Patronage Refunds:

Rural Telephone Bank's and Other Cooperatives' Methods to Refund Earnings

AFMD-89-27: Published: Dec 30, 1988. Publicly Released: Dec 30, 1988.

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In response to a congressional request, GAO determined whether the Rural Electrification Act specified a method that the Rural Telephone Bank (RTB) should use to refund any earnings to its class B stockholders.

GAO found that: (1) the act stipulated that RTB set aside for patronage refunds any annual earnings remaining after payment of operating expenses and dividends on class A and class C stock; (2) although RTB staff proposed an amendment that would permit periodic redemption of class B stock for cash prior to the retirement of class A stock, the board of directors did not adopt it; and (3) the most prevalent refund practice for other member-owned cooperatives was to issue cash refunds over periods ranging from 1 to 15 years after the year net income was earned, based on the percentage of interest that each stockholder paid during the period the earnings accumulated. GAO believes that, unless Congress amends the act: (1) no authority exists for RTB to pay cash dividends to class B stockholders; and (2) RTB can not redeem class B stock for cash prior to the redemption of all government-owned class A stock.

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