B-169930, SEP. 28, 1970

B-169930: Sep 28, 1970

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ADVISING THAT THE RECOMMENDATIONS BY THE SENATE AND HOUSE COMMITTEES ON APPROPRIATIONS AS TO THE SPECIFIC AUTHORITY OF REA TO GRANT DEFERMENTS ON PRINCIPAL INSTALLMENTS ON NEW REA LOANS TO ENABLE BORROWERS TO MAKE INVESTMENTS IN NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) IS BEFORE CONFEREES AND THEIR REPORT WILL BE ACCEPTED AS THE POLICY. GAO WILL NOT OBJECT TO ACTION BY REA TO FOLLOW THE RECOMMENDATIONS. TO EXTEND THE TIME OF PAYMENT ON LOANS IS BROAD. IT IS DOUBTFUL THAT IT WOULD BE SUFFICIENT TO PERMIT REA TO DEFER PAYMENTS BY ELECTRIC BORROWERS TO ENABLE THE BORROWERS TO MAKE INVESTMENTS IN THE NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) A PRIVATE FINANCING INSTITUTION ORGANIZED TO HELP MEET THE ACCELERATING CAPITAL REQUIREMENTS OF REA FINANCED ELECTRIC SYSTEMS.

B-169930, SEP. 28, 1970

REA LOANS - REPAYMENT WAIVER DECISION TO THE SECRETARY OF AGRICULTURE, ADVISING THAT THE RECOMMENDATIONS BY THE SENATE AND HOUSE COMMITTEES ON APPROPRIATIONS AS TO THE SPECIFIC AUTHORITY OF REA TO GRANT DEFERMENTS ON PRINCIPAL INSTALLMENTS ON NEW REA LOANS TO ENABLE BORROWERS TO MAKE INVESTMENTS IN NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) IS BEFORE CONFEREES AND THEIR REPORT WILL BE ACCEPTED AS THE POLICY, AND GAO WILL NOT OBJECT TO ACTION BY REA TO FOLLOW THE RECOMMENDATIONS. ALTHOUGH THE AUTHORITY IN SECTION 12 OF THE RURAL ELECTRIFICATION ACT, 7 U.S.C. 912 AND SECTION 4, 7 U.S.C. 904, TO EXTEND THE TIME OF PAYMENT ON LOANS IS BROAD, IT IS DOUBTFUL THAT IT WOULD BE SUFFICIENT TO PERMIT REA TO DEFER PAYMENTS BY ELECTRIC BORROWERS TO ENABLE THE BORROWERS TO MAKE INVESTMENTS IN THE NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) A PRIVATE FINANCING INSTITUTION ORGANIZED TO HELP MEET THE ACCELERATING CAPITAL REQUIREMENTS OF REA FINANCED ELECTRIC SYSTEMS. HOWEVER, IF IN VIEW OF THE RECOMMENDATIONS BY THE HOUSE AND SENATE COMMITTEES ON APPROPRIATIONS THAT THERE IS SUCH AUTHORITY AND THE CONFERENCE COMMITTEE AGREES TO THE RECOMMENDATIONS, GAO WILL NOT OBJECT TO REA FOLLOWING THE RECOMMENDATIONS. THE COURTS HAVE RECOGNIZED ACTION OF CONFEREES AS ESTABLISHING A STATUTORY SCHEME. SEE PRIDEMARK V C.I.R., 345 F.2D 35, 41 (1965)

TO MR. SECRETARY:

BY LETTER DATED JULY 25, 1970, THE UNDER SECRETARY WROTE CONCERNING COMMITTEE RECOMMENDATIONS IN CONNECTION WITH THE DEPARTMENT OF AGRICULTURE AND RELATED AGENCIES APPROPRIATION ACT, 1971, H. R. 17923, 91ST CONGRESS, AS PASSED BY THE SENATE. SPECIFICALLY, THE HOUSE COMMITTEE ON APPROPRIATIONS HAS RECOMMENDED THAT THE ADMINISTRATOR OF THE RURAL ELECTRIFICATION ADMINISTRATION DEFER PAYMENTS BY REA ELECTRIC BORROWERS ON OUTSTANDING LOANS FOR UP TO THREE YEARS AND THE SENATE COMMITTEE ON APPROPRIATIONS HAS RECOMMENDED THAT THE ADMINISTRATOR GRANT UP TO A THREE- YEAR DEFERMENT ON PRINCIPAL INSTALLMENTS ON NEW REA LOANS. IN BOTH CASES THE DEFERMENT WAS RECOMMENDED TO ENABLE BORROWERS TO MAKE INVESTMENTS IN THE NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) A PRIVATE FINANCING INSTITUTION ORGANIZED TO HELP MEET THE ACCELERATING CAPITAL REQUIREMENTS OF REA FINANCED ELECTRIC SYSTEMS WHICH CANNOT BE MET BY REA.

THE HOUSE COMMITTEE ON APPROPRIATIONS RECOMMENDATIONS ARE AS FOLLOWS:

"TO MEET THIS MASSIVE REQUIREMENT, (INCREASING NEED FOR ELECTRIC POWER) CONGRESS MUST CONTINUE TO PLAY ITS ROLE. THE REA BORROWERS THEMSELVES ARE LIKEWISE SEEKING OTHER MEANS WITHIN THEIR OWN ORGANIZATION TO MEET THEIR OBLIGATION TO THEIR CONSUMERS. THEY ARE FORMING THE NATIONAL RURAL UTILITIES FINANCE CORPORATION TO COMMENCE OPERATIONS THIS YEAR. WHETHER THIS SYSTEM WORKS WILL HAVE TO AWAIT THE ACTION OF THE MONEY MARKETS.

"BECAUSE OF THIS, THE COMMITTEE SUGGESTS THAT WHERE THE FINANCIAL CONDITION OF A BORROWER IS SOUND AND WHERE THE GOVERNMENT'S INTEREST IS ADEQUATELY SAFEGUARDED, THE ADMINISTRATOR CONSIDERS DEFERRING REPAYMENTS ON OUTSTANDING LOANS FOR UP TO THREE YEARS. SUCH ACTION WHERE NECESSARY WOULD ENABLE THE COOPERATIVES TO MORE FULLY SUBSCRIBE THE STOCK OF THIS NEW LENDING INSTITUTION." H. REPT. NO. 91-1161, 42.

THE SENATE COMMITTEE ON APPROPRIATIONS RECOMMENDATIONS FOLLOW:

"THE COMMITTEE COMMENDS THE RURAL ELECTRIC SYSTEMS IN THEIR ATTEMPT TO ESTABLISH A FINANCING ORGANIZATION TO HELP ALLEVIATE THE LARGE FINANCIAL NEEDS OF THE RURAL ELECTRIC SYSTEMS FOR NEW CAPITAL FINANCING FROM THE FEDERAL GOVERNMENT. THE NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) WAS INCORPORATED IN THE DISTRICT OF COLUMBIA ON APRIL 10, 1969. THE COMMITTEE UNDERSTANDS THAT CFC NOW HAS 785 MEMBERS IN 44 STATES.

"THE COMMITTEE EXPECTS THE REA ADMINISTRATOR TO ASSUME AN ACTIVE ROLE IN COOPERATION WITH CFC IN THE ACCUMULATION OF INITIAL SUBSCRIPTION OF CAPITAL FROM CFC MEMBERS FOR INITIAL OPERATIONS.

"IN ADDITION TO THE SUBSCRIPTION OF CAPITAL FROM EXISTING SOURCES, AND TO MEET THE OBJECTIVES SET FORTH IN THE HOUSE COMMITTEE REPORT, A CONTINUOUS FLOW OF CAPITAL FUNDS IS ESSENTIAL TO THE ORDERLY DEVELOPMENT OF THE CFC.

"THE COMMITTEE IS OF THE OPINION THAT THE RECOMMENDATION IN THE HOUSE COMMITTEE REPORT TO DEFER PRINCIPAL REPAYMENTS ON OUTSTANDING LOAN CONTRACTS IS NOT A FEASIBLE METHOD OF PROVIDING FOR AN ORDERLY FLOW OF CAPITAL SUBSCRIPTIONS TO THE CFC. THE COMMITTEE RECOMMENDS THAT BEGINNING ON JULY 1, 1970, THAT THE REA ADMINISTRATOR GRANT UP TO A THREE-YEAR DEFERMENT ON PRINCIPAL INSTALLMENTS ON NEW REA LOANS--WITH THE UNDERSTANDING THAT SUCH DEFERRED INSTALLMENTS ON PRINCIPAL WILL BE INVESTED BY BORROWERS IN THE CFC.

"SUCH REGULAR INVESTMENTS IN CFC WHEN CONTINUED FOR SEVERAL YEARS AND COUPLED WITH THE OPEN MARKET SALE OF DEBENTURES, SHOULD THEN ENABLE THE REA ADMINISTRATOR AND THE CFC TO MAKE AN ORDERLY TRANSITION FROM COMPLETE RELIANCE UPON GOVERNMENT FINANCING TO A GREATER RELIANCE UPON THE SALE OF CFC DEBENTURES, EXCEPT FOR THE FINANCING OF SYSTEMS WHERE THE INPUT OF 2 PERCENT GOVERNMENT LOANS MAY BE ESSENTIAL TO THE MAINTENANCE OF ADEQUATE ELECTRICAL SERVICE AT REASONABLE RATES IN LOW DENSITY POPULATION AREAS." S. REPT. NO. 91-987, 38, 39.

WITH REGARD TO THE HOUSE RECOMMENDATION, INASMUCH AS IT WOULD APPLY TO LOANS IN BEING, IT IS APPARENT THAT THE HOUSE COMMITTEE ENVISIONS THE USE OF THE AUTHORITY OF SECTION 12 OF THE RURAL ELECTRIFICATION ACT OF 1936, APPROVED MAY 20, 1936, CH. 432, 49 STAT. 1366, 7 U.S.C. 912, FOR THE PURPOSE OF CARRYING OUT ITS RECOMMENDATION. SECTION 12 AUTHORIZES THE ADMINISTRATOR TO EXTEND THE TIME OF PAYMENT OF INTEREST OR PRINCIPAL ON LOANS MADE UNDER SECTION 4 FOR PLANT AND TRANSMISSION CONSTRUCTION FOR AS LONG AS 5 YEARS. WE UNDERSTAND THAT SECTION 12 HAS BEEN USED ONLY IN HARDSHIP CASES. OUR REVIEW OF THE LEGISLATIVE HISTORY OF SECTION 12 INDICATES THAT THAT SECTION WAS DESIGNED TO AFFORD THE ADMINISTRATOR POWER TO GRANT RELIEF IN SITUATIONS WHERE THE BORROWER MIGHT BE UNABLE TO MEET PAYMENT WHEN DUE. SPECIFICALLY, IN EXPLAINING THE REASON FOR SECTION 12 SENATOR NORRIS ON FEBRUARY 25 AND 26, 1936, ADVISED THE SENATE:

"BY SECTION 12 THE ADMINISTRATOR IS AUTHORIZED AND EMPOWERED TO EXTEND THE TIME OF PAYMENT OF INTEREST OR PRINCIPAL. THAT IS CRITICIZED, BUT IT SEEMS TO ME ONLY FAIR THAT HE SHOULD BE GIVEN THE AUTHORITY TO EXTEND THE TIME OF PAYMENT IN CASE SOME GREAT CATASTROPHE SHOULD HAPPEN, SUCH AS HAS HAPPENED IN THE PAST, MAKING IT ALMOST NECESSARY FOR SUCH AN EXTENSION TO BE MADE."

"THE NEXT AMENDMENT WAS, ON PAGE 7, AFTER LINE 21, TO INSERT A NEW SECTION, AS FOLLOWS:

"SEC. 12. THE ADMINISTRATOR IS AUTHORIZED AND EMPOWERED TO EXTEND THE TIME OF PAYMENT OF INTEREST OR PRINCIPAL OF ANY OBLIGATION CREATED PURSUANT TO THIS ACT: PROVIDED, HOWEVER, THAT WITH RESPECT TO ANY LOAN MADE UNDER SECTION 4, THE PAYMENT OF INTEREST OR PRINCIPAL SHALL NOT BE EXTENDED MORE THAN 5 YEARS AFTER SUCH PAYMENT SHALL HAVE BECOME DUE, AND WITH RESPECT TO ANY LOAN MADE UNDER SECTION 5, THE PAYMENT OF PRINCIPAL OR INTEREST SHALL NOT BE EXTENDED MORE THAN 2 YEARS AFTER SUCH PAYMENT SHALL HAVE BECOME DUE.

"MR. COUZENS. MR. PRESIDENT, I SHOULD LIKE TO HAVE THE SENATOR FROM NEBRASKA TELL US THE PURPOSE OF THAT AMENDMENT. THERE IS NO PROVISION IN IT AS TO WHETHER THE INTEREST SHALL CONTINUE OVER THE 5-YEAR PERIOD AND THE 2-YEAR PERIOD, OR WHAT OCCASION MAY ARISE TO BRING ABOUT THE DESIRABILITY OF THOSE EXTENSIONS.

"MR. NORRIS. OF COURSE, I CANNOT TELL WHETHER A CASE WILL EVER ARISE WHERE AN EXTENSION WILL BE DESIRABLE; BUT IT WAS THOUGHT BEST TO GIVE THE ADMINISTRATOR THE POWER THAT IS AUTHORIZED TO BE GIVEN HIM IN SECTION 12 SIMPLY AS A MATTER OF SAFETY, SO THAT, ON THE OTHER HAND, WHEN A LOAN CAME DUE HE WOULD NOT BE COMPELLED UNDER THE LAW IMMEDIATELY TO PROCEED TO COLLECT IT. HE MIGHT BE LENIENT; HE MIGHT EXTEND IT; HE MIGHT WAIT A WHILE. IF WE DID NOT PUT THIS LANGUAGE IN THE BILL, THE ADMINISTRATOR WOULD FEEL THAT WHEN A LOAN BECAME DUE IT WAS HIS DUTY TO PROCEED AT ONCE TO MAKE COLLECTION. THIS AMENDMENT GIVES HIM A LITTLE LEEWAY. THAT IS THE ONLY REASON FOR IT THAT I KNOW. IT SEEMED ONLY FAIR THAT THE ADMINISTRATOR SHOULD HAVE THAT MUCH LEEWAY." 80 CONG. REC. 2579, 2832.

WHILE THE LANGUAGE OF SECTION 12 IS ADMITTEDLY BROAD, ITS LEGISLATIVE HISTORY AS SET OUT ABOVE AND THE LONG-STANDING ADMINISTRATIVE INTERPRETATION THEREOF CREATES CONSIDERABLE DOUBT AS TO WHETHER THAT SECTION WAS INTENDED TO CONSTITUTE SUFFICIENT AUTHORITY TO CARRY OUT THE RECOMMENDATION IN THE HOUSE REPORT. IN THE ABSENCE OF SUCH AUTHORITY IN SECTION 12, WE WOULD CONCLUDE THAT IN ORDER FOR A WAIVER TO BE GRANTED BY THE ADMINISTRATOR IT IS ESSENTIAL THAT ADEQUATE CONSIDERATION MUST FLOW TO REA IN EACH CASE WHERE SUCH WAIVER IS GRANTED.

WITH REGARD TO THE RECOMMENDATION IN THE SENATE REPORT, WHICH WOULD ONLY APPLY TO NEW LOANS, SECTION 4 OF THE RURAL ELECTRIFICATION ACT OF 1936, 7 U.S.C. 904, PROVIDES THAT LOANS MADE THEREUNDER "SHALL BE ON SUCH TERMS AND CONDITIONS RELATING TO THE EXPENDITURE OF THE MONEYS LOANED AND THE SECURITY THEREFOR AS THE ADMINISTRATOR SHALL DETERMINE." THUS, THE TERMS AND CONDITIONS OF LOANS MADE UNDER SECTION 4 ARE RESTRICTED TO THOSE RELATING TO THE EXPENDITURE OF THE MONEY LOANED AND THE SECURITY FOR SUCH LOANS. IT LIKEWISE IS QUESTIONABLE WHETHER THE CONDITION THAT WOULD BE IMPOSED BY THE SENATE COMMITTEE RECOMMENDATION, I.E., GRANT OF WAIVER ON CONDITION THAT DURING THE WAIVER PERIOD THE FUNDS OTHERWISE DUE AND PAYABLE TO RFC WOULD BE INVESTED IN CFC, RELATES EITHER TO THE EXPENDITURE OF THE MONEY LOANED OR TO THE SECURITY FOR SUCH LOAN.

IN PRIDEMARK V C.I.R., 345 F. 2D 35, 41 (1965) THE COURT ACKNOWLEDGED THAT CONFEREES THOUGHT A PRESENT STATUTORY SCHEME WAS ADEQUATE TO DEAL WITH A PROBLEM THROUGH EITHER JUDICIAL DECISION OR REGULATION AND CONSIDERED A CONFERENCE REPORT RECOMMENDATION IN REACHING A DECISION. ACCORDINGLY, IF THE CONFEREES ON H. R. 17923 DECIDE AND REPORT THAT:

(1) THERE IS AUTHORITY IN SECTION 4 TO FOLLOW THE SENATE COMMITTEE'S RECOMMENDATION; OR

(2) THERE IS AUTHORITY IN SECTION 12 TO FOLLOW THE HOUSE COMMITTEE'S RECOMMENDATION; OR BOTH, OUR OFFICE WILL ACCEPT THE CONFERENCE COMMITTEE'S RECOMMENDATION AND NOT OBJECT TO ANY ACTION TAKEN BY REA TO FOLLOW WHATEVER THE CONFEREES RECOMMEND, ASSUMING THAT THE HOUSE AND SENATE AGREE THERETO. IF THERE IS NO CLEAR AGREEMENT ON THE ISSUE, WE WILL BE GLAD TO CONSIDER THE MATTER FURTHER AT YOUR REQUEST IN THE LIGHT OF THE ENTIRE LEGISLATIVE HISTORY OF THE FINAL ENACTMENT.