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The original documents are located in Box 32, folder "11/4/75 HR4799 Rural
Electrification Act Amendments" of the White House Records Office: Legislation Case
Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
Signed
APPROVED
11/4
NOV 4- 1975
THE WHITE HOUSE
ACTION
WASHINGTON
Last Day: November 5
November 4, 1975
Posted
11/5
To archis
MEMORANDUM FOR
THE PRESIDENT
15
FROM:
JIM CANNON
SUBJECT:
H.R. 4799 - Rural Electrification
Act Amendments
Attached for your consideration is H.R. 4799, sponsored by
Representative Poage, which amends the Rural Electrification
Act to:
-- Expressly authorize the assignment of REA-guaranteed
loans;
-- Clarify the conditions under which the REA guarantee
is incontestable; and
-- Require the Secretary of Agriculture to testify before
Congressional Agriculture Committees concerning the
REA budget.
Additional discussion of the bill is provided in OMB's
enrolled bill report at Tab A.
OMB, Max Friedersdorf, Counsel's Office (Lazarus) and I
recommend approval of the enrolled bill.
RECOMMENDATION
That you sign H.R. 4799 at Tab B.
FORD is DERALD LIBRARY
Digitized from Box 32 of the White House Records Office Legislation Case Files at the Gerald R. Ford Presidential Library
PRESIDENT
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
APPROVED STATES UNITED
WASHINGTON, D.C. 20503
OCT 30 1975
NOV 4-
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill H.R. 4799 - Rural Electrification
Act Amendments
Sponsor - Rep. Poage (D) Texas
Last Day for Action
November 5, 1975 - Wednesday
Purpose
Amends the Rural Electrification Act to (1) expressly
authorize the assignment of REA-guaranteed loans, (2)
clarify the conditions under which the REA guarantee is
incontestable, and (3) require the Secretary of Agriculture
to testify before Congressional Agriculture Committees
concerning the REA budget.
Agency Recommendations
Office of Management and Budget
Approval
Department of Agriculture
Approval
(Informally)
Department of Justice
Defers to Agriculture
Department of the Treasury
No recommendation
Discussion
Under present law, the Administrator of the Rural
Electrification Administration is authorized to guarantee
loans made to rural telephone and electric systems by
lenders other than REA. These are either private loans
outside of the budget or "off-budget" loans and the
guarantee is incontestable except for fraud or
misrepresentation "of which the holder has actual
knowledge."
However, the present law does not specifically authorize
the assignment of (1) a lender's REA guarantee, along
2
with the guaranteed loans, to a trustee as security for
their bonds, or (2) these guarantees to holders of securi-
ties representing beneficial ownership in the guaranteed
loans. Moreover, doubts have arisen concerning the incon-
testability of REA loan guarantees in cases where the holder
learns of fraud or misrepresentation after the holder has
obtained the guarantee in good faith. This situation
reportedly has made it difficult, if not impossible, for
certain lenders to borrow at favorable rates in the capital
market. To date, all loans guaranteed by REA have been made
by the Federal Financing Bank making them effectively "off-
budget" direct loans.
H.R. 4799 would amend the Rural Electrification Act of
1936 by:
First, expressly authorizing the assignment of REA-
guaranteed loans to the extent provided for in the
contract of guarantee executed by the REA
Administrator.
Second, clarifying that the holder is vulnerable
to loss of the loan guarantee only if he had actual
knowledge of fraud or misrepresentation at the time
he became a holder.
Third, requiring the Secretary of Agriculture, on or
before February 15 of each calendar year beginning
in 1976, or such other date as may be specified by
the appropriate committee, to testify before the
Congressional Agriculture Committees with respect
to the Administration's subsequent fiscal year
budget request.
In reporting to the Agriculture Committees on H.R. 4799
before the provision concerning the Secretary's REA budget
testimony was added, Agriculture supported the bill but
expressed opposition to any interpretation of the legisla-
tion under which certain loan transactions would be allowed
to provide unwarranted tax benefits to some holders of
assigned REA loan guarantees. In this regard, the reports
of both the House and Senate Committee on the bill state
that there is no intention to change REA's existing policy
against such transactions. Finally, we have no objection
to the requirement for the Secretary to testify on REA's
3
budget, as it is simply a reflection of the desire of the
two legislative committees for better oversight of REA.
James Assistant m. Director Trey for
Legislative Reference
Enclosures
OF
DEPARTMENT THE TREASURY
THE
THE GENERAL COUNSEL OF THE TREASURY
WASHINGTON. D.C. 20220
1789
OCT 2 4 1975
Director, Office of Management and Budget
Executive Office of the President
Washington, D. C. 20503
Attention: Assistant Director for Legislative
Reference
Sir:
Reference is made to your request for the views of
this Department on the enrolled enactment of H.R. 4799,
"To amend sections 6, 306, and 308 of the Rural Electrification
Act of 1936, as amended."
The enrolled bill, inter alia, would amend section 306 of
the Rural Electrification Act of 1936 to provide that a loan
guaranteed by the Administrator under that section may be
assigned. It would amend section 308 of the Act with regard
to the assignability and uncontestability of the REA guarantees.
In a June 9, 1975 report to your office, the Department
opposed the clearance of a proposed Agriculture report
recommending enactment of H.R. 4799. The Department's report
stated that H.R. 4799 is intended to facilitate market
financing of the REA guarantee program, and that the amendments
were unnecessary and inappropriate because the program is
being financed through the Federal Financing Bank. However,
your office cleared an Agriculture report dated June 17, 1975
on H.R. 4799 substantially similar to the report opposed by
this Department.
In the circumstances, the Department has no recommendation
concerning the enrolled enactment.
Sincerely yours,
General Counsel
Richard R. Albrecht
STATES DEPARTMENT )
DEPARTMENT OF AGRICULTURE
OFFICE OF THE SECRETARY
WASHINGTON, D. C. 20250
October 24, 1975
Honorable James T. Lynn
Director, Office of Management
and Budget
Washington, D. C. 20503
Dear Mr. Lynn:
In reply to the request from your office, the following report is
submitted on the enrolled enactment H.R. 4799, "To amend sections 6,
306 and 308 of the Rural Electrification Act of 1936, as amended."
This Department recommends that the President approve the bill.
The amendment to section 6 would require the Secretary of Agriculture
to testify before the Senate Committee on Agriculture and Forestry and
the House Committee on Agriculture and provide justification in detail
of the amount of money requested in the budget to be appropriated for
the next fiscal year. This is to be on or before February 15 of each
calendar year or such other date specified by the appropriate committee.
The amendments to section 306 provide that an REA loan guarantee may be
assigned by the lender to the extent provided in the contract of guarantee
executed by the Administrator of REA. The absence from Section 306 of
the Rural Electrification Act of express provision for pledging or assign-
ing guarantees had raised legal doubts in the financial community whether
either pledging or other assignment was authorized. These doubts arose
primarily from the definition of a guaranteed loan under Section 306 as
"one which is made, held, and serviced by a legally organized lending
agency and which is guaranteed by the Administrator hereunder. " The
question was raised by some lawyers whether the requirement that a guar-
anteed loan be "held" as well as "made" by the lender foreclosed anyone
other than the lender from "holding" a guaranteed loan. While not all
attorneys may agree with this restrictive interpretation, provision for
agreement concerning assignability of guarantees is clearly desirable if
the loan guarantee program is to operate effectively in the capital markets.
This specific provision gives REA better control over the assignability of
these guarantees.
The amendment to section 308, the incontestability provision, would merely
make clear that the fraud or misrepresentation which would bar a holder
from enforcing the guarantee must have been known to the holder at the
time he acquired the loan. It would do this by substituting for the words
The Honorable James T. Lynn
October 24, 1975
Page Two
"of which the holder has actual knowledge," the words "of which the
holder had actual knowledge at the time it became a holder." The need for
clarifying Section 308 arises from the fact that attorneys for invest-
ment bankers and other organizations in the financial community, which
are expected to purchase securities issued by REA-guaranteed lenders in
reliance on the incontestability provision, have raised doubts concerning
the proper interpretation of Section 308. These doubts would be laid to
rest by the proposed change in the incontestability provision.
This Department does not believe that enactment of this enrolled bill
would have any measurable direct effect on the costs of carrying out the
provisions of the Rural Electrification Act of 1936, as amended.
Sincerely,
Richard L. Feltner
Assistant Secretary
ASSISTANT ATTORNEY GENERAL
LEGISLATIVE AFFAIRS
Department of Justice
Washington, D.C. 20530
October 30, 1975
Honorable James T. Lynn
Director, Office of Management
and Budget
Washington, D. C. 20503
Dear Mr. Lynn:
In compliance with your request, I have examined
a facsimile of the enrolled bill (H.R. 4799), "To amend
sections 6, 306, and 308 of the Rural Electrification
Act of 1936, as amended".
H.R. 4799 would expressly authorize assignments of
REA loan guarantees thus permitting such lenders to
utilize such guarantees to obtain for the rural systems
reasonable interest rates. In addition, the bill pro-
vides for incontestability of the Government guarantee
except for fraud or misrepresentation "of which the
holder had actual knowledge at the time it became a
holder". Furthermore, H.R. 4799 would require an annual
authorization from Congress for each fiscal year begin-
ning after September 30, 1976 of appropriations needed.
for administration of the Act. This annual authorization
would apply to administrative expenses and not to the
loan funds used in the operation of the program.
The Department of Justice defers to the Department
of Agriculture concerning whether this bill should re-
ceive Executive approval.
Sincerely,
Michael W Whlmam
Michael M. Uhlmann
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.:
Date: October 31
Time: 400pm
FOR ACTION: Paul Leach
oh
cc (for information): Jim Cavanaugh
Max Friedersdorf
Jack Marsh
Ken Lazarus the
FROM THE STAFF SECRETARY
DUE: Date: November 3
Time: noon
SUBJECT:
H.R. 4799-Rural Electrification Act Amendments
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
ACTION MEMORANDU M
WASHINGTON
LOG NO.:
Date: October 31
Time: 400pm
FOR ACTION: Paul Leach
CC (for information): Jim Cavanaugh
Max Friedersdorf
Jack Marsh
Ken Lazarus
FROM THE STAFF SECRETARY
DUE: Date: November B
if
Time: noon
SUBJECT:
H.R. 4799-Rural Electrification Act Amendments
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
No objection. -- Ken Lazarus 11/4/75
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
James H.
telephone the Staff Secretary immediately.
For the
dent
THE WHITE HOUSE
WASHINGTON
November 4, 1975
MEMORANDUM FOR:
JIM CAVANAUGH
FROM:
MAX L. FRIEDERSDORF M. m.b.
SUBJECT:
H.R. 4799 - Rural Electrification Act Amendments
The Office of Legislative Affairs concurs with the agencies
that the
subject bill be signed.
Attachments
94TH CONGRESS
}
HOUSE OF REPRESENTATIVES
REPORT
1st Session
No. 94-353
RURAL ELECTRIFICATION LOAN PROGRAM
AMENDMENTS
JULY 14, 1975.-Committed to the Committee of the Whole House on the State
of the Union and ordered to be printed
Mr. FOLEY, from the Committee on Agriculture, submitted the
following
REPORT
[To accompany H.R. 4799]
The Committee on Agriculture, to whom was referred the bill
(H.R. 4799), to amend sections 306 and 308 of the Rural Electrifica-
tion Act of 1936, as amended, having considered the same, reports
favorably thereon with amendments and recommends that the bill
as amended do pass.
The amendments are as follows:
Page 2, at the end of line 8, add the following new section:
SEC. 3. Section 6 of the Rural Electrification Act of 1936,
as amended, is amended by striking the period at the end of
said section and adding the following: "Provided, That the
amounts authorized to be appropriated for the purposes speci-
fied in this section for each fiscal year ending after Septem-
ber 30, 1976, shall be the sums provided annually by law.",
and amend the title to read as follows: "To amend sections 6,
306, and 308 of the Rural Electrification Act of 1936, as
amended."
PURPOSE AND NEED FOR THE LEGISLATION
H.R. 4799 amends sections 6, 306 and 308 of the Rural Electrifica-
tion Act of 1936, as amended. The amendments to sections 306 and
308 (1) add statutory language which expressly authorizes the assign-
ment of REA guarantees; and (2) clarify the provision of section 308
which provides for incontestability of the Government guarantee
"except for fraud or misrepresentation of which the holder has actual
knowledge."
57-006
2
3
The 1973 amendments to the Rural Electrification Aet (Publie Law
salaries and expenses, investigations, publications, and reports, but
93-32) vested in the Administrator of REA the authority to guarantee
not to the loan funds used in the operation of the program such as
loans made to rural electric and telephone systems by lenders other
funds used for insured and guaranteed loans.
than REA. The Committee believes that the amendments proposed
by this bill would contribute significantly to the efficient implementa-
SECTION-BY-SECTION ANALYSIS OF H.R. 4799
tion of the guaranteed loan program by permitting such lenders to
utilize REA guarantees to obtain for the rural systems the reasonable
Section 1 of the bill amends section 306 of the Rural Electrification
interest rates which they require.
Act of 1936, as amended, by expressly authorizing assignment of REA-
The change made by H.R. 4799 in section 306 adds language to
guaranteed loans, including the related guarantee, to the extent per-
expressly authorize the assignment of REA guarantees so as to elimi-
mitted by the REA Administrator.
nate questions which have arisen concerning the assignability and in-
Section 2 of the bill clarifies section 308 of the Rural Electrification
contestability of REA loan guarantees. The assignment or pledge of
Act, which provides for REA contracts of insurance and guarantee to
guarantees is essential if REA-approved lenders are to be able to utilize
be supported by the full faith and credit of the United States, to assure
guarantees to obtain funds at the lowest possible interest rates for the
that such contracts shall be incontestable except for fraud or misrepre-
benefit of the rural systems. To achieve this end, lenders must be able
sentation of which the holder had actual knowledge at the time it
effectively to assign or pledge their REA guarantees, along with the
became a holder.
guaranteed loans, to a trustee as security for their bonds, or assign
Section 3 of the bill amends section 6 of the Rural Electrification
these guarantees to holders of securities representing beneficial owner-
Act to require that there must be an annual authorization from the
ship in the guaranteed loans.
Congress for each fiscal year ending after September 30, 1976, before
The absençe from section 306 of express provision for assigning or
appropriations can be made for administrative expenses, and the cost
pledging guarantees has caused doubts whether any such assignment
of studies, investigations, publications and reports. The requirement
or pledge is authorized. Should such doubts ultimately prevail in the
would not be a prerequisite, however, to the use of funds for the
financial community, it may prove impossible for REA-approved
making of loans under the program.
lenders to borrow in the capital market at the favorable rates contem-
plated by the guarantee provision of the Rural Electrification Act.
COMMITTEE CONSIDERATION
The bill furnishes the assignability language required to erase these
doubts. It would also leave in the complete control of the REA Ad-
H.R. 4799 was introduced on March 12, 1975, and referred to the
ministrator the extent of permissible assignments. Such commitment
Conservation and Credit Subcommittee. Since this bill contains pri-
of assignability authority to Government agency discretion would be
marily technical and clarifying amendments, the Subcommittee held
consistent with the handling of guarantee assignments in other Federal
one day of hearing and an open business meeting on June 12, 1975.
Testimony was heard from the Department of Agriculture and the
statutes.
The second technical amendment of the bill would clarify in an im-
National Rural Electrical Cooperative Association; both were in
portant respect section 308, which provides for REA contracts of in-
strong support of H.R. 4799.
surance and guarantee to be supported by the full faith and credit of
In an open business meeting, following the hearing, in the presence
the United States. Section 308 now stipulates that the Government's
of a quorum, the Subcommittee voted unanimously that the bill be
full faith and credit obligation shall be "incontestable except for fraud
reported to the full Committee.
In the Subcommittee consideration of H.R. 4799, Mr. de la Garza
or misrepresentation of which the holder has actual knowledge."
Questions have been raised whether this language might be construed
proposed an amendment to provide that for each fiscal year beginning
to bar enforcement of an REA guarantee held by an assignee, pledgee
after September 30, 1976, an authorization is required from the Con-
or other holder who first learned of fraud or misrepresentation on the
gress before funds may be appropriated for the purposes of section 6
part of the original lender after the holder had acquired the guarantee
of the Act, namely, for administrative and related expenses. The
in good faith. The proposed amendment merely makes clear the ap-
amendment was adopted unanimously.
The amendment was offered to assure that the Committee would be
plicability of the equitable rule that an assignee's vulnerability to
defenses of fraud or misrepresentation arises only if the assignee had
able to exercise effective oversight concerning the program and is
actual knowledge of the fraud or misrepresentation at the time it
similar to amendments being proposed to other agricultural legislation.
became a holder of the guarantee.
The letter from the U.S. Department of Agriculture containing the
Finally, the bill contains an amendment to the Rural Electrification
official Administration position was not received until H.R. 4799 had
Act which would enable the Committee to exercise more effective
been reported to the full Committee. The letter contained a statement
oversight concerning the operations of the program. The amendment
regarding leverage leasing, a matter which was not the subject of the
would require an annual authorization from the Congress for each
bill and was not considered in the hearing before the Subcommittee.
fiscal year beginning after September 30, 1976, of appropriations
The Committee notes that the Department of Agriculture addresses
needed for administration of the Act. The requirement would apply to
itself in its report on H.R. 4799 to the use of REA loan guarantees in
leveraged lease transactions. The Department specifically states that
H.R. 353
H.R. 353
4
5
its "position on this bill is predicated on the assumption that the
would be incurred by the Federal Government during the current
intent of the legislation is not to permit the assignment of guaranteed
and the five subsequent fiscal years as a result of the enactment of
loans or loan guarantees to lessors in leveraged leases." The Committee
this legislation. The Committee estimates that only minimal ad-
in recommending approval of this legislation does not in any way seek
ministrative expenses would be incurred in carrying out the provisions
to prohibit or approve the use of REA guarantees in leveraged lease
of this bill.
financing.
The same cost estimate was submitted to the Committee by the
In an open business meeting on June 24, 1975, H.R. 4799 was
Department of Agriculture.
reported, as amended, and recommended to pass by a unanimous
voice vote in the presence of a quorum.
INFLATIONARY IMPACT STATEMENT
ADMINISTRATION POSITION
Pursuant to clause 2(1) (4), rule XI of the Rules of the House of
Representatives, the Committee estimates that enactment of H.R.
The following letter forwarded to the Chairman by William Erwin,
4799 will have no inflationary impact on the national economy.
Assistant Secretary, dated June 17, 1975, sets forth the position of the
Department of Agriculture on H.R. 4799:
BUDGET ACT COMPLIANCE (SECTION 208 AND SECTION 403)
DEPARTMENT OF AGRICULTURE,
The provisions of clause 1(3) (B) and clause 1(3) (C) of rule XI
OFFICE OF THE SECRETARY,
of the House of Representatives and section 308(a) and section 403
Washington, D.C., June 17, 1975.
of the Congressional Budget Act of 1974 (relating to estimates of new
Hon. Thomas S. FOLEY,
budget authority or new or increased tax expenditures and the es-
Chairman, Committee on Agriculture,
timate and comparison prepared by the Director of the Congressional
House of Representatives.
Budget Office), are not considered applicable because the bill should
DEAR MR. CHAIRMAN: This is in response to your letter of April 10,
have no effect on existing spending estimates for fiscal year 1976.
1975, requesting a report on H.R. 4799, a bill "To amend sections
306 and 308 of the Rural Electrification Act of 1936, as amended."
OVERSIGHT STATEMENT
This Department recommends that the bill be enacted.
H.R. 4799 would in general: (1) add statutory language which
No summary of oversight findings and recommendations made by
the Committee on Government Operations under clause 2(b)(2) of
would expressly authorize the assignment of REA guarantees; and
Rule X of the Rules of the House of Representatives was available
(2) clarify. the provision of section 308 which provides for incontesta-
bility of the Government guarantee "except for fraud or misrepresen-
to the Committee with reference to the subject matter specifically
addressed by S. 435.
tation of which the holder has actual knowledge."
This Department does not believe enactment of H.R. 4799 would
No specific oversight activities, other than the hearings accompany-
have any measurable direct effect on the costs of carrying out the
ing the Committee's consideration of H.R. 4799, were made by the
Committee, within the definition of Rule XI of the House of
provisions of the Rural Electrification Act of 1936, as amended.
This Department believes that enactment of this bill would clarify
Representatives.
CHANGES IN EXISTING Law
the guarantee provision in the Act and facilitate the obtaining of
funds in the money market for bulk power facility financing under the
In compliance with clause 3 of rule XIII of the Rules of the House
REA "guarantee program."
of Representatives, changes in existing law made by the bill are shown
The Department's position on this bill is predicated on the assump-
as follows (existing law proposed to be omitted is enclosed in black
tion that the intent of the legislation is not to permit the assignment
brackets, new matter is printed in italic, and existing law in which
of guaranteed loans or loan guarantees to lessors in leveraged leases.
no change is proposed is shown in roman):
If such were the intent the Department would oppose enactment of
the bill.
RURAL ELECTRIFICATION AcT OF 1936, AS AMENDED
The Office of Management and Budget advises that there is no
objection to the presentation of this report.
*
*
Sincerely,
SEC. 6. For the purpose of administering this Act and for the purpose
WILLIAM ERWIN,
of making the studies, investigations, publications, and reports herein
Assistant Secretary,
provided for, there is hereby authorized to be appropriated, out of
any money in the Treasury not otherwise appropriated, such sums
CURRENT AND FIVE SUBSEQUENT FISCAL YEAR COST ESTIMATE
as shall be necessary[ Provided, That the amounts authorized to be
Pursuant to clause 7 of rule XIII of the Rules of the House of
appropriated for the purposes specified in this section for each fiscal
Representatives, the Committee estimates that no measurable cost
H.R. 354
H.R. 353
6
year ending after September 30, 1976, shall be the sums provided annually
by law.
SEC. 306. GUARANTEED LOANS; ACCOMMODATION AND
SUBORDINATION OF LIENS.-The Administrator may provide
financial assistance to borrowers for purposes provided in the Rural
Electrification Act of 1936, as amended, by guaranteeing loans, in the
full amount thereof, made by the Rural Telephone Bank, National
Rural Utilities Cooperative Finance Corporation, and any other
legally organized lending agency, or by accommodating or subordinat-
ing liens or mortgages in the fund held by the Administrator as owner
or as trustee or custodian for purchasers of notes from the fund, or by
any combination of such guarantee, accommodation, or subordination.
No fees or charges shall be assessed for any such guarantee, accom-
modation, or subordination. Guaranteed loans shall bear interest at
the rate agreed upon by the borrower and the lender. Guaranteed
loans, and accommodation and subordination of liens or mortgages,
may be made concurrently with a loan insured at the standard rate.
The amount of guaranteed loans shall be subject only to such limita-
tions as to amounts as may be authorized from time to time by the
Congress of the United States: Provided, That any amounts
guaranteed hereunder shall not be included in the totals of the budget
of the United States Government and shall be exempt from any
general limitation imposed by statute on expenditures and net lending
(budget outlays) of the United States. As used in this title, a guaran-
teed loan is one which is initially made, held, and serviced by a
legally organized lending agency and which is guaranteed by the
Administrator hereunder. A guaranteed loan, including the related
guarantee, may be assigned to the extent provided in the contract of
guarantee executed by the Administrator under this title; the assignability
of such loan and guarantee shall be governed exclusively by said contract
of guarantee.
*
*
*
*
*
SEC. 308. FULL FAITH AND CREDIT OF THE UNITED
STATES.-Any contract of insurance or guarantee executed by the
Administrator under this title shall be an obligation supported by
the full faith and credit of the United States and incontestable except
for fraud or misrepresentation [of which the holder has actual knowl-
edge] of which the holder had actual knowledge at the time it became a
holder.
H.R. 353
Calendar No. 412
94TH CONGRESS
SENATE
REPORT
1st Session
No. 94-424
RURAL ELECTRIFICATION LOAN PROGRAM
AMENDMENTS
OCTOBER 9 (legislative day, SEPTEMBER 11), 1975.-Ordered to be printed
Mr. McGovern, from the Committee on Agriculture and Forestry,
submitted the following
REPORT
[To accompany H.R. 4799]
The Committee on Agriculture and Forestry, to which was referred
the bill (H.R. 4799) to amend sections 6, 306, and 308 of the Rural
Electrification Act of 1936, as amended, having considered the same,
reports favorably thereon with an amendment and recommends that
the bill as amended do pass.
SHORT EXPLANATION
H.R. 4799, as amended by the Committee, amends the Rural Elec-
trification Act of 1936 to (1) authorize expressly assignment of REA-
guaranteed loans, and (2) clarify the Act by providing that a person's
vulnerability to the defenses of fraud or misrepresentation arises only
if he had actual knowledge of the fraud or misrepresentation at the
time he became a holder of an REA guarantee. The bill also requires
that the Secretary of Agriculture appear annually before the House
Committee on Agriculture and the Senate Committee on Agriculture
and Forestry and provide justification for the amount requested to be
appropriated in the President's budget for necessary administrative
expenses in carrying out the Rural Electrification Act.
COMMITTEE AMENDMENT
I.
The Committee amendment (1) strikes the requirement in section 3
of the bill that there must be an annual authorization from the Con-
gress for each fiscal year ending after September 30, 1976, before ap-
propriations could be made for REA administrative expenses and (2)
57-010
3
2
the equitable rule that an assignee's vulnerability to the defenses of
substitutes therefor a requirement that the Secretary of Agriculture
fraud or misrepresentation arises only if the assignee had actual
testify annually before the House Committee on Agriculture and the
knowledge of the fraud or misrepresentation at the time it became a
Senate Committee on Agriculture and Forestry and provide justifica-
holder of the guarantee.
tion in detail of the amount requested in the budget to be appropriated
SECTION-BY-SECTION ANALYSIS
for administrative expenses for the next fiscal year.
Section 1. Assignability
II.
Section 1 of the bill amends section 306 of the Rural Electrification
The appearance of the Secretary of Agriculture before the House
Act of 1936 to authorize expressly the assignment of REA-guaranteed
Committee on Agriculture and the Senate Committee on Agriculture
loans, including the related guarantee, to the extent permitted by the
and Forestry, as required by the Committee amendment to H.R. 4799,
Administrator of the Rural Electrification Administration.
should result in more efficient and effective oversight of REA pro-
In addition, section 1 inserts the,, "initially" in the sixth sen-
grams. The appearance of the Secretary will serve to facilitate the
tence of section 306 of the Rural Electrification Act of 1936 so as'to
work of the Committees under the Congressional Budget and Im-
provide that a guaranteed loan under Title III of the Act is one which
poundment Control Act of 1974. The Act establishes a Congressional
is. "initially" made, held, and serviced by a legally orgánized lending
budget process through which all spending decisions of the Federal
agency and which is guaranteed by the Administrator.
Government are to be related to each other and to revenues. New and
Section 2. Full Faith and Credit
expanded responsibilities are vested in all standing committees by the
Section 2 amends section 308 of the Rural Electrification Act of
1974 Act.
1936. Section 308 provides that REA contracts of insurance or guar-
As part of the budget process, the Act requires that reports con-
antee are obligations supported by the full faith and credit of the
cerning the budget be prepared by each standing committee of both
United States. Section 2 clarifies section 308 to assure that such con-
Houses by March 15. The reportsare to be submitted to the Committees
tracts are incontestable except for fraud or misreprésentation of which
on the Budget of both Houses and include the standing committee's
the holder had actual knowledge at the time it became's holder.
views and estimates with respect to the contents of the first concurrent
resolution on the budget (including the approprite level of total budget
Section 3. Appearance by the Secretary
outlays and of total new budget authority) as it relates to matters
Section 3 amends section 6 of the Rural Electrification Act of 1936
within the commitee's jurisdiction.
to require that the Secretary of Agriculture testify annually before
the House Committee on Agriculture and the Senate Committee on
BACKGROUND AND PURPOSE
Agriculture and Forestry and provide justification in detail of the
amount requested in the budget to be appropriated for the next fiscal
H.R. 4799 adds clarifying language to section 306 of the Rural
year for the purpose of administering the Rural Electrification Act.
Electrification Act of 1936 to authorize expressly the assignment of
The Secretary is to appear on or before February 15 of each calendar
REA guarantees. The assignability of guarantees is essential if REA-
year beginning with calendar year 1976, or such other date as may be
approved lenders are to be able to obtain funds-at the lowest possible
specified by the appropriate committee.
interest rates-for the benefit of the rural electric and telephone
systems.
DEPARTMENTAL VIEWS
The absence from section 306 of express provision for assigning or
pledging guarantees has caused doubts whether such assignment is
The Committee has received no report from the Department of
authorized. The bill furnishes the language required to erase these
Agriculture on H.R. 4799. However, in a letter to Chairman Foley
doubts. It also leaves at the discretion of the REA Administrator the
of the House Committee on Agriculture dated June 17, 1975, the De-
extent and incidents of permissible assignments. (The intent of the
partment recommended the enactment of the legislation as introduced.
bill is to make no change with respect to the assignment of guaranteed
The letter reads as follows:
loans or loan guarantees to lessors in leveraged leases.)
The bill clarifies section 308 of the Rural Electrification Act of 1936,
DEPARTMENT OF AGRICULTURE,
which provides that REA contracts of insurance and guarantee are
OFFICE OF THE SECRETARY,
obligations supported by the full faith and credit of the United
Washington, D.C., June 17, 1975.
States. Section 308 now provides that the Government's full faith and
Hon. THOMAS S. FOLEY,
credit obligation shall be "incontestable except for fraud or misrepre-
Chairman, Committee on Agriculture,
sentation of which the holder has actual knowledge." Questions have
House of Representatives.
been raised whether this language might be:construed to bar enforce-
DEAR MR. CHAIRMAN: This is in response to your letter of April 10,
ment of an REA guarantee held by an assignee, pledgee, or other
1975, requesting a report on H.R.'4799, a bill "To amend sections
holder who first learned of fraud or misrepresentation on the part
306 and 308 of the Rural Electrification Act of 1936, as amended."
of the original lender after the holder had acquired the guarantee in
good faith. The amendment merely makes clear the applicability of
S.R. 424
S.R. 424
4
5
This Department recommends that the bill be enacted.
ports herein provided for, there is hereby authorized to be appropri-
H.R. 4799 would in general: (1) add statutory language which
ated, out of any money in the Treasury not otherwise appropriated,
would expressly authorize the assignment of REA guarantees; and
such sums as shall be necessary. On or before February 15 of each
(2) clarify the provision of section 308 which provides for incontesta-
calendar year beginning with calendar year 1976, or such other date as
bility of the Government guarantee "except for fraud or misrepresen-
may be specified by the appropriate committee, the Secretary of Agri-
tation of which the holder has actual knowledge."
culture shall testify before the House Committee on Agriculture and
This Department does not believe enactment of H.R. 4799 would
the Senate Committee on Agriculture and Forestry and provide justi-
have any measurable direct effect on the costs of carrying out the
fication in detail of the amount requested in the budget to be ap-
provisions of the Rural Electrification Act of 1936, as amended.
propriated for the next fiscal year for the purpose of administering
This Department believes that enactment of this bill would clarify
this Act and for the purpose of making the studies, investigations,
the guarantee provision in the Act and facilitate the obtaining of
publications, and reports herein authorized.
funds in the money market for bulk power facility financing under the
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REA "guarantee program."
SEC. 306. GUARANTEED LOANS; ACCOMMODATION AND SUBORDINATION
The Department's position on this bill is predicated on the assump-
tion that the intent of the legislation is not to permit the assignment
OF LIENS.-The Administrator may provide financial assistance to bor-
of guaranteed loans or loan guarantees to lessors in leveraged leases.
rowers for purposes provided in the Rural Electrification Act of 1936,
If such were the intent the Department would oppose enactment of
as amended, by guaranteeing loans, in the full amount thereof, made
by the Rural Telephone Bank, National Rural Utilities Cooperative
the bill.
The Office of Management and Budget advises that there is no
Finance Corporation, and any other legally organized lending agency,
or by accommodating or subordinating liens or mortgages in the fund
objection to the presentation of this report.
held by the Administrator as owner or as trustee or custodian for pur-
Sincerely,
WILLIAM ERWIN,
chasers of notes from the fund, or by any combination of such guar-
Assistant Secretary.
antee, accommodation, or subordination. No fees or charges shall be
assessed for any such guarantee, accommodation, or subordination.
COST ESTIMATE
Guaranteed loans shall bear interest at the rate agreed upon by the
In accordance with section 252 of the Legislative Reorganization
borrower and the lender. Guaranteed loans, and accommodation and
Act of 1970, the Committee estimates that no measurable cost would be
subordination of liens or mortgages, may be made concurrently with a
incurred by the Federal Government during the current and the five
loan insured at the standard rate. The amount of guaranteed loans
subsequent fiscal years as a result of the enactment of H.R. 4799. The
shall be subject only to such limitations as to amounts as may be au-
Committee estimates that only minimal administrative expenses would
thorized from time to time by the Congress of the United States: Pro-
be incurred in carrying out the provisions of the bill.
vided, That any amounts guaranteed hereunder shall not be included
No estimate of costs was submitted to the Commitee by any Federal
in the totals of the budget of the United States Government and shall
agency. However, the Committee's çost estimate is in accord with
be exempt from any general limitation imposed by statute on expendi-
the estimate made by the Department of Agriculture. In a letter dated
tures and net lending (budget outlays) of the United States. As used
June 17, 1975, to Chairman Foley of the House Committee on Agri-
in this title, a guaranteed loan is one which is initially made, held,
culture, Assistant Secretary of Agriculture William Erwin stated
and serviced by a legally organized lending agency and which is guar-
that "this Department does not believe enactment of H.R. 4799 would
anteed by the Administrator hereunder. A guaranteed loan, including
have any measurable effect on the costs of carrying out the provisions
the related guarantee, may be assigned to the extent provided in the
of the Rural Electrification Act of 1936, as amended."
contract of guarantee executed by the Administrator under this title;
the assignability of such loan and guarantee shall be governed exclu-
CHANGES IN EXISTING Law
sively by said contract of guarantee.
*
*
*
In compliance with subsection (4) of rule XXIX of the Standing
SEC. 308. FULL FAITH AND CREDIT OF THE UNITED STATES.-Any
Rules of the Senate, changes in existing law made by the bill, as re-
contract of insurance or guarantee executed by the Adminstrator
ported, are shown as follows (existing law proposed to be omitted
under this title shall be an obligation supported by the full faith and
is enclosed in black brackets, new matter is printed in italic, existing
credit of the United States and incontestable except for fraud or mis-
law in which no change is proposed is shown in roman)
representation [of which the holder has actual knowledge] of which
the holder had actual knowledge at the time it became a holder.
RURAL ELECTRIFICATION ACT OF 1936, AS AMENDED
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SEC. 6. For the purpose of administering this Act and for the
purpose of making the studies, investigations, publications, and re-
S.R. 424
S.R. 424
H. R. 4799
Ainety-fourth Congress of the United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Tuesday, the fourteenth day of January,
one thousand nine hundred and seventy-five
An Act
To amend sections 6, 306, and 308 of the Rural Electrification Act of 1936,
as amended.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That section 306 of
the Rural Electrification Act of 1936, as amended, is amended—
(a) by adding at the end of said section 306 the following: "A
guaranteed loan, including the related guarantee, may be assigned
to the extent provided in the contract of guarantee executed by the
Administrator under this title; the assignability of such loan and
guarantee shall be governed exclusively by said contract of
guarantee."; and
(b) by inserting the word "initially" before the words "made,
held, and serviced" in the sixth sentence of said section 306.
SEC. 2. Section 308 of the Rural Electrification Act of 1936, as
amended, is amended by striking therefrom the words "of which the
holder has actual knowledge" and substituting in lieu thereof the
words "of which the holder had actual knowledge at the time it
became a holder".
SEC. 3. Section 6 of the Rural Electrification Act of 1936, as amended,
is amended by adding at the end thereof the following new sentence:
"On or before February 15 of each calendar year beginning with
calendar year 1976, or such other date as may be specified by the appro-
priate committee, the Secretary of Agriculture shall testify before
the House Committee on Agriculture and the Senate Committee on
Agriculture and Forestry and provide justification in detail of the
amount requested in the budget to be appropriated for the next fiscal
year for the purpose of administering this Act and for the purpose of
making the studies, investigations, publications, and reports herein
authorized.".
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.
October 24, 1975
Dear Mr. Director:
The following bill was received at the White
House on October 24th:
H.R. 4799
Please let the President have reports and
recommendations as to the approval of this
bill as soon as possible.
Sincerely,
Robert D. Linder
Chief Executive Clerk
The Honorable James T. Lymn
Director
Office of Management and Budget
Washington, D. C.