plants will be made only after the consent of the State authorities having jurisdiction is obtained. Provision is made for adjustments in the schedules of repayments on Bank loans.

Section 411 provides that any receipts from the activities of the Bank shall be available for the Bank's obligations and expenditures.

Section 412 provides that when all Bank stock issued to the United States has been retired, there shall be submitted to the Congress recommendations for legislation to convert the Electric Bank to private ownership, control and operation. Section 413 prescribes the cumulative nature of the authority provided for in title IV and expressly reserves the right to repeal or amend this title.

Title V covers the creation of the Rural Telephone Account. The provisions of its three sections (501, 502 and 503) are analogous to those in the three sections of title III (301, 302 and 303) which relate to the Rural Electrification Account. Title VI relates to the establishment and operation of the Telephone Bank, and the provisions of its thirteen sections (601 through 613) are analogous to the corresponding sections of title IV (401 through 413) applicable to the Electric Bank, described above, with the following substantive differences:

Section 605 provides that the capital to be furnished by the United States to the Telephone Bank will be provided for 15 years, beginning on July 1, 1966, in the amount of $20,000,000 in each fiscal year, from "net collection proceeds" in the Rural Telephone Account, unless a lesser amount is authorized in appropriation acts. Only three classes of stock will be issued by the Telephone Bank, Class A, Class B and Class C, corresponding to the Class A, Class B and Class C stock of the Electric Bank. Unlike the Electric Bank, the Telephone Bank will issue no Class D stock, and since public bodies are not eligible to borrow from the Telephone Bank, no Telephone Bank stock will be held by public bodies, and no provision is made for special fund equivalents for entities not authorized under State law to acquire Bank stock. Moreover, while Class B and C stock of the Telephone Bank will be voting stock, with no holder entitled to more than one vote, an additional qualification relating to these classes of Telephone Bank stock will limit Class B and Class C stockholders which are owned or controlled by the same holding company, the same individuals or the same group of individuals, to a maximum number of 10 votes, regardless of the number of such stockholders.

Section 610 (a) authorizes the Governor of the Telephone Bank to make loans on behalf of the Telephone Bank to corporations which have obtained a loan or loan commitment pursuant to section 201 of the Act. Such loans may be made for the same purposes for which loans may be made under section 201 of the Act. In addition, loans may also be made for the purposes of financing, or refinancing the construction, improvement, expansion, acquisition, and operation of telephone lines, facilities or systems, in order to improve the efficiency, effectiveness or financial stability of borrowers. In connection with loans for these latter purposes, if the loan is for the acquisition of telephone facilities, the acquisition must be approved by the Secretary of Agriculture, the location and character thereof must be such as to improve the efficiency, effectiveness or financial stability of the borrower's system, and in respect of exchange facilities for local service, the size of each acquisition may not be greater than the borrower's system at the time of its first Bank loan, taking into account the relative number of subscribers served, miles of line, and plant investment.

Section 610(b) (4) requires that Telephone Bank borrowers obtain certificates of convenience and necessity from State regulatory bodies having authority to issue such certificates, and that the Governor of the Telephone Bank make nonduplication determinations where there is no such State regulatory body legally authorized to issue such certificates. This provision is analogous to the provision relating to the nonduplication of facilities which appears in section 201 of the Act.

Section 610(b) (5) defines "telephone service" and "telephone lines, facilities or systems," when used in section 610, as having the same meaning as prescribed for these terms in section 203 (a) of the Act, with the exception that for purposes of section 610 these terms also include all types of community antenna television system services or facilities.

Section 3 repeals the provision of the Rural Electrification Act which requires all principal and interest payments on loans made by the REA Administrator to be remitted to the Secretary of the Treasury.

Section 4 of the Bill amends the Government Corporation Control Act to include in its definition of "wholly owned Government corporations" the Electric Bank and the Telephone Bank, thereby making applicable to these Banks provisions of that Act relating to the preparation of annual business-type budgets and budget programs, and to audits and reports by the General Accounting Office of financial transactions of the Banks.

Section 5 of the Bill provides for the legislation to become effective on July 1, 1966.

The CHAIRMAN. Thank you, Mr. Secretary.

I would just like to make a very brief statement.

Mr. Poage introduced a bill dealing with this subject matter, which is H.R. 14000. I introduced another bill on May 3, 1966, and I am sure since that time everybody interested in the subject has had an opportunity to familiarize themselves with the provisions of the pending bills. I have said, to those from whom I have heard and have indicated they desired to appear, that we should avoid repetition if possible; otherwise, we could sit here for perhaps weeks or months and hear testimony consisting of a lot of repetition.

It seems to me that we have given ample time to interested parties to prepare their statements, to be ready for us to hear them, and it shall be my purpose to expedite the hearings as much as circumstances will permit. We want to give everybody an opportunity to be heard.

I want to commend you, Mr. Secretary, upon the brevity of your statement and the substance of it, also. I think it is a very fine statement. I am not sure that it will be accepted fully by everybody on the committee, but it is an indication of your views on the bill.

It is our desire to finish these hearings as rapidly as possible, and we will hear from the executive branch of the Government, and then we will hear from the REA officials, and then after that we will call the company representatives and such others that may desire to testify. I yield now for any questions that anyone may have. Mr. POAGE. I have a question of the Secretary.

I would like to ask you, Mr. Secretary, if you could tell us how fast the administration's bill will procure the three-quarters of a billion capital. In other words, when will the three-quarters of a billion capital be available?

Secretary FREEMAN. It would be available at the rate of $50 million.

a year.

The CHAIRMAN. How much?

Secretary FREEMAN. $50 million a year, and that would be a period of 15 years in which the three-quarters of a billion dollars would become available from the Federal Government, out of payments that are made on outstanding REA loans.

Mr. POAGE. You contemplate that the bank would make approximately $100 million-you gave a figure somewhere in your statement on that. You contemplate that the banks would probably make loans totaling from $143 to $258 million a year. I cannot figure out what the other one would be, but if you reduced the direct loans $10 million a year, would the banks make the other loans?

Secretary FREEMAN. That is correct.

Mr. POAGE. Does this amount of $50 million which is added to the capital each year provide enough money to finance all of the loans that you anticipate will be needed?

Secretary FREEMAN. Yes, sir. This estimate is based on the projec tion of needs for capital in the expanding system. We believe that this program as outlined will meet those needs with the combination of 2 percent loans, plus the 4 percent intermediate loans, plus the amounts that would be available at the market rate for the systems that are able to pay the going rate.

Mr. POAGE. Of course, I do not think that any of us can be sure of what this will be, but I wonder if you have worked out a table, and if you can furnish the same for the record, showing the amount of capital that will be available each year under the bill?

Secretary FREEMAN. Yes, sir; we do have those projections. I do not have them right here with me now.

Mr. POAGE. I know that, but will you put those in the record so that we will have the amount of capital that will be available each year?

Secretary FREEMAN. Yes, sir.

Mr. POAGE. Will you also put in the record the amount of capital that will be available each year under H.R. 14000, the total repayments during the year?

Secretary FREEMAN. Yes, sir.

(The information requested follows:)

The schedules below show the estimated rate at which Government capital would be invested in Class A stock of the proposed banks.

Mr. POAGE. Would you give us a rough idea what they would run now, the annual repayments?

Secretary FREEMAN. What are they?

Mr. BAKER. They are about $170 to $190 million a year.

Secretary FREEMAN. $170 to $190 million a year, the annual repayments.

Mr. POAGE. That would be between three or four times as fast as the Cooley bill would?

Secretary FREEMAN. That is right.

Mr. POAGE. As I see it, Mr. Secretary, that is one of the major differences between the two bills.

Secretary FREEMAN. That is correct.

Mr. POAGE. Certainly, I find no fault with the major functioning in the administration's bill, but there are certain details that I think that we need to go into.

I think that is one of the major differences, the rapidity with which we would build up the capital in the bank.

Secretary FREEMAN. Yes, sir.

Mr. POAGE. There is also the question of representation on the Board that I think is of some importance and should be given some consideration. I believe that we can get to an agreement on that.

The Cooley bill provides that when the cooperatives show they have paid out the majority of the stock that the Congress will then, if it sees fit to, take action to give the majority stockholders control of the banks, on such terms as the Congress then sees fit.

H.R. 14000 provides now that when the stockholders have the majority of the stock that they shall take control.

As a matter of fact, the reason that you did not put any provision in there comparable to that which is in H.R. 14000 is simply because it is difficult to write?

Secretary FREEMAN. It is a long ways in the future, and we thought that that decision could be made in 15 years a little easier than it could be made now.

Mr. POAGE. Do you think-and I do not say this critically, but in order to mention it-that you will get as much cooperation when you do not give these people a real commitment as to when they will own their bank, as you would if they were told now what and when they were going to get control of their own investment just as the investors in the PCA's had? They sold stock for no other purpose than to get control of their own institution, and they put a lot of private money in solely because of their pride in getting control of their own institution. Do you not think that we could get a lot of money into this bank on the same basis?

Secretary FREEMAN. I think that the difference between the two bills, Mr. Poage, is not that it is not clear in each of them that the control will be completely private at a certain time. The real difference is that in your bill you spell out in much more detail how the transition would be made.

The Administration's bill states that it will be made when the Government capital paid in is retired but leaves the exact mechanics of doing it for determination when that takes place. That is the difference.

Mr. POAGE. The administration bill does not do that, as I understand it. It says that the Congress will study and review it, and that the Congress will then take such action as it wants to take even though at that time the farmers own the institution.

Secretary FREEMAN. Section 412 could always be strengthened of course, but it reads as follows:

As promptly as practicable after all class A stock issued to the United States has been retired pursuant to section 405 (c) of this title, the Secretary shall transmit to the President for submission to the Congress recommendations for such legislation as may be necessary or desirable to make appropriate provisions for the transfer to class B, class C, and class D stockholders of the ownership and control of the electric bank in order that its operations may thereafter be carried on as a privately owned, operated, and financed banking corporation. Such legislation shall provide for the termination of the authority to borrow from the Secretary of the Treasury under section 406(b) in respect of electric debentures thereafter issued, and for the termination of the provisions for tax exemption provided under section 409.

This might be improved upon to make it quite clear that when the Government capital had been retired in the banks, such as in the Federal land bank system and the bank for cooperatives, they will become privately owned and operated financial institutions.

The CHAIRMAN. Will you yield there?

Mr. POAGE. Yes.

The CHAIRMAN. In other words, you provide in section 412 that someone shall make the determination as to when this is to be done, and hence that recommendation will be sent to the Congress.

Secretary FREEMAN. I think that it goes slightly further than that. It provides that when the class A stock has been retired the Secretary shall make a recommendation to the President, which the President shall transmit to the Congress, as to the method in which to transfer complete control. I think the purpose and intent are quite clear.

Mr. POAGE. It leaves for future decision all of the determinations as to how you do this, even as to the recommendation, being a secretarial recommendation to the President, and the President recommends to the Congress what he considers to be desirable, what he considers to be appropriate. It seems to me that when you leave all of these things to the "desirability" and the "appropriateness"you have such a vague or gray area that you do not have much inducement to offer to a man to invest his money. I do not find that you get many people to shell out hard cash simply in the hopes that some President 15 years from now-and none of us can guess who that man will be at this time or know what his feelings will be-that some President will feel it "appropriate" to turn the ownership over to the stockholders. I do not want to be too critical here, but I just think that is one of the things that weakens the bill and means that you will not get as much private capital in the bank as you would like to see. Of course, the administration's bill and H.R. 14000, both, would like to move private capital into this just as fast as we can. That is what we are trying to do, that is, move private capital in.

It sems to me that this just weakens our chances of getting private capital. I do not want to belabor the point, but I fear that it weakens our effort to shift from public to private financing.