RE Act

United States
Department of
Agriculture
Rural Development
Informational
Publication 100-1

Rural Electrification
Act of 1936
With Amendments as Approved
through January 23, 2004

United States Department of Agriculture
Rural Development
Informational Publication 100-1
Rural Electrification Act of 1936
With Amendments as Approved through January 23, 2004
TABLE OF CONTENTS
Chronology.......................................................................................iii
Guide To Provisions of the Rural Electrification Act of 1936 ...... x
Rural Electrification Act of 1936..................................................... 1
TITLE I-Rural Electrification ...................................................... 1
TITLE II-Rural Telephone Service............................................ 12
TITLE III-Rural Electric and Telephone Direct Loan
Programs ............................................................................... 17
TITLE IV-Rural Telephone Bank.............................................. 45
TITLE V-Rural Economic Development................................... 64
TITLE VI-Rural Broadband Access...........................................65
Selected Leglislation ....................................................................... 70
Leglislation Codified in the Same Chapter of the U.S. Code
as the RE Act......................................................................... 70
Deferred Amendments to the Government Corporation
Control Act............................................................................ 74
Authority to Compromise Debt .................................................. 75
"Buy American" Provision ......................................................... 76
Distance Learning and Medical Link Programs ....................... 77
Local TV.........................................................................................85
Archival References...................................................................... 108

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ii

RURAL ELECTRIFICATION ACT OF 1936
[7 U.S.C. 901-950bb]
WITH AMENDMENTS AS APPROVED
THROUGH JANUARY 23, 2004

CHRONOLOGY
1935. The Rural Electrification Administration (REA) was created by
Executive Order 7037 of May 11 under authority of the
Emergency Relief Appropriation Act of 1935, approved
April 8, 1935 (49 Stat. 115).
1936. Statutory provision for the agency was made in the Rural
Electrification Act of 1936 (Rural Electrification Act),
approved May 20 (49 Stat. 1363, 7 U.S. Code, Chapter 31).
1938. Title IV of the Work Relief and Public Works Appropriation
Act of 1938 approved June 21 ("Rural Electrification Act of
1938," 52 Stat. 818) authorized further borrowing from the
Reconstruction Finance Corporation and added a requirement
that borrowers from REA agree to use materials and supplies
produced in the United States.
1939. REA became part of the Department of Agriculture under
Reorganization Plan 11, effective July 1.
1944. Title V of the Department of Agriculture Organic Act of 1944,
approved September 21 (58 Stat. 739, 7 U.S.C. 903-905, 915)
liberalized the terms of REA loans and removed the time
limitation from its lending program.
1944. On December 23, the Rural Electrification Act was further
amended to authorize REA to refinance certain rural
electrification obligations owed to the Tennessee Valley
Authority (58 Stat. 925; 7 U.S.C. 904).
1947. The Department of Agriculture Appropriation Act, 1948,
approved July 30 (61 Stat. 546; 7 U.S.C. 903) further amended
the Rural Electrification Act by transferring from the
Reconstruction Finance Corporation to the Secretary of the
Treasury the authority to make loans to REA.

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1948. On June 29, the Rural Electrification Act was again amended to
authorize REA to refinance certain additional rural
electrification obligations owed to the Tennessee Valley
Authority (62 Stat. 1070; 7 U.S.C. 904).
1949. On October 28, the Rural Electrification Act was further
amended to authorize REA to make loans for the purpose of
furnishing and improving rural telephone service (63 Stat. 948;
7 U.S.C. 901-914; 922-924).
1955. On June 15, the Rural Electrification Act was amended by
revising the formula governing the allotment of electrification
loan funds (69 Stat. 131; 7 U.S.C. 903; 904).
1962. On October 23, the Rural Electrification Act was amended by
broadening the definition of telephone service (76 Stat. 1140;
7 U.S.C. 924).
1971. On May 7, the Rural Electrification Act was amended to
establish a Rural Telephone Account and the Rural Telephone
Bank (85 Stat. 29; 7 U.S.C. 903; 922; 931; 932; 941-950b).
1972. On June 30, the Rural Electrification Act was amended to
authorize the Secretary of the Treasury to purchase Rural
Telephone Bank debentures (86 Stat. 390; 7 U.S.C. 947).
1973. On May 11, the Rural Electrification Act was amended to
establish a revolving fund for insured and guaranteed loans
under Title III (87 Stat. 65; 7 U.S.C. 903; 931-940; 945-948).
1975

On November 4, the Rural Electrification Act was amended to
expressly authorize the assignment of REA guarantees to the
extent provided in contract of guarantee, to clarify the
incontestability of the Government guarantee, and to
specifically require justification of budget estimates (89 Stat.
677; 7 U.S.C. 906; 936; 938).

1976. On April 21, the "Fiscal Year Adjustment Act" amended the
Rural Electrification Act to reflect necessary changes in laws
because of the October-September fiscal year. (90 Stat. 378;
7 U.S.C 910; 946; 950).

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1976. On October 20, the Rural Electrification Act was amended to
correct unintended inequities in the interest rate criteria and to
transfer the unobligated balance of the 1973 loan authorizations
to the Rural Electrification and Telephone Revolving Fund.
(90 Stat. 2701; 7 U.S.C. 931; 935).
1977. On August 4, the "Department of Energy Organization Act"
added section 16 to title I, to require the Administrator, when
making or guaranteeing generation or transmission loans, to
consider general criteria published by the Secretary of Energy.
(91 Stat. 608; 7 U.S.C. 916).
1981. On August 13, the "Omnibus Budget Reconciliation Act of
1981" amended the Rural Electrification Act (1) to establish a
5 percent interest rate, with certain exceptions, for loans from
the revolving fund, and (2) to require the Federal Financing
Bank to make a loan under an REA guarantee if requested by a
borrower with such a guarantee. (95 Stat. 379;
7 U.S.C. 935-937).
1981. On December 22, the "Agriculture and Food Act of 1981"
amended the Rural Electrification Act to extend for another
10 years the authorization for Federal stock purchases in the
Rural Telephone Bank. (95 Stat. 1347; 7 U.S.C. 946).
1986. On October 21, the "Omnibus Budget Reconciliation Act of
1986" amended the Rural Electrification Act to authorize the
prepayment of certain loans made by the Federal Financing
Bank and guaranteed by the REA. The Act further provides for
sale or prepayment of direct or insured loans by the borrower
through September 30, 1987. (100 Stat. 1875; 7 U.S.C. 936a).
1986. On October 30, an act entitled "Joint Resolution making
continuing appropriations for the fiscal year 1987, and for other
purposes" amended the Rural Electrification Act to establish a
privatization demonstration program to allow electric and
telephone borrowers under the Rural Electrification Act to
prepay with private capital all their loans guaranteed or
otherwise made by and through the REA providing certain
conditions are met. (100 Stat. 3341-333; 7 U.S.C. 940a)
NOTE: Legislation that enacted this amendment provides that
its provisions "shall apply only to the rural electrification
program in the State of Alaska". (100 Stat. 3341-352).

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1987. On December 22, the "Omnibus Budget Reconciliation Act of
1987" amended the Rural Electrification Act to authorize the
prepayment of certain loans made by the Federal Financing
Bank and guaranteed by the REA and amended the Rural
Electrification Act to establish a cushion of credit payments
program including a loan and grant initiative for rural economic
development; permit use of funds by borrowers not in excess of
15 percent of their total utility plant; authorize the prepayment
of Rural Telephone Bank loans during fiscal year 1988; and
provide an interest rate reform for the Rural Telephone Bank.
(101 Stat. 1330-20; 7 U.S.C. 940b; 940c; 946; 948).
1990. On November 5, 1990, the "Omnibus Budget Reconciliation
Act of 1990" amended the Rural Electrification Act to authorize
insured loan levels for fiscal years 1991 through 1995 and
established a new 90 percent guarantee loan program. Title XIII
of OBRA 1990, also known as the "Federal Credit Reform Act
of 1990," superseded the revolving loan fund legislative
provisions for insured and guaranteed loans which had been in
effect since 1973. (104 Stat. 1388; 7 U.S.C. 940d).
1990. On November 28, the "Rural Economic Development Act of
1990" amended the Rural Electrification Act to establish an
Assistant Administrator for Economic Development, establish a
rural development technical assistance unit, expand the powers
and duties of REA Administrator in the area of rural economic
development, establish a Rural Business Incubator Fund for the
purpose of making grants and reduced interest loans, to
promote business incubator loans. It also provided for distance
learning and medical link programs. (104 Stat. 3979, 7 U.S.C.
911a, 912; 917; 918; 924-928; 932; 935; 936; 936b; 939; 945;
946, 948; 950; 950aa; 950aa-1).
1991. On December 13, 1991, the "Food, Agriculture, Conservation,
and Trade Act Amendments of 1991" made technical
corrections to the Rural Electrification Act amendments
resulting from the Rural Economic Development Act of 1990."
(105 Stat. 1881; 7 U.S.C. 911; 917; 950aa; 950aa-1).
1992. On October 21, 1992, the "Rural Electrification Administration
Improvement Act of 1992" amended the Rural Electrification
Act to authorize discounted prepayments by borrowers of direct
or insured loans. (106 Stat. 2183; 7 U.S.C. 936b(a); 936b(b)).

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1992. On October 28, 1992, the "Food, Agriculture, Conservation and
Trade Act Amendments of 1990" was amended by the addition
of a new section which established a special program for
service areas applying for distance learning and medical link
grants. (106 Stat. 4098; 7 U.S.C. 950aaa-4; 950aaa-5).
1993. On August 10, 1993, the "Omnibus Budget Reconciliation Act
of 1993" amended the Rural Electrification Act by adding
section 306C on refinancing and prepayment of FFB loans.
(107 Stat. 327; 7 U.S.C. 936c).
1993. On November 1, 1993, the "Rural Electrification Loan
Restructuring Act of 1993" (RELRA) significantly amended the
electric and telephone loan programs to authorize electric
insured loans at a tax exempt equivalent interest rate and
telephone insured loans at a government cost-of-money interest
rate and increased the interest rate on hardship loans from
two percent to five percent. RELRA authorized loans for
purposes of demand side management. RELRA also provided
that REA borrowers are eligible for water and sewer loans as
well as other rural development assistance programs authorized
by the "Consolidated Farm and Rural Development Act"
(7 U.S.C. 1921 et seq). (107 Stat. 1356; 7 U.S.C. 902, 904,
913, 918, 924(b), 935, 936c, 936d, 936e, 937, 939(a), 940d,
946, 948).
1993. On December 8, 1993, the "North American Free Trade
Agreement Implementation Act" amended the "Buy American"
provision of the Rural Electrification Act to include Mexico and
Canada. (107 Stat. 2129, 7 U.S.C. 903 note.)
1993. On December 17, 1993, the Rural Electrification Act was
amended to clarify the scope of the regulatory oversight to be
exercised by the Rural Electrification Administration with
respect to certain borrowers.
This amendment allowed
borrowers whose net worth exceeded 110 percent of the
outstanding principal balance on all loans made or guaranteed
by REA to be exempt from certain REA operational controls.
(107 Stat. 2342; 7 U.S.C. 936e).
1994. On October 13, 1994, the Crop Insurance Reform and
Department of Agriculture Reorganization Act of 1994 repealed

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the provision for an assistant administrator for rural
development and directed authorities within the RE Act to the
Secretary of Agriculture in lieu of the REA Administrator.
(108 Stat. 3220; 7 U.S.C. 901-913, 915-916, 918, 922, 925-928,
931-936, 936a-936c, 936e, 937-938, 940, 940a-940d, 943-948,
950, 950b, 950aa, 950aa-1).
Also, the Rural Utilities Service was established to carry out the
electric and telephone programs authorized by the RE Act and
water and waste facility programs authorized by the
Consolidated
Farm and
Rural
Development
Act.
(108 Stat. 3219; 7 U.S.C. 6942).
1994. On November 2, 1994, a technical amendment to section 6 of
the Act substituted "Committee on Agriculture, Nutrition and
Forestry" in place of "Committee on Agriculture and Forestry."
(108 Stat. 4581; 7 U.S.C. 906).
1995. On December 21, 1995, the Federal Reports Elimination Act
eliminated the requirement that the Comptroller General review
determinations of the cost-of-money rate made by the Governor
of the Telephone Bank. (109 Stat. 711; 7 U.S.C. 948(b)(3)).
1996. On April 4, 1996, the Agriculture Reform Act (i) eliminated
certain obsolete references in the RE Act, (ii) eliminated the
authority for 2 percent loans, (iii) repealed authority for loans
for wiring and plumbing, which authority had not been funded
since 1969, (iv) eliminated the requirement for the Secretary to
submit an annual report to Congress, (v) eliminated a provision
allowing borrowers to determine the term of a telephone loan,
and (vi) repealed authority for the Rural Business Incubator
Fund. (110 Stat. 1149; 7 U.S.C. 902-906, 908, 910, 912, 931,
932, 939, 940a, 946, 950aa, 950aa-1).
The Agriculture Reform Act, in an amendment to the
Consolidated Farm and Rural Development Act, also gave
authority to the Secretary to reduce debt for loan programs
administered by the Rural Utilities Service. (110 Stat. 1128;
7 U.S.C. 1981(b)(4)).
2000

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On November 9, 2000, the Grain Standards and Warehouse
Improvement Act of 2000 added section 19 to the RE Act.
(114 Stat. 2058; 7 U.S.C. 918a).

On December 21, 2000, the Launching Our Communities'
Access to Local Television Act of 2000 authorized a program
to facilitate access to signals of local television stations for
households located in nonserved and underserved areas.
(114 Stat. 2762, 2762A-128; 47 U.S.C. 1101).
2001

On November 28, 2001, the Agriculture, Rural Development,
Food and Drug Administration, and Related Agencies
Appropriations Act, 2002, authorized RUS to finance the
acquisition of existing electric utility systems. (115 Stat. 738;
7 U.S.C. 918b).

2002

On May 13, 2002, the Farm Security and Rural Investment Act
of 2002 ("2002 Farm Bill") added title VI to the RE Act
authorizing loans and guarantees for the construction,
improvement and acquisition of broadband facilities in rural
areas. (116 Stat. 415; 7 U.S.C. 950bb).
The 2002 Farm Bill also authorized the Secretary to guarantee
bonds or notes issued by eligible cooperative and other lenders.
(116 Stat. 413; 7 U.S.C. 940c-1).
The 2002 Farm Bill also authorized telephone loans for the
purpose of expanding emergency 911 communications systems
in rural areas. (116 Stat. 415; 7 U.S.C. 940e).

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GUIDE TO PROVISIONS OF THE RURAL
ELECTRIFICATION ACT OF 1936
TITLE I
SEC. 1

sets forth the title of the act as "the Rural Electrification
Act of 1936."

SEC. 2

generally authorizes Secretary of Agriculture to make
rural electrification and telephone loans, to investigate
and publish reports on matters affecting the condition and
progress of rural electrification and telephone service and
to assist borrowers that implement conservation and
renewable energy programs.

SEC. 3

authorizes necessary appropriation levels.

SEC. 4

authorizes the Secretary of Agriculture to make rural
electrification loans, specifies eligible borrowers,
preferences, purposes, terms and conditions, security and
self-liquidation requirements.

SEC. 5

[repealed] this section related to loans for electrical and
plumbing equipment.

SEC. 6

authorizes appropriations of funds for administering
programs.

SEC. 7

relates to acquisition and disposition by the Secretary of
property securing loans; prohibits disposition of property
acquired by borrowers with RUS loan funds, unless the
Secretary approves, until loan is fully repaid.

SEC. 8

[repealed] this section related to making the Rural
Electrification Act retroactively applicable to loans and
contracts entered into prior to effective date of the Act
(May 20, 1936).

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SEC. 9

requires administration of Rural Electrification Act and
selection of employees on non-partisan, nonpolitical
basis.

SEC. 10

[repealed] this section required the Secretary to make an
annual report to Congress.

SEC. 11

authorizes the Secretary to appoint officers and
employees and to make certain administrative
expenditures.

SEC. 11A

[repealed] authorized the Secretary to appoint an
Assistant Administrator for Economic Development and
establish a technical assistance unit to provide advice to
borrowers concerning community and economic
development activities.

SEC. 12

empowers the Secretary to extend payment of loans with
certain limitations.

SEC. 13

defines the terms "rural area", "farm", "person",
"Territory" and "Secretary".

SEC. 14

technical "saving clause".

SEC. 15

(See Selected Legislation, 7 U.S.C. 915; there is no
section 15 of the RE Act.)

SEC. 16

requires the Secretary when making or guaranteeing
generation or transmission loans to consider general
criteria published by the Secretary of Energy.

SEC. 17

prohibits the Secretary from conditioning rural
development program assistance on the receipt of electric
service from any particular utility or supplier.

SEC. 18

removes consideration of borrowers' general funds level
from loan making and advance of funds decision and
provides for the use of borrower-funded consultants to
facilitate timely action on applications in certain
circumstances.

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SEC. 19

authorizes the Secretary to make grants and loans for
energy facilities in communities with extremely high
residential home energy costs.

TITLE II
SEC. 201

authorizes the Secretary to make loans for furnishing and
improving rural telephone service; specifies eligible
borrowers, terms and conditions, purposes, preferences
generally, preferences during initial year of program, area
coverage requirements, security and self-liquidation
requirements; authorizes financing of nonrural facilities
under certain conditions; authorizes limited refinancing of
existing indebtedness; requires applicants to comply with
State certification requirements, and, where such
requirements are inapplicable, specifies the determination
which the Secretary is required to make.

SEC. 202

recognizes jurisdiction of State regulatory bodies.

SEC. 203

defines the terms "telephone service" and "rural area".

SEC. 204

limits loan feasibility criteria.

SEC. 205

allows borrowers to invest in rural development
projects, and defines "qualified telephone borrower."

SEC. 206

discusses general duties and prohibitions of the Secretary
and Governor.

SEC. 207

sets time limitations for acting on telephone loan
applications.

TITLE III
SEC. 301

establishes in the U.S. Treasury a "Rural Electrification
and Telephone Revolving Fund" (fund) and specifies the
existing and future assets to be included in the fund.

SEC. 302

sets forth the liabilities of the fund, outlines the exclusive
purposes for which the assets of the fund are available and

xii

requires the maintenance of an electric account and a
telephone account within the fund.
SEC. 303

requires that moneys in the fund shall remain on deposit
in the United States Treasury until required for
disbursement.

SEC. 304

sets forth the financial transactions for which the fund is
authorized, including borrowings from the Treasury and
the sale of borrowers' notes or interests in them to the
Treasury or the private money market.

SEC. 305

authorizes the Secretary to make insured electric loans at
(1) a hardship interest rate of 5 percent or (2) a municipal
tax exempt equivalent rate, and insured telephone loans at
(1) a hardship interest rate of 5 percent or (2) a cost of
money interest rate equal to the U.S. Treasury cost of
funds.

SEC. 306

authorizes the Secretary to guarantee loans made by other
lending agencies and to accommodate or subordinate liens
or mortgages; requires the Federal Financing Bank to
make a loan, guaranteed by RUS, when requested by a
borrower for whom a RUS guarantee has been approved.

SEC. 306A authorizes the prepayment of certain loans made by the
Federal Financing Bank and guaranteed by RUS and
requires the Secretary to establish eligibility criteria based
on greatest need of benefits associated with prepayment to
cooperative borrowers.
SEC. 306B provides that RUS insured loans may be prepaid at a
discount under certain circumstances.
SEC. 306C provides that FFB guaranteed loans may be refinanced or
prepaid and limits the penalty which might otherwise be
assessed.
SEC. 306D provides the circumstances under which a default by a
wholesale power borrower will not affect the eligibility
for loans, loan guarantees, and lien accommodations of
distribution borrowers that purchase power from said
wholesale power borrower.

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SEC. 306E provides that certain borrowers who achieve certain
financial benchmarks will be relieved of certain RUS
administrative or operational controls.
SEC. 307

authorizes the Secretary to request that a borrower obtain
other financing, concurrently with an insured loan at the
standard rate, under specified conditions.

SEC. 308

provides that any contract of insurance or guarantee made
under Title III shall be supported by the full faith and
credit of the United States.

SEC. 309

provides that loans made from or insured through the fund
under Title III shall be for the same purposes and on the
same terms and conditions as those provided for loans
under Titles I and II of the Rural Electrification Act,
except as otherwise provided in sections 303 through 308.

SEC. 310

authorizes the Secretary, at the request of the borrower, to
refinance any loans made for rural electric and telephone
facilities under the Consolidated Farm and Rural
Development Act.

SEC. 311

[repealed] this section established a privatization
demonstration program for electric and telephone RUS
borrowers with outstanding RUS-guaranteed Federal
Financing Bank (FFB) loans and provided an option to
such borrowers to prepay all outstanding RUS-guaranteed
FFB loans, without a prepayment premium. (NOTE:
Legislation that enacted this section provided that its
provisions "shall apply only to the rural electrification
program in the State of Alaska".)

SEC. 312

provides that a borrower may invest its own funds or
make loans or guarantees, not in excess of 15 percent of
its total utility plant.

SEC. 313

establishes a cushion of credit payments program.

SEC. 313A authorizes guarantees of bonds and notes issued by
eligible cooperative and other lenders.

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SEC. 314

establishes authorization levels for rural electric and
telephone insured loans for fiscal years 1991-1995 and
authorizes new 90 percent guarantee loan program.

SEC. 315

authorizes telephone loans for expanding emergency 911
communications systems in rural areas.

TITLE IV
SEC. 401

establishes Rural Telephone Bank (telephone bank) as a
body corporate and an instrumentality of the United
States, to obtain supplemental funds from non-Federal
sources and utilizes them in making loans, operating on
self-sustaining basis to extent practicable.

SEC. 402

sets forth general powers of telephone bank.

SEC. 403

lists special provisions governing telephone bank as
United States agency until conversion of ownership,
control and operation.

SEC. 404

makes the Secretary Governor of telephone bank until
conversion of ownership, control and operation.

SEC. 405

provides for board of directors of telephone bank and sets
forth procedures for its selection and selection of
Chairperson of the Board.

SEC. 406

provides for capitalization of telephone bank and
establishes classes of stock to be issued.

SEC. 407

authorizes and limits borrowing by telephone bank and
describes status of debentures.

SEC. 408

authorizes lending by telephone bank and establishes
restrictions on telephone bank loans.

SEC. 409

makes any receipts of telephone bank available for all its
obligations and expenditures.

xv

SEC. 410

provides for conversion of ownership, control and
operation of telephone bank when specified amount of
Class A stock has been retired.

SEC. 411

sets forth rights of stockholders on liquidation or
dissolution of telephone bank.

SEC. 412

prohibits a section 201 loan to a borrower having net
worth in excess of 20% of assets in preceding year unless
the Secretary finds it cannot obtain the loan from the
telephone bank or other reliable sources on reasonable
terms.

TITLE V
SEC. 501

authorizes RUS to provide technical advice and assistance
to borrowers utilizing the authority under section 312 to
engage in rural economic development activity.

SEC. 502

[repealed] this section established a Rural Business
Incubator fund, its uses, eligibility, and funding.

TITLE VI
SEC. 601

xvi

authorizes loans and guarantees for the construction,
improvement and acquisition of broadband service in
eligible rural communities.

RURAL ELECTRIFICATION ACT OF 1936
With Amendments as Approved through January 23, 2004
[U.S. Code, Title 7, Chap. 31]
AN ACT
To provide for rural electrification, and for other purposes.

TITLE I-RURAL ELECTRIFICATION
SEC. 1. SHORT TITLE. —This chapter may be cited as the
"Rural Electrification Act of 1936".
[May 20, 1936, ch. 432, Title I, §1, 49 Stat. 1363; 1939 Reorg. Plan
No. II, §5, eff. July 1, 1939, 4 F.R. 2732, 53 Stat. 1434; Oct. 28, 1949,
ch. 776, §2, 63 Stat. 948; October 13, 1994, Public Law 103-354, Title
II, Subtitle C, §235(a)(1), 108 Stat. 3220; 7 U.S.C. 901.] (NOTE:
Provisions of this section that prescribed the basic annual compensation
of the Administrator were omitted to conform to the provisions of the
Federal Executive Salary Schedule. See section 2210 et. seq. of Title 5,
Executive Departments and Government Officers and Employees.)

SEC. 2. GENERAL AUTHORITY OF THE SECRETARY
OF AGRICULTURE.
(a) LOANS.—The Secretary of Agriculture (referred to in this Act
as the "Secretary") is authorized and empowered to make loans in the
several States and Territories of the United States for rural
electrification and for the purpose of furnishing and improving electric
and telephone service in rural areas, as provided in this Act, and for the
purpose of assisting electric borrowers to implement demand side
management, energy conservation programs, and on-grid and off-grid
renewable energy systems.
(b) INVESTIGATIONS AND REPORTS.—The Secretary may
make, or cause to be made, studies, investigations, and reports
regarding matters, including financial, technological, and regulatory
matters, affecting the condition and progress of electric,
telecommunications, and economic development in rural areas, and
publish and disseminate information with respect to the matters.

1

[May 20, 1936, ch. 432, Title I, §2, 49 Stat. 1363; Oct. 28, 1949, ch.
776, §2, 3, 63 Stat. 948; Nov. 1, 1993, Public Law 103-129, §2(c)(1),
107 Stat. 1363; October 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(2), (13), 108 Stat. 3220, 3221; Apr. 4, 1996, Public
Law 104-127, Title VII, Subtitle C, §771, 110 Stat. 1149;
7 U.S.C. 902.]

SEC. 3. AUTHORIZATION OF APPROPRIATIONS. —
There are authorized to be appropriated such sums as are necessary to
carry out this chapter.
[May 20, 1936, ch. 432, Title I, §3, 49 Stat. 1364; June 21, 1938,
ch. 554, Title IV, §401, 52 Stat. 818; Sept. 21, 1944, ch. 412, Title V,
§§501, 503, 504, 58 Stat. 739, 740; July 30, 1947, ch. 356, Title I, §1,
61 Stat. 546; Oct. 28, 1949, ch. 776, §§2, 4(a)-(d), 63 Stat. 948;
June 15, 1955, ch. 139, §1, 69 Stat. 131; May 7, 1971, Public
Law 92-12 §3(a), 85 Stat. 37; May 11, 1973, Public Law 93-32, §3,
87 Stat. 70; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(3), (13), 108 Stat. 3220, 3221; Apr. 4, 1996, Public
Law 104-127, Title VII, §772(a), 110 Stat. 1149; 7 U.S.C. 903.]

SEC. 4. LOANS BY SECRETARY OF AGRICULTURE FOR
ELECTRICAL PLANTS AND TRANSMISSION LINES, PREFERENCES; CONSENT OF STATE AUTHORITIES. —
The Secretary is authorized and empowered, from the sums
hereinbefore authorized, to make loans for rural electrification to
persons, corporations, States, Territories, and subdivisions and agencies
thereof, municipalities, peoples' utility districts and cooperative,
nonprofit, or limited-dividend associations, organized under the laws of
any State or Territory of the United States, for the purpose of financing
the construction and operation of generating plants, electric
transmission and distribution lines or systems for the furnishing and
improving of electric service to persons in rural areas, including by
assisting electric borrowers to implement demand side management,
energy conservation programs, and on-grid and off-grid renewable
energy systems, and loans, from funds available under section 3 of this
Act, to cooperative associations and municipalities for the purpose of
enabling said cooperative associations, and municipalities to the extent
that such indebtedness was incurred with respect to electric
transmission and distribution lines or systems or portions thereof

2

serving persons in rural areas, to discharge or refinance long-term debts
owed by them to the Tennessee Valley Authority on account of loans
made or credit extended under the terms of the Tennessee Valley
Authority Act of 1933, as amended: Provided, That the Secretary, in
making such loans, shall give preference to States, Territories, and
subdivisions and agencies thereof, municipalities, peoples' utility
districts, and cooperative, nonprofit, or limited-dividend associations,
the projects of which comply with the requirements of this Act. Such
loans shall be on such terms and conditions relating to the expenditure
of the moneys loaned and the security therefor as the Secretary shall
determine and may be made payable in whole or in part out of the
income, except that no loan for the construction, operation, or
enlargement of any generating plant shall be made unless the consent of
the State authority having jurisdiction in the premises is first obtained.
Loans under this section shall not be made unless the Secretary finds
and certifies that in his judgment the security therefor is reasonably
adequate and such loan will be repaid within the time agreed.
[May 20 1936, ch. 432, Title I, §4, 49 Stat. 1365; Sept. 21, 1944,
ch. 412, Title V, §§502(a), 503, 58 Stat. 739; Dec. 23, 1944, ch. 725,
58 Stat. 925; June 29, 1948, Ch. 703, 62 Stat. 1070; Oct. 28, 1949,
ch. 776, §§2, 4(e), 63 Stat. 948; June 15, 1955, ch. 139, §2,
69 Stat. 132; Nov. 1, 1993, Public Law 103-129, §2(c)(2),
107 Stat. 1363; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(13), 108 Stat. 3221; Apr. 4, 1996, Public Law 104-127,
Title VII, §773, 104 Stat. 1149; 7 U.S.C. 904.]

SEC. 5. [Repealed April 4, 1996].
[This section related to loans for electrical and plumbing equipment
and specified persons eligible for such loans.]
[May 20, 1936, ch. 432, Title I, §5, 49 Stat. 1365; Sept. 21, 1944,
ch. 412, Title V, §502(b), 58 Stat. 739; Oct. 28, 1949, ch. 776,
§2, 63 Stat. 948; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(13), 108 Stat. 3221; Apr. 4, 1996, Public
Law 104-127, Title VII, Subtitle C, §774(a), 110 Stat. 1150;
7 U.S.C. 905.]

SEC. 6. FUNDING FOR ADMINISTRATIVE EXPENSES. —
For the purpose of administering this Act and for the purpose of

3

making the studies, investigations, publications, and reports herein
provided for, there is authorized to be appropriated, out of any money
in the Treasury not otherwise appropriated, such sums as shall be
necessary.
[May 20, 1936, ch. 432, Title I, §6, 49 Stat. 1365; Oct. 28, 1949,
ch. 776, §2, 63 Stat. 948; Nov. 4, 1975, Public Law 94-124, §3,
89 Stat. 677; S. Res. 4, Feb. 4, 1977; Nov. 2, 1994, Public
Law 103-437, §4(a)(3), 108 Stat. 4581; Apr. 4, 1996, Public
Law 104-127, Title VII, Subtitle C, §775, 104 Stat. 1150;
7 U.S.C. 906.]

SEC. 7. ACQUISITION OF PROPERTY PLEDGED FOR
LOANS; DISPOSITION, SALE OF PLEDGED PROPERTY BY
BORROWER. —The Secretary is authorized and empowered to bid
for and purchase at any foreclosure or other sale, or otherwise to
acquire, property pledged or mortgaged to secure any loan made
pursuant to this Act; to pay the purchase price and any costs and
expenses incurred in connection therewith from the sums authorized in
section 3 of this Act; to accept title to any property so purchased or
acquired in the name of the United States of America; to operate or
lease such property for such period as may be deemed necessary or
advisable to protect the investment therein, but not to exceed five years
after the acquisition thereof, and to sell such property so purchased or
acquired, upon such terms and for such consideration as the Secretary
shall determine to be reasonable. No borrower of funds under section 4
or section 201 shall, without the approval of the Secretary, sell or
dispose of its property, rights, or franchises, acquired under the
provisions of this Act, until any loan obtained from the Rural
Electrification Administration, including all interest and charges, shall
have been repaid.
[May 20, 1936, ch. 432, Title I, §7, 49 Stat. 1365; Oct. 28, 1949,
ch. 776, §§2, 4(f), 63 Stat. 948; Oct. 13, 1994, Public Law 103-354,
Title II, Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 907.]

SEC. 8. [Repealed April 4, 1996].
[This section related to the transfer of functions of the Rural
Electrification Administration established by Executive Order

4

Number 7037, dated May 11, 1935, to the Administrator authorized to
be appointed by the Rural Electrification Act of 1936.]
[May 20, 1936, ch. 432, Title I, §8, 49 Stat. 1366; Oct. 28, 1949,
ch. 776, §2, 63 Stat. 948; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(4), 108 Stat. 3221; Apr. 4, 1996, Public
Law 104-127, Title VII, Subtitle C, §776, 110 Stat. 1150;
7 U.S.C. 908.]

SEC. 9. ADMINISTRATION ON NONPOLITICAL BASIS,
DISMISSAL OF OFFICERS OR EMPLOYEES FOR VIOLATING PROVISIONS. —
This Act shall be administered entirely on a nonpartisan basis, and in
the appointment of officials the selection of employees, and in the
promotion of any such officials, or employees no political test or
qualification shall be permitted or given consideration, but all such
appointments and promotions shall be given and made on the basis of
merit and efficiency. If the Secretary herein provided for is found by
the President of the United States to be guilty of a violation of this
section, he shall be removed from office by the President, and any
appointee or selection of officials or employees made by the Secretary
who is found guilty of a violation of this Act shall be removed by the
Secretary.
[May 20, 1936, ch. 432, Title I, §9, 49 Stat. 1366; Oct. 28, 1949,
ch. 776, §2, 63 Stat. 948; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 909.]

SEC. 10. [Repealed April 4, 1996].
[This section provided for an annual report to be presented to the
Congress].
[May 20, 1936, ch. 432, Title I, §10, 49 Stat. 1366; Oct. 28, 1949,
ch. 776, §2, 63 Stat 948; April 21, 1976, Public Law 94-273, §11(1),
90 Stat. 378; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(13), 108 Stat. 3221; Apr. 4, 1996, Public Law 104-127,
Title VII, Subtitle C, §777, 110 Stat. 1150; 7 U.S.C. 910.]

5

SEC. 11. ACCEPTANCE OF SERVICES OF FEDERAL OR
STATE OFFICERS; APPLICATION OF CIVIL SERVICE
LAWS, EXPENDITURES FOR SUPPLIES AND EQUIPMENT.
—In order to carry out the provisions of this Act the Secretary may
accept and utilize such voluntary and uncompensated services of
Federal, State, and local officers and employees as are available, and he
may without regard to the provisions of civil-service laws applicable to
officers and employees of the United States appoint and fix the
compensation of attorneys, engineers, and experts, and he may, subject
to the civil-service laws, appoint such other officers and employees as
he may find necessary and prescribe their duties. The Secretary is
authorized, from sums appropriated pursuant to section 6, to make such
expenditures (including expenditures for personal services, supplies
and equipment; lawbooks and books of reference, directories and
periodicals, travel expenses; rental at the seat of government and
elsewhere,
the
purchase
operation
or
maintenance
of
passenger-carrying vehicles; and printing and binding) as are
appropriate and necessary to carry out the provisions of this Act.
[May 20, 1936, ch. 439, Title I, §11, 49 Stat. 1366; Oct. 28, 1949,
ch. 776, §2, 63 Stat. 948; October 13, 1994, Public Law 103-354,
Title II, Subtitle C, § 235(a)(13), 108 Stat. 3221; 7 U.S.C. 911.]

SEC. 11A. [Repealed Oct. 13, 1994].
[This section provided for an Assistant Administrator for Economic
Development].
[Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle E, §2350,
104 Stat. 4037; Dec. 13, 1991, Public Law 102-237, Title VII, §703(a),
105 Stat. 1881; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(5), 108 Stat. 3221; 7 U.S.C. 911a.]

SEC. 12. EXTENSION OF TIME FOR REPAYMENT OF
LOANS. — (a) The Secretary is authorized and empowered to extend
the time of payment of interest or principal of any loans made by the
Secretary pursuant to this Act: Provided however, That with respect to
any loan made under section 4 or section 201, the payment of interest
or principal shall not be extended more than five years after such
payment shall have become due.

6

(b)(l) Subject to limitations established in appropriations Acts,
the Secretary shall permit any borrower to defer the payment of
principal and interest on any insured or direct loan made under this
Act under circumstances described in this subsection,
notwithstanding any limitation contained in subsection (a), except
that such deferment shall not be permitted based on the
determination of the Secretary of the financial hardship of the
borrower.
(2) (A) In the case of deferments made to enable the borrower
to provide financing to local businesses, the deferment shall be
repaid in equal installments, without the accrual of interest,
over the 60-month period beginning on the date of the
deferment, and the total amount of such payments shall be
equal to the amount of the payment deferred.
(B) In the case of deferments made to enable the borrower
to provide community development assistance, technical
assistance to businesses, and for other community, business, or
economic development projects not included under
subparagraph (A), the deferment shall be repaid in equal
installments, without the accrual of interest, over the
120-month period beginning on the date of the deferment, and
the total amount of such payments shall be equal to the
amount of the payment deferred.
(3) (A) A borrower may defer its debt service payments only
in an amount equal to an investment made by such borrower
as described in paragraph (2).
(B) The amount of the deferment shall not exceed
50 percent of the total cost of a community or economic
development project for which a deferment is provided under
this subsection.
(C) The total amount of deferments under this subsection
during each of the fiscal years 1990 through 1993 shall not
exceed 3 percent of the total payments due during such fiscal
year from all borrowers on direct and insured loans made
under this Act and shall not exceed 5 percent of such total
payments due in each subsequent fiscal year.
(D) At the time of a deferment, the borrower shall make a
payment to a cushion of credit account established and
maintained pursuant to section 313 in an amount equal to the
amount of the payment deferred. The balance of such account
shall not be reduced by the borrower below the level of the
unpaid balance of the payment deferred. Subject to limitations
established in annual appropriations Acts, such cushion of

7

credit amounts and any other cushion of credit and advance
payments of any borrower shall be included in the interest
differential calculation under section 313(b) (2) (A).
(4) The Secretary shall undertake all reasonable efforts to
permit the full amount of deferments authorized by this subsection
during each fiscal year.
[May 20, 1936, ch. 432, Title I, §12, 49 Stat. 1366; Oct. 28, 1949,
ch. 776, §§2, 4(f), 63 Stat. 948; Nov. 28, 1990, Public Law 101-624,
Title XXIII, Subtitle E, §2344, 104 Stat. 4028; Oct. 13, 1994, Public
Law 103-354, Title II, Subtitle C, §235(a)(13), 108 Stat. 3221; Apr. 4,
1996, Public Law 104-127, Title VII, Subtitle C, §774(b),
110 Stat. 1150; 7 U.S.C. 912.]

SEC. 13. DEFINITIONS.—As used in this Act the term "rural
area", except as provided in section 203(b), shall be deemed to mean
any area of the United States not included within the boundaries of any
urban area, as defined by the Bureau of the Census, and such term shall
be deemed to include both the farm and nonfarm population thereof;
the term "farm" shall be deemed to mean a farm as defined in the
publications of the Bureau of the Census, the term "person" shall be
deemed to mean any natural person, firm, corporation, or association;
the term “Territory” shall be deemed to include any insular possession
of the United States; and the term "Secretary" shall be deemed to mean
the Secretary of Agriculture.
[May 20,1936, ch. 432, Title I, §13, 49 Stat. 1367; Oct. 28,1949,
ch. 776, §2, 63 Stat. 948; Nov. 1, 1993, Public Law 103-129, §2(c)(3),
107 Stat. 1363; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(6), 108 Stat. 3221; 7 U.S.C. 913.]

SEC.14. SEPARABILITY.—If any provision of this Act, or the
application thereof to any person or circumstances, is held invalid, the
remainder of the Act and the application of such provision to other
persons or circumstances shall not be affected thereby.
[May 20,1936, ch. 432, Title I, §14, 49 Stat. 1367; Oct. 28,1949,
ch. 776 §2, 63 Stat. 948; 7 U.S.C.914.]

8

SEC. 15. [There is no Section 15 of the RE Act - See 7 U.S.C.
915 under "Selected Legislation]
SEC. 16. CRITERIA FOR LOANS.—In order to insure
coordination of electric generation and transmission financing under
this Act with the national energy policy, the Secretary in making or
guaranteeing loans for the construction, operations, or enlargement of
generating plants or electric transmission lines or systems shall
consider such general criteria consistent with the provisions of this Act
as may be published by the Secretary of Energy.
[Aug. 4, 1977, Public Law 95-91, Title VII, §709(f), 91 Stat. 608;
Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C, §235(a)(13),
108 Stat. 3221; 7 U.S.C. 916.]

SEC. 17. PROHIBITION ON RESTRICTING WATER AND
WASTE FACILITY SERVICES TO ELECTRIC CUSTOMERS.
(a) PROHIBITION. Assistance under any rural development
program administered by the Secretary or any agency of the
Department of Agriculture shall not be conditioned on any requirement
that the recipient of the assistance accept or receive electric service
from any particular utility, supplier, or cooperative.
(b) ENSURING COMPLIANCE. The Secretary shall establish, by
regulation, adequate safeguards to ensure that assistance under any
rural development program is not subject to such a condition. The
safeguards shall include periodic certifications and audits, and
appropriate measures and sanctions against any person violating, or
attempting to violate subsection (a) of this section.
(c) RURAL DEVELOPMENT PROGRAMS DEFINED. In this
section, the term "rural development program" means the following:
(1) Sections 304(b), 306, 306A, 306C, 306D, 310B, and 375
and subtitle E of the Consolidated Farm and Rural Development
Act (7 U.S.C. 1924(b), 1926, 1926a, 1926c, 1926d, 1932, [and 2008j
and 2009 et seq.]).
(2) Subtitle G of title XVI and sections 2281, 2333, and 2381
of the Food, Agriculture, Conservation, and Trade Act of
1990 (7 U.S.C. 5901-5908, 5177a, 950aaa-2, and 3125b).
(3) Subtitle C of title IX of the Food, Agriculture,
Conservation, and Trade Act Amendments of 1991 (Public
Law 102-237; 7 U.S.C. 5930 note).
(4) Section 1323(b) of the Food Security Act of 1985 (Public
Law 99-198; 7 U.S.C. 1932 note).

9

(5) Title V and section 603(c) of the Rural Development Act
of 1972 (7 U.S.C. 2661-2669 and 2204a(c)).
(6) Sections 5 and 311 and title IV of this Act (7 U.S.C. 905,
940a, and 941-950b).
(d) REGULATIONS. Not later than 60 days after April 4, 1996,
the Secretary shall issue final regulations to ensure compliance with
subsection (a) of this section.
[Apr. 4, 1996, Public Law 104-127, Title VII, Subtitle C, §778,
110 Stat. 1150; 7 U.S.C. 917.]
A prior section 17, as added Nov. 28, 1990, Public Law 101-624,
Title XXIII, §2343, 104 Stat. 4027, related to the establishment of a
technical assistance unit to provide advice and technical assistance to
electric and telephone borrowers. This earlier section 17 was repealed
effective Dec. 13, 1991 by Public Law 102-237, Title VII, §703(b),
105 Stat. 1881.

SEC. 18. GENERAL PROHIBITIONS.
(a) NO CONSIDERATION OF BORROWER'S LEVEL OF
GENERAL FUNDS.—The Secretary and the Governor of the
telephone bank shall not deny or reduce any loan or loan advance under
this Act based on a borrower's level of general funds.
(b) LOAN ORIGINATION FEES.—The Secretary and the
Governor of the telephone bank may not charge any fee or charge not
expressly provided in this Act in connection with any loan made or
guaranteed under this Act.
(c) CONSULTANTS.
(1) IN GENERAL.—To facilitate timely action on
applications by borrowers for financial assistance under this Act
and for approvals required of the Rural Electrification
Administration pursuant to the terms of outstanding loan or
security instruments or otherwise, the Secretary may use
consultants funded by the borrower, paid for out of the general
funds of the borrower, for financial, legal, engineering, and other
technical advice and services in connection with the review of the
application by the Rural Electrification Administration.
(2) CONFLICTS OF INTEREST.—The Secretary shall
establish procedures for the selection and the provision of technical
services by consultants to ensure that the consultants have no
financial or other conflicts of interest in the outcome of the
application of the borrower.

10

(3) PAYMENT OF COSTS.—The Secretary may not, without
the consent of the borrower, require, as a condition of processing
an application for approval, that the borrower agree to pay the
costs, fees, and expenses of consultants hired to provide technical
or advisory services to the Secretary.
(4) CONTRACTS, GRANTS, AND AGREEMENTS. —The
Secretary may enter into such contracts, grants, or cooperative
agreements as are necessary to carry out this section.
(5) USE OF CONSULTANTS.—Nothing in this subsection
shall limit the authority of the Secretary to retain the services of
consultants from funds made available to the Secretary or
otherwise.
[Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle F, ch. 1
§2353, 104 Stat. 4039; Nov. 1, 1993, Public Law 103-129, §2(c)(4),
107 Stat. 1364; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(13), 108 Stat. 3221; 7 U.S.C. 918.]

SEC. 19. ENERGY GENERATION, TRANSMISSION, AND
DISTRIBUTION FACILITIES EFFICIENCY GRANTS AND
LOANS IN RURAL COMMUNITIES WITH EXTREMELY
HIGH ENERGY COSTS.
(a) IN GENERAL.—The Secretary, acting through the Rural
Utilities Service, may—
(1) in coordination with State rural development initiatives,
make grants and loans to persons, States, political subdivisions of
States, and other entities organized under the laws of States to
acquire, construct, extend, upgrade, and otherwise improve energy
generation, transmission, or distribution facilities serving
communities in which the average residential expenditure for home
energy is at least 275 percent of the national average residential
expenditure for home energy (as determined by the Energy
Information Agency using the most recent data available);
(2) make grants and loans to the Denali Commission
established by the Denali Commission Act of 1998
(42 U.S.C. 3121 note; Public Law 105-277) to acquire, construct,
extend, upgrade, and otherwise improve energy generation,
transmission, or distribution facilities serving communities
described in paragraph (1); and
(3) make grants to State entities, in existence as of the date of
the enactment of this section, to establish and support a revolving
fund to provide a more cost-effective means of purchasing fuel

11

where the fuel cannot be shipped by means of surface
transportation.
(b) AUTHORIZATION OF APPROPRIATIONS.
(1) In General.—There are authorized to be appropriated to
carry out this section $50,000,000 for fiscal year 2001 and such
sums as are necessary for each subsequent fiscal year.
(2) Limitation on planning and administrative expenses.—Not
more than 4 percent of the amounts made available under
paragraph (1) may be used for planning and administrative
expenses.
[Nov. 9, 2000, Public Law 106-472, Title III, § 301, 114 Stat. 2069,
7 U.S.C. 918a.]

TITLE II—RURAL TELEPHONE SERVICE
SEC. 201. LOANS FOR RURAL TELEPHONE SERVICE.
From such sums as are from time to time made available by the
Congress to the Secretary for such purpose, pursuant to section 3 of this
Act, the Secretary is authorized and empowered to make loans to
persons now providing or who may hereafter provide telephone service
in rural areas, to public bodies now providing telephone service in rural
areas and to cooperative, nonprofit, limited dividend, or mutual
associations. Except as otherwise provided by this title, such loans
shall be made under the same terms and conditions as are provided in
section 4 of this Act, for the purpose of financing the improvement,
expansion, construction, acquisition, and operation of telephone lines,
facilities or systems to furnish and improve telephone service in rural
areas: Provided, however, That the Secretary, in making such loans,
shall give preference to persons providing telephone service in rural
areas, to public bodies now providing telephone service in rural areas
and to cooperative, nonprofit, limited dividend, or mutual associations:
And, provided further, that for a period of one year from and after the
effective date of this title applications for loans received by the
Secretary from persons who on the effective date of this title are
engaged in the operation of existing telephone service in rural areas
shall be considered and acted upon before action is taken upon any
application received from any other person for any loan to finance the
furnishing or improvement of telephone service to substantially the
same subscribers. The Secretary in making such loans shall, insofar as
possible, obtain assurance that the telephone service to be furnished or

12

improved thereby will be made available to the widest practical number
of rural users. When it is determined by the Secretary to be necessary
in order to furnish or improve telephone service in rural areas, such
loans may be made for the improvement, expansion, construction,
acquisition, and operation of telephone lines, facilities, or systems
without regard to their geographical location. The Secretary is further
authorized and empowered to make loans for the purpose of
refinancing outstanding indebtedness of persons furnishing telephone
service in rural areas: Provided, That such refinancing shall be
determined by the Secretary to be necessary in order to furnish and
improve telephone service in rural areas: And provided further, That
such refinancing shall constitute not more than 40 per centum of any
loan made under this title. Loans under this section shall not be made
unless the Secretary finds and certifies that in his judgement the
security therefore is reasonably adequate and such loan will be repaid
within the time agreed, nor shall such loan be made in any State which
now has or may hereafter have a State regulatory body having authority
to regulate telephone service and to require certificates of convenience
and necessity to the applicant unless such certificate from such agency
is first obtained. In a State in which there is no such agency or
regulatory body legally authorized to issue such certificates to the
applicant, no loan shall be made under this section unless the Secretary
shall determine (and set forth his reasons therefore in writing) that no
duplication of lines, facilities, or systems, providing reasonably
adequate services will result therefrom.
[Oct. 28, 1949, ch. 776, §5, 63 Stat. 948; May 7, 1971, Public
Law 92-12, §3(b), 85 Stat. 37; Oct. 13, 1994, Public Law 103-354,
Title II, Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 922.]

SEC. 202.
STATE REGULATION OF TELEPHONE
SERVICE.—Nothing contained in this Act shall be construed to
deprive any State commission, board, or other agency of jurisdiction,
under any State law, now or hereafter effective, to regulate telephone
service which is not subject to regulation by the Federal
Communications Commission, under the Communications Act of 1934,
including the rates for such service.
[Oct. 28, 1949, ch. 776, §5, 63 Stat. 948; 7 U.S.C. 923.]

13

SEC. 203. DEFINITION OF TELEPHONE SERVICE AND
RURAL AREA.
(a) As used in this title, the term "telephone service" shall be
deemed to mean any communication service for the transmission or
reception of voice, data, sounds, signals, pictures, writing, or signs of
all kinds by wire, fiber, radio, light, or other visual or electromagnetic
means, and shall include all telephone lines, facilities, or systems used
in the rendition of such service; but shall not be deemed to mean
message telegram service or community antenna television system
services or facilities other than those intended exclusively for
educational purposes, or radio broadcasting services or facilities within
the meaning of section 3(o) of the Communications Act of 1934, as
amended.
(b) As used in this title, the term "rural area" shall be deemed to
mean any area of the United States not included within the boundaries
of any incorporated or unincorporated city, village, or borough having a
population in excess of 5000 inhabitants.
[Oct. 28, 1949, ch. 776, §5, 63 Stat. 948; Oct. 23, 1962, Public
Law 87-862, 76 Stat. 1140; Nov. 28, 1990, Public Law 101-624,
Title XXIII, Subtitle F, ch. 2, §2354, 104 Stat. 4039; Nov. 1, 1993,
Public Law 103-129, §2(c)(5), 107 Stat. 1364; 7 U.S.C. 924.]

SEC. 204. LOAN FEASIBILITY.—The Secretary and the
Governor of the telephone bank may not, as a condition of making a
telephone loan to an applicant therefor, require the applicant to
(1) increase the rates charged to the applicant's customers or
subscribers; or
(2) increase the applicant's ratio of
(A) net income or margins before interest; to
(B) the interest requirements on all of the applicant's
outstanding and proposed loans.
[Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle F, ch. 2,
§2355, 104 Stat. 4039; Oct. 13, 1994, Public Law 103-354, Title II,
§235(a)(13), 108 Stat. 3221; 7 U.S.C. 925.]

SEC. 205.
CERTAIN RURAL DEVELOPMENT
INVESTMENTS BY QUALIFIED TELEPHONE BORROWERS
NOT TREATED AS DIVIDENDS OR DISTRIBUTIONS.

14

(a) IN GENERAL.—The Secretary and the Governor of the
telephone bank shall not
(1) treat any amount invested by any qualified telephone
borrower for any purpose described in section 607(c)(2) of the
Rural Development Act of 1972 [7 U.S.C. 2204b(c)(2)] (including
any investment in, or extension of credit, guarantee, or advance
made to, an affiliated company of the borrower, that is used by
such company for such a purpose) as a dividend or distribution of
capital to the extent that, immediately after such investment, the
aggregate of such investments does not exceed 1/3 of the net worth
of the borrower, or
(2) require a qualified telephone borrower to obtain the
approval of the Secretary or the Governor of the telephone bank in
order to make an investment described in paragraph (1).
(b) QUALIFIED TELEPHONE BORROWER DEFINED.—As
used in subsection (a), the term "qualified telephone borrower" means a
person
(1) to whom a telephone loan has been made or guaranteed
under this Act; and
(2) whose net worth is at least 20 percent of the total assets of
such person.
[Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle F, ch. 2,
§2356, 104 Stat. 4039; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 926.]

SEC. 206. GENERAL DUTIES AND PROHIBITIONS.
(a) DUTIES.—The Secretary and the Governor of the telephone
bank shall—
(1) notwithstanding section 553(a)(2) of title 5, United States
Code, cause to be published in the Federal Register, in accordance
with subsections (b) through (e) of section 553 of such title, all
rules, regulations, bulletins, and other written policy standards
governing the operations of the telephone loan and loan guarantee
programs administered under this Act other than those relating to
agency management and personnel;
(2) In evaluating the feasibility of a telephone loan to be made
to a borrower for telephone services, use—
(A) with respect to items for which the regulatory
authority with jurisdiction over the provision of such services
has approved the depreciation rates used by the borrower, such
approved rates; and

15

(B) with respect to other items, the average of the
depreciation rates used by borrowers of telephone loans made
under this Act;
(3) annually determine and publish the average described in
paragraph (2)(B); and
(4) make loans for all purposes for which telephone loans are
authorized under section 201 or 408, to the extent of qualifying
applications therefor.
(b) PROHIBITIONS.—The Secretary and the Governor of the
telephone bank shall not—
(1) rescind an insured telephone loan, or a Rural Telephone
Bank loan, made under this Act without the consent of the
borrower, unless all of the purposes for which telephone loans
have been made to the borrower under this Act have been
accomplished with funds provided under this Act;
(2) regulate the order or sequence of advances of funds under
telephone loans made under this Act to any borrower who has
received any combination of telephone loans from the Rural
Electrification Administration, the Rural Telephone Bank, or the
Federal Financing Bank; or
(3) deny a loan or advance to, or take any other adverse action
against, an applicant for, or a borrower of, a telephone loan under
this Act for any reason that is not based on a rule, regulation,
bulletin, or other written policy standard that has not been
published pursuant to section 553 of title 5, United States Code.
[Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle F, ch. 2,
§2357, 104 Stat. 4040; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(7), (13), 108 Stat. 3221; 7 U.S.C. 927.]

SEC. 207.
PROMPT PROCESSING OF TELEPHONE
LOANS.—Within ten days after the end of the second and fourth
calendar quarters of each year, the Secretary shall submit to the
Committee on Agriculture and the Committee on Appropriations of the
House of Representatives, and to the Committee on Agriculture,
Nutrition, and Forestry and the Committee on Appropriations of the
Senate, a report—
(1) identifying each completed application for a telephone
loan under section 305, a guarantee of a telephone loan under
section 306, or a loan under section 408, that has not been finally
acted upon within ninety days after the date the completed
application is submitted; and

16

(2) stating the reasons for the failure to finally act upon the
completed application within such ninety-day period.
[Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle F, ch. 2,
§2358, 104 Stat. 4041; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 928.]

TITLE III—RURAL ELECTRIC AND TELEPHONE DIRECT
LOAN PROGRAMS
SEC. 301. RURAL ELECTRIFICATION AND TELEPHONE
REVOLVING FUND.
(a) There is hereby established in the Treasury of the United States
a fund to be known as the Rural Electrification and Telephone
Revolving Fund (hereinafter referred to as the "Fund"), consisting of:
(1) all notes, bonds, obligations, liens, mortgages, and
property delivered or assigned to the Secretary pursuant to loans
heretofore or hereafter made under sections 4, 5, and 201 of this
Act and under this title, as of May 11, 1973, and all proceeds from
the sales hereunder of such notes, bonds, obligations, liens, title, as
of the effective date of this title, as revised herein, and all proceeds
from the sales hereunder of such notes, bonds, obligations, liens,
mortgages, and property, which shall be transferred to and be
assets of the fund;
(2) undisbursed balances of electric and telephone loans made
under sections 4, 5, and 201, which as of May 11, 1973, shall be
transferred to and be assets of the fund;
(3) all collections of principal and interest received on and
after July 1, 1972, on notes, bonds, judgments, or other obligations
made or held under titles I and II of this Act and under this title,
except for net collection proceeds previously appropriated for the
purchase of class A stock in the Rural Telephone Bank, which
shall be paid into and be assets of the fund;
(4) all appropriations for interest subsidies and losses required
under this title which may hereafter be made by the Congress and
the unobligated balances of any funds made available for loans
under the item "Rural Electrification Administration" in the
Department of Agriculture and Agriculture-Environmental and
Consumer Protection Appropriations Acts;
(5) moneys borrowed from the Secretary of the Treasury
pursuant to section 304(a); and

17

(6) shares of the capital stock of the Rural Telephone Bank
purchased by the United States pursuant to section 406(a) of this
Act and moneys received from said bank upon retirement of said
shares of stock in accordance with the provisions of title IV of this
Act, which said shares and moneys shall be assets of the fund.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 29; May 11, 1973, Public
Law 93-32, §2, 87 Stat. 66; Oct. 20, 1976, Public Law 94-570, §2,
90 Stat. 2701; Oct. 13, 1994, Public Law 103-354, Title II, §235(a)(13),
108 Stat. 3221; Apr. 4, 1996, Public Law 104-127, Title VII,
§772(b)(1), 110 Stat. 1149; 7 U.S.C. 931.]

SEC. 302. LIABILITIES AND USES OF RURAL
ELECTRIFICATION AND TELEPHONE REVOLVING FUND.
(a) The notes of the Secretary to the Secretary of the Treasury to
obtain funds for loans under sections 4, 5, and 201 of this Act, and all
other liabilities against the appropriations or assets in the fund in
connection with electrification and telephone loan operations shall be
liabilities of the fund, and all other obligations against such
appropriations or assets in the fund arising out of electrification and
telephone loan operations shall be obligations of the fund.
(b) The assets of the fund shall be available only for the following
purposes:
(1) loans which could be insured under this title, and for
advances in connection with such loans and loans previously made,
as of the effective date of this title, as revised herein, under
sections 4, 5, and 201 of this Act;
(2) payment of principal when due (without interest) on
outstanding loans to the Secretary from the Secretary of the
Treasury for electrification and telephone purposes pursuant to
section 3(a) of this Act and payment of principal and interest when
due on loans to the Secretary from the Secretary of the Treasury
pursuant to section 304(a) of this title;
(3) payments of amounts to which the holder of notes is
entitled on insured loans: Provided, That payments other than final
payments need not be remitted to the holder until due or until the
next agreed annual, semiannual or quarterly remittance date;
(4) payment to the holder of insured notes of any defaulted
installment or, upon assignment of the note to the Secretary at his
request, the entire balance due on the note;
(5) purchase of notes in accordance with contracts of insurance entered into by the Secretary;

18

(6) payment in compliance with contracts of guarantee;
(7) payment of taxes, insurance, prior liens, expenses
necessary to make fiscal adjustments in connection with the
application, and transmittal of collections or necessary to obtain
credit reports on applicants or borrowers expenses for necessary
services, including construction inspections, commercial
appraisals, loan servicing, consulting business advisory or other
commercial and technical services, and other program services,
and other expenses and advances authorized in section 7 of this
Act in connection with insured loans. Such items may be paid in
connection with guaranteed loans after or in connection with the
acquisition of such loans or security thereof after default, to the
extent determined to be necessary to protect the interest of the
Government, or in connection with any other activity authorized in
this Act;
(8) payment of the purchase price and any costs and expenses
incurred in connection with the purchase, acquisition, or operation
of property pursuant to section 7 of this Act.
(c) (1) The Secretary shall maintain two separate accounts within
the fund, which shall be known as the electric account and the
telephone account respectively.
(2) (A) The Secretary shall account for the assets, liabilities,
income expenses, and equity of the fund attributable to
electrification loan operations in the electric account.
(B) The Secretary shall account for the assets, liabilities,
income expenses, and equity of the fund attributable to
telephone loan operations in the telephone account.
(3) (A) The assets accounted for in the electric account shall
be available solely for electrification loan operations under
this Act.
(B) The assets accounted for in the telephone account
shall be available solely for telephone loan operations under
this Act (other than under title IV).
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 30; May 11, 1973, Public
Law 93-32, §2, 87 Stat. 66; Nov. 28, 1990, Public Law 101-624,
Title XXIII, Subtitle F, ch. 3, §2359 104 Stat. 4041; Oct. 13, 1994,
Public Law 103-354, Title II, Subtitle C, §235(a)(13), 108 Stat. 3221;
Apr. 4, 1996, Public Law 104-127, Title VII, Subtitle C, §772(b)(2),
110 Stat. 1149; 7 U.S.C. 932.]

19

SEC. 303. DEPOSIT OF FUND MONIES.—Moneys in the
fund shall remain on deposit in the Treasury of the United States until
disbursed.
[May 11, 1973, Public Law 93-32, §2, 87 Stat. 67; 7 U.S.C. 933.]

SEC. 304. AUTHORIZED FINANCIAL TRANSACTIONS;
INTERIM NOTES; PURCHASE OF OBLIGATIONS FOR
RESALE; SALE OF NOTES AND CERTIFICATES; LIENS.
(a) The Secretary is authorized to make and issue interim notes to
the Secretary of the Treasury for the purpose of obtaining funds
necessary for discharging obligations of the fund and for making loans,
advances and authorized expenditures out of the fund. Such notes shall
be in such form and denominations and have such maturities and be
subject to such terms and conditions as may be agreed upon by the
Secretary and the Secretary of the Treasury. Such notes shall bear
interest at a rate fixed by the Secretary of the Treasury, taking into
consideration the current average market yield of outstanding
marketable obligations of the United States having maturities
comparable to the notes issued by the Secretary under this section. The
Secretary of the Treasury is authorized to use as a public debt
transaction the proceeds from the sale of any securities issued under the
Second Liberty Bond Act, as amended, and the purposes for which
such securities may be issued under such Act, as amended, are
extended to include the purchase of notes issued by the Secretary. All
redemptions, purchases, and sales by the Secretary of the Treasury of
such notes shall be treated as public debt transactions of the United
States: Provided, however, That such interim notes to the Secretary of
the Treasury shall not be included in the totals of the budget of the
United States Government and shall be exempt from any general
limitation imposed by statute on expenditures and net lending (budget
outlays) of the United States.
(b) The Secretary of the Treasury is authorized and directed to
purchase for resale obligations insured through the fund when offered
by the Secretary. Such resales shall be upon such terms and conditions
as the Secretary of the Treasury shall determine. Purchases and resales
by the Secretary of the Treasury hereunder shall not be included in the
totals of the budget of the United States Government and shall be
exempt from any general limitation imposed by statute on expenditures
and net lending (budget outlays) of the United States.
(c) The Secretary may, on an insured basis or otherwise, sell and
assign any notes in the fund or sell certificates of beneficial ownership

20

therein to the Secretary of the Treasury or in the private market. Any
sale by the Secretary of notes individually or in blocks shall be treated
as a sale of assets for the purposes of the Budget and Accounting Act,
1921, notwithstanding the fact that the Secretary, under an agreement
with the purchaser or purchasers, holds the debt instruments evidencing
the loans and holds or reinvests payments thereon as trustee and
custodian for the purchaser or purchasers of the individual note or of
the certificate of beneficial ownership in a number of such notes.
Security instruments taken by the Secretary in connection with any
notes in the funds may constitute liens running to the United States
notwithstanding the fact that such notes may be thereafter held by
purchasers thereof.
[May 11, 1973, Public Law 93-32, §2, 87 Stat. 67; Oct. 13, 1994,
Public Law 103-354, Title II, Subtitle C, §235(a)(13), 108 Stat.
3221; 7 U.S.C. 934.]

SEC. 305 INSURED LOANS. INTEREST RATES AND
LENDING LEVELS.
(a) IN GENERAL.—The Secretary is authorized to make insured
loans under this title and at the interest rates hereinafter provided to the
full extent of the assets available in the fund, subject only to limitations
as to amounts authorized for loans and advances as may be from time
to time imposed by the Congress of the United States for loans to be
made in any one year, which amounts shall remain available until
expended: Provided, That the Congress in the annual appropriation Act
may also authorize the transfer of any excess cash in the fund for
deposit into the Treasury as miscellaneous receipts: And provided
further, That any such loans and advances shall not be included In the
totals of the budget of the United States Government and shall be
exempt from any general limitation imposed by statute on expenditures
and net lending (budget outlays) of the United States.
(b) INSURED LOANS.—Loans made under this section shall be
insured by the Secretary when purchased by a lender. As used in this
Act, an insured loan is one which is made, held, and serviced by the
Secretary, and sold and insured by the Secretary hereunder, such loans
shall be sold and insured by the Secretary without undue delay.
(c) INSURED ELECTRIC LOANS.
(1) HARDSHIP LOANS.
(A) IN GENERAL.—The Secretary shall make insured
electric loans, to the extent of qualifying applications for the

21

loans, at an interest rate of 5 percent per year to any applicant
for a loan who meets each of the following requirements:
(i) The average revenue per kilowatt sold by the
applicant is not less than 120 percent of the average
revenue per kilowatt-hour sold by all utilities in the State
in which the applicant provides service.
(ii) The average residential revenue per kilowatt-hour
sold by the applicant is not less than 120 percent of the
average residential revenue per kilowatt-hour sold by all
utilities in the State in which the applicant provides
service.
(iii) The average per capita income of the residents
receiving electric service from the applicant is less than
the average per capita income of the residents of the State
in which the applicant provides service, or the median
household income of the households receiving electric
service from the applicant is less than the median
household income of the households in the State.
(B) SEVERE HARDSHIP LOANS.—In addition to
hardship loans that are made under subparagraph (A), the
Secretary may make an insured electric loan at an Interest rate
of 5 percent per year to an applicant for a loan if, in the sole
discretion of the Secretary, the applicant has experienced a
severe hardship.
(C) LIMITATION.—Except as provided In subparagraph
(D), the Secretary may not make a loan under this paragraph
to an applicant for the purpose of furnishing or improving
electric service to a consumer located in an urban area (as
defined by the Bureau of the Census) if the average number of
consumers per mile of line of the total electric system of the
applicant exceeds 17.
(D) EXTREMELY HIGH RATES.—In addition to
hardship loans that are made under subparagraphs (A) and (B),
the Secretary shall make insured electric loans, to the extent of
qualifying applications for the loans, at an interest rate of 5
percent per year to any applicant for a loan whose residential
revenue exceeds 15.0 cents per kilowatt-hour sold. A
qualifying application from such an applicant for the purpose
of furnishing or improving electric service to a consumer
located outside of an urbanized area shall not be subject to the
conditions or limitation of subparagraph (A) or (C).
(2) MUNICIPAL RATE LOANS.

22

(A) IN GENERAL.—The Secretary shall make insured
electric loans, to the extent of qualifying applications for the
loans, at the interest rate described in subparagraph (B) for the
term or terms selected by the applicant pursuant to
subparagraph (C).
(B) INTEREST RATE.
(i) IN GENERAL.—Subject to clause (ii), the interest
rate described in this subparagraph on a loan to a
qualifying applicant shall be—
(I) the interest rate determined by the Secretary
to be equal to the current market yield on outstanding
municipal obligations with remaining periods to
maturity similar to the term selected by the applicant
pursuant to subparagraph (C), but not greater than the
rate determined under section 307(a)(3)(A) of the
Consolidated Farm and Rural Development Act
(7 U.S.C. 1927(a)(3)(A)) that is based on the current
market yield on outstanding municipal obligations,
plus
(II) if the applicant for the loan makes an
election pursuant to subparagraph (D) to include in
the loan agreement the right of the applicant to
prepay the loan, a rate equal to the amount by which(aa) the interest rate on commercial
loans for a similar period that afford the
borrower such a right; exceeds
(bb) the interest rate on commercial loans
for the period that do not afford the borrower
such a right.
(ii) MAXIMUM RATE.—The interest rate described
in this subparagraph on a loan to an applicant for the loan
shall not exceed 7 percent if—
(I) the average number of consumers per mile of
line of the total electric system of the applicant is less
than 5.50, or
(II)(aa) the average revenue per kilowatt-hour
sold by the applicant is more than the average
revenue per kilowatt-hour sold by all utilities in
the State in which the applicant provides service;
and
(bb) the average per capita income of the
residents receiving electric service from the
applicant is less than the average per capita

23

income of the residents of the State in which the
applicant provides service, or the median
household income of the households receiving
electric service from the applicant is less than the
median household income of the households in
the State.
(iii) EXCEPTION.—Clause (ii) shall not apply to a
loan to be made to an applicant for the purpose of
furnishing or improving electric service to consumers
located in an urban area (as defined by the Bureau of the
Census) if the average number of consumers per mile of
line of the total electric system of the applicant
exceeds 17.
(C) LOAN TERM.
(i) IN GENERAL.—Subject to clause (ii), the
applicant for a loan under this paragraph may select the
term for which an interest rate shall be determined
pursuant to subparagraph (B), and, at the end of the term
(and any succeeding term selected by the applicant under
this subparagraph), may renew the loan for another term
selected by the applicant.
(ii) MAXIMUM TERM.
(I) APPLICANT.—The applicant may not select
a term that ends more than 35 years after the
beginning of the first term the applicant selects under
clause (i).
(II) SECRETARY.—The Secretary may prohibit
an applicant from selecting a term that would result
in the total term of the loan being greater than the
expected useful life of the assets being financed.
(D) CALL PROVISION.—The Secretary shall offer any
applicant for a loan under this paragraph the option to include
in the loan agreement the right of the applicant to prepay the
loan on terms consistent with similar provisions of
commercial loans.
(3) OTHER SOURCE OF CREDIT NOT REQUIRED IN
CERTAIN CASES.—The Secretary may not require any applicant
for a loan made under this subsection who is eligible for a loan
under paragraph (1) to obtain a loan from another source as a
condition of approving the application for the loan or advancing
any amount under the loan.
(d) INSURED TELEPHONE LOANS.
(1) HARDSHIP LOANS.

24

(A) IN GENERAL.—The Secretary shall make insured
telephone loans, to the extent of qualifying applications for the
loans, at an interest rate of 5 percent per year, to any applicant
who meets each of the following requirements:
(i) The average number of subscribers per mile of
line in the service area of the applicant is not more than 4.
(ii) The applicant is capable of producing net income
or margins before interest of not less than 100 percent
(but not more than 300 percent) of the interest
requirements on all of the outstanding and proposed loans
of the applicant.
(iii)
The
Secretary
has
approved
a
telecommunications modernization plan for the State
under paragraph (3) and if the plan was developed by
telephone borrowers under this title, the applicant is a
participant in the plan.
(iv) The average number of subscribers per mile of
line in the area included in the proposed loan is not more
than 17.
(B) AUTHORITY TO WAIVE TIER REQUIREMENT.
The Secretary may waive the requirement of subparagraph
(A)(ii) in any case in which the Secretary determines (and sets
forth the reasons for the waiver in writing) that the
requirement would prevent emergency restoration of the
telephone system of the applicant or result in severe hardship
to the applicant.
(C) EFFECT OF LACK OF FUNDS.—On request of any
applicant who is eligible for a loan under this paragraph for
which funds are not available, the applicant shall be
considered to have applied for a loan under title IV.
(2) COST-OF-MONEY LOANS.
(A) IN GENERAL.—The Secretary may make insured
telephone loans for the acquisition, purchase, and installation
of telephone lines systems, and facilities (other than buildings
used primarily for administrative purposes, vehicles not used
primarily in construction and customer premise equipment)
related to the furnishing, improvement, or extension of rural
telecommunications service, at an interest rate equal to the
then current cost of money to the government of the United
States for loans of similar maturity, but not more than
7 percent per year, to any applicant for a loan who meets the
following requirements:

25

(i) The average number of subscribers per mile of
line in the service area of the applicant is not more
than 15, or the applicant is capable of producing net
income or margins before interest of not less than
100 percent (but not more than 500 percent) of the interest
requirements on all of the outstanding and proposed loans
of the applicant.
(ii) The Secretary has approved a telecommunications modernization plan for the State under
paragraph (3) and, if the plan was developed by telephone
borrowers under this title, the applicant is a participant in
the plan.
(B) CONCURRENT LOAN AUTHORITY.—On request
of any applicant for a loan under this paragraph during any
fiscal year, the Secretary shall—
(i) consider the application to be for a loan under this
paragraph and a loan under section 408; and
(ii) if the applicant is eligible for a loan, make a loan
to the applicant under this paragraph in an amount equal
to the amount that bears the same ratio to the total amount
of loans for which the applicant is eligible under this
paragraph and under section 408, as the amount made
available for loans under this paragraph for the fiscal year
bears to the total amount made available for loans under
this paragraph and under section 408 for the fiscal year.
(C) EFFECT OF LACK OF FUNDS.—On request of any
applicant who is eligible for a loan under this paragraph for
which funds are not available, the applicant shall be
considered to have applied for a loan guarantee under section
306.
(3) STATE TELECOMMUNICATIONS MODERNIZATION
PLANS.
(A) APPROVAL.—If, not later than 1 year after final
regulations are promulgated to carry out this paragraph, any
State, either by statute or through the public utility
commission of the State, develops a telecommunications
modernization plan that meets the requirements of
subparagraph (B), the Secretary shall approve the plan for the
State. If a State does not develop a plan in accordance with
the requirements of the preceding sentence, the Secretary shall
approve any telecommunications modernization plan for the
State that meets the requirements that is developed by a

26

majority of the borrowers of telephone loans made under this
title who are located in the State.
(B) REQUIREMENTS.—For purposes of subparagraph
(A), a telecommunications modernization plan must, at a
minimum, meet the following objectives:
(i) The plan must provide for the elimination of party
line service.
(ii) The plan must provide for the availability of
telecommunications services for improved business,
educational, and medical services.
(iii) The plan must encourage and improve computer
networks and information highways for subscribers in
rural areas.
(iv) The plan must provide for—
(I) subscribers in rural areas to be able to receive
through telephone lines—
(aa) conference calling;
(bb) video images; and
(cc) data at a rate of at least 1,000,000 bits
of information per second, and
(II) the proper routing of information to
subscribers.
(v) The plan must provide for uniform deployment
schedules to ensure that advanced services are deployed at
the same time in rural and nonrural areas.
(vi) The plan must provide for such additional
requirements for service standards as may be required by
the Secretary.
(C) FINALITY OF APPROVAL.—A telecommunications modernization plan approved under subparagraph (A)
may not subsequently be disapproved. Notwithstanding paragraphs (l)(A)(iii) and (2)(A)(iii)1, and section 408(b)(4)(C)2,
the Secretary and the Governor of the telephone bank may
make a loan to a borrower serving a State that does not have a
telecommunication modernization plan approved by the
Secretary if the loan is made less than 1 year after the
Secretary has adopted final regulations implementing this
paragraph.

1
2

Probably should be paragraph (2)(A)(ii)
Probably should be section 948(b)(4)(B)

27

[May 11, 1973, Public Law 93-32, §2, 87 Stat. 68; Oct. 20, 1976 Public
Law 94-570, §3, 90 Stat. 2701; Aug. 13, 1981, Public Law 97-35,
Title I, Subtitle B, part 4, §165(a), 95 Stat. 379; Nov. 28, 1990, Public
Law 101-624, Title XXIII, Subtitle F, ch. 3, §2361, 104 Stat. 4042;
Nov. 1, 1993, Public Law 103-129, §2(a)(1), §2(c)(6), 107 Stat. 1356;
Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C, §235(a)(8),
(13), 108 Stat. 3221; 7 U.S.C. 935.]

SEC. 306. GUARANTEED LOANS; ACCOMMODATION
AND SUBORDINATION OF LIENS; ASSIGNABILITY OF
GUARANTEED LOANS AND RELATED GUARANTEES.
The Secretary may provide financial assistance to borrowers for
purposes provided in the Rural Electrification Act of 1936, as amended,
by guaranteeing loans, in the full amount thereof, made by the Rural
Telephone Bank, National Rural Utilities Cooperative Finance
Corporation, and any other legally organized lending agency, or by
accommodating or subordinating liens or mortgages in the fund held by
the Secretary as owner or as trustee or custodian for purchases of notes
from the fund, or by any combination of such guarantee,
accommodation, or subordination. The Secretary shall not provide
such assistance to any borrower of a telephone loan under this Act
unless the borrower specifically applies for such assistance. No fees or
charges shall be assessed for any such guarantee, accommodation, or
subordination. With respect to guarantees issued by the Secretary
under this section, on the request of the borrower of any such loan so
guaranteed, the loan shall be made by the Federal Financing Bank and
at a rate of interest that is not more than the rate of interest applicable to
other similar loans then being made or purchased by the Bank.
Guaranteed loans shall bear interest at the rate agreed upon by the
borrower and the lender. Guaranteed loans, and accommodation and
subordination of liens or mortgages, may be made concurrently with an
insured loan. The amount of guaranteed loans shall be subject only to
such limitations as to amounts as may be authorized from time to time
by the Congress of the United States: Provided, That any amounts
guaranteed hereunder shall not be included in the totals of the budget of
the United States Government and shall be exempt from any general
limitation imposed by statute on expenditures and net lending Budget
outlays) of the United States. As used in this title, a guaranteed loan is
one which is initially made, held and serviced by a legally organized
lending agency and which is guaranteed by the Secretary hereunder. A
guaranteed loan, including the related guarantee, may be assigned to
the extent provided in the contract of guarantee executed by the

28

Secretary under this title, the assignability of such loan and guarantee
shall be governed exclusively by said contract of guarantee.
[May 11, 1973, Public Law 93-32, §2, 87 Stat. 69; Nov. 4, 1975, Public
Law 94-124 §1, 89 Stat. 677; Aug. 13, 1981, Public Law 97-35, Title I,
Subtitle C, §165(b), 95 Stat. 379; Nov. 28, 1990, Public Law 101-624,
Title XXIII, Subtitle F, ch. 3, §2362, 104 Stat. 4042, Oct. 13, 1994,
Public Law 103-354, Title II, Subtitle C, §235(a)(13), 108 Stat. 3221;
7 U.S.C. 936.] (NOTE: Legislation which included a provision
authorizing the prepayment of loans by rural electrification and
telephone systems (July 2, 1986 Public Law 99-349, Title I, Chapter 1,
100 Stat. 713) was subsequently amended and the authorization
repealed (Oct. 21, 1986, Public Law 99-509, Title I, §1011(b),
100 Stat. 1876.))

SEC. 306A. PREPAYMENT OF LOANS.
(a) CONDITIONS FOR PREPAYMENT.—Except as provided in
subsection (c), a borrower of a loan made by the Federal Financing
Bank and guaranteed under section 306 of this Act may prepay such
loan (or any loan advance thereunder) by paying the outstanding
principal balance due on the loan (or advance), if
(1) the loan is outstanding on July 2, 1986;
(2) private capital, with the existing loan guarantee, is used to
replace the loan, and
(3) the borrower certifies that any savings from such
prepayment will be passed on to its customers or used to improve
the financial strength of the borrower in cases of financial
hardship.
(b) CHARGES ON PREPAYMENT PROHIBITED.—No sums in
addition to the payment of the outstanding principal balance due on the
loan may be charged against the borrower, the fund, or the Rural
Electrification Administration.
(c) DISQUALIFICATION FOR PREPAYMENT ON FINDING
OF ADVERSE EFFECT ON FEDERAL FINANCING BANK.
(1) A borrower will not qualify for prepayment under this
section if, in the opinion of the Secretary of the Treasury, to prepay
in such borrower's case would adversely affect the operation of the
Federal Financing Bank.
(2) Paragraph (1) shall be effective in fiscal year 1987 only for
any loan the prepayment of the principal amount of which will
cause the cumulative amount of net proceeds from all such
prepayments made during such year to exceed $2,017,500,000.

29

(d) AMOUNT OF PERMISSABLE PREPAYMENTS;
ESTABLISHMENT OF ELIGIBILITY CRITERIA.
(1) The Secretary shall permit, subject to subsection (a),
prepayments of principal on loans in fiscal year 1987 under this
section or Public Law 99-349 [Pub. L. 99-349, July 2, 1986, 100
Stat. 710] in such amounts as to realize net proceeds from all such
prepayments in fiscal year 1987 in an amount not less than $2
017,500,000.
(2) The Secretary shall establish
(A) eligibility criteria to ensure that any loan prepayment
activity required to be carried out under this subsection will be
directed to those cooperative borrowers in greatest need of the
benefits associated with prepayment, as determined by the
Secretary; and
(B) such other eligibility criteria as the Secretary
determines are necessary to carry out this subsection.
(e) ASSIGNABILITY AND TRANSFERABILITY OF LOAN
GUARANTEES.
Any guarantee of a loan prepaid under this section shall be fully
assignable under the provisions of section 306 of this Act and
transferable. However, the Secretary may require that any such
guarantee, if transferred or assigned, be transferred or assigned to a
loan or security that, if sold, will be grouped with non-guaranteed loans
or securities and sold in a manner to ensure that such sale will not
unreasonably compete with the marketing of obligations of the United
States.
[Oct. 21, 1986, Public Law 99-509, Title I, Subtitle B, §1011(a),
100 Stat. 1875; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(7), (13), 108 Stat. 3221; 7 U.S.C. 936a.]

SEC. 306B. SALE OR PREPAYMENT OF DIRECT OR
INSURED LOANS.
(a) DISCOUNTED PREPAYMENT BY BORROWERS OF
ELECTRIC LOANS.
(1) IN GENERAL.—Except as provided in paragraph (2), a
direct or insured loan made under this Act shall not be sold or
prepaid at a value that is less than the outstanding principal balance
on the loan.
(2) EXCEPTION.—On request of the borrower, an electric
loan made under this Act, or a portion of such a loan, that was
advanced before May 1, 1992, or has been advanced for not less

30

than 2 years, shall be sold to or prepaid by the borrower at the
lesser of—
(A) the outstanding principal balance on the loan; or
(B) the present value of the loan discounted from the face
value at maturity at the rate established by the Secretary.
(3) DISCOUNT RATE.—The discount rate applicable to the
prepayment under this subsection of a loan or loan advance shall
be the then current cost of funds to the Department of the Treasury
for obligations of comparable maturity to the remaining term of the
loan.
(4) TAX EXEMPT FINANCING.—If a borrower prepays a
loan under this subsection using tax exempt financing, the discount
shall be adjusted to ensure that the borrower receives a benefit that
is equal to the benefit the borrower would receive if the borrower
used fully taxable financing. The borrower shall certify in writing
whether the financing will be tax exempt and shall comply with
such other terms and conditions as the Secretary may establish that
are reasonable and necessary to carry out this subsection.
(5) ELIGIBILITY.
(A) IN GENERAL.—A borrower that has prepaid an
insured or direct loan shall remain eligible for assistance under
this Act in the same manner as other borrowers, except that—
(i) a borrower that has prepaid a loan, either before or
after the date of enactment of this subsection, at a
discount rate as provided by paragraph (3), shall not be
eligible, except at the discretion of the Secretary, to apply
for or receive direct or insured loans under this Act during
the 120-month period beginning on the date of the
prepayment; and
(ii) a borrower that prepaid a loan before the date of
enactment of this subsection at a discount rate greater
than that provided by paragraph (3), shall not be
eligible—
(I) except at the discretion of the Secretary, to
apply for or receive direct or insured loans described
in clause (i) during the 180-month period beginning
on the date of the prepayment, or
(II) to apply for or receive direct or insured loans
described in clause (i) until the borrower has repaid
to the Federal Government the sum of—
(aa) the amount (if any) by which the
discount the borrower received by reason of the
prepayment exceeds the discount the borrower

31

would have received had the discount been based
on the cost of funds to the Department of the
Treasury at the time of the prepayment, and
(bb) interest on the amount described in item
(aa), for the period beginning on the date of the
prepayment and ending on the date of the
repayment, at a rate equal to the average annual
cost of borrowing by the Department of the
Treasury.
(B) EFFECT ON EXISTING AGREEMENTS.—If a
borrower and the Secretary have entered into an agreement
with respect to a prepayment occurring before the date of
enactment of this subsection this paragraph shall supersede
any provision in the agreement relating to the restoration of
eligibility for loans under this Act.
(C) DISTRIBUTION BORROWERS.—A distribution
borrower not in default on the repayment of loans made or
insured under this Act shall be eligible for discounted
prepayment as provided in this subsection. For the purpose of
determining eligibility for discounted prepayment under this
subsection or eligibility for assistance under this Act, a default
by a borrower from which a distribution borrower purchases
wholesale power shall not be considered a default by the
distribution borrower.
(6) DEFINITIONS.—As used in this subsection:
(A) DIRECT LOAN.—The term 'direct loan' means a
loan made under section 4.
(B) INSURED LOAN.—The term 'insured loan' means a
loan made under section 305.
(b) MERGERS OF ELECTRIC BORROWERS.
Notwithstanding subsection (a), a direct or insured loan may be
prepaid by an electric borrower at the lesser of the outstanding principal
balance due thereon or the present value thereof discounted from the
face value at maturity at the rate set by the Secretary if the borrower is
an electrical organization which resulted from a merger or
consolidation between a borrower and an organization which, prior to
October 1, 1987, prepaid its direct or insured loans pursuant to this
section. Prepayments by a borrower hereunder shall be made not later
than one year after the effective date of the merger, consolidation, or
other transaction. The discount rate to be set by the Secretary for direct
or insured loans prepayments hereunder shall be based on the current
cost of funds to the Department of the Treasury for obligations of
comparable maturity to those being prepaid. If a borrower prepays

32

using tax exempt financing, the discount shall be adjusted to make the
discount equivalent to fully taxable financing. The borrower shall
certify in writing whether the financing will be tax exempt and shall
comply with such other terms and conditions as the Secretary may
establish which are reasonable and necessary to implement this
provision. As used in this section, the term "direct loan" means a loan
made under section 4.
[Oct. 21, 1986, Public Law 99-509, Title I, Subtitle B, §1011(a),
100 Stat. 1876; Nov. 28, 1990, Public Law 101-624, Title XXIII,
Subtitle H, §2387, 104 Stat. 4051; Oct. 21, 1992, Public Law 102-428,
§2, 106 Stat. 2183; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 936b.]

SEC. 306C. REFINANCING AND PREPAYMENT OF FFB
LOANS.
(a) IN GENERAL.—A borrower of a loan made by the Federal
Financing Bank and guaranteed under section 306 may, at the option of
the borrower, refinance or prepay the loan or an advance on the loan, or
any portion of the loan or advance.
(b) PENALTY.
(1) DETERMINATION OF PENALTY.— A penalty shall be
assessed against a borrower that refinances or prepays a loan or loan
advance, or any portion of a loan or advance, under this section.
Except as provided in paragraph (2), the penalty shall be equal to the
lesser of—
(A) the difference between the outstanding principal
balance of the loan being refinanced and the present value of
the loan discounted at a rate equal to the then current cost of
funds to the Department of the Treasury for obligations of
comparable maturity to the loan being refinanced or prepaid;
(B) 100 percent of the amount of interest for 1 year on the
outstanding principal balance of the loan or loan advance, or
any portion of the loan or advance, being refinanced,
multiplied by the ratio that—
(i) the number of quarterly payment dates between
the date of the refinancing or prepayment and the maturity
date for the loan advance; bears to
(ii) the number of quarterly payment dates between
the first quarterly payment date that occurs 12 years after
the end of the year in which the amount being refinanced

33

was advanced and the maturity date of the loan advance,
and
(C) (i) the present value of 100 percent of the amount of
interest for 1 year on the outstanding principal balance of
the loan or loan advance or any portion of the loan or
advance, being refinanced or prepaid, plus
(ii) for the interval between the date of the
refinancing or prepayment and the first quarterly payment
date that occurs 12 years after the end of the year in which
the amount being refinanced or prepaid was advanced, the
present value of the difference between—
(I) each payment scheduled for the interval on
the loan amount being refinanced or prepaid; and
(II) the payment amounts that would be required
during the interval on the amounts being refinanced
or prepaid if the interest rate on the loan were equal
to the then current cost of funds to the Department of
the Treasury for obligations of comparable maturity
to the loan being refinanced or prepaid.
(2) LIMITATION.
(A) IN GENERAL — Except as provided in subparagraph (B), the penalty provided by paragraph (1)(A) shall be
required for refinancing or prepayment under this section.
(B) EXCEPTION.—In the case of a loan advanced under
an agreement that permits the refinancing or prepayment of
the loan advance based on the payment of 1 year of interest on
the outstanding principal balance of the loan advance, a
borrower may, in lieu of the penalty required by paragraph
(1)(A), pay a penalty as provided by—
(i) paragraph (1)(B), if the loan advance has reached
the 12-year maturity required under the loan agreement
for the refinancing or prepayment, or
(ii) paragraph (1)(C), if the loan advance has not
reached the 12-year maturity required under the loan
agreement for the refinancing or prepayment.
(3) FINANCING OF PENALTY.
(A) IN GENERAL.—In the case of a refinancing under
this section, a borrower may, at the option of the borrower,
meet the penalty requirements of paragraph (1) by—
(i) making a payment in the amount of the required
penalty at the time of the refinancing, or
(ii) increasing the outstanding principal balance of
the loan advance guaranteed by the Secretary that is being

34

refinanced under this section by the amount of the
penalty.
(B) INCREASED PRINCIPAL.—If a borrower meets the
penalty requirements of paragraph (1) by increasing the
outstanding principal balance of the loan advance that is being
refinanced, the borrower shall make a payment at the time of
the refinancing equal to 2.5 percent of the amount of the
penalty that is added to the outstanding principal balance of
the loan.
(c) LOAN TERMS AND CONDITIONS AFTER REFINANCING.
(1) IN GENERAL.—On the payment of a penalty as provided
by subsection (b), the loan or loan advance, or any portion of the
loan or advance, shall be refinanced at the interest rate described in
paragraph (2) for a term selected by the borrower pursuant to
paragraph (3), except that this paragraph shall not apply if the loan
advance, or any portion of the advance, is prepaid by the borrower.
(2) INTEREST RATE.—The interest rate on a loan refinanced
under this section shall be determined to be equal to the then
current cost of funds to the Department of the Treasury for
obligations of comparable maturity to a term selected by the
borrower pursuant to paragraph (3) except that such rate shall not
be greater than 7 percent per year subject to subsection (d).
(3) LOAN TERM—Subject to paragraph (4), the borrower of
a loan that is refinanced under this section—
(A) shall select the term for which an interest rate shall be
determined pursuant to paragraph (2); and
(B) at the end of the term (and any succeeding term
selected by the borrower under this paragraph), may renew the
loan for another term selected by the borrower.
(4) MAXIMUM TERM.—The borrower may not select a term
pursuant to paragraph (3) that ends after the maturity date set for
the loan before the refinancing of the loan under this section.
(5) EXISTING LOANS.—In the case of the refinancing of a
loan of a borrower pursuant to this section and the inclusion of a
penalty in the outstanding principal balance of the refinanced loan
pursuant to subsection (b)(3) of this section3—
(A) the refinancing and inclusion of the penalty shall not
be subject to appropriations or limited by the amount provided
during a fiscal year for new loans, loan guarantees, or other
credit activity;

3
the words "of this section" appear in the codification but not in the public law as printed
in U.S. Statutes at Large.

35

(B) the request of the borrower for the refinancing under
this section may not be denied or delayed, and
(C) the borrower may not be limited in the selection of
any refinancing or prepayment option provided by this section
to the borrower.
(d) MAXIMUM RATE OPTION.
(1) IN GENERAL.—Except as provided in paragraphs (2),
(3), and (4), a borrower of a loan or loan advance, or any portion of
the loan or advance that is refinanced under this section shall have
the option of ensuring that the interest rate on such loan, loan
advance, or portion thereof does not exceed 7 percent per year.
(2) LIMITATION.—A borrower may not exercise the option
under paragraph (1) in the case of a loan or loan advance, or
portion thereof, if the total amount of such loans for which such
option would be exercised exceeds 50 percent of the outstanding
principal balance of the loans made to such borrower and
guaranteed under section 306.
(3) FEE.—A borrower that exercises the maximum rate option
under paragraph (1) shall, at the time of exercising such option,
pay a fee equal to 1 percent of the outstanding principal balance of
such loan or loan advance, or portion thereof, for which such
option is exercised. Such fee shall be in addition to the penalties
and other payments required under subsection (b).
(4) SUNSET.—The option provided under paragraph (1) shall
not be available in the case of any loan or loan advance, or portion
thereof, unless a written request to exercise such option is sent to
the Secretary not later than 1 year after the effective date of
regulations issued to carry out the Rural Electrification Loan
Restructuring Act of 1993.
[Aug. 10, 1993, Public Law 103-66, Title I, Subtitle B, §1201(a),
107 Stat. 327; Nov. 1, 1993, Public Law 103-129 §2(c)(10),
107 Stat. 1365; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(13), 108 Stat. 3221; 7 U.S.C. 936c.]
ELIGIBILITY OF DISTRIBUTION
SEC. 306D.4
BORROWERS FOR LOANS, LOAN GUARANTEES, AND LIEN
ACCOMMODATIONS.—For the purpose of determining the
eligibility of a distribution borrower not in default on the repayment of
4
Section 2(c)(7) of Public Law 103-129 (107 Stat. 1364), which added sections 306D
and 306E, probably should have inserted such sections after 306C, not section 306B as
provided. They are printed here in the order as codified in the U.S. Code.

36

a loan made or guaranteed under this Act for a loan, loan guarantee, or
lien accommodation under this title, a default by a borrower from
which the distribution borrower purchases wholesale power shall not—
(1) be considered a default by the distribution borrower;
(2) reduce the eligibility of the distribution borrower for
assistance under this Act; or
(3) be the cause, directly or indirectly, of imposing any
requirement or restriction on the borrower as a condition of the
assistance, except such requirements or restrictions as are
necessary to implement a debt restructuring agreed on by the
power supply borrower and the Government.
[Nov. 1, 1993, Public Law 103-129, §2(c)(7), 107 Stat. 1364;
7 U.S.C 936d.]

SEC. 306E. ADMINISTRATIVE PROHIBITIONS APPLICABLE TO CERTAIN ELECTRIC BORROWERS.
a) IN GENERAL.—For the purpose of relieving borrowers of
unnecessary and burdensome requirements, the Secretary guided by the
practices of private lenders with respect to similar credit risks, shall
issue regulations applicable to any electric borrower under this Act
whose net worth exceeds 110 percent of the outstanding principal
balance on all loans made or guaranteed by the Secretary to minimize
those approval rights, requirements, restrictions, and prohibitions that
the Secretary otherwise may establish with respect to the operations of
such a borrower.
(b) SUBORDINATION OR SHARING OF LIENS.—At the
request of a private lender providing financing to such a borrower for a
capital investment, the Secretary shall, expeditiously, either offer to
share the government's lien on the borrower's system or offer to
subordinate the government's lien on that property financed by the
private lender.
(c) ISSUANCE OF REGULATIONS.—In issuing regulations
implementing this section, the Secretary may establish requirements,
guided by the practices of private lenders, to ensure that the security for
any loan made or guaranteed under this Act is reasonably adequate.
(d) AUTHORITY OF THE SECRETARY.—Nothing in this
section limits the authority of the Secretary to establish terms and
conditions with respect to the use by borrowers of the proceeds of loans
made or guaranteed under this Act or to take any other action
specifically authorized by law.

37

[Nov. 1, 1993, Public Law 103-129, §2(c)(7), 107 Stat. 1364; Dec. 17,
1993, Public Law 103-201, §1, 107 Stat. 2342; Oct. 13, 1994, Public
Law 103-354, Title II, Subtitle C, §235(a)(8), (13), 108 Stat. 3221;
7 U.S.C. 936e.]

SEC. 307. LOANS FROM OTHER CREDIT SOURCES.
When it appears to the Secretary that the loan applicant is able to obtain
a loan for part of his credit needs from a responsible cooperative or
other credit source at reasonable rates and terms consistent with the
loan applicant's ability to pay and the achievement of the Act's
objectives, he may request the loan applicant to apply for and accept
such a loan concurrently with an insured loan, subject, however, to full
use being made by the Secretary of the funds made available hereunder
for such insured loans under this title. The Secretary may not request
any applicant for an electric loan under this Act to apply for and accept
a loan in an amount exceeding 30 percent of the credit needs of the
applicant.
[May 11, 1973 Public Law 93-32, §2, 87 Stat. 70; Aug. 13, 1981,
Public Law 97-35, Title I, Subtitle B, §165(c), 95 Stat. 379; Nov. 1,
1993, Public Law 103-129, §2(c)(8), 107 Stat. 1365; Oct. 13, 1994,
Public Law 103-354, Title II, Subtitle C, §235(a)(13), 108 Stat. 3221;
7 U.S.C. 937.]

SEC. 308. FULL FAITH AND CREDIT OF THE UNITED
STATES.—Any contract of insurance or guarantee executed by the
Secretary under this title shall be an obligation supported by the full
faith and credit of the United States and incontestable except for fraud
or misrepresentation of which the holder had actual knowledge at the
time it became a holder.
[May 11, 1973, Public Law 93-32, §2, 87 Stat. 70; Nov. 4, 1975, Public
Law 94-124, §2, 89 Stat. 677; Oct. 13, 1994, Public Law 103-354,
Title II, Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 938.]

SEC. 309. LOAN TERMS AND CONDITIONS.—Loans made
from or insured through the fund shall be for the same purposes and on
the same terms and conditions as are provided for loans in titles I and II
of this Act except as otherwise provided in sections 303 to 308

38

inclusive. The preceding sentence shall not be construed to make
section 408(b)(2) or 412 applicable to this title.
[May 11, 1973, Public Law 93-32, §2, 87 Stat. 70; Nov. 28, 1990,
Public Law 101-624, Title XXIII, Subtitle F, ch. 3, §2360,
104 Stat. 4042; Nov. 1, 1993, Public Law 103-129, §2(b)(2),
107 Stat. 1363; Apr. 4, 1996, Public Law 104-127, Title VII,
Subtitle C, §779, 110 Stat. 1151; 7 U.S.C. 939.]

SEC. 310. REFINANCING OF RURAL DEVELOPMENT
LOANS.—At the request of the borrower, the Secretary is authorized
and directed to refinance with loans which will be insured under this
Act, at the interest rates provided in section 305, any loans made for
rural electric and telephone facilities under any provision of the
Consolidated Farm and Rural Development Act.
[May 11, 1973, Public Law 93-32, §2, 87 Stat. 70; Oct. 13, 1994,
Public Law 103-354, Title II, Subtitle C, §235(a)(13), 108 Stat. 3221;
7 U.S.C. 940.]

SEC. 311. [Repealed April 4, 1996.]
[This section related to a privatization demonstration program, setting
forth conditions under which outstanding Federal Financing Bank
guaranteed loans could be prepaid without penalty and allow for the
FFB guarantee to carry over to private capital used to finance the
prepayments.]
[October 18, 1986, Public Law 99-500, §101(m) [Title VI, §623],
100 Stat. 1783-333; Oct. 30, 1986, Public Law 99-591, §101(m)
[Title VI, §623], 100 Stat. 3341-333, 7 U.S.C. 940a.] (NOTE:
Legislation that enacted this section provides that its provisions "shall
apply only to the rural electrification program in the State of Alaska."
(Oct. 30, 1986 Public Law 99-591, Title VIII, Part C, §115,
100 Stat. 3341-352.))

SEC. 312. USE OF FUNDS.—A borrower of an insured or
guaranteed electric loan under this Act may, without restriction or prior
approval of the Secretary, invest its own funds or make loans or
guarantees, not in excess of 15 percent of its total utility plant.

39

[Dec. 22, 1987, Public Law 100-203, Title I, Subtitle D, ch. 1, §1402,
101 Stat. 1330-21; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 940b.]

SEC. 313. CUSHION OF CREDIT PAYMENTS PROGRAM
(a) ESTABLISHMENT.
(1) IN GENERAL.—The Secretary shall develop and promote
a program to encourage borrowers to voluntarily make deposits
into cushion of credit accounts established within the Rural
Electrification and Telephone Revolving Fund.
(2) INTEREST.—Amounts in each cushion of credit account
shall accrue interest to the borrower at a rate of 5 percent
per annum.
(3) BALANCE.—A borrower may reduce the balance of its
cushion of credit account only if the amount obtained from the
reduction is used to make scheduled payments on loans made or
guaranteed under this Act.
(b) USES OF CUSHION OF CREDIT PAYMENTS.
(1) IN GENERAL.
(A) CASH BALANCE.—Cushion of credit payments
shall be held in the Rural Electrification and Telephone
Revolving Fund as a cash balance in the cushion of credit
accounts of borrowers.
(B) INTEREST.—All cash balance amounts (obtained
from cushion of credit payments, loan payments, and other
sources) held by the Fund shall bear interest to the Fund at a
rate equal to the weighted average rate on outstanding
certificates of beneficial ownership issued by the Fund.
(C) CREDITS.—The amount of interest accrued on the
cash balances shall be credited to the Fund as an offsetting
reduction to the amount of interest paid by the Fund on its
certificates of beneficial ownership.
(2) RURAL ECONOMIC DEVELOPMENT SUBACCOUNT
(A) MAINTENANCE OF ACCOUNT.—The Secretary
shall maintain a subaccount within the Rural Electrification
and Telephone Revolving Fund to which shall be credited, on
a monthly basis, a sum determined by multiplying the
outstanding cushion of credit payments made after October 1,
1987, by the difference (converted to a monthly basis)
between the average weighted interest rate paid on outstanding
certificates of beneficial ownership issued by the Fund and the

40

5 percent rate of interest provided to borrowers on cushion of
credit payments.
(B) GRANTS.—The Secretary is authorized, from the
interest differential sums credited this subaccount and from
any other funds made available thereto, to provide grants or
zero interest loans to borrowers under this Act for the purpose
of promoting rural economic development and job creation
projects, including funding for project feasibility studies,
start-up costs, incubator projects, and other reasonable
expenses for the purpose of fostering rural development.
(C) REPAYMENTS.—In the case of zero interest loans,
the Secretary shall establish such reasonable repayment terms
as will ensure borrower participation.
(D) PROCEEDS.—All proceeds from the repayment of
such loans shall be returned to the subaccount.
(E) NUMBER OF GRANTS.—Such loans and grants
shall be made during each fiscal year to the full extent of the
amounts held by the rural economic development subaccount,
subject only to limitations as may be from time-to-time
imposed by law.
[Dec. 22, 1987, Public Law 100-203, Title I, Subtitle D, ch. 1, §1403,
101 Stat. 1330-21; Oct. 13, 1994, Public Law 103-354, Title II,
Subtitle C, §235(a)(13), 108 Stat. 3221; 7 U.S.C. 940c.]
SEC. 313A.5 GUARANTEES FOR BONDS AND NOTES
ISSUED FOR ELECTRIFICATION OR TELEPHONE
PURPOSES.
(a) IN GENERAL.—Subject to subsection (b), the Secretary shall
guarantee payments on bonds or notes issued by cooperative or other
lenders organized on a not-for-profit basis if the proceeds of the bonds
or notes are used to make loans for any electrification or telephone
purpose eligible for assistance under this Act, including section 4 or
201 or to refinance bonds or notes issued for such purposes.
(b) LIMITATIONS.

5

Section 750(a) of the Agriculture, Rural Development, Food and Drug Administration,
and Related Agencies Appropriations Act, 2004 (P.L. 108-199) provides that:
"Notwithstanding subsections (c) and (e)(2) of section 313A of the Rural Electrification
Act (7 U.S.C. 940c(c) and (3)(2)) in implementing section 313A of that Act, the
Secretary shall, with the consent of the lender, structure the schedule for paymnet of the
annual fee, not to exceed an average of 30 basis points per year for the term of the loan,
to ensure that sufficient funds are available to pay the subsidy costs for note guarantees
under that section."

41

(1) OUTSTANDING LOANS.—A lender shall not receive a
guarantee under this section for a bond or note if, at the time of the
guarantee, the total principal amount of such guaranteed bonds or
notes outstanding of the lender would exceed the principal amount
of outstanding loans of the lender for electrification or telephone
purposes that have been made concurrently with loans approved
for such purposes under this Act.
(2) GENERATION OF ELECTRICITY.—The Secretary shall
not guarantee payment on a bond or note issued by a lender, the
proceeds of which are used for the generation of electricity.
(3) QUALIFICATIONS.—The Secretary may deny the
request of a lender for the guarantee of a bond or note under this
section if the Secretary determines that—
(A) the lender does not have appropriate expertise or
experience or is otherwise not qualified to make loans for
electrification or telephone purposes;
(B) the bond or note issued by the lender would not be
investment grade quality without a guarantee; or
(C) the lender has not provided to the Secretary a list of
loan amounts approved by the lender that the lender certifies
are for eligible purposes described in subsection (a).
(4) INTEREST RATE REDUCTION.
(A) IN GENERAL.—Except as provided in subparagraph
(B), a lender may not use any amount obtained from the
reduction in funding costs as a result of the guarantee of a
bond or note under this section to reduce the interest rate on a
new or outstanding loan.
(B) CONCURRENT LOANS.—A lender may use any
amount described in subparagraph (A) to reduce the interest
rate on a loan if the loan is—
(i) made by the lender for electrification or telephone
projects that are eligible for assistance under this Act; and
(ii) made concurrently with a loan approved by the
Secretary under this Act for such a project, as provided in
section 307.
(c) FEES.
(1) IN GENERAL.—A lender that receives a guarantee issued
under this section on a bond or note shall pay a fee to the
Secretary.
(2) AMOUNT.—The amount of an annual fee paid for the
guarantee of a bond or note under this section shall be equal to 30
basis points of the amount of the unpaid principal of the bond or
note guaranteed under this section.

42

(3) PAYMENT.—A lender shall pay the fees required under
this subsection on a semiannual basis.
(4) RURAL ECONOMIC DEVELOPMENT
SUBACCOUNT.—Subject to subsection (e)(2), fees collected
under this subsection shall be—
(A) Deposited into the rural economic development
subaccount maintained under section 313(b)(2)(A), to remain
available until expended; and
(B) used for the purposes described in section
313(b)(2)(B).
(d) GUARANTEES.
(1) IN GENERAL.—A guarantee issued under this section
shall—
(A) be for the full amount of a bond or note, including the
amount of principal, interest, and call premiums;
(B) be fully assignable and transferable; and
(C) represent the full faith and credit of the United States.
(2) LIMITATION.—To ensure that the Secretary has the
resources necessary to properly examine the proposed guarantees,
the Secretary may limit the number of guarantees issued under this
section to 5 per year.
(3) DEPARTMENT OPINION.—On the timely request of a
lender, the General Counsel of the Department of Agriculture shall
provide the Secretary with an opinion regarding the validity and
authority of a guarantee issued to the lender under this section.
(e) AUTHORIZATION OF APPROPRIATIONS.
(1) IN GENERAL.—There are authorized to be appropriated
such sums as are necessary to carry out this section.
(2) FEES.—To the extent that the amount of funds
appropriated for a fiscal year under paragraph (1) are not sufficient
to carry out this section, the Secretary may use up to 1/3 of the fees
collected under subsection (c) for the cost of providing guarantees
of bonds and notes under this section before depositing the
remainder of the fees into the rural economic development
subaccount maintained under section 303(b)(2)(A).
(f) TERMINATION.—The authority provided under this section
shall terminate on September 30, 2007.
[May 13, 2002, Public Law 107-171, Title VI, §6101(a), 116 Stat. 413;
7 U.S.C. 940c-1.]

43

SEC. 314.
LIMITATIONS ON AUTHORIZATION OF
APPROPRIATIONS.
(a) ADJUSTMENT PERCENTAGE DEFINED.— As used in this
section, the term 'adjustment percentage' means, with respect to a fiscal
year, the percentage (if any) by which—
(1) the average of the Consumer Price Index (as defined in
section 1(f)(5) of the Internal Revenue Code of 1986) for the
1-year period ending on July 31 of the immediately preceding
fiscal year; exceeds
(2) the average of the Consumer Price Index (as so defined)
for the 1-year period ending on July 31, 1993.
(b) FISCAL YEARS 1994 THROUGH 1998.—In the case of each
of fiscal years 1994 through 1998, there are authorized to be
appropriated to the Secretary such sums as may be necessary for the
cost of loans in the following amounts, for the following purposes:
(1) ELECTRIC HARDSHIP LOANS.—For loans under
section 305(c)(1) —
(A) for fiscal year 1994, $125,000,000; and
(B) for each of fiscal years 1995 through 1998,
$125,000,000, increased by the adjustment percentage for the
fiscal year.
(2) ELECTRIC MUNICIPAL RATE LOANS. —For loans
under section 305(c)(2) —
(A) for fiscal year 1994, $600,000,000; and
(B) for each of fiscal years 1995 through 1998,
$600,000,000, increased by the adjustment percentage for the
fiscal year.
(3) TELEPHONE HARDSHIP LOANS.—For loans under
section 305(d)(1) —
(A) for fiscal year 1994, $125,000,000; and
(B) for each of fiscal years 1995 through 1998,
$125,000,000, increased by the adjustment percentage for the
fiscal year.
(4) TELEPHONE COST-OF-MONEY LOANS.—For loans
under section 305(d)(2) —
(A) for fiscal year 1994, $198,000,000; and
(B) for each of fiscal years 1995 through 1998,
$198,000,000, increased by the adjustment percentage for the
fiscal year.
(c) FUNDING LEVELS.—The Secretary shall make insured loans
under this title for the purposes, in the amounts, and for the periods of
time specified in subsection (b), as provided in advance in
appropriations Acts.

44

(d) AVAILABILITY OF FUNDS FOR INSURED LOANS.—
Amounts made available for loans under section 305 are authorized to
remain available until expended.
[Nov. 5, 1990, Public Law 101-508, Subtitle B, §1201,
104 Stat. 1388-7; Nov. 1, 1993, Public Law 103-129, §2(b)(1),
107 Stat. 1362; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(13), 108 Stat. 3221; 7 U.S.C. 940d.]
SEC. 315. EXPANSION OF 911 ACCESS.
(a) IN GENERAL.—Subject to such terms and conditions as the
Secretary may prescribe, the Secretary may make telephone loans
under this title to borrowers of loans made by the Rural Utilities
Service, State or local governments, Indian tribes (as defined in section
4 of the Indian Self-Determination and Education Assistance Act
(25 U.S.C. 450b)), or other public entities for facilities and equipment
to expand or improve 911 access and integrated emergency
communications systems in rural areas.
(b) AUTHORIZATION OF APPROPRIATIONS.—There are
authorized to be appropriated such sums as are necessary to carry out
this section for each of fiscal years 2002 through 2007.
[May 13, 2002, Public Law 107-171, Title VI, §6102, 116 Stat. 415;
7 U.S.C. 940e.]

TITLE IV—RURAL TELEPHONE BANK
SEC. 401. TELEPHONE BANK.
(a) There is hereby established a body corporate to be known as the
Rural Telephone Bank (hereinafter called the telephone bank).
(b) The general purposes of the telephone bank shall be to obtain
an adequate supply of supplemental funds to the extent feasible from
non-Federal sources, to utilize said funds in the making of loans under
section 408 of this title, and to conduct its operations to the extent
practicable on a self-sustaining basis.
(c) the telephone bank shall be deemed to be an instrumentality of
the United States, and shall, for the purposes of jurisdiction and venue,
be deemed a citizen and resident of the District of Columbia. The
telephone bank is authorized to make payments to State, territorial, and
local governments in lieu of property taxes upon real property and
tangible personal property which was subject to State, territorial and
local taxation before acquisition by the telephone bank. Such payment

45

may be in the amounts, at the times, and upon such terms as the
telephone bank deems appropriate but the telephone bank shall be
guided by the policy of making payments not in excess of the taxes
which would have been payable upon such property in the condition in
which it was acquired.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 30; 7 U.S.C. 941.]

SEC. 402. GENERAL POWERS.—To carry out the specific
powers herein authorized, the telephone bank shall have power to (a)
adopt, alter, and use a corporate seal; (b) sue and be sued in its
corporate name; (c) make contracts, leases, and cooperative
agreements, or enter into other transactions as may be necessary in the
conduct of its business, and on such terms as it may deem appropriate;
(d) acquire, in any lawful manner, hold, maintain, use, and dispose of
property: Provided, That the telephone bank may only acquire property
needed in the conduct of its banking operations or pledged or
mortgaged to secure loans made hereunder or in temporary operation or
maintenance thereof: Provided further, That any such pledged or
mortgaged property so acquired shall be disposed of as promptly as is
consistent with prudent liquidation practices, but in no event later than
five years after such acquisition; (e) accept gifts or donations of
services or of property in aid of any of the purposes herein authorized;
(f) appoint such officers attorneys, agents, and employees, vest them
with such powers and duties, fix and pay such compensation to them
for their services as the telephone bank may determine; (g) determine
the character of and the necessity for its obligations and expenditures,
and the manner in which they shall be incurred, allowed, and paid; (h)
execute, in accordance with its bylaws, all instruments necessary or
appropriate in the exercise of any of its powers; (i) collect or
compromise all obligations assigned to or held by it and all legal or
equitable rights accruing to it in connection with the payment of such
obligations until such time as such obligations may be referred to the
Attorney General for suit or collection; and (j) exercise all such other
powers as shall be necessary or incidental to carrying out its functions
under this title.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 30; 7 U.S.C. 942.]

46

SEC. 403. SPECIAL PROVISIONS GOVERNING TELEPHONE BANK AS FEDERAL AGENCY UNTIL CONVERSION
OF OWNERSHIP, CONTROL, AND OPERATION.
Until the ownership, control, and operation of the telephone bank is
converted as provided in section 410(a) of this title and not thereafter
(a) The telephone bank shall be an agency of the United States and
shall be subject to the supervision and direction of the Secretary of
Agriculture (hereinafter called the Secretary): Provided, however, That
the telephone bank shall at no time be entitled to transmission of its
mail free of postage, nor shall it have the priority of the United States in
the payment of debts out of bankrupt, insolvent, and decedents' estates;
(b) in order to perform its responsibilities under this title, the
telephone bank may partially or jointly utilize the facilities and the
services of employees of the Secretary, without cost to the telephone
bank;
(c) the telephone bank shall be subject to the provisions of the
Government Corporation Control Act, as amended (31 U.S.C. 841, et
seq.), in the same manner and to the same extent as if it were included
in the definition of "wholly owned Government corporation" as set
forth in section 101 of said Act (31 U.S.C. 846);
(d) the telephone bank may without regard to the civil service
classification laws appoint and fix the compensation of such officers
and employees of the telephone bank as it may deem necessary;
(e) the telephone bank shall be subject to the provisions of sections
517, 519, and 2679 of title 28, United States Code.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 31; Oct. 13, 1994, Public
Law 103-354, Title II, Subtitle C, §235(a)(9), 108 Stat. 3221;
7 U.S.C. 943.]

SEC. 404. GOVERNOR OF TELEPHONE BANK;
FUNCTIONS, POWERS AND DUTIES.
Subject to the provisions of section 410, the Secretary shall serve as the
chief executive officer of the telephone banks (herein called the
Governor of the telephone bank). Except as to matters specifically
reserved to the Telephone Bank Board in this title, the Governor of the
telephone bank shall exercise and perform all functions, powers, and
duties of the telephone bank.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 31; Oct. 13, 1994, Public
Law 103-354, Title II, Subtitle C, §235(a)(10), 108 Stat. 3221;
7 U.S.C. 944.]

47

SEC. 405. BOARD OF DIRECTORS.
(a) IN GENERAL.—The management of the telephone bank,
within the limitations prescribed by law, shall be vested in a board of
directors (in this title referred to as the "Telephone Bank Board").
(b) MEMBERSHIP.—The Telephone Bank Board shall consist of
thirteen individuals as follows:
(1) PRESIDENTIAL APPOINTEES.—The President shall
appoint seven individuals to serve on the Telephone Bank Board
who shall serve at the pleasure of the President—
(A) five of whom shall be officers or employees of the
Department of Agriculture and not officers or employees of
the Secretary [sic]; and
(B) two of whom shall be from the general public and not
officers or employees of the Federal Government.
(2) COOPERATIVE MEMBERS.—The cooperative-type
entities, and organizations controlled by such entities, that hold
class B or class C stock shall elect three individuals to serve on the
Telephone Bank Board for a term of two years, by a plurality vote
of the stockholders voting in the election.
(3) COMMERCIAL MEMBERS.—The commercial-type
entities, and the organizations controlled by such entities, that hold
class B or class C stock shall elect three individuals to serve on the
Telephone Bank Board for a term of two years, by a plurality vote
of the stockholders voting in the election.
(c) ELECTIONS.
(1) VALIDITY.—An election under paragraph (2) or (3) of
subsection (b) shall not be considered valid unless a majority of the
stockholders eligible to vote in the election have voted in the
election.
(2) BALLOTING.—Balloting in an election under paragraph
(2) or (3) of subsection (b) shall be conducted by mail pursuant to
the procedures authorized in the bylaws of the telephone bank.
(3) NO CUMULATIVE VOTING.—Cumulative voting shall
not be permitted in any election under paragraph (2) or (3) of
subsection (b).
(d) COMPENSATION.
(1) IN GENERAL.—Except as provided in paragraph (2),
each member of the Telephone Bank Board shall receive $100 per
day for each day or part thereof, not to exceed fifty days per year,
spent in the performance of their official duties, and shall be
reimbursed for travel and other expenses in such manner and

48

subject to such limitations as the Telephone Bank Board may
prescribe.
(2) EXCEPTIONS.—The five members of the Telephone
Bank Board appointed under subsection (b)(1)(A) shall not receive
compensation by reason of their service on the Telephone Bank
Board.
(e) SUCCESSION.—A member of the Telephone Bank Board
may serve after the expiration of the term of office of such member
until the successor for such member has taken office.
(f) CHAIRPERSON.—The members of the Telephone Bank Board
shall elect one of such members to be the Chairperson of the Board, in
accordance with the bylaws of the telephone bank. The Chairperson
shall preside at all meetings of the Board and may vote on a matter
before the Board unless the vote would result in a tie vote on the
matter.
(g) BYLAWS.—The Telephone Bank Board shall prescribe
bylaws, not inconsistent with law, regulating the manner in which the
telephone bank’s business shall be conducted, its directors and officers
elected, its stock issued, held, and disposed of, its property transferred,
its bylaws amended, and the powers and privileges granted to it by law
and exercised and enjoyed.
(h) MEETINGS.—The Telephone Bank Board shall meet at such
times and places as it may fix and determine, but shall hold at least four
regularly scheduled meetings a year, and special meetings may be held
on call in the manner specified in the bylaws of the telephone bank.
(i) ANNUAL REPORT.—The Telephone Bank Board shall make
an annual report to the Secretary for transmittal to the Congress on the
administration of this title IV and any other matters relating to the
effectuation of the policies of title IV, including recommendations for
legislation.
(j) OPEN MEETINGS.—For purposes of section 552b of title 5,
United States Code, the Telephone Bank Board shall be treated as an
agency within the meaning of subsection (a)(l) of such section.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 32; May 11, 1973, Public
Law 93-32, §4, 87 Stat. 70; Nov. 28, 1990, Public Law 101-624,
Title XXIII, Subtitle F, ch. 4, §2363(a), (b)(1), (c), 104 Stat. 4042,
4044; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(7), 108 Stat. 3221; 7 U.S.C. 945.]

SEC. 406. CAPITALIZATION.

49

(a) FEDERAL AND BORROWER SUBSCRIPTIONS; FEDERAL
LIMITATION; REPORT TO PRESIDENT; TRANSMITTAL TO
CONGRESS; NET COLLECTION PROCEEDS.
The telephone bank's capital shall consist of capital subscribed by
the United States, by borrowers from the telephone bank, by
corporations and public bodies eligible to become borrowers from the
telephone bank, and by organizations controlled by such borrowers,
corporations, and public bodies. Beginning with the fiscal year 1971
and for each fiscal year thereafter but not later than fiscal year 1991,
the United States shall furnish capital for the purchase of class A stock
and there are hereby authorized to be appropriated such amounts, not to
exceed $30,000,000 annually, for such purchases until such class A
stock shall equal $600,000,000, Provided, That on or before July 1,
1975, the Secretary shall make a report to the President for transmittal
to the Congress on the status of capitalization of the telephone bank by
the United States with appropriate recommendations. As used in this
section and section 301, the term "net collection proceeds" shall be
deemed to mean payments from and after July 1, 1969, of principal and
interest on loans heretofore or hereafter made under section 201 of this
Act, less an amount representing interest payable to the Secretary of the
Treasury on loans to the Secretary for telephone purposes.
(b) STOCK CLASSIFICATION; VOTING STOCK; ONE VOTE
RULE.—The capital stock of the telephone bank shall consist of three
classes, class A, class B. and class C, the rights, powers, privileges, and
preferences of the separate classes to be as specified, not inconsistent
with law, in the bylaws of the telephone bank. Class B and class C
stock shall be voting stock, but no holder of said stock shall be entitled
to more than one vote, nor shall class B and class C stockholders,
regardless of their number, which are owned or controlled by the same
person group of persons, firm, association, or corporation, be entitled in
any event to more than one vote.
(c) CLASS A STOCK; ISSUANCE TO THE SECRETARY OF
AGRICULTURE AND REDEMPTION; CUMULATIVE RETURN.
—Class A stock shall be issued only to the Secretary of the Rural
Electrification Administration on behalf of the United States in
exchange for capital furnished to the telephone bank pursuant to
subsection (a), and such class A stock shall be redeemed and retired by
the telephone bank as soon as practicable after September 30, 1995, but
not to the extent that, the Telephone Bank Board determines that such
retirement will impair the operations of the telephone bank: Provided,
That the minimum amount of class A stock that shall be retired each
year after said date shall equal the amount of class B stock sold by the
telephone bank during such year. Class A stock shall be entitled to a

50

return, payable from income, at the rate of 2 per centum per annum on
the amounts of said class A stock actually paid into the telephone bank.
Such return shall be cumulative and shall be payable annually into
miscellaneous receipts of the Treasury.
(d) CLASS B STOCK; BORROWERS AS HOLDERS;
DIVIDEND PROHIBITION; PATRONAGE REFUNDS.—Class B
stock shall be held only by recipients of loans under section 408 of this
Act. Borrowers receiving loan funds pursuant to section 408(a)(1) or
(2) shall be required to invest in class B stock 5 per centum of the
amount of loan funds so provided by having an amount equal to 5 per
centum of the amount of each loan advance, at the time of such
advance. No dividends shall be payable on class B stock. All holders
of class B stock shall be entitled to patronage refunds in class B stock
under terms and conditions to be specified in the bylaws of the
telephone bank.
(e) CLASS C STOCK; BORROWER AS PURCHASERS;
DIVIDENDS.—Class C stock shall be available for purchase and shall
be held only by borrowers, or by corporations and public bodies
eligible to borrow under section 408 of this Act, or by organizations
controlled by such borrowers, corporations and public bodies, and shall
be entitled to dividends in the manner specified in the bylaws of the
telephone bank. Such dividends shall be payable only from income
and, until all class A stock is retired, shall not exceed the current
average rate payable on its telephone debentures.
(f) SPECIAL FUND REQUIREMENTS.—If a firm, association,
corporation, or public body is not authorized under the laws of the
jurisdiction in which it is organized to acquire stock of the telephone
bank, the telephone bank shall, in lieu thereof, permit such organization
to pay into a special fund of the telephone bank a sum equivalent to the
amount of stock to be purchased. Each reference in this title to capital
stock, or to class B. or class C stock, shall include also the special fund
equivalents of such stock, and to the extent permitted under the laws of
the jurisdiction in which such organization is organized, a holder of
special fund equivalents of class B or class C stock, shall have the same
rights and status as a holder of class B or class C stock, respectively.
The rights and obligations of the telephone bank in respect of such
special fund equivalent shall be identical to its rights and obligations in
respect of class B or class C stock, respectively.
(g) PATRONAGE REFUNDS FROM REMAINING EARNINGS
AFTER PROVISION FOR OPERATING EXPENSES, RESERVES
FOR LOSSES, PAYMENTS IN LIEU OF TAXES, AND RETURNS
ON CLASS A AND C STOCK.—After payment of all operating
expenses of the telephone bank, including interest on its telephone

51

debentures, setting aside appropriate funds for the reserve for loan
losses, and making payment in lieu of taxes, and returns on class A
stock as provided in section 406(c), and on class C stock, the
Telephone Bank Board shall annually set aside the remaining earnings
of the telephone bank for patronage refunds in accordance with the
bylaws of the telephone bank. The telephone bank may not establish
any reserve other than the reserves referred to in this subsection and in
subsection (h).
(h) RESERVE FOR LOSSES DUE TO INTEREST RATE
FLUCTUATIONS.—There is hereby established in the telephone bank
a reserve for losses due to interest rate fluctuations. Within 30 days
after the date of the enactment of this subsection, the Governor of the
telephone bank shall transfer to the reserve for losses due to interest
rate fluctuations all amounts in the reserve for contingencies as of the
date of the enactment of this subsection. All amounts so transferred
shall not be transferred, directly or indirectly, to the reserve for
contingencies. Amounts in the reserve for interest rate fluctuations
may be expended only to cover operating losses of the telephone bank
(other than losses attributable to loan defaults) and only after taking
into consideration any recommendations made by the General
Accounting Office under section 1413(b) of the Omnibus Budget
Reconciliation Act of 1987.
(i) INVESTMENT OF RTB EQUITY FUND.—The Governor of
the telephone bank may invest in obligations of the United States the
amounts in the account in the Treasury of the United States numbered
12X8139 (known as the 'RTB Equity Fund').
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 33; May 11, 1973, Public
Law 93-32, §5, 87 Stat. 70; April 21, 1976, Public Law 94-273, §2(2),
90 Stat. 375; Dec. 22, 1981, Public Law 97-98, Title XVI, §1607,
95 Stat. 1347; Dec. 22, 1987, Public Law 100-203, Title I, Subtitle D,
ch. 2, §1413(a), (c), 101 Stat. 1330-26, 1330-27; Nov. 28, 1990, Public
Law 101-624, Title XXIII, Subtitle F, ch. 4, §§2364, 2367(a),
104 Stat. 4044; Nov. 1, 1993, Public Law 103-129, §2(c)(9),
107 Stat. 1365; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(11), (13), 108 Stat. 3221; Apr. 4, 1996, Public Law 104-127,
Title VII, Subtitle C, §772(b)(3), 110 Stat. 1149; 7 U.S.C. 946.]

SEC. 407. BORROWING POWER, TELEPHONE DEBENTURES ISSUANCE; INTEREST RATES, TERMS AND CONDITIONS, RATIO TO PAID-IN CAPITAL AND RETAINED
EARNINGS; INVESTMENTS IN DEBENTURES, DEBEN-

52

TURES AS SECURITY: PURCHASE AND SALE OF DEBENTURES BY SECRETARY OF TREASURY; TREAT-MENT AS
PUBLIC DEBT TRANSACTIONS OF UNITED STATES—
EXCLUSION OF TRANSACTIONS FROM DEBT TOTALS.
(a) The telephone bank is authorized to obtain funds through the
public or private sale of its bonds, debentures, notes and other
evidences of indebtedness (herein collectively called telephone
debentures). Telephone debentures shall be issued at such times, bear
interest at such rates, and contain such other terms and conditions as the
Telephone Bank Board shall determine: Provided, however, That the
amount of the telephone debentures which may be outstanding at any
one time pursuant to this section shall not exceed twenty times the
paid-in capital and retained earnings of the telephone bank. Telephone
debentures shall not be exempt, either as to principal or interest from
any taxation now or hereafter imposed by the United States, by any
territory, dependency, or possession thereof, or by any State or local
taxing authority. Telephone debentures shall be lawful investments and
may be accepted as security for all fiduciary, trust, and public funds,
the investment or deposit of which shall be under the authority and
control of the United States or any officer or officers thereof.
(b) The Telephone Bank is also authorized to issue telephone
debentures to the Secretary of the Treasury, and the Secretary of the
Treasury may in his discretion purchase any such debentures, and for
such purpose the Secretary of the Treasury is authorized to use as a
public debt transaction the proceeds of the sale of any securities
hereafter issued under the Second Liberty Bond Act, as now or
hereafter in force, and the purposes for which securities may be issued
under the Second Liberty Bond Act as now or hereafter in force are
extended to include such purchases. Each purchase of telephone
debentures by the Secretary of the Treasury under this subsection shall
be upon such terms and conditions as to yield a return at a rate not less
than a rate determined by the Secretary of the Treasury, taking into
consideration the current average yield on outstanding marketable
obligations of the United States of comparable maturity. The Secretary
of the Treasury may sell upon such terms and conditions and at such
price or prices as he shall determine any of the telephone debentures
acquired by him under this subsection. All purchases and sales by the
Secretary of the Treasury of such debentures under this subsection shall
be treated as public debt transactions of the United States.
(c) Purchases and resales by the Secretary of the Treasury as
authorized in subsection (b) of this section shall not be included in the
totals of the budget of the United States Government and shall be

53

exempt from any general limitation imposed by statute on expenditures
and net lending (budget outlays) of the United States.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 34; June 30, 1972, Public
Law 92-324, §2, 86 Stat. 390; May 11, 1973, Public Law 93-32, §§6, 7,
87 Stat. 70; 7 U.S.C. 947.]

SEC. 408. LENDING POWER.
(a) LOANS FOR PRESCRIBED PURPOSES; REQUISITE
CONDITIONS.—The Governor of the telephone bank shall make loans
on behalf of the telephone bank, to the extent that there are qualifying
applications therefor, subject only to limitations as to amounts
authorized for loans and advances as may be imposed by law enacted
by the Congress of the United States for loans to be made in any one
year, and in conformance with policies approved by the Telephone
Bank Board, to corporations and public bodies which have received a
loan or loan commitment pursuant to section 201 of this Act, or which
have been certified by the Secretary to be eligible for such a loan or
loan commitment, (1) for the same purposes and under the same
limitations for which loans may be made under section 201 of this Act,
(2) for the acquisition, purchase and Installation of telephone lines,
systems, and facilities (other than buildings used primarily for
administrative purposes, vehicles not used primarily in construction and
customer premise equipment) related to the furnishing, improvement,
or extension of rural telecommunications service, and (3) for the
purchase of class B stock required to be purchased under Section
406(d) of this Act but not for the purchase of class C stock, subject, as
to the purposes set forth in (2) hereof, to the following provisos: That
in the case of any such loan for the acquisition of telephone lines,
facilities, or systems, the acquisition shall be approved by the
Secretary, the location and character thereof shall be such as to improve
the efficiency effectiveness, or financial stability of the telephone
system of the borrower, and in respect of exchange facilities for local
services, the size of each acquisition shall not be greater than the
borrower's existing system at the time it receives its first loan from the
telephone bank, taking into account the number of subscribers served,
miles of line, and plant investment. Loans and advances made under
this section shall not be included in the totals of the budget of the
United States Government and shall be exempt from any general
limitation imposed by statute on expenditures and net lending (budget
outlays) of the United States.

54

(b) TERMS AND CONDITIONS OF LOANS; RESTRICTIONS
ON LOANS.—Loans under this section shall be on such terms and
conditions as the Governor of the telephone bank shall determine,
subject, however, to the following restrictions:
(1) AMORTIZATION PERIOD.—All loans made under this
section shall be fully amortized over a period not to exceed fifty
years.
(2) PREFERENCE ON LOANS; ELECTION OF LOANS
FOR TELEPHONE SYSTEM WITH CERTAIN SUBSCRIBER
DENSITY PER MILE.—Funds to be loaned under this Act to any
borrower shall be loaned under this section in preference to section
201 if the borrower is eligible for such a loan and funds are
available therefor. Notwithstanding the foregoing or any other
provision of law, all loans made pursuant to this Act for facilities
for telephone systems with an average subscriber density of three
or fewer per mile shall be made under section 201 of this Act; but
this provision shall not preclude the making of such loans from the
telephone bank at the election of the borrower.
(3) INTEREST RATE.—(A) Loans under this section shall
bear interest at the "cost of money rate." The cost of money
rate is defined as the average cost of moneys to the telephone
bank as determined by the Governor, but not less than
5 per centum per annum.
(B) On and after December 22, 1987, advances made on
or after such date under loan commitments made on or after
October 1, 1987, shall bear interest at the rate determined
under subparagraph (C), but in no event at a rate that is less
than 5 percent per annum.
(C) The rate determined under this subparagraph shall be
(i) for the period beginning on the date the advance is
made and ending at the close of the fiscal year in which
the advance is made, the average yield (on the date of the
advance) on outstanding marketable obligations of the
United States having a final maturity comparable to the
final maturity of the advance, and
(ii) after the fiscal year in which the advance is made,
the cost of money rate for such fiscal year, as determined
under subparagraph (D).
(D) Within 30 days after the end of each fiscal year, the
Governor shall determine to the nearest 0.01 percent the cost
of money rate for the fiscal year, by calculating the sum of the
results of the following calculations:

55

(i) The aggregate of all amounts received by the
telephone bank during the fiscal year from the issuance of
class A stock multiplied by the rate of return payable by
the telephone bank during the fiscal year, as specified in
section 406(c), to holders of class A stock, which product
is divided by the aggregate of the amounts advanced by
the telephone bank during the fiscal year.
(ii) The aggregate of all amounts received by the
telephone bank during the fiscal year from the issuance of
class B stock multiplied by the rate at which dividends are
payable by the telephone bank during the fiscal year as
specified in section 406(d), to holders of class B stock,
which product is divided by the aggregate of the amounts
advanced by the telephone bank during the fiscal year.
For purposes of the calculation under this subparagraph,
such rate shall be zero.
(iii) The aggregate of all amounts received by the
telephone bank during the fiscal year from the issuance of
class C stock multiplied by the rate at which dividends are
payable by the telephone bank during the fiscal year,
under section 406(e), to holders of class C stock, which
product is divided by the aggregate of the amounts
advanced by the telephone bank during the fiscal year.
(iv) (I) The sum of the results of the calculation
described in the subclause (II).
(II) The amounts received by the telephone bank
during the fiscal year from each issue of telephone
debentures and other obligations of the telephone
bank, multiplied, respectively, by the rates at which
interest is payable during the fiscal year by the
telephone bank to holders of each issue, each of
which products is divided, respectively, by the
aggregate of the amounts advanced by the telephone
bank during the fiscal year.
(v) (I) The amount by which the aggregate of the
amounts advanced by the telephone bank during the
fiscal year exceeds the aggregate of the amounts
received by the telephone bank from the Issuance of
class A stock, class B stock, class C stock, and
telephone debentures and other obligations of the
telephone bank during the fiscal year, multiplied by
the historic cost of money rate as of the close of the
fiscal year immediately preceding the fiscal year,

56

which product is divided by the aggregate of the
amounts advanced by the telephone bank during the
fiscal year.
(II) For purposes of this clause, the term "historic
cost of money rate", with respect to the close of a
preceding fiscal year, means the sum of the results of
the following calculations: The amounts advanced by
the telephone bank in each fiscal year during the
period beginning with fiscal year 1974 and ending
with the preceding fiscal year, multiplied,
respectively, by the cost of money rate for the fiscal
year (as set forth in the table in subparagraph (E)) for
fiscal years 1974 through 1987, and as determined by
the Governor under this subparagraph for fiscal years
after fiscal year 1987) each of which products is
divided, respectively, by the aggregate of the
amounts advanced by the telephone bank during the
period.
(E) For purposes of subparagraph (D)(II)[sic]6, the cost of
money rate for the fiscal years in which each advance was

6

probably should be "D(v)(II)"

57

made shall be as set forth in the following table:

For advances made inFiscal year 1974
Fiscal year 1975
Fiscal year 1976
Fiscal year 1977
Fiscal year 1978
Fiscal year 1979
Fiscal year 1980
Fiscal year 1981
Fiscal year 1982
Fiscal year 1983
Fiscal year 1984
Fiscal year 1985
Fiscal year 1986
Fiscal year 1987

The cost of money
rate shall be5.01 percent
5.85 percent
5.33 percent
5.00 percent
5.87 percent
5.93 percent
8.10 percent
9.46 percent
8.39 percent
6.99 percent
6.55 percent
5.00 percent
5.00 percent
5.00 percent

For purposes of this subparagraph, the term "fiscal year"
means the 12month period ending on September 30 of the
designated year.
(F) (i) Notwithstanding subparagraph (B), if a borrower
holds a commitment for a loan under this section made on
or after October 1, 1987, and before the date of the
enactment of this paragraph, part or all of the proceeds of
which have not been advanced as of such date of
enactment, the borrower may, until the later of the date
the next advance under the loan commitment is made or
90 days after such date of enactment, elect to have the
interest rate specified in the loan commitment apply to the
unadvanced portion of the loan in lieu of the rate which
(but for this clause) would apply to the unadvanced
portion under this paragraph. If any borrower makes an
election under this clause with respect to a loan, the
Governor shall adjust the interest rate which applies to the
unadvanced portion of the loan accordingly.
(ii) (I) It the telephone bank, pursuant to section
407(b), issues telephone debentures on any date to
refinance telephone debentures or other obligations
of the telephone bank, the telephone bank shall, in

58

addition to any interest rate reduction required by any
other provision of this paragraph, for the period
applicable to the advance, reduce the interest rate
charged on each advance made under this section
during the fiscal year in which the refinanced
debentures or other obligations were originally issued
by the amount applicable to the advance.
(II) For the purposes of subclause (I), the term
"the period applicable to the advance" means the
period beginning on the issue date described in
subclause (I) and ending on the earlier of the date the
advance matures or is completely prepaid.
(III) For purposes of subclause (I), the term "the
amount applicable to the advance" means an amount
which fully reflects that percentage of the funds
saved by the telephone bank as a result of the
refinancing which is equal to the percentage
representation of the advance in all advances
described in subclause (I).
(IV) Within 60 days after any issue date
described in subclause (I), the Governor shall amend
the loan documentation for each advance described in
subclause (I), as necessary, to reflect any interest rate
reduction applicable to the advance by reason of this
clause, and shall notify each affected borrower of the
reduction.
(G) Within 30 days after the publication of any
determination made under subparagraph (D), any affected
borrower may obtain review of the determination, or any other
equitable relief as may be determined appropriate by the
United States court of appeals for the judicial circuit in which
the borrower does business by filing a written petition
requesting the court to set aside or modify such determination.
On receipt of such a petition, the clerk of the court shall
transmit a copy of the petition to the Governor. On receipt of
a copy of such a petition from the clerk of the court, the
Governor shall file with the court the record on which the
determination is based. The court shall have jurisdiction to
affirm, set aside, or modify the determination.
(H) Within 5 days after determining the cost of money
rate for a fiscal year, the Governor shall

59

(i) cause the determination to be published in the
Federal Register in accordance with section 552 of
title 5, United States Code; and
(ii) furnish a copy of the determination to the
Comptroller General of the United States.
(I) The telephone bank shall not sell or otherwise dispose
of any loan made under this section, except as provided in this
paragraph.
(4) REQUIRED QUALIFICATIONS OF APPLICANTS.—
The Governor of the telephone bank may make a loan under this
section only to an applicant for the loan who meets the following
requirements:
(A) The average number of subscribers per mile of line in
the service area of the applicant is not more than 15, or the
applicant is capable of producing net income or margins
before interest of not less than 100 percent (but not more than
500 percent) of the interest requirements on all of the
outstanding and proposed loans of the applicant.
(B) The Secretary has approved, under section 305(d)(3),
a telecommunications modernization plan for the State in
which the applicant is located and, if the plan was developed
by telephone borrowers under title III, the applicant is a
participant in the plan.
(5) CERTIFICATE OF CONVENIENCE AND NECESSITY
REQUIRED FROM STATE REGULATORY AGENCY OR
STATEMENT OF TELEPHONE BANK'S GOVERNOR OF
NONDUPLICATION OF LINES, FACILITIES, OR SYSTEMS.
—No loan shall be made in any State which now has or may
hereafter have a State regulatory body having authority to regulate
telephone service and to require certificates of convenience and
necessity to the applicant unless such certificate from such agency
is first obtained. In a State in which there is no such agency or
regulatory body legally authorized to issue such certificates to the
applicant, no loan shall be made under this section unless the
Governor of the telephone bank shall determine (and set forth his
reasons therefor in writing) that no duplication of lines, facilities,
or systems, providing reasonably adequate services will result
therefrom.
(6) DEFINITIONS: TELEPHONE SERVICE; TELEPHONE
LINES, FACILITIES, OR SYSTEMS.—As used in this section,
the term telephone service shall have the meaning prescribed for
this term in section 203(a) of this Act, and the term telephone lines,

60

facilities, or systems shall mean lines, facilities or systems used in
the rendition of such telephone service.
(7) SALE OR DISPOSAL OF PROPERTY, RIGHTS, OR
FRANCHISES PRIOR TO REPAYMENT OF LOAN.—No
borrower of funds under this section 408 shall, without approval of
the Governor of the telephone bank under rules established by the
Telephone Bank Board, sell or dispose of its property, rights, or
franchises, acquired under the provisions of this Act, until any loan
obtained from the telephone bank, including all interest and
charges, shall have been repaid.
(8) PREPAYMENT WITHOUT PENALTY.—(A) A
borrower with a loan from the Rural Telephone Bank may
prepay such loan (or any part thereof) by paying the face
amount thereof without being required to pay the prepayment
penalty set forth in the note covering such loan, except for any
prepayment penalty provided for in a loan agreement entered
into before the date of enactment of the Rural Electrification
Loan Restructuring Act of 1993.
(B) If a borrower prepays part or all of a loan made under
this section, then notwithstanding section 407(b), the
Governor of the telephone bank shall—
(i) use the full amount of the prepayment to repay
obligations of the telephone bank issued pursuant to
section 407(b) before October 1, 1991, to the extent any
such obligations are outstanding, and
(ii) in repaying the obligations, first repay the
advances bearing the greatest rate of interest.
(9) DETERMINATION OF AMOUNT AVAILABLE TO
LOAN.—On request of any applicant for a loan under this section
during any fiscal year, the Governor of the telephone bank shall—
(A) consider the application to be for a loan under this
section and a loan under section 305(d)(2); and
(B) if the applicant is eligible for a loan, make a loan to
the applicant under this section in an amount equal to the
amount that bears the same ratio to the total amount of loans
for which the applicant is eligible under this section and under
section 305(d)(2), as the amount made available for loans
under this section for the fiscal year bears to the total amount
made available for loans under this section and under section
305(d)(2) for the fiscal year.
(10) APPLICATION AS COST-OF-MONEY LOAN
REQUEST.—On request of any applicant who is eligible for a
loan under this section for which funds are not available, the

61

applicant shall be considered to have applied for a loan under
section 305(d)(2).
(c) The Governor of the telephone bank is authorized under rules
established by the Telephone Bank Board to adjust, on an amortized
basis, the schedule of payments of interest or principal of loans made
under this section upon his determination that with such readjustment
there is reasonable assurance of repayment: Provided, however, That
no adjustment shall extend the period of such loans beyond fifty years.
(d) BORROWERS TO DETERMINE AMORTIZATION
PERIOD FOR RURAL TELEPHONE BANK LOANS.—(1)
Except as provided in paragraph (2), the term of any loan made
under this title shall be determined by the borrower at the time the
application for the loan is submitted.
(2) The term of any loan made under this title shall not exceed
the maximum term for which a loan may be made under section 4.
(e) INTEREST ON LOANS AND ADVANCES.—Loans and
advances made under this section on or after November 5, 1990, shall
bear interest at a rate determined under this section, taking into account
all assets and liabilities of the telephone bank. This subsection shall not
apply to loans obligated before November 1, 1993. Funds are not
authorized to be appropriated to carry out this subsection until the funds
are appropriated in advance to carry out this subsection.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 35; May 11, 1973, Public
Law 93-32 §§ 8, 9, 87 Stat. 70, 71; Dec. 22, 1987, Public Law 100-203,
Title I, Subtitle D, ch. 2 §§1411(b)(1), (c), 1412, 101 Stat. 1330-22,
1330-23, 1330-26; Nov. 28, 1990, Public Law 101-624, Title XXIII,
Subtitle F, ch. 4, §§2365, 2366, 2367(b), 104 Stat. 4044; Nov. 1, 1993,
Public Law 103-129, §2(a)(2), 107 Stat. 1361; October 13, 1994,
Public Law 103-354, Title II, Subtitle C, §235(a)(13), 108 Stat. 3221;
Dec. 21, 1995, Public Law 104-66, Title I, Subtitle A, §1011(y),
109 Stat. 711; 7 U.S.C. 948.]

SEC. 409. TELEPHONE BANK RECEIPTS,
AVAILABILITY FOR OBLIGATIONS AND EXPENDITURES.
Any receipts from the activities of the telephone bank shall be
available for all obligations and expenditures of the telephone bank.
[May 7, 1971 Public Law 92-12, §2, 85 Stat. 36; 7 U.S.C. 949.]

62

SEC. 410. CONVERSION OF OWNERSHIP, CONTROL
AND OPERATION OF TELEPHONE BANK.
(a) TRANSFER OF POWERS AND AUTHORITY FROM
SECRETARY OF AGRICULTURE TO TELEPHONE BANK
BOARD; CESSATION OF PRESIDENTIAL APPOINTEES AS
BOARD MEMBERS AND REDUCTION IN NUMBER OF BOARD
MEMBERS; STATUS OF TELEPHONE BANK.—Whenever
fifty-one per centum of the maximum amount of class A stock issued to
the United States and outstanding at any time after September 30, 1985,
has been fully redeemed and retired pursuant to section 406(c) of this
title—
(1) the powers and authority of the Governor of the telephone
bank granted to the Secretary by this title IV shall vest in the
Telephone Bank Board, and may be exercised and performed
through the Governor of the telephone bank, to be selected by the
Telephone Bank Board, and through such other employees as the
Telephone Bank Board shall designate;
(2) the five members of the Telephone Bank Board designated
by the President pursuant to section 405(b)(1)(A) shall cease to be
members, and the number of Board members shall be accordingly
reduced to eight unless other provision is thereafter made in the
bylaws of the telephone bank;
(3) the telephone bank shall cease to be an agency of the
United States, but shall continue in existence in perpetuity as an
instrumentality of the United States and as a banking corporation
with all of the powers and limitations conferred or imposed by this
title IV except such as shall have lapsed pursuant to the provisions
of this title.
(b) RESTRICTION OF SECTION 408 (a)(2) INAPPLICABLE
TO LOANS UPON REDEMPTION AND RETIREMENT OF CLASS
A STOCK. —When all class A stock has been fully redeemed and
retired, loans made by the telephone bank shall not continue to be
subject to the restrictions prescribed in the provisos to section
408(a)(2).
(c) CONGRESSIONAL REVIEW.—Congress reserves the right to
review the continued operations of the telephone bank after all class A
stock has been fully redeemed and retired.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 36; April 21, 1976,
Public Law 94-273 §2(2), 90 Stat. 375; Nov. 28 1990, Public
Law 101-624, Title XXIII, Subtitle F, ch. 4 §2363(b)(2),
104 Stat. 4043; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(a)(11), (13), 108 Stat. 3221; 7 U.S.C. 950.]

63

SEC. 411. LIQUIDATION OR DISSOLUTION OF THE
TELEPHONE BANK. In the case of liquidation or dissolution of the
telephone bank, after the payment or retirement, as the case may be,
first, of all liabilities; second, of all class A stock at par; third, of all
class B stock at par; fourth, of all class C stock at par; then any
surpluses and contingency reserves existing on the effective date of
liquidation or dissolution of the telephone bank shall be paid to the
holders of class A and class B stock issued and outstanding before the
effective date of such liquidation or dissolution, pro rata.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 37; 7 U.S.C. 950a.]

SEC. 412. BORROWER NET WORTH.—Except as provided
in subsection (b)(2) of section 408, notwithstanding any other provision
of law, a loan shall not be made under section 201 of this Act to any
borrower which during the immediately preceding year had a net worth
in excess of 20 per centum of its assets unless the Secretary finds that
the borrower cannot obtain such a loan from the telephone bank or
from other reliable sources at reasonable rates of interest and terms and
conditions.
[May 7, 1971, Public Law 92-12, §2, 85 Stat. 37; Oct. 13, 1994, Public
Law 103-354, Title II, Subtitle C, §235(a)(13), 108 Stat. 3221;
7 U.S.C. 950b.]

TITLE V—RURAL ECONOMIC DEVELOPMENT
SEC. 501. ADDITIONAL POWERS AND DUTIES OF
SECRETARY. —The Secretary shall—
(1) provide advice and guidance to electric borrowers under
this Act concerning the effective and prudent use by such
borrowers of the investment authority under section 312 to
promote rural development;
(2) provide technical advice, troubleshooting, and guidance,
concerning the operation of programs or systems that receive
assistance under this Act;
(3) establish and administer various pilot projects through
electric and telephone borrowers that the Secretary determines are

64

useful or necessary, and recommend specific rural development
projects for rural areas;
(4) act as an information clearinghouse and conduit to provide
information to electric and telephone borrowers under this Act
concerning useful and effective rural development efforts that such
borrowers may wish to apply in their areas of operation and
concerning State, regional, or local plans for long-term rural
economic development;
(5) provide information to electric and telephone borrowers
under this Act concerning the eligibility of such borrowers to apply
for financial assistance, loans, or grants from other Federal
agencies and non-Federal sources to enable such borrowers to
expand their rural development efforts; and
(6) promote local partnerships and other coordination between
borrowers under this Act and community organizations, States,
counties, or other entities, to improve rural development.
(7) [Repealed April 4, 1996].
[Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle E, §2345,
104 Stat. 4029; Dec. 13, 1991, Public Law 102-237, Title VII, §703(c),
105 Stat. 1881; Oct. 13, 1994, Public Law 103-354, Title II,
§235(a)(12), (13), 108 Stat. 3221; Apr. 4, 1996, Public Law 104-127,
Title VII, §781(b), 110 Stat. 1151; 7 U.S.C. 950aa.]

SEC. 502. [Repealed April 4, 1996].
[This section related to the establishment of a Rural Business Incubator
Fund.]
[Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle E, §2345,
104 Stat. 4030; Dec 13, 1991, Public Law 102-237; Title VII, §703,
105 Stat. 1881; Apr. 4, 1996, Public Law 104-127, Title VII, §781(a),
110 Stat. 1151; 7 U.S.C. 950aa-1.]

TITLE VI — RURAL BROADBAND ACCESS
SEC. 601. ACCESS TO BROADBAND TELECOMMUNICATIONS SERVICES IN RURAL AREAS.
(a) PURPOSE.—The purpose of this section is to provide loans
and loan guarantees to provide funds for the costs of the construction,

65

improvement, and acquisition of facilities and equipment for broadband
service in eligible rural communities.
(b) DEFINITIONS.—In this section:
(1) BROADBAND SERVICE.—The term "broadband
service" means any technology identified by the Secretary as
having the capacity to transmit data to enable a subscriber to the
service to originate and receive high-quality voice, data, graphics,
and video.
(2) ELIGIBLE RURAL COMMUNITY.—The term "eligible
rural community" means any area of the United States that is not
contained in an incorporated city or town with a population in
excess of 20,000 inhabitants.
(c) LOANS AND LOAN GUARANTEES.
(1) IN GENERAL.—The Secretary shall make or guarantee
loans to eligible entities described in subsection (d) to provide
funds for the construction, improvement, or acquisition of facilities
and equipment for the provision of broadband service in eligible
rural communities.
(2) PRIORITY.—In making or guaranteeing loans under
paragraph (1), the Secretary shall give priority to eligible rural
communities in which broadband service is not available to
residential customers.
(d) ELIGIBLE ENTITIES.
(1) IN GENERAL.—To be eligible to obtain a loan or loan
guarantee under this section, an entity shall—
(A) have the ability to furnish, improve, or extend a
broadband service to an eligible rural community; and
(B) submit to the Secretary a proposal for a project that
meets the requirements of this section.
(2) STATE AND LOCAL GOVERNMENTS.—A State or
local government (including any agency, subdivision, or
instrumentality thereof (including consortia thereof)) shall be
eligible for a loan or loan guarantee under this section to provide
broadband services to an eligible rural community only if, not later
than 90 days after the Administrator has promulgated regulations
to carry out this section, no other eligible entity is already offering,
or has committed to offer, broadband services to the eligible rural
community.
(3) SUBSCRIBER LINES.—An entity shall not be eligible to
obtain a loan or loan guarantee under this section if the entity
serves more than 2 percent of the telephone subscriber lines
installed in the aggregate in the United States.

66

(e) BROADBAND SERVICE.—The Secretary shall, from time to
time as advances in technology warrant, review and recommend
modifications of rate-of-data transmission criteria for purposes of the
identification of broadband service technologies under subsection
(b)(1).
(f) TECHNOLOGICAL NEUTRALITY.—For purposes of
determining whether or not to make a loan or loan guarantee for a
project under this section, the Secretary shall use criteria that are
technologically neutral.
(g) TERMS AND CONDITIONS FOR LOANS AND LOAN
GUARANTEES.—Notwithstanding any other provision of law, a loan
or loan guarantee under subsection (c) shall—
(1) bear interest at an annual rate of, as determined by the
Secretary—
(A) in the case of a direct loan—
(i) the cost of borrowing to the Department of the
Treasury for obligations of comparable maturity; or
(ii) 4 percent; and
(B) in the case of a guaranteed loan, the current applicable
market rate for a loan of comparable maturity; and
(2) have a term not to exceed the useful life of the assets
constructed, improved, or acquired with the proceeds of the loan or
extension of credit.
(h) USE OF LOAN PROCEEDS TO REFINANCE LOANS FOR
DEPLOYMENT OF BROADBAND SERVICE.—Notwithstanding
any other provision of this Act, the proceeds of any loan made or
guaranteed by the Secretary under this Act may be used by the recipient
of the loan for the purpose of refinancing an outstanding obligation of
the recipient on another telecommunications loan made under this Act
if the use of the proceeds for that purpose will further the construction,
improvement, or acquisition of facilities and equipment for the
provision of broadband service in eligible rural communities.
(i) REPORTS.—Not later than 1 year after the date of enactment
of this section, and biennially thereafter, the Administrator shall submit
to Congress a report that—
(1) describes how the Administrator determines under
subsection (a)(1) that a service enables a subscriber to originate
and receive high-quality voice, data, graphics, and video; and
(2) provides a detailed list of services that have been granted
assistance under this section.
(j) FUNDING.

67

(1) IN GENERAL.—Notwithstanding any other provision of
law, of the funds of the Commodity Credit Corporation, the
Secretary shall make available to carry out this section—
(A) $20,000,000 for each of fiscal years 2002 through
2005, to remain available until expended; and
(B) $10,000,000 for each of fiscal years 2006 and 2007,
to remain available until expended.
(2) TELEVISION FUNDS.
(A) IN GENERAL.—The Secretary shall be entitled to
receive, shall accept, and shall use to carry out this section,
without further appropriation any funds made available under
section 1011(a)(2)(B) of the Launching Our Communities'
Access to Local Television Act of 2000 (47 U.S.C.
1109(a)(2)(B)).
(B) USE OF TELEVISION FUNDS.—The Secretary
shall use any funds received under subparagraph (A) in equal
amounts for each remaining fiscal year on receipt of the funds
(including the fiscal year of receipt) through fiscal year 2007.
(3) AUTHORIZATION OF APPROPRIATIONS.—In
addition to funds otherwise made available under this subsection,
there are authorized to be appropriated such sums as necessary to
carry out this section for each of fiscal years 2004 through 2007.
(4) ALLOCATION OF FUNDS.
(A) IN GENERAL.—From amounts made available for
each fiscal year under this subsection, the Secretary shall—
(i) establish a national reserve for loans and loan
guarantees to eligible entities in States under this section;
and
(ii) allocate amounts in the reserve to each State for
each fiscal year for loans and loan guarantees to eligible
entities in the State.
(B) AMOUNT.—The amount of an allocation made to a
State for a fiscal year under subparagraph (A) shall bear the
same ratio to the amount of allocations made for all States for
the fiscal year as the number of communities with a
population of 2,500 in habitants or less in the State bears to the
number of communities with a population of 2,500 inhabitants
or less in all States, as determined on the basis of the latest
available census.
(C) UNOBLIGATED AMOUNTS.—Any amounts in the
reserve established for a State for a fiscal year under
subparagraph (B) that are not obligated by April 1 of the fiscal
year shall be available to the Secretary to make loans and loan

68

guarantees under this section to eligible entities in any State,
as determined by the Secretary.
(k) TERMINATION OF AUTHORITY.—No loan or loan
guarantee may be made under this section after September 30, 2007.
[May 13, 2002, Public Law 107-171, Title VI, §6103(a), 116 Stat. 415;
January 23, 2004, Public Law 108-199; Title VII, §772, 117 Stat. 3000;
7 U.S.C. 950bb.]

69

SELECTED LEGLISLATION
•
•
•
•
•
•
•

Related legislation found in Title VII of the U.S. Code
Authority to compromise debt and modify terms of security
instruments
Deferred amendments to the Government Corporation Control Act
"Buy American" Provision
Distance Learning and Medical Link Programs
Local TV
Archival reference material

LEGLISLATION CODIFIED IN THE SAME
CHAPTER OF THE U.S. CODE AS THE RE ACT
[The following legislation is codified as part of Title 7, Chapter 31 of
the United States Code and relates to the Rural Development electric
and telecommunication loan programs, but these provisions were not
enacted as amendments to the REAct, per se.]
§ 906a. Use of funds outside the United States or its territories
prohibited
No funds provided under this chapter shall be used outside the United
States or any of its territories.
[May 11, 1973, Public Law 93-32, § 10, 87 Stat. 71.]
§ 912a. Rescheduling and refinancing of loans
In addition to the loan extension authority provided in section 12 of the
Rural Electrification Act [7 U.S.C.A. § 912], the Secretary of
Agriculture is authorized to adjust and readjust the schedules for
payment of principal and interest on loans to borrowers under programs
administered by the Secretary under the Rural Electrification Act of
1936 (7 U.S.C. 901 et seq.), and to extend the maturity date of any such
loan to a date not beyond forty years from the date of such loan where
he determines such action is necessary because of the impairment of the

70

economic feasibility of the system, or the loss, destruction, or damage
of the property of such borrowers as a result of a major disaster.
[Dec. 31, 1970, Public Law 91-606, Title II, § 236(a), 84 Stat. 1754;
Oct. 13, 1994, Public Law 103-354, Title II, § 235(b)(1),
108 Stat. 3221]

§ 915. Purchase of Financial and Credit Reports
The Secretary of Agriculture is authorized to purchase such financial
and credit reports as may be necessary to carry out its authorized work:
Provided, That purchases under this authority shall not be made unless
provision is made therefor in the applicable appropriation and the cost
thereof is not in excess of limitations prescribed therein.
[Sept. 21, 1944, Public Law 78-425, ch. 412, Title V, §505, 58 Stat.
740; Oct. 13, 1994, Public Law 103-354, Title II, Subtitle C,
§235(b)(2), 108 Stat. 3221; 7 U.S.C. 915.]
§ 918b. Financing; acquisition of existing generation, transmission
and distribution systems and facilities
Hereafter, notwithstanding any other provision of law, the
Administrator of the Rural Utilities Service shall use the authorities
provided in the Rural Electrification Act of 1936 to finance the
acquisition of existing generation, transmission and distribution
systems and facilities serving high cost, predominantly rural areas by
entities capable of and dedicated to providing or improving service n
such areas in an efficient and cost effective manner.
[November 28, 2001, Public Law 107-76, Title VII, §748,
115 Stat. 738; 7 U.S.C. 918b.]

§ 921. Congressional declaration of policy
It is declared to be the policy of the Congress that adequate telephone
service be made generally available in rural areas through the
improvement and expansion of existing telephone facilities and the
construction and operation of such additional facilities as are required
to assure the availability of adequate telephone service to the widest
practicable number of rural users of such service.

71

[Oct. 28, 1949, Public Law 81-423, ch. 776, § 1, 63 Stat. 948.]

§ 921a. Policy of financing of rural telephone program
It is hereby declared to be the policy of the Congress that the growing
capital needs of the rural telephone systems require the establishment
of a rural telephone bank which will furnish assured and viable sources
of supplementary financing with the objective that said bank will
become an entirely privately owned, operated, and financed
corporation. The Congress further finds that many rural telephone
systems require financing under the terms and conditions provided in
this subchapter.
[May 7, 1971, Public Law 92-12, § 1, 85 Stat. 29.]

§ 921b. Policy of expansion of markets for debentures
It is hereby declared to be the policy of the Congress that the Rural
Telephone Bank should have the capability of obtaining adequate funds
for its supplementary financing program at the lowest possible costs.
In order to effectuate this policy, it will be necessary to expand the
market for debentures to be issued by the Telephone Bank.
[June 30, 1972, Public Law 92-324, § 1, 86 Stat. 390.]

§ 930. Congressional declaration of policy
It is hereby declared to be the policy of the Congress that adequate
funds should be made available to rural electric and telephone systems
through direct, insured and guaranteed loans at interest rates which will
allow them to achieve the objectives of this chapter, and that such rural
electric and telephone systems should be encouraged and assisted to
develop their resources and ability to achieve the financial strength
needed to enable them to satisfy their credit needs from their own
financial organizations and other sources at reasonable rates and terms
consistent with the loan applicant's ability to pay and achievement of
this chapter's objectives.
[May 11, 1973, Public Law 93-32, § 1, 87 Stat. 65.]

72

§ 931a. Level of loan programs under Rural Electrification and
Telephone Revolving Fund
On and after October 28, 1991, no funds in this Act or any other Act
shall be available to carry out loan programs under the Rural
Electrification and Telephone Revolving Fund at levels other than those
provided for in advance in appropriations Acts.
[Oct. 28, 1991, Public Law 102-142, Title III, § 903, 105 Stat. 903.]

§ 944a. Publication of rural telephone bank policies and regulations
Notwithstanding the exemption contained in section 553(a)(2) of Title
5, the Governor of the telephone bank shall cause to be published in the
Federal Register, in accordance with section 553 of Title 5, all rules,
regulations, bulletins, and other written policy standards governing the
operation of the telephone bank's programs relating to public property,
loans, grants, benefits, or contracts. After September 30, 1988, the
telephone bank may not deny a loan or advance to, or take any other
adverse action against, any applicant or borrower for any reason which
is based upon a rule, regulation, bulletin, or other written policy
standard which has not been published pursuant to such section.
[Dec. 22, 1987, Public Law 100-203, Title I, Subtitle D, ch. 2, § 1414,
101 Stat. 1330-27.]

73

DEFERRED AMENDMENTS TO THE
GOVERNMENT CORPORATION CONTROL ACT
Sections 4 and 5 of the Act of May 7, 1971 (Public Law 92-12;
85 Stat. 37) establishing the Rural Telephone Bank, included the
following deferred amendments to the Government Corporation
Control Act:
SEC. 4. Section 201 of the Government Corporation Control Act,
as amended (31 U.S.C. 856)7, is amended, effective when the
ownership, control, and operation of the telephone bank is converted as
provided in section 410(a) of the Rural Electrification Act of 1936, as
amended, by striking "and" immediately before "(5)" and by inserting,
"and (6) the Rural Telephone Bank" immediately before the period at
the end.
SEC. 5. The second sentence of subsection (d) of section 303 of
the Government Corporation Control Act, as amended
(31 U.S.C. 868)8, is amended, effective when the ownership, control,
and operation of the telephone bank is converted as provided in section
410(a) of the Rural Electrification Act of 1936, as amended, by
inserting "the Rural Telephone Bank," immediately following the
words "shall not be applicable to."

7
8

may be found as recodified at 31 U.S.C. 9101(2)(H).
may be found as recodified at 31 U.S.C. 9108(d)(2).

74

AUTHORITY TO COMPROMISE DEBT
§ 1981(b). Powers of the Secretary of Agriculture
The Secretary may—
...
(4) compromise, adjust, reduce, or charge-off debts or claims
(including debts and claims arising from loan guarantees), and adjust,
modify, subordinate, or release the terms of security instruments,
leases, contracts, and agreements entered into or administered by the
Consolidated Farm Service Agency, Rural Utilities Service, Rural
Housing Service, Rural Business-Cooperative Service, or a successor
agency, or the Rural Development Administration, except for activities
under the Housing Act of 1949 [42 U.S.C. 1441 et seq.]. In the case of
a security instrument entered into under the Rural Electrification Act of
1936 (7 U.S.C. 901 et seq.), the Secretary shall notify the Attorney
General of the intent of the Secretary to exercise the authority of the
Secretary under this paragraph. The Secretary may not require
liquidation of property securing any farmer program loan or
acceleration of any payment required under any farmer program loan as
prerequisite to initiating an action authorized under this subsection.
After consultation with a local or area county committee, the Secretary
may release borrowers or others obligated on a debt, except for debt
incurred under the Housing Act of 1949, from personal liability with or
without payment of any consideration at the time of the compromise,
adjustment, reduction, or charge-off of any claim, except that no
compromise, adjustment, reduction, or charge-off of any claim may be
made or carried out after the claim has been referred to the Attorney
General, unless the Attorney General approves;
[. . .April 4, 1996, Public Law 104-127, Title VI, Subtitle D, §§ 631,
632, Title VII, Subtitle B, Ch 1, § 748, 101 Stat. 1092, 1128; May 13,
2002, Public Law 107-171, Title V, §§ 5303, 5304(a), 116 Stat. 345.]

75

"BUY AMERICAN" PROVISION
Rural Electrification Act of 1938 (June 21, 1938, ch. 554, Title IV
§401, 52 Stat. 818) provided in part as follows:
In making loans pursuant to this title and pursuant to the Rural
Electrification Act of 1936, the Secretary of Agriculture shall require
that, to the extent practicable and the cost of which is not unreasonable,
the borrower agree to use in connection with the expenditure of such
funds only such unmanufactured articles, materials, and supplies, as
have been mined or produced in the United States or in any eligible
country, and only such manufactured articles materials, and supplies as
have been manufactured in the United States or in any eligible country
substantially all from articles, materials, or supplies mined, produced,
or manufactured, as the case may be, in the United States or in any
eligible country. For purposes of this section, an 'eligible country', is
any country that applies with respect to the United States an agreement
ensuring reciprocal access for United States products and services and
United States suppliers to the markets of that country, as determined by
the United States Trade Representative.

(As amended by the North American Free Trade Agreement
Implementation Act December 8, 1993, Public Law 103-182, Title III,
Subtitle G. §381(d), 107 Stat. 2129, and further amended October 13,
1994, Public Law 103-354, Title II, Subtitle C, §235(b)(3),
108 Stat. 3221; December 8, 1994, Public Law 103-465, Title III,
Subtitle E, §342(g), 108 Stat. 4954; 7 U.S.C. 903 note.)

A list of eligible countries may be found at the USDA Rural Development website maintained for the Electric and Telecommunication
Programs.

76

DISTANCE LEARNING AND MEDICAL LINK
PROGRAMS
UNITED STATES CODE ANNOTATED
TITLE 7. AGRICULTURE
CHAPTER 31A—TELEMEDICINE AND DISTANCE
LEARNING SERVICES IN RURAL AREAS
(Current through Public Law 107-171, approved May 13, 2002)
Note: Section 704 of Public Law 104-127 generally revised Chapter
31A by amending Chapter 1 of Subtitle D of Title XXIII of the Food,
Agriculture, Conservation and Trade Act of 1990 to read as follows.
Public Law 107-171, §6203(b) approved May 13, 2002 (116 Stat. 421)
provided for this chapter of the U.S. Code to sunset on September 30,
2007.

SEC. 2331 Purpose
The purpose of this chapter is to encourage and improve
telemedicine services and distance learning services in rural areas
through the use of telecommunications, computer networks, and related
advanced technologies by students, teachers, medical professionals, and
rural residents.
[April 4, 1996, Public Law 104-127, Title VII, §704, 110 Stat. 1108;
7 U.S.C. 950aaa.]

SEC. 2332 Definitions
In this chapter:
(1) Construct
The term "construct" means to construct, acquire, install, improve,
or extend a facility or system.
(2) Cost of money loan
The term "cost of money loan" means a loan made under this
chapter bearing interest at a rate equal to the then current cost to the
Federal Government of loans of similar maturity.
(3) Secretary

77

The term "Secretary" means the Secretary of Agriculture.
[April 4, 1996, Public Law 104-127, Title VII, §704, 110 Stat. 1108;
7 U.S.C. 950aaa-1]

SEC. 2333 Telemedicine and distance learning services in rural
areas
(a) Services to rural areas
The Secretary may provide financial assistance for the purpose of
financing the construction of facilities and systems to provide
telemedicine services and distance learning services in rural areas.
(b) Financial assistance
(1) In general
Financial assistance shall consist of grants or cost of money
loans, or both.
(2) Form
The Secretary shall determine the portion of the financial
assistance provided to a recipient that consists of grants and the
portion that consists of cost of money loans so as to result in the
maximum feasible repayment to the Federal Government of the
financial assistance, based on the ability to repay of the recipient
and full utilization of funds made available to carry out this
chapter.
(c) Recipients
(1) In general
The Secretary may provide financial assistance under this
chapter to—
(A) entities using telemedicine services or distance
learning services; and
(B) entities providing or proposing to provide
telemedicine service or distance learning service to other
persons at rates calculated to ensure that the benefit of the
financial assistance is passed through to the other persons.
(2) Electric or telecommunications borrowers
(A) Loans to borrowers
Subject to subparagraph (B), the Secretary may provide a
cost of money loan under this chapter to a borrower of an
electric or telecommunications loan under the Rural

78

Electrification Act of 1936 (7 U.S.C. 901 et seq.). A borrower
receiving a cost of money loan under this paragraph shall—
(i) make the funds provided available to entities that
qualify under paragraph (1) for projects satisfying the
requirements of this chapter;
(ii) use the funds provided to acquire, install,
improve, or extend a system referred to in subsection (a)
of this section; or
(iii) use the funds provided to install, improve, or
extend a facility referred to in subsection (a) of this
section.
(B) Limitations
A borrower of an electric or telecommunications loan
under the Rural Electrification Act of 1936 [7 U.S.C.A. § 901
et seq.] shall—
(i) make a system or facility funded under
subparagraph (A) available to entities that qualify under
paragraph (1); and
(ii) neither retain from the proceeds of a loan
provided under subparagraph (A), nor assess a qualifying
entity under paragraph (1), any amount except as may be
required to pay the actual costs incurred in administering
the loan or making the system or facility available.
(3) Appeal
If the Secretary rejects the application of a borrower who
applies for a cost of money loan or grant under this section, the
borrower may appeal the decision to the Secretary not later than
10 days after the borrower is notified of the rejection.
(4) Assistance to provide or improve services
Financial assistance may be provided under this chapter for a
facility regardless of the location of the facility if the Secretary
determines that the assistance is necessary to provide or improve
telemedicine services or distance learning services in a rural area.
(d) Priority
The Secretary shall establish procedures to prioritize financial
assistance under this chapter considering—
(1) the need for the assistance in the affected rural area;
(2) the financial need of the applicant;
(3) the population sparsity of the affected rural area;
(4) the local involvement in the project serving the affected
rural area;

79

(5) geographic diversity among the recipients of financial
assistance;
(6) the utilization of the telecommunications facilities of any
telecommunications provider serving the affected rural area;
(7) the portion of total project financing provided by the
applicant from the funds of the applicant;
(8) the portion of project financing provided by the applicant
with funds obtained from non-Federal sources;
(9) the joint utilization of facilities financed by other financial
assistance;
(10) the coordination of the proposed project with regional
projects or networks;
(11) service to the greatest practical number of persons within
the general geographic area covered by the financial assistance;
(12) conformity with the State strategic plan as prepared under
section 2009c of this title; and
(13) other factors determined appropriate by the Secretary.
(e) Maximum amount of assistance to individual recipients
The Secretary may establish the maximum amount of financial
assistance to be made available to an individual recipient for each fiscal
year under this chapter, by publishing notice of the maximum amount
in the Federal Register not more than 45 days after funds are made
available for the fiscal year to carry out this chapter.
(f) Use of funds
Financial assistance provided under this chapter shall be used for—
(1) the development and acquisition of instructional
programming;
(2) the development and acquisition, through lease or
purchase, of computer hardware and software, audio and visual
equipment, computer network components, telecommunications
terminal equipment, telecommunications transmission facilities,
data terminal equipment, or interactive video equipment, or other
facilities that would further telemedicine services or distance
learning services;
(3) providing technical assistance and instruction for the
development or use of the programming, equipment, or facilities
referred to in paragraphs (1) and (2); or
(4) other uses that are consistent with this chapter, as
determined by the Secretary.

80

(g) Salaries and expenses
Notwithstanding subsection (f) of this section, financial assistance
provided under this chapter shall not be used for paying salaries or
administrative expenses.
(h) Expediting coordinated telephone loans
(1) In general
The Secretary may establish and carry out procedures to
ensure that expedited consideration and determination is given to
applications for loans and advances of funds submitted by local
exchange carriers under this chapter and the Rural Electrification
Act of 1936 (7 U.S.C. 901 et seq.) to enable the exchange carriers
to provide advanced telecommunications services in rural areas in
conjunction with any other projects carried out under this chapter.
(2) Deadline imposed on Secretary
Not later than 45 days after the receipt of a completed
application for an expedited telephone loan under paragraph (1),
the Secretary shall notify the applicant in writing of the decision of
the Secretary regarding the application.
(i) Notification of local exchange carrier
(1) Applicants
Each applicant for a grant for a telemedicine or distance
learning project established under this chapter shall notify the
appropriate local telephone exchange carrier regarding the
application filed with the Secretary for the grant.
(2) Secretary
The Secretary shall—
(A) publish notice of applications received for grants
under this chapter for telemedicine or distance learning
projects; and
(B) make the applications available for inspection.
[April 4, 1996, Public Law 104-127, Title VII, §704, 110 Stat. 1109;
7 U.S.C. 950aaa-2.]

SEC. 2334 Administration
(a) Nonduplication
The Secretary shall ensure that facilities constructed using
financial assistance provided under this chapter do not duplicate

81

adequate established telemedicine services or distance learning
services.
(b) Loan maturity
The maturities of cost of money loans shall be determined by the
Secretary, based on the useful life of the facility being financed, except
that the loan shall not be for a period of more than 10 years.
(c) Loan security and feasibility
The Secretary shall make a cost of money loan only if the
Secretary determines that the security for the loan is reasonably
adequate and that the loan will be repaid within the period of the loan.
(d) Encouraging consortia
The Secretary shall encourage the development of consortia to
provide telemedicine services or distance learning services through
telecommunications in rural areas served by a telecommunications
provider.
(e) Coordination with other agencies
The Secretary shall coordinate, to the extent practicable, with other
Federal and State agencies with similar grant or loan programs to pool
resources for funding meritorious proposals in rural areas.
(f) Informational efforts
The Secretary shall establish and implement procedures to carry
out informational efforts to advise potential end users located in rural
areas of each State about the program authorized by this chapter.
[April 4, 1996, Public Law 104-127, Title VII, §704, 110 Stat. 1111;
7 U.S.C. 950aaa-3.]

SEC. 2335 Regulations
Not later than 180 days after April 4, 1996, the Secretary shall
issue regulations to carry out this chapter.
[April 4, 1996, Public Law 104-127, Title VII, §704, 110 Stat. 1112;
7 U.S.C. 950aaa-4.]

82

SEC. 2335A Authorization of appropriations
There are authorized to be appropriated to carry out this chapter
$100,000,000 for each of fiscal years 1996 through 2002.
[April 4, 1996, Public Law 104-127, Title VII, §704, 110 Stat. 1112;
7 U.S.C. 950aaa-5.]

83

84

LOCAL TV
UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND
RADIOTELEGRAPHS
CHAPTER 10—LOCAL TV
(Current through Public Law 107-136, approved January 24, 2002)

SEC. 1101 Purpose
The purpose of this chapter is to facilitate access, on a
technologically neutral basis and by December 31, 2006, to signals of
local television stations for households located in nonserved areas and
underserved areas.
[December 21, 2000, Public Law 106-553, §1(a)(2) [Title X, §1002],
114 Stat. 2762, 2762A-128; 47 U.S.C. 1101.]

SEC. 1102 Local Television Loan Guarantee Board
(a) Establishment
There is established the LOCAL Television Loan Guarantee Board
(in this chapter referred to as the "Board").
(b) Members
(1) In general
Subject to paragraph (2), the Board shall consist of
following members:
(A) The Secretary of the Treasury, or the designee of
Secretary.
(B) The Chairman of the Board of Governors of
Federal Reserve System, or the designee of the Chairman.
(C) The Secretary of Agriculture, or the designee of
Secretary.
(D) The Secretary of Commerce, or the designee of
Secretary.
(2) Requirement as to designees

the
the
the
the
the

85

An individual may not be designated a member of the Board
under paragraph (1) unless the individual is an officer of the
United States pursuant to an appointment by the President, by and
with the advice and consent of the Senate.
(c) Functions of the Board
(1) In general
The Board shall determine whether or not to approve loan
guarantees under this chapter. The Board shall make such
determinations consistent with the purpose of this chapter and in
accordance with this subsection and section 4.9
(2) Consultation authorized
(A) In general
In carrying out its functions under this chapter, the Board
shall consult with such departments and agencies of the
Federal Government as the Board considers appropriate,
including the Department of Commerce, the Department of
Agriculture, the Department of the Treasury, the Department
of Justice, the Department of the Interior, the Board of
Governors of the Federal Reserve System, the Federal
Communications Commission, the Federal Trade Commission
and the National Aeronautics and Space Administration.
(B) Response
A department or agency consulted by the Board under
subparagraph (A) shall provide the Board such expertise and
assistance as the Board requires to carry out its functions
under this chapter.
(3) Approval by majority vote
The determination of the Board to approve a loan guarantee
under this chapter shall be by an affirmative vote of not less than 3
members of the Board.
[December 21, 2000, Public Law 106-553, §1(a)(2) [Title X, §1002],
114 Stat. 2762, 2762A-128; 47 U.S.C. 1102.]

SEC. 1103 Approval of loan guarantees
(a) Authority to approve loan guarantees

9

So in the original. Probably should be section 1004, which is classivied to 47 U.S.C.
§1103.

86

Subject to the provisions of this section and consistent with the
purpose of this chapter, the Board may approve loan guarantees under
this chapter.
(b) Regulations
(1) Requirements
The Administrator (as defined in section 510), under the
direction of and for approval by the Board, shall prescribe
regulations to implement the provisions of this chapter and shall do
so not later than 120 days after funds authorized to be appropriated
under section 1111 have been appropriated in a bill signed into law.
(2) Elements
The regulations prescribed under paragraph (1) shall—
(A) set forth the form of any application to be submitted
to the Board under this chapter;
(B) set forth time periods for the review and consideration
by the Board of applications to be submitted to the Board
under this chapter, and for any other action to be taken by the
Board with respect to such applications;
(C) provide appropriate safeguards against the evasion of
the provisions of this chapter;
(D) set forth the circumstances in which an applicant,
together with any affiliate of an applicant, shall be treated as
an applicant for a loan guarantee under this chapter;
(E) include requirements that appropriate parties submit
to the Board any documents and assurances that are required
for the administration of the provisions of this chapter; and
(F) include such other provisions consistent with the
purpose of this chapter as the Board considers appropriate.
(3) Construction
(A) Nothing in this chapter shall be construed to prohibit
the Board from requiring, to the extent and under
circumstances considered appropriate by the Board, that
affiliates of an applicant be subject to certain obligations of
the applicant as a condition to the approval or maintenance of
a loan guarantee under this chapter.
(B) If any provision of this chapter or the application of
such provision to any person or entity or circumstance is held
to be invalid by a court of competent jurisdiction, the
10

So in the original. Probably should be section 1005, which is classified as section 1004
of this title.
11
So in the original. Probably should be section 1011, which is classified as section 1109
of this title.

87

remainder of this chapter, or the application of such provision
to such person or entity or circumstance other than those as o
which it is held invalid, shall not be affected thereby.
(c) Authority limited by appropriations Acts.
The Board may approve loan guarantees under this chapter only to
the extent provided for in advance in appropriations Acts, and the
Board may accept credit risk premiums from a non-Federal source in
order to cover the cost of a loan guarantee under this chapter, to the
extent that appropriations of budget authority are insufficient to cover
such costs.
(d) Requirements and criteria applicable to approval
(1) In general
The Board shall utilize the underwriting criteria developed
under subsection (g), and any relevant information provided by the
departments and agencies with which the Board consults under
section 312, to determine which loans may be eligible for a loan
guarantee under this chapter.
(2) Prerequisites
In addition to meeting the underwriting criteria under
paragraph (1), a loan may not be guaranteed under this chapter
unless—
(A) the loan is made to finance the acquisition,
improvement, enhancement, construction, deployment, launch,
or rehabilitation of the means by which local television
broadcast signals will be delivered to a nonserved area or
underserved area;
(B) the proceeds of the loan will not be used for
operating, advertising, or promotion expenses, or for the
acquisition of licenses for the use of spectrum in any
competitive bidding under section 309(j) of this title;
(C) the proposed project, as determined by the Board in
consultation with the National Telecommunications and
Information Administration, is not likely to have a substantial
adverse impact on competition that outweighs the benefits of
improving access to the signals of a local television station in
a nonserved area or underserved area and is commercially
viable;
(D) (i) the loan—
12

So in the original. Probably should be section 1003, which is classified to section
1102 of this title.

88

(I) is provided by any entity engaged in the
business of commercial lending—
(aa) if the loan is made in accordance with
loan-to-one borrower and affiliate transaction
restrictions to which the entity is subject under
applicable law; or
(bb) if item (aa) does not apply, the loan is
made only to a borrower that is not an affiliate of
the entity and only if the amount of the loan and
all outstanding loans by that entity to that
borrower and any of its affiliates does not exceed
10 percent of the net equity of the entity; or
(II) is provided by a nonprofit corporation,
including the National Rural Utilities Cooperative
Finance Corporation, engaged primarily in
commercial lending, if the Board determines that
such nonprofit corporation has one or more issues of
outstanding long-term debt that is rated within the
highest 3 rating categories of a nationally recognized
statistical rating organization;
(ii) if the loan is provided by a lender described in
clause (i)(II) and the Board determines that the making of
the loan by such lender will cause a decline in such
lender's debt rating as described in that clause, the Board
at its discretion may disapprove the loan guarantee on this
basis;
(iii) no loan may be made for purposes of this chapter
by a governmental entity or affiliate thereof, or by the
Federal Agricultural Mortgage Corporation, or any
institution supervised by the Office of Federal Housing
Enterprise Oversight, the Federal Housing Finance Board,
or any affiliate of such entities;
(iv) any loan must have terms, in the judgment of the
Board, that are consistent in material respects with the
terms of similar obligations in the private capital market;
(v) for purposes of clause (i)(I)(bb), the term "net
equity" means the value of the total assets of the entity,
less the total liabilities of the entity, as recorded under
generally accepted accounting principles for the fiscal
quarter ended immediately prior to the date on which the
subject loan is approved;
(E) repayment of the loan is required to be made within a
term of the lesser of—

89

(i) 25 years from the date of execution of the loan; or
(ii) the economically useful life, as determined by the
Board or in consultation with persons or entities deemed
appropriate by the Board, of the primary assets to be used
in the delivery of the signals concerned; and
(F) the loan meets any additional criteria developed under
subsection (g).
(3) Protection of United States financial interests
The Board may not approve the guarantee of a loan under this
chapter unless—
(A) the Board has been given documentation, assurances,
and access to information, persons, and entities necessary, as
determined by the Board, to address issues relevant to the
review of the loan by the Board for purposes of this chapter;
and
(B) the Board makes a determination in writing that—
(i) to the best of its knowledge upon due inquiry, the
assets, facilities, or equipment covered by the loan will be
utilized economically and efficiently;
(ii) the terms, conditions, security, and schedule and
amount of repayments of principal and the payment of
interest with respect to the loan protect the financial
interest of the United States and are reasonable;
(iii) the value of collateral provided by an applicant is
at least equal to the unpaid balance of the loan amount
covered by the loan guarantee (the "Amount" for purposes
of this clause); and if the value of collateral provided by
an applicant is less than the Amount, the additional
required collateral is provided by any affiliate of the
applicant;
(iv) all necessary and required regulatory and other
approvals, spectrum licenses, and delivery permissions
have been received for the loan and the project under the
loan;
(v) the loan would not be available on reasonable
terms and conditions without a loan guarantee under this
chapter; and
(vi) repayment of the loan can reasonably be
expected.
(e) Considerations
(1) Type of market
(A) Priority considerations

90

To the maximum extent practicable, the Board shall give
priority in the approval of loan guarantees under this
chapter in the following order:
(i) First, to projects that will serve households in
nonserved areas. In considering such projects, the Board
shall balance projects that will serve the largest number of
households with projects that will serve remote, isolated
communities (including noncontiguous States) in areas
that are unlikely to be served through market
mechanisms.
(ii) Second, to projects that will serve households in
underserved areas. In considering such projects, the
Board shall balance projects that will serve the largest
number of households with projects that will serve
remote, isolated communities (including noncontiguous
States) in areas that are unlikely to be served through
market mechanisms.
Within each category, the Board shall consider the
project's estimated cost per household and shall give priority
to those projects that provide the highest quality service at the
lowest cost per household.
(B) Additional consideration
The Board should give additional consideration to
projects that also provide high-speed Internet service.
(C) Prohibitions
The Board may not approve a loan guarantee under this
chapter for a project that—
(i) is designed primarily to serve 1 or more of the top
40 designated market areas (as that term is defined in
section 122(j) of Title 17); or
(ii) would alter or remove National Weather Service
warnings from local broadcast signals.
(2) Other considerations
The Board shall consider other factors, which shall include
projects that would—
(A) offer a separate tier of local broadcast signals, but for
applicable Federal, State or local laws or regulations;
(B) provide lower projected costs to consumers of such
separate tier; and
(C) enable the delivery of local broadcast signals
consistent with the purpose of this chapter by a means

91

reasonably compatible with existing systems or devices
predominantly in use.
(3) Further consideration
In implementing this chapter, the Board shall support the use
of loan guarantees for projects that would serve households not
likely to be served in the absence of loan guarantees under this
chapter.
(f) Guarantee limits
(1) Limitation on aggregate value of loans
The aggregate value of all loans for which loan guarantees are
issued under this chapter (including the unguaranteed portion of
such loans) may not exceed $1,250,000,000.
(2) Guarantee level
A loan guarantee issued under this chapter may not exceed an
amount equal to 80 percent of a loan meeting in its entirety the
requirements of subsection (d)(2)(A). If only a portion of a loan
meets the requirements of that subsection, the Board shall
determine that percentage of the loan meeting such requirements
(the "applicable portion") and may issue a loan guarantee in an
amount not exceeding 80 percent of the applicable portion.
(g) Underwriting criteria
Within the period provided for under subsection (b)(1), the Board
shall, in consultation with the Director of the Office of Management
and Budget and an independent public accounting firm, develop
underwriting criteria relating to the guarantee of loans that are
consistent with the purpose of this chapter, including appropriate
collateral and cash flow levels for loans guaranteed under this chapter,
and such other matters as the Board considers appropriate.
(h) Credit risk premiums
(1) Establishment and acceptance
(A) In general
The Board may establish and approve the acceptance of
credit risk premiums with respect to a loan guarantee under
this chapter in order to cover the cost, as defined in section
661a(5) of Title 2, of the loan guarantee. To the extent that
appropriations of budget authority are insufficient to cover the
cost, as so determined, of a loan guarantee under this chapter,
credit risk premiums shall be accepted from a non Federal
source under this subsection on behalf of the applicant for the
loan guarantee.

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(B) Authority limited by appropriations Acts
Credit risk premiums under this subsection shall be
imposed only to the extent provided for in advance in
appropriations Acts.
(2) Credit risk premium amount
(A) In general
The Board shall determine the amount of any credit risk
premium to be accepted with respect to a loan guarantee under
this chapter on the basis of—
(i) the financial and economic circumstances of the
applicant for the loan guarantee, including the amount of
collateral offered;
(ii) the proposed schedule of loan disbursements;
(iii) the business plans of the applicant for providing
service;
(iv) any financial commitment from a broadcast
signal provider; and
(v) the concurrence of the Director of the Office of
Management and Budget as to the amount of the credit
risk premium.
(B) Proportionality
To the extent that appropriations of budget authority are
sufficient to cover the cost, as determined under section
661a(5) of Title 2, of loan guarantees under this chapter, the
credit risk premium with respect to each loan guarantee shall
be reduced proportionately.
(C) Payment of premiums
Credit risk premiums under this subsection shall be paid
to an account (the "Escrow Account") established in the
Treasury which shall accrue interest and such interest shall be
retained by the account, subject to subparagraph (D).
(D) Deductions from escrow account
If a default occurs with respect to any loan guaranteed
under this chapter and the default is not cured in accordance
with the terms of the underlying loan or loan guarantee
agreement, the Administrator, in accordance with subsections
(i) and (j) of section 513, shall liquidate, or shall cause to be
liquidated, all assets collateralizing such loan as to which it
has a lien or security interest. Any shortfall between the
proceeds of the liquidation net of costs and expenses relating
to the liquidation, and the guarantee amount paid pursuant to
13

So in the original. Probably should be section 1005, which is classified as section
1104 of this title.

93

this chapter shall be deducted from funds in the Escrow
Account and credited to the Administrator for payment of such
shortfall. At such time as determined under subsection
(d)(2)(E) of this section when all loans guaranteed under this
chapter have been repaid or otherwise satisfied in accordance
with this chapter and the regulations promulgated hereunder,
remaining funds in the Escrow Account, if any, shall be
refunded, on a pro rata basis, to applicants whose loans
guaranteed under this chapter were not in default, or where
any default was cured in accordance with the terms of the
underlying loan or loan guarantee agreement.
(i) Limitations on guarantees for certain cable operators
Notwithstanding any other provision of this chapter, no loan guarantee
under this chapter may be granted or used to provide funds for a project
that extends, upgrades, or enhances the services provided over any
cable system to an area that, as of December 21, 2000, is covered by a
cable franchise agreement that expressly obligates a cable system
operator to serve such area.
(j) Judicial review
The decision of the Board to approve or disapprove the making of
a loan guarantee under this chapter shall not be subject to judicial
review.
(k) Applicability of APA
Except as otherwise provided in subsection (j), the provisions of
subchapter II of chapter 5 and chapter 7 of Title 5 (commonly referred
to as the Administrative Procedure Act), shall apply to actions taken
under this chapter.
[December 21, 2000, Public Law 106-553, §1(a)(2) [Title X, §1002],
114 Stat. 2762, 2762A-128; 47 U.S.C. 1103.]

SEC. 1104 Administration of loan guarantees
(a) In general
The Administrator of the Rural Utilities Service (in this chapter
referred to as the "Administrator") shall issue and otherwise administer

94

loan guarantees that have been approved by the Board in accordance
with sections 3 and 414.
(b) Security for protection of United States financial interests
(1) Terms and conditions
An applicant shall agree to such terms and conditions as are
satisfactory, in the judgment of the Board, to ensure that, as long as
any principal or interest is due and payable on a loan guaranteed
under this chapter, the applicant—
(A) shall maintain assets, equipment, facilities, and
operations on a continuing basis;
(B) shall not make any discretionary dividend payments
that impair its ability to repay obligations guaranteed under
this chapter;
(C) shall remain sufficiently capitalized; and
(D) shall submit to, and cooperate fully with any audit of
the applicant under section 6(a)(2)15.
(2) Collateral
(A) Existence of adequate collateral
An applicant shall provide the Board such documentation
as is necessary, in the judgment of the Board, to provide
satisfactory evidence that appropriate and adequate collateral
secures a loan guaranteed under this chapter.
(B) Form of collateral
Collateral required by subparagraph (A) shall consist
solely of assets of the applicant, any affiliate of the applicant,
or both (whichever the Board considers appropriate),
including primary assets to be used in the delivery of signals
for which the loan is guaranteed.
(C) Review of valuation
The value of collateral securing a loan guaranteed under
this chapter may be reviewed by the Board, and may be
adjusted downward by the Board if the Board reasonably
believes such adjustment is appropriate.
(3) Lien on interests in assets
Upon the Board's approval of a loan guarantee under this
chapter, the Administrator shall have liens on assets securing the
loan, which shall be superior to all other liens on such assets and
the value of the assets (based on a determination satisfactory to the
14

So in the original. Probably should be sections 1003 and 1004, which were classified
to sections 1102 and 1103 of this title.
15
So in the original. Probably should be section 1006(a)(2), which was classified to
section 1005 of this title.

95

Board) subject to the liens shall be at least equal to the unpaid
balance of the loan amount covered by the loan guarantee, or that
value approved by the Board under section 4(d)(3)(B)(iii)16.
(4) Perfected security interest
With respect to a loan guaranteed under this chapter, the
Administrator and the lender shall have a perfected security
interest in assets securing the loan that are fully sufficient to
protect the financial interests of the United States and the lender.
(5) Insurance
In accordance with practices in the private capital market, as
determined by the Board, the applicant for a loan guarantee under
this chapter shall obtain, at its expense, insurance sufficient to
protect the financial interest of the United States, as determined by
the Board.
(c) Assignment of loan guarantees
The holder of loan guarantee under this chapter may assign the
loan guaranteed under this chapter in whole or in part, subject to such
requirements as the Board may prescribe.
(d) Expiration of loan guarantee upon stripping
Notwithstanding subsections (c), (e), and (h), a loan guarantee
under this chapter shall have no force or effect if any part of the
guaranteed portion of the loan is transferred separate and apart from the
unguaranteed portion of the loan.
(e) Adjustment
The Board may approve the adjustment of any term or condition of
a loan guarantee or a loan guaranteed under this chapter, including the
rate of interest, time of payment of principal or interest, or security
requirements only if—
(1) the adjustment is consistent with the financial interests of
the United States;
(2) consent has been obtained from the parties to the loan
agreement;
(3) the adjustment is consistent with the underwriting criteria
developed under section 4(g)17;
(4) the adjustment does not adversely affect the interest of the
Federal Government in the assets or collateral of the applicant;
16

So in the original. Probably should be section 1004(d)(3)(B)(iii), which is classified to
section 1103(d)(3)(B)(iii) of this title.
17
So in the original. Probably should be section 1004(g), which is classified to section
1103(g) of this title.

96

(5) the adjustment does not adversely affect the ability of the
applicant to repay the loan; and
(6) the National Telecommunications and Information
Administration has been consulted by the Board regarding the
adjustment.
(f) Performance schedules
(1) Performance schedules
An applicant for a loan guarantee under this chapter for a
project covered by section 4(e)(1)18 shall enter into stipulated
performance schedules with the Administrator with respect to the
signals to be provided through the project.
(2) Penalty
The Administrator may assess against and collect from an
applicant described in paragraph (1) a penalty not to exceed 3
times the interest due on the guaranteed loan of the applicant under
this chapter if the applicant fails to meet its stipulated performance
schedule under that paragraph.
(g) Compliance
The Administrator, in cooperation with the Board and as the
regulations of the Board may provide, shall enforce compliance by an
applicant, and any other party to a loan guarantee for whose benefit
assistance under this chapter is intended, with the provisions of this
chapter, any regulations under this chapter, and the terms and
conditions of the loan guarantee, including through the submittal of
such reports and documents as the Board may require in regulations
prescribed by the Board and through regular periodic inspections and
audits.
(h) Commercial validity
A loan guarantee under this chapter shall be incontestable—
(1) in the hands of an applicant on whose behalf the loan
guarantee is made, unless the applicant engaged in fraud or
misrepresentation in securing the loan guarantee; and
(2) as to any person or entity (or their respective successor in
interest) who makes or contracts to make a loan to the applicant
for the loan guarantee in reliance thereon, unless such person or
entity (or respective successor in interest) engaged in fraud or
misrepresentation in making or contracting to make such loan.
18

So in the original. Probably should be section 1004(e)(1), which is classified to section
1103(e)(1) of this title.

97

(i) Defaults
The Board shall prescribe regulations governing defaults on loans
guaranteed under this chapter, including the administration of the
payment of guaranteed amounts upon default.
(j) Recovery of payments
(1) In general
The Administrator shall be entitled to recover from an
applicant for a loan guarantee under this chapter the amount of any
payment made to the holder of the guarantee with respect to the
loan.
(2) Subrogation
Upon making a payment described in paragraph (1), the
Administrator shall be subrogated to all rights of the party to
whom the payment is made with respect to the guarantee which
was the basis for the payment.
(3) Disposition of property
(A) Sale or disposal
The Administrator shall, in an orderly and efficient
manner, sell or otherwise dispose of any property or other
interests obtained under this chapter in a manner that
maximizes taxpayer return and is consistent with the financial
interests of the United States.
(B) Maintenance
The Administrator shall maintain in a cost-effective and
reasonable manner any property or other interest pending sale
or disposal of such property or other interests under
subparagraph (A).
(k) Action against obligor
(1) Authority to bring civil action
The Administrator may bring a civil action in an appropriate
district court of the United States in the name of the United States
or of the holder of the obligation in the event of a default on a loan
guaranteed under this chapter. The holder of a loan guarantee shall
make available to the Administrator all records and evidence
necessary to prosecute the civil action.
(2) Fully satisfying obligations owed the United States
The Administrator may accept property in satisfaction of any
sums owed the United States as a result of a default on a loan
guaranteed under this chapter, but only to the extent that any
cash accepted by the Administrator is not sufficient to satisfy
fully the sums owed as a result of the default.

98

(l) Breach of conditions
The Administrator shall commence a civil action in a court of
appropriate jurisdiction to enjoin any activity which the Board finds is
in violation of this chapter, the regulations under this chapter, or any
conditions which were duly agreed to, and to secure any other
appropriate relief, including relief against any affiliate of the
applicant.
(m) Attachment
No attachment or execution may be issued against the
Administrator or any property in the control of the Administrator
pursuant to this chapter before the entry of a final judgment (as to
which all rights of appeal have expired) by a Federal, State, or other
court of competent jurisdiction against the Administrator in a
proceeding for such action.
(n) Fees
(1) Application fee
The Board shall charge and collect from an applicant for a
loan guarantee under this chapter a fee to cover the cost of the
Board in making necessary determinations and findings with
respect to the loan guarantee application under this chapter. The
amount of the fee shall be reasonable.
(2) Loan guarantee origination fee
The Board shall charge, and the Administrator may collect, a
loan guarantee origination fee with respect to the issuance of a
loan guarantee under this chapter.
(3) Use of fees collected
(A) In general
Any fee collected under this subsection shall be used,
subject to subparagraph (B), to offset administrative costs
under this chapter, including costs of the Board and of the
Administrator.
(B) Subject to appropriations
The authority provided by this subsection shall be
effective only to such extent or in such amounts as are
provided in advance in appropriations Acts.
(C) Limitation on fees
The aggregate amount of fees imposed by this subsection
shall not exceed the actual amount of administrative costs
under this chapter.

99

(o) Requirements relating to affiliates
(1) Indemnification
The United States shall be indemnified by any affiliate
(acceptable to the Board) of an applicant for a loan guarantee
under this chapter for any losses that the United States incurs as a
result of—
(A) a judgment against the applicant or any of its
affiliates;
(B) any breach by the applicant or any of its affiliates of
their obligations under the loan guarantee agreement;
(C) any violation of the provisions of this chapter, and the
regulations prescribed under this chapter, by the applicant or
any of its affiliates;
(D) any penalties incurred by the applicant or any of its
affiliates for any reason, including violation of a stipulated
performance schedule under subsection (f) of this section; and
(E) any other circumstances that the Board considers
appropriate.
(2) Limitation on transfer of loan proceeds
An applicant for a loan guarantee under this chapter may not
transfer any part of the proceeds of the loan to an affiliate.
(p) Effect of bankruptcy
(1) Notwithstanding any other provision of law, whenever any
person or entity is indebted to the United States as a result of any
loan guarantee issued under this chapter and such person or entity
is insolvent or is a debtor in a case under title 11, the debts due to
the United States shall be satisfied first.
(2) A discharge in bankruptcy under title 11 shall not release a
person or entity from an obligation to the United States in
connection with a loan guarantee under this chapter.
[Dec. 21, 2000, Pub. L. 106-553, Sec. 1(a)(2) [Title X, Sec. 1005], 114
Stat. 2762, 2762A-134; 47 U.S.C. 1104.]

SEC. 1105 Annual audit
(a) The Comptroller General of the United States shall conduct on
an annual basis an audit of—
(1) the administration of the provision of this chapter; and

100

(2) the financial position of each applicant who receives a loan
guarantee under this chapter, including the nature, amount, and
purpose of investments made by the applicant.
(b) The Comptroller General shall submit to the Committee on
Banking, Housing, and Urban Affairs of the Senate and the Committee
on Banking and Financial Services of the House of Representatives a
report on each audit conducted under subsection (a).
[December 21, 2000, Public Law 106-553, §1(a)(2) [Title X, §1006],
114 Stat. 2762, 2762A-138; 47 U.S.C. 1105.]

SEC. 1106 Improved cellular service in rural areas
(a) Reinstatement of applicants as tentative selectees
(1) In general
Notwithstanding the order of the Federal Communications
Commission in the proceeding described in paragraph (3), the
Commission shall—
(A) reinstate each applicant as a tentative selectee under
the covered rural service area licensing proceeding; and
(B) permit each applicant to amend its application, to the
extent necessary to update factual information and to comply
with the rules of the Commission, at any time before the
Commission's final licensing action in the covered rural
service area licensing proceeding.
(2) Exemption from petitions to deny
For purposes of the amended applications filed pursuant to
paragraph (1)(B), the provisions of section 309(d)(1) of this title
shall not apply.
(3) Proceeding
The proceeding described in this paragraph is the proceeding
of the Commission In re Applications of Cellwave Telephone
Services L.P., Futurewave General Partners L.P., and Great
Western Cellular Partners, 7 FCC Rcd No. 19 (1992).
(b) Continuation of license proceeding; fee assessment
(1) Award of licenses
The Commission shall award licenses under the covered rural
service area licensing proceeding within 90 days after December
21, 2000.
(2) Service requirements

101

The Commission shall provide that, as a condition of an
applicant receiving a license pursuant to the covered rural service
area licensing proceeding, the applicant shall provide cellular
radiotelephone service to subscribers in accordance with sections
22.946 and 22.947 of the Commission's rules (47 CFR 22.946,
22.947); except that the time period applicable under section
22.947 of the Commission's rules (or any successor rule) to the
applicants identified in subparagraphs (A) and (B) of subsection
(d)(1) of this section shall be 3 years rather than 5 years and the
waiver authority of the Commission shall apply to such 3-year
period.
(3) Calculation of license fee
(A) Fee required
The Commission shall establish a fee for each of the
licenses under the covered rural service area licensing
proceeding. In determining the amount of the fee, the
Commission shall consider—
(i) the average price paid per person served in the
Commission's Cellular Unserved Auction (Auction No.
12); and
(ii) the settlement payments required to be paid by
the permittees pursuant to the consent decree set forth in
the Commission's order, In re the Tellesis Partners (7 FCC
Rcd 3168 (1992)), multiplying such payments by two.
(B) Notice of fee
Within 30 days after the date an applicant files the
amended application permitted by subsection (a)(1)(B) of this
section, the Commission shall notify each applicant of the fee
established for the license associated with its application.
(4) Payment for licenses
No later than 18 months after the date that an applicant is
granted a license, each applicant shall pay to the Commission the
fee established pursuant to paragraph (3) for the license granted to
the applicant under paragraph (1).
(5) Auction authority
If, after the amendment of an application pursuant to
subsection (a)(1)(B) of this section, the Commission finds that the
applicant is ineligible for grant of a license to provide cellular
radiotelephone services for a rural service area or the applicant
does not meet the requirements under paragraph (2) of this
subsection, the Commission shall grant the license for which the

102

applicant is the tentative selectee (19pursuant to subsection
(a)(1)(B) of this section by competitive bidding pursuant to section
309(j) of this title.
(c) Prohibition of transfer
During the 5-year period that begins on the date that an applicant is
granted any license pursuant to subsection (a) of this section, the
Commission may not authorize the transfer or assignment of that
license under section 310 of this title. Nothing in this chapter may be
construed to prohibit any applicant granted a license pursuant to
subsection (a) of this section from contracting with other licensees to
improve cellular telephone service.
(d) Definitions
For the purposes of this section, the following definitions shall
apply:
(1) Applicant
The term ``applicant'' means—
(A) Great Western Cellular Partners, a California general
partnership chosen by the Commission as tentative selectee for
RSA #492 on May 4, 1989;
(B) Monroe Telephone Services L.P., a Delaware limited
partnership chosen by the Commission as tentative selectee for
RSA #370 on August 24, 1989 (formerly Cellwave Telephone
Services L.P.); and
(C) FutureWave General Partners L.P., a Delaware
limited partnership chosen by the Commission as tentative
selectee for RSA #615 on May 25, 1990.
(2) Commission
The term ``Commission'' means the Federal Communications
Commission.
(3) Covered rural service area licensing proceeding
The term ``covered rural service area licensing proceeding''
means the proceeding of the Commission for the grant of cellular
radiotelephone licenses for rural service areas #492 (Minnesota
11), #370 (Florida 11), and #615 (Pennsylvania 4).
(4) Tentative selectee
The term ``tentative selectee'' means a party that has been
selected by the Commission under a licensing proceeding for grant
of a license, but has not yet been granted the license because the

19

So in the original. No closing parenthesis was enacted.

103

Commission has not yet determined whether the party is qualified
under the Commission's rules for grant of the license.
[Dec. 21, 2000, Pub. L. 106-553, Sec. 1(a)(2) [Title X, Sec. 1007], 114
Stat. 2762, 2762A-138; 47 U.S.C. 1106.]

SEC. 1107 Sunset
No loan guarantee may be approved under this chapter after
December 31, 2006.
[Dec. 21, 2000, Pub. L. 106-553, Sec. 1(a)(2) [Title X, Sec. 1009], 114
Stat. 2762, 2762A-140; 47 U.S.C. 1107.]

SEC. 1108. Definitions
In this chapter:
(1) Affiliate
The term ``affiliate''—
(A) means any person or entity that controls, or is
controlled by, or is under common control with, another
person or entity; and
(B) may include any individual who is a director or senior
management officer of an affiliate, a shareholder controlling
more than 25 percent of the voting securities of an affiliate, or
more than 25 percent of the ownership interest in an affiliate
not organized in stock form.
(2) Nonserved area
The term ``nonserved area'' means any area that—
(A) is outside the grade B contour (as determined using
standards employed by the Federal Communications
Commission) of the local television broadcast signals serving
a particular designated market area; and
(B) does not have access to such signals by any
commercial, for profit, multichannel video provider.
(3) Underserved area
The term ``underserved area'' means any area that—
(A) is outside the grade A contour (as determined using
standards employed by the Federal Communications
Commission) of the local television broadcast signals serving
a particular designated market area; and

104

(B) has access to local television broadcast signals from
not more than one commercial, for-profit multichannel video
provider.
(4) Common terms
Except as provided in paragraphs (1) through (3), any term
used in this chapter that is defined in the Communications Act
of 1934 (47 U.S.C. 151 et seq.) has the meaning given that
term in the Communications Act of 1934.
[Dec. 21, 2000, Pub. L. 106-553, Sec. 1(a)(2) [Title X, Sec. 1010], 114
Stat. 2762, 2762A-140; 47 U.S.C. 1008.]

SEC. 1009 Authorizations of appropriations
(a) Cost of loan guarantees
For the cost of the loans guaranteed under this chapter, including
the cost of modifying the loans, as defined in section 661a of title 2,
there are authorized to be appropriated for fiscal years 2001 through
2006, such amounts as may be necessary.
(b) Cost of administration
There is hereby authorized to be appropriated such sums as may be
necessary to carry out the provisions of this chapter, other than to cover
costs under subsection (a) of this section.
(c) Availability
Any amounts appropriated pursuant to the authorizations of
appropriations in subsections (a) and (b) of this section shall remain
available until expended.
[Dec. 21, 2000, Pub. L. 106-553, Sec. 1(a)(2) [Title X, Sec. 1011], 114
Stat. 2762, 2762A-141; 47 U.S.C. 1109.]

SEC. 1110 Prevention of interference to direct broadcast
satellite services
(a) Testing for harmful interference
The Federal Communications Commission shall provide for an
independent technical demonstration of any terrestrial service
technology proposed by any entity that has filed an application to
provide terrestrial service in the direct broadcast satellite frequency

105

band to determine whether the terrestrial service technology proposed
to be provided by that entity will cause harmful interference to any
direct broadcast satellite service.
(b) Technical demonstration
In order to satisfy the requirement of subsection (a) of this
section for any pending application, the Commission shall select an
engineering firm or other qualified entity independent of any interested
party based on a recommendation made by the Institute of Electrical
and Electronics Engineers (IEEE), or a similar independent
professional organization, to perform the technical demonstration or
analysis. The demonstration shall be concluded within 60 days after
December 21, 2000, and shall be subject to public notice and comment
for not more than 30 days thereafter.
(c) Definitions
As used in this section:
(1) Direct broadcast satellite frequency band
The term ``direct broadcast satellite frequency band'' means
the band of frequencies at 12.2 to 12.7 gigahertz.
(2) Direct broadcast satellite service
The term ``direct broadcast satellite service'' means any direct
broadcast satellite system operating in the direct broadcast satellite
frequency band.
[Dec. 21, 2000, Pub. L. 106-553, Sec. 1(a)(2) [Title X, Sec. 1012], 114
Stat. 2762, 2762A-141; 47 U.S.C. 1110.]

106

107

ARCHIVAL REFERENCES
•
•

Insured Loan Programs
Direct or Insured Loan Prepayment

INSURED LOAN PROGRAMS
Prior to the enactment on November 1, 1993, of the Rural
Electrification Loan Restructuring Act of 1993, Sections 305 and 314
of the Rural Electrification Act read as follows:
SEC. 305. INSURED LOANS. —(a) The Administrator is
authorized to make insured loans under this title and at the interest rates
hereinafter provided to the full extent of the assets available in the fund,
subject only to limitations as to amounts authorized for loans and
advances as may be from time to time imposed by the Congress of the
United States for loans to be made in any one year, which amounts
shall remain available until expended: Provided, That the Congress in
the annual appropriation Act may also authorize the transfer of any
excess cash in the fund for deposit into the Treasury as miscellaneous
receipts: And provided further, That any such loans and advances shall
not be included in the totals of the budget of the United States
Government and shall be exempt from any general limitation imposed
by statute on expenditures and net lending (budget outlays) of the
United States.
(b) Insured loans made under this title shall bear interest at
5 per centum per annum, except that the Administrator may make
insured loans to electric or telephone borrowers at a lesser interest rate,
but not less than 2 per centum per annum, if, in the Administrator's sole
discretion, the Administrator finds that the borrower
(1) has experienced extreme financial hardship, or
(2) cannot, in accordance with generally accepted
management and accounting principles and without charging rates to its
customers or subscribers so high as to create a substantial disparity
between such rates and the rates charged for similar service in the same
or nearby areas by other suppliers, provide service consistent with the
objectives of this Act.
(c) Loans made under this section shall be insured by the
Administrator when purchased by a lender. As used in this Act, an

108

insured loan is one which is made held, and serviced by the
Administrator, and sold and insured by the Administrator hereunder;
such loans shall be sold and insured by the Administrator without
undue delay.
(d) The Administrator shall make a telephone loan under this title
to an applicant therefor who is otherwise qualified to receive such a
loan at the highest interest rate (but not less than the lowest interest
rate, nor higher than the highest interest rate, specified in subsection
(b)) at which the borrower would be capable of producing net income
or margins before interest payments of at least 100 percent (but not
more than 150 percent) of the interest requirements on all of the
applicant's outstanding and proposed loans.
May 11, 1973, Public Law 93-32, §2, 87 Stat. 68; Oct. 20, 1976, Public
Law 94-570 §3, 90 Stat. 2701; Aug. 13, 1981, Public Law 97-35,
Title I, §165(a), 95 Stat. 379; Nov. 28, 1990, Public Law 101-624,
Title XXIII, Subtitle F. ch. 3, §2361, 104 Stat. 4042; 7 U.S.C. 935.]
SEC. 314.
AUTHORIZATION LEVELS
ELECTRIC AND TELEPHONE LOANS.

FOR

RURAL

(a) IN GENERAL.—Subject to the other provisions of this section
and notwithstanding any other provision of law, for each of fiscal years
1991 through 1995, insured loans may be made in accordance with this
title from the Rural Electrification and Telephone Revolving Fund
established under section 301 in amounts equal to the following levels:
(1) For fiscal year 1991,$896,000,000.
(2) For fiscal year 1992, $932,000,000.
(3) For fiscal year 1993, $969,000,000.
(4) For fiscal year 1994, $1,008,000,000.
(5) For fiscal year 1995, $1,048,000,000.
(b) REDUCTION.-Notwithstanding any other provision of law, for
each of fiscal years 1991 through 1995, the Administrator shall
(1) reduce the amounts otherwise made available for insured
loans made from the Rural Electrification and Telephone
Revolving Fund by
(A) $224,000,000 for fiscal year 1991;
(B) $234,000,000 for fiscal year 1992;
(C) $244,000,000 for fiscal year 1993;
(D) $256,000,000 for fiscal year 1994; and
(E) $267,000,000 for fiscal year 1995, and

109

(2) use the funds made available from such reductions in each
fiscal year to guarantee loans under subsection (d).
(c) MANDATORY LEVELS.—Notwithstanding any other
provision of law, the Administrator shall make insured loans at the
levels authorized by this section for each of fiscal years 1991 through
1995 taking into account any reductions under subsection (b).
(d) GUARANTEED LOANS
(1) IN GENERAL.—Except as otherwise provided in this
subsection and subsection (e) and notwithstanding any other
provision of law, in carrying out this Act, the Administrator shall
guarantee loans made by legally organized lending agencies to the
extent of the reduction in insured loans as provided in subsection
(b).
(2) AMOUNT OF GUARANTEE.—The guarantee authorized
under paragraph (1) shall be 90 percent of the principal of and
interest on the loan and shall be made only upon the request of the
borrower;
(3) NO FEDERAL INSTRUMENTALITY.—The Administrator may not provide any such guarantee for a loan made by the
Federal Financing Bank the Rural Telephone Bank, or any other
lending agency that is an agency or instrumentality of the United
States other than banks for cooperatives.
(4) AUTHORITY.—The Administrator is authorized to
approve such guarantees subject to full use being made during each
fiscal year of insured loan amounts made available during the
fiscal year.
(5) CONSTRUCTION.—Nothing in this subsection shall be
construed as modifying the authority provided in section 306.
(e) IMPLEMENTATION.
(1) IN GENERAL.—The Administrator shall implement the
reduction in insured loans provided by subsection (b) in a manner
that will lessen its adverse effect.
(2) ALLOCATION BETWEEN ELECTRIC AND TELEPHONE PROGRAMS.—The reductions required by subsection
(b) shall be allocated between the electric and telephone programs
for each fiscal year in proportion to the amount of insured funds
made available for each such program during the fiscal year in
annual appropriations Acts.
(3) ELECTRIC BORROWER'S OPTION.—If the amount of
an insured electric loan is reduced as a result of the requirements of
subsection (b), the electric borrower may, at the option of such
borrower, obtain capital to replace the amount of the reduction

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(A) with the assistance of a loan guarantee (as provided
by subsection (d));
(B) from internally generated funds of the electric
borrower;
(C) from private credit sources with a lien
accommodation provided by the Administrator; or
(D) from other private sources.
[Nov. 5, 1990, Public Law
104 Stat. 1388-7; 7 U.S.C. 940d.]

101-508,

Subtitle

B.

§1201,

DIRECT OR INSURED LOAN PREPAYMENT
Prior to the enactment on August 10, 1993, of the Omnibus Budget
Reconciliation Act of 1993 (OBRA 1993), Section 306B of the Rural
Electrification Act read as follows:
SEC. 306B.
SALE OR PREPAYMENT OF DIRECT OR
INSURED LOANS.— (a) A direct or insured loan made under this
Act shall not be sold or prepaid at a value less than the face value of
any outstanding principal balance on such loan, except when sold to or
prepaid by the borrower at the lesser of the outstanding principal
balance due on the loan or the loan's present value discounted from the
face value at maturity at the rate set by the Administrator. The
exception contained in the preceding sentence shall be effective for the
period ending September 30, 1987.
(b) Notwithstanding subsection (a), a direct or insured loan may be
prepaid by an electric borrower at the lesser of the outstanding principal
balance due thereon or the present value thereof discounted from the
face value at maturity at the rate set by the Administrator if the
borrower is an electrical organization which resulted from a merger or
consolidation between a borrower and an organization which prior to
October 1, 1987, prepaid its direct or insured loans pursuant to this
section. Prepayments by a borrower hereunder shall be made not later
than one year after the effective date of the merger, consolidation, or
other transaction. The discount rate to be set by the Administrator for
direct or insured loans prepayments hereunder shall be based on the
current cost of funds to the Department of the Treasury for obligations
of comparable maturity to those being prepaid. If a borrower prepays
using tax exempt financing, the discount shall be adjusted to make the
discount equivalent to fully taxable financing. The borrower shall

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certify in writing whether the financing will be tax exempt and shall
comply with such other terms and conditions as the Administrator may
establish which are reasonable and necessary to implement this
provision. As used in this section, the term "direct loan" means a loan
made under section 4.
[Oct. 21, 1986 Public Law 99-509, Title I, §1011(a) 100 Stat. 1875;
Nov. 28, 1990, Public Law 101-624, Title XXIII, Subtitle H, §2387,
104 Stat. 4051; 7 U.S.C. 936b.]
Note: Sections 306C, 306D, 306E were enacted subsequent to
OBRA 1993.

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