BUDGETARY IMPACT OF REA Mr. MYERS. Thank you, Mr. Chairman. I have one or two concerns. First we are all sharing our concern about controlling expenditures and what has happened to interest rates and the inflation. We frequently talk about the suggested or proposed cuts and reductions in outlays as far as those funds that the REA borrows or helps rural electrics borrow from the federal bank financing. Those are so-called off-budget items. Have you had any discussion with the Administration as to their impact upon our attempt to control inflation or to reduce outlays? If you want to answer this for the record just advise me. Mr. ZOLLER. No. That question was not asked. The sales of Certificates of Beneficial Ownership from the revolving fund are not outlays. They supplement the funds in the revolving fund and the interest on them would be part of the national debt. Mr. MYERS. How much money are we talking about that has an impact on the budget? Mr. ZOLLER. There is no impact on the budget. It is an off-budget item. Those Certificates of Beneficial Ownership are sold to the Federal Financing Bank. They are not budget items. Mr. MYERS. What I understand you were talking about were the low interest rate loans that were made, two percent loans and maybe some a little higher that required some supplement from the Treasury. I thought that is what you were talking about that did have an impact on the budget. My question is how many dollars are we talking about in this category. Mr. ZOLLER. There is no real current impact on the budget. The cash receipts in any one year are not sufficient so Certificates of Beneficial Ownership are sold to the Federal Financing Bank which borrows from Treasury. As Treasury borrows from the public, the debt subject to the debt limit increases but this is not a budget item. Mr. MYERS. Within the debt limit but as far as reducing outlays or reducing our requirement to appropriate funds there is no impact? Mr. ZOLLER. There is no impact on the budget. Mr. MYERS. The other question, as far as the debt ceiling is concerned, and the Federal Financing Bank that Congress set up a number of years ago to control the amount of money borrowed so it would not be a great impact in any certain month, how many dollars are we talking about here? What is the difference between what is proposed by the Carter Administration and what has been proposed by the Reagan Administration? Mr. ZOLLER. The reduction of the 1982 expenditure from the revolving fund is a reduction from the $850 million level proposed in January to $700 million level. Mr. MYERS. That is $150 million. Mr. ZOLLER. $150 million. Mr. MYERS. What would be the likely request from that fund? How many loans will be turned down because of this reduction? Mr. ZOLLER. We do not foresee any loans being turned down. Part of the overall proposal is to discontinue loans from the fund for generation and transmission facilities and finance those facili 77-802 0-81-37 ties under the guarantee authority, so we do not foresee, at this point in time, any loans that would be turned down. Mr. MYERS. Are there appropriated funds for the guarantee authority? Mr. ZOLLER. There are no appropriated funds. Mr. MYERS. Then when we talk about reducing the budget by $48 billion in round numbers really REA can make no impact on this reduction one way or the other regardless of what Congress decides to do with the REA requests. Am I correct in this? Mr. ZOLLER. It is not a direct impact on the budget itself. It is part of an overall reduction in federal credit activity. Mr. MYERS. As far as balancing our budget it makes no difference what Congress does about REA? Mr. ZOLLER. It is not a budget item sir. Mr. MYERS. That is all I have, Mr. Chairman. Mr. WHITTEN. Mr. Watkins. USES OF ELECTRICITY Mr. WATKINS. Thank you, Mr. Chairman. I am happy to be here. I appreciate REA. I would like to tell this story. REA is the reason I lost the only job I ever lost. As a boy on Smith Lee Road in Bennington we used to have oil lamps. I remember when REA came in out there in the country side and I flipped on my first light. Every summer when I was growing up I went down Smith Lee Road in the farming area where I used to chop cotton. I was the guy who was always on the back of this old truck because I could see good and I could look up ahead-and remember the ice truck with the number of pounds of ice-I would chip it off and slice that ice back to back. I was a short fellow, about six or seven years of age, when REA came in. I remember trying to sell ice out there the first summer REA arrived. I had a dickens of a time trying to do it. The only way I got to do it that summer, the last summer I sold ice out there, Mr. Chairman, I told them it made better iced tea and if you recall it did. The old crystal ice made a lot better iced tea, but that was the last cotton picking summer I sold ice on that route because REA put me out of business. I have always been a strong supporter of rural electricity and I have always been very appreciative of its efforts and it is really a task for me to express my disappointment in some of the action by the REA in the last few months. I would like to ask a couple of questions. On what day did REA send the Congress its request for direct loan funds for fiscal year 1981? Mr. ZOLLER. Its revised request for 1981 was sent on March 17. WESTERN FARMERS ELECTRIC COOPERATIVE Mr. WATKINS. Western Farmers Electric Co-op of Tuskahoma, a depressed area of Oklahoma where I am from, submitted a $51 million loan application in March of 1980 a year ago. Exactly one year ago. The application seeks about $41 million in guarantee loans and $10 million in direct loans. This loan package is critical Western Farmers is to construct a transmission line to put its new coal-fired power plant on line. In order to have the line ready to go into service by the time the plant is finished Western Farmers had to start taking delivery this month of materials needed to construct this line. They need this loan to pay for those materials. What is the status of this loan application and why has approval taken so long? Mr. ZOLLER. Many of these large power supply type loans do take considerable amounts of time. We are hopeful to have that loan ready to go yet this month. I am fully aware of the critical need of getting that transmission line in. It is essential to start up that plant at the end of the year, to have that piece of transmission line completed. So we are processing the loan and do expect to be able to consider it this month. Mr. WATKINS. Mr. Chairman, I would like to have the opportunity to submit a letter concerning this with historical data in it. Because, Mr. Chairman, the letter outlines the procedural steps that Western Farmer people have taken to try to gain approval of this loan package and all the delaying tactics and stalling of the transition team that has caused this group of people, Western Farmers people, a great amount of difficulty and misery in trying to make this application. All the paperwork was completed and environmental reports filed by August 1980. The former REA Administrator on January 18, 1981, assured them everything was in order and they would try to sign the application before leaving office the next day. Apparently the transition people prevented this from happening because the change was contemplated by the OMB director. On January 27 of 1981, Mr. Frank Bennett, Chief of Power Supply at REA, assured Western Farmers their application was one of three at the top of the priority loans and the approval should not be much longer. Western Farmers contacted Mr. Bennett and Mr. Zoller here at least twice each week since that date. On February 26, 1981, Mr. Zoller assured Western Farmers the application was complete and in order and the loan package would be executed during the first quarter of 1981. That is only just the next two or three days. On March 12, 1981, Frank Bennett finally admitted to Western Farmers their application was being held up because the Administration or someone was seeking Congressional approval to terminate direct loans during the remainder of fiscal year 1981. Mr. Chairman, it is obvious REA is engaged in some deliberate stalling tactics to threaten Western Farmers with huge cost overruns and delay timely completion of its new generating facility which is so important to this economically depressed area of the State of Oklahoma. Tell me what authority REA has to freeze the REA direct loan program prior to seeking budget rescission or secure Congressional approval? Mr. ZOLLER. We have not frozen any loan applications. We are processing loan applications, 2 and 5 percent loan applications if those applications did not include generation or transmission facilities. That application from Western Farmers has been reworked several times to get it in a condition to submit to the Administrator and, when I spoke with the President of the Board, I told him I fully expect that that loan would be ready for the consideration of the Administrator by, as you indicated, the end of this quarter. We still expect to get that loan out but we have not held up any loans at this point in time. Mr. WATKINS. It seems to me there has been-I do not want to say deliberate tactics of delaying it but if we do not get it on board it will cost those people out there in that area over $1,000 per day. Bless their hearts they cannot afford it. I would like to ask you and the personnel that you rely on to-if this was one of the top three-then try to get it out so we can assure our people that just going through a transition is not something that will end up costing them a great deal of money and cost them their opportunity of getting this particular loan. I would like if you could assure me and assure this Committee that you will try to work on that and get that out. I would deeply appreciate it. Mr. ZOLLER. My staff indicates to me I still should have that loan this week for consideration. I assure you we are going to move it as quickly as we can. Mr. WATKINS. If not I might have to start delivering ice back there again and that was hard work. I would rather have the opportunity to serve these folks in Congress a little while longer. I want to say I think without question most of your people can tell you I am a strong supporter of anything that affects rural America. I am a strong supporter of REA. I would ask you not to give me any reasons to be negative or not to have to try on many occasions to defend an organization I truly believe in, in an unjustified way. So I hope that you can give us some personal attention so we can give those people assistance they really need. If you can do that, it would be great. Can you or someone in your office follow on up with me as soon as you can in the next day or two on that? Mr. ZOLLER. We will notify you. [Additional information follows:] The loan guarantee in question was approved by the acting REA Administrator on March 25, 1981. Mr. WATKINS. I think they are a great group but we will let that pend until I hear what happens. RESCISSION PROPOSAL Mr. NATCHER. Mr. Zoller, for fiscal year 1981 for the telephone loan program you are proposing rescission of $125 million leaving a revised program level of $125 million. How and why was the decision made to rescind 50 percent of the telephone loan program? Mr. ZOLLER. That decision was made in looking at the total budget of REA. For the telephone loan program, the $125 million to be rescinded will leave nothing for the balance of this year. Rural telephone subscribers have had lower increases in their rates than rural electric consumers over the last ten year period. So, looking at the total proposal to cut back on the insured loan level it was decided, based on the fact that there was a smaller increase in those rates, the fact that improved technology has tended to keep the rates down, plus the alternate funding which is proposed to be left in there of the guarantee authority and the Rural Telephone Bank that the insured program would give some priority to the electric borrowers as opposed to the telephone systems. Mr. NATCHER. That is the reason for the 50 percent rescission reduction? Mr. ZOLLER. In looking at the 1981 budget, there is a $125 million proposed reduction in 1981. Mr. NATCHER. Mr. Zoller, when you get the transcript of this hearing, if you will, amplify this in the record now and give us a detailed statement as to the reasoning behind the 50 percent reduction. [The information follows:] USDA POSITION ON REA INSURED TELEPHONE LOANS In the past decade, the rapid growth in Federal credit activity in both direct loans and loan guarantees has had a serious effect on the Nation's economy and financial markets. With this in mind, President Reagan directed that both on-budget and offbudget credit programs be reviewed and reductions made to reduce the size and scope of Federal credit programs and thus reduce the pressure on credit markets that is due to or stimulated by the Federal Government. The proposed changes in the 1981 and 1982 Budget for the Rural Electrification Administration are important elements of the President's Program for Economic Recovery. The Secretary has stated "the present unacceptable high interest rates and high inflation rates, both in real and psychological terms, are directly linked to the present level of Federal borrowing required to support Federal loan activities in the Federal Budget. The major mechanism for lowering inflation, reducing interest rates, increasing business investments, and enhancing economic growth is to reduce the overall level of Federal activity and to encourage private economic acitivity." In view of the above, the decision was made to reduce the size of the insured telephone loan program. Factors considered included (1) rates for telephone service have not increased to the same extent as other utility services and (2) two-thirds of the telephone systems are commercial operations already receiving benefits under provisions of the tax code. Substantial funds will remain available under the Rural Telephone Bank and REA loan guarantee programs to cover priority needs of rural telephone systems. TELEPHONE LOAN APPLICATIONS Mr. NATCHER. How many applications do you have on hand for the telephone loan program? Can you give the Committee any idea? Mr. ZOLLER. Currently there are $1,460,000,000 in loan applications on hand approximately. Mr. NATCHER. If you would, provide for the record a listing of the number and dollar amount of applications for the telephone loan program, by state. Mr. ZOLLER. Yes sir. [The information follows:] TELEPHONE LOAN APPLICATIONS As of February 28, 1981, the following numbers and amounts of telephone loan applications were on hand in REA: |