Rural Development: Financial Condition of the Rural Utilities Service's
Loan Portfolio (Letter Report, 04/11/97, GAO/RCED-97-82).

Pursuant to a congressional request, GAO reviewed the financial
condition of the Rural Utilities Service's electricity,
telecommunications, and waste disposal loan portfolios and the financial
characteristics of borrowers having electricity and telecommunications
loans.

GAO noted that: (1) at the end of fiscal year 1996, over $8 billion of
the total $42.5 billion in outstanding principal on the Rural Utilities
Service's electricity, telecommunications, and water and waste disposal
loans was owed by borrowers that were experiencing financial problems;
(2) almost all of this amount was owed by 12 electricity loan borrowers,
representing less than 2 percent of the total number of electricity loan
borrowers; (3) these 12 borrowers owed almost 25 percent of the
outstanding electricity loan portfolio; (4) of the $5.2 billion in
outstanding principal on the telecommunications loans, none was owed by
borrowers experiencing similar financial distress; (5) of the slightly
more than $5 billion in outstanding principal on water and waste
disposal loans, $43 million was owed by 70 delinquent borrowers that
made up less than 1 percent of total borrowers and that owed less than 1
percent of the outstanding portfolio; (6) most electricity and
telecommunications loan borrowers had favorable financial
characteristics at the end of calender year 1995; (7) for example,
year-end reports to the Rural Utilities Service showed that more than 98
percent of the electricity loan borrowers and more than 99 percent of
the telecommunications loan borrowers had positive equity at the end of
1995; (8) about 95 percent, or a total of 1,610 borrowers, had equity of
$1 million or more; (9) similarly, the year-end reports showed that
about 96 percent of the electricity loan borrowers and about 98 percent
of the telecommunications loan borrowers made a profit in 1995; (10)
about 92 percent, or a total of 1,565 borrowers, made a profit of
$100,000 or more; (11) however, 10 electricity and 3 telecommunications
loan borrowers had negative equity at the end of 1995; (12) nine of
these electricity loan borrowers owed about $6.2 billion as of September
30, 1996 and the loans of the 10th borrower were resolved prior to that
date when the borrower made a partial payment and the agency wrote off
the remaining debt; (13) the three telecommunications loan borrowers
owed about $5.4 million as of September 30, 1996; (14) also, 38
electricity and 14 telecommunications loan borrowers did not make a
profit in 1995; and (15) these borrowers owed about $1.2 billion and
about $103 million, respectively, as of September 30, 1996.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-97-82
     TITLE:  Rural Development: Financial Condition of the Rural 
             Utilities Service's Loan Portfolio
      DATE:  04/11/97
   SUBJECT:  Telecommunication
             Electric utilities
             Direct loans
             Profits
             Government guaranteed loans
             Rural economic development
             Delinquent loans
             Waste disposal
             Financial management

             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Chairman, Committee on the Budget, House of
Representatives

April 1997

RURAL DEVELOPMENT - FINANCIAL
CONDITION OF THE RURAL UTILITIES
SERVICE'S LOAN PORTFOLIO

GAO/RCED-97-82

RUS' Utility Loans

(150711)


Abbreviations
=============================================================== ABBREV

  FFB - Federal Financing Bank
  GAO - General Accounting Office
  RDA - Rural Development Administration
  REA - Rural Electrification Administration
  RTB - Rural Telephone Bank
  RUS - Rural Utilities Service
  USDA - U.S.  Department of Agriculture

Letter
=============================================================== LETTER


B-275588

April 11, 1997

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

Dear Mr.  Chairman: 

To assist in the development of infrastructure in the nation's rural
areas, the Rural Utilities Service (RUS) in the U.S.  Department of
Agriculture (USDA) made or guaranteed about $10.4 billion in loans
during fiscal years 1992 through 1996.  Because of the concerns you
raised about the financial risks associated with RUS' lending, we
examined the (1) financial condition of the electricity,
telecommunications, and water and waste disposal loan portfolios and
(2) financial characteristics of borrowers having electricity and
telecommunications loans.\1 We did not examine the financial
characteristics of borrowers with water and waste disposal loans
because most are public entities rather than private firms. 


--------------------
\1 RUS operates loan programs formerly administered by other USDA
agencies.  In this report, we refer to these loans and programs as
RUS' loans and programs. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

At the end of fiscal year 1996, over $8 billion of the total $42.5
billion in outstanding principal on the Rural Utilities Service's
electricity, telecommunications, and water and waste disposal loans
was owed by borrowers that were experiencing financial problems
(i.e., they were delinquent, in bankruptcy, or likely to default on
loan repayment in the future).  Almost all of this amount was owed by
12 electricity loan borrowers, representing less than 2 percent of
the total number of electricity loan borrowers.  These 12 borrowers
owed almost 25 percent of the outstanding electricity loan portfolio. 
Of the $5.2 billion in outstanding principal on the
telecommunications loans, none was owed by borrowers experiencing
similar financial distress.  Of the slightly more than $5 billion in
outstanding principal on water and waste disposal loans, $43 million
was owed by 70 delinquent borrowers that made up less than 1 percent
of total borrowers and that owed less than 1 percent of the
outstanding portfolio. 

Most electricity and telecommunications loan borrowers had favorable
financial characteristics at the end of calendar year 1995.  For
example, year-end reports to the Rural Utilities Service showed that
more than 98 percent of the electricity loan borrowers and more than
99 percent of the telecommunications loan borrowers had positive
equity at the end of 1995.  About 95 percent, or a total of 1,610
borrowers, had equity of $1 million or more.  Similarly, the year-end
reports showed that about 96 percent of the electricity loan
borrowers and about 98 percent of the telecommunications loan
borrowers made a profit in 1995.  About 92 percent, or a total of
1,565 borrowers, made a profit of $100,000 or more.  However, 10
electricity and 3 telecommunications loan borrowers had negative
equity at the end of 1995.  Nine of these electricity loan borrowers
owed about $6.2 billion as of September 30, 1996; the loans of the
10th borrower were resolved prior to that date when the borrower made
a partial payment and the agency wrote off the remaining debt.  The
three telecommunications loan borrowers owed about $5.4 million as of
September 30, 1996.  Also, 38 electricity and 14 telecommunications
loan borrowers did not make a profit in 1995; these borrowers owed
about $1.2 billion and about $103 million, respectively, as of
September 30, 1996. 


   BACKGROUND
------------------------------------------------------------ Letter :2

USDA is the federal government's principal provider of loans used to
assist the nation's rural areas in developing their utility
infrastructure.  Through RUS, USDA finances the construction,
improvement, and repair of electrical, telecommunications, and water
and waste disposal systems.  The agency provides credit assistance
through direct loans and through repayment guarantees on loans made
by other lenders. 

Electricity loans are made primarily to electric cooperatives; more
than 99 percent of the borrowers with electricity loans are nonprofit
cooperatives.  Direct loans are made to construct and maintain the
distribution facilities that provide electricity to users, and
guarantees are provided on loans to finance the construction of
electricity generating and transmission facilities. 
Telecommunications loans--both direct and guaranteed--are made
primarily to telephone cooperatives and commercial companies to build
and improve telephone and telecommunications facilities and services;
about 28 percent of the borrowers with telecommunications loans are
nonprofit cooperatives, and about 72 percent are for-profit
companies.  RUS also administers the Rural Telephone Bank (RTB) loan
program, in which direct loans are made to supplement the financing
that telephone cooperatives and commercial companies receive from RUS
through the telecommunications loan program.\2 Water and waste
disposal loans, either direct or guaranteed, are made to public
bodies and nonprofit associations; about 80 percent of the borrowers
with water and waste disposal loans are public bodies, and about 20
percent are nonprofit associations.  Water loans are made to improve
the storage, treatment, and distribution of water, and waste disposal
loans are made to collect, treat, and dispose of waste, including
solid waste and storm drainage.  (App.  I provides additional details
on each of the utility loan programs.)


--------------------
\2 RTB is a government-private corporation with federal agency status
until it is privatized through the retirement of the stock that the
government owns.  Privatization began in fiscal year 1996, when RTB
purchased $18 million of the federally owned stock. 


      RUS' RECENT LOAN OBLIGATIONS
---------------------------------------------------------- Letter :2.1

During fiscal years 1992 through 1996, RUS made or provided USDA
guarantees on slightly more than 6,150 utility loans, which totaled
about $10.4 billion.  Table 1 shows the level of loans in each of the
utility programs. 



                                Table 1
                
                Total Number and Amount of Utility Loans
                Made or Guaranteed by RUS, Fiscal Years
                                1992-96

                         (Dollars in millions)

                                                   Total       Average
                                     Total        dollar        dollar
                                    number     amount of     amount of
Program                           of loans         loans         loans
----------------------------  ------------  ------------  ------------
Electricity                            880     $ 4,352.4          $4.9
Telecommunications\a                   510       2,575.1           5.0
Water and waste disposal             4,764       3,464.3           0.7
======================================================================
Total <                            b>6,154     $10,391.8          $1.7
----------------------------------------------------------------------
\a Includes Rural Telephone Bank loans. 

Sources:  USDA, Budget Explanatory Notes for Committee on
Appropriations, fiscal years 1994 through 1997; RUS' reports; and as
calculated by GAO. 

Direct loans accounted for 6,033 of the total loans and for $8.9
billion of the total loan amount.  The other 121 loans had USDA
guarantees--83 loans were electricity or telecommunications loans,
and 38 were water and waste disposal loans.  All electricity and
telecommunications loans that received USDA repayment guarantees
during this 5-year period were made by the Treasury's Federal
Financing Bank (FFB);\3 all water and waste disposal loans that
received guarantees were made by commercial lenders.  (App.  I
provides detailed information on direct and guaranteed loans in each
of the utility loan programs for fiscal years 1992 through 1996.)


--------------------
\3 Loans made by the FFB that have USDA repayment guarantees are
treated in RUS' financial statements as direct loans. 


      RUS' RECENT COST FOR
      OPERATING THE UTILITY LOAN
      PROGRAMS
---------------------------------------------------------- Letter :2.2

RUS' cost for the utility loan programs totaled about $1.4 billion in
fiscal years 1992 through 1996.  This cost consists of two
components:  federal subsidy costs and administrative costs for
salaries and other expenses.  The subsidy cost under credit reform
(post-fiscal year 1991 credit) includes net present value estimates
of (1) the interest costs associated with loans made at rates below
the rate at which RUS borrows from the Treasury, (2) default costs,
(3) fees, and (4) other costs and revenues.\4 (App.  I presents a
more detailed discussion of the principles and requirements of credit
reform.) Table 2 shows RUS' reported costs for each of the utility
programs. 



                                Table 2
                
                  RUS' Total Costs for Utility Loans,
                          Fiscal Years 1992-96

                         (Dollars in millions)

                                   Subsidy  Administrati         Total
Program                              costs    ve costs\a       costs\b
----------------------------  ------------  ------------  ============
Electricity                        $ 446.2        $105.1       $ 551.3
Telecommunications\c                 108.3          82.0         190.3
Water and waste disposal             544.7         154.9         699.7
======================================================================
Total\b                           $1,099.2        $342.1      $1,441.3
----------------------------------------------------------------------
\a RUS' administrative costs apply to the operation of both direct
and guaranteed loans.  The amounts shown do not include any costs
that the FFB or commercial lenders may have incurred. 

\b Totals may not add due to rounding. 

\c Includes the costs of Rural Telephone Bank loans. 

Sources:  Obligation data on subsidy costs obtained from USDA, Budget
Explanatory Notes for Committee on Appropriations, fiscal years 1994
through 1997, and the Budget Division of USDA's Rural Development
mission area.  Administrative costs were obtained from the latter. 

About 54 percent of RUS' total subsidy costs on electricity loans
involved loans made in fiscal years 1992 and 1993; the remaining 46
percent involved loans made during fiscal years 1994 through 1996. 
On telecommunications loans, about 69 percent of the total subsidy
costs involved loans made in the first 2 fiscal years, and 31 percent
involved loans made in the last 3 fiscal years.  On the other hand,
about 31 percent of the total subsidy costs on water and waste
disposal loans involved loans made in fiscal years 1992 and 1993, and
69 percent involved loans made in fiscal years 1994 through 1996. 

Almost 99 percent of RUS' total subsidy costs involved direct loans. 
About 59 percent of the electricity loans were direct loans made at a
5 percent interest rate; these loans accounted for about 42 percent
of the total dollar amount of all electricity loans.  About 24
percent of the telecommunications loans were direct loans made at a 5
percent interest rate; these loans accounted for about 27 percent of
the total dollar amount of all telecommunications loans.  Also, about
91 percent of the water and waste disposal loans were direct loans
made at interest rates that were less than RUS' costs of borrowing
from the Treasury; these loans accounted for about 87 percent of the
total dollar amount of all water and waste disposal loans.  (App.  I
discusses loans with subsidized interest rates.)

We did not assess the accuracy of RUS' reported subsidy cost
estimates or the adequacy of the system used by RUS to derive such
estimates under credit reform.  (App.  I provides detailed
information on the reported costs for the direct and guaranteed loans
in each of the utility loan programs for fiscal years 1992 through
1996, and further discussion of subsidy costs.)


--------------------
\4 The Federal Credit Reform Act of 1990, which was included as Title
13B of the Omnibus Budget Reconciliation Act of 1990 (P.L.  101-508,
Nov.  5, 1990) changed the way post-fiscal year 1991 credit programs
are reported in the budget by ensuring that their subsidy costs were
considered in making resource allocation decisions. 


   FINANCIAL CONDITION OF
   PORTFOLIO
------------------------------------------------------------ Letter :3

The outstanding principal on RUS' direct and guaranteed electricity,
telecommunications, and water and waste disposal loans totaled $42.5
billion at the end of fiscal year 1996.\5 About $660 million of the
total outstanding principal was owed by borrowers that were
delinquent (at least 30 days past due on loan repayment)--about $618
million by delinquent borrowers with electricity loans and about $43
million by delinquent borrowers with water and waste disposal loans. 
The telecommunications loan portfolio had no delinquencies.  Much
more of the outstanding electricity loan principal is at risk,
however, because it is owed by other borrowers that are experiencing
financial distress; for example, they are in bankruptcy or, according
to RUS officials, are likely to default on loan repayment in the near
future.  RUS' records show that a total principal of $7.4 billion was
owed by such borrowers at the end of fiscal year 1996.  Four
borrowers whose loans had previously been restructured (the original
loan agreements were altered, including revised repayment schedules
and changes in interest rates) and that continue to be in severe
financial trouble owe $5.7 billion; four other borrowers whose loans
had not previously been restructured and that are also in serious
financial difficulty owe $1.1 billion; and, one other borrower whose
loans had previously been restructured and that informed RUS in early
fiscal year 1997 that it was experiencing financial difficulties owes
$0.6 billion.  Most of the electricity loans to RUS' problem
borrowers were made many years ago--some dating back to the late
1970s. 

This relatively high dollar amount of problem loans exists even
though RUS had written off some borrowers' debts in recent years. 
Most of the write-offs have involved electricity loans, but some
water and waste disposal loans have also experienced write-offs. 
Specifically, RUS wrote off almost $1.05 billion in electricity loans
during the 5-year period, fiscal years 1992-96.  It also wrote off $6
million in water and waste disposal loans during this period. 


--------------------
\5 The information in this section of the report discusses the
outstanding principal on the loans made or guaranteed by RUS.  We
have not adjusted the outstanding loan amounts to reflect the
allowance for losses that RUS includes in its financial statements. 
Also, while borrowers have pledged collateral property as security
for the loans, we did not determine the extent to which such property
protects the government's investments in the outstanding utility
loans. 


      ELECTRICITY LOANS
---------------------------------------------------------- Letter :3.1

According to RUS' reports, about $8 billion, or almost 25 percent of
the $32.3 billion in outstanding principal on electricity loans as of
September 30, 1996, was owed by 12 borrowers that are delinquent or
in financial distress.  These 12 borrowers made up less than 2
percent of the total number of RUS' electricity loan borrowers. 

About $618 million of principal was owed by three delinquent
borrowers.  These three borrowers, each of which had been delinquent
since the mid-1980s, also owed almost $400 million in unpaid
interest.  Table 3 shows the amount of principal owed by all
borrowers, and the portion owed by delinquent borrowers, on
electricity loans at the end of fiscal year 1996.  (App.  II provides
information on electricity loans at the end of fiscal years 1992
through 1995.)



                                Table 3
                
                   Amount of Outstanding Principal on
                Electricity Loans Made or Guaranteed by
                  RUS, and Portion Owed by Delinquent
                  Borrowers, as of September 30, 1996

                         (Dollars in millions)

                                       Outstanding      Amount owed by
                                 principal owed by          delinquent
Loan type                            all borrowers           borrowers
------------------------------  ------------------  ------------------
RUS' direct loans                        $11,475.2              $ 29.6
Guaranteed FFB loans                      13,328.6               572.0
Other guaranteed loans                       664.7                16.3
Restructured loans\a                       6,841.1                   0
======================================================================
Total                                    $32,309.6              $617.9
----------------------------------------------------------------------
\a Includes previously issued (1) direct loans made by RUS, (2)
guaranteed loans made by the FFB, (3) guaranteed loans made by
commercial lenders on which RUS agreed to be directly liable for
repaying the loan, and (4) loans that had been owed by borrowers now
assumed by other utilities.  The amounts cover the principal and the
capitalized interest owed on the loans.  The loans in this category
are not included in the other direct and guaranteed loan categories. 

Source:  RUS' reports. 

Each of the three delinquent borrowers has filed for bankruptcy. 
According to RUS officials, two of the borrowers (a distribution
borrower and a power supply borrower) have problems that stem from
investments in the same nuclear-generating plant, which resulted in
high levels of debt and debt-servicing expenses, coupled with a lack
of growth in their customer bases.  At the end of fiscal year 1996,
the distribution borrower owed $15.1 million in outstanding principal
and $4 million in unpaid interest on RUS' direct loans.  The power
supply borrower owed $41.2 million in principal and $21.5 million in
interest on RUS' direct and guaranteed loans.  Both borrowers filed
for bankruptcy in April 1996.  The third delinquent borrower has a
high debt level because it invested in a nuclear-generating plant
that was not completed.  This power supply borrower, which owed
$561.5 million in principal and $373.4 million in interest on loans
guaranteed by RUS, has been in bankruptcy since 1985. 

In addition to delinquent borrowers, the electricity loan program had
other problem borrowers at the end of fiscal year 1996.  These
include four power supply borrowers that previously had their debts
restructured and that continued, according to RUS officials, to be in
severe financial trouble.  According to the RUS officials, these
borrowers' problems stem from their investments in nuclear-generating
plants that were completed late and over budget or in coal-fired
generating plants that were built to satisfy anticipated industrial
growth that did not occur.  These borrowers' debts had been
restructured at least once in the 1980s or the early part of 1990. 
Two of these borrowers had filed for bankruptcy:  One, with $4.2
billion in outstanding loans, filed in 1994, and the other, with $531
million in outstanding loans, filed in 1996.  The third borrower with
$293 million of debt was negotiating the resolution of its
outstanding loans at the time of our review.  The fourth borrower,
with more than $700 million in outstanding loan principal and about
$36 million in accrued interest, had agreed in late 1995 to provide a
lump-sum payment to settle its electricity debt.  (In mid-October
1996, this borrower paid RUS about $240 million, and RUS forgave
slightly more than $500 million.)

Furthermore, according to RUS officials, four other power supply
borrowers, none of which have had their debts restructured, were also
in serious financial difficulty at the end of fiscal year 1996.  RUS'
automated records show that, as of September 30, 1996, these four
borrowers owed a total principal of about $1.1 billion on direct and
guaranteed electricity loans. 

RUS officials also told us that another power supply borrower, which
had had its debts restructured in the mid-1980s, had requested in
October 1996 that RUS consider renegotiating its debt because it does
not expect to remain financially viable due to increasing competition
and a high debt-service expense.  As of September 30, 1996, this
borrower owed $562.3 million of principal on direct and guaranteed
loans. 

RUS continues to experience problems with its electricity loan
portfolio even though it wrote off $1,047.4 million for three
borrowers from fiscal years 1992 through 1996.  These three borrowers
had had their debts restructured prior to the agreements that
resulted in the RUS write-offs; none was delinquent on the terms of
the restructured loans when the debt settlement agreements were
completed.  These three borrowers were a distribution borrower that
had $13.7 million written off in February 1994, a power supply
borrower that had $51.7 million written off in August 1995, and
another power supply borrower that had about $982 million written off
in September 1996. 

RUS' electricity loan portfolio faces the possibility of additional
financial stress due to increasing competition among the providers of
electricity.  For example, as we previously reported,\6 competition
in the wholesale electricity market is increasing as a result of
legislation that was enacted in the early 1990s, such as the Energy
Policy Act of 1992 (P.L.  102-486, Oct.  24, 1992).  The act
encouraged additional wholesale suppliers to enter the electricity
market and provided greater access to other utilities' transmission
lines. 


--------------------
\6 Power Marketing Administrations:  Cost Recovery, Financing, and
Comparison to Nonfederal Utilities (GAO/AIMD-96-145, Sept.  19, 1996)
and Federal Electric Power:  Operating and Financial Status of DOE's
Power Marketing Administrations (GAO/RCED/AIMD-96-9FS, Oct.  13,
1995). 


      TELECOMMUNICATIONS LOANS
---------------------------------------------------------- Letter :3.2

According to RUS' reports, the outstanding principal owed on
telecommunications loans totaled $5.2 billion as of September 30,
1996.  Of this amount, RUS' direct loans accounted for $3.4 billion,
loans guaranteed by RUS accounted for $320 million ($318 million on
FFB loans and $2 million on non-FFB loans), and RTB's direct loans
accounted for $1.5 billion.  (App.  II provides information on
telecommunications loans at the end of fiscal years 1992 through
1995.)

RUS' telecommunications loan program does not display the level of
risk that exists in the electricity loan program or, to a lesser
extent in the water and waste disposal loan program.  Specifically,
there were no delinquencies on these loans.\7 In addition, the RUS
telecommunications loan portfolio has no loans that have been
restructured because of past repayment problems or that had been
flagged by the agency's officials as being in serious financial
difficulty.  Furthermore, RUS did not write off the debt of any
telecommunications loan borrowers during fiscal years 1992 through
1996. 

However, the industry in which RUS' telecommunications loan borrowers
operate is changing.  In particular, as we previously reported,\8
there have been rapid advances in technology and changes in the
legislative environment, such as the Telecommunications Act of 1996
(P.L.  104-104, Feb.  8, 1996).  These factors could work to either
the betterment or the detriment of the borrowers that have
telecommunications loans. 


--------------------
\7 We do not include as delinquent those telecommunications loan
borrowers that are shown in RUS' reports as being past due on
repayments when the delinquency was due to billing, payment, or
administrative errors and when the past due amount was paid shortly
after the start of the next fiscal year. 

\8 Rural Development:  Steps Toward Realizing the Potential of
Telecommunications Technologies (GAO/RCED-96-155, June 14, 1996) and
Telecommunications:  Initiatives Taken by Three States to Promote
Increased Access and Investment (GAO/RCED-96-68, Mar.  12, 1996). 


      WATER AND WASTE DISPOSAL
      LOANS
---------------------------------------------------------- Letter :3.3

According to RUS' reports, less than 1 percent of the outstanding
principal on water and waste disposal loans was owed by borrowers
that were delinquent.  Specifically, the outstanding principal on
water and waste disposal loans totaled slightly more than $5 billion
as of September 30, 1996; direct loans accounted for all but about $8
million of this amount.  On the direct loans, 70 delinquent borrowers
owed $43.3 million at the end of fiscal year 1996.  These 70
borrowers made up less than 1 percent of the total number of water
and waste disposal direct loan borrowers.  On guaranteed loans, there
were no delinquencies.  (App.  II provides information on water and
waste disposal loans at the end of fiscal years 1992 through 1995.)

When borrowers have had problems repaying their water and waste
disposal loans on schedule, RUS has changed their repayment
schedules.  During fiscal years 1992 through 1996, 33 borrowers had
their repayment schedules revised; these borrowers owed RUS $54.1
million at the end of fiscal year 1996.  There was no debt
forgiveness associated with these payment changes. 

RUS has, however, provided debt relief to other problem borrowers. 
During fiscal years 1992 through 1996, RUS forgave slightly more than
$6 million in settling the accounts of 12 water and waste disposal
loan borrowers.  These write-offs ranged from slightly less than
$6,000 for a borrower whose debt was resolved through bankruptcy to
$3.1 million for a local development authority following the transfer
of its assets and debts to another public body. 


   FINANCIAL CHARACTERISTICS OF
   RUS' ELECTRICITY AND
   TELECOMMUNICATIONS BORROWERS
------------------------------------------------------------ Letter :4

While the majority of borrowers with electricity or
telecommunications loans had generally favorable financial
characteristics, some did not.  Specifically, RUS has automated
records that contain the financial data submitted by about 96 percent
of its 1,778 electricity and telecommunications loan borrowers at the
end of 1995.\9

While the overwhelming majority of borrowers had positive equity at
the end of 1995, 13 borrowers, or about 1 percent, had negative
equity.  Also, while most had a profit as a result of 1995
operations, 52 borrowers, or 3 percent, had a loss.\10 Furthermore,
14 of the 52 borrowers that had losses in 1995 also had losses in at
least 1 year between 1992 and 1994. 


--------------------
\9 The information presented in this section of the report on
borrowers' financial characteristics is calendar year data taken from
RUS' databases.  While RUS' files contain financial information on
the majority of its borrowers, they did not include financial data
for the year ending 1995 for 4 of the 12 electricity loan borrowers
that were delinquent or experiencing financial difficulty. 

\10 RUS refers to the profits made by electricity and
telecommunications loan borrowers that are nonprofit cooperatives as
"net margins" and to the losses as "deficits in net margins."


      ELECTRICITY LOANS
---------------------------------------------------------- Letter :4.1

RUS' automated files contained financial information for 804
distribution borrowers and 51 power supply borrowers with outstanding
electricity loans (direct and/or guaranteed loans) at the end of
1995.  On the basis of the measures we used, which included net worth
and net income, we found that even though the dollar amount of
problem electricity loans was relatively large, most, but not all,
electricity loan borrowers had generally favorable financial
characteristics.  For example, the distribution borrowers had average
assets of $37.4 million, liabilities of $21.6 million, and a net
worth of $15.8 million.  All but five of these borrowers had $1
million or more of net worth; however, two had a negative net worth. 
These two borrowers owed about $32 million on their outstanding
electricity loans as of September 30, 1996.  In comparison, power
supply borrowers had average assets of $633 million, liabilities of
$622.1 million, and a net worth of $10.9 million.  Of the power
suppliers, 42 had $1 million or more of net worth, but 8 had a
negative net worth.  Seven of these 8 borrowers owed about $6.1
billion on their outstanding electricity loans as of September 30,
1996.  The electricity loans of the eighth borrower were settled on
September 13, 1996, when the borrower made a partial payment and RUS
wrote off the remaining debt. 

Another financial characteristic of the borrowers with electricity
loans is the net income they made in 1995.  The distribution
borrowers had average operating revenues of $18.9 million, operating
expenses of $17.2 million, and a net operating income of $1.7
million.  Overall, they had a total profit of $1 billion, or about
$1.3 million on average.  All but 34, or 4.2 percent, of these
borrowers had a profit in 1995.  The 34 borrowers that had a loss
owed $359 million on their outstanding electricity loans as of
September 30, 1996.  Furthermore, 10 of these 34 borrowers had losses
in at least 1 year between 1992 and 1994.  In comparison, the power
suppliers had average operating revenues of $190.3 million, operating
expenses of $161.5 million, and a net operating income of $28.8
million.  Overall, the power suppliers had $234 million in total
profit, or about $4.6 million on average.  However, four borrowers,
or 7.8 percent, did not have a profit in 1995.  These four borrowers
owed $866 million on their outstanding electricity loans as of
September 30, 1996.  Furthermore, two of these four borrowers had
losses in at least 1 year between 1992 and 1994. 

Our analysis also showed that, in general, the majority of
electricity loan borrowers had other favorable financial ratios. 
This part of our analysis covered the following measures, which are
also discussed below:  current ratio, which is a measure of
liquidity, and debt-to-asset ratio and times-interest-earned ratio,
which are measures of solvency. 

Current ratio.  This measure shows the extent to which a borrower has
sufficient current assets to cover its current liabilities.  About 88
percent of the distribution borrowers and 94 percent of the power
supply borrowers had current assets that equaled or exceeded their
current liabilities.  However, 100 distribution borrowers and 3 power
suppliers had current ratios of less than 1, indicating that they
could not, if necessary, cover their current liabilities with their
current assets. 

Debt-to-asset ratio.  This measure shows the extent to which a
borrower has sufficient assets to cover all of its debt.  About 93
percent of the distribution borrowers and about 22 percent of the
power supply borrowers had ratios in the range of 70 percent or less. 
However, 51 distribution borrowers and 32 power suppliers had ratios
of between 71 percent and 99 percent.  Furthermore, two distribution
borrowers and eight power suppliers had ratios that exceeded 100
percent, showing that their total debt was greater than their total
assets. 

Times-interest-earned ratio.  This measure shows the ability of a
borrower to pay its annual interest expenses.  About 96 percent of
the distribution borrowers and about 92 percent of the power supply
borrowers had 1995 income that equaled or exceeded their 1995
interest expenses.  However, the income of 34 distribution borrowers
and of 4 power suppliers was less than their 1995 interest expenses,
indicating that their ability to cover those expenses as they come
due was questionable. 

The financial characteristics of electricity loan borrowers at the
end of 1992 through 1994 show results similar to the characteristics
at the end of 1995.  (App.  III provides a more detailed analysis of
the borrowers' characteristics for 1992 through 1995.)


      TELECOMMUNICATIONS LOANS
---------------------------------------------------------- Letter :4.2

RUS' automated files contained financial information for 848
borrowers with outstanding telecommunications loans (direct and/or
guaranteed loans) at the end of 1995.  On the basis of the measures
we used, including net worth and net income, we found that the vast
majority, but not all, of these borrowers also had generally
favorable financial characteristics.  For example, these borrowers
had average assets of $17.7 million, liabilities of $9.3 million, and
a net worth of $8.4 million.  Almost 91 percent of them had a net
worth of $1 million or more.  However, three borrowers had total
liabilities that exceeded their total assets.  These three borrowers
owed $5.4 million on their outstanding telecommunications loans as of
September 30, 1996.  RUS officials told us that these three borrowers
had received loans during 1992 and 1993 to start their
telecommunications operations or to rebuild their systems.  RUS
officials also told us that they anticipate that these borrowers will
achieve a positive equity position in late 1997 and 1998 once
construction is completed and service to customers is provided. 

Another financial characteristic of the borrowers with
telecommunications loans is the net income they made in 1995.  The
telecommunications loan borrowers had average operating revenues of
$6 million, operating expenses of $4.6 million, and a net operating
income of $1.4 million.  Overall, they had a total profit of $772.6
million and an average profit of slightly more than $910,000. 
Twenty-nine percent of the borrowers made more than $1 million in
profit in 1995; these borrowers accounted for 92.5 percent of the
total profit.  However, 14 borrowers had a loss in 1995.  These 14
borrowers owed $103 million on their outstanding telecommunications
loans as of September 30, 1996.  Furthermore, 2 of these 14 borrowers
had losses in at least 1 year between 1992 and 1994. 

Our analysis also showed that, in general, the majority of
telecommunications loan borrowers had other favorable financial
ratios.  This part of our analysis covered the following measures
that we previously discussed for the electricity borrowers:  current
ratio, debt-to-asset ratio, and times-interest-earned ratio. 

Current ratio.  About 91 percent of the borrowers had current assets
that equaled or exceeded current liabilities.  However, 73 borrowers
had current ratios of less than 1, indicating that they could not, if
necessary, cover their current liabilities with their current assets. 

Debt-to-asset ratio.  About 88 percent of the borrowers had ratios of
70 percent or less.  However, 98 borrowers had ratios of between 71
percent and 99 percent, and 3 borrowers had ratios that exceeded 100
percent. 

Times-interest-earned ratio.  About 98 percent of the borrowers had
income that equaled or exceeded their interest expenses.  However,
the income of 14 borrowers was less than their interest expenses. 

As was the case with the electricity loan borrowers, our analysis of
the financial characteristics of telecommunications loan borrowers at
the end of 1992 through 1994 shows results similar to those at the
end of 1995.  (App.  III also provides a more detailed analysis on
the characteristics of the telecommunications loan borrowers for 1992
through 1995.)


   AGENCY COMMENTS
------------------------------------------------------------ Letter :5

We provided a draft of this report to USDA for its review and
comment.  USDA provided comments on two areas.  First, USDA agreed
that RUS has a significant problem with a small number of electricity
loan borrowers that are experiencing financial difficulty.  USDA
stated that much of the problem relates to loans that were made to
borrowers many years ago for investments involving nuclear
power-generating plants and related transmission facilities.  USDA
added that RUS and the Department have been working, in some cases in
conjunction with the Department of Justice, in an attempt to resolve
the agency's problems.  Second, USDA stated that the Rural
Electrification Loan Restructuring Act of 1993 (P.L.  103-129, Nov. 
1, 1993) significantly amended the RUS electricity and
telecommunications programs and dramatically reduced their cost to
the government.  USDA provided a comparison of the total dollar
amounts of subsidy costs and loan levels shortly before and after
passage of the law.  USDA's comments are contained in appendix IV. 


---------------------------------------------------------- Letter :5.1

We performed our review of RUS' utility loan programs from April 1996
through February 1997 in accordance with generally accepted
government auditing standards.  Our scope and methodology are
discussed in appendix V. 

We are sending copies of this report to the appropriate Senate and
House committees; interested Members of Congress; the Secretary of
Agriculture; the Administrator of RUS; the Director, Office of
Management and Budget; and other interested parties.  We will also
make copies available to others upon request. 

Please call me at (202) 512-5138 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
VI. 

Sincerely yours,

Robert A.  Robinson
Director, Food and
 Agriculture Issues


DESCRIPTION OF RUS' UTILITY LOAN
PROGRAMS
=========================================================== Appendix I

The Rural Utilities Service (RUS), established by the Federal Crop
Insurance Reform and Department of Agriculture Reorganization Act of
1994 (P.L.  103-354, Oct.  13, 1994), administers the electricity and
telecommunications programs that were operated by the former Rural
Electrification Administration (REA) and the water and waste disposal
programs that were operated by the former Rural Development
Administration (RDA).  Within USDA, RUS is located in the Rural
Development mission area.  The Rural Electrification Act of 1936, as
amended (7 U.S.C.  901 et seq.), provides the basic statutory
authority for the electricity and telecommunications programs,
including the authority for guaranteed loans to be made by the
Federal Financing Bank (FFB) of the Treasury.  The Consolidated Farm
and Rural Development Act, as amended (7 U.S.C.  1921 et seq.),
contains the authority for the water and waste disposal programs. 

This appendix provides information on the different loans within the
utility loan programs and on the differences in procedures for making
and servicing loans.  Information is also provided on the number and
dollar amount of loans that RUS made or guaranteed during fiscal
years 1992 through 1996 and on RUS' subsidy and administrative costs
for operating the utility loan programs during those years.  Finally,
this appendix describes the credit reform procedures in the Federal
Credit Reform Act of 1990. 


   UTILITY LOAN PROGRAMS
--------------------------------------------------------- Appendix I:1

The following is a general description of RUS' utility loans. 

Electricity loans.  RUS makes direct loans primarily to construct and
maintain electricity distribution facilities that provide electricity
to rural users.  RUS also places guarantees on loans made to finance
the construction, repair, and improvement of electricity generation
and transmission facilities.  The following are the types of loans
provided in the electricity program: 

  -- Direct loans with a 5 percent interest rate.  These loans,
     referred to as hardship rate loans, are made to borrowers that
     serve financially distressed rural areas. 

  -- Direct loans with an interest rate that is tied to an index of
     municipal borrowing rates.  These loans, referred to as
     municipal rate loans, have a maximum interest rate of 7 percent
     when the borrower meets, at the time of loan approval, either a
     consumer density test or both a rate disparity test and a
     consumer income test.  To meet the first test, the average
     number of consumers per mile of line of the borrower's total
     electric system has to be less than 5.5.  For the rate disparity
     test, the borrower's average revenue per kilowatt hour sold has
     to be more than the average revenue per kilowatt hour sold by
     all electric utilities in the state in which the borrower
     provides service.  For the consumer income test, either the
     average per capita income of the residents receiving electric
     service from the borrower has to be less than the average per
     capita income of the residents of the state in which the
     borrower provides service or the median household income of the
     households receiving electric service from the borrower has to
     be less than the median household income of the households in
     the state.  If these tests are not met, the interest rate may
     exceed 7 percent. 

  -- Guaranteed loans.  RUS places a USDA repayment guarantee on
     loans made by the FFB; these loans have an interest rate that is
     the Treasury's cost of money plus one-eighth of 1 percent.  If
     the applicant selects the FFB as the lender, RUS is required to
     place a 100-percent guarantee on the loan.  While RUS can also
     place a 100-percent USDA guarantee on electricity loans made by
     commercial lenders, it has not guaranteed any such loans in
     recent years because all applicants have applied for loans to be
     made by the FFB. 

Telecommunications loans.  RUS' direct and guaranteed loans are made
primarily to build and improve telephone services and
telecommunications facilities in rural areas, including loans for
advanced telecommunications facilities and services such as
fiber-optic cabling, digital-switching equipment, and educational
television applications.  RUS' telecommunications loans are the
following: 

  -- Direct loans with a 5 percent interest rate.  These loans,
     referred to as hardship rate loans, are made to borrowers that
     are financially stressed. 

  -- Direct loans with an interest rate that matches USDA's cost of
     money.  These loans are referred to as cost-of-money rate loans. 

  -- Guaranteed loans.  RUS places a USDA repayment guarantee on
     loans made by the FFB, which have an interest rate that is the
     Treasury's cost of money plus one-eighth of 1 percent.  As with
     electricity loans, if an applicant selects the FFB as the
     lender, RUS is required to place a 100-percent guarantee on the
     loan.  While RUS can also place a 100-percent USDA guarantee on
     telecommunications loans made by commercial lenders, it has not
     guaranteed any such loans in recent years because all applicants
     have applied for loans to be made by the FFB. 

Rural Telephone Bank loans.  In administering the Rural Telephone
Bank (RTB) loan program, RUS makes direct loans to telephone
cooperatives and commercial companies that receive RUS'
telecommunications loans.  RTB loans, which have an interest rate
that matches RTB's cost of money, are made to extend and improve
rural telephone services, including advanced telecommunications
facilities and services. 

Water and waste disposal loans.  RUS' direct and guaranteed water
loans are made to improve the storage, treatment, and distribution of
water in rural areas.  Similarly, RUS' direct and guaranteed waste
disposal loans are made to collect, treat, and dispose of waste,
including loans for sewer systems, solid waste disposal, and storm
drainage.  Other than the purpose of the loan, there are no
differences between RUS' water and waste disposal loans.  The loans
fall into the following categories: 

  -- Direct loans with a 4.5 percent interest rate.  These loans,
     referred to as poverty-rate loans, are made to borrowers that
     serve areas where the median household income is below the
     poverty line or is less than 80 percent of a state's
     nonmetropolitan median household income.  To receive a loan with
     this interest rate, the borrower's project has to address health
     or sanitary violations identified by the state's health
     department.  The maximum interest rate authorized on a
     poverty-rate loan is 5 percent. 

  -- Direct loans with an interest rate that is tied to an index of
     municipal tax-exempt bonds.  These loans, referred to as
     market-rate loans, are made to borrowers that serve areas where
     the median household income exceeds a state's nonmetropolitan
     median household income. 

  -- Direct loans with an interest rate that is one-half the
     difference between the rates on poverty- and market-rate loans. 
     These loans, referred to as intermediate-rate loans, are made to
     borrowers that serve areas where the median household income is
     between 80 percent and 100 percent of a state's nonmetropolitan
     median household income.  Loans at this rate are also made to
     borrowers that serve areas where the median income is less than
     80 percent of a state's nonmetropolitan median household income
     but where the state's health department has not identified a
     health or sanitary problem.  The maximum interest rate
     authorized on an intermediate-rate loan is 7 percent. 

  -- Guaranteed loans.  RUS places a USDA repayment guarantee on
     loans made by commercial lenders; these loans have an interest
     rate that is agreed upon by the lender and the borrower.  While
     RUS can place a maximum guarantee of 90 percent on these loans,
     in most cases it has placed an 80-percent guarantee. 


   LOAN MAKING AND SERVICING
--------------------------------------------------------- Appendix I:2

The Assistant Administrators for RUS' electricity,
telecommunications, and water and waste disposal programs provide
direction and guidance on their respective programs for loan making
and servicing.  The Assistant Administrators also review and approve
certain loan applications. 

Many loan-making and -servicing functions associated with electricity
and telecommunications loans are centralized at RUS' headquarters. 
RUS' regional offices in the electricity program and area offices in
the telecommunications program process loan applications, decide on
the technical aspects and the financial feasibility of the proposed
projects, and service approved loans.  Also, the Power Supply
Division in the electricity program services those borrowers that
have guaranteed loans for electricity generation and transmission
purposes.  Staff assigned to the regional and area offices and to the
Power Supply Division are physically located at RUS' headquarters in
Washington, D.C. 

RUS also employs approximately 70 general field representatives who
are located throughout the country; about half of these work on the
electricity program and the other half on the telecommunications
program.  These field representatives are an extension of the
headquarters-based regional and area office staff.  For example,
during the loan-making process, they assist an applicant by, among
other things, providing advice on the application process and
documentation requirements.  During loan-servicing, they monitor
project construction.  While most of their oversight is performed by
reviewing the documents that borrowers have submitted, the field
representatives also visit, at least once a year, project sites to
determine their status. 

RUS also employs about 35 field accountants who conduct financial
reviews of electricity and telecommunications loan borrowers.  Among
other things, these accountants perform fiscal reviews to determine
if funds are used properly and if adequate records of expenditures
are maintained. 

In contrast, many loan-making and -servicing functions associated
with water and waste disposal loans are managed by staff physically
located in field offices.  Specifically, staff in the Rural
Development mission area who are in state, district, or other field
offices process water and waste disposal loan applications, decide on
the technical aspects and the financial feasibility of the proposed
projects, and service approved loans. 

The programs also differ in the servicing of guaranteed loans. 
Specifically, RUS staff service the electricity and
telecommunications loans made by the FFB that have USDA guarantees. 
Servicing includes billings, loan payment collections, and visits and
contacts with borrowers.  On the other hand, commercial lenders
service the guaranteed water and waste disposal loans that they made. 
RUS periodically monitors the lenders to ensure that they are
servicing the accounts. 


   LOANS MADE AND GUARANTEED IN
   RUS' UTILITY LOAN PROGRAMS
--------------------------------------------------------- Appendix I:3

Tables I.1 through I.3 contain information on the number and dollar
amount of loans that RUS made or guaranteed during fiscal years 1992
through 1996 on the various utility loan programs.  For example,
table I.1 shows that the overwhelming number of loans made each year
in each of the programs were direct loans.  Table I.2 shows that
approximately $2 billion in loans was made in each year over the
5-year period.  Table I.3 shows that the average amount of all
guaranteed loans was far greater than the average amount of all
direct loans.  All of the electricity and telecommunications loans
that RUS guaranteed during this 5-year period were made by Treasury's
FFB; all RUS-guaranteed water and waste disposal loans were made by
commercial lenders. 



                                        Table I.1
                         
                             Number of Utility Loans Made or
                         Guaranteed by RUS, Fiscal Years 1992-96

Program and loan
type                     1992        1993        1994        1995        1996       Total
-----------------  ----------  ----------  ----------  ----------  ----------  ==========
Electricity
Direct standard           193         256          \a          \a          \a         449
 rate
Direct hardship            \a          \a          29          22          23          74
 rate
Direct municipal           \a          \a         111         105          96         312
 rate
=========================================================================================
Subtotal direct           193         256         140         127         119         835
Guaranteed                 14           3           9           8          11          45
=========================================================================================
Total                     207         259         149         135         130         880
Telecommunication
 s
Direct standard            40          43          \a          \a          \a          83
 rate
Direct hardship            \a          \a          18           8          12          38
 rate
Direct cost-of-            \a          \a          50          48          44         142
 money rate
=========================================================================================
Subtotal direct            40          43          68          56          56         263
Guaranteed                  3           7          10          12           6          38
=========================================================================================
Total                      43          50          78          68          62         301
Rural Telephone
 Bank
=========================================================================================
Direct                     29          38          50          48          44         209
Water and waste
 disposal
Direct poverty            355         433         412         456         431       2,087
 rate
Direct                    378         422         506         511         412       2,229
 intermediate
 rate
Direct market             126          72          75          85          52         410
 rate
=========================================================================================
Subtotal direct           859         927         993       1,052         895       4,726
Guaranteed                 12           5           8          \b          13          38
=========================================================================================
Total                     871         932       1,001       1,052         908       4,764
RUS total
Direct                  1,121       1,264       1,251       1,283       1,114       6,033
Guaranteed                 29          15          27          20          30         121
=========================================================================================
Total                   1,150       1,279       1,278       1,303       1,144       6,154
-----------------------------------------------------------------------------------------
\a USDA's direct loans for fiscal years 1992 and 1993 were made at a
5 percent interest rate and were referred to as standard rate REA
loans.  USDA was authorized in a November 1993 amendment to the Rural
Electrification Act to make direct hardship rate, municipal rate, and
cost-of-money rate loans starting in fiscal year 1994. 

\b USDA's appropriation for fiscal year 1995 did not authorize the
Department to guarantee water and waste disposal loans. 

Sources:  USDA, Budget Explanatory Notes for Committee on
Appropriations, fiscal years 1994 through 1997, and RUS' reports. 



                                        Table I.2
                         
                           Total Dollar Amount of Utility Loans
                         Made or Guaranteed by RUS, Fiscal Years
                                         1992-96

                                  (Dollars in millions)

Program and loan
type                     1992        1993        1994        1995        1996       Total
-----------------  ----------  ----------  ----------  ----------  ----------  ==========
Electricity
Direct standard        $622.1      $913.4          \a          \a          \a    $1,535.5
 rate
Direct hardship            \a          \a      $109.2      $ 74.1      $ 90.6       273.9
 rate
Direct municipal           \a          \a       408.8       536.4       544.6     1,489.8
 rate
=========================================================================================
Subtotal direct         622.1       913.4       518.0       610.5       635.2     3,299.1
Guaranteed              182.8       113.3       269.8       300.0       187.3     1,053.3
=========================================================================================
Total                  $804.9    $1,026.7      $787.8      $910.5      $822.5    $4,352.4
Telecommunication
 s
Direct standard         204.5       311.0          \a          \a          \a       515.5
 rate
Direct hardship            \a          \a        70.3        48.1        71.2       189.6
 rate
Direct cost-of-            \a          \a       198.0       242.3       216.7       657.1
 money rate
=========================================================================================
Subtotal direct         204.5       311.0       268.3       290.5       287.9     1,362.3
Guaranteed               35.2        67.1        59.7       119.4        78.1       359.6
=========================================================================================
Total                  $239.7      $378.1      $328.1      $409.9      $366.0    $1,721.8
Rural Telephone
 Bank
=========================================================================================
Direct                  177.0       175.0       199.8       175.0       126.4       853.3
Water and waste
 disposal
Direct poverty          217.9       319.6       282.6       328.2       291.5     1,439.8
 rate
Direct                  261.9       268.6       372.0       411.4       272.6     1,586.4
 intermediate
 rate
Direct market           120.2        59.0        60.9        88.3        39.1       367.6
 rate
=========================================================================================
Subtotal direct         600.0       647.1       715.5       827.9       603.2     3,393.8
Guaranteed                4.6         1.7         5.2          \b        59.1        70.5
=========================================================================================
Total                  $604.6      $648.8      $720.7      $827.9      $662.3    $3,464.3
RUS total
Direct               $1,603.6    $2,046.5    $1,701.7    $1,903.9    $1,652.8    $8,908.4
Guaranteed             $222.7      $182.1      $334.7      $419.4      $324.5    $1,483.3
=========================================================================================
Total                $1,826.2    $2,228.6    $2,036.4    $2,323.3    $1,977.3   $10,391.8
-----------------------------------------------------------------------------------------
Note:  Subtotals and totals may not add due to rounding. 

\a USDA's direct loans for fiscal years 1992 and 1993 were made at a
5 percent interest rate and were referred to as standard rate REA
loans.  USDA was authorized in a November 1993 amendment to the Rural
Electrification Act to make direct hardship rate, municipal rate, and
cost-of-money rate loans starting in fiscal year 1994. 

\b USDA's appropriation for fiscal year 1995 did not authorize the
Department to guarantee water and waste disposal loans. 

Sources:  USDA, Budget Explanatory Notes for Committee on
Appropriations, fiscal years 1994 through 1997, and RUS' reports. 



                                        Table I.3
                         
                          Average Dollar Amount of Utility Loans
                         Made or Guaranteed by RUS, Fiscal Years
                                         1992-96

                                  (Dollars in millions)

Program and loan                                                                   5-year
type                     1992        1993        1994        1995        1996     average
-----------------  ----------  ----------  ----------  ----------  ----------  ----------
Electricity
Direct standard          $3.2        $3.6          \a          \a          \a        $3.4
 rate
Direct hardship            \a          \a        $3.8        $3.4        $3.9         3.7
 rate
Direct municipal           \a          \a         3.7         5.1         5.7         4.8
 rate
All direct                3.2         3.6         3.7         4.8         5.3         4.0
Guaranteed               13.1        37.8        30.0        37.5        17.0        23.4
Average for all           3.9         4.0         5.3         6.7         6.3         4.9
 electricity
Telecommunication
 s
Direct standard           5.1         7.2          \a          \a          \a         6.2
 rate
Direct hardship            \a          \a         3.9         6.0         5.9         5.0
 rate
Direct cost-of-            \a          \a         4.0         5.0         4.9         4.6
 money rate
All direct                5.1         7.2         3.9         5.2         5.1         5.2
Guaranteed               11.7         9.6         6.0        10.0        13.0         9.5
Average for all           5.6         7.6         4.2         6.0         5.9         5.7
 telecommunicatio
 ns
Rural Telephone
 Bank
Direct                    6.1         4.6         4.0         3.6         2.9         4.1
Water and waste
 disposal
Direct poverty            0.6         0.7         0.7         0.7         0.7         0.7
 rate
Direct                    0.7         0.6         0.7         0.8         0.7         0.7
 intermediate
 rate
Direct market             1.0         0.8         0.8         1.0         0.8         0.9
 rate
All direct                0.7         0.7         0.7         0.8         0.7         0.7
Guaranteed                0.4         0.3         0.6          \b         4.5         1.9
Average for all
 water and waste          0.7         0.7         0.7         0.8         0.7         0.7
 disposal
All RUS loans
Average for all           1.4         1.6         1.4         1.5         1.5         1.5
 direct
Average for all           7.7        12.1        12.4        21.0        10.8        12.3
 guaranteed
Average for all           1.6         1.7         1.6         1.8         1.7         1.7
 loans
-----------------------------------------------------------------------------------------
\a USDA's direct loans for fiscal years 1992 and 1993 were made at a
5 percent interest rate and were referred to as standard rate REA
loans.  USDA was authorized in a November 1993 amendment to the Rural
Electrification Act to make direct hardship rate, municipal rate, and
cost-of-money rate loans starting in fiscal year 1994. 

\b USDA's appropriation for fiscal year 1995 did not authorize the
Department to guarantee water and waste disposal loans. 

Source:  GAO's calculation. 


   RUS' COSTS FOR THE UTILITY LOAN
   PROGRAMS
--------------------------------------------------------- Appendix I:4

Tables I.4 through I.6 contain information on RUS' subsidy costs for
making and guaranteeing utility program loans and its administrative
costs for operating the utility loan programs during fiscal years
1992 through 1996.  For example, table I.4 shows that the subsidy
costs for direct loans in the programs in each year were considerably
higher than for guaranteed loans.  Table I.5 shows that RUS'
administrative costs for each program were fairly consistent in each
year--in the mid-$60 million to mid-$70 million range.  Table I.6
shows that RUS' total costs were approximately $300 million in each
year. 



                                        Table I.4
                         
                          RUS' Subsidy Costs for Utility Loans,
                                   Fiscal Years 1992-96

                                  (Dollars in millions)

Program and loan
type                     1992        1993        1994        1995        1996       Total
-----------------  ----------  ----------  ----------  ----------  ----------  ==========
Electricity
Direct standard        $117.1      $117.3          \a          \a          \a      $234.4
 rate
Direct hardship            \a          \a       $18.7       $ 9.7       $21.2        49.6
 rate
Direct municipal         \a