Senator EASTLAND. What collateral do you require? Secretary BUTZ. You mean the loans limited to $50,000? Senator EASTLAND. Yes, sir. Secretary BUTZ. It depends on the kind of loan, Senator Eastland. If it is a straight operating loan, the collateral might be a lien on the crop you are financing in 1973. If it is a livestock loan, it may be a mortgage on the cattle you are purchasing. If it is for equipment, it will be a chattel mortgage on the equipment you purchase. It could run up to 7 years under existing regulations. FHA can, and does in fact finance, crop operation expenses in 1973 with a lien only on the crop being financed. The CHAIRMAN. Senator Allen? Senator ALLEN. Thank you, Mr. Chairman. Mr. Secretary, I think you have made an outstanding Secretary of Agriculture and I think you have done a great job as spokesman for our farmers. Secretary BUTZ. Well, thank you very much, Senator. I sometimes get letters that disagree with you, however. [Laughter.] Senator ALLEN. I also commend you for your objective of keeping farm income up. Your thought is, as I understand it, that you want that to come more from the marketplace than from Government support. That is correct, is it not? Secretary BUTZ. Yes, sir. When the President asked me to take this job 15 months ago, if he gave me any single charge it was to raise the income of rural people. That is our No. 1 objective, and I hope we never forget that it is to put spending money in their pockets. Senator ALLEN. Now, when the President started acting to get expenditures within his $250 billion ceiling, I was sorry to see him start with agriculture because our farmers and the members of our agricultural community and economy have been hardest hit by inflation, and I would have preferred that he start somewhere else than in the Government hierarchy. Secretary BUTZ. Senator, I join you in that preference because for 10 days I was the only pigeon on the roof taking all the shots. We have some more pigeons up there now. Senator ALLEN. Let me ask you this: The President has challenged Congress to set an expenditure limit at no more than his budget, some $269 million. In the unlikely event that Congress would set such a ceiling or in the less, even less likely event that they held appropriations within that figure, if a program such as REAP were reenacted, reauthorized, refunded by the Congress, with appropriations still within the ceiling set by the President or set by Congress, would the President then impound those funds? Is he against this program or would he Secretary BUTZ. No; he is not against the program. It is a question of priorities. Senator ALLEN. Would he support it if it came within the ceiling? Secretary BUTZ. Senator, let me make this point clear. Neither the President nor the Department is against this program. The program has done a lot of good. It has a good track record back of it. The real question was, as we faced the necessity for a ceiling on expenditures, what are our priorities? You have to establish priorities. Our feeling, frankly, was that the percentage of the expenditures, the percentage of the cost for practices under REAP had declined from 50 percent to 30 percent in some cases with the Government picking up all the costs in the early days on limestone. When the Government picked up all the costs, we had gotten down to a 30-percent participation in many practices. Income is up and we thought many of these practices were good farm practices, were good husbandry, would be continued by the farmers anyway, especially those that were production increasing practices like liming, tiling, irrigation, that type of thing. We looked at the record and we saw only 20 percent of our farmers in any one year participating in these programs. We saw the average payment at $239. We felt that many of the initial objectives of the program had been accomplished, and that is where it came on the priority scale. Senator ALLEN. Well, he would not allow it to stand even if it stayed within the ceiling, if we set the priorities and included that program. Secretary BUTZ. If it stayed within the ceiling, we would not face the necessity of making the drastic cut that we did. Senator ALLEN. There is a chance if it is made within the ceiling, it will stand? Secretary BUTZ. If it stays within the ceiling, yes; it has a chance. Senator ALLEN. We had a delegation up here some weeks ago and contact was made with your office about the rural housing subsidy program, the houses being built with a view of getting the Farmers Home Administration loans and, at that time, I believe you had a meeting with Senators when that was discussed. It was suggested that those houses where the application and the processing was in the pipeline, so to speak, that those loans probably could be made. Has any definite decision been reached on that? Secretary BUTZ. It is my understanding in the case of HUD, which has a similar problem of course with urban housing, that applications on houses in process will be continued, and we are doing the same thing in FHA. This has been a uniform decision. Senator ALLEN. What do you mean by "in process?" Secretary BUTZ. Where a commitment has been made. Senator ALLEN. Now, the Farmers Home Administration did not make commitments in the conventional sense. They just encouraged builders to get out and build, with the commitment to take care of. That is what I have been told time and again by many Alabama homebuilders. Secretary BUTZ. May I call on the Director of Finance? The CHAIRMAN. State your name, occupation for the record. STATEMENT OF JEROME A. MILES, DIRECTOR, OFFICE OF BUDGET AND FINANCE, U.S. DEPARTMENT OF AGRICULTURE Mr. MILES. My name is Jerome Miles, the budget officer for the Department. The Department is issuing instructions which will indicate that we will honor all commitments made by Farmers Home Administration to builders where the commitment has been made in writing and where there has been a bona fide verbal commitment upon which the builder has begun the construction of these homes and footings have been poured and an investment has been made. The CHAIRMAN. Senator Allen, will you yield one moment for clarification on that point? A builder came in to see me from Florida and he had a letter from the FHA Director in Florida praising him for the fine job he was doing and urging him to go out and build more homes. Is that a commitment? [Laughter.] Mr. MILES. I would not consider that a commitment. However, we are talking only about the subsidized portion of the housing program. Builders will continue to build houses that are on an unsubsidized basis. The CHAIRMAN. Thank you, Senator. Senator ALLEN. Now, that muddies the situation rather than clarifying it, as Senator Talmadge sought. Would it or would it not be covered? As I understand your comments, you say the unsubsidized would be covered and the subsidized would not, is that what you are saying? Mr. MILES. If he was only urged to go out and find potential buyers for these homes, I do not believe that would be considered a commitment. If, on the other hand, he had come into the office, had gotten verbal assurance, he had begun to pour footings, had invested his funds in the houses and had potential buyers for these houses then this would be considered a commitment. Senator ALLEN. He would not actually have to have a contract of sale, would he? Mr. MILES. I don't believe he would have. Secretary BUTZ. But isn't it true that this would be a commitment to continue the subsidized portion of FHA loans? Mr. MILES. Yes; it would. Secretary BUTZ. He can do that and this money is easier money than commercial money as you well know. Senator ALLEN. Now in the REA as I understand it, $430 million that was available for loans, that has been impounded, but there is some $630 million that will be available at 5 percent. Secretary BUTZ. That is about correct, there will be $618 million in insured electric loans and $140 million for telephone loans. Senator ALLEN. There would be no holding back of those loans? Secretary BUTZ. That is correct. Senator ALLEN. I realize that is not a fund that could be impounded because it is a guarantee and the paper is sold in the market but that program would continue on for the full $630 million? Secretary BUTZ. Yes, sir; that is correct. We expect REA under this program to have available some $200 million more money than they would have had available under the previous 2 percent direct loan program. Senator ALLEN. The only difference being they would pay 5 percent instead of 2 percent; is that correct? Secretary BUTZ. That is correct. Senator ALLEN. And in extreme cases, this case of 14 tie-ins a mile Senator Curtis mentioned; a system that had that sparse a territory might still get a low-interest rate loan; is that not correct? Secretary BUTZ. Only if the commitment had been made. We are honoring the commitments at the present time that had been made under the 2-percent loan program. There is a very substantial amount of obligated but unexpended funds that will flow into the system. Senator ALLEN. Mr. Chairman, I know my time is about up. I did have a series of questions that I would like to get our staff to make Xeroxes of and turn over to the Secretary and let him answer it for the record. One has to do with the poultry export subsidy program, which is extremely important to Alabama poultry producers. The CHAIRMAN. Without objection the questions will be submitted to the Secretary and his responses will be inserted in the record at this point. Senator ALLEN. Thank you, Mr. Chairman. (For the questions and replies see appendixes A and B.) The CHAIRMAN. Senator Aiken. Senator AIKEN. Mr. Chairman, I think these are very important hearings that you are starting now and, in my opinion, they do not apply primarily to the price of cotton for the 1972 crop or the income of the wheat grower or whether $5 a bushel is a high enough price for soybeans. I think they are far more important than that because along with other committees we are considering proposals which, in effect, would change our form of Government. The executive branch apparently is looking favorably upon the British system and the systems of some other countries whereby the Chief Executive or the party in power determines the amount of taxes to be levied and also what appropriations will be made. Now, that looks very unfair. However, it does prevail in our neighboring country of Canada and in many other countries. But the legislative branch does have one recourse in those countries. If they feel the Executive has gone too far or has been too unfair, then the representatives of the people in the legislative body can force a new election. Now, I don't really want Secretary BUTZ. In that case, Senator, they would change the majority of the Congress. Senator AIKEN. They could. Well, no, that depends. [Laughter.] Secretary BUTZ. I may ask the chairman if he wants to force an election for that purpose. Senator AIKEN. What our Canadians did The CHAIRMAN. It would be difficult to do under our Constitution. Senator AIKEN. Their House is divided, I believe, 107 to 108 between the two major parties and another party leader with 25 votes controls the situation. I don't like that very well, but I do say if we have one change we probably should have the other. Now, I have only one or two questions. I know there are others who are waiting to ask questions. Let me say first I have had some complaints that although agriculture has participated in 2 percent of the budget that it is requested now to take 12 percent of the cuts in expenditures. The other statement which I might make is that although the average participation in REAP within the country is about 20 percent, it happens to be 70 percent in my State, which is the highest of any State in the Union. My question is this: The EPA which you have referred to and the funds with which they can pay up to 75 percent of the costs of sewers, pollution control, and protecting clean water, how far would |