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board members and purchase legal and consultative technical and managerial services. Not only will these funds go down the drain, but many staff people will be looking for new jobs and the money and time invested in these skilled folks will be lost to the housing field. If there is a start up at a later date, they will be difficult to rehire. Retraining requires 1 to 2 years; therefore, the poor will have a long time to wait for homes.
Secondly, the religious organizations have provided hundreds of volunteers with professional and lay skills to make projects feasible. This also requires time to develop expertise. They, too, will lose interest in an on again-off again program such as the moratorium suggests through the impoundment of housing funds.
Thirdly, many of our organizations have received funding from foundations. Because of the impoundment, many of the foundations are not issuing new commitinents, or they are cutting back with the excuse that the administration is not in favor of housing for low and moderate income people.
In addition, there is a multiplier effect which will cut the incomes of blue collar workers, contractors, architects, lawyers, consultants, and social service workers.
May we emphasize that we are concerned with all housing programs for all segments of our society whether in the central city, the metropolitan area, suburbia, small towns and rural areas. We urge the need for family singles and Senior Citizen housing.
The mayors of many major cities have pointed out that revenue sharing cannot take the place of categorical grants and the impoundment of housing funds seriously affects these core cities. The mayors also did not understand that the revenue sharing funds were to replace on-going housing programs including water and sewage. We agree. The rural areas of our country are already depressed and the impoundment will only increase these hardships for these people.
Lastly, we urge that the tandem loan between the Government National Mortgage Association and the Federal National Mortgage Association be continued. A moratorium and impoundment of funds for this program would be disastrous.
The Coalition includes representatives from the American Baptist Conference, the Christian Church (Disciplines of Christ), the Lutheran Church in America, the Lutheran Council in the U.S.A., the Episcopal Church, the Presbyterian Church U.S., the National Conference of Catholic Charities, the United States Catholic Conference, the Reformed Church in America, the United Church of Christ, the United Methodist Church, the United Presbyterian Church, the Federation of Reformed Synagogues, the Union of American Hebrew Congregations, the American Jewish Committee, the National Council of Churches, the Joint Strategy and Action Committee, and the National Housing and Human Development Alliance.
Mr. Chairman, we thank you for your efforts. We are prepared to respond to questions and are prepared to testify and bring further information at your request and would welcome such an opportunity.
Senator Chiles. Our next witness will be Mr. James D. O'Connor, president of the National Telephone Cooperative Association, accompanied by Mr. David Fullarton.
STATEMENT OF JAMES D. O'CONNOR, PRESIDENT, NATIONAL TELE
PHONE COOPERATIVE ASSOCIATION, ACCOMPANIED BY DAVID C. FULLARTON, EXECUTIVE VICE PRESIDENT, NATIONAL TELEPHONE COOPERATIVE ASSOCIATION
Mr. O'CONNOR. Good afternoon, Mr. Chairman.
Senator CHILEs. Good afternoon. As you know we are running late today.
Mr. O'CONNOR. We will be brief.
Senator CHILES. If there is any way you can sum up your statement, we will be delighted to put the complete text in the record.
Mr. O'CONNOR. I am James D. O'Connor currently president of the National Telephone Cooperative Association, also manager of the Hancock Rural Telephone Corp., of Maxwell, Ind., and with your permission I would like to have our executive vice president, Mr. David Fullarton, give our statement.
Senator CHILES. Yes sir.
Mr. FULLARTON. Mr. Chairman, as you pointed out, you have had a long day. With your permission I would like to have my prepared statement made part of the record and be allowed to summarize, briefly, our position.
Senator CHILES. It will be submitted in full.
The National Telephone Cooperative Association is here today representing our members' special interest group that are both negatively and directly affected by what does not even amount to Executive order of December 29, 1972. In fact the Department of Agriculture issued a one page press release which effectively cut off impounded full funds made available by the Congress for fiscal year 1973.
Of those funds that were made available total $140 million for loans to be repaid, $89 million of the $140 million appropriation was impounded.
We feel that we are here basically to testify in support of S. 373, which is the bill introduced by Senator Ervin and other distinguished Members of the Senate, and we are for it unequivocally and wholly. We think that the solution to our particular problem lies in the solution of the general problem of the impoundment and the matters related to it. We view impoundment as a double-barreled threat. We think it is a threat not only to the congressional authority to appropriate but also to the congressional authority to legislate. In the case of our particular program which has been referred to and identified as the REA telephone program—that is what we are talking about—that program provides a good example of how, in fact, the active impoundment has the effect of legislating, doing things that were never maintained or directed by Congress. As to the appropriations, we feel that the REA Act of 1936, reserves to Congress the right to appropriate. The new method, which apparently originated in the Office of Management and Budget, of financing the loans that have been financed the same way since 1936, through insured and guarantee loan programs, instead of direct loan programs, we feel bypasses entirely the Congress and, in fact, is in direction negative of the congressional intent which has been reinforced each year by the appropriation bills that have been passed.
Under the present scheme (we don't know whether it is legal or illegal) theoretically the Office of Management and Budget could decide amounts to be appropriated, whether $10 million, $50 million, or in fact zero million dollars for the remainder of fiscal year 1973. They are saying you are going to have the same amount of loan fund, just turned to a different program at different interest rates. We have no assurance 30 days from now that figure couldn't change to half of what they are saying or zero, and there is no provision, of course, in the impoundment process for congressional or other type of review.
We feel this is a very clear and present danger, not only to our
members but to the traditional legislative governmental processes, and that is the reason, No. 1, that we support S. 373.
As to the threat that impoundment poses to the legislative authority to legislate, specifically not only are funds being impounded but the impoundment process is a tool with which the administration is making all matters of administrative change, changes that were never contemplated by Congress, or mandated by them. In the case of REA, both Senator Talmadge, who is a cosponsor of the bill, and Senator Humphrey, another cosponsor of S. 373, and who were the architects of the Rural Development Act, have unequivocally stated the use of this act to fund REA program was never intended to them. You can search the record, conference report, the floor debate, everything relating to the passage of the Rural Development Act and nowhere is it ever indicated or contemplated that it should be used for this purpose. However, the Office of Management and Budget has by means of a press release issued on December 29, indicated that if you are going to have a source of funds this is going to be it. This is why we say that the impoundment problem is to us a broader problem in that, in fact, it legislates as well as abrogates congressional authority to appropriate.
What happens in these cases is that chaos results, and I think it has in this case.
Secretary Butz made a comment that that change would have the effect of strengthening the whole program, particularly that of rural telephone bank, which was passed by the Congress in 1971. In fact this change causes grave problems for the bank. The bank and its ability to lend money is tied in intimately with the existing RE1 lending program and cannot relate under the law to the Rural Development Act. In fact we are faced with the rather unique situation where we are opposed to the impoundment. We may be faced with the option of supporting the administration's recommended legislation to correct the present act so that impoundment can take place when, in fact, we are opposed to the impoundment at all, and we may have to do this because our source of funds may be dried up entirely otherwise.
I would refer you to page 8 of my prepared statement for an explanation of that situation.
We believe, I will say it once more, that authority to legislate and appropriate must remain with the Congress and we support any and all legislation that would have that effect.
I will conclude with a couple of technical points with regard to S. 373, which we see in terms of our own program might be specific problems with it and would suggest perhaps the committee staff could research these points and tell the committee whether or not in fact they could cause problems.
The first point concerns the impoundment process. What I mean is this: At what stage do you determine that funds have been impounded? And perhaps this question is best understood in reference to the program we are talking about in REA telephone program where each fiscal year the Congress makes available so much money. These funds have usually been released to the REA Administrator on a quarterly basis and generally the allocation for each quarter is approximately one quarter of the total amount appropriated, but this is not always the case. In fact in fiscal year 1973 with $140 million appropriated, only $50 some million were released in the first 6 months and $89
million allocated to the second 6 months and there is no way we feel anybody, we or anybody else, could tell whether this is impoundment or not. To compound that problem even further the program was a lending program such as ours. Once the lending authority is not utilized the appropriation stage but is used in subsequent years.
And if the funds are impounded in the last 60 days, and I am referring to the 60-day limit in the S. 373, the funds are, in effect, lost and the restrictions on impoundment don't help the situation at all.
We would be happy to have our staff counsel as well as our retained counsel confer with the committee on this but we are desperately afraid that the 60-day limitation on impoundment of funds does not help the type of situation which we have and I couldn't state the other programs that might have it, but I am sure there must be some that work approximately the same way where how much goes out on a given quarter is important, the fund flow is important, and it would be very difficult to tell if in fact impoundment was taking place because of the allocation process.
I am not an attorney. I don't have the solution to this problem. I beg the committee's consideration of it.
The other thing I would point out, and I suppose this has been heard before. As you understand S. 373, there is nothing specific in that legislation to prevent re-impoundment. It may not be necessary but I would ask the committee if it would be possible after the 60-day period having expired, and the congressional resolution necessary not having been passed, could not the President turn around on the 61st day and re impound for another 60 days? This is of concern to me. And finally and then I will conclude: To my knowledge the Congress has never forgiven the legitimatized impoundment of any sort. I think everybody familiar with this legislation recognizes that this does in fact recognize the President's right to impound on a limited basis. It is my personal opinion that the President has to manage the budget and he does need this authority but he should only have it under specific established congressional guidelines and I throw that out only because I assume the committee has been faced with the same question before and I think our association for one could support limited authority under specific guidelines.
That concludes my statement. I would be happy to answer any questions.
Senator CHILES. We thank you very much for your statement and for your helpful suggestions in regard to the legislation and we will certainly give every consideration.
Mr. FULLARTON. Thank you.
PREPARED STATEMENT OF DAVID C. FULLARTON, EXECUTIVE VICE PRESIDENT,
NATIONAL TELEPHONE COOPERATIVE ASSOCIATION My name is David C. Fullarton. I am Executive Vice-President of the National Telephone Cooperative Association. NTCA is the national service organization of the nation's 238 rural telephone cooperatives and many of its small independent telephone companies. The cooperatives and independent companies comprising our membership provide service to more than three-quarters of a million subscribers in 31 states.
Our members have been most seriously effected by the recent Administration action shutting off the flow of 2% loan funds under the Rural Electrification
Act of 1936, as amended, and by the subsequent shift of these loans to funding under the Rural Development Act of 1972.
In this statement I will outline for the Committee the basic facts of our members operations and the reasons why our membership feels this Administration action is such a serious matter. I would also like to comment on the bill proposed by the distinguished Senator from North Carolina, Mr. Ervin, and other Senators, which would have the effect of eliminating the assumed Presidential prerogative to unilaterally impound appropriated funds.
Until January 1, 1973 the member systems of NTCA obtained their entire longterm capital financing under the provisions of the Rural Electrification Act of 1936. This Act provides for 35-year REA loans at 2% interest and similar long. term financing, at interest rates between 4% and 8% from the recently created Rural Telephone Bank.
I think the success story of the REA telephone loan program is well-known to the members of this Committee. First class rural telephone service has helped farm families improve their standard of living. It has saved countless lives. It has benefitted the nation's consumers by increasing the efficiency of food and fiber production. Finally, it has helped create a multi-billion dollar market for urban manufacturing industries in rural areas.
From the outset of the REA telephone loan program until the present day, the task facing borrowers has always been a difficult one. Initially the goal was to provide basic telephone service to all those who needed and wanted it. No one was, or ever has been, excluded from service because they lived too far out in the country. In the early days of the REA telephone program, adequate service meant up-grading 16 and 20 party lines to standard 8 party service. But as agriculture became more modern and technical, so the need for updated and more modern telephone service grew.
Today, eight party service can no more be tolerated than the horse-drawn plow. Quick, efficient and modern service is no luxury to farmers. It is an essential tool.
Thus, despite the remarkable achievements and progress which REA borrowers have made over the past 23 years, much remains to be done.
Statistics relating to the rural telephone program are the best way to concretely illustrate our program's continuing needs. In 1949 only about 39% of American farms were receiving telephone service. Today more than 84% of rural establishments have phone service. But, as I noted subscribers are continually demanding improved service. Eight party rural lines, although obviously out-moded, are still a fact of life in too many rural areas. The following table, from REA's most recent yearbook, illustrates this fact.
Percent of REA residence subscribers with various types of service as of
December 31, 1970
Subscriber percentage 1 and 2 Party--
51.4 4 and 5 Party
25. 6 8 Party-
22.9 As can be seen, more than 20 percent of REA borrower subscribers-one out of fire_still have eight party service and almost half-49%-have to tolerate no better than four party service. And REA projections indicate that some eight party service will still be with us well into the 1980's.
There are reasons for this, of course. As a group, REA telephone cooperatives are very high cost, low return businesses. They have the lowest subscriber density in the industry; just 2.72 subscribers per mile as compared to 6.9 subscribers per mile for other independent companies financed by REA and in excess of 40 subscribers per mile for the Bell System nationwide. Because of this, telephone co-ops also have the lowest operating revenue per mile_$385 as opposed to $856 for other REA borrowers. The figures for the Bell system are very much greater.
All of this means that the cost of captial-interest-is a most significant factor in the rural system's financial statement. We estimated that debt service accounts for fully one-third of the average telephone cooperatives operating budget.
Another important factor to bear in mind about these systems is their very low net worth. Many of them started their corporate life 100 percent debt financed. Equity amounted to almost nothing. Even today fully 85% have a net worth of less than 30% and almost half have a net worth less than 15%. The following table, also taken from the most recent REA yearbook clearly shows this: