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Congressional Testimony

Statement of Jill Long Thompson
Former Under Secretary for Rural Development

Before the House Subcommittee on
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
March 17, 1999


Mr. Chairman, Members of the Subcommittee, it is a pleasure to present to you the FY 2000 budget request for the Rural Development Mission Area. It is even more pleasurable when I can submit a program budget that is $800 million higher than the level enacted last year, but at a lower cost than last year. The increase reflects the President's strong commitment to rural America. It is also due to the President's strong commitment to balancing the budget, growing the economy and maintaining low interest rates, that we are able to keep our subsidy costs low.

Mr. Chairman, the economic growth that we are enjoying has reached some parts of rural America, but it is not at all widespread geographically or demographically. For the most part rural America is still characterized by sluggish or declining economies, and many parts of the country are still plagued by high rates of poverty and unemployment rates. In fact, many rural areas have poverty rates as high as 20%. Among those most vulnerable to the effects of poverty are elderly women and children. Over 3 million children in rural areas live in poverty while almost one quarter of older Americans in rural areas also live in poverty and primarily in areas lacking adequate health care and social services. Many of the rural areas such as the Mississippi Delta, Native American reservations, and the Southwest border region, have endured decades of poverty, and it is these areas to which this Administration has devoted a significant portion of our staff and financial resources. We do so because these areas are also characterized by the lack of capacity to seek out the Federal and other financial assistance that could aid in improving their lives.

Our efforts to improve the capacity of these areas to help themselves has coincided with the need to more effectively utilize administrative resources which we have accomplished through staff reductions and the closure of many of our local offices. We have attempted to compensate for the resulting lack of presence in some communities by building partnerships with other governmental entities, non-profit organizations, and the private sector. While we are making some progress there remains a large void of such assistance in many areas.

Mr. Chairman, the President's commitment to rural America is deep, he knows the private sector is the key to resolving the many and differing economic problems affecting these areas, but he also knows that the private sector cannot accomplish the task alone. The private sector cannot finance housing for low and very low income families; the private sector cannot finance the thousands of water and waste water systems needed; the private sector cannot extend higher educational opportunities to remote rural areas; and the private sector cannot finance the thousands of fire and rescue projects, relying sometimes on the proceeds from bake sales and fish fries to repay loans, as we do on frequent occasion. Likewise, the Federal government cannot create the thousands of private jobs that are needed to raise the economic hopes of rural areas. But, we are demonstrating that the Federal government in partnership with the private sector and others can do much more than each of us can do alone. The private sector is now participating with us in more and more projects, and the private sector is beginning to realize, as the President recently stated, that these many pockets of poverty and high unemployment represent this country's largest untapped market. I am reminded of Henry Ford's answer to the negative reaction of fellow industrialists when he decided to give each employee a significant weekly raise, " I am doing this so they can buy my cars:." We cannot be content with the current, historically low unemployment rate; we must continue our efforts to work with the private sector to create more jobs, so the millions of individuals still mired in poverty can eventually buy the products produced by this economy.

Mr. Chairman, poverty is insidious, and it destroys people's confidence, their desire and their drive. One can see the effects in too many rural areas of this country. Should anyone doubt the benefits of these programs, I challenge him or her to visit some of the areas I have, and see the optimism and joy of families when they move into a home they have built with their own hands; when they enjoy the benefits of clean running water in their homes for the first time, or when they see their children connected to the Internet where they can explore the world. These are just some of the reasons I am proud to present this budget request for your consideration.

RURAL DEVELOPMENT BUDGET REQUEST

The budget request for Rural Development is just under $11 billion for direct loan, loan guarantees, grants and technical assistance. It is an increase of $800 million over the FY 1999 level, but it requires less budget authority than the current fiscal year. The request includes over $4 billion to support the President's National Home-ownership Initiative with an additional 50,000 more opportunities for home-ownership; a 12% increase in funding for the water and waste disposal loan and grant programs in support of the Water 2000 Initiative; and $1.2 billion in funding for the business programs which will assist in creating or saving almost 70,000 jobs in rural America.

Housing Programs

Mr. Chairman, as I have said on numerous occasions, no single factor contributes more to the vitality and stability of a community than does home-ownership. And no sector of the economy contributes more to the growth of the economy than does home-ownership. Every month the Department of Commerce releases statistics on housing starts and this information is eagerly awaited by all of the financial institutions in our country. The effects on the economy are also evidenced by the policy decisions for annual reductions in Federal income tax revenues of about $94 billion for the deduction of mortgage interest, and other deductions attributable to the housing industry.

Despite the positive economic effects of the housing industry, the budget process of the Federal government and the budget constraints we all must labor under, force our attention and our energy to the discussion of the comparatively meager $728 million in budget authority required to support the $5.9 billion in loans, loan guarantees, and grants needed by the less well off individuals in rural America. The economic value of the investments made by the Rural Housing Service are the same as those made by the private sector lenders, Mr. Chairman, but the societal and familial values can be much greater.

The programs administered by the Housing Programs reach the families and individuals that cannot otherwise afford decent, safe, and sanitary housing. They reach families and individuals that the private sector cannot serve. And in many ways they reach two of the population groups most vulnerable to the effects of poverty elderly women and children.

Single Family Housing

The request for single family housing loans totals $4.3 billion, over $300 million more than available for FY 1999 and requiring only $114 million in budget authority. Each new home constructed under this program provides 1.75 years of employment, over $50,000 in wages and generates over $20,000 in taxes for the local economy. In short, each new home generates much more economic value than it costs in budget authority. The average income of a borrower in the direct loan program is $17,000 and the average interest rate paid initially by these borrowers is about 4%, even though the interest rate can be subsidized to as low as 1%. The Rural Housing Service has been successful in stretching limited funding by generating private sector participation in this program. This effort began in 1996 with 20 partners and has now grown to 78 partners in 36 states. However, as important as stretching limited resources, is the acquaintance of private lenders with rural areas which can generate even more business for the lender. The guaranteed loan program provides loans at the market rate and serves borrowers with more moderate incomes.

Multi-Family Housing

The multi-family housing direct loan program serves those individuals and families least able to afford suitable housing. The average annual income of our tenants is $7,300 and for the most part the tenants are elderly female heads of household living on minimum social security benefits. Yet, it is this program and its related rental assistance that presents the largest dilemma in terms of policy and budget decisions. Because of the tenants it serves, these loans are typically subsidized to 1% this contributes to a high subsidy cost. However these tenants have no housing alternatives. There is a tremendous need for this type of housing and while we need to remain cognizant of budget constraints we should not be blind to the most needy in this country. The guaranteed program that was begun just two years ago serves renters with higher incomes. The demand for the program is significant and the program is particularly well received as an effective way to ensure that rural businesses have a well housed work force. It promotes rural economic stability. We are requesting the program be increased from $75 million to $200 million and we are recommending legislation which will eliminate the subsidy cost. Presently, we are required to provide interest subsidies for at least 20% of the loan funds and we have determined that this requirement is not necessary to ensure affordable housing is available. The subsidy cost can be redirected to programs serving the more needy.

Rental Assistance

Rental assistance is a subsidy provided to the developers of the direct loan multi-family housing projects in the form of renewable five-year contracts. The contracts make up the difference between the required tenant payment (30% of income) and the market rental rate, or the rate required to amortize the loan. Rental Assistance is the single largest component of the cost of administering the rural housing programs. We are requesting $640 million for this program, an increase of $57 million from the FY 1999 level. The largest portion of the funding is needed to renew existing contracts that will expire in 2000. The balance is needed for rehabilitation loans, loan servicing options and for new construction. The request for rental assistance is submitted as a "forward funding" request which calls for $440 million to be available in FY 2000 and $200 million available on the first day of FY 2001. While this represents a change in the budgeting method for this program, it will not delay the provision of rental assistance to our tenants.

Mutual and Self-Help Housing

Mr. Chairman, this program is one of the most rewarding programs we administer and I encourage every member of this subcommittee to visit one of our sites to see the positive effects provided when families, who would not otherwise have an opportunity to be homeowners, join forces and build their own houses. The house becomes secondary to the benefits of self confidence and self assurance provided throughout the family and community. This pride is evidenced in the fact that the delinquency rate in these homes is less than others we finance and the borrowers move to conventional credit much faster than do other borrowers. We are requesting a slight increase of $4 million for this program bringing the level to $30 million. These grant funds provide the technical support needed by the families as they construct their homes which are then financed through the single family direct loan program.

Farm Labor Housing

We are requesting a combined increase of $9 million for the Farm Labor Housing loan and grant programs which will allow us to finance the construction and repair of 960 units for migrant and seasonal farm laborers, who with Native Americans are the worst housed populations in America. These programs are the only programs within the Federal government specifically designed to serve this population and the program is one of the few areas over which USDA has the jurisdiction to improve the lives of farm workers who are, in large part, responsible for the low cost other Americans have to pay for food. This program also helps to ensure that the children of farm workers are well cared for while their parents are at work. A substantial number of the projects constructed through this program provide child care facilites which are often administered through Head Start or Migrant Head Start.

Community Facilities

We are requesting a significant increase in funding for community facilities. This is one of our most popular, but often overlooked programs from which we finance a wide variety of essential community projects, ranging from hospitals, nursing homes, and child care facilities to drainage improvements. For years most of the funds have financed health facilities and fire and safety projects, but a recent priority has been child care facilities which are desperately needed in rural areas and the need is growing as families move from welfare to work and single mothers are filling many of the new jobs created in rural areas. Since the inception of this initiative Housing Programs has provided more than $42 million for 141 new or improved child care centers. In several of the projects Housing Programs has partnered with Rural LISC, a non-profit organization and the Head Start program of the Department of Health and Human Services; we expect the partnership to grow even more in FY 1999 and FY 2000.

For community facilities we are requesting $473 million for loans, loan guarantees and grants, an increase of $86 million. Included in the request for community facilities is $5 million to reinvigorate the effort to install severe weather early warning systems through out rural areas. Although the funding is requested under the community facilities program, the program will be administered by the Utilities Programs. This effort began initially in 1994 following widespread destruction and 30 deaths from tornados spawned by one storm in Alabama, Georgia and South Carolina. The Vice President called for 95% coverage for rural America with early warning systems triggered by the National Weather Service. And while we had some initial success through voluntary efforts of our Electric and Telecommunication borrowers liability issues soon slowed the effort. The Vice President has renewed the effort and we estimate the total cost will be $50 million. The $5 million requested in this budget will finance the installation of the necessary equipment at 15 to 20 of the highest priority sites. In all cases we will make every effort to use existing towers which will reduce the cost per site by $200,000. This is a very small investment that could save a significant number of lives and help reduce the billions in property loss each year due to these storms.

Utilities Programs

Mr. Chairman, the Utilities Programs administers programs that have a long and proud history of contributing to the economic growth and stability of rural areas. These programs led to the economic prosperity of rural America and they continue to provide the infrastructure necessary to ensure economic growth in those areas that are still experiencing economic difficulty. While many have argued in prior years that these programs are no longer needed, the reality is that the need has only shifted from initial connectivity to electric and telephone service to maintenance of an aging infrastructure. The current argument from some quarters is that deregulation of the electric and telecommunications industries will drive down the cost of these services and that the service can be provided by the private sector. Mr. Chairman, there is a reason that the Federal government led the way in providing electric and telephone service to rural areas; the profit was not there to induce the private sector to make the initial investment and most rural areas are still not profit centers. And while competitive pricing will reduce prices on a macro level, the situation could be quite different on a micro level, particularly in rural areas. We must maintain our vigilance and ensure that rural areas are fairly treated in this era of deregulation. Many rural areas are currently having a very difficult time maintaining or attempting to rebuild viable economies. Rural economies are very sensitive to even minor changes and we should be very cautious as we proceed with deregulation.

The budget request for Rural Utilities is $3.4 billion, a slight increase over FY 1999 and the necessary budget authority required to support the request is almost $100 million less than that needed in FY 1999. Due to the growing demand for electric loans we are proposing a new direct loan program. The loans from this new $400 million program would be made at the Treasury rate requiring minimal budget authority. In total, we are requesting $1 billion for electric loans. For telecommunications loans, including the Rural Telephone Bank, we are requesting $645 million. We are again proposing the Rural Telephone Bank begin operating as a performance based organization with the goal of achieving privatization within ten years. We are in the process of finalizing legislation which will be submitted to Congress shortly to effect this transition.

Distance Learning/Telemedicine

For Distance Learning/Telemedicine loans and grants, the budget requests a total of $220 million, an increase of $58 million. The demand for this program continues to grow because it makes a real and immediate difference in people's lives, and the potential of the program increases with every improvement in technology. Rural Americans must be connected to the information superhighway, not because of the educational and medical purposes, but also because such access opens limitless opportunities for new business opportunities.

Water and Waste Disposal

We are requesting an increase of $156 million for the water and waste disposal and solid waste loan and grant programs at a cost of almost 50% less than required for FY 1999. The total request is just less than $1.5 billion. This level of effort will provide new water service to approximately 650,000 rural residents, improved water service to 1.3 million rural residents and improved waste disposal services to another 600,000. Under the Water 2000 Initiative, Utilities Programs will devote a portion of its resources to those families lacking running water in their homes or experiencing serious problems with drinking water. A side benefit of this investment is the creation of over 40,000 jobs, primarily in the construction trades, in rural areas.

Mr. Chairman, the economic problems affecting many rural areas are most easily explained by the fact that 50% of all of the jobs in non-metropolitan areas are in the service industry. While these jobs are vital to local economies, they often do not provide enough income to support a family at anything but a subsistence level. More than 60% of the rural families with incomes below the poverty level have family members with some type of employment, and 23% of the rural poor were either full time workers or were in families with one or more full time workers. Over half of the jobs in rural areas pay less than $17,000 annually and another one quarter pay less than $12,000. In most of these same areas we also find deficiencies in transportation, infrastructure, health care and social services. Increasing the incomes through the creation of employment is the best and most permanent solution to these problems and that is what we do through the efforts of the Business Programs.

Business Programs

The budget request for these programs is $1.2 billion, a slight increase over the level provided for in FY 1999. The request for the business and industry loan guarantee program is $1.0 billion, the same level as last year. Mr. Chairman, a recent report issued by the General Accounting Office demonstrates the commitment of this Administration to improve the stewardship over taxpayer dollars. While the program level of this program has increased from $100 million in FY 1993 to $1 billion, the amount of outstanding principle delinquent has decreased from 22.5 percent to 6.1 percent and the percentage of borrowers delinquent has dropped from just under 14% to 5%. This is a significant accomplishment and I am very proud of this staff.

The budget also requests $52 million for the Intermediary Relending Program, an increase of $19 million over FY 1999. This level of funding will leverage an additional $197 million in investment capital and create more than 12,000 jobs. These funds are relent 3 or 4 times, which in turn creates more employment opportunities over the life of the original loan. For Rural Business Enterprise grants, we are requesting $36 million, $1 million less than available for FY 1999. We are also requesting $5 million for Rural Business Opportunity Grants to provide partnership technical assistance planning grants to help rural communities develop comprehensive economic revitalization strategies.

For rural cooperative development grants, we are requesting $7 million, an increase of $3 million. Rural cooperatives are growing both in numbers and in terms of non traditional types of cooperative-businesses. Cooperatives are forming business alliances with private corporations, engaging in value added processing and beginning to enter the retail and export markets. Expanded use of the cooperative form of business is helping retain income in rural areas. The additional funding will aid in providing technical assistance to small farmers and small farm related operations in developing marketing and management skills. We are also requesting $2 million to continue cooperative related research through universities. In the past, this effort has been funded at the same level through the salaries and expense account. To further aid the formation of new cooperative businesses, we are again proposing to utilize up to $200 million in business and industry loan guarantees specifically for new cooperative businesses, including the guarantee of loans to individual members to purchase stock in a new cooperative. The level of funding requested for the Business Programss will help create or save about 100,000 jobs throughout rural areas.

ALTERNATIVE AGRICULTURAL RESEARCH AND COMMERCIALIZATION CORPORATION

The budget request for the Alternative Agricultural Research and Commercialization Corporation is $10 million, a significant increase over the level provided for FY 1999. This level of funding will aid in bringing six new agriculturally based products to market and create about 1,500 jobs.

EMPOWERMENT ZONES/ENTERPRISE COMMUNITIES

The budget request also includes $15 million for the second year funding for the five new rural Empowerment Zones and 20 new Enterprise Communities. As you know, the designations were announced in January of this year. The Administration is also proposing legislation which would provide mandatory funding in FY 2000 and the out years for these communities. Our experience with the rural Empowerment Zones/Enterprise Communities is demonstrating that this approach to community revitalization is very successful because it involves the entire community, it empowers local residents to develop their own solutions and time-frames, and it addresses structural problems comprehensively rather than from the perspective of narrowly focused categorical assistance programs.

SALARIES AND EXPENSES

Mr. Chairman, the Rural Development Mission Area is blessed with very capable, dedicated employees and it is only because of them that we have been successful in restructuring our field offices, downsizing the work force, re-engineering some of our business processes and still effectively delivering the programs. The vast majority of our employees are in the field offices and know first hand the value of the programs we administer because they live in rural areas. The number of full time employees has been reduced from over 9,500 to 7,100 since FY 1993, a reduction of 26% in a very short time frame. During the same time frame the Rural Development program level has increased from about $7 billion to $10.9 billion, an increase of 56%. Also during this same time frame we have asked our employees to take on additional responsibilities. We have reached our streamlining targets, and our employment will not decrease any further, unless we do not receive sufficient funding for salaries and expenses. We ask much from our employees, but they cannot continue to give more unless the Administration and the Congress give them the support they need to continue to function.

The Secretary has recently decided to proceed with the implementation of administrative convergence, which will consolidate many of the headquarters and field administrative functions of the Natural Resource Conservation Service, the Farm Services Agency and Rural Development, as a means to achieve savings through improvements in administrative support. I am a strong supporter of this effort.

The budget request for Salaries and Expenses is $542 million, an increase of $25 million over the level available in FY 1999. There is no fat in this request. We have for too long deferred needed investments in a number of areas, particularly in information technology and accounting systems. Some of these systems are seriously outdated and incompatible with much of the current software that would allow us to work more efficiently. One firm visiting some of our field offices referred to them as museums for computer equipment.

Mr. Chairman, both the Congress and the Administration can take pride in the accomplishments in reinventing and restructuring the federal government. However, we should ensure that we leave as our legacy a more effective and efficient system, not one that cannot function due to the lack of sufficient support. Our employees take great pride in what they do and they deserve our strong support. I ask for your serious consideration of this request.

This concludes my comments. The Administrators and I are available for any questions the Members of the Subcommittee might have.

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