to enable rural electrics to supplement with their own funds and private money market resources the annual appropriation for REA loans at 2 percent interest. CFC thus will provide some of the additional loan funds required to meet the systems' growing capital needs.

Outlined below is a brief report on the progress made by CFC during the past year, and what is expected for 1970.

1. Organization.-CFC is a cooperative owned by its participating rural electric systems. It is governed by a 22member board of directors who were named by the NRECA Board. The next board will be elected by geographic region by the member systems.

2. Capitalization.-Initially, CFC will raise money through membership fees and member subscriptions to capital term certificates. Later, CFC will raise additional money through the sale of long-term obligations to private investors.

3. Loans and Interest Rates.-CFC will make loans to its members for purposes related to rural electric system objectives within their statutory authority. The interest rate on such loans will be determined by the cost of money in the open money market.

4. Membership Applications. As of mid-April, 1970, 778 rural electric organizations (individual rural electric cooperatives, power supply cooperatives, statewide associations, and NRECA) had sent in their membership applications and fees. Slightly more than 75 percent of the nation's rural electric systems have thus indicated their intention to join the new institution.

5. REA and CFC.-In the words of REA Administrator David A. Hamil, "CFC right now is our best hope to bring urgently needed capital into our electric program." In line with this statement, REA has accepted the general principle of "accommodation" of REA liens on the property of rural electrics. An REA Study Group and the CFC's REA Coordinating Committee have been meeting to work out the details of this accord. This CFC Committee also is developing the new institution's loan policies and related procedures.

6. Loan Operations.-As in the past, all rural electric system loan applications will go first to REA for determination of eligibility for available funds under the REA 2 per cent loan program. Loan applications considered eligible for supplemental financing will be forwarded by REA to CFC with appropriate information, including an indication of REA willingness to accommodate its liens to provide equal loan security for CFC. It is anticipated that for most loan applications REA will make part of a loan and CFC the balance.

7. Internal Revenue Service (IRS) and CFC.-In October of last year the IRS ruled favorably upon the CFC application for exemption from Federal income tax as a non-profit social welfare organization. This action will enable CFC to proceed with the plan of member participation in subscribing to the new institution's capital term certificates.

8. In 1970.-During the coming year the CFC Board of Directors will choose a chief executive officer, to be known. as the Governor, of CFC. He will be responsible for day-today operations of the new institution. On or about July 1, 1970, the Board also will issue a call for member subscription to capital term certificates. With the present number of applicants that call will raise, during the initial three-year subscription period approximately $115 million in "seed" capital for the new institution.

9. CFC expects to make its first loan to a member system by year-end.

CHANGES IN EXISTING LAW

In compliance with paragraph 3 of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follow (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, existing law in which no change is proposed is shown in roman):

SECTION 43 OF THE DISTRICT OF COLUMBIA
COOPERATIVE ASSOCIATION ACT

(54 Stat. 490)

SEC. 43. LAWS NOT APPLICABLE.-No law of the District of Columbia conflicting or inconsistent with any part of this Act shall, to the extent of the conflict or inconsistency, be construed as applicable to associations formed hereunder; nor shall any law of the District of Columbia inappropriate to the purposes of such associations be so construed; nor shall any of the provisions of sections 574 through 797, both inclusive, of the Act entitled "An Act to establish a Code of Law for the District of Columbia", approved March 3, 1901, be construed as applicable to associations formed hereunder, except as expressly stated in this Act. The Act of February 4, 1913 (D.C. Code, secs. 26-60126-611) (relating to licenses for loaning of money), and chapter 33 of title 28 of the District of Columbia Code (relating to interest rates) shall not apply to

(A) any association formed under this Act (whose sole function is to arrange and provide financing for its members), and

(B) any members of such association engaged in utility operations with respect to any contract or agreement between such association and any member relating to a loan of money in connection with such utility operations.

PROPOSED AMENDMENTS OF S. 3828 AND H.R. 17711, BILLS TO AMEND THE DISTRICT OF COLUMBIA COOPERATIVE ASSOCIATION ACT

1. Amend the title of each of the bills by inserting ", and for other purposes" immediately before the period.

2. Add the following:

"Sec. 2. (a) Chapter 33 of title 28 of the District of Columbia Code is amended by adding the following new section:

“'§ 28-3307. District of Columbia Council authorized to exempt certain mortgages and loans

"The District of Columbia Council is authorized from time to time to provide by regulation for the exemption from the provisions of this chapter, for such period or periods of time as the Council may specify, any mortgage or loan insured or guaranteed under the National Housing Act of chapter 37 of title 38, United States Code, the interest rate of which is subject to regulation by an officer or agency of the Federal Government.'

"(b) The chapter analysis of chapter 33 of title 28 is amended by inserting immediately below the item relating to section 28-3306 the following new item: "'28-3307. District of Columbia Council authorized to exempt certain mortgages 2 19 and loans.'

Senator EAGLETON. Mr. Kneipp.

STATEMENT OF ROBERT F. KNEIPP ON S. 3828 AND H.R. 17711

Mr. KNEIPP. The purpose of each of the bills is to exempt from District laws regulating the loaning of money and interest rates, financial transactions between a cooperative association organized under the District of Columbia Cooperative Association Act and its members. The bills differ, however, in very significant respect. The Senate bill would exempt from the so-called loan shark law of the District financial dealings between such a cooperative association and members dealings between such a cooperative association and members of the general public, and would exempt from the District usury law dealings between any such cooperative association and its members, who could conceivably be individuals as well as organizations.

H.R. 17711 is considerably more restrictive than the Senate bill, in that it would exempt from the District's "loan shark law" and usury law only those cooperative associations the sole function of which is to arrange and provide financing for its members, in connection with financing transactions involving those of its members which are engaged in utility operations.

The District government in its report of May 13, 1970, on S. 3828, which has been included in the record of the hearings, objected to the enactment of the Senate bill on the ground that the exemptions provided thereby were too broad. The District stated, however, that if the bill should be amended so as to limit such exemptions to financial dealings between a cooperative association and those of its members engaged in utility operations, then the District government would have no objection to the enactment of the bill. A similar recommendation was submitted by the District government to the House District Committee, which accepted the recommendation and reported out, and the House of Representatives passed, a bill which deals adequately with the problem to which the District government directed attention. Accordingly, of the two bills, the District government prefers the House-passed bill, as being narrower in its scope, as against the Senate bill, unless, of course, the latter is amended alone the lines recommended by the District.

50-436 0-70- 8

Thank you, Mr. Chairman, for affording me this opportunity to present the views of the District government, and I am ready to respond to any questions which you may have concerning the legislation.

Senator EAGLETON. Does anyone else desire to be heard on S. 3828 and H.R. 17711? If not the hearing is concluded on those measures and the record, again, will remain open for additional statements if desired.

That concludes the hearings this afternoon by the Fiscal Affairs Subcommittee.

(Whereupon, the hearings were concluded and the committee adjourned.)