little bit strange to find a gas supplier or dealer among the electric elements, the electric utilities, and the REA cooperatives, but we are equally competitive with the privately owned or investor-owned utilities, and we equally face their competition. However, our REA co-op competition is aggravated by the fact that is is being supported to a considerable degree by our tax dollars.

We agree with the original purposes of the REA, and that they have been of service to a major degree. We now support the general principle of the present need for elimination of subsidies of the pending legislation. However, we do not believe that H.R. 1400 and the related bills fully accomplish this objective.

We are not assured that the taxpayers' money will not be further abused.

To state this abuse briefly, insofar as we are concerned REA cooperatives have carried on an intensive program to disparage the use of LP gas. They have carried giveaway promotions on appliances, and have gone to the extent of offering a cash bounty to switch from gas. This type of subsidy, this type of program, presents the question of whether this is in the interest of the farmer, whether it is in the interest of the farmer to subsidize this type of competitive persuasion.

With this background in mind, in our view the basic objective of the Congress is to move toward getting the Government out of competition, and we believe that H.R. 1400 has a net effect of creating additional subsidies and at the same time more deeply entrenching and relaxing the controls on 2-percent moneylending.

While the theory may be to phase out 2-percent money, there is neither incentive nor directive. Additional subsidy is created in $750 million of capital without provision for interest or return payment. There is an additional subsidy in the guarantee of $6 billion or more in debentures, subordination of existing REA lendings, tax exemption, and free use of governmental facilities.

Lack of congressional control appears in the banks' almost unlimited discretion in lending funds.

I would like to particularly stress two points.

While section 405 (i) states the bank must make an annual report to Congress, however this is normal for all independent regulatory agencies and other instrumentalities of the Federal Government.

Section 408(b) tends to limit the lending to the so-called weak cooperatives to limit 2-percent lendings to the less strong REA Co-op through prohibiting section 4 loans to any borrower which during the immediately preceding year had a net worth in excess of 40 percent of its assets. This application would appear to be meaningless upon examination as to the number eligible and the effect of other qualifying provisions restoring eligibility. The use of the 40 percent criterion would mean that 75 percent of the REA cooperatives would continue eligible for 2-percent loans. We doubt that number is needed.

Again we are not entirely clear as to whether section 5 loans are to be continued under the bill. We do strongly feel that they have been abused and should be discontinued. We do not think they are necessary any longer.

To sum up our recommendations with respect to H.R. 1400 and similar bills, we suggest that any lending under the existing act be made at a rate equivalent to that rate paid by the Government on its borrowings except where the borrower would operate at a deficit, under which circumstances the rate could be 2 percent, and that any such loans be made only to the less strong and needy cooperatives who demonstrate this with a ratio of net worth to net assets of less than 20 percent.

We also recommend that section 5 lendings be discontinued.

With reference to the creation of an electric bank, we would suggest that instead of an electric bank, that REA financing be provided, as has been suggested in several bills introduced in the Congress this year, by means of insured loans, or, in the alternative, if any bank is to be created that it be subject to stronger congressional controls,

that it reimburse the Treasury at a rate equivalent to that paid by the Government on its borrowings, make specific periodical repayments of principal, pay taxes, and pay its own administrative costs.

We believe that these recommendations are in the public interest and will serve the interests of the Nation in preserving the revenues of the United States, in protecting tax revenues through the elimination of unnecessary governmental subsidies, and the maintenance of income by minimizing tax erosion being created by Government subsidy taking business away from private enterprise through governmental subsidies.

Thank you.

The CHAIRMAN. Thank you very much. I want to thank you very much for presenting your statement in a forceful and clear-cut way and expeditiously.

That is a splendid example for our other witnesses.

Mr. KREUTZER. Thank you.

The CHAIRMAN. Our next witness will be Mr. John Brackin, president, Iowa Utility Workers Conference; business manager, Local Union 944, International Brotherhood of Electrical Workers.

STATEMENT OF JOHN BRACKIN, PRESIDENT, IOWA UTILITY WORKERS CONFERENCE; BUSINESS MANAGER, LOCAL UNION 944, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS Mr. BRACKIN. Mr. Chairman and members of the House Agriculture Committee, I am John Brackin, president of the Iowa Utility Workers Conference, representing almost 6,000 utility people in Iowa. I am also business manager of Local Union 944 of the International Brotherhood of Electrical Workers affiliated with the AFL-CIO.

I appear here today to testify both as a taxpayer and union official against the proposed bill H.R. 1400 which would create a REA bank.

I was born and raised on farms in northeast Iowa. I have many friends and relatives still living on farms in Iowa and Illinois. All of them are God-fearing, hard-working, conservative men. Most of them resent any implication that they are standing in line for public money. All of them would resent any implication that they are poverty stricken. They pay their taxes and take their hats off to no man. Many are REC members who fear the Federal REA would make their existence dependent on the whim of a board of directors in Washington. They have no desire to expand into urban areas. They wish to live and let live and to serve their fellow REC members as they have done for

many years.

Clyde T. Ellis, manager of the National Rural Electric Cooperative Association, states in the preface to his book "A Giant Step," page 9:

About 95 percent of the rural electric systems in the United States voluntarily belong to NRECA and participate in various of our programs. As these systems have grown from very small to very substantial business enterprises, their needs and visions have expanded.

Another quote from page 240:

In Ohio, through a unique arrangement with the Ohio Power Company, thirty of our distribution cooperatives, federated into their Buckeye G & T, are building a plant which will contain two 615,000-kilowatt mine-mouth thermal units

some of the largest in the nation. One will be owned by the co-ops, the other by the company. Through the cooperation of other power companies in the State, a pool is being formed that promises to benefit all the organizations greatly. For this venture our co-ops invested over $7,000,000 of their own reserve funds and are financing the remaining $56,500,000 needed for their share through non-government borrowings. Although Ohio is not typical (our systems there are older, have better density, higher reserves and better relations with the power companies than most), this arrangement is evidence that under some circumstances the rural electrics can secure private funds to build generation and transmission facilities.

I can only ask: Is the REA bank being established for the needy or the greedy? As it seems many do not need 2-percent money and could go into the open market to borrow.

As a union official, I am forced to speak out again against any Federal financed program which seems to have as its beneficiaries a largely antiunion group: 92 percent of investor-owned electric utilities are organized. Their employees enjoy the benefits of collective bargaining. We have the right to strike and occasionally do. Of the REC cooperatives only 17 percent have seen fit to bargain with unions. Yes, they are covered by the NLRB; however, the right to hold elections and represent the people is not a factual and practical operation. Many claim that they are political subdivisions of the State, and therefore are not covered by NRLB. It is next to impossible, financially or otherwise, for small local unions to organize and then fight through the courts, which they are often forced to do, for the rights to represent employees in collective bargaining after these employees have lawfully selected that union to represent them. As a result, most REA's conveniently pay substandard wages.

Attached to my statement and marked as exhibit A are examples of such cases. I wonder if REC Government money is covered by the Bacon-Davis Act and why most REC contracts go to low-paying nonunion contractors.

In closing, I must repeat my objections to any bank designed to give money to REC's.

In this, I am joined by many labor organizations not connected with utilities, including the Iowa State Federation of Labor, Black Hawk Labor Council, Woodbury Labor Council, Floyd County Labor Council, Dubuque Federation of Labor, North West Iowa Labor Federation, plus many individual locals covering most organized laboring

groups.

Thank you.

The CHAIRMAN. Exhibit A attached to your statement and a telegram addressed to you will be made a part of the record at this point. Thank you very much. We appreciate your concise statement. (Exhibit A and the telegram referred to follow :)

EXHIBIT A TO STATEMENT OF JOHN BRACKIN

(1) Georgia 67-Satilla Rural Electric Membership Coop

The I.B.E.W. was certified by the National Labor Relations Board as a bargaining agent for certain employees on February 24, 1961. Between March 25, 1961 and August 21, 1961 all efforts to reach a satisfactory settlement on the terms of a collective bargaining agreement, covering wages and working conditions, were to no avail.

The Satilla REMC continuously, during this period, engaged in activities which were inviolation of the Labor-Management Relations Act. Finally, the I.B.E.W. representatives filed Unfair Labor Practice charges with the