RURAL ELECTRIFICATION ADMINISTRATION BEFORE THE HOUSE SUBCOMMITTEE ON APPROPRIATIONS Mr. Chairman and members of the Subcommittee, I appreciate this opportunity to present the 1982 REA budget. Before we get into the specifics of the budget, I would like to discuss with you the role of REA borrowers in rural America. We estimate that between 25 to 30 million rural people now receive their electricity from REA-financed electric systems. Between 13 and 16 million people receive telephone service from REA telephone borrowers; with most of them receiving one-party service. More recently, and on a much smaller scale, funding through the Consolidated Farm and Rural Development Act for the provisions of CATV and other wideband services to 60,000 rural families was approved in fiscal year 1980. The REA program has improved and continues to improve the lives of many millions of rural Americans. Further, in terms of national goals, the electric loan and guarantee programs finance the production and distribution of energy which strengthens the rural economy and improves rural productivity; the telephone programs finance communications which reduce transportation energy needs and imrpove rural America commerce. Because the borrowers are utilities and take that responsibility seriously, increasing population, new housing, and growing industry in rural areas create a continuing demand for the debt capital, part of which has been provided through loans and loan guarantees. Providing utility services to rural areas is, as in urban areas, a continuous undertaking. A Need for Change The proposed changes in the 1982 budget are important elements of the President's Program for Economic Recovery. To quote from Secretary Block's statement, "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 and to finance continuing deficits 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 activity. The REA Budget The Electric Loan and Loan Guarantee Program REA now makes some insured loans to generation and transmission borrowers as well as distribution borrowers. The loans to distribution borrowers are made for distribution facilities and in some cases for generation, and transmission facilities. Because the loan demands for generation and transmission facilities have exceeded $5 billion recently, it is obvious that insured loans for power supply facilities--generation and transmission--could only meet a very limited portion of these needs. Generally, the agency has exercised this responsibility by limiting such loans to construction of low voltage transmission lines that feed distribution systems, and more recently to development costs of potential supplemental renewable power supply sources such as biomass and low-head hydro generation. Since fiscal year 1978, such insured loans have not exceeded $200 million per year. Actual generation and transmission facility loans approved were $182.9 million in 1978, $175.3 million in 1979 and $158.5 million in 1980. The February 1982 Economic Message of the President and the budget before you propose to eliminate for the balance of fiscal year 1981 and thereafter insured loans for these purposes and to provide generation and transmission facility funding by REA guarantee of loans made by other lenders. The Congress has received a fiscal year 1981 rescission proposal to reduce the 1981 Appropriation Act by $62 million to carry out this change in the last half of 1981. The insured loan level proposed in the fiscal year 1982 revised budget has been reduced by $150 million from $850 million to $700 million and the loan guarantee requests increased from $5 billion to $5.1 billion to partially offset the insured loan reduction in fiscal year 1982. The loan program level ranges have also been eliminated to provide tighter controls. The increase in costs to rural consumers resulting from the change will, we anticipate, be largely offset by, reduced inflation, and reduced interest rates, which are the main objectives of the President's Economic Recovery program. The loans under REA guarantee will no longer be advanced from Treasury borrowings and, therefore, will be outside of the Debt Limitation. The increase in cost to REA borrowers resulting from this change is small considering the overall increase in interest costs since the program began in 1974, some 5 percentage points in 7 years. A legislative change is being proposed to eliminate 2 percent loans and substitute 5 percent loans. This will have no effect on the overall loan levels in the balance of the 1981 budget and fiscal year budgets thereafter. It will, however, increase the interest income in the Revolving Fund in future years, and thereby reduce the need for future appropriations for interest differential costs accruing in the Fund. Telephone Loan and Loan Guarantee 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 by 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 a $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 guarantees of private financing where that procedure makes the project feasible. REA will also assist the borrower 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 had proposed that this program level be continued at $34 million but that the funding be changed to guarantee authorizations rather than through 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. The 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 includes 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. A very important aspect of the REA administration is the continued servicing of prior loans. In this regard, through Fiscal Year 1980, the cumulative insured loan commitments are $19.9 billion and cumulative loan guarantee commitments are $21.2 billion. Much of these are still unadvanced and all outstanding loans or guarantees represent Federal investments which must be protected. Nevertheless, the employment levels and the salary funds in the revised budget will be adequate to carry out the programs as indicated in the budet. Therefore, we request you support for these changes. |