billion operation that the Government may need to pay off this debt we have, just because somebody wanted us to.

Mr. SCOTT. May I go back to one of your comments about the private utilities? I have been in a good many of these discussions when this legislation was being drafted, and I want to say in all sincerity I am confident the administration is not proposing this legislation in order that the private utilities will be able to take these over. I think it is entirely a move in the belief that they are going to need a lot of capital in the future and this is the way to start getting some of that capital.

Mr. WHITTEN. I do not make that charge. But I point out that, under the law which you propose, that would be possible. I will say, after listening to your justification of the appropriations and I do not think that has been touched upon except when I raised it-I do not see that anybody would benefit from your proposal except the money lenders who would have all this security behind their lending, and the private utilities who would feel that increased rates would be required by a number of cooperatives, unless they were willing to let their reserves go down at the end of the line, as you say. But I can see where the Government's liability would be increased and the costs to REA would be increased.

BUDGET REQUEST FOR LOAN OPERATIONS

From Mr. Hamil's statement to the legislative committee it would appear that these funds in the budget would be ample for the first 6 months of the next fiscal year. Is that right?

Mr. HAMIL. I did not understand the question.

Mr. WHITTEN. Is it the position of the administration and the Department that the funds in the budget would be sufficient to meet the needs for the first half of the next fiscal year?

Mr. HAMIL. Yes, sir. The funds requested in the budget are approximately half of the year's total loan requirements. Although we had not intended this request to be for half of the year, it is true that the amounts requested would be sufficient for approximately 6 months' lending operations.

Mr. WHITTEN. From that I take it, then, that if this act is not approved you would need twice this much?

Mr. HAMIL. That is basically true.

Mr. WHITTEN. Twice as much as is in the budget.

We all agree that this new proposal is a legislative matter and is beyond the control of this committee.

Mr. Scort. We realize that.

Mr. WHITTEN. We do have a deep interest in it and are glad to listen to you.

Now suppose Mr. Hamil gives his prepared statement.

Mr. HAMIL. Mr. Chairman and members of the committee, I do not have a prepared statement to give you, but I am here with several members of my staff to try to answer your questions or to provide the answers from our files.

We show a loan need in the electric program for 1959 of about $325 million. There has been proposed for new authorization $150 million, with about $23 million carryover and an estimated $2 million

rescissions. At the present time it appears as though the carryover, after meeting all reasonable loan needs in the electric program, may be a little higher than we had anticipated at the time this statement was prepared.

In the telephone program it appears our loan need will be approximately $100 million. It is a lot more difficult to anticipate needs of the telephone program at the present time than it has been in the electric. However, we have submitted a request through the proposal here for $56 million and a carryover of about $2,597,000, and rescissions of about $1,100,000. I believe our loan program this year is going to run approximately, as we see it today, $92 million in the telephone program. That would cut out any carryover in the telephone program as the budget was submitted some time back.

We are here to answer any questions that you may have about these requests.

Mr. WHITTEN. Thank you, Mr. Hamil.

I believe I will turn the witness over to Mr. Marshall.

BUDGET BASED ON PROPOSED CHANGES IN REA LAW

Mr. MARSHALL. It seems as though we have been spending a good deal of time this afternoon talking about matters that come before a different committee of the Congress. However, I must admit that I am somewhat confused about one point, and that is this: Apparently your justifications this year are based upon the belief that this legislation will be enacted. Is that correct?

Mr. HAMIL. The total amount as has been given would require this legislation. If there is only $150 million appropriated in the electric program and only $56 million in the telephone program, and the legislation is not enacted, we would need additional reserves.

Mr. MARSHALL. Have you been before the Committee on Agriculture yet?

Mr. HAMIL. This is the first committee we have appeared before. Mr. MARSHALL. I think it will be more than a little surprising if Congress accepts this recommendation. What position does that put this committee in when it comes to making our recommendations for next year? How would you suggest that this committee should get into the facts to see that REA is not short changed this year?

Mr. HAMIL. I would suggest under that circumstance that the balance needed under each program, as I suggested the totals a moment ago, be placed in a contingent fund.

AVAILABILITY OF LOAN FUNDS

Mr. MARSHALL. I notice that there is a statement that was sent out to all the REA co-ops that seems to have generated a little comment. This was a statement sent out on February 19 to all REA co-ops. I will read you the closing line of a paragraph:

As I have said on several occasions, the cost of loan funds is less important than an adequate and dependable supply of dollars for your business and a reasonable repayment schedule.

The thing that impressed me about that statement was-and I took the trouble of looking back, and I cannot find any place where the Congress was dilatory in any way in providing funds for you.

Mr. HAMIL. To my knowledge they never have been.

Mr. MARSHALL. I could find no instance of it. Then am I misinterpreting your statement? You did not intend to imply in any way that the Congress had been dilatory?

Mr. HAMIL. No: I did not.

Mr. MARSHALL. Then what was the reason for this statement?

Mr. HAMIL. The reason for this statement was that I thought that the Congress would provide loan funds through one source or another, because you always have. I think that is a true statement, Congressman, based on 22 years of record.

Mr. MARSHALL. The inference is given in your statement that you would have a dependable supply of dollars for REA and RTA and a reasonable repayment schedule if the present program being proposed were put into effect. Did I interpret that wrong?

Mr. HAMIL. In discussing the problems that confront REA borrowers over the country, I have said on many occasions, and I believe it to be a true statement, Congressmen, that a continued supply of loan funds from a dependable source is more important, and an extended period of repayment, than the cost of money. Do I make myself clear? Mr. MARSHALL. I do not know that I am making myself quite clear. You have had a dependable source of funds right along?

Mr. HAMIL. That is right.

Mr. WHITTEN. I do not see how this new proposal would in any way change that.

Mr. HAMIL. It would not. If the proposal is not acceptable to the Congress I would assume the Congress would continue to appropriate funds as they have in the past.

Mr. MARSHALL. The Congress could not accept the proposal on the basis it was needed to provide funds, because you have not had any trouble along that line.

Mr. HAMIL. That is right.

ROLE OF THE SECRETARY OF THE TREASURY

Mr. MARSHALL. Mr. Scott, on page 22 of your statement you make mention several times about borrowing from the Secretary of the Treasury. That intrigues me a little bit because if that is done would not that give the Secretary of the Treasury final authority over the loans and what interest is paid and how many bonds were sold, and what is to prevent the Secretary of the Treasury from exercising complete control over the REA program if he has all this authority! Mr. SCOTT. This reference to the Secretary of the Treasury, as I understand it, Mr. Congressman, was intended to relate to the rate. because they are very interested in financing that is done in the market. I think it is customary for the agencies of Government to consult with the Treasury on their issues. In this instance there is the provision that the rate would be approved by the Secretary of the Treasury.

In the discussions of this it was indicated that they would expect the REA, and the Secretary, to recommend a rate which would be reviewed by the Secretary of the Treasury and his judgment exercised as to whether it was reasonable.

Mr. MYNATT. The reference in item 4 on page 22 relates to borrowings from the Secretary of the Treasury pursuant to section 3 of the

basic Rural Electrification Act under which the Treasury is authorized and directed to loan to the Administrator the amounts annually approved by the Congress. There are other provisions in the bill that relate to the funds Mr. Scott was discussing, but item 4 on page 22 relates merely to transfers to the Revolving Fund of those amounts which are made available by the Congress under section 3 and would involve no additional authority in the Secretary of Treasury with respect to such amounts.

Mr. MARSHALL. You can excuse me for being concerned because while we have had some extremely able Secretaries of the Treasury, certainly a number of them have not been too familiar with agriculture. It is somewhat out of their line, and if we were to have a perpetuation of the policy of hard money, it could create havoc with the REA program.

There is this in your proposal that bothers me. If I interpret it correctly, you have some places where you will be making loans through the commercial area and you will continue to make some loans at 2 percent in some areas. Is it not going to lead to confusion? Who will get the 2 percent money and who will get the other money?

Mr. SCOTT. That certainly is a very important point and it will require some very careful administrative handling. I agree that there is that problem involved.

Mr. MARSHALL. Another effect that it might have, if you decided a higher interest rate should be used for generating facilities, that might have some effect on loans for generating facilities at the higher interest rate.

Mr. Scorт. I mentioned in connection with the loan examples that it is my personal feeling that the use of this debt service ratio computation seems to be a pretty good measuring stick of their ability to repay. I am sure if it were applied you would have to take into consideration all the circumstances pertaining to a particular operation, but I think that would be an important evidence and one that is rather commonly used in lending, the ability to pay.

Mr. MARSHALL. I was very much interested in these various examples which you had placed in your statement. One of the things that particularly impressed me about all these statements is something I think the small-business people of this country are becoming more and more cognizant of, and that is that it takes people to bring about good business. Every place you have people you have a good loan program. You have a good loan program because there are users who need this electricity as they need commodities, which means they built up a volume. That, I think, is an excellent example to

show how farm income can be of assistance to small business in rural areas if it is strengthened. It is a good criterion to see what that means so far as business and industry and labor are concerned. Mr. WHITTEN. Mr. Natcher.

ANTICIPATED VOLUME OF LOAN APPLICATIONS

Mr. NATCHER. Has REA conducted a survey of borrowers' loan needs this year?

Mr. Scort. You mean the usual questionnaire to find out about their expected submission of applications?

Mr. NATCHER. To ascertain the amount required.

Mr. SCOTT. We have in the same general manner as in recent years; yes, sir.

Mr. NATCHER. When was the survey or the questionnaire completed?

Mr. HAMIL. I will ask Mr. Partridge to answer that.

Mr. PARTRIDGE. Approximately a month ago we got out a final summary of figures.

Mr. NATCHER. As projected, what does this survey indicate is needed as the amount?

Mr. PARTRIDGE. The survey indicates that the existing borrowers plan to submit loan applications to REA during fiscal year 1959 totaling $210 million.

LOAN FUNDS REQUESTED IN THE BUDGET ESTIMATE

Mr. NATCHER. How does this compare with the amount requested by REA from the Department of Agriculture Budget Office? How does the $210 million compare with the amount requested by the REA section of the Department from the Department of Agriculture Budget Office?

Mr. DASHNER. In connection with the development of the 1959 estimates, the Department requested its agencies to submit their estimates on the basis of alternatives. This was necessary in order to determine those items which were most urgent and which could be provided within a budget ceiling. On the basis of the amount which it appeared could be provided within the budget ceiling, the Rural Electrification Administration was requested to submit an estimate totaling $309 million indicating their recommended breakdown between electrification and telephone loans. In response to this request, REA submitted an estimate for a new electrification loan authoriza tion of $230 million. At the same time REA proposed an alternative estimate of $434 million for electrification loans. It was not possible to provide for this larger amount within the limitation under which the Department developed its 1959 estimates.

Mr. NATCHER. How much did the Department of Agriculture Budget Office request from the Bureau of the Budget?

Mr. DASHNER. A request was made for $255 million.

Mr. NATCHER. The Department of Agriculture requested the Bureau of the Budget to incorporate in the budget for 1959 $255 million. Am I correct in that?

Mr. DASHNER. Yes, sir. May I add that that request was made on the assumption that there would be the same type of loan authorization as had existed in 1958. At the time of that request we had not considered the possibilities of the proposed legislation that has been discussed by Mr. Scott.

Mr. NATCHER. In other words, your request at this time is hinged upon the successful passage of legislation now pending before the Congress? Is that right?

Mr. DASHNER. Yes, sir.

Mr. NATCHER. Is it not true, Mr. Scott, that the amount needed for fiscal year 1959, based on the amount requested by the REA section of the Budget Office of the Department of Agriculture, and keeping