Rural Utilities Service:

Opportunities to Operate Electricity and Telecommunications Loan Programs More Effectively

RCED-98-42: Published: Jan 21, 1998. Publicly Released: Feb 4, 1998.

Contact:

Lawrence J. Dyckman
(202) 512-9692
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Pursuant to a congressional request, GAO reviewed the Rural Utilities Service's electricity and telecommunication loan programs, focusing on: (1) ways to make the loan programs more effective and less costly for the government; (2) ways to decrease the Rural Utilities Service's vulnerability to loan losses; and (3) loan information on commercial lenders that have a significant level of lending for rural electricity and telecommunication purposes.

GAO noted that: (1) because loan programs are intended to assist in the development of the nation's rural areas, targeting loans to borrowers that provide services to areas with low populations could result in the more effective use of the agency's limited loan funds; (2) current lending practices sometimes result in loans to borrowers serving areas that are heavily populated; (3) targeting subsidized direct loans to borrowers that need the agency's assistance to fund their utility projects could result in the more effective use of the loan funds and reduce the level of subsidized loans and program costs; (4) the agency sometimes makes its subsidized direct loans to borrowers capable of using their own resources or of obtaining loans from the private sector to fund their utility projects; (5) graduating the agency's financially viable borrowers from direct loans to commercial credit could also reduce program costs; (6) opportunities also exist to decrease the Rural Utilities Service's vulnerability to losses; (7) the agency's vulnerability could be lessened if loan and indebtedness limits were established; (8) borrowers have been able to obtain large-dollar loans and accumulate large amounts of debt because such limits are generally lacking; (9) the repayment guarantee that the agency places on loans made by other lenders could be reduced so that lenders holding the guaranteed loans bear some portion of the financial risk; (10) the agency guarantees the repayment of loans made by other lenders at 100 percent; (11) because all guaranteed loans in recent years have been made by the Treasury's Federal Financing Bank, the risk to the federal government as a whole would not be reduced if the Federal Financing Bank continues to be the sole source of loan funds; (12) although the agency did not make or guarantee loans to such borrowers during the period covered by GAO's review, there are no policies prohibiting additional loans to such borrowers; (13) the Rural Utilities Service is not the only provider of credit to rural utilities; (14) two commercial lenders are actively involved in lending to rural electricity and telecommunications providers; and (15) these two lenders had approximately $13.1 billion in outstanding principal on loans for rural electricity and telecommunication purposes.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matters for Congressional Consideration

    Matter: To further control the Rural Utilities Service's vulnerability to losses on guaranteed loans, Congress could consider setting the repayment provision at less than 100 percent.

    Status: Closed - Not Implemented

    Comments: This recommendation was presented in the report as an "Option for Congressional Consideration." To date, the Congress has not held hearings or proposed legislation to address this option.

    Matter: To limit the level of the agency's vulnerability to losses, Congress could consider setting limits on the total amount of money that the Rural Utilities Service provides or guarantees on any one loan and on the total amount of outstanding debt that any one borrower can accumulate through a combination of loans.

    Status: Closed - Not Implemented

    Comments: This recommendation was presented in the report as an "Option for Congressional Consideration." To date, the Congress has not held hearings or proposed legislation to address this option.

    Matter: To assist in moving financially healthy borrowers with direct loans to the commercial sector, Congress could consider having the Rural Utilities Service establish a graduation program to require borrowers to attempt to have their outstanding direct loans refinanced by commercial credit sources.

    Status: Closed - Not Implemented

    Comments: This recommendation was presented in the report as an "Option for Congressional Consideration." To date, the Congress has not held hearings or proposed legislation to address this option.

    Matter: To target subsidized direct loans to borrowers in need of the Rural Utilities Service's assistance and to control program costs, Congress could consider making financial tests a part of the eligibility criteria for the various types of direct loans in both programs. Additionally, cost-of-money rate loans could be established in the electricity program for borrowers that do not meet the financial tests for municipal rate loans. Furthermore, the interest rates for municipal rate loans and cost-of-money rate loans, if established in the electricity program, could be set no lower than the rate on a hardship rate loan. Finally, a test could be established to require a borrower to seek commercial credit as a condition for the Rural Utilities Service's assistance.

    Status: Closed - Not Implemented

    Comments: This recommendation was presented in the report as an "Option for Congressional Consideration." To date, the Congress has not held hearings or proposed legislation to address this option.

    Matter: To ensure that the Rural Utilities Service's assistance is targeted to rural areas with sparse populations, Congress could consider applying a population threshold test to the service areas of borrowers who apply for any Rural Utilities Service loan--not only for initial loans but also for any subsequent loans.

    Status: Closed - Not Implemented

    Comments: For fiscal year 2001, the Congress established a new Rural Utilities Service loan program that is specifically directed to assist communities with up to 20,000 inhabitants. This 1-year pilot program will provide $100 million in treasury rate loans to encourage telecommunications services to provide rural consumers with broadband services where such service is not currently available. In addition, the Congress has two bills, S. 966 and H.R. 2038, entitled the Rural Broadband Enhancement Act, that would make program targeted to small rural communities a permanent program.

    Matter: To ensure that the Rural Utilities Service does not increase its vulnerability to losses by making loans to certain risky borrowers, Congress could consider providing guidance specifying that a borrower is ineligible for a direct or guaranteed loan if the borrower is delinquent or if the borrower has caused the Rural Utilities Service to incur a prior loan loss.

    Status: Closed - Not Implemented

    Comments: This recommendation was presented in the report as an "Option for Congressional Consideration." To date, the Congress has not held hearings or proposed legislation to address this option.

    Jun 6, 2014

    May 14, 2014

    May 9, 2014

    Feb 6, 2014

    Jan 22, 2014

    Jan 15, 2014

    Sep 18, 2013

    Aug 26, 2013

    Jul 3, 2013

    Looking for more? Browse all our products here