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Net worth of telephone borrowers Dec. 31, 1970 Net worth as a percent of assets

Subscriber percentage Less than 95.

100 Less than 50.

98 Less than 40_

95 Less than 30

86 Less than 25

74 Less than 20.

62 Less than 15

46 Less than 10. Less than 5.

12 Negative net worth-Telephone co-ops are able to provide modern telephone services despite all these adverse factors. This is partly because of good management and partly through the benefit of a subsidized interest rate. But it is also because in the cooperative way of doing business the users of the service not only control the business but hare, and feel, responsibility for its successful operation. This is one reason telephone co-ops have the lowest amount of uncollectable accounts in the nation. And this record of good credit extends past the individual subscribers to the borrowers as well. As of June 30, 1971 REA telephone borrowers had repaid over $.500 million to the Treasury in principal and interest. And, in addition had made more than $25 million in advance payments on their indebtedness. A small fraction of one percent of all REA loans are in arrears. It was somewhat startling to read that, at a recent press conference, Secretary Butz described REA borrowers as “husky individuals", well able to bear increased interest costs. It may be he is looking at different statistics than those published by his own REA, but I would defy anyone to look at the figures I have just quoted and find evidence in them of financial "huskiness”.

I would be the first to claim that our members are not "sickly”, financially, but they are far from “husky". And this issue goes beyond mere semantics. A million dollar loan at 5% could easily eliminate the entire projected annual margin of a telephone cooperative that had previously counted on paying 2%. And a business whose balance sheet leaves no margin for the uncertainties of the future is a business which is running perilously close to financial disaster.

Understanding, from the above, the various financial and other factors which constantly bear upon the average REA telephone borrower, I believe this Committee can readily understand the disastrous threat the Administration's impoundment of all REA loan funds possess.

The Administration's action is in fact a two-fold threat. It is a threat not only to the Congressional authority to legislate, but, also to the Congressional authority to appropriate.

First off, this fund, impoundment threatens the Congress' authority to legislate, for it is really more than just the cut-off of funds. Specifically, not only are funds being impounded, but the impoundment process is a tool with which the Administration is making all manner of administrative changes ... changes in no way contemplated or mandated by Congress.

In the case of REA, both Senator Talmadge and Senator Humphrey, the architects of the Rural Development Act, have unequivocally stated that use of this Act to fund REA programs was never intended by them.

Nowhere in the entire legislative history of the Rural Development bill, from hearings, to mark-up, to floor debate, to conference, was any such proposal ever discussed-eren by the Administration.

This joint impoundment and transfer of authority represents, in fact, legislation by decree and without any shred of due consideration. We have seen no evidence that the Administration gave this change the same kind of detailed and in-depth consideration which Congressional Committees have traditionally given to pending legislative changes of this magnitude. And, as always happens when actions are taken precipitiously, the result is chaos.

The effect of this decision on the Rural Telephone Bank is a perfect example. I would take strong issue with the remarks made by Secretary Butz recently that this change would positively affect the Rural Telephone Bank. In fact, the change will create grave problems for the bank.

The Bank law was designed to precisels mesh with Section 201. When Congress wrote the bank law, borrower financial needs and abilities were very care

fully considered and the result was an amended REA Act where the basic cri. teria for telephone loans is "ability to pay". The borrower, who because of his financial condition or the low density of his system could only pay 2% was assured of a continuity of this type of financing. But the borrower able to pay more-even a fraction of a percent more—must pay that higher rate. There are no if's, and's or but's!!

Yet the arbitrary termination of 2% financing, means that co-op borrowers unable to pay even a small amount more than 2% must now pay 5%! Similarly, unless exceptions are made, the commercial borrower unable to borrow through the bank because of poor financial condition must now pay 7% or 8% for a guaranteed loan. Or, taking the other side of the coin, the borrower who could pay bank rates-say 8 percent, now may find he can get government “insured" loans at 5 percent, a more inequitable situation could not be imagined. Such is the positive effect of this legislative change through impoundment on the Tele phone Bank.

The second grave threat this impoundment of funds poses is to the Congressional authority to appropriate.

As written, the REA Act of 1936, as amended, reserves to Congress the sole right to appropriate funds which will be loaned to borrowers. However, the new OMB method of financing REA loans, using the insured and guaranteed loan provisions of the Rural Development Act, bypasses entirely the Congressional appropriations process. Because funds for insured and guaranteed loans need not be appropriated by Congress. Rather, they are obtained through a rerolring fund approach that is independent of Congressional control. Thus, if the Administration wishes to allocate $140 million through this fund to be loaned to rural telephone borrowers they have the authority. And, just as important, if the Administration wishes to allocate $100 million, or $50 million, or for that matter zero million, they assume that authority.

And that, our Association feels, is a very clear and present danger.

We believe the authority to appropriate and designate funds for government programs must remain with the Congress. Congress established the Rural Tele phone Loan program and Congress, through the years, has met its responsibilities to provide loan funds for borrowers. We have not always felt the budgeted amount of these loan funds sufficient, but we have always believed Congress to have acted ably and responsibly.

If Congress had wished to give the Executive the right to determine the exact amount of funding for government programs, we believe that Congress would have specifically so acted. In our case, when Congress recently amended the REA Act it had that opportunity. But Congress did not give the Executive the appropriations authority as far as REA is concerned. In our opinion, the Executive has no "natural right” to abrogate to itself the entire funding process.

I would now like to address myself to the bill introduced by Senator Ervin and his distinguished colleagues.

Our Association believes this bill to be the most realistic approach to counter the action taken by the Administration impounding REA funds as well as funds for many other worthwhile federal projects.

We believe the thrust of this legislation could not be clearer. No funds shall be impounded for longer than 60 days without express Congressional approral of such actions.

We do not believe that this Administration would have ever impounded the full amount of Congressionally appropriated funds for REA, switched REA telephone loans to an entirely new and untried lending source, and casually announced it via a press release, if this bill had been law last December 29th.

And we do not believe that if this bill becomes law in the near future that the Administration will continue impounding REA funds, or REAP funds, or housing funds, or funds for many other Congressionally mandated programs, for that matter.

We do not believe that the President has the right to openly flaunt the expressed will of Congress by, terminating a Congressionally established program through the procedure of total fund impoundment.

Before concluding I would like to make three technical points in regard to this legislation. I am not a constitutional lawyer but, from our careful study of the bill, these points seem worth mentioning.

The first point concerns the actual impoundment process. By that I mean, at what stage in the fiscal year do funds technically become impounded. Perhaps

this point is best understood by reference to our REA telephone loan program, at least the program we knew until January 1, 1973.

Loan funds appropriated by Congress have usually been released to the REA Administrator on a quarterly basis and, generally, the Administrator received about one-fourth of whatever OMB budgeted for the year each quarter. Thus, the fact of impoundment of the difference between the budget and what Congress appropriated was really not clear until the very close of the fiscal year when it would be obviously evident that more funds were appropriated that had been committed to loans. Technically, however, this was the only time those funds could be said to have been impounded. If the same is true with other areas perhaps this question as to the timing of the impoundment process should be spelled out in the legislation. Or, perhaps some method of recognizing impoundment on, say, a quarterly basis, should be spelled out in the legislation.

A second point. What is to stop the President from immediatey re-impounding the funds for a project or an agency assuming Congress refuses to act within the specified 60-day period. Presumably the Executive could, on the 61st day, reimpound the monies released as of the 60th day, and the process would start all over again. This is a technicality, but if this Committee feels it a valid point, perhaps language should be drafted to specify that funds, once impounded and allowed to be released cannot be re-impounded.

The final point I would like to make is philosophical. I do not believe that Congress has ever formally recognized the Executive's right to impound funds. This legislation, by addressing itself to, and correcting some of the evils of impoundment, at the same time legitimizes this right. I think it is a matter for the Committee to consider,

In summary, the technical questions notwithstanding, our Association believes this legislation is of great importance and will restore to Congress its rightful authority in our governmental process. We support such legislation.

Senator CHILES. Our next witness will be Mr. Jack P. Nix, who is the Superintendent of the Georgia Public Schools representing the Council of Chief State School Officers.

STATEMENT OF WILLIAM TALMADGE, STAFF MEMBER OF

SENATOR HERMAN E. TALMADGE

Mr. TALMADGE. My name is Bill Talmadge. I work for Senator Herman Talmadge from Georgia. Senator Talmadge had originally planned to be here to introduce Dr. Nix to the committee but has been detained on the Senate floor. He asked me to appear here to do that for him.

Dr. Nix has been a schoolteacher in Georgia. He has been a county school supervisor. He has been head of our vocational education program. He is eminently qualified to testify before the committee and Senator Talmadge expressed his regret that he couldn't be here and asked I commend Dr. Nix and his testimony to the committee.

Senator CHILES. Thank you very much, we are very delighted to have that introduction, and Mr. Nix we are delighted to have you with us today.

STATEMENT OF JACK P. NIX, SUPERINTENDENT OF SCHOOLS,

STATE OF GEORGIA

Dr. Nix. Thank you, Mr. Chairman, and members of the committee. I would like to thank Mr. Talmadge for his being here and making those comments about me.

I have prepared a written document and I have submitted it to your staff.

Senator CHILES. We will accept that in full for the record.

Dr. Nix. And I will in recognition of the late hour briefly comment about some of the things that I have in there, Mr. Chairman, and to leave you with two suggestions.

First, it is a privilege to be here and to comment on behalf of our council. This is a council composed of all of the 50 State superintendents and superintendents of the territories and we are united on a national level and trying to have some input into the Congress in terms of legislation that is good for public education throughout the country.

I would also like to express to you and to the members of this committee our sincere appreciation for all of the legislation and appropriations that you have made possible throughout the years in helping us to put together a more effective program of public education for the people of this Nation.

As you are well aware, we have some very staggering problems in the whole process of education in this country and we need all of the support that we can get from the Federal level, from the State level, and from the local level not only in funds but also in helping us to have some certainty as to when and what amount of funds will be made available to us.

In the past we have recognized the problems that are surrounding the whole process of a continuing resolution and we have expressed ourselves through the Members of the Congress over the years, but I find myself today somewhat in the position of looking at this continuing resolution we are operating under now as being a blessing and a bonanza to some extent with this impoundment problem we are confronted with.

It is true that the Congress has been good enough to pass two appropriations bills and you have passed two continuing resolutions and you have expressed your priorities and your concerns, but we have this impoundment problem now that is confronting us not only for fiscal year 1973, but who knows what will come in 1974 or 1975 unless this Congress takes some action to assure that the intent of the Congress is carried out in the expenditure of the funds that the Congress appropriates. Also, in order to make it possible for those of us who are school administrators to effectively plan for the utilization of the Federal funds in order to get the most education for the dollars spent, the uncertainty that surrounds the whole business of whether or not we are going to get funds makes it extremely difficult for us to staff, for us to have facilities, materials, and equipment to get the educational job done.

In fact, in our State, under the NDA-3 and impact aid programs our system, boards and local superintendents planned and budgeted last fall for the utilization of these funds. Now we find that there is a great deal of a question as to whether or not we will even get those funds. Some of the systems have employed staff, they have bought equipment, they have bought material, and if these funds are not forthcoming then it will mean that either the program will have to be eliminated or seriously curtailed or in some instances local property taxes will have to be raised, and this I think is a concern not only to those of us within a State but to the Congress as well. And some of our systems, Mr. Chairman, that I checked with just in the last few days have reached their maximum constitutional millage limitation:

within our State and without these funds then there is no choice but for the reduction of educational opportunities for the children within those systems.

Now, I am of the opinion from reading the material that I have been able to obtain that it was the full intent of the Congress that Federal funds support education at basically the fiscal year 1972 level. I think this is pretty well spelled out in your continuing resolution.

But with the present action of the President, this administration, and the impoundment of these funds, there appears to me to be somewhat of a real power struggle and this power could be something awesome, you might say, in the future whenever we have someone that could act without being accountable to anyone, and whether or not he is going to spend moneys appropriated by the Congress.

In fact you might say a person with this kind of power could retaliate against his enemies and he could reward his friends with the business of controlling the funds that could be distributed over this country.

You have had, I am sure, Mr. Chairman, testimony from other representatives before this committee related to the constitutionality of whether or not this can or cannot be done, and I would not propose to expound or expand upon what has been said concerning the legality of what the President is doing, other than to say that if my humble opinion as an educator, not as a lawyer, that there is a great deal of question as to whether or not our Founding Fathers fully intended for one department of our Government to have this amount of

power. Now I would like to say to you and to the committee that our Council of Chief State School Officers supports the bill that Senator Ervin has introduced, S. 373, but I would like to make one suggested improvement for the bill, if you please.

As I understand S. 373 the President would be required to notify the Congress within 10 days concerning the impoundment of funds, and would have to release the funds within 60 days if the Congress didn't approve. My suggestion would be, sir, for the committee and for the Congress to consider having the President notify the Congress first, and then to have some hearings, and then, during these hearings, to establish the priorities, and if the Congress didn't approve the impoundment of the funds, then the President would not be permitted to impound them. So this is, to me, turning the cart around a little bit, but it would certainly assure the Congress that before he starts doing violence to our priorities, as reflected in your appropriations, you would at least have a chance to hear from the people of this country, and then to reaffirm your previous list of priorities in terms of the way you have passed the appropriations bill.

The other suggestion that I would make, Mr. Chairman, would be that to either include as another provision, or as an amendment to S. 373, or to amend the Budget and Accounting Procedures Act, whereby the Budget, the OMB, is now required to notify agencies within 30 days after an appropriation is made, to the point where OMB would have to notify the Congress at the same time so that you then would know whether or not he was impounding funds. This way the Congress, I think, would have a better chance of keeping up with what OMB is doing with these funds that you have appropriated.

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