B-148819, JUNE 5, 1962, 41 COMP. GEN. 792

B-148819: Jun 5, 1962

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SUCH AS LOANS MADE BY RURAL ELECTRIFICATION ADMINISTRATION FINANCED/ELECTRIC COOPERATIVES TO CONSUMER-BORROWERS WHERE THERE IS NO PRIVITY OF CONTRACT BETWEEN THE RURAL ELECTRIFICATION ADMINISTRATION AND THE BORROWER. APPLICANTS FOR AREA REDEVELOPMENT LOANS WHO ALSO HAVE LOANS FROM RURAL ELECTRIFICATION ADMINISTRATION COOPERATIVES FOR ELECTRICAL EQUIPMENT ARE NOT REQUIRED TO HAVE THE RURAL ELECTRIFICATION ADMINISTRATION LOANS CONSIDERED UNDER THE AREA REDEVELOPMENT LOAN LIMITATION. 1962: REFERENCE IS MADE TO LETTER OF MAY 3. THIS MATTER WAS THE SUBJECT OF DISCUSSION BETWEEN REPRESENTATIVES OF THE AREA REDEVELOPMENT ADMINISTRATION. IS AUTHORIZED TO MAKE LOANS INCLUDING PARTICIPATIONS IN LOANS TO AID IN FINANCING ANY PROJECT WITHIN A REDEVELOPMENT AREA FOR THE PURCHASE OR DEVELOPMENT OF LAND AND FACILITIES.

B-148819, JUNE 5, 1962, 41 COMP. GEN. 792

AGRICULTURE DEPARTMENT - RURAL ELECTRIFICATION ADMINISTRATION - LOANS TO COOPERATIVES - STATUS AS FEDERAL AID THE TERM "OTHER FEDERAL AID" IN SECTION 6 (B) (9) OF THE AREA REDEVELOPMENT ACT, 42 U.S.C. 2505 (B) (9), WHICH REQUIRES THE AMOUNT OF SUCH OTHER FEDERAL ASSISTANCE TO BE CONSIDERED IN DETERMINING THE MAXIMUM LIMITATION FOR AREA REDEVELOPMENT LOANS, HAS REFERENCE TO FEDERAL AID PROGRAMS DIRECTLY ADMINISTERED BY DEPARTMENTS AND AGENCIES, OTHER THAN THE AREA REDEVELOPMENT ADMINISTRATION, FOR AREA REDEVELOPMENT RATHER THAN BENEFITS INDIRECTLY DERIVED AS A RESULT OF FEDERAL EFFORTS TO FACILITATE ECONOMIC DEVELOPMENT, SUCH AS LOANS MADE BY RURAL ELECTRIFICATION ADMINISTRATION FINANCED/ELECTRIC COOPERATIVES TO CONSUMER-BORROWERS WHERE THERE IS NO PRIVITY OF CONTRACT BETWEEN THE RURAL ELECTRIFICATION ADMINISTRATION AND THE BORROWER; THEREFORE, APPLICANTS FOR AREA REDEVELOPMENT LOANS WHO ALSO HAVE LOANS FROM RURAL ELECTRIFICATION ADMINISTRATION COOPERATIVES FOR ELECTRICAL EQUIPMENT ARE NOT REQUIRED TO HAVE THE RURAL ELECTRIFICATION ADMINISTRATION LOANS CONSIDERED UNDER THE AREA REDEVELOPMENT LOAN LIMITATION.

TO THE SECRETARY OF COMMERCE, JUNE 5, 1962:

REFERENCE IS MADE TO LETTER OF MAY 3, 1962, FROM THE ASSISTANT SECRETARY OF COMMERCE FOR ADMINISTRATION AND PUBLIC AFFAIRS, REQUESTING TO BE ADVISED WHETHER LOANS MADE BY RURAL ELECTRIFICATION ADMINISTRATION, DEPARTMENT OF AGRICULTURE, FINANCED ELECTRIC COOPERATIVE ORGANIZATIONS TO COMMERCIAL OR INDUSTRIAL CONSUMERS CONSTITUTE " FEDERAL AID" WITHIN THE MEANING OF THAT TERM AS USED IN SECTION 6 (B) (9) OF THE AREA REDEVELOPMENT ACT, PUBLIC LAW 87-27, APPROVED MAY 1, 1961, 75 STAT. 51, 42 U.S.C. 2505 (B) (9). THIS MATTER WAS THE SUBJECT OF DISCUSSION BETWEEN REPRESENTATIVES OF THE AREA REDEVELOPMENT ADMINISTRATION, THE SMALL BUSINESS ADMINISTRATION, THE DEPARTMENT OF AGRICULTURE AND OUR OFFICE.

UNDER THE TERMS OF SECTION 6 (A) OF THE AREA REDEVELOPMENT ACT, 42 U.S.C. 2505 (A), THE SECRETARY OF COMMERCE, THROUGH THE AREA REDEVELOPMENT ADMINISTRATION, IS AUTHORIZED TO MAKE LOANS INCLUDING PARTICIPATIONS IN LOANS TO AID IN FINANCING ANY PROJECT WITHIN A REDEVELOPMENT AREA FOR THE PURCHASE OR DEVELOPMENT OF LAND AND FACILITIES, INCLUDING IN CASES OF DEMONSTRATED NEED MACHINERY AND EQUIPMENT, FOR INDUSTRIAL OR COMMERCIAL USAGE, INCLUDING THE CONSTRUCTION OF NEW BUILDINGS, THE REHABILITATION OF ABANDONED OR UNOCCUPIED BUILDINGS, AND THE ALTERATION, CONVERSION, OR ENLARGEMENT OF EXISTING BUILDINGS. SUBSECTION 6 (B), 42 U.S.C. 2505 (B), IMPOSES CERTAIN RESTRICTIONS AND LIMITATIONS ON THE FINANCIAL ASSISTANCE WHICH MAY BE EXTENDED UNDER THIS SECTION INCLUDING ITEM (9) WHICH READS, IN PERTINENT PART, AS FOLLOWS:

SUCH ASSISTANCE SHALL NOT EXCEED 65 PERCENTUM OF THE AGGREGATE COST TO THE APPLICANT (EXCLUDING ALL OTHER FEDERAL AID IN CONNECTION WITH THE UNDERTAKING) OF ACQUIRING OR DEVELOPING LAND AND FACILITIES (INCLUDING, IN CASES OF DEMONSTRATED NEED, MACHINERY AND EQUIPMENT), AND OF CONSTRUCTING, ALTERING, CONVERTING, REHABILITATING, OR ENLARGING THE BUILDING OR BUILDINGS OF THE PARTICULAR PROJECT * * *. ( ITALICS SUPPLIED.)

IT IS STATED IN THE LETTER, WHICH STATEMENTS ARE ALSO CONTAINED IN LETTER OF APRIL 16, 1962, FROM THE OFFICE OF THE GENERAL COUNSEL, DEPARTMENT OF AGRICULTURE, TO THE AREA REDEVELOPMENT ADMINISTRATION, A COPY OF WHICH WAS MADE AVAILABLE TO US, THAT THE RURAL ELECTRIFICATION ADMINISTRATION ( REA) OPERATING THROUGH THE USE OF TREASURY BORROWINGS IS AUTHORIZED, UNDER THE TERMS OF SECTION 5 OF THE RURAL ELECTRIFICATION ACT OF 1936, AS AMENDED, 7 U.S.C. 905, TO MAKE LOANS FOR THE ACQUISITION AND INSTALLATION OF ELECTRICAL AND PLUMBING APPLIANCES AND EQUIPMENT, EITHER DIRECTLY TO DEALERS AND SUPPLIERS OR TO REA COOPERATIVE ORGANIZATIONS, TO ASSIST THE COOPERATIVES IN FINANCING CONSUMERS IN THE ACQUISITION AND INSTALLATION OF SUCH APPLIANCES AND EQUIPMENT. AS A MATTER OF POLICY, THE REA MAKES THESE LOANS ONLY TO ITS ELECTRIFICATION BORROWERS FOR ELECTRIC SYSTEMS, WHICH ARE PRIMARILY COOPERATIVES, FOR RELENDING TO COMMERCIAL INDUSTRIAL CONSUMERS FOR THE INSTALLATION OF ELECTRICAL EQUIPMENT OR MACHINERY.

IT IS FURTHER STATED THAT SOME OF THE LOANS FROM REA COOPERATIVES TO CONSUMERS ARE MADE ENTIRELY FROM THE COOPERATIVE'S OWN GENERAL FUNDS ACQUIRED OTHER THAN BY BORROWINGS FROM REA, WHILE OTHER LOANS TO CONSUMERS MAY BE FINANCED IN WHOLE OR IN PART AS A RESULT OF BORROWINGS BY THE COOPERATIVE FROM REA FOR THE SPECIFIC PURPOSE OF OBTAINING FUNDS FOR SUCH CONSUMER LOANS. REGARDING REPAYMENT OF SECTION 5 LOANS, IT IS SAID TO BE THE POLICY OF REA TO LOOK TO THE COOPERATIVE AND ITS PROPERTY FOR REPAYMENT AND SECURITY THEREOF, SINCE THERE IS NO PRIVITY OF CONTRACT BETWEEN THE COOPERATIVE'S CONSUMER-BORROWER AND THE FEDERAL GOVERNMENT, AND SINCE THE COOPERATIVE'S OBLIGATION TO REPAY ITS REA LOAN IS NOT LEGALLY DEPENDENT UPON REPAYMENT BY CONSUMERS OF THEIR LOANS TO THE COOPERATIVE.

ALSO, IT IS POINTED OUT THAT WHILE REA EXERCISES ADMINISTRATIVE CONTROL OVER LOANS MADE TO THE COOPERATIVE, IT IS BASICALLY THE COOPERATIVE ITSELF AND NOT REA THAT DETERMINES WHETHER A CONSUMER LOAN SHALL BE MADE, TO WHOM IT IS MADE, AND THE TERMS AND CONDITIONS THEREOF. ON THE BASIS OF THESE FACTS, AND THE REPRESENTATIONS THAT SEVERAL APPLICATIONS ARE NOW PENDING BEFORE THE AREA REDEVELOPMENT ADMINISTRATION IN EACH OF WHICH THERE IS INVOLVED, IN CONNECTION WITH THE REDEVELOPMENT AREA PROJECT, THE FINANCING OF CERTAIN EQUIPMENT BY A LOAN A REA COOPERATIVE, THERE ARE PRESENTED FOR CONSIDERATION THE FOLLOWING QUESTIONS:

1. DO LOANS MADE BY AN REA COOPERATIVE FROM ITS ORDINARY FUNDS NOT RELATED TO DIRECT ACQUISITION FROM THE FEDERAL GOVERNMENT CONSTITUTE "OTHER FEDERAL AID" WITHIN THE MEANING OF SECTION 6 (B) (9) OF THE AREA REDEVELOPMENT ACT?

2. DO LOANS MADE BY REA COOPERATIVES WHICH ARE FINANCED IN WHOLE OR IN PART BY BORROWINGS FROM THE RURAL ELECTRIFICATION ADMINISTRATION CONSTITUTE, IN THE HANDS OF A CONSUMER,"OTHER FEDERAL ID" WITHIN THE MEANING OF SECTION 6 (B) (9) OF THE AREA REDEVELOPMENT ACT, AND IF SO, HOW SHALL A DETERMINATION BE MADE AS TO THAT PORTION OF THE LOAN WHICH MAY BE SAID TO CONSTITUTE "OTHER FEDERAL AID?

THE LANGUAGE OF SUBSECTION 6 (B) (9) QUOTED ABOVE DISCLOSES QUITE PLAINLY THE PRIMARY OBJECTIVE SOUGHT TO BE ACCOMPLISHED BY THE CONGRESS, TO WIT, TO LIMIT THE AMOUNT OF FEDERAL ASSISTANCE WHICH MAY BE EXTENDED TO INDUSTRIAL AND COMMERCIAL PROJECTS IN INDUSTRIAL AND RURAL REDEVELOPMENT AREAS BY AN AMOUNT NOT TO EXCEED 65 PERCENT OF THE AGGREGATE COST OF THE PROJECT TO THE APPLICANT, EXCLUSIVE OF ALL OTHER FEDERAL AID IN CONNECTION WITH THE PROJECT. WE HAVE BEEN UNABLE TO FIND ANY SPECIFIC EVIDENCE IN THE LEGISLATIVE HISTORY OF THIS SUBSECTION, OR OTHERWISE, OF AN INTENT ON THE PART OF THE CONGRESS TO ATTRIBUTE TO THE TERM " FEDERAL AID" AS USED THEREIN ANY SPECIAL OR TECHNICAL MEANING. RATHER, IT FAIRLY APPEARS THAT THE CONGRESS, BY THE USE OF SUCH TERM, BROADLY HAD REFERENCE TO EXISTING FEDERAL AID PROGRAMS ADMINISTERED BY DEPARTMENTS AND AGENCIES, OTHER THAN THE AREA REDEVELOPMENT ADMINISTRATION, IN THE FIELD OF AREA DEVELOPMENT.

FOR EXAMPLE, IT IS OBSERVED THAT PURSUANT TO TITLE IV OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, 72 STAT. 696, AS AMENDED, 15 U.S.C. 696, SUPP. III, THE SMALL BUSINESS ADMINISTRATION IS AUTHORIZED TO MAKE LOANS FOR PLANT CONSTRUCTION, CONVERSION OR EXPANSION, INCLUDING THE ACQUISITION OF LAND, TO STATE AND LOCAL DEVELOPMENT COMPANIES. AND, UNDER THE TERMS OF 25 U.S.C. 470, THE SECRETARY OF THE INTERIOR IS AUTHORIZED TO MAKE LOANS TO INDIAN CHARTERED CORPORATIONS TO PROMOTE THE ECONOMIC DEVELOPMENT OF SUCH TRIBES AND ITS MEMBERS.

THESE AND SIMILAR FEDERAL AID LOAN PROGRAMS OF AGENCIES OPERATING WITHIN A REDEVELOPMENT AREA HAVE A DIRECT RELATIONSHIP BETWEEN THE GOVERNMENT AND THE BORROWER LOOKING TO THE EFFECTIVE ESTABLISHMENT OR EXPANSION OF INDUSTRIAL OR COMMERCIAL PLANTS WITHIN SUCH AREA. THUS, IN GIVING EFFECT TO THE LIMIT OF FINANCIAL AID AUTHORIZED IN SUBSECTION 6 (B) (9) TO BE EXTENDED TO APPLICANTS, IN CONNECTION WITH INDUSTRIAL OR COMMERCIAL PROJECTS WITHIN A REDEVELOPMENT AREA, THE AMOUNT OF FEDERAL AID OTHERWISE MADE AVAILABLE FOR SUCH PROJECTS BY GOVERNMENT AGENCIES UNDER THEIR EXISTING LOAN PROGRAMS WOULD BE REQUIRED TO BE DEDUCTED FROM THE AGGREGATE COST TO THE APPLICANTS OF THE PROJECTS BEFORE APPLYING THE MAXIMUM LOAN LIMITATION OF 65 PERCENT THEREON.

WITH RESPECT TO REA SECTION 5 LOANS MADE TO ELECTRIC COOPERATIVES FOR RELENDING TO COMMERCIAL OR INDUSTRIAL CONSUMERS FOR THE INSTALLATION OF ELECTRICAL EQUIPMENT OR MACHINERY, IT IS CLEAR THAT SUCH LOANS REPRESENT FINANCIAL TRANSACTIONS PRIMARILY INVOLVING REA AND THE COOPERATIVES. REA LOOKS TO THE COOPERATIVES RATHER THAN TO THE CONSUMER-BORROWER FOR REPAYMENT AND SECURITY OF ITS LOANS. THE CONSUMER-BORROWER IN NEGOTIATING A LOAN FROM A COOPERATIVE DOES NOT NECESSARILY HAVE KNOWLEDGE OF AND IS NOT CONCERNED WITH THE SOURCE OF ITS LOAN FUNDS, VIZ., PRIVATE FUNDS OF THE COOPERATIVE, REA FUNDS EXPRESSLY BORROWED AND USED BY THE COOPERATIVE TO ACCOMPLISH THE LOAN TRANSACTION, OR A COMBINATION OF BOTH TYPES OF FUNDS. HIS DEALINGS ARE WITH THE COOPERATIVE AND THE OBLIGATIONS RESULTING THEREFROM RUN ONLY TO THE COOPERATIVE. HENCE, AS STATED HEREINABOVE, THERE IS NO PRIVITY OF CONTRACT BETWEEN THE REA AND CONSUMER- BORROWERS ON ACCOUNT OF LOANS OBTAINED BY THE LATTER FROM REA FINANCED COOPERATIVES.

WE RECOGNIZE THAT CONSUMER-BORROWERS OBTAIN MATERIAL BENEFITS AS A RESULT OF LOANS FROM REA FINANCED COOPERATIVES. HOWEVER, WE DOUBT THAT SUCH BENEFITS PROPERLY MAY BE CLASSIFIED AS FEDERAL AID WITHIN THE MEANING OF THAT TERM AS USED IN SUBSECTION 6 (B) (9). IT IS OUR VIEW THAT THE FEDERAL AID CONTEMPLATED IN THAT SUBSECTION WAS INTENDED, AS ILLUSTRATED ABOVE, TO HAVE REFERENCE TO FEDERAL AID DIRECTLY ADMINISTERED BY GOVERNMENT AGENCIES IN THE PERFORMANCE OF THEIR STATUTORY LOAN PROGRAMS IN REDEVELOPMENT AREAS, AND THAT IT WAS NOT INTENDED TO INCLUDE BENEFITS INDIRECTLY DERIVED BY THE PUBLIC AS A RESULT OF FEDERAL EFFORTS TO FACILITATE ECONOMIC DEVELOPMENT. CONSEQUENTLY, AND FOR THE REASONS STATED ABOVE, BOTH OF THE QUESTIONS PRESENTED ARE ANSWERED IN THE NEGATIVE.

A COPY OF THIS DECISION IS BEING FURNISHED TO THE SECRETARY OF AGRICULTURE AND THE ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION.