REA’s Tenacity Shows Why Some Government Programs Never Die

Seldom has a government program had more direct impact on the lives of ordinary Americans than Franklin D. Roosevelt’s plan to bring electric and telephone service to the nation’s rural communities.

“Few things will add more to the comfort, satisfaction and happiness of the rural population,” a congressional committee declared in establishing the program in 1936, when only 12% of rural America had electricity or telephones.

By now, virtually the entire nation has both. So why does the Rural Electrification Administration still cost taxpayers hundreds of millions of dollars a year? Why does it supply subsidies to subsidiaries of major corporations and to the residents of posh resort areas, including Hilton Head, S.C., and Aspen and Vail, Colo.

A Washington Truism

The answer is one of Washington’s eternal truths: Few things are as immortal as a government program. When bureaucracies finish the work they were set up to do, they usually find new work to stay in business.

The billions of dollars in subsidies that the REA has provided over the years have built up a large constituency--electric and telephone utility cooperatives that depend on the program and protect it fiercely. Members of Congress from rural districts zealously watch over the program’s fate.

While the REA’s costs are but a small part of federal spending, the agency’s staying power helps illustrate President Bush’s predicament as he begins preparing next year’s federal budget.

“The government has to be flexible over time,” said a senior Administration budget official. “Right now, it’s stuck. We can’t cut the old stuff and there’s no room for new stuff.”

Banking on Forgetfulness

That lack of flexibility has helped create a government of empty promises. Rep. Leon E. Panetta (D-Monterey), the House Budget Committee chairman, said: “As new priorities, new needs are there to be faced, the politics of the time is to announce concern, get the 30-second spot (on television), then hope that everyone forgets the need to deliver on those promises.”

Promised Funds

But some programs remain mired in a limbo of promised funds--the space program, for example, where Bush has pledged a mission to Mars but has offered no money to meet the goal.

Japanese-Americans interned during World War II have suffered from the same treatment. Former President Ronald Reagan last year signed legislation that promised a $20,000 payment to each of the 60,000 former internees.

But the money has not been forthcoming. Now, Congress is promising to begin providing the funds as early as next year but advocates for the internees, many of whom are now quite elderly, fear that many will die before the government pays its debt.

Homeless Aid Cited

Advocates for the homeless have fared similarly. Congress has passed laws establishing several homeless aid programs, none of which have yet received the full amount pledged. Bush, who promised during his campaign to “fully fund” programs for the homeless, opposed adding money to the current year’s budget to do so, although he has asked Congress to fully fund the programs in the fiscal year that began today.

Citizens who lobby Congress for government programs often find these broken promises “mind-boggling,” said Maria Foscarinis, who has been a leading advocate for homeless aid.

The government, she said, “promises a certain level of funding and then turns around and takes it away. It’s hard to explain to people in the real world. . . . It adds to a certain degree of cynicism.”

But just as it is difficult to get new programs into the budget, it is nearly impossible to get old programs out of it.

Example of Problem

The REA is “a classic example” of the problem, said Edwin L. Dale, a longtime budget expert who serves as a senior adviser to Richard G. Darman, director of the Office of Management and Budget. “The budget is essentially locked up before you start.”

Provides Access to Capital

The REA is essentially a loan program, conceived at a time when rural areas were starved for credit and banks were unwilling to lend money to consumer-owned utility cooperatives. The program guaranteed co-ops access to capital that allowed them to string electric lines needed to bring light and power to America’s farms. The co-ops would repay the government, using the money that their consumers paid for electricity.

At the time, as the REA’s sponsors repeatedly pointed out, no subsidy was involved. The co-ops had to pay the government full interest at the going rate, then about 2%.

Later, however, when interest rates began to rise, Congress kept the REA loan rate low. Rural electric and telephone cooperatives borrow from the government at low rates--often as low as 5%. The Treasury then must borrow from the public at much higher rates, currently about 8%. The difference amounts to a huge subsidy for rural electric and telephone companies, much of which never shows up on the federal budget.

Today, that subsidy often benefits people far different from the Depression-era farmers who were the main concern of the REA’s sponsors. One of the REA’s biggest recent borrowers, for example, is the Palmetto Electric Cooperative in South Carolina. The cooperative has seen rapid growth in its service area in recent years, largely because of the posh Hilton Head resort development that lies off the Carolina coast.

Some Areas Now Prosperous

Several other cooperatives serve areas that were once rural but are now part of fast-growing suburban areas outside cities, including Atlanta, Minneapolis and Washington.

The REA supporters argue that most of those co-ops also serve poor rural areas that are adjacent to the more prosperous locales. Palmetto, for example, serves a deeply impoverished, largely black stretch of the Carolina coast, said Eleanor Miller of the National Rural Electric Cooperative Assn., the co-ops’ lobbying group in the capital.

If the REA were shut down, Miller said of the co-ops’ rural customers, “private power companies still wouldn’t serve them.”

Administration analysts challenge that conclusion. Many rural telephone cooperatives, they point out, have been bought up in recent years by large national telephone companies precisely because they are profitable. The companies remain eligible for the REA subsidies even though the parent firms are among the largest in the nation.

There is little doubt, however, that ending the REA’s subsidy programs by requiring all cooperatives to borrow funds at the market rate--or even substantially cutting the programs back, as the Bush Administration has advocated--would cause rural electric and telephone bills to rise. That prospect has caused rural members of Congress and their allies to fight fiercely for the survival of the programs.

In 1981, a popular Reagan and his budget director, David A. Stockman, tried to slash the REA funds. The effort was routed in the House “something like 400 to 8,” recalled Frederick Khedouri, a key aide to Stockman at the time. “No one else could do that.”

The Bush Administration has followed Reagan’s lead in proposing large reductions of the REA programs. So far, it has had no luck. The House and Senate have approved the REA’s budget for next year, and both rejected the proposed reductions.

The program’s tenacity reflects several factors.

One is peculiar to the REA and related agriculture programs--the continuing clout of rural members in Congress. Sparsely populated rural states have as much representation as California in the Senate, and in the House, members from rural districts have disproportionate seniority.

One of the REA’s strongest supporters, for example, is the chairman of the House Appropriations Committee, Jamie L. Whitten (D-Miss.), who has represented a mostly rural north Mississippi district long enough to become the most senior member of the House. “If Jamie Whitten felt a strong attachment to your cause,” said Khedouri, “you’d do well to, too.”

Still Helps People

Other factors behind the REA’s tenacity are common to many government programs. First, the program continues to aid some people who need help. The REA subsidies are used to help the poor in rural areas.

And as with most federal programs, the flow of the REA money has created a constituency--in this case the co-ops--that lobbies to keep the money flowing.

“In many areas, the co-op is the biggest employer in the area,” said Miller of the cooperative association. Co-op directors are often prominent members of their communities, easily able to influence their congressmen. The association also maintains a large political action committee that contributed several hundred thousand dollars last year to members of Congress.