FDR's Juvenile Delinquents
When my father was a teenager, electricity came to the hills of North Georgia, brought by the agents of the Rural Electrification Administration. Within a few years, the vacation cabin he and my grandfather built was about the only place in Habersham County still lit by kerosene lamps.
That was some 40 years ago, when the REA itself was just a teenager. (Born in 1935, the agency wasn't expected to live past the age of 10.) Now in middle age, its mission long ago fulfilled, this child of the New Deal has spawned progeny of its own—the nation's 1,000 customer-owned rural electric cooperatives. And the co-ops, spoiled by the lavish allowances doled out to them at taxpayer expense, have become juvenile delinquents.
Every few years, we can count on the co-ops to get into some scrape. Back in 1983, for instance, the Agriculture Department (of which the REA is a branch) discovered that a number of co-ops were investing subsidized construction loans in such "building projects" as certificates of deposit.
Now 11 co-ops find themselves embroiled in a major tax scandal, involving aggressive use of an esoteric (and now discontinued) tax credit known as safe harbor leasing. Co-ops sold parts of power plants to other companies and leased them back, giving the buyers tax credits and the co-ops big bucks.
It isn't clear the co-ops did anything wrong—the IRS is always out to turn legal tax loopholes into illegal tax dodges. But the real scandal isn't what's illegal, if indeed the co-ops have broken the law. The scandal is what's legal.
Electricity reached every hill and hollow by the mid-1960s, most much earlier. But last year, the co-ops still received $622 million in REA loans, at a maximum interest rate of 5 percent, well below the government's borrowing cost.
This money fuels the co-ops that fuel the golf carts at Hilton Head Island and the condos at Vail. It subsidizes growth in the affluent suburbs of Atlanta, Minneapolis, and Nashville. And, in a roundabout way, it helps finance the National Rural Electric Cooperative Association, one of the most powerful lobbying groups in Washington, with a $43-million annual budget and a PAC that will give candidates $400,000 this election.
The co-ops have thwarted the Reagan administration's every attempt to replace the REA's easy terms with private-sector lending and a 70 percent loan guarantee even Lee Iaccoca could love. Spoiled from birth, the co-ops want more, more, more.
They gripe, for instance, that the REA has given them only the minimum in loans and loan guarantees required by Congress. They want the maximum—$933 million next year in loans, $1.9 billion in guarantees. Defaults, they admit, are a problem. The solution: more subsidies.
All these subsidies are justified, maintains chief co-op lobbyist Bob Bergland, because they lower the co-ops' costs. Yep, that sure is what subsidies do.
And Bergland believes rural residents are especially deserving of handouts. Many services, including electricity, are expensive to provide where people live far apart. So, he argues, the government must underwrite those services.
This argument fails to recognize that people create costs for themselves, wherever they choose to live. City residents, for instance, pay many times as much for housing as their country cousins. The government shouldn't take from farmers to lower yuppies' rent, and it shouldn't tax yuppies to lower farmers' electric bills.
The REA has done its job. The co-ops are all grown up. It's time to cut their allowances and make them get a real job.
This article originally appeared in print under the headline "FDR’s Juvenile Delinquents".