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Congressional Testimony

Statement of Jill Long Thompson
Former Under Secretary for Rural Development

Before the Senate Subcommittee on Agriculture, Rural Development and Related Agencies
April 15, 1997


Mr. Chairman and Members of the Committee, I am pleased to be here today and present for your consideration the 1998 Budget request for the Rural Development mission area. Before I discuss the specifics of the Budget request, I would like to thank the Subcommittee and your staff for the assistance provided to this mission area and to the Department of Agriculture (USDA) during the past year. With your assistance and leadership we were able to enact some of the reforms needed in the multi-family housing program and, again with your assistance, we were able to conduct a very successful voluntary separation program which mitigated the need for a large Reduction-in-Force. The voluntary separation program has assisted us in meeting other commitments such as the implementation of the centralized servicing system, and has permitted us to maintain a staff that is going to be with us for years to come.

Mr. Chairman, this past year has been very rewarding as the mission area has enjoyed a number of successes beyond delivering the program funds provided by this Subcommittee. We began the implementation of the Dedicated Loan Origination and Servicing System (DLOS) which will save the taxpayers $250 million over the first five years and $100 million annually thereafter. Implementation is still in the early stages, but we see no reason that we cannot meet our projected completion date of October 1, 1997. DLOS is one of the largest government reinvention efforts undertaken, and the monetary savings is only one part of the success. We have proven that we can successfully manage large scale change, and we have proven that change does not necessarily lead to negative consequences for our employees.

We have also completed the streamlining of a number of our major regulations: single family housing, business and industry loan guarantees, and water and waste disposal loans, and we are working on others. Our objective has been not just to streamline, but also to produce a product that works better and costs less. These regulations are not only smaller in volume -- they are much more understandable and customer friendly. Further, in order to make the business and industry loan guarantee program more attractive to lending institutions, the application forms will soon be available electronically, and they can be forwarded to our offices electronically. We are now examining other opportunities to use this application process.

FOCUS OF THE 1998 BUDGET

Mr. Chairman, since the early days of this Administration it has been evident that one of the President's highest priorities is to continue, and where possible strengthen, the investment in rural America.

While we have seen some improvement in rural areas over the past few years, real household incomes have actually declined and poverty rates are still alarmingly high. The majority of rural families are working poor. Incomes are not sufficient to lift families above the poverty level in many cases. The poverty rate in rural America still stands at about 17 percent. Even more disturbing, however, is the fact that 25 percent of rural children under the age of 18 live in families with incomes below the poverty level, and among African American children, the level is about 54 percent. As the President said in his State of the Union address, our economic future is with these children, and their education and training will be the cornerstone of tomorrow's economy. However, many of these children may not have the opportunity to obtain the necessary education because they still lack basic amenities of life such as adequate shelter and running water in their homes. Investment in the elimination of these problems must continue, and we must view them as investments, rather than simply expenditures.

EMPOWERMENT AND PARTNERSHIPS

Neither the programs of this mission area nor any other Government program can ensure the economic success of any individual, but we can help eliminate some of the obstacles. Empowering people and communities to build the capacity to control their destinies while partnering with the private sector to build new economic opportunities is a charge that I am very committed to and is the foundation of this budget request. This budget reflects the President's belief that jobs create opportunity and long-term community stability. We recognize that it is primarily the responsibility of the private sector to create the needed jobs. However, in many rural areas, the private sector alone cannot accomplish the task. These are the areas where we need to focus our efforts and help the residents and the private sector create opportunity. This Administration stands behind the principle that if sustainable economic development is to occur, rural communities themselves must develop the structures that enable them to respond to rapidly changing economic conditions and forces in order to become competitive and to remain competitive. The communities that are successful are those that take the initiative and have the determination to succeed.

There has been some improvement in rural areas, but examining the data closely reveals that most of the improvement occurs in those counties adjacent to metropolitan areas. According to one report, over 400 rural counties have fewer jobs today than in 1969. These counties are generally found in the northem plains, the agriculture heartland, the Mississippi Delta, the Cotton Belt, and natural resource dependent states. The growth that has occurred in rural areas tends to be concentrated in slow growth or declining industries -- and in the more rural counties that have experienced growth, it tends to be in low-skill, low-wage jobs. This type of growth does not provide a base for self-sustaining economic development.

For sustainable development to occur, rural communities must either attract more of the high skill industrial employment or increase the number of higher income residents -- and the only means of accomplishing this is to increase investment that improves the communities' ability to compete in an increasingly global economy. Depending on their individual circumstances, this investment ranges from basic infrastructure improvements and housing to business and industrial investment. And we in the Federal government who administer programs that assist rural areas must be willing to work with the communities, and the states, to ensure that the investments are tied to long-term strategic improvements. As you know, one of the requirements of the 1996 Farm Bill is that our State Directors, working in concert with local communities and the states, prepare a plan for the expenditure of the funds appropriated through these programs. Each State Office has submitted a draft of their plan and we are now in the process of reviewing them. I expect these plans to be like business plans that articulate where a particular state hopes to be 5 or 10 years from now and sets forth very concrete steps (bench marks) to get there. Bench marking is one of the more useful tools to come out of the Empowerment Zones/Enterprise Communities (EZ/EC) experience. One of our "Champion Communities," an applicant that did not receive designation as an EZ/EC, did not wait around for the Federal government to act. Based on the plan they developed they have now brought in $100 million in investments without government assistance. This is the ability and determination that we hope to create in all of our customers.

RURAL COMMUNITY ADVANCEMENT PROGRAM (RCAP)

I very much appreciate the willingness of this Subcommittee to appropriate funds under the Rural Housing Assistance Program, the Rural Business Assistance Program, and the Rural Utilities Assistance Program for Fiscal Year (FY) 1997. However, I remain convinced that the additional flexibility that we requested, the authority to transfer up to 10 percent nationally from one funding stream to another, is a tool that we need to improve the use of the programs as development tools. For that reason we have again submitted the budget under the terms of the Rural Community Advancement Program (RCAP) as enacted in the 1996 Farm Bill.

I strongly believe that the key to economic growth in rural areas is the private sector, particularly the investment community. In most rural areas the private sector works quite effectively and efficiently. However, in other areas it does not work as well, and when investment capital flows out of rural areas the local capacity to foster economic development declines, as does the incentive to invest in these areas. Inevitably, the Congress and the Administration are faced with public policy choices regarding these problems. What we collectively have done over the past few decades is enact new programs to meet some of the needs. The programs we administer today are a result of that process and while they individually have been very successful in eliminating or mitigating specific problems, they have not been used collectively to address the economic structural problems that plague many of our rural areas. What the Administration proposed, and what the Congress enacted in the 1996 Farm Bill, was the philosophy of better using what resources we now have rather than creating new programs which stood little chance of being funded due to budget constraints. If the problem is investment capital, we should focus our efforts not on new programs, but rather on how we can encourage the private sector by expanding secondary markets, making existing programs easier to use, working with community bankers to increase their ability to package loans, sharing risk with other institutions, and creating more partnerships with the private sector. This philosophy should also apply to infrastructure investments. At every opportunity we are involving other lenders and other sources of funds in our projects to stretch our limited resources. We can and we will do more of this. But, what we need is the flexibility to bring the key players to the table and structure a financial package that is good for the community, is a sound investment for the local lender, and reduces the involvement of the Federal government. Neither the Federal government, local or state governments, nor the private sector can solve these problems alone. We have to work together. The Federal government has to be more flexible in its approach to solving these problems, and, in my opinion, the flexibility outlined in RCAP is the most important part of the legislation.

The budget request for RCAP totals $2.5 billion in program level and $689 million in budget authority. As a former Member of Congress, I fully understand and share the Subcommittee's concerns regarding accountability for sums of money of this magnitude and the ability to track expenditures. I assure the Subcommittee that I would not approve any transfer until a system has been developed to track the amounts of funding transferred, nor will any transfer be approved unless the Administrators of the respective Agencies agree to it. We have developed such a tracking system and can implement it quickly, should we be given the authority requested.

Housing Programs

The budget request for the Housing Programs, including those programs under RCAP, totals $921 million in budget authority which will support a loan and grant program level of $5.4 billion. Over 60 percent of the budget authority is for the rental assistance program which, as you know, is the rental subsidy that makes it possible for very low-income families to live in the multi-family projects that USDA finances. The request also includes a transfer from the Department of Housing and Urban Development (HUD) of $52 million for us to assume the responsibility for administering the HUD section 8 assistance in some of our housing projects. The Administration has adjusted USDA and HUD budget ceilings to reflect this transfer of responsibility. The request also includes $4.billion for single family housing loans, $1 billion of which is for direct loans. Loans, loan guarantees and grants for community facilities total $428 million with a subsidy cost of $27.6 million. As you know, the funds are used to finance a wide variety of community facilities ranging from hospitals and health clinics to side walks and drainage improvements, with over 50 percent of the money being utilized for either health facilities or fire and rescue equipment.

Mr. Chairman, during the past few decades this country has made great strides in reducing the number of Americans living in inadequate housing and much of the credit for this success lies with this Subcommittee. Unfortunately, there is still a large number of rural Americans living in inadequate housing and, despite the desire of each one of us to balance the budget, the simple fact is that housing poor families costs money. And as we deliberate this budget request we must keep in mind that this housing is more than shelter from the elements -- it is more than providing short-term jobs in the housing industry and increasing the local tax base of the community. Being a homeowner increases the dignity of these families immeasurably -- it provides an environment for the children to gain more from their education. I would strongly encourage each Member of the Subcommittee to visit one of our mutual and self-help housing sites, visit with the families that have built their own homes with a little help from the Federal government, and experience what being a homeowner means to these families. Programs such as the mutual and self-help program should be among the highest priorities of this government because it gives people the opportunity to lift themselves out of their existing conditions. I think a quote from a recent article in the Los Angeles Times puts the proper perspective not only on the self-help program, but all of our programs. The statement is made by a gentleman in Mississippi, who with his family, recently moved into a new home that he and neighbors constructed through the program. He "imagines the children having a clean place to study and himself awakening after a good night's rest where you don't have to worry about catching rain in pots and pans".

Utilities Programs

The request for the Utilities Programs programs, including those requested under RCAP, totals $734 million in budget authority which will support $3.0 billion in loans and grants. Over 80 percent of the budget authority is to support the water and waste disposal loan and grant programs. The request for these two programs is essentially the same as the Subcommittee provided last year and this level will enable us to continue our commitment to the Water 2000 Initiative as well as meet some of the other increasing demand for these programs. We presently have a backlog of applications for water and waste disposal loans and grants totaling over $4 billion, and this represents but a fraction of the funding that will be required to meet water quality and drinking water standards in rural areas. We will be increasing our efforts to attract other funding for these projects in order to stretch our limited resources.

The most significant change from last year's budget involves the distance learning and telemedicine program. We are requesting $21 million in grant funds compared to the $7.5 million the Subcommittee made available for 1997. The reason for an increase of this magnitude is quite simple. I firmly believe this program will, in the long-term, generate a greater return to the American public and the Federal government than any other program, and the program is a prime example of why we should view these programs as investments rather than simply expenditures. This is part of the President's emphasis on education. This program will ensure that rural students have access to the same educational opportunities available in suburban and urban schools, and improves the prospect that more of the students will remain in rural areas because they will no longer have to migrate to urban areas for better jobs. This technology means that the information business is no longer dependent on being close to urban centers.

Not only does the distance learning program provide the enhanced educational opportunities to rural students that will enable them to compete in the job market and the universities with urban students, but it provides those students from poverty stricken families the educational tools that may change their lives. They no longer have to face a future of very limited opportunity or perhaps be doomed to a future of public assistance. These are the faces that light up the most when provided access to this technology. They are the ones that realize this access can help them break out of the poverty cycle that affects too many rural areas in this country. Secretary Glickman and I had the fortune to visit the schools in the Mississippi Empowerment Zone and see first hand what this technology means to these students. And I might add that this effort is supported not only by the Federal government. The private sector has been working hand in hand with us. In this particular school system we were able to place a number of Federal surplus personal computers, many which we and others repaired and upgraded. A private firm from Indiana donated 40,000 feet of cable initially, and has agreed subsequently to donate an additional 3.5 million feet, while Federal employees and employees of the local telephone company volunteered the labor to wire the schools so the students could have access to the information Superhighway.

Mr. Chairman, none of the success we will see from the distance learning and telemedicine program would have been possible without the rural electric and telecommunications programs. The positive economic effects these two programs have had on rural America cannot be measured. I say this to reiterate the point that rural America cannot attract the businesses or industry it needs to strengthen local economies without making investments in infrastructure. Mr. Chairman, we are requesting $34 million in budget authority to support a total program level of $1.5 billion for electric and telecommunication loans.

Business Programs

The program budget request for the Business Programs totals $70 million in budget authority -- this will support a loan and grant program level of $780 million. As I have stated earlier, I firmly believe that the private sector is the key to sustainable economic development in rural areas and, while the private sector has worked very well in most areas, there are some rural areas in which the private sector does not participate as well as they or we would like for them to. And as I have also said, I believe the government's role in these areas should be to encourage and assist the private sector in doing what it does best. Increasing the role of the private sector will enhance our ability to create and maintain jobs in rural America.

We have taken several steps to make the business and industry loan guarantee program easier for private lenders to use and we have also included incentives for the lenders to participate in areas in which they are now not very active, such as in EZs/ECs. For example, we are willing to increase the level of guarantee from 80 percent to 90 percent and decrease the guarantee fee from 2 to 1 percent on loans made in the targeted areas. The application will soon be available electronically, and the lenders will be able to submit the applications electronically. All of these changes should increase the participation and efficiency in the program.

Mr. Chairman, with the decline of the traditional farm programs which provided stability in the farm markets, I firmly believe that cooperative- owned farm businesses offer an opportunity to pool risk, increase marketing power, and provide the stability no longer available through the price support programs. We see cooperatives as part of the safety net for farmers. In addition, I think we will see more cooperative processing businesses to maximize the amount of money returning to the farmer and remaining in the rural communities. We will soon be submitting legislation to the authorizing committees to authorize the delivery of assistance to nonagricultural cooperatives. There is an increasing interest in rural areas to use the cooperative form of business to deliver other services such as health care, child care and housing. At present we are prohibited from providing such assistance unless the primary sponsor is an agricultural cooperative. This legislation, if enacted, will provide another important tool in our rural development efforts and I think we will see more use of our business programs by cooperative ventures. As I said earlier in this statement, it is important that local investment capital remain in the local community -- this is the foundation that makes sustainable development possible. Once the investment capital starts to migrate to other areas a declining spiral in the economy begins and it is very difficult to reverse.

ALTERNATIVE AGRICULTURAL RESEARCH AND COMMERCIALIZATION CORPORATION

Mr. Chairman, the budget request includes $10 million for AARC, an increase of $3 million. AARC is of critical importance in enhancing private investment in rural areas. AARC's investments have led to the creation of 5,000 new jobs, all in rural areas and each one related to value-added agricultural products. AARC equity investments are part of the safety net for farmers, providing that vital link between the development of new products based on agricultural commodities and successful commercialization that is now even more critical with the gradual phase out of commodity support payments.

SALARIES AND EXPENSES

Mr. Chairman, I am very pleased with the progress that Rural Development has made in meeting our objectives in streamlining and reinventions and I pledge to you that we will continue to do our share in changing how we conduct business. These changes are long overdue and had they been made when needed, they probably would not be as costly as they are today. The improvements we are making, such as DLOS, can only be achieved only if up- front investments are made. We have implemented improvements without significant negative consequences on employees, and we thank the Subcommittee for helping us accomplish that. Mr. Chairman, for Salaries and Expenses I have requested $516 million. This is a reduction from 1997 and is exactly what we need to continue to administer the programs and carry out our other responsibilities without having to impose further Reductions-in- Force. The level appropriated for 1997 presented some management challenges, but through planning and moving some items planned for 1997 back into 1996 and delaying other plans and reducing other headquarters expenditures, we have been able to work within the level provided and maintain our commitment not to reduce administrative support of the State Offices.

Seventy four percent of our request is composed of salary costs. We cannot continue to absorb costs without further Reductions-in-Force, and we cannot afford to reduce the staff further than we have planned without jeopardizing the delivery of programs. We will have reduced the staff by over 2,000 positions since l993 and we have closed just under 400 offices. At the same time, our costs have increased automatically through inflation and annual cost of living adjustments, and further reductions in salaries and expenses will necessitate Reductions-in-Force and that will negate much of the progress we have made.

Thank you very much for the opportunity to discuss the budget request for Rural Development. The Administrators and I will be happy to respond to any questions you may have.

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