Rural Cooperatives

Pursuant to a congressional request, GAO obtained information on: (1) the advantages and disadvantages of the Rural Electrification Administration's (REA) engineering standards proposal; and (2) the basis for and potential impacts of the REA proposal to revise its loan approval criteria.

GAO found that: (1) advantages of REA performing its standards-setting function included lower facilities construction costs, greater security for REA loans, and increased efficiency for materials and equipment manufacturers; (2) one disadvantage was that the government, rather than the consumer, would bear the cost of the standards-setting function; (3) three out of five private organizations surveyed were unwilling to develop and maintain engineering standards for rural utility cooperatives; (4) revised loan approval criteria would provide a better measure of cooperatives' available funds to meet financing needs; (5) approximately 70 percent of the REA electric distribution cooperatives would not qualify initially for loan advances under the proposed criteria; (6) REA estimated that many cooperatives would again be eligible for loans within a year; and (7) the National Rural Electric Cooperative Association believes many cooperatives would permanently lose their eligibility for REA funds and turn to non-REA financing of construction projects.