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USDA Rural Development 1999 Budget Summary

MISSION

The Rural Development mission area strives to improve the quality of life in rural America by providing financial assistance and working with rural communities through partnerships, empowerment and technical assistance. Outreach and targeting are used to ensure that rural communities that have been under-served in the past have an opportunity to receive their fair share of Federal assistance.

Three agencies comprise the Rural Development mission area: the Rural Housing Service (Housing Programs), the Utilities Programs (Utilities Programs) and the Rural Business-Cooperative Service (Business Programs) which also houses the Alternative Agricultural Research and Commercialization Corporation (AARCC). Under the Department's streamlining and reorganization effort, the field office delivery system for the three agencies was consolidated and is now co-located within USDA Service Centers.

RURAL DEVELOPMENT

                  Program Level (P.L.) and Budget Authority (B.A.)
                             (Dollars in Millions)

                                                                   1998
                                                  1997            Current            1999
                                                 Actual          Estimate           Budget
     Program                                 P.L.      B.A.    P.L.      B.A.    P.L.      B.A.
Utilities Programs                    $2,789      $683  $3,100      $696  $3,225      $753
Housing Programs                       4,192     1,211   5,617     1,282   5,951     1,324
Rural Business-Cooperative
  Service                                     965        98   1,192       103   1,187       108
Alternative Agricultural Research
  and Commercialization Corporation             8         7       7         7      10        10

  Total, Rural Development                 $7,954    $1,999  $9,916    $2,088 $10,373    $2,195

The 1999 budget includes almost $2.2 billion in budget authority for Rural Development, which is intended to support about $10.4 billion in program level. This is an increase of over $450 million in program activity over 1998 and reflects the Administration's strong support for ensuring that rural Americans have the same opportunities for economic growth that exist in urban areas.

The major provisions of the Rural Development budget include:

                              Rural Community Advancement Program   
                                     Sources of Funding   
                                    (Dollars in Millions)   

                                                           1999           1999
                                                          Program        Budget
     Program                                               Level       Authority

Water and Waste Disposal Loans:
  Direct                                                    $764            $126
  Guarantees                                                  75               0
Water and Waste Disposal Grants                              500             500
Solid Waste Management Grants                                  3               3
Community Facility Loans:
  Direct                                                     200              28
  Guarantees                                                 210               0
Community Facility Grants                                      8               8
Business and Industry Loans:
  Direct                                                      50               0
  Guarantees                                               1,000              10
Rural Business Enterprise Grants                              40              40
    Total, Loans and Grants.                              $2,850            $715

Utilities Programs

                           Program Level (P.L.) and Budget Authority (B.A.)
                                        (Dollars in Millions)

                                                                   1998
                                                  1997            Current            1999
                                                 Actual          Estimate           Budget
     Program                                 P.L.      B.A.    P.L.      B.A.    P.L.      B.A.
Loan Programs:
  Electric Loans:
    Direct 5%                                 $69        $4    $125        $9     $55        $7
    Direct, Treasury (Proposed Leg)             0         0       0         0     400         1
    Municipal                                 455        28     500        21     250        22
    FFB Guaranteed                            300         3     300         3     300         0
      Total, Electric Loans                   824        35     925        33   1,005        30

  Telecommunications Loans:
    Direct 5%                                  75         1      75         3      50         5
    Treasury Rate                             170         a/    300         a/    300         1
    FFB Guaranteed                             36         0     120         0     120         0
      Total, Telecom. Loans                   281         1     495         3     470         6

  Rural Telephone Bank (RTB)                  100         1     175         4     175         5
    Total, Elec., Tele. and RTB             1,205        37   1,595        40   1,650        41

  Distance Learning and Telemedicine
    Treasury Rate Loans                       150         a/    150         a/    150         a/

  Water and Waste Disposal Loans
    Direct b/                                 833        72     691        67     764       126
    Guaranteed b/                               3         0      75         0      75         0
      Total, Wtr & Wst Dis Loans              836        72     766        67     839       126

Grant Programs:
  Distance Learning & Telemed.                  9         9      13        13      15        15
  Water and Waste Disposal b/                 519       496     507       507     500       500
  Solid Waste Management b/                     2         2       3         3       3         3
  Emergency Community Water                     1         0       0         0       0         0
    Total, Grants                             531       507     523       523     518       518

Total, Utilities Programs Loans & Grants                   2,722       616   3,034       630   3,157       685

Salaries and Expenses                          67        67      66        66      68        68

    Total, Utilities Programs                             $2,789      $683  $3,100      $696  $3,225      $753

a/ Less than $0.5 million.

b/ These are included in the Rural Community Advancement Program.
(See page 42.)

The electric and telecommunications programs administered by Utilities Programs provide loans to establish, expand, and modernize facilities to improve service to rural residents. The 1999 budget signals a shift in these programs from the highly subsidized direct 5 percent and municipal rate loans to greater reliance on FFB-insured and direct Treasury rate loans. To facilitate this shift the Administration will propose legislation authorizing $400 million in direct Treasury rate electric loans. This authority will be similar to the direct Treasury rate authority currently used by the telecommunications program. Overall, the 1999 program level for electric loans will increase by $80 million over 1998. This level of funding is expected to create 20,000 jobs in rural areas and provide improved electric service to 1.6 million rural residents.

Further, direct 5 percent telecommunications loans will decrease about $25 million from 1998, while other telecommunications programs will remain at their 1998 levels. The total level of telecommunications assistance will result in the creation of about 13,000 construction-related jobs in rural areas, about 206,000 new residents and businesses will receive telecommunications service, and 1.1 million rural customers will access improved telecommunications service. This is a decrease from the 1998 level when almost 215,000 new residents and businesses received services and 1.2 million customers received improved services.

The water and waste disposal program provides grant and direct and guaranteed loan assistance to communities with populations not in excess of 10,000. Communities must be denied access to commercial credit to be eligible for assistance. Loan and grant funds are provided to communities to establish, expand, and modernize water treatment and waste disposal facilities. Through the Administration's Water 2000 initiative, the Department targets a portion of its water and waste disposal resources to the estimated 2.5 million rural residents who have some of the Nation's most serious drinking water availability, dependability, and quality problems. At the 1999 budget levels, the program is expected to create 30,000 rural jobs, provide new water services to 500,000 rural residents and improved water services to almost 900,000 rural residents. The 1999 level will also provide new or improved waste disposal facilities serving an estimated 410,000 rural residents.

The Distance Learning and Telemedicine (DLT) program provides assistance for facilities and equipment to provide telecommunications linkages among education and health care facilities. Grant funding is available for those areas experiencing high poverty levels while loans or a combination loans and grants are available for areas with higher income levels. The program continues to experience a demand for grant funds far in excess of the amount of funding that has been available. In 1997, nearly 60 percent of successful DLT applicants met the poverty requirements necessary to qualify for grant only assistance. The budget provides $15 million in grants and $150 million in loans for distance learning and telemedicine. This would increase grant funding by about $2.5 million over 1998, while maintaining loans at their previous level. The additional grant funding is expected to provide assistance for about 11 additional grant only (high-poverty) projects or about 26 additional loan and grant (lower-poverty) projects.

Housing Programs

                       Program Level (P.L.) and Budget Authority (B.A.)
                                 (Dollars in Millions)

                                                                   1998
                                                  1997            Current            1999
                                                 Actual          Estimate           Budget
     Program                                 P.L.      B.A.    P.L.      B.A.    P.L.      B.A.
Rural Housing Loans:
  Single-Family:
    Direct                                   $706       $83  $1,000      $128  $1,000      $118
    Guarantees                              2,000         5   3,000         7   3,000         3
    Guarantee Unsub Refinancing                 0         0       0         0     100         0
  Multi Family Housing:
    Direct (Sec 515)                          152        78     129        69     100        48
    Guarantees (Sec 538)                       28         1      20         1     150         3
  Very Low-Income Repair                       30        11      30        10      25         9
  Farm Labor Housing                           15         7      15         7      32        17
  Self-Help Housing                             a/        a/      a/        a/      5         a/
  Housing Site Development                      1         0       1         0       5         a/
  Credit Sales                                 24         4      25         4      30         5 
    Total, Housing Loans                    2,956       189   4,220       226   4,447       203

  Community Facility Loans:
    Direct b/                                 137        12     206        17     200        28
    Guarantees b/                              83         b/    153         1     210         0
      Total, Community Facility Loans         220        12     359        18     410        28

Grants and Payments:
  Community Facility                            6         6       9         9       8         8
  Very Low-Income Repair                       18        16      25        25      25        25
  Farm Labor Housing                            9         6      10        10      13        13
  Mutual and Self-Help                         26        26      26        26      26        26
  Supervisory and Technical Asst.               1         0       0         0       0         0
  Compensation for Const. Defects               a/        0       0         0       1         0
  Rural Housing Preservation                    8         8      11        11       9         9
  Rental Assistance Payments                  520       520     541       541     583       583
  Fire Protection Grants                        1         1       2         2       c/        c/
    Total, Grants                             589       583     624       624     665       664
Total, Loans and Grants                     3,765       784   5,203       868   5,522       895
Salaries and Expenses                         427       427     414       414     429       429

  Total, Housing Programs                               $4,192    $1,211  $5,617    $1,282  $5,951    $1,324

a/ Less than $0.5 million.

b/ These are included in the Rural Community Advancement Program
(See page 42.)

c/ Funding is requested in the Forest Service budget.

The 1999 budget for Housing Programs supports a program level of about $6 billion, an increase of over $300 million from 1998. Of the total program level, over $4.8 billion is in the form of loans.

The single family housing direct loan program provides subsidized loans for the purchase of modest housing in rural areas. Loans are made at a graduated interest rate level from 1 percent to the Treasury rate, which is currently 6.5 percent, depending on family income, to families who have income under 80 percent of the area median. Nationally, the average annual income of a direct loan borrower is about $17,000, which is about 55 percent of area median income. Loan guarantees primarily serve families with moderate incomes, with the interest rate negotiable between the lender and borrower.

The Section 515 program would be reduced to $100 million in 1999. This program provides direct loans to construct and maintain multifamily rental projects that serve low and very low income families. Projects receive payment assistance to make rents affordable. The average annual income of a Section 515 tenant is $7,300. The 1999 request will provide for the construction of 1,667 new units and the rehabilitation of 4,146 existing units.

The Section 538 multifamily loan guarantee program guarantees loans that are made by private lenders. It differs from the Section 515 direct loan program in that the projects it finances serve tenants with incomes up to 115 percent of the area median, rather then those below 80 percent of the area median. Because it serves higher income tenants, less subsidy is required, and the program costs only about $2 for every $100 guaranteed. The 1999 request of $150 million would provide for the construction of4,087 units.

The 1999 budget provides $583.4 million for the rental assistance program, an increase of $42 million from the 1998 level. Rental assistance is provided to project owners in the form of 5-year contracts. These contracts are tied to the income of tenants in low-income units, who pay no more than 30 percent of their income in rent. Rental assistance makes up the difference between what the low-income tenant pays and the rent required for the project owner to meet debt servicing requirements. When the 5-year contracts expire, they must be renewed to keep the unit available for low income families and the project viable for the sponsor.

As part of the Civil Rights Action Team recommendations, the 1999 budget recommends $32 million for farm labor housing loans and $13 million for farm labor housing grants, an increase of $17 million in loans and $3 million in grants from last year's levels. This would provide for the construction of 658 new units and rehabilitation of 199 existing units of housing for farm workers.

The community facilities program provides direct loans, guarantees and grants to finance essential community facilities, with priority given to health and safety facilities. There are three interest rates available on direct loans, with the lowest, 4.5 percent, offered to communities where the median income is below the poverty level and for projects to meet health and safety standards. The 1999 budget provides $200 million in direct loans, $210 million in guarantees, and $8 million in grants.

Business Programs (Business Programs)

                       Program Level (P.L.) and Budget Authority (B.A.)
                                 (Dollars in Millions)

                                                                   1998
                                                  1997            Current            1999
                                                 Actual          Estimate           Budget
     Program                                 P.L.      B.A.    P.L.      B.A.    P.L.      B.A.
Loans:
  Business and Industry:
    Guarantees a/                            $815        $8  $1,001       $10  $1,000       $10
    Direct a/                                  12         b/     50         0      50         0
  Intermediary Relending Prog.                 37        17      35        17      35        18
  Rural Economic Development                   12         3      25         6      15         4
    Total, Loans                              877        28   1,111        33   1,100        32
Grants:
  Rural Business Enterprise a/                 48        41      38        38      40        40
  Rural Cooperative Development                 2         2       2         2       2         2
    Appropriate Technology Transfer
      for Rural Areas                           1         1       1         1       2         2
  Rural Economic Development                   11         c/     11         c/     11         c/
  Federal/State Research on
    Cooperatives                                0         0       0         0       2         2
      Total, Grants                            62        44      52        41      57        46
Total, Loans and Grants                       939        72   1,163        74   1,157        78
Salaries and Expenses                          26        26      29        29      30        30
  Total, Business Programs                                 $965       $98  $1,192      $103  $1,187      $108

a/ These are included in the Rural Community Advancement Program.
(See page 42.)

b/ Less than $0.5 million.

c/ Earnings generated by the interest differential on voluntary
cushion of credit payments made by Utilities Programs borrowers provide the subsidy to
support these loans and grants.

Business Programs administers the Department's rural business assistance programs, including technical assistance, development, and research on agricultural cooperatives. The agency delivers a wide variety of services to its clients. Business and Industry (B&I) loan guarantees, for example, provide protection against loss so that private lenders are willing to extend credit to establish, expand, or modernize rural businesses. Other programs, including the intermediary relending program and the rural economic development loan and grant programs allow local sponsors to borrow from the agency in order to make loans to businesses and other organizations for developmental purposes. Special efforts are being made to help rural communities diversify, particularly into value-added processing, by directing B&I funds to cooperatives.

The budget provides $1 billion in guaranteed loans and $50 million in direct loans under the business and industry loan program. Direct loans will be targeted to those areas which have traditionally been under-served by commercial lenders. Loan guarantees help expand investment in rural areas by protecting commercial lenders against loss. In addition, loan guarantees may be used to provide financing to farmers for the purchase of start-up capital stock in a cooperative which will process the commodity being produced by the farmer. This level of assistance is consistent with the Administration's strong commitment to expanding the rural economy and is expected to create or save over 38,000 jobs in rural America.

The budget provides $35 million for the intermediary relending program. The intermediary relending program provides loans at 1 percent interest to local intermediaries who relend those funds to local businesses and other organizations to expand or improve the local economic base. This level of funding is expected to create or save about 24,000 jobs in rural America.

In addition, the 1999 budget includes $2 million for research on cooperatives. This funding will be used to establish cooperative agreements, primarily with State universities and colleges, for research on rural cooperatives.

Rural cooperatives are growing not just in numbers but also in terms of non-traditional forms and uses. Cooperatives are forming strategic alliances with privately held corporations, engaging in value-added processing, and entering the retail and export markets. However, research on cooperatives has not kept pace with this growth, particularly with respect to non-traditional cooperative activity. For example, wheat producers in North Dakota formed a cooperative to process and market gourmet pasta to compete with import brands, and residents of Smith Island, Maryland, formed a cooperative to shell and clean crabs for sale to area restaurants and packing facilities, helping to save a way of life which has existed for generations. Through the cooperative form of business, rural residents are finding ways to save their way of life, add value to their product, and bring more income home to the farm gate and family plate.

ALTERNATIVE AGRICULTURAL RESEARCH AND COMMERCIALIZATION CORPORATION (AARCC)

                       Program Level (P.L.) and Budget Authority (B.A.)
                                 (Dollars in Millions)

                                                                   1998
                                                  1997            Current            1999
                                                 Actual          Estimate           Budget
     Program                                 P.L.      B.A.    P.L.      B.A.    P.L.      B.A.
Investments                                    $8        $7      $7        $7     $10       $10

Operating essentially as an autonomous organization, the Alternative Agricultural Research and Commercialization Corporation (AARCC) makes equity investments in rural businesses to assist in the technological development and commercialization of industrial (non-food, non-feed) uses for agricultural and forestry materials and animal by-products. These equity investments allow start-up businesses an opportunity to become successful prior to undertaking repayment, thereby offering greater flexibility towards repayment than can be accommodated under conventional loan terms which require immediate repayment.

The budget provides $10 million for AARCC, including, about $1.5 million for administrative expenses, which is the maximum allowed by law. This level of funding is expected to help bring 6 new products to market and create about 1,500 new jobs in rural America. This level of funding compares to about $7 million in 1998, of which about $1 million is expected to be used for administrative expenses.

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Rural Development is within the U.S. Department of Agriculture and administers rural business, cooperative, housing, utilities and community development programs.

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