Rural Electrification Act

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3. RURAL ELECTRIFICATION ACT OF 1936
[As Amended Through Public Law 109–171, Feb. 8, 2006]

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3. RURAL ELECTRIFICATION ACT OF 1936
(Act of May 20, 1936)
øMaterial in brackets and footnotes are not part of Act.¿

TABLE

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OF

CONTENTS 1

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TITLE I—RURAL ELECTRIFICATION
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.

1.
2.
3.
4.

ø901¿
ø902¿
ø903¿
ø904¿

Short title.
General authority of the Secretary of Agriculture.
Authorization of appropriations.
Loans by Secretary of Agriculture for electrical plants and transmission lines; preferences; consent of State authorities.
5. øRepealed¿
6. ø906¿ Funding for administrative expenses.
7. ø907¿ Acquisition of property pledged for loans; disposition; sale of
pledged property by borrower.
8. øRepealed¿
9. ø909¿ Administration on nonpolitical basis; dismissal of officers or employees for violating provision.
10. øRepealed¿
11. ø911¿ Acceptance of services of Federal or State officers; application
of civil service laws; expenditures for supplies and equipment.
11A. øRepealed¿
12. ø912¿ Extension of time for repayment of loans.
13. ø913¿ Definitions.
14. ø914¿ Separability.
16. ø916¿ Criteria for loans.
17. ø917¿ Prohibition on restricting water and waste facility services to
electric customers.
18. ø918¿ General prohibitions.
19. ø918a¿ Energy generation, transmission, and distribution facilities efficiency grants and loans in rural communities with extremely
high energy costs.

1 This table of contents is up-to-date and is included for the convenience of the reader. The
table of contents is not part of the law. The number in brackets after the section number refers
to to the placement of the section in title 7, United States Code.

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TITLE II—RURAL TELEPHONE SERVICE
Sec.
Sec.
Sec.
Sec.
Sec.

201.
202.
203.
204.
205.

ø922¿
ø923¿
ø924¿
ø925¿
ø926¿

Loans for rural telephone service.
State regulation of telephone service.
Definition of telephone service and rural area.
Loan feasibility.
Certain rural development investments by qualified telephone
borrowers not treated as dividends or distributions.
Sec. 206. ø927¿ General duties and prohibitions.
Sec. 207. ø928¿ Prompt processing of telephone loans.
TITLE III—RURAL ELECTRIC AND TELEPHONE DIRECT LOAN
PROGRAMS
Sec. 301. ø931¿ Rural Electrification and Telephone Revolving Fund.
Sec. 302. ø932¿ Liabilities and uses of Rural Electrification and Telephone Revolving Fund.
Sec. 303. ø933¿ Deposit of Fund moneys.
Sec. 304. ø934¿ Financial transactions of funds.
Sec. 305. ø935¿ Insured loans; interest rates and lending levels.
Sec. 306. ø936¿ Guaranteed loans; accommodation and subordination of liens;
interest rates; assignability of guaranteed loans and related
guarantees.
Sec. 306A. ø936a¿ Prepayment of loans.
Sec. 306B. ø936b¿ Sale or prepayment of direct or insured loans.
Sec. 306C. ø936c¿ Refinancing and prepayment of FFB loans.
Sec. 306D. ø936d¿ Eligibility of distribution borrowers for loans, loan guarantees, and lien accommodations.
Sec. 306E. ø936e¿ Administrative prohibitions applicable to certain electric
borrowers.
Sec. 307. ø937¿ Other financing.
Sec. 308. ø938¿ Full faith and credit of the United States.
Sec. 309. ø939¿ Loan terms and conditions.
Sec. 310. ø940¿ Refinancing of rural development loans.
Sec. 311. øRepealed¿
Sec. 312. ø940b¿ Use of funds.
Sec. 313. ø940c¿ Cushion of credit payments program.
Sec. 313A. ø940c–1¿ Guarantees for bonds and notes issued for electrification
or telephone purposes.
Sec. 314. ø940d¿ Limitations on authorization of appropriations.
Sec. 315. ø940e¿ Expansion of 911 access.
Sec. 316. øXXX¿ Extension of period of existing guarantee.
TITLE IV—RURAL TELEPHONE BANK

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RURAL ELECTRIFICATION ACT OF 1936

Sec. 2

Sec. 401. ø941¿ Establishment, general purposes, and status of the telephone
bank.
Sec. 402. ø942¿ General powers.
Sec. 403. ø943¿ Special provisions governing telephone bank as a Federal
Agency until conversion of ownership, control, and operation.
Sec. 404. ø944¿ Governor of telephone bank; functions, powers, and duties.
Sec. 405. ø945¿ Board of directors.
Sec. 406. ø946¿ Capitalization.
Sec. 407. ø947¿ Borrowing power.
Sec. 408. ø948¿ Lending power.
Sec. 409. ø949¿ Telephone bank receipts.
Sec. 410. ø950¿ Conversion of ownership, control, and operation of telephone
bank.
Sec. 411. ø950a¿ Liquidation or dissolution of telephone bank.
Sec. 412. ø950b¿ Borrower net worth.
TITLE V—RURAL ECONOMIC DEVELOPMENT
Sec. 501. ø950aa¿ Additional powers and duties.
Sec. 502. øRepealed¿
TITLE VI—RURAL BROADBAND ACCESS
Sec. 601. ø950bb¿ Access to broadband telecommunications services in rural
areas.
Be it enacted by the Senate, and House of Representatives of the
United States of America in Congress assembled,
TITLE I
SECTION 1. ø7 U.S.C. 901¿ SHORT TITLE.

This Act may be cited as the ‘‘Rural Electrification Act of
1936’’.
SEC. 2. ø7 U.S.C. 902¿ 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 ongrid 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.
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SEC. 3. ø7 U.S.C. 903¿ AUTHORIZATION OF APPROPRIATIONS.

There are authorized to be appropriated such sums as are necessary to carry out this Act.
SEC. 4. ø7 U.S.C. 904¿ 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, 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 serving persons in
rural areas, to discharge or refinance long-term debts owned 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.
[Sec. 5 was repealed by Public Law 104–127, sec. 774(a), 110 Stat. 1150.]

SEC. 6. ø7 U.S.C. 906¿ For the purpose of administering this
Act and for the purpose of making the studies, investigations, publications, and reports herein provided for, there is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, such sums as shall be necessary.
SEC. 7. ø7 U.S.C. 907¿ 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 thereFebruary 13, 2006

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RURAL ELECTRIFICATION ACT OF 1936

Sec. 12

in, 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.
[Sec. 8 was repealed by Public Law 104–127, sec. 776, 110 Stat. 1150.]

SEC. 9. ø7 U.S.C. 909¿ 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.
[Sec. 10 was repealed by Public Law 104–127, sec. 777, 110 Stat. 1150.]

SEC. 11. ø7 U.S.C. 911¿ 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.
[Sec. 11A was repealed by Public Law 103–354, sec. 235(a)(5), 105 Stat. 3221.]

SEC. 12. ø7 U.S.C. 912¿ (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, except
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.
(b)(1) 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
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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 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.
SEC. 13. ø7 U.S.C. 913¿ 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.
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RURAL ELECTRIFICATION ACT OF 1936

Sec. 18

SEC. 14. ø7 U.S.C. 914¿ 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.
[There is no section 15]

SEC. 16. ø7 U.S.C. 916¿ 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, operation, 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.
SEC. 17. ø7 U.S.C. 917¿ 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).
(c) DEFINITION OF RURAL DEVELOPMENT PROGRAMS.—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, and
1932).
(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).
(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 the date of enactment of the Federal Agriculture Improvement and Reform Act
of 1996, the Secretary shall issue final regulations to ensure compliance with subsection (a).
SEC. 18. ø7 U.S.C. 918¿ GENERAL PROHIBITIONS.
(a) NO CONSIDERATION OF BORROWER’S
FUNDS.—The Secretary and the Governor of
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LEVEL OF GENERAL
the telephone bank

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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.
(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.
SEC. 19. ø7 U.S.C. 918a¿ 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, transFebruary 13, 2006

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RURAL ELECTRIFICATION ACT OF 1936

Sec. 201

mission, 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 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.
TITLE II
SEC. 201. ø7 U.S.C. 922¿ 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 the Rural Electrification Act of 1936,
as amended, the Secretary or 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 said 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 improved thereby will be made available to the wildest
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 SecFebruary 13, 2006

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retary 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 centifies that in his judgment the security
therefor 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
therefor in writing) that no duplication of lines, facilities, or systems, providing reasonably adequate services will result therefrom.
SEC. 202. ø7 U.S.C. 923¿ 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.
SEC. 203. ø7 U.S.C. 924¿ (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 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 5,000 inhabitants.
SEC. 204. ø7 U.S.C. 925¿ 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.
SEC. 205. ø7 U.S.C. 926¿ CERTAIN RURAL DEVELOPMENT INVESTMENTS BY QUALIFIED TELEPHONE BORROWERS NOT
TREATED AS DIVIDENDS OR DISTRIBUTIONS.
(a) IN GENERAL.—The Secretary and the Governor of the tele-

phone bank shall not—
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Sec. 206

(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 (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.
SEC. 206. ø7 U.S.C. 927¿ 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
(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
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who has received any combination of telephone loans from the
Secretary, 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.
SEC. 207. ø7 U.S.C. 928¿ 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
(2) stating the reasons for the failure to finally act upon
the completed applications within such ninety-day period.
TITLE III
SEC. 301. ø7 U.S.C. 931¿ RURAL
PHONE REVOLVING FUND.—There is

ELECTRIFICATION AND TELEhereby 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 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 the effective
date of this title, as revised herein, 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 unobliged balances of any funds made available for loans under the item ‘‘Rural Electrification AdminisFebruary 13, 2006

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Sec. 302

tration’’ 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
(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, when said shares and moneys shall be assets
of the fund.
SEC. 302. ø7 U.S.C. 932¿ LIABILITIES AND USES OF 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 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) payment 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;
(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 a 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
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interest of the Government, or in connection with any other activity authorized in this Act;
(8) payment of the purchase price and 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).
SEC. 303. ø7 U.S.C. 933¿ DEPOSIT OF FUND MONEYS.—Moneys
in the fund shall remain on deposit in the Treasury of the United
States until disbursed.
SEC. 304. ø7 U.S.C. 934¿ FINANCIAL TRANSACTIONS OF
FUNDS—(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 and directed to purchase any notes of the Secretary
issued hereunder, and, for that purpose, 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,
purchase, 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
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RURAL ELECTRIFICATION ACT OF 1936

Sec. 305

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 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
fund may constitute liens running to the United States notwithstanding the fact that such notes may be thereafter held by purchasers thereof.
SEC. 305. ø7 U.S.C. 935¿ 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 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-hour 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 kilowatthour sold by the applicant is not less than 120 percent
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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.—
(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))
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Sec. 305

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 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 reFebruary 13, 2006

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sult 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.—
(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, improveFebruary 13, 2006

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RURAL ELECTRIFICATION ACT OF 1936

Sec. 305

ment, 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:
(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 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.
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(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 (1)(A)(iii) and (2)(A)(iii), and section 408(b)(4)(C),
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.
SEC. 306. ø7 U.S.C. 936¿ GUARANTEED LOANS; ACCOMMODATION AND SUBORDINATION OF LIENS.—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 guaranFebruary 13, 2006

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RURAL ELECTRIFICATION ACT OF 1936

Sec. 306A

teed 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 Secretary under this title; the assignability of such
loan and guarantee shall be governed exclusively by said contract
of guarantee.
SEC. 306A. ø7 U.S.C. 936a¿ PREPAYMENT OF LOANS.

(a) 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) No sums in addition to the payment of the outstanding
principal balance due on the loan may be charged as the result of
such prepayment against the borrower, the fund, or the Secretary.
(c)(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.
(d)(1) The Secretary shall permit, subject to subsection (a), prepayment of principal on loans in fiscal year 1987 under this section
or Public Law 99–349 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) Any guarantee of a loan prepaid under this section shall be
fully assignable under the provisions of section 306 of this Act and
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RURAL ELECTRIFICATION ACT OF 1936

3–24

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 nonguaranteed
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.
SEC. 306B. ø7 U.S.C. 936b¿ 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
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—
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RURAL ELECTRIFICATION ACT OF 1936

SEC. 306B

(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 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 borFebruary 13, 2006

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Sec. 306C

RURAL ELECTRIFICATION ACT OF 1936

3–26

rower prepays 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.
SEC. 306C. ø7 U.S.C. 936c¿ REFINANCING AND PREPAYMENT OF FFB
LOANS.
(a) IN GENERAL.—A borrower of a loan made by the Federal Fi-

nancing 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 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.
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RURAL ELECTRIFICATION ACT OF 1936

Sec. 306C

(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 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
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Sec. 306D

RURAL ELECTRIFICATION ACT OF 1936

3–28

(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)—
(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;
(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.
SEC. 306D. ø7 U.S.C. 936d¿ ELIGIBILITY OF DISTRIBUTION 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 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—
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RURAL ELECTRIFICATION ACT OF 1936

Sec. 308

(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.
SEC. 306E. ø7 U.S.C. 936e¿ ADMINISTRATIVE PROHIBITIONS APPLICABLE TO CERTAIN ELECTRIC BORROWERS.
(a) IN GENERAL.—For the purpose of relieving borrowers of un-

necessary 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 to the borrower
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.
SEC. 307. ø7 U.S.C. 937¿ OTHER FINANCING.—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.
SEC. 308. ø7 U.S.C. 938¿ 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.
February 13, 2006

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Sec. 309

RURAL ELECTRIFICATION ACT OF 1936

3–30

SEC. 309. ø7 U.S.C. 939¿ LOAN TERMS AND CONDITIONS.

Loans made for or insured through the fund shall be for the
same purpose 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 inclusive. The preceding sentence shall
not be construed to make section 408(b)(2) or 412 applicable to this
title.
SEC. 310. ø7 U.S.C. 940¿ REFINANCING OF RURAL DEVELOPMENT ACT 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.
[Sec. 311 was repealed by Public Law 104–127, sec. 780, 110 Stat. 1151.]
SEC. 312. ø7 U.S.C. 940b¿ 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.
SEC. 313. ø7 U.S.C. 940c¿ 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 outFebruary 13, 2006

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3–31

RURAL ELECTRIFICATION ACT OF 1936

Sec. 313A

standing 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 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 timeto-time imposed by law.
SEC. 313A.

U.S.C. 940c–1¿ GUARANTEES FOR BONDS AND NOTES
ISSUED FOR ELECTRIFICATION OR TELEPHONE PURPOSES.
IN GENERAL.—Subject to subsection (b), the Secretary shall
313A–1ø7

(a)
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.—
(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.
313A–1 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
(e)(2)) in implementing section 313A of that Act, the Secretary shall, with the consent of the
lender, structure the schedule for payment 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.’’.

February 13, 2006

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Sec. 313A

RURAL ELECTRIFICATION ACT OF 1936

3–32

(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.
(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.
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RURAL ELECTRIFICATION ACT OF 1936

Sec. 314

(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 313(b)(2)(A).
(f) TERMINATION.—The authority provided under this section
shall terminate on September 30, 2007.
SEC. 314. ø7 U.S.C. 940d¿ LIMITATIONS ON AUTHORIZATION OF APPROPRIATIONS.
(a) DEFINITION OF ADJUSTMENT PERCENTAGE.—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 1year 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.
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Sec. 315

RURAL ELECTRIFICATION ACT OF 1936

3–34

(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.
(d) AVAILABILITY OF FUNDS FOR INSURED LOANS.—Amounts
made available for loans under section 305 are authorized to remain available until expended.
SEC. 315. ø7 U.S.C. 940e¿ 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.
SEC. 316. EXTENSION OF PERIOD OF EXISTING GUARANTEE. (a)
IN GENERAL.—Subject to the limitations in this section and the provisions of the Federal Credit Reform Act of 1990, as amended, a
borrower of a loan made by the Federal Financing Bank and guaranteed under this Act may request an extension of the final maturity of the outstanding principal balance of such loan or any loan
advance thereunder. If the Secretary and the Federal Financing
Bank approve such an extension, then the period of the existing
guarantee shall also be considered extended.
(b) LIMITATIONS.—
(1) FEASIBILITY AND SECURITY.—Extensions under this section shall not be made unless the Secretary first finds and certifies that, after giving effect to the extension, in his judgment
the security for all loans to the borrower made or guaranteed
under this Act is reasonably adequate and that all such loans
will be repaid within the time agreed.
(2) EXTENSION OF USEFUL LIFE OR COLLATERAL.—Extensions under this section shall not be granted unless the borrower first submits with its request either—
(A) evidence satisfactory to the Secretary that a Federal or State agency with jurisdiction and expertise has
made an official determination, such as through a licensing proceeding, extending the useful life of a generating
plant or transmission line pledged as collateral to or beyond the new final maturity date being requested by the
borrower, or
(B) a certificate from an independent licensed engineer
concluding, on the basis of a thorough engineering analysis
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RURAL ELECTRIFICATION ACT OF 1936

Sec. 401

satisfactory to the Secretary, that the useful life of the
generating plant or transmission line pledged as collateral
extends to or beyond the new final maturity date being requested by the borrower.
(3) AMOUNT ELIGIBLE FOR EXTENSION.—Extensions under
this section shall not be granted if the principal balance extended exceeds the appraised value of the generating plant or
transmission line referred to in subsection paragraph (2).
(4) PERIOD OF EXTENSION.—Extensions under this section
shall in no case result in a final maturity greater than 55
years from the time of original disbursement and shall in no
case result in a final maturity greater than the useful life of
the plant.
(5) NUMBER OF EXTENSIONS.—Extensions under this section shall not be granted more than once per loan advance.
(c) FEES.—
(1) IN GENERAL.—A borrower that receives an extension
under this section shall pay a fee to the Secretary which shall
be credited to the Rural Electrification and Telecommunications Loans Program account. Such fees shall remain available without fiscal year limitation to pay the modification costs
for extensions.
(2) AMOUNT.—The amount of the fee paid shall be equal to
the modification cost, calculated in accordance with section 502
of the Federal Credit Reform Act of 1990, as amended, of such
extension.
(3) PAYMENT.—The borrower shall pay the fee required
under this section at the time the existing guarantee is extended by making a payment in the amount of the required
fee.
TITLE IV
SEC. 401. ø7 U.S.C. 941¿ ESTABLISHMENT, GENERAL PURPOSES,
STATUS OF THE 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 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
AND

February 13, 2006

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Sec. 402

RURAL ELECTRIFICATION ACT OF 1936

3–36

payable upon such property in the condition in which it was acquired.
SEC. 402. ø7 U.S.C. 942¿ 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.
SEC. 403. ø7 U.S.C. 943¿ SPECIAL PROVISIONS GOVERNING
TELEPHONE BANK AS AN AGENCY OF THE UNITED STATES 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. 486);
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Sec. 405

(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.
SEC. 404. ø7 U.S.C. 944¿ GOVERNOR.—Subject to the provisions
of section 410, the Secretary shall designate an official of the Department of Agriculture who shall serve as the chief executive officer of the telephone bank (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.
SEC. 405. ø7 U.S.C. 945¿ 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; 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.—
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(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 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 privilages
granted to it by law exercised and enjoyed.
(h) MEETINGS.—The Telepehone 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)(1) of such section.
SEC. 406. ø7 U.S.C. 946¿ CAPITALIZATION.—(a) 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
February 13, 2006

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Sec. 406

‘‘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) 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 shall be issued only to the Secretary 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 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 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 paying
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 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) 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 sock, shall include also the special fund equivalents of such stock, and to the extent permitted under the laws of
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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) After payment of all operating expenses of the telephone
bank, including interest on its telephone debentures, setting aside
appropriate funds for the reserve for loan losses, and making payments 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) 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) 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’’).
SEC. 407. ø7 U.S.C. 947¿ BORROWING POWER.—(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,
February 13, 2006

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RURAL ELECTRIFICATION ACT OF 1936

Sec. 408

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 exempt from any general limitation imposed by statute on expenditures and net lending (budget outlays) of the United States.
SEC. 408. ø7 U.S.C. 948¿ LENDING POWER.—(a) 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) of 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
provisions: 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 or 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 statFebruary 13, 2006

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Sec. 408

RURAL ELECTRIFICATION ACT OF 1936

3–42

ute on expenditures and net lending (budget outlays) of the United
States.
(b) 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) All loans made under this section shall be fully amortized over a period not to exceed fifty years.
(2) 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)(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 the date of the enactment of this subparagraph, advances made on or after such date of enactment
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:
(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
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Sec. 408

advanced by the telephone bank during the fiscal year. For
purposes of the calculation under this subparagrpah, 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 calculations described in 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,
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) 1, the cost of
money rate for the fiscal years in which each advance was
made shall be as set forth in the following table:
The cost of money
For advances made in—
rate shall be—
Fiscal year 1974 ......................................................................
5.01 percent
Fiscal year 1975 ......................................................................
5.85 percent
Fiscal year 1976 ......................................................................
5.33 percent
Fiscal year 1977 ......................................................................
5.00 percent
Fiscal year 1978 ......................................................................
5.87 percent
1 So

February 13, 2006

in law. Probably shoud be ‘‘(D)(v)(II)’’.

Q:\COMP\CONSFARM\REA36
Sec. 408
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal

RURAL ELECTRIFICATION ACT OF 1936
year
year
year
year
year
year
year
year
year

1979
1980
1981
1982
1983
1984
1985
1986
1987

......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................

3–44
5.93
8.10
9.46
8.39
6.99
6.55
5.00
5.00
5.00

percent
percent
percent
percent
percent
percent
percent
percent
percent.

For purposes of this paragraph, the term ‘‘fiscal year’’ means
the 12-month 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) If 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 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 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
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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—
(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) 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) 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) 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, facilities, or systems
shall mean lines, facilities, or systems used in the rendition of
such telephone service.
(7) No borrower of funds under section 408 of this Act
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
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telephone bank, including all interest and charges, shall have
been repaid.
(8)(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) 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) On request of any applicant who is eligible for a loan
under this section for which funds are not available, the 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)(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) 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 the date of enactment of this subsection. Funds are not authorFebruary 13, 2006

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3–47

RURAL ELECTRIFICATION ACT OF 1936

Sec. 412

ized to be appropriated to carry out this subsection until the funds
are appropriated in advance to carry out this subsection.
SEC. 409. ø7 U.S.C. 949¿ TELEPHONE BANK RECEIPTS.—Any receipts from the activities of the telephone bank shall be available
for all obligations and expenditures of the telephone bank.
SEC. 410. ø7 U.S.C. 950¿ CONVERSION OF OWNERSHIP, CONTROL AND OPERATION OF TELEPHONE BANK.—(a) Whenever fifthone 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) 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 provisions of section 408(a)(2).
(c) Congress reserves the right to review the continued operations of the telephone bank after all class A stock has been fully
redeemed and retired.
SEC. 411. ø7 U.S.C. 950a¿ 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 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 to of class A and class B stock issued and
outstanding before the effective date of such liquidation or dissolution, pro rata.
SEC. 412. ø7 U.S.C. 950b¿ 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.
February 13, 2006

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Sec. 501

RURAL ELECTRIFICATION ACT OF 1936

3–48

TITLE V—RURAL ECONOMIC
DEVELOPMENT
SEC. 501. ø7 U.S.C. 950aa¿ ADDITIONAL POWERS AND DUTIES.

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 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 longterm 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.
[Sec. 502 was repealed by Public Law 104–127, sec. 781(a), 110 Stat. 1151.]

TITLE VI—RURAL BROADBAND ACCESS
SEC. 601. ø7 U.S.C. 950bb¿ 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, 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.—
February 13, 2006

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3–49

RURAL ELECTRIFICATION ACT OF 1936

Sec. 601

(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.
(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 proviFebruary 13, 2006

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Sec. 601

RURAL ELECTRIFICATION ACT OF 1936

3–50

sion 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.—
(1) 601–1 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 2003 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.
601–1 Sec. 1401 of the Deficit Reduction Act of 2005, P.L. 109–171, 120 Stat. 4, Feb. 8, 2006,
provides that ‘‘The authority to obligate funds previously made available under section 601(j)(1)
of the Rural Electrification Act of 1936 for a fiscal year and unobligated as of October 1, 2006,
is hereby cancelled effective on that date.’’.

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RURAL ELECTRIFICATION ACT OF 1936

Sec. 601

(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 inhabitants 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 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.

February 13, 2006