The Integrity of the Rural Electrification and Telephone Revolving Fund

GAO gave testimony on its ongoing review of the Rural Electrification and Telephone Revolving Fund and discussed the impact that subsidies have on utility rates and on the unfunded liability in the revolving fund. GAO also commented on the impact of Senate bill S. 1300 on balancing the fund. GAO found that rural electric cooperatives receive loan subsidies that are 2.4 times greater than the tax benefits received by investor-owned utilities. The Rural Electrification Administration loan subsidies have not produced an unfunded liability in the revolving fund, but such a liability could accrue within a few years. GAO noted that S. 1300 would attempt to make the fund self-sufficient by changing loan interest rates, capitalizing the fund's Treasury debts, and authorizing the fund to refinance its debts with the Federal Financing Bank when interest rates are falling. Interest rate provisions in the bill would continue Federal subsidies regardless of the financial need or the rural or urban characteristics of the consumers they serve. GAO believes that Congress should: (1) reexamine the program's objectives and criteria to determine the level of assistance needed and the intended beneficiaries; (2) use the budget or appropriation process to capitalize its Treasury debt or fund loan subsidies; (3) consider bringing the activities of the revolving fund back on budget; and (4) provide for an adjustable or variable loan interest rate.