Mr. WHITTEN. You are talking about the reasons. I am asking what your statement means.

Mr. ZOLLER. The interest income in the revolving fund would be increased from loans made at five percent as opposed to two percent, Mr. Chairman.

Mr. WHITTEN. In other words, by charging the people out there more "for interest differential costs accruing to the fund"-your fund would be larger because you collected more. That is presuming that the people could continue to qualify and do business with you. What does this mean? We had testimony that in some areas there are only two and one-fourth customers per mile. With a five percent interest rate, it is questionable if those folks would qualify. So in effect you are cutting out electricity for those areas. You may not mean to do that, but that is the end result.

Mr. ZOLLER. We have looked, Mr. Chairman, at what might be the impact of moving these two percent loans to five percent on all those borrowers that qualify.

Mr. WHITTEN. That is the existing borrowers?

Mr. ZOLLER. The existing ones.

Mr. WHITTEN. Your existing customers want to borrow money to increase their line, either so it will carry the load, or enable them to continue to produce, or to extend the line to serve new customers. What would be the effect of the proposed increase in the interest rate to five percent? Have you made a finding on that?

Mr. ZOLLER. Only looking back on those that currently qualify, what might be the overall interest increase in those systems.

Mr. WHITTEN. Have you been with the department some time? Mr. ZOLLER. Yes, I have.

Mr. WHITTEN. Then you have approved two percent loans in the past, for which you had to certify that it was essential to make the loan. Are you now saying your judgment was wrong?

SPECIAL RATE PROVISIONS

Mr. ZOLLER. No, sir. The Act currently has provisions under Section 305 for a density criterion and an investment to revenue criterion.

Mr. WHITTEN. What are those criteria?

Mr. ZOLLER. Two or fewer consumers per mile is the density criterion being used currently in the electric program. The other is average adjusted plant revenue ratio of nine or more.

Mr. WHITTEN. You might proceed. I was just trying to clarify what you meant.

TELEPHONE PROGRAM

Mr. ZOLLER. In the telephone program the Congress has also received a 1981 rescission proposal which will reduce the telephone insured loan program by $125 million from the $250 million minimum level authorized in the 1981 Appropriation Act. The revised budget eliminates the entire $250 million telephone insured loan program proposed for fiscal year 1982 in the January budget. There will, however, be $330 million in funding available to meet most loan requests where feasibility can be established at higher interest rates. These funds will be provided by the Rural Telephone Bank,

when the borrowers can meet the financial requirements of the Bank, and by REA loan guarantees of private financing where that procedure makes the project feasible. REA will also assist borrowers to explore alternative private funding sources where this is necessary.

No further Rural Telephone Bank capitalization is proposed for fiscal year 1982. As in the Electric Program the loans to be guaranteed by REA will be obtained by telephone borrowers from private lenders rather than through the FFB starting in fiscal year 1982.

COMMUNITY ANTENNA TELEVISION PROGRAM (CATV)

The Congress has received a rescission proposal which will reduce by $16 million the funds provided in the 1981 Appropriation Act for CATV loans. The January budget proposed that this program level be continued at $34 million but that the funding be changed to guarantee authorizations rather than insured loans. The revised budget before you discontinues the Community Antenna Television program. The CATV industry is well funded and therefore federal credit is inappropriate for this purpose.

REA ADMINISTRATIVE BUDGET

The administrative costs of the REA program have been reduced by $479,000 from $30,152,000 as shown in the January budget to $29,673,000 in the revised budget before you. This reduction eliminates the additional funding previously provided to cover inflationary cost.

The January budget included a supplemental appropriation request for 1981 of $1,484,000 to cover the cost of the pay increase effective in October 1980. That supplemental appropriation has been reduced by $894,000 to reflect absorption of $392,000 in travel costs and $502,000 in reduced personnel costs, equipment purchases, and management and other services contracts. We request your support of these changes. That completes my general summary statement, Mr. Chairman. We will be happy to answer your questions.

Mr. WHITTEN. I appreciate your statement and the position you are in. We have examined the figures in the Carter budget and the figures in the Reagan budget. I notice that in your statement you addressed the proposed 1981 rescissions. I notice the explanations of Farm Home Administration fees are quite lengthy. Then we turn to Rural Electrification Administration's electric loans. You propose to cut that. The insured telephone loans, you propose to cut that by 50 percent. You propose to cut Community Antenna TV loans by $16 million. Are these proposals by reasons of study, or by reason of directive from the Office of Management and Budget? Mr. ZOLLER. The Secretary, looking at the proposed reductions in the total budget, did identify those areas as ones that could help reduce the Federal Credit Program, Mr. Chairman.

Mr. WHITTEN. These actions are being proposed by the Secretary of Agriculture?

Mr. ZOLLER. Yes.

Mr. WHITTEN. Is he experienced in producing electricity? Did he agree to cut out this program for the production of electricity? Do

you know what his own thinking was or whether he was called before the Office of Management and Budget?

Mr. ZOLLER. I do not know.

Mr. WHITTEN. We on the Appropriations Committee deal with many things. Recently we had a study made of defense spending. It is unbelievable some of the things that developed. There was one big company building a Trident Submarine. They had gotten an insurance policy which included guarantees against defects in workmanship and management. The insurance policy was enlarged to cover such things, and they charged the premium to the Government. Thus, the cost for any mistakes they made-and 50 percent of their welding was defective-was passed onto the Government. Not only that, but they delayed six months in delivery. That item has been discovered, and maybe we can stop that practice. It bothers me to see a time when we have real financial problems at home, when we need to increase production of electricity for those who want to get electricity, both those who do need it and those who want to strengthen the load the existing lines will carry. Electricity means so much to production. Yet you propose scaling back on electricity and thereby reducing production, at a time we need to increase production. I grant you there are problems we should correct. Why should we scale back on our production, at a time we need greater production in order to balance our budget? You know that the simple answer usually given about inflation is that it is caused by too few goods chasing too much money. If we cut the availability of power to produce goods are we working against ourselves?

REDUCING FEDERAL CREDIT ACTIVITIES

Mr. ZOLLER. The proposal that is before you is based on reducing federal credit and is part of the overall economic package of lowering inflation rates and lowering interest costs generally.

Mr. WHITTEN. Why do you think it will reduce interest rates? Why do you think it will reduce inflation? That is the attraction of the proposals. Tell us why you think that.

Mr. ZOLLER. I am not an economist who can tie these factors together, so I cannot really respond to that question.

Mr. WHITTEN. Do not deny membership in that profession with so much pride.

Mrs. Smith?

Mrs. SMITH. Let me tell you I come from one of the areas of the country that was the last to get REA so perhaps we are even more appreciative and I am glad to see all of you and I want to welcome you and tell you what a great experience we have had with REA. Now, what percentage of our rural population now has electricity? Mr. ZOLLER. The figure is 98 to 99 percent.

Mrs. SMITH. That is what I thought it was. Now, you say the construction costs we need now are in connection with modernization of lines, very little new building, is that correct?

Mr. ZOLLER. It is a combination of new loads, system improvements, and replacement of existing plants.

COSTS OF REGULATIONS

Mrs. SMITH. I would like to have you comment about the cost of overregulation on power generation and transmission and what you think might be done to cut it down. Now in our area we are getting power from new Gray Rocks Plant and we have figures to demonstrate the huge percentage of the cost that comes from overregulation. We just put in a new 37-mile power line in Colorado and almost 50 percent of the cost was due to the cost of regulation. Do you have any suggestion of what we can do about that?

Mr. ZOLLER. Certainly. Some of the current regulations do require extensive work as far as meeting environmental requirements, and the need to obtain certain permits. This does stretch out the time in construction of generating plants, sometimes to 12 year periods. The regulations that have been put on this type of construction have created additional cost to that plant and to the power that is produced by the plant.

Mrs. SMITH. It sure has. I work closely with our rural electric coops in our district. We have tremendous additions that cost consumers in the long run. I have no more questions.

Mr. WHITTEN. Mr. Alexander.

Mr. ALEXANDER. No questions, Mr. Chairman.

Mr. WHITTEN. Mr. Natcher.

Mr. NATCHER. Mr. Zoller, from time to time we hear people complain about all the money that we are spending for agriculture. I think every once in a while we ought to remind the people in this country that as far as this bill is concerned, we only have $4,988,282,000, that goes directly to agriculture. The overall bill, as you know, Mr. Zoller is $25,763,679,000. Domestic food programs account for $16,375,844,000. So when you say we are spending a lot of money on agriculture, when you divide it up you find we are not spending very much directly on agriculture. The amount in this bill will show that. As far as REA is concerned, I have always believed-and I have served on this Committee quite a while-that REA is one of the great achievements of our present day government, and I think that is recognized throughout the 50 states. So when you have a good program like REA and you say well, we all have to start reducing and cutting here and there and the other place, and we must cut this good program too, I think we are making a mistake, Mr. Zoller. I think the proposal that is before the Congress now concerning REA is a very serious mistake. Let me ask you if this quote is true. As far as investor-owned utilities are concerned is it true, Mr. Zoller, that—and I will read a paragraph that has been submitted to me:

"I want to emphasize we believe the available benefits to municipal and investorowned utilities are deserved and should be retained. We also want to emphasize that without the basic components of our financing program remaining intact there is no way that the electric bills of rural people can remain reasonably close to those of municipal and investor-owned utilities. In fact RECC electric bills in the State of Kentucky are already 17 percent higher than those of investor-owned utilities, and approximately 25 percent higher than those of several municipal utilities."

Would you agree with that Mr. Zoller? Are those figures comparable figures?

Mr. ZOLLER. As far as the comparison of costs?
Mr. NATCHER. Yes.

ELECTRIC RATES

Mr. ZOLLER. The figures that have been published were based on some January 1, 1980, comparison of typical electric bills. It is a little difficult to compare rates based on a current situation. At that point in time, the rates compared were for total United States against the rural electric systems. If you had eliminated some of those states where there was very few electric systems it would have indicated that in many of the states the rural electric co-ops are currently paying rates that are higher than the adjacent utilities. We do not really have data as of March 23 that we can provide. Those typical electric bills come out periodically so that comparison was based on January 1, 1980.

Mr. NATCHER. Mr. Zoller, let me read you another statement. The Rural Electric Program is unable to benefit from the tax exempt bond financing plan for which municipals are eligible. Neither are we eligible for accelerated depreciation methods and the investment tax credit effectively utilized by the investor-owned community.

You would agree that is true?

Mr. ZOLLER. At present, they have not gone in most cases to municipal type financing.

Mr. NATCHER. They do not have the tax advantages. Would you agree with that?

Mr. ZOLLER. It is a nonprofit type organization.

PROPOSED LEGISLATIVE CHANGES

Mr. NATCHER. They just do not have it. Now of course in the statement you made to the Committee you have presented that side which makes a serious change in the REA program. I believe in answer to one of the questions by the Chairman you stated legislation is not necessary. Is that correct?

Mr. KELLY. With respect to the change in the use of the FFB, Congressman, no legislation would be required to make that change.

Mr. NATCHER. What about the overall program as presented to this Committee now, in regard to REA. Is any authorizing legislation or any repealing of laws necessary?

Mr. KELLY. Yes, sir. Elimination of the two percent loan program would require legislation.

Mr. NATCHER. Is legislation needed for anything other than the two percent loans?

Mr. KELLY. Not to my knowledge.

Mr. NATCHER. Mr. Chairman, I have heard you present this bill many times on the Floor, and I have said to myself when I listened to you, if you take out REA, extension, research and soil conservation, you cannot pass this bill. You can present it but as far as the House accepting it down through the years, Mr. Chairman, they would never have accepted it. I say that to you frankly, Mr. Zoller, I think the proposal that is now before the Committee in regard to REA is a mistake. Thank you, Mr. Chairman.

Mr. WHITTEN. Mr. Myers.