TABLE II.-Program field operations-Estimated workload, man-year requirements and costs, fiscal years 1958 and 1959-Continued

STATUS OF BORROWING AUTHORITY, ETC.

Mr. WHITTEN. Also we will be glad to have any general statement you care to make. We would like for you to furnish a breakdown of the restoration amount requested showing separately amount for interest, storage transportation and administration as well as a statement of the current status of your borrowing authority and then the administrative expenses we note you want an increase of $702,000 and you might give us a full detail in connection with that.

CURRENT STATUS OF BORROWING AUTHORITY

Mr. BEACH. As of January 31, 1958, $13,271,125,459 of the Corporation's authorized borrowing authority of $14.5 billion was in use. Of this amount, $12,767 million represented borrowings from the Treas ury and $504,125,459 represented the Corporation's obligation to pur chase loans held by lending agencies, leaving a balance of $1,228,874,541 available.

(NOTE. A breakdown of the major cost elements included in the amounts for restoration of capital impairment during the past 2 years is as follows:)

Summary of major cost elements included in realized losses and gains applicable to restoration of capital impairment

1 Amounts shown for subitems under program loss are estimated because cost values of commodity dispositions are reported to Washington by totals only.

JUSTIFICATION OF INCREASE IN LIMITATION FOR ADMINISTRATIVE EXPENSES, CCC

The net increase of $702,000 in CCC administrative expenses for the fiscal year 1959 consists of a decrease in price support program costs of $1,111,000 and an increase in the amount included in the contingency reserve of $1,813,000. Thus, while there is an increase of $702,000 in the appropriation requested, it is expected that CCC will use $1,111,000 less funds in 1959 than in 1958, the current fiscal year.

The decrease of $1,111,000 in price-support operations is primarily related to an estimated decrease in program volume and to anticipated savings through increased efficiency in the commodity offices.

Although loans made during fiscal year 1959 for commodities other than cotton are expected to increase about 4 percent, deliveries resulting from loan forfeitures of these commodities are expected to be about 11 percent less. Cotton loans made are estimated to be 11 percent less, and cotton sales about 21 percent less in fiscal year 1959 than in 1958.

An additional reduction results from an anticipated further increase in the efficiency of the commodity offices. The output of these offices is subject to a

21494-58-pt. 340

work-measurement system and for a number of years they have accomplished successive increases in their efficiency. The estimated financial requirements of these offices for the fiscal year 1959 are predicated upon the highest efficiency attained to date-fiscal year 1957 experience-and thus reflect lower administrative costs per work unit than any previous budget submitted to the Congress. While the estimates indicate an additional savings or reduction in funds in anticipation of still further efficiency, there is no way of knowing whether or not the peak of efficiency has been reached. If the anticipated increased efficiency does not materialize it would be necessary to utilize the contingency reserve to this extent.

Partially offsetting these reductions from lower program volume estimates and anticipated increased efficiency are relatively smaller increases resulting from the broadening of the audit coverage to ASC county offices and higher rental costs of two offices which are being moved from inadequate space.

Also reflected in the reduction of price-support costs is a decrease resulting from the special milk program which under existing legislation is authorized only until June 30, 1958. If the authorization for this program is extended as recommended in the President's budget message, a request would be made to withdraw the required funds from the 7 percent contingency reserve.

The increase of $1,813,000 in the amount to be included in the contingency reserve would bring the reserve up to 7 percent of the estimate. The language of the current administrative expense limitation contains provision for a contingency reserve of not less than 7 percent and it is proposed that provision for a similar contingency reserve be included for the fiscal year 1959 to be made available for use only with approval of the Bureau of the Budget.

The statement of progress in the use of electronic data processing equipment referred to by Mr. Berger in his general remarks is as follows:

AUTOMATIC DATA PROCESSING

I stated before the House Appropriations Committee a year ago that we had undertaken the use of automatic data processing equipment with enthusiasm tempered with a great deal of Scotch caution. By this I meant that we were not undertaking the use of this electronic machinery unless we could clearly see definite benefits ahead.

Elsewhere in the estimates for the 1959 fiscal year, there has been presented the volume of work which it is anticipated will be required to be handled by the Corporation. We are therefore confronted with a continuation of the heavy workload which has been occurring in the price support, storage, and inventory disposal program during the past several years.

I explained to the committee last year our belief that use of electronic equipment will (1) increase the effectiveness of the program job for which we are responsible, (2) provide better service to farmers, warehousemen, and others with whom we deal, and (3) save time and money.

During the past 6 months, we have installed a large computer in our Kansas City and New Orleans commodity offices. We are, therefore, going through a trying period of conversion from the older system to the newer electronic system in these two offices. At the same time, we are pushing ahead in our Chicago commodity office where we have installed a medium-sized computer. We have no plans for installation of additional automatic data processing equipment in other offices.

In our Kansas City office, we are handling price-support loan operations on 1957 grain crops in the 5 States of Kansas, Nebraska, Missouri, Colorado, and Wyoming. From our experience thus far on handling more than 250,000 loan transactions through the computer, we are assured that our objectives of improved administration will be realized. We are completing plans now to extend this system to the entire country on 1958 crop loan and purchase agreement operations. We have been aided considerably in this undertaking by the support and cooperation of officials of several banks throughout the country. A maior advantage of this system to producers is the retention throughout the life of his loan of all of the original loan documents (note, mortgage, warehouse receipts, etc.) in his local county office, immediately available to him should he desired to repay his loan.

We expect, by the early summer of 1958, to complete the conversion to automatic data processing equipment for the entire cotton loan and inventory op eration in our New Orleans office. We believe this fully integrated operation will (1) provide cotton farmers with more prompt information on the status of

their loans, (2) make a faster repayment by the Federal Government to local banks who request reimbursement for money advanced by them to farmers thus enabling them to beter serve farmers in periods of peak volume, (3) make a more prompt payment by the Federal Government to warehouse men for storage and warehouse charges, (4) process the loan notes faster, making the note available to the producer or equity purchaser for repayment at an earlier date, and (5) immediately after loan maturity, complete settlements with producers more accurately and much faster.

Beyond the mechanization of price-support loan operations lies the larger and more difficult field of inventory management. We have already done enough work to recognize the possibilities of improved service and efficiency in this field. We are hopeful that other phases of our work can be committed to computer operations, but these must await the results of feasibility studies. We do not intend to stand still in this field.

To summarize-it is too early yet for us to assess with very much satisfaction the operating results attained thus far from the installations we have already made. I want to make it clear that at present we are renting, not buying this electronic equipment, and we plan to use it as fully as possible. We will make machine time available to other agencies in the Department to process alreadyprogramed operations in any idle time on the second or third 8-hour shift after CSS operations are performed.

About costs one of the basic reasons for installing electronic data processing equipment is its potential for savings. Consequently, we are continuing our attempts to measure the costs involved in using EDP equipment and to weigh these costs against the possible savings which can be expected. One of the major costs is the rental of equipment. In 1957, prior to the installation of any electronic systems, machine rental amounted to about $1,175,000 in the commodity offices. We expect rental to amount to $1,580,000 in 1958, of which $570,000 is estimated for EDP equipment and $1,010,000 for conventional equipment. In 1959 the rental of equipment is expected to amount to $2,050,000, of which $1,300,000 will be EDP equipment while the rental of conventional equipment should decline to about $750,000.

In later years, we can expect the rental of conventional equipment to continue to decline as additional functions are converted to the newer equipment and concurrent operations are discontinued. Because of the flexibility of EDP equipment the addition of new activities will result in little, if any, increase in administrative expenses.

However, offsetting these increased expenses are large savings in program costs. One such area of savings involves the payment of servicing fees to lending agencies participating in the Commodity Credit Corporation price support program. We have two types of lending agency arrangecents: (1) Agencies who service loans only and receive a fee for such service. In 1957 fees paid for servicing grain loans amounted to $554,894. (2) Agencies who invest their funds in Commodity Credit Corporation loans in addition to servicing the loans. In the Kansas City area for 1957 crops we paid banks for interest and services one-fourth of 1 percent less per annum than in other areas, due to the elimination of work they previously performed. Assuming extension of this savings to all other grain loan areas, the net amount saved per annum will be $1,105,000. Thus, it appears reasonable that adoption of this system will result in eliminating payment of the $554,894 and $1,105,000 of service fees to banks as well as the $22,000 administrative cost of handling these payments in the commodity offices. However, the services which have heretofore been performed by the banks will not be entirely eliminated as some of the work performed by the banks in servicing the loans will be done in the ASC county offices. In addition to the program savings which are outlined above, we anticipate some administrative savings, primarily salary expense in the commodity offices. Also, as the program becomes fully operative in the county offices, it should result in savings due to elimination of the necessity for employment of temporary or part-time clerical personnel at the peak of the lending season, in addition to enabling the offices to render better service.

Mr. WHITTEN. Thank you, gentlemen.

We are dealing with a big subject here and a subject about which there are many differences of opinion as to how best to handle it. But

the details and actual operation of it I know are necessary, whichever view you may take on the overall farm program.

We appreciate the information that has been given to the committee. Mr. MCLAIN. We appreciate your courtesy, all of you.

FRIDAY, FEBRUARY 28, 1958.

RURAL ELECTRIFICATION ADMINISTRATION

WITNESSES

KENNETH L. SCOTT, DIRECTOR, AGRICULTURAL CREDIT SERVICES DAVID A. HAMIL, ADMINISTRATOR, RURAL ELECTRIFICATION ADMINISTRATION

FRED H. STRONG, DEPUTY ADMINISTRATOR, RURAL ELECTRIFICATION ADMINISTRATION

ROY G. ZOOK, ASSISTANT ADMINISTRATOR, RURAL ELECTRIFICA- . TION ADMINISTRATION

ROBERT T. BEALL, ACTING ASSISTANT ADMINISTRATOR FOR ADMINISTRATION, RURAL ELECTRIFICATION ADMINISTRATION GEORGE P. HERZOG, BUDGET OFFICER, RURAL ELECTRIFICATION ADMINISTRATION

ROBERT D. PARTRIDGE, PROGRAM ANALYST, RURAL ELECTRIFICATION ADMINISTRATION

EDWARD F. MYNATT, ASSISTANT GENERAL COUNSEL FOR AGRICULTURAL CREDIT AND CONSERVATION, OFFICE OF THE GENERAL COUNSEL

LEE A. DASHNER, DEPUTY DIRECTOR OF FINANCE, DEPARTMENT OF AGRICULTURE