Loan repayments.-Cumulative principal and interest payments to June 30, 1952, amounted to $231,092,188 and $130,806,517, respectively. Repayments made ahead of schedule amount to $47,912,558, while principal and interest payments overdue more than 30 days amounted to $699,140, just over two-tenths of 1 percent of the amount due. (This figure does not include interest and principal due in the amount of $42,297 on 2 loans which were foreclosed.) The corresponding figures as of June 30, 1951, were: Payments: Interest Repayments ahead of schedule_ Principal and interest payments overdue more than 30 days. $182, 472, 620 113, 450, 195 33, 530, 816 649,719 42,297 Since debt-service schedules generally provide for a 2- or 5-year deferment period after a loan is made, this record of debt-service payments against amounts now due is not a full measure of the borrowers' ability to meet their maximum debt-service requirements which will be reached in subsequent years. Current electrification program Cooperative associations of farmers constitute the principal type of borrower in the rural-electrification program. These organizations are operating in areas which, prior to 1935, had been considered unprofitable by the private utilities. In order for these farmer organizations to be 100 percent successful and the los security properly safeguarded, it is essential that the Rural Electrification Administration give attention to many of the varied problems which are constantly arising and for which the borrowers must find proper solutions if they are to serve their communities. Current activities fall into two general categories: First, lending and construction activities pointed toward the goal of area coverage and second, loan-servicing activities to protect the Government's interest in outstanding loans. The peak in lending and construction activities was reached in fiscal year 1949. However, the pressure for loans continues at a high rate. During fiscal year 1952 and the first quarter of fiscal 1953, applications were received at about the same rate as loss were made. Applications on hand in the Washington office (excluding applications in the process of preparation in the field) amounted to $187,115,015 as of December 26, 1952. In loan servicing activities, the peak workload is yet to be reached. The volume of outstanding loans stands at nearly $2 billion as of June 30, 1952; 68 percent d these loans and 75 percent of the advances were made in the past 6 years. This means that the heavy impact of debt-service payments due from borrowers will be reached during the next few years because of the 2- to 5-year deferment period o principal and interest payments on new loans. Over 1,000 REA borrowers provide service to nearly 4 million rural people, operating over 1,200,000 miles of line Over half of these lines in 1953 are over 5 years old and have reached the point where it is essential that programs of preventive maintenance be developed in the overall planning of operations with borrowers to assure continued reliable servic These facts indicate that borrowers have reached the stage where it is essential that they must give increasing attention to operating matters and complex ope ating problems if they are to continue to provide adequate service and repay their loans as they become due. The scope of current REA relationships with borrowers is illustrated by the following: Increasing responsibility transferred to borrowers.-The financial condities accumulated experience, and general stability of great numbers of electrification borrowers have made it possible for REA to continue to transfer greater respons bility to them. REA operations are constantly being reassessed to disci possibilities for the further assumption of responsibility by borrowers with impairment of loan security. Such transfer of responsibility must, of course based upon sound and selective analyses. For example, based upon such analy ses, 634 electric borrowers will be asked to secure audits by certified puta accounting firms in fiscal 1953 compared to 261 in fiscal 1952. The number annual operations audits of electric borrowers performed by REA field aud will decline from 639 in fiscal 1952 to an estimated 379 in fiscal 1953. REA'S in technical and construction matters will be greatly reduced as activities ca on in this field in the past are transferred to borrowers. Present plans re that an estimated 634 borrowers retain the services of a consulting engine? inspect and certify work-order construction, an activity that heretofore has performed by REA field engineers. Loans. An estimated 11.9 percent of American farms were unelectrified as of June 30, 1952. Applications for loans to provide service to these establishments involve increasing difficulties as the more sparsely settled sections are reached. Applications from the "thinner" areas require more detailed study of probable revenues and operating costs. The problem of high-cost construction complicates the extension of service to the remaining unserved rural people. Complex problems involving acquisitions are encountered, and construction problems are especially difficult in the sparsely settled areas. The problem of adeaqute and dependable power supply is great in sparsely settled areas where power sites are scarce, transmission distances are long, and consumer density is low. The extension of electric service to previously unserved rural people represents only a part of the contemplated electrification loan program. Increasing attention must be given to the adequacy of service received by the nearly 4 million rural consumers already connected. Complex lending and construcion plans must be worked out with borrowers for system improvements, rephasing, the provision of additional capacity on existing systems, and the assurance of adequate, dependable, and economical wholesale power supply. During 1953, the loan program will provide for the construction of 40,000 miles of distribution line to serve 90,000 consumers. Construction.-During 1953, it is estimated that there will be approximately 70,000 miles of distribution line energized, bringing service to 200,000 new consumers, 4,000 miles of transmission line built, and 130,000 kilowatts of generating capacity installed. Construction work in process totaled $523,193,807 at the beginning of fiscal 1953. Advances. Advances of loan funds are estimated at $195 million for the fiscal year 1953. These advances are expected to reduce the balance of unadvanced loans from $538,038,060 at the beginning of fiscal year 1953 to approximately $508 million at the end of the year. The amount of unadvanced loans is substantial because of the considerable time which elapses between the making of a loan and the final advance of funds when construction is completed. This is particularly true in the case of loans for generation and transmission facilities and loans for system improvements. These categories accounted for over half of the unadvanced funds at the beginning of the fiscal year. Operations. With 1,210,473 miles of lines in operation as of June 30, 1952, and about one-half of those lines being more than 5 years old, there is continuing need for a program of preventive maintenance. Until recently, few borrowers have had a systematic program of preventive maintenance in operation and consequently there exists on the systems of the borrowers a large amount of deferred maintenance. It is planned to encourage borrowers to move forward rapidly with systematic maintenance programs in the areas of greatest need. The information sent to borrowers concerning the best methods and procedures in carrying out this program will be expanded and improved. The need for this work is heightened by the current need for farm production. Needed levels of farm production, in the face of labor shortages, require adequate and reliable electric service which can be supplied only by lines that are properly operated and maintained. In consequence of intensive work with delinquent borrowers, the amount overdue more than 30 days is slightly over two-tenths of 1 percent of the amount due. However, during the calendar year 1951, 256 borrowers were operating at an accrual deficit. This emphasizes the need for attention and work with borrowers in order to prevent substantial delinquencies in later years, when the impact of full debt-service payments will be felt. Priority is given to borrowers with immediate financial and other problems, but other borrowers will be aided as much as possible in developing sound operating policies and practices to enable them to meet their increasing responsibilities with minimum need for intensive assist-1 ance. Under the reorganization effective July 1, 1952, arrangements for more comprehensive borrower planning, coupled with more selective and better integrated programs of assistance on the part of REA, should make the maximum contribution toward minimizing delinquencies and accrual deficits. 1952 rural telephone program The telephone program, during fiscal 1952, approached the stage of major construction activity with 32 construction projects under way as of June 30, 1952, and 65 more well along toward construction. In 1952, the demand continued far ahead of REA's ability to make loans. The growing understanding of the telephone program has given great impetus to the demand for loans. Only 38.3 percent of American farms have telephone service of any sort according to the Census of Agriculture for 1950. Allocations made.-During fiscal year 1952, loan allocations were made totaling $41,005,718 to 77 borrowers, as compared to allocations of $37,828,500 to 96 borrowers during fiscal year 1951. The 1952 allocations were made to provide telephone service to 55,290 new rural subscribers and to improve service to 39,944 additional rural subscribers. These allocations were made to 35 commercial companies and 42 cooperatives. Until recently, it has been the practice to make a loan allocation to give assurance that a loan will be made if necessary conditions are satisfied, such as incorporating, merging existing companies, or signing up subscribers. After these conditions are satisfied, a loan contract is executed. During the fiscal year 1952, loan contracts were executed by the Administrator totaling $45,872,218. At the present time, many loan contracts are executed simultaneously with the allocation. Number and amount of applications on hand.-As of June 30, 1952, REA had on hand a total of 489 applications from 42 States and Alaska in the amount of $89,101,811. These would provide initial, or improved, service to an estimated 332,922 rural subscribers. The amount of loan applications on hand is not a full measure of the requirements for loan funds. Experience has shown that in some instances the amounts requested in loan applications are modest, and represent but minor improvements to existing plant without effecting the purpose of the telephone program in bringing service to the widest practicable number of rural users as required by the telephone amendment to the Rural Electrification Act. Loans of $41,005,718 made during fiscal year 1952 resulted from loan applications totaling $38,326.921. Complexity of loan appraisal.-The analysis of rural telephone loan applications has proven to be much more complex than the analysis of rural electrification lost. applications. In appraising the requested loan, consideration must often be giveɛ to refinancing, to relationships with State regulatory bodies, and to the need to consider such matters as connecting company agreements in appraising the loan. The telephone amendment to the Rural Electrification Act has a specific nonduplication provision, which requires additional field work in many cases to support a finding. Problems relating to acquisitions are more frequently encountered in the telephone program than in the electrification program. Virtually every loan application from an existing company requires field appraisal to determine the value of the existing plant and that portion usable in the proposed system. The loan appraiser, with an engineer, must assist the appl cant in developing a proposed system which will assure maximum availability of telephone service in the area. Furthermore, detailed information relating to the security of the proposed loan is necessary. This broadly involves examination into the character and operating efficiency of the system as bearing on costs and revenues, past and prospective; the extent of subscriber interest and ownership: the extent to which any surplus will be retained in the system; and an analysis of local economic trends. Construction.-Construction work in the telephone program started in fises. 1951, when 4 projects went into construction. Two of these were completed in fiscal 1952, and 30 more construction projects were begun. As of June 30, 1952, 65 loan contracts had been executed upon which construction had not yet begur. Thirty-six of these had completed area coverage designs, which is the first major post-loan engineering work leading to construction. Current rural-telephone program Loans. A substantial amount of work with applicants who have received allocations but have not yet satisfied the conditions will be necessary before s loan contract can be executed. Two hundred and eleven allocations had been made at the end of the year, and 163 loan contracts had been signed and executed It is anticipated that 150 additional loan contracts will be executed during fiscal year 1953. Applications on hand as of June 30, 1952 totaled $89,101,811 and it is estimated that an additional $40 million in applications will be received during fiscal yes. 1953 making an estimated total of $129,101,811 in applications for 1953. Of this amount, a total of $35,476,000 in loan authorizations is presently available fa fiscal year 1953. Construction. As of June 30, 1952, 32 borrowers had construction projects physically underway. This number is expected to reach 215 during fiscal year 1953. An estimated 66 construction projects will be completed during fiscal year 1953, providing new and improved service to approximately 72,000 rural subscribers on 35,000 miles of line. It is estimated that 13,000 additional miles . be completed but not in service by the end of fiscal year 1953. Operations. During the fiscal year 1953, more attention will have to be given to operations matters with which some of the borrowers have had little or no past experience. As of June 30, 1952, no systems without previous operating experience had completed construction, and the two borrowers which had completed construction had considerable experience in the operation of rural telephone systems before receiving their REA loans. During 1953, it is anticipated that 18 cooperatives will complete construction and go into operation for the first time. In addition, 48 commercial companies with some operating experience will complete construction, many of which will encounter operations problems far transcending anything encountered in the past. These 18 cooperatives and 48 relatively inexperienced commercial companies represent the real beginning of post construction operations workload in the telephone program. Improvements in administration.-The most outstanding aspect of management improvement activities during the past fiscal year was the extensive reorganization of REA to meet better the needs and changing requirements of the electric and telephone programs and to provide a better integrated and more efficient basis for carrying on REA relations with borrowers. Other recent examples of improvements are (1) development of a new subject-matter classification system for classifying REA policies, procedures, and related materials issued for the administration and execution of the Agency's programs; (2) reduction of REA engineering services in the electric program and transfer of the responsibilities to the borrowers; (3) transfer of responsibility to borrowers for large power contracts; (4) better control over the financial transactions of the Agency and provision for expeditiously obtaining financial data relating to both lending and administrative activities, with a minimum of time and materials, achieved through development of a new chart of accounts which combines under one system all accounting for both lending and administrative operations; (5) simplification of the handling of loan accounts and a significant reduction in number of statements to borrowers through conversion of borrowers' records from a combined manual and bookkeeping machine method to punch-card tabulating equipment and standardization of methods of computing interest; (6) training supervisors for better management through a seminar-type training course conducted during the past year for a "pilot" group of REA supervisors to help them develop and keep abreast of recent developments in the field of administration and supervision; (7) initiation of a contractual research program to develop materials and equipment suitable for rural telephone systems; (8) improvements in the processing of telephone loan applications, and (9) development of a telephone engineering and construction manual. Statement of obligations under allotments and other funds Includes only those amounts which, by Nov. 30, 1952, were actually received or programed for 1953 or 1954. Since work for other agencies is performed on a service basis at the request of those agencies and for their benefit, it is not practicable to estimate in advance the amounts to be received in most cases] Item Flood prevention, agriculture (Rural Electrification Admin- Working funds, agriculture, general (Rural Electrification Total, obligations under allotments and other funds. GENERAL STATEMENT Mr. ANDERSEN. Mr. Farrington, do you have a general statement for the committee? Mr. FARRINGTON. With me this morning, Mr. Chairman, is Mr. E. C. Johnson, Special Assistant to the Secretary and Assistant Deputy Land Bank Commissioner, who has been designated by the Secretary to work with REA pending the appointment of an Administrator; also Mr. Wise, Deputy Administrator; Mr. Shepperd, Mr. Beall, Mr. Weitzell, Mr. Herzog, Mr. Blackburn, and Mr. Roberts. That is all I have now, Mr. Chairman. Mr. ANDERSEN. Mr. Wise, would you like to make a statement to the committee? STATISTICAL SUMMARY Mr. WISE. Mr. Chairman and members of the committee, as we have done previously, we have prepared a statistical summary of REA operations, a copy of which will be distributed to each member of the committee. Mr. ANDERSEN. Would you like to speak from that? Mr. WISE. If it is satisfactory to the committee. That is the procedure we have followed heretofore. Mr. ANDERSEN. We will include the statistical summary in the record at this point. (The statement referred to follows:) |