include existing power supply contracts and arrangements, the obtaining of any proposals made by existing or other suppliers, and related negotiations. Where the Administrator finds existing or proposed contracts with power suppliers are unreasonable for purposes of the Rural Electrification Act, no loan for generation or transmission will be made unless the supplier under such contracts or proposals has been advised wherein they are unreasonable, REA has endeavored to have the contracts or proposals made reasonable, and the supplier has refused or failed to do so.

POWER SUPPLY SURVEYS AND CERTIFICATIONS

The incorporation of power supply surveys and related certifications into REA loan procedures was undertaken in accordance with the provisions of the respective reports of the Appropriations Committees of the House of Representatives and the Senate accompanying the Department of Agriculture and related agencies appropriation bill for 1964. The report of the Senate Committee on Appropriations included the statement: "This committee believes that both the rural electric cooperatives and the private power companies * * * should make every effort to enter into earnest negotiations in reaching power supply contracts because it is to the mutual advantage of the cooperatives and the private companies to enter into satisfactory power supply arrangements."

PURPOSE AND EXTENT OF SURVEYS

In accordance with the committee's statement, the REA bulletin points out that the purposes of power supply surveys are to assure adequate review of existing and proposed power supply alternatives, and to encourage closer cooperation between REA borrowers and other electric power suppliers. Such purposes are consistent with REA responsibilities for assisting borrowers in achieving the most advantageous power supply arrangements to accomplish the objectives of the Rural Electricfication Act and, without prejudice to the accomplishment of these objectives, to conserve REA loan funds.

Power supply surveys will be undertaken only where there are power supply problems and needs confronting borrowers or potential borrowers, the borrower concerned has requested REA to make a survey, and the Administrator has determined a survey should be made. Power supply problems which cannot be handled through development of satisfactory arrangements with other power suppliers develop into requests for loan funds. Appropriate attention to solving power supply problems before REA financing is sought will conserve the úse of loan funds, especially in the larger and more complex situations.

EXPERIENCE OF THE NORTHEAST KANSAS POWER COMMITTEE

A current example of how these arrangements may work is afforded by the experiences of a group of borrowers which formed the Northeast Kansas Power Committee. These borrowers felt that they were being afforded substandard service by their private power supplier. In the late summer of 1963 they discussed with us their problems, their inability to secure what they considered to be proper remedial action, and their intent to prepare a formal loan application for generation and transmission services in order to apply pressure on the company. In subsequent discussions, REA encouraged them, instead, to review, analyze, and document their service difficulties; and not to undertake preparation of a loan application. In March of this year, the cooperatives advised the power supplier of their dissatisfactions with their contracts and power supply arrangements, and that they had requested REA to undertake a survey. It is our understanding the supplier's, reaction expressed to the cooperatives was that if the cooperatives were genuinely disturbed and were attempting to eliminate their dissatisfactions with existing power supply arrangements, the private power supplier wished to discuss these matters with them immediately; but that if this was simply preliminary procedure for justifying other arrangements, the private supplier felt there was little reason to discuss the matters. We are hopeful that satisfactory improvements in the power supply arrangements will be made through these procedures, without preparation of a G. & T. loan application, with a minimum of attention from REA, and through negotiations between the cooperatives and the private power supplier that will result in mutually satisfactory power supply arrangements.

REA's survey staff now includes two engineers and one secretary. Arrange ments are underway to transfer an additional engineer to this activity. It is expected that a total of not more than six persons will be assigned to survey activities.

The Secretary has again discussed the REA bulletin with the REA Administrator. They agree that the power supply survey procedure provided for therein cannot and will not generate power supply problems or requests for loan funds for generation or transmission; that it can and will result in reduction in loan applications; and that the provisions and implementation of the bulletin are and will be consistent with these viewpoints.

PRIVATE POWER SUPPLIER NOTIFIED

Senator HOLLAND. I want to make it very clear that my under standing is that under no conditions would a private public supplie be ignorant of any survey being made. On the contrary, that h would be notified in advance that such a survey was applied for an what its purposes were; because I think that the good will of th REA and its continued service is greatly involved in this program And considering that some 99 percent of the rural potential users ar now being served either by REA or by private enterprise, very ob viously the opportunity for any extension from now on is in cor nection with the supplying of better service or service that is cheape rather than with supplying of new heretofore ungiven service. I thin very critical in the REA program from now on should be this matte of giving the private supplier adequate information, the full right t be heard and full chance to show his side of the picture.

Without that, I don't believe this committee would support an such survey.

UNUSED BALANCES OF 1964 LOAN AMOUNT

Senator YOUNG. How much of the loan money provided last yea is unused as of March 1?

Secretary FREEMAN. I don't have that figure, Senator, at the ti of my tongue. Not all of the amount of the contingent appropri tion was utilized.

Senator YOUNG. I think most of the authorization we gave yo last year is unused.

Secretary FREEMAN. Not most.

Mr. GRANT. There will be a carryover, Senator Young.

Senator YOUNG. I don't care what there will be. I want to kno what the carryover is as of now, or recent date.

Mr. GRANT. I will have to insert that in the record.

Senator YOUNG. Will you send me a letter stating what the unus funds were as of March 1 or a very recent date?

Secretary FREEMAN. Very good.

Senator HOLLAND. That will also go in the record, Mr. Grant. Supply it for the record, also. I ask that you furnish all member of this committee a copy of that letter, if that is agreeable to yo Senator Young.

Senator YOUNG. Yes.

TREND IN PUBLIC OPINION ON REA

Senator HOLLAND. Because I think we are deeply concerned abo it, my own feeling is that the REA is skating on thin ice in that it not giving sufficient attention to the fact that there is a very lar

segment of our people who are becoming skeptical of the new path that REA has been traveling these last few years. That is certainly true in my State to a very great degree. While I have consistently supported REA and will continue to do so on the rendition of better service to their people and on the giving of better rates where the private companies do not meet that situation, I am fully conversant with the fact that public sentiment in our State has increasingly been hostile to REA simply because of this report of so many things where REA has gone overboard. And I admit that in doing the things that have been done recently-most of these have occurred outside of my StateI have already referred to some of the section 5 loans, but I think that some of the G. & T. loans have been even more subject to criticism at least in my State.

(The information referred to follows:)

Senator MILTON R. YOUNG,

Subcommittee on Agricultural Appropriations,
U.S. Senate.

MARCH 24, 1964.

DEAR SENATOR YOUNG: In the hearings before the Subcommittee on Agricultural Appropriations on March 16, 1964, you asked to be advised by letter of the unobligated balance of Rural Electrification Administration loan funds for fiscal year 1964.

The attached tabulation shows the status of these funds as of March 19, 1964. In accordance with Senator Holland's request during the hearings, a copy of this letter and attachment are being supplied to each member of the subcommittee. Sincerely yours,

JOSEPH M. ROBERTSON, Administrative Assistant Secretary.

Unobligated balance of Rural Electrification Administration loan funds as of Mar. 19,

1 In addition, the $150,000,000 contingency reserve authorization and $2,765,002 of unobligated balance of prior year loan funds have been placed in budgetary reserve.

In addition, an amount of $22,743,751 representing the unobligated balance of prior year loan funds has been placed in budgetary reserve.

NOTE.-Loans through Mar, 19, 1964, do not reflect the likely level for the entire year because: (1) Loans approved are historically higher in the last quarter of the fiscal year due to the seasonal pattern which generally follows the construction season; and (2) some retardation of normal loan processing due to the time required to develop power supply survey requirements in response to the House and Senate Appropriation Committees reports of last year.

REA COMPETITION WITH PRIVATE POWER

Senator ELLENDER. Mr. Secretary, I wish to say I was severely criticized at home and other places because of the attitude that I assumed here recently in order to force the issue, to make REA live within the purview of the law. I am very hopeful that the committee will not again have to write into the report certain guidelines which should be followed under all circumstances.

Now, at the last meeting we had here we had quite a discussion by the whole committee as to what we expected the REA Administrator to do in respect to the extension or the construction of G. & T. facilities.

I want loans to be made for such purposes wherever the co-ops cannot get power, sufficient power, at a reasonable rate. That is what the law, in a measure, provides. But for REA to go out and compete with privately owned utilities, I do not think that was ever intended.

In other words, if it can be shown that the privately owned utility can and will furnish the power necessary at a price as cheap as can be produced by the REA, I think you have no other alternative than to deal with them. That has been my contention throughout. But because some of the reports that this committee made have said this, some of us have been subjected to criticism that has no foundation. I hope you will look into this matter and see the extent to which this new directive goes toward looking into projects that are not before

the REA.

Senator HOLLAND. You mean new directive of REA, not the new directive of this committee.

OPPOSITION TO INVESTIGATIONS PRIOR TO APPLICATIONS

Senator ELLENDER. Yes; of REA. In other words, I received some letters; I answered some of them that were sent to me by Mr. Clapp. I discussed the matter with him. I wrote him that I did not believe that REA should go into the field of exploring the situation so as to determine whether or not new projects or new G. & T. facilities should be constructed; that I was in hopes that the co-ops would do their own engineering, would apply for loans, and then REA could go and examine them and see whether or not they were feasible. That is the way I hope it is going to be handled from here out.

POSSIBLE LEGISLATION AFFECTING REA

Senator HOLLAND. Now, Mr. Secretary, I think you know that we have received various bills that have been introduced to raise the interest level on REA loans. The solution to the problem is approached in different ways. As chairman of the subcommittee of Senator Ellender's Committee on Agriculture and Forestry, I have not set hearings on those bills but I expect to do so later in the summer. It so happens that where every other agricultural agency that I know about that borrows from the Government pays something like the cost to the Govern ment of the Government borrowing. I am speaking now of the Farmers Home Administration and other agencies. I am speaking of the production credit associations, which still use some Federal money they either pay the cost of borrowings to the Treasury or more. As you know, the Farm Credit Administration has a great many units that lend for long-term periods at higher rates, particu larly in the land bank area, where all the regional banks and every single association is using, entirely now, local sources of credit.

FAVORED RATE OF INTEREST

There seems to be a feeling here in connection with REA loans that for all kinds of lending uses the 2 percent interest rate should be con tinued. I think a case can be made for continuance of the most favor able rate for the expansion of necessary facilities to meet a growing need on the part of a community which has a REA distribution setup needs more power, let us say, needs more modern distribution systems

transformers, and the like. But when it comes to the G. & T. loans and when it comes to such matters as the one you were talking about a while ago, the ski resort loan at 2 percent, whereas that same user would have had to pay higher interest if it had used other Government sources that were set up to serve that specific need, I don't believe that REA can continue to fill such needs with 2 percent money without aggravating very greatly the hostility that already exists in many quarters.

REVIEW OF REA LOAN POLICY

So I hope that REA itself will come up just as the Farm Credit Administration came up a number of years ago with a program for its own organizations on a sounder basis whereby it would free the Government from the load which it was carrying at that time. I hope that REA will do something of the same kind with reference to the type of business which I have just suggested. I believe that strong leadership from the Department, itself, would be helpful in this regard. I don't know how much leadership came from the Department, itself, for the Farm Credit Administration in its effort. I know a great deal of that came from the farmers and producers themselves, but I think the Department, itself, was helpful.

I hope the Department, itself, will learn to differentiate between the use of these public moneys by REA, because not all of them by any matter of means, at least in my opinion, justify the continuance of the 2-percent interest.

All right, sir, you may proceed.

ELIMINATING CAUSES OF POVERTY

Secretary FREEMAN. All of the programs and projects which I have described here today are important instruments in the war on poverty in rural America-a war to which President Johnson has called us all. RAD can help lift an area out of poverty, and it can keep an area from sliding into poverty, and it can help every area raise its standard of living to new levels.

The Congress in 1962 as part of the Food and Agriculture Act, authorized what I believe to be, up to now, the best single program technique for getting at the areas of severe poverty in rural America. This is the rural renewal program, a carefully planned effort to help rural people use the urban renewal concept to deal with pockets of need. We are moving ahead with pilot programs now where the need is so great and the resources are so limited that an overall, concentrated effort is required.

The first funds for this program were provided on a limited basis in the 1964 appropriation act.

AREAS OF RURAL DEVELOPMENT ASSISTANCE

At the request of local people who have assured us that they will be responsible for local leadership of rural renewal efforts, we are providing help in five areas:

Little River County, Ark.; Washington, Holmes, and Walton Counties, Fla.; Monroe and Appanoose Counties, Iowa; Dallas and Hickory Counties, Mo.; and Mineral and Hardy Counties, W. Va.