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GAO PRODUCTS ON THE FEDERAL FINANCING BANK
U.S. General Accounting Office, "Government Agency Transactions with the Federal Financing Bank Should Be Included in the Budget" (PAD-77-70, August 3, 1977).
Testimony before the Subcommittee on Oversight of the House
U.S. General Accounting Office, "Legislative Changes Needed to Improve Budget Treatment of Certificates of Beneficial Ownership" (PAD-80-32, April 9, 1980).
U.S. General Accounting Office, "Federal Budget Totals Are
U.S. General Accounting Office comments on S. 2162, a bill to include Federal Financing Bank amounts in budget totals and change the treatment of certain transactions, August 20, 1982. Testimony before the Subcommittee on Federal Credit Programs, Senate Committee on Banking, Housing, and Urban Affairs on the Federal Financing Bank, April 5, 1983.
Testimony before the House Committee on Ways and Means on the budget treatment of the Federal Financing Bank, H.R. 2868, May 12, 1983.
"(c) All transactions of the Bank shall be reflected
in the unified budget of the United States Government.
provisions of this subsection."
Senator TRIBLE. Mr. Havens is the last of the witnesses in the morning session. The committee will reconvene this afternoon at 2 o'clock.
[Whereupon, at 11:15 a.m., the hearing was recessed, to resume at 2 p.m. this same day.]
Senator TRIBLE. Good afternoon. Welcome to the afternoon session. This is the full committee hearing of the Committee on Banking, Housing and Urban Affairs. Our purpose today is to hear testimony on Senate bill 1679.
A large part of the spending activities of the Federal Government does not show up in the Federal budget. It is off budget and, therefore, largely obscured from congressional oversight. The outlays of the Federal Financing Bank represent most of the off-limit outlays of the Federal Government. In less than 10 years the Federal Financing Bank has financed $97 billion in off-budget spending.
The purpose of the Honest Budgeting Act of 1983 is to place these activities on budget. This morning we heard from Senators Pete Domenici and Slade Gorton in support of this measure. We heard from Joseph Wright, the Deputy Director of the Office of Management and Budget; Rudy Penner, the Director of the Congressional Budget Office; and Harry Havens, the Assistant Comptroller General from the General Accounting Office.
This afternoon we will begin again this process. Our first witness is the distinguised Virginian, Mr. Guy Lewis, who is the president of the National Rural Electric Cooperative Association.
Guy, you are most welcome. Your statement will be made part of the record. Please read your statement or summarize your testimony if you choose to do so.
I would ask you to introduce for the sake of the record your two able associates.
STATEMENT OF GUY C. LEWIS, JR., PRESIDENT, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION, ACCOMPANIED BY DON SMITH, STAFF ECONOMIST; AND CHARLOTTE M. WILMER, LEGISLATIVE REPRESENTATIVE
Mr. LEWIS. On my right, Don Smith, chief economist of NRECA; on my left, Charlotte Wilmer, legislative representative.
Senator TRIBLE. We are pleased that you are here, and the floor is yours.
Mr. LEWIS. Thank you, Mr. Chairman.
Mr. Chairman and distinguished members of the Banking, Housing and Urban Affairs Committee, my name is Guy C. Lewis, Jr. I am president of the National Rural Electric Cooperative Association, a voluntary national service organization comprised of nearly 1,000 rural electric cooperatives which operate in 46 States and serve more than 25 million consumer members.
It is an honor for me to have this opportunity to present the views of NRECA on S. 1679, particularly since one of the principal sponsors of the legislation is Senator Paul Trible from my home State of Virginia. All of us in Virginia who have come to know
Paul Trible over the years are proud of the job he is doing in his new role here in the Senate. We know him to be someone who is knowledgable and sensitive to the problems and needs of rural America.
With your permission, Mr. Chairman, I will submit for the hearing record several documents which will support and amplify the information contained in the statement, including policy resolutions approved by the NRECA membership at their 41st annual meeting earlier this year.
Let me begin if I may by assuring the members of this committee that the NRECA and, I believe, the vast majority of the rural citizens served by our co-op members are in full accord with the fundamental objectives of S. 1679 and agree that top priority must be placed on seeking long-term solutions to our Nation's severe economic crisis.
At the same time, however, rural people are deeply concerned about the future of the REA financing program, a program which has brought about substantial and well-documented social and economic improvements benefiting not only rural areas but the Nation as a whole. When the RE Act was amended in 1973 through Public Law 93-32, the Congress clearly expressed its belief that the power pertaining to established annual loan levels for REA was an adequate mechanism for oversight of the rural electric program and that further controls through the inclusion of these transactions in the unified budget would be unnecessary and redundant. This is reflected in the RE Act itself, where in no fewer than six different places Congress clearly states its intent that REA loan levels and advances be excluded from the annual Federal budget totals and that these loans not be charged against any statutory or other limitations on the budget, Federal expenditures or debt lending by the Government.
In this light, we believe that the present budgetary regulatory treatment of the Federal Financing Bank transactions with the REA is fully consistent with the provisions of the RE Act and provides Congress and the public with full and complete information on the nature and volume of these transactions.
In addition, we are seriously concerned that a revision of budgetary procedures regarding the FFB could directly or indirectly result in the imposition of new restraints on our access to the Bank, forcing REA and/or its borrowers to seek additional financing directly from the private market. Even with the exemplary record of repayment that has been established by the REA program, there is good reason to wonder, I feel, how Wall Street would respond to a significant and abrupt influx of rural electric borrowings, even with the REA guarantee in place.
Because of this, it is conceivable that some rural electrics would be unable to raise the capital that they need at any price, clearly impacting on the quality of service we can provide to the people of rural America.
The Federal Financing Bank in this sense plays an extremely critical role in rural electrification. This is in addition to the key role it also plays as a mechanism for coordinating the capital market activities of not only REA but a variety of other programs involving guarantees or other types of Federal participation.
Mr. Chairman, let me briefly summarize if I may our principal concerns about several provisions of S. 1679, in its present form. First, we strongly disagree with the idea that guaranteed loans be treated in the budget simply as an outlay, when in fact they simultaneously represent a significant asset to the Government. A more appropriate and, we believe, equitable approach to this would be the implementation of a separate capital budget, which would provide a means to recognize and account for the value of all assets held by our Government, including, of course, long-term notes receivable from REA borrowers.
NRECA has for many years supported the creation of a capital budget for the Federal Government and continues to do so today.
In addition, we are deeply concerned that the language contained in S. 1679 would create significant doubt as to the recourse available to the holder of the REA guarantee should the Secretary of the Treasury make a determination that the guaranteed loan for whatever reason should not be processed through the FFB.
Under existing law, the holder of the guarantee has the discretion to use whatever means of financing is believed to be in the best interests of the consumer member.
Language in S. 1679 could be interpreted, we fear, in such a way as to preclude the holder of the guarantee from considering or pursuing alternatives to FFB for funding these loans.
This would, in our opinion, serve no positive purpose for the Government and could further impede greater use of non-Government financing by those borrowers in the future.
I am aware of the comments made by Senators Domenici and Gorton during the morning session, and I agree that Congress previous to the establishment of the FFB said that loan levels of the Rural Electrification Administration be excluded from the budget totals. Should the Congress wish to change that longstanding public policy, the appropriate way, in our opinion, to do that is consideration of an amendment to the Rural Electrification Act. I commend Senators Domenici and Gorton for their sensitivity on this issue.
In summary, Mr. Chairman, let me say again we applaud this committee's efforts to examine the Nation's economic problems from the credit perspective. We also, however, wish to emphasize our present and continuing accountability to Congress and to point with pride to our responsible record of repayment. Finally, let me say that we welcome any objective review of the rural electric program and its contribution to the productivity of the Nation. Thank you very much for this opportunity to be here.
[The complete statement follows:]