Rural telephone loans.-An increase of $27 million of new loan authorization is requested for fiscal year 1966 to provide for the continuation of a $97 million loan level for telephone loan program.

This increase in new loan authorization is necessary because it is estimated that there will be no carryover of unused loan funds from fiscal year 1965. Present experience fully supports this.

Applications on hand at the close of fiscal years 1962, 1963, and 1964 totaled $56.4, $58.3, and $84.7 million respectively. New applications received during fiscal year 1964 totaled $102.1 million with a steady and gradual increase in the average monthly rate of incoming applications. During the first 5 months of fiscal year 1965, incoming applications have been received at an annual rate of about $108 million. With loans of $97 million during fiscal year 1965, applications remaining on hand at the close of fiscal year 1965 will probably total about $96 million. It seems quite certain that applications received in fiscal year 1966 will total at least, and will probably exceed $105 million which with approximately $96 million of carryover will provide more than $200 million in applications for consideration during the fiscal year 1966. In any event, REA will have pending loan applications on hand in an amount beyond what can be met with the proposed telephone loan program.

The following table shows total funds available, loans made, and balances carried forward for the telephone loan program:

1 The reserve authorization, shown in the table for the electrification program is proposed for use in either the electrification or telephone program.

(b) Salaries and expenses

Appropriation Act, 1965.

Transferred to "Operating expenses, Public Buildings Service,
General Services Administration" for space rental__

Proposed supplemental, 1965, for increased pay costs---.

Base for 1966__

Budget estimate, 1966__.

Project statement

Project

$11,578, 000

-4,000 +360,000

11, 934, 000 11, 934, 000

GENERAL STATEMENT

Senator HOLLAND. The committee will now hear from Mr. Norman Clapp, the Administrator of the Rural Electrification Administration, who is before the committee to justify the budget request for loan authorization for electrification and telephone loans and for salaries and expenses to administer the lending programs of this very important agency.

I notice your prepared statement covers the specific details of your loan authorization requests for the electrification program and for the telephone program. I suggest that you read your statement, Mr. Clapp, since it is rather brief, and members of the committee can raise questions of you with regard to the various aspects of the lending programs.

Mr. CLAPP. Thank you, Mr. Chairman.

FISCAL YEAR 1966 BUDGET ESTIMATE

Mr. Chairman, the 1966 budget request for the Rural Electrification Administration is a very tight one in keeping with the President's determination to keep costs of Federal operations at the lowest possible level.

New obligational authority of $285 million is requested for the electric program, with a $65 million contingency fund which would be available for either electric or telephone loans. I might point out to the committee that on the recommendation of the House committee, the House of Representatives has changed the treatment of the contingency funds so that under the bill as passed by the House, the $65 million contingency fund is earmarked specifically and solely for electric loans. Total new obligational authority would be $350 million as compared to $365 million for this fiscal year, a reduction of $15 million.

FUNDS AVAILABLE FOR ELECTRIC LOANS

On the basis of total funds available, if this budget request is acted upon favorably by the Congress, the reduction is $40 million. The request for fiscal year 1966 coupled with a carryover of $26 million would add up to a total availability for fiscal year 1966 of $376 million as compared to a total availability for fiscal year 1965 of $416 million.

I think I should point out to the committee in this connection that as a result of demonstrated needs in the last few months there is considerable question as to whether we would have the $26 million carryover on which our budget estimates were based.

With no carryover, there would be just the $350 million available in new funds for the electric program in fiscal year 1966 and this would be $66 million less than the total availability of funds for this fiscal year.

Senator YOUNG. May I ask a question?

Senator HOLLAND. Senator Young.

Senator YOUNG. Would it be all right to ask him a question on REA?

Senator HOLLAND. As far as I am concerned it is agreeable to do it now. Is that agreeable with you, Mr. Clapp? Mr. CLAPP. It is perfectly agreeable to me.

LEVEL OF ELECTRIFICATION PROGRAM

Senator YOUNG. Are you familiar with the proposal made by the REA co-ops for the funds available this year?

Mr. CLAPP. Yes, Senator, I have read the statement that NRECA witnesses made before this committee and before the House committee. Senator YOUNG. How much higher is the NRECA recommendation than the House appropriation?

Mr. CLAPP. My recollection is that they have requested the Congress to authorize $400 million of new obligational authority with a $75 million contingency fund.

Senator YOUNG. As compared to how much in the House?

Mr. CLAPP. $285 million of new obligational authority, with a $65 million contingency, a total of $350 million.

Senator YOUNG. Mr. Chairman, I have noted over the years that the National Association of REA Co-ops estimate of the amount of money needed has been quite accurate, far more accurate than the Bureau of the Budget figures.

I think that 9 times out of 10 this committee has increased funds considerably over the amounts requested in the budget. Do you think you would be able to use the amount of money that is requested by the National Association of REA Co-ops, or are you permitted to answer that kind of a question?

AMOUNTS REQUESTED IN ORIGINAL BUDGET

How much did you request from the Bureau of the Budget? Mr. CLAPP. Senator, I think Mr. Grant would be able to answer that question.

Let me just repeat what I said at the outset of this statement, that this budget request is a very tight budget for the program.

Senator HOLLAND. Senator Young asked you how much you asked. You know how much you requested, do you not?

Mr. CLAPP. Could I ask Mr. Grant to respond to that?

Mr. GRANT. The Department requested a total of $390 million for electrification loans and $108 million for rural telephone loans. Senator HOLLAND. $390 million?

Mr. GRANT. The $390 million was for the electrification loans, sir.
Senator HOLLAND. That included contingencies?

Mr. GRANT. Yes, sir; that was the total estimate.

Senator HOLLAND. How was this broken down to outright authorization and contingency, the $390 million?

Mr. GRANT. Mr. Chairman, the Department did not estimate a contingency. The Department requested a $390 million authorization for electrification loans as a direct borrowing authorization, with no contingency.

Senator HOLLAND. No contingency?

Mr. GRANT. No contingency.

Senator YOUNG. Was this influenced by a ceiling placed on you by the Bureau of Budget?

Mr. GRANT. No, sir; we did not have a specific ceiling as of that time. I might say that the $390 million for loans, with the estimated carryover balance. would provide a total program of $407 million for electrification loans.

Senator YOUNG. The estimated carryover is less now than it was at that time?

Mr. GRANT. I do not believe I have a late figure on that; maybe Mr. Clapp can give you that?

Mr. CLAPP. I think it is very doubtful, Senator, that we will have a $26 million carryover at the end of this fiscal year.

Senator YOUNG. I think that answers my question.
Thank you.

Senator HOLLAND. All right, sir, proceed.

FUNDS FOR TELEPHONE LOANS

Mr. CLAPP. For the telephone program a new obligational authority of $97 million is requested, which is an incerase of $27 million over the new obligational authority provided for this fiscal year.

On the basis of total loan funds available for the telephone program, the fiscal year 1966 request adds to the same total funds as are available for the present fiscal year, $97,600,000. For fiscal year 1966 we expect to have a carryover of $600,000 in addition to the new funds requested of $97 million. This year we had a carryover of $23,300,000 plus estimated rescissions for the year of $4,300,000, which when added to a $63 million regular authorization plus a $7 million contingency funds, adds up to a total of $97,600,000 available.

I might point out to the committee that our experience in this fiscal year to date has shown that the rescissions estimated at $1,300,000 have actually been higher than that estimate. We now estimate the total recissions for this year as $7,500,000. This would increase the total available funds for this fiscal year from the estimated $97,600,000 to $100,800,000.

This is accounted for by the rescissions over and above our advance estimates earlier in the year.

LOAN FUNDS REQUESTED BY NTCA AND NREATA

Senator YOUNG. Mr. Chairman, may I ask what was the amount of money that the National Telephone Cooperative Association estimated would be needed?

Mr. CLAPP. For telephone?

Senator YoUNG. Yes.

Mr. CLAPP. The National Rural Electrification Administration Telephone Association requested an authorization for the fiscal year 1966 of $148 million. I believe Mr. Fullarton, who testified on behalf of the National Telephone Cooperative Association suggested and requested an authorization of $125 million with a $25 million contingency fund.

Senator YOUNG. As against $97 million approved by the House?
Mr. CLAPP. Against $97 million in the bill as it now stands.

REPAYMENT RECORD OF TELEPHONE BORROWERS

Senator YOUNG. What is the repayment record on these loans? Mr. CLAPP. Senator, the repayment record in the telephone program is rapidly reaching a point where it parallels the excellent repayment record in the electric program, even though the telephone program is a much newer program.

I would be glad to submit for the record the detail on this showing the total loans outstanding, the amount of repayments received, the amount of repayments paid ahead of schedule, and the number of delinquent borrowers.

The last report I saw was that there were only 3 or 4 delinquent borrowers in the telephone program out of a total number of 830-some borrowers.

Senator YOUNG. Mr. Chairman, may I say that I voted against the public works bill yesterday largely because we are starting a lot of new programs of questionable merit while curtailing funds for a program such as this where there is a repayment record of almost 100 percent, and it does not cost the Government anything.

It simply does not make sense to me to start new programs of questionable merit and curtail programs such as this.

Senator HOLLAND. Of course, I voted against the bill yesterday for somewhat the same reasons. It seems to me that when you add the amounts in the poverty bill, the aid to education bill, and the Appalachia bill to the $3 to $4 million that was in the bill yesterday, that you are getting into pretty deep water. Besides that, with overlapping bureau and jurisdictions that reach into the same field in many particulars, I do not like it at all.

I certainly emphasize the statement that you made in that regard.

REQUEST FROM THE NATIONAL TELEPHONE ASSOCIATION

In our earlier hearings, Mr. A. Harold Peterson, executive director of the National REA Telephone Association, recommended that the telephone authorization be increased to $148 million as you have stated in order to meet the increased demand for loan applications to upgrade telephone service.

Mr. David C. Fullerton, who represented the National Telephone Cooperative Association recommended a minimum of $125 million plus $25 million contingency, or $150 million total.

What are your comments in regard to the proposals of these two organizations which have arrived at about the same level of need in both instances considerably above the budget request?

Mr. CLAPP. We will go into this coming fiscal year with an all-time record high total of loan applications on hand.

Our best estimate at this particular point are that we will have bout $115 million of applications under consideration at the end of this fiscal year.

The rate of applications has been steadily increasing in the telephone program in the last 2 or 3 years. What we used to look or as a normal rate of about $100 million per year is now approaching an annual rate of application receipts of $110 to $115 million a year.

I think, Mr. Chairman, that in answer to your question it is our position and our feeling that although we can get by within the budget