United States GAO General Accounting Oflice Washington, D.C. 20548 Comptroller General of the United States B-159292 November 2, 1990 To the President of the Senate and the Speaker of the House of Representatives Section 408(b)(3)(1) of the Rural Electrification Act of 1936, as amended on December 22, 1987, by the Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203), requires us to annually review the interest rate charged to borrowers, referred to as the cost of money rate, as determined by the Governor of the Rural Telephone Bank (RTB) for the preceding fiscal year. We are to report to the Congress on the accuracy of the interest rate determination within 15 days of receiving it. On October 19, 1990, we received RTB's rate determination, which established RTB's fiscal year 1990 cost of money rate at 5.00 percent, the minimum rate allowable by the Rural Electrification Act of 1936, as amended. We reviewed the rate determination and found it to be in accordance with the requirements of section 1411(c) of the Omnibus Budget Reconciliation Act of 1987 and 7 CFR Part 1610. We traced the dollar amounts and rates used in calculating the cost of money rate to RTB records and recomputed the calculation. Enclosed is a copy of RTB's interest rate notice along with the details of its calculation of the interest rate to be applied to loans issued during fiscal year 1990. We are sending copies of this report to the Director of the Office of Management and Budget, the Secretary of the Treasury, the Secretary of Agriculture, and the Board of Directors of the Rural Telephone Bank. SihQs-P .Charles Comptroller A. Bowsher General of the United States " Enclosure GAO/AFMD-91-32 Enclosure Enclosure DEPARTMENT OF AGRICULTURE Rural Telephone Bank 7 CFR Part 1610 DETERMINATION OF THE 1990 FISCAL YEAR INTEREST RATE ON RURAL TELEPHONE BANK LOANS AGENCY: Rural Telephone Bank, USDA. ACTION: Notice of 1990fiscal year interest rate determination. . SIJRMARY: In accordancewith 7 CFR 1610.10,the Rural Telephone Bank’sFiscal Year 1990cost of money rate has been establishedat 5.00%. Except for loans approved from October 1, 1987through December21, 1987where borrowers elected to remain at interest rates set at loan approval, all loan advances made from October 1, 1989 through September 30, 1990 under Bank loans approved on or after October 1, 1987 shall bear interest at the rate of 5.00%. The calculation of the Bank’scost of 9oney rate for Fiscal Year 1990is provided in Table 1. Sincethe calculated rate (4.75%) is lessthan the minimum rate allowed under 7 U.S.C. f 948(b)(3)(A), the cost of money rate is set at the minimum rate of 5.00%. The methodology required to calculate the cost of money rate is established in 7 CFR 1610,10(c). 2 GAO/AFMD-91-32 , Enclosure Enclosure FOR FURTHER INFORMATION CONTACT: F. Lament Heppe, Jr., Chief, Telephone Loans and ManagementStaff, Rural Electrification Administration, Room 2250, South Building, US. Department of Agriculture, Washington,DC. 20250, telephone number (202) 382-9550. SUPPLEMENTARY INFORMATION: The cost of money rate methodology developsa weighted averagerate for the Bank’s cost of money by consideringtotal fiscal year loan advances;the excessof fiscal year loan advancesover amountsreceived in the fiscal year from issuancesof ClassA, B, and C stocks,debenturesand other obligations: and the costs to the Bank of obtaining funds from thesesources.During Fiscal Year 1990,the Bank paid the following dividends: the dividend on Class A stock was 2.00% as established in amended section 406(c) of the Rural Electrification Act; no dividends were payable on Class B stock as specified in 7 CFR 1610.10(c);and the dividend on Class C stock WAS establishedby the Bank at 8.5%. The total amount receivedby the Bank in Fiscal Year 1990from the issuanceof Class A stock was $28,710,000. Total advancesfor the purchaseof Class B stock and cash purchasesfor ClassB stock were $8688,650. Rescissionsof loan funds advancedfor Class B stock amountedto $1,033,871.Thus, the amount receivedby the Bank from the issuance of ClassB stock,per 7 CFR 1610.10(c),was$7,654,779($8,688,650- $1,033,871).The total amount received by the Bank in Fiscal Year 1990from the issuanceof Class C stock was $10,066. The Bank did not issuedebenturesor any other obligations during Fiscal Year 1990. Consequently, no cost was incurred related to the issuanceof debentures subject to 7 U.S.C. 5 948 (b)(3)(D). 3 GAO/AFMD-91-32 Enclosure Enclosure The excessof Fiscal Year 1990loan advancesover amountsreceived from issuances of ClassA, B, and C stocksand debenturesand other obligationsamounted to S71,320,146. The cost associatedwith this excessis the historical cost of money rate as defined in 7 U.S.C. § 948(b)(3)(D)(v). The calculation of the Bank’s historical cost of money rate is provided in Table 2. The methodologyrequired to perform this calculation is describedin 7 CFR 1610.10(c).The cost of moneyrates for fiscal years 1974through 1987are defined in section 408(b) of the RE Act, as amendedby Pub. L 100-203,and are listed in 7 CFR 1610.10(c)and Table 2 herein. Dated: OCT16 18% GaryC.Byrne Governor, Rural TelephoneBank 4 GAO/AFMD-91-32 Enclosure Enclosure TABLE 1 RURAL TELEPHONE BANK M 1990 COST OF MONEY RATE source of Amount - - X (Amount X Rate) Bank Funds Amount cod Rate /Advances M199Olssuance of Class A Stock S28,71O,ooO 2.00% S574,200 0.5332% FY1990lasuance of Class 9 Stock $7,8!%,779 0.00% so 0.0000% FY1990lswan~e of Class C Stock s10.066 8.50% S8?j6 0.0008% FY199Olssuance of Debenturesand Other Obligations $0 _.I so 0.0000% ExcessofTotal AdvancesOver 1990lssuances S71,320,146 6.36% S4,535,961 4.2119% TotalWl99OAdvances 5107,694,991 CALCULATED COST OF MONEY RATE 4.75% MINIMUMCOSTRATE~WABLE 5.00% TABLE 2 RURAL TELEPHONE BANK HISTORICAL COST OF MONEY Bank (Advancc?sX Foal cost of BankLoan AdVWXlSX cost RaOe)! Year Money Advances CostRats TotalAdvances 1974 5.01% 5111,022,574 S&562,231 0.317% 1975 5.85% s130,663,197 s7,643,797 0.436% 1976 5.33% s99.915,cw S5A25.473 0.304% rsn 5.00% S80,907,425 S4"045,371 0.231% 1978 5.87% $142,297,190 S6,352,845 0.477% 1979 5.93% 5130.540.067 57.741.026 0.442% 1980 8.10% S199,94235 $16,1%,483 0.924% 1981 9.46% 5146,599,372 s14,057,501 0.802% 1982 8.39% 5112,232,127 S9,416,275 0.537% 1983 6.99% 593,402&38 56.528.858 0.372% 1984 6.55% S90.450,549 S5,924,511 0.338% 1985 5.00% 572,563,394 S3,629,170 0.207% 1986 5.00% 571,652.363 S3.592.819 0.205% Y 1987 5.00% S51,974,938 S2.598.747 0.148% 1988 5.00% 5119,488,367 S5,974,418 0.341% 1989 5.w% $97.046347 S4,852,347 0.277% TOTAL ADVANCES 51,752,920,667 COSTOFMONEYRATE 6.36% (916040) 5 GAO/AFMD-91-32
Review of Rural Telephone Bank's 1990 Loan Interest Rate Calculation
Published by the Government Accountability Office on 1990-11-02.
Below is a raw (and likely hideous) rendition of the original report. (PDF)