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Congressional Testimony

Statement of Dayton J. Watkins
Former Administrator
Business Programs

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


Mr. Chairman and members of the Subcommittee, I am pleased to appear before you today to present the Administration's Fiscal Year (FY) 2000 Budget for the Rural Business-Cooperative Service (Business Programs).

Mr. Chairman, the key to improving the economic conditions of rural areas, and particularly those areas experiencing decades of poverty and stagnant economies, is the creation of more business opportunities and more jobs. But, particularly jobs that pay wages that are sufficient to lift families out of poverty. Presently, service sector jobs are the leading employer in many rural areas, and as important as those jobs are to the local economy, they still do not pay a wage sufficient to support a family of four. Creation of these jobs is best accomplished by the private sector, but as we all know there are a number of rural areas in which private sector capital is not readily available, and it is these areas in which we target the programs of the Rural Business-Cooperative Service. The $1.2 billion requested for the programs in this budget will assist in creating or saving about 100,000 jobs.

BUSINESS AND INDUSTRY GUARANTEED AND DIRECT LOAN PROGRAMS

For the Business and Industry (B&I) Program, the FY 2000 budget includes $31.1 million in budget authority to support $1.0 billion in Guaranteed Loans and $50 million in Direct Loans. Since the streamlined Business and Industry Guaranteed Loan Program regulations were published in December 1996, demand for the program has increased 300 percent. With this level of funding we estimate that these two programs will create or save over 40,000 jobs. But equally as important, under the guaranteed loan program we are able to help the local lender provide financing and this helps build community stability.

Of the $1 billion requested for the guaranteed program we are again proposing to make available $200 million for financing for new cooperative businesses with a particular emphasis on new value-added cooperatives. Priority will be given to projects involving farmer-owned value-added cooperatives. In addition, this financing is available for guarantees of individual farmer's purchase of cooperative stock in a start-up cooperative established for value-added processing of an agricultural commodity raised by the individual farmer stockholders. We expect this program to be a key tool in capital investment in rural areas and as a means of helping farmers keep more of the income generated by their product.

INTERMEDIARY RELENDING PROGRAM

The FY 2000 budget also includes $22.8 million in budget authority to support $52.5 million in loans under the Intermediary Relending Program. The initial investment of this level of funding will create or save an estimated 13,000 jobs, but because these funds are re-loaned 3 or 4 times by the intermediary, we estimate that over 40,000 jobs will result eventually. In an effort to be of more assistance through this program we revised the regulations in 1998 to expand the $2 million cap on loans to intermediaries to a $15 million cap to any one intermediary in annual increments of $1 million. The regulation is more user-friendly and authorizes the Rural Development State Offices to process applications at the State level, rather than submitting applications to the National Office for processing. This change has speeded up the application process and allows State Offices to work closer with borrowers to provide immediate feedback concerning their applications. Pursuant to Rural Development's mission of prioritizing the most under served communities we are prioritizing the neediest communities, such as those in low-income or under served areas, those with declining populations, or communities faced with economic restructuring or economic disasters. In addition, the eligible purposes for loans to businesses have been expanded. The demand for this program continues to be strong.

RURAL BUSINESS ENTERPRISE GRANTS

For the Rural Business Enterprise Grants Program, the FY 2000 budget includes almost $36 million. We anticipate that this level of funding will provide over 14,000 new jobs. The purpose of this program is to assist small and emerging businesses and the small amount of funds we typically invest in a project, on a dollar-for-dollar basis generates another $2.40 in private capital.

RURAL ECONOMIC DEVELOPMENT LOANS AND GRANTS

The FY 2000 budget requests $15 million in Economic Development Loans and $4 million in grants. These programs represent a unique partnership since they directly involve the Rural Electric and Telecommunication borrowers in community and economic development projects. They are the intermediaries through which these funds are invested locally and each dollar invested through these programs attracts an additional $3 dollars in other capital. The loan program is a zero interest loan to the cooperative which guarantees repayment of the loan to the government. Loans are used primarily for economic development activities while the grant funds can be used for establishing revolving loan funds and for community development projects.

RURAL BUSINESS OPPORTUNITY GRANTS

The FY 2000 budget includes $5 million for Rural Business Opportunity Grants to provide much needed technical assistance and capacity building in rural areas. We have determined through the Empowerment Zone/Enterprise Community process that the most significant non-capital need in most rural areas is the capacity to develop the economic and community development strategies that are necessary to attract private investment capital and Federal and state assistance. The vast majority of rural communities are served by part-time officials who do not have the time or the necessary training to compete with larger communities for funding that may be available to them. The funds requested under this program will aid in providing that invaluable assistance that allow communities to take the first step in assisting themselves.

RURAL COOPERATIVE DEVELOPMENT GRANTS

For Rural Cooperative Development Grants, the FY 2000 budget requests $5 million to provide continued support in the creation of new cooperative forms of business and to fund the existing and new Cooperative Development Centers who directly assist farmers and others in the development of new rural cooperatives, value-added processing, and other rural businesses. We are firmly committed to the philosophy that the development of new opportunities to enhance farmer income and simultaneously create new business and job opportunities for others is critical to the family farmer and to the renewal of many rural areas. While the farm economy does not produce as many jobs as it once did, it is still the key component of most local economies and must be the base for revitalizing these economies.

COOPERATIVE RESEARCH AGREEMENTS

We are requesting $2 million for needed research on cooperatives. Cooperative Research Agreements are used by Business Programs to participate with universities and other entities in providing research that relates directly to the needs of rural cooperatives. This includes a diversity of needs, reflecting the many changes that are taking place for cooperatives, such as major expansions into value-added processing. There is a greater interest on the part of small farmers and others in applying the cooperative form of organization to non-agriculturally based enterprises. In the past, funding has been included with Business Programs' administrative expenses account.

APPROPRIATE TECHNOLOGY TRANSFER FOR RURAL AREAS

The FY 2000 budget also includes $2 million for the Appropriate Technology Transfer for Rural Areas (ATTRA) program that provides producers and agribusiness advisors information on use of the best sustainable production practices. Encouragement of such practices lessens dependence on agricultural chemicals and is more environmentally friendly.

The ATTRA program handled over 18,000 requests this past year and continues to be a major source of information on sustainable agriculture throughout the country through its 800 number and the use of Internet. We are asking for $2 million, an increase of $700,000, for the ATTRA program to accommodate expanding requests for information.

CONCLUSION

Over the past several years, Business Programs has been provided with increased program resources to use in meeting rural business and economic development needs. We have streamlined our programs, improved consumer focus and developed strategic relationships all to benefit the entire rural America. Each year we have used all of our resources in this new business environment, but still, the need exits for more resources to accommodate the needs of those communities not yet experiencing positive economic impact of America's economic prosperity. Mr. Chairman, this concludes my statement on the FY 2000 Budget. I would be happy to respond to any questions the Subcommittee may have regarding the Business-Cooperative Development programs of the Rural Development Mission Area.

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