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Congressional Testimony

Statement of Wally Beyer
Former Administrator
Utilities Programs

Before the House Subcommittee on
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
March 17, 1999


Mr. Chairman, members of the subcommittee, thank you for the opportunity to submit the President's FY 2000 budget and program proposals for the Utilities Programs (Utilities Programs). I want to begin by thanking you and the members of the subcommittee for your continued support for the infrastructure programs and policies of rural America. Together, we are helping rural America invest in its communities and its future.

A safe, affordable, modern utility infrastructure is a key component of economic competitiveness. It is also a fundamental building block of economic development. Dramatic regulatory and market changes are occurring in the telecommunications, electric and water utility sectors. Without the help of the Utilities Programs, rural communities will have a very difficult time financing their utility investments.

At Utilities Programs, we are continuously working to enhance rural utility efficiency by encouraging system mergers, leveraging private capital and forging new partnerships for economic development. We are reforming our program regulations to be more customer friendly, focusing our resources on rural development and loan security.

The nearly $42 billion Utilities Programs loan portfolio includes investments in approximately 7,500 small community and rural water and wastewater systems, and 2,000 telecommunications and electric systems, servicing approximately 84 percent of America's 3,096 counties. This 64-year old local/federal partnership is an American success story. It is a partnership providing critical infrastructure to 80 percent of the nation's landmass while enhancing the lives of 25 percent of the nation's population. That infrastructure spurs economic growth, creates jobs, and improves the quality of life in rural America. The vitality of rural communities truly depends on access to modern, reliable, and affordable utilities.

Reform, Reinvention and Responsibilities

Utilities Programs is not your mother and father's REA! We are working to make Utilities Programs pro-active in a rapidly changing utilities market. The success of the public-private partnership between Utilities Programs and its borrowers depends on the ability of borrowers to respond quickly to changing conditions. Consistent with the spirit of reinvention, the Utilities Programs continues to streamline its policies, offering borrowers more flexibility in financing, while ensuring safe, reliable modern utility service to rural Americans.

Specifically, Utilities Programs has reinvented its focus and activities by:

The Federal Partnership with Rural America

A diversified rural economy requires investment in infrastructure, and quality education and health care to foster economic growth. Affordable power creates on farm and off-farm employment. Modern wastewater treatment systems along with clean drinking water improve the rural environment and health. We must provide rural children with educational opportunities that will enable them to compete with the best and brightest from around the world. Our rapidly aging rural population must have affordable access to quality health care. Rural businesses need state- of-the-art communication technologies and affordable power to create new jobs and enhance the quality of life. All Americans should have a healthy environment and safe, clean drinking water and have their commercial and recreational water resources protected from contamination. Utilities Programs is helping rural communities in each of these areas.

Our goal is to help provide rural America with the tools and resources necessary to realize the full extent of its potential. We are applying creative thinking, personal commitment, and customer service to program delivery.

Telecommunications -- 50 years of Progress

1999 marks the 50th Anniversary of the Utilities Programs Telecommunications Program. In 1949, when the Telecommunications program started, only about 39 percent of U.S. farms were receiving telephone service of any kind. During Congressional hearings, many witnesses testified to both the need and demand for rural telephones, for area coverage, and for a source of long-term financing to change from magneto to dial. A new era for rural telephony began with enactment of the REA telephone loan legislation. Congress ensured that adequate telephone service be made generally available in rural areas and to the widest practicable number of rural users of such service.

Today, 50 years later, the Utilities Programs Telecommunications Program and the Rural Telephone Bank (RTB) have developed into successful, forward-focused programs with a continuing, strong demand for investment capital. We are making certain that Rural America succeeds in the digital age.

Advanced telecommunications services are crucial to rural America's economic development. Rural businesses must be able to compete and rural residents need better access to the global economy, quality health care, and quality educational opportunities. The concept of "basic" voice telephone service no longer exists. "Core" services, defined in terms of speed and bandwidth, that evolve with new technologies must be established and delivered to rural America.

Loans made by the Utilities Programs Telecommunications Program and RTB affect the lives of many rural residents. Rural telecommunications are providing advanced communications technologies for rural businesses, increased educational opportunities for rural students, and improved health care for rural residents. Utilities Programs and the RTB are working hard to assist borrowers in enhancing the standard of living, ensure the quality of life, and bring about economic development to rural America. As we approach the 50th anniversary, Utilities Programs has seen an increased demand for its financing.

This year's telecommunications budget proposes $560 thousand in budget authority to support $50 million in direct hardship telecommunications loans and $2.4 million in budget authority to support $300 million in Treasury-rate loans, as well as $3.3 million in budget authority to support $175 million in Rural Telephone Bank (RTB) loans.

The successful implementation of the Telecommunications Act of 1996 is critical for rural consumers. In addition to being a lending agency, Utilities Programs continues to be an advocate for rural citizens before federal and state regulators. We firmly believe that the benefits of the digital revolution must be shared by all Americans. Continued capital investments and operational and technical support are critical to maintaining a high level of quality in areas served by Utilities Programs borrowers.

The budget also reflects our commitment to privatize the RTB within the next 10 years. By establishing the RTB as a performance based organization (PBO), the RTB can demonstrate that its financial and managerial independence is consistent with privatization goals. The cost of the subsidy budget authority and administrative expenses would be paid from the unobligated RTB liquidating account balance in FY 2000.

DISTANCE LEARNING AND TELEMEDICINE

In the Distance Learning and Telemedicine (DLT) Program, the budget request of $20.7 million in budget authority will support $200 million DLT loans and $20 million in DLT grants.

The Distance Learning and Telemedicine Program provides financial assistance for rural education and health care providers seeking to utilize advanced telecommunications technologies. DLT loans and grants provide needed infrastructure and high technology end-use equipment for rural areas. This program is a powerful complement to the e-rate which provides discounts for monthly services and connections to schools, libraries, and rural health care facilities. The Federal Communications Commission administers the e-rate as part of the Universal Service Support System. The DLT program and the e-rate provide an unparalleled opportunity to use telecommunications to enhance rural education and health care providers.

Vice President Gore said it best when he announced the 1997 DLT awards. He stated: "This country cannot afford a digital divide between those who have access to the benefits of the Information Superhighway and those who do not."

Since 1993, the DLT program has funded 252 projects totaling $68 million in 43 states and two U.S. territories. These projects serve 850 schools and learning centers and 600 hospitals and rural health clinics. The DLT programs provide seed money to leverage almost two times its investment from other private and public sources.

Simply put, rural Americans must be connected to America's Information Superhighway. USDA/Utilities Programs is the catalyst for this rural connection.

ELECTRIC PROGRAM

The Electric Program budget proposes $10 million in budget authority to support a program level of $1 billion dollars. The President's Budget requests $450,000 budget authority for a hardship program level of $50 million; $9 million budget authority for a municipal rate program level of $250 million. The budget proposal provides a $300 million funding level for guaranteed loans. The loan guarantees do not require any budget authority.

The Utilities Programs Electric Program continues to serve one of the most effective local/public partnerships of the federal government. Today's program ensures that all areas of our nation have access to reliable, reasonably affordable, electric energy. We are also forging new and strengthened relationships with private lenders to offer Utilities Programs guarantee loans.

Over the last several years, changes have been made in the electric lending program to reduce the overall federal cost of the program. In an effort to reduce the cost of the electric program and provide yet another financing tool to meet increasing demand, the Administration again proposes a new Treasury Rate Loan Program to complement its existing loan programs. This $400 million loan program can be generated with only $320,000 of budget authority.

Each Utilities Programs electric loan dollar leverages an additional three dollars from private sources.

In the coming years, rural distribution and power supply systems will require continued assistance in upgrading and replacing an aging electric infrastructure to support growing electricity demand, new technologies, and a more competitive industry structure. For example, Utilities Programs financing will enable rural electric systems to replace aging, inefficient and undersized electric transformers and conductors to enhance the reliability of distribution and transmission systems to meet load growth while cutting line losses, improving energy efficiency, and reducing carbon and other air pollution emissions.

Demand for the Utilities Programs Electric Program exceeds available resources; there is currently a $1.3 billion waiting list for Utilities Programs electric financing assistance.

Financially Stressed Borrowers

Utilities Programs is also working very closely with electric borrowers facing financial stresses from past nuclear and large base-load generating plant investments and from increasing pressures from wholesale and retail competition. In each instance, Utilities Programs is diligent in ensuring that work-out agreements maximize the recovery to the Federal taxpayers. Today, Utilities Programs is actively working with six financially stressed borrowers as compared with some 15 borrowers four years ago.

Since its inception, Utilities Programs has worked closely with its borrowers to ensure the integrity of its loan portfolio. The financial health of each Utilities Programs borrower is of the utmost concern to the Agency and when that health is threatened, Utilities Programs immediately undertakes the steps necessary to minimize delinquencies. Utilities Programs' loan security goals and debt collection activities maximize the collection of delinquent debts owed to the Federal government by ensuring that collection and correctional activities are promptly pursued.

WATER AND ENVIRONMENTAL PROGRAMS

This budget seeks $503 million in budget authority for Water and Waste Disposal (WWD) grants; $2.746 million in budget authority for solid waste management grants; and $63.9 million in budget authority to support $900 million in WWD direct loans and $75 million in guaranteed loans.

The budget request includes $20 million for Colonias along the U.S. Mexico border, $16.2 million for technical assistance and training grants, $5.3 million for the circuit rider program, $20 million for rural Alaskan villages, and $34.7 million in budget authority for loans and grants in empowerment zones and enterprise communities. Our budget request will also allow third-party grantees (such as rural water circuit riders) to make over 28,000 water systems and 29,000 wastewater system contacts to assist communities with intensive assistance, and through a clearinghouse effort taking 28,000 telephone calls and 11,000 electronic bulletin board and web site contacts.

As a result of the strong technical assistance efforts, both from staff and third-party grantees/contractors, loan delinquency and loan losses will remain low. Currently, 1 percent of borrowers are delinquent and since the inception of the water and waste disposal program less than 0.1 percent of the amount loaned has been written off.

The Utilities Programs program improves the quality of life and health of about 1.3 million Americans each year by bringing safe drinking water and environmentally sound wastewater facilities to those rural communities in the greatest need. The program is delivered by a field network of Rural Development employees who provide "hands-on" technical and financial assistance through the Rural Community Advancement Program (RCAP).

In the Water and Environmental Program area, Utilities Programs has shown great leadership in using information age technologies to add value and efficiency. A Utilities Programs Intranet allows program delivery professionals up to the minute information, the ability to seek advice, share best practices and to store forms, bulletins, regulations and staff instructions online.

WATER 2000 PRESIDENTIAL INITIATIVE

The Water 2000 Initiative has been very successful at investing in the people and places where safe drinking water is needed most. The program has been so successful that demand for funds exceeds supply. Based on the Administration's belief and policy that low income, high unemployment and high poverty areas with water-related public health problems have the greatest needs, we increasingly target drinking water and environmental investments to those areas.

In a state-by-state safe drinking water assessment performed in 1995, Utilities Programs found that at least 2.5 million rural Americans had very critical needs for safe, dependable drinking water, including almost one million people who had no water piped into their homes. Approximately 5.6 million more were found to have serious needs under the Safe Drinking Water Act standards. At that time, the costs of meeting rural drinking water needs were estimated at $10 billion.

Under Water 2000 targeting guidelines, over four fiscal years, Utilities Programs has committed almost $1.8 billion in loans and grants to over 1,000 of the nation's highest priority safe drinking water projects. Water 2000 projects serve communities with the most limited financial resources and highest poverty rates. Once completed, Water 2000 projects funded as of October 1998 will provide 380,000 Americans water for the first time for the first time from properly constructed, maintained and tested public sources.

Few tell the Water 2000 story as clearly or dramatically as Carole Buckland of Binghamton, New York. "The families of Park Terrace in the town of Binghamton, New York are out of water! Water, the very thing that humans need for survival!" Carole wrote in a letter to President Clinton, asking for help for her community. That letter triggered a series of events that brought Carole Buckland to Washington, D.C. on July 13th 1998 to meet Vice President Gore, who announced that Binghamton would have a Water 2000 project and that the Park Terrace families would have "water, ...clean, safe water that would bring a quality of life that most of us take for granted."

We are proud of our record of helping rural communities help themselves bring drinking water and wastewater facilities to thousands of Americans - with strong emphasis on those who truly need our services most. As the application backlog illustrates, this is a huge job that directly affects the health and safety and economic well-being of rural America.

THE NEW TELECOMMUNICATIONS & ELECTRIC COMPETITIVE ENVIRONMENTS

To ensure that newly formulated policies address the role of rural utility systems in a deregulated marketplace, Utilities Programs has assumed a pro-active role in discussions with the Federal Communications Commission, Federal Energy Regulatory Commission and our partners in the Executive Branch to protect and enhance Utilities Programs loan security and improve the lives of rural residents. As this nation grapples with telecommunications and electric industry market reforms, Utilities Programs will remain in the forefront of these discussions and will lead the policy debate as it impacts rural Americans. In an ever-changing legislative and regulatory environment, ensuring the security of a $36 billion portfolio of telecommunications and electric loans while providing modern, high quality, reliable, and affordable infrastructure in rural America will present a formidable challenge into the 21st Century.

ELECTRIC RESTRUCTURING LEGISLATION

In 1998, President Clinton submitted legislation on electric retail market restructuring. Similar legislation is being prepared for reintroduction in 1999. I am pleased to report that the Utilities Programs made significant contributions to this landmark legislative proposal. No restructuring plan currently before the Congress is as complete or as sensitive to rural issues as the President's bill. The legislation recognized that restructuring will present challenges to rural areas and provide for a rural safety net of about $500 million a year to help mitigate any adverse effects on rural consumers. The USDA has looked very carefully at the effects of retail electric competition on rural communities. The proposal includes a flexible mandate, allowing states to opt out of retail competition. The bill also requires the Federal Energy Regulatory Commission to consider the multi-tiered nature of rural electric cooperatives; the tax exempt status of those cooperatives and the program interests and loan security of USDA in its rate-making authority. The Utilities Programs looks forward to working with the Congress to implement restructuring legislation which appropriately considers rural needs.

Y2K OUTREACH AND READINESS

In addition to working within the Rural Development Mission Area to ensure USDA's Y2K compliance, Utilities Programs has been a national leader on Y2K industry outreach. Utilities Programs featured its first Y2K presentation at its 1996 Telecommunications Engineering Symposium. In 1998, we aggressively brought the issue to the attention of our industry and community partners.

In our telecommunications and electric programs, we have surveyed our borrowers and issued regulations requiring borrowers to provide Y2K compliance statements for new loans and loan advances. We have offered our assistance and will expedite processing of Y2K related loan requests. For our Water and Environmental Programs, which are administered at the state level, Utilities Programs has utilized state program managers and circuit riders as well as our national conference to conduct effective Y2K outreach.

The Utilities Programs has also been very active in the President's Y2K council serving on the telephone, electric and environmental committees. Deputy Administrator Christopher McLean also serves on the Y2K Task Force of the National Association of Regulatory Commissioners.

Utilities Programs takes the Y2K situation very seriously. It is a matter of public health, safety and national security. Even if utility outages are limited and isolated, the consequences of Y2K failures for the communities affected will be no less grave. This problem can not be underestimated.

WEATHER RADIO

Already in 1999, savage winter tornadoes have ripped through the states of Arkansas, Tennessee and Mississippi. When disastrous weather strikes, the difference between survival and the loss of human life can be a matter of minutes. With early warning, families, especially children and the elderly can be afforded sufficient time to protect themselves in the face of oncoming tornadoes, flash floods and hurricanes. The National Oceanic and Atmospheric Administration (NOAA ) Early Warning Weather Radio network can help provide that margin of safety. NOAA weather radio provides warnings of dangerous weather conditions to nearly 70 percent of all Americans. The 30 percent of Americans without NOAA weather radio broadcasts are, however, almost entirely in rural areas.

For several years, Utilities Programs has participated in this interagency effort to expand the coverage of NOAA Weather Radio and to upgrade the current system to an all hazards network that will also warn against potential terrorist, economic, and environmental dangers. We have already identified unserved areas and tower resources among Utilities Programs borrowers where NOAA weather radio transmitters could be installed. While there is much still to do in rural America, there are already several success stories to report from these efforts. The State of Alabama, for example, has achieved near total state-wide coverage.

I am very pleased to report that the President's budget includes a new $5 million grant initiative in the Rural Development Community Facilities program to be administered by Utilities Programs that will add approximately 18 new transmitters to the NOAA Radio Network.

Utilities Programs estimates that, at current costs, it will take about $50 million to increase NOAA radio coverage from its current 70 percent to 95 percent. The $5 million in the President's Budget is an important commitment and tremendous initial step towards protecting the lives of rural Americans.

NATIVE AMERICAN OUTREACH

The Federal government has a special responsibility to and relationship with America's Native peoples. Since the earliest days of rural electrification, this agency has focused special attention on tribal communities. One of our earliest electric borrowers was the Navajo Nation. In telecommunications, five out of the seven tribally owned telephones companies are Utilities Programs borrowers. The significant Utilities Programs investments in utilities service in Alaska, provide service to some of the most remote native Alaskan villages. Just this year, the Utilities Programs Telecommunications Program made its second loan to Sandwich Isles Communications to provide state of the art telecommunications service to native Hawaiians living on homeland territory. The DLT program has also funded 21 projects serving tribal areas.

Utilities Programs investments in drinking water and wastewater projects serving tribal and rural Alaskan communities have increased by nearly 400 percent since FY 1993, and continue to grow. Utilities Programs is uniquely dedicated to helping unserved and under-served communities. We expect that in Fiscal Year 1999, the annual investment in tribes from our Water and Environmental Programs will exceed $25 million. Additionally, we are intensifying coordination of funds with the Indian Health Service and the U.S. Environmental Protection Agency (EPA) at higher levels than ever before.

CONCLUSION

USDA/Utilities Programs continues to help rural America build its future. Our ability to succeed in the next century depends, to a large extent, on the investments in productivity enhancing modern infrastructure. No where is that need greater than in rural America. With your continued support, Utilities Programs will play a significant role in advancing rural America's quality of life and enhancing its competitiveness in the global marketplace.

Thank you Mr. Chairman and the members of the committee.

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