Rural Utilities Service: Opportunities to Operate Electricity and Telecommunications Loan Programs More Effectively

Highlights

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.

Recommendations

Matter for Congressional Consideration

Matter	Status	Comments
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.	Closed – Not Implemented	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.
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.	Closed – Not Implemented	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.
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.	Closed – Not Implemented	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.
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.	Closed – Not Implemented	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.
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.	Closed – Not Implemented	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.
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.	Closed – Not Implemented	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.

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Topics

Economic Development

Delinquent loansDirect loansElectric utilitiesFinancial managementGovernment guaranteed loansLending institutionsLoan repaymentsRural economic developmentTelecommunicationsWaste disposal