Statement of Administration Policy: H.R. 5237 - Rural Electrification Administration (REA) Improvement Act

(SENT 7/28/92)
(House)
(English (D) OK and 41 others)

The Administration strongly opposes enactment of H.R. 5237. The bill would increase REA loan losses, and undermine earlier successful programs designed to assist borrowers in graduating from REA programs to private credit markets. It would also substantially expand the number of communities eligible for REA telephone loan assistance. If the bill were presented to the President in its current form, his senior advisers would recommend a veto.

Of major concern, the bill would:

—   Require the REA Administrator to (1) grant a lien accommodation to private lenders on REA's first lien on borrower assets, even if the borrower does not meet REA lending standards; and (2) subordinate REA's first lien on borrower assets financed by private lenders for any non-utility business loans. These requirements would further jeopardize the future repayment of $37 billion in outstanding REA loans and loan guarantees that already have estimated losses of $2.8 billion.

—   Allow financially healthy borrowers with 2 and 5 percent interest rate REA loans to prepay at a discount and then return to REA to borrow again after five years. Such borrowers would receive the benefit of a discounted prepayment and then be able to receive more REA loans at a subsidized 5 percent interest rate in the future.

—   Allow 50 borrowers, who had been given loan discounts of $299 million in 1987 to prepay outstanding REA loans and who had left the program permanently, to return for more REA subsidized loans. H.R. 5237 would allow these borrowers to receive new loans without having to repay the contractually required loan discount with interest that is now about $350 million.

— Substantially increase the number of communities eligible for REA telephone loans because of an increase in the population limit from 1,500 to 10,000. Communities such as Palm Beach, Florida and Falls Church, Virginia could qualify. This would substantially increase the eligible population from 6 million to over 39 million and allow major telephone companies (regional Bell companies) to be eligible for REA subsidized loans.

Scoring for the Purpose of PAYGO and Discretionary Caps

H.R. 5237 would decrease receipts as a result of increased loan losses due to the requirement for REA on-demand lien accommodations and debt subordinations. Therefore, it is subject to the pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990 (OBRA). Offsets are not provided in the bill. A budget point of order applies in both the House and Senate against any bill that is not fully offset under CBO scoring. If contrary to the Administration's recommendation, the House waives any such point of order that applies against H.R. 5237, the effects of enactment of this legislation would be included ln a look back pay-as-you-go sequester report at the end of the Congressional session.

OMB's preliminary scoring estimates of this bill are presented in the table below. Final scoring of this legislation may deviate from these estimates. If H.R. 5237 were enacted, final OMB scoring estimates would be published within five days of enactment, as required by OBRA. The cumulative effects of all enacted legislation on direct spending will be issued in monthly reports transmitted to Congress.

Estimates for Pay-As-You-Go
(dollars in millions)