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Congressional Testimony

Statement of Mr. Jan E. Shadburn
Former Administrator
Housing 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 Committee, thank you for this opportunity to testify on the President's Fiscal Year 2000 budget proposal.

As you and the members of the Committee well know, the Asian economic crisis of the past year as well as drought, disease, and numerous other problems have had devastating effects on America's farmers, ranchers, and agricultural communities. Rural manufacturers have felt the effects as well, as they find that foreign markets can no longer absorb their products. The more than $5 billion for farmers and ranchers which you appropriated last year is helping to shore up the economies of rural communities across America. More will need to be done, though, as production agriculture and manufacturing continue to lose jobs to increases in productivity and other factors.1 Rural communities need help retaining their members, attracting new residents, and providing basic services. Housing Programs (Housing Programs) programs meet these needs. Through partnerships that span the private, nonprofit, and public sectors, Housing Programs provides rural American communities with affordable rental housing, homeownership opportunities, child care facilities, schools, and a multitude of services for the elderly. Together, these programs enhance community livability, create jobs, and add to local tax bases, giving rural communities the resources they need to grow and prosper.

Housing Programs Programs Help Level the Playing Field for Rural Children

Today, rural children are at an economic disadvantage compared with urban children. Twenty- four percent of America's 14 million rural children live in poverty. To show you how insubstantial the resources for these children are, the poverty threshold in 1996 for a family with two adults and two children was $15,911; for a family with one adult and one child, it was $8,163. Children of color bear a tremendous share of this burden: 50 percent of rural African American children live in poverty, as do 46 percent of rural Latino children and 41 percent of rural Native American children. Urban children, by contrast, are better off: they are less likely to live in poverty and more likely to live in middle- and upper-class homes. In 1997, 39 percent of urban children lived in households with incomes higher than 300 percent of poverty, compared to only 25 percent of rural children. Rural children deserve the same opportunities as urban children. By providing affordable and safe rental housing, homeownership opportunities, and essential community facilities such as child care centers and schools, Housing Programs can help rural communities level the playing field.

Rural communities often have difficulty housing their poor citizens for the following reason: poor rural people cannot afford their housing because they lack the necessary income, not because rural housing is very expensive. In fact, almost 60 percent of poor rural households who pay more than 30 percent of their income towards housing and utilities pay less than $500 each month for housing costs. As you know, many families find it difficult these days to make ends meet, even when they work full time. Wages in rural areas are often insufficient to lift families out of poverty.

The Housing Programs Section 521 Rental Assistance program, the Section 515 Rural Rental Housing program, and the Section 514/516 Farm Labor Housing program directly address the problem of housing affordability by filling the income gap. In fact, the average income for tenants in Section 515 and Farm Labor Housing is $7,300. The Rental Assistance program ensures that families living in Section 515 and Farm Labor Housing pay no more than 30 percent of their incomes toward rent and utilities by providing landlords with a grant to make up the difference. Even with Rental Assistance, some families have so little income that they must make choices between necessities such as medicine and food. The Section 515 and Farm Labor Housing programs decrease the income gap by providing very low interest loans and grants to developers, who in turn are able to provide tenants with below-market rents for safe and comfortable housing. Currently, 225,750 households receive Rental Assistance. About half are young single people and families, and the remainder are elderly. More than 452,000 families are living in the decent, safe, and comfortable housing that the Section 515 and Farm Labor Housing programs provide. Illustrative of the tremendous need for this housing is the fact that 86,000 Section 515 and Farm Labor Housing tenants pay more than 30 percent of their income towards rent, and 29,000 pay more than 50 percent, yet these families remain in Housing Programs housing. Even though they are heavily rent overburdened, these tenants still see Housing Programs housing as their best alternative.

The President's proposed $640 million Rental Assistance budget will enable 41,800 households to remain in either Section 515 or Farm Labor Housing, helping young families to provide a stable environment for their children and affording elderly households the income security they would not otherwise have. The proposed budget will also provide Rental Assistance to new Farm Labor Housing apartments as well as to rehabilitated Section 515 and Farm Labor Housing apartments. In addition, it will provide a limited amount of new construction and emergency servicing Rental Assistance. Emergency servicing Rental Assistance is crucial in disasters such as the recent California citUtilities Programs freeze, which by destroying citUtilities Programs crops also devastated the economies of numerous small towns and took away the seasonal jobs of hundreds of agricultural workers. Without the emergency Rental Assistance Housing Programs is providing, those agricultural workers who live in Housing Programs's Section 515 Rural Rental Housing would have not have been able to make their monthly rent payments, jeopardizing not only their own housing security but also the financial viability of their entire Section 515 complex.

The President's budget of $100 million for the Section 515 Rural Rental Housing program will ensure that Housing Programs is able to maintain its 17,000 complexes in good repair and to provide approximately 1,900 new apartments. Funding for the Section 515 program directly benefits the very poorest children, their parents, and elderly people. These are people whom communities struggle to provide with good housing.

The President's $40 million budget for the Farm Labor Housing program will allow Housing Programs to provide farmworkers and their families with approximately 600 new apartments and 350 rehabilitated apartments. Farmworkers are one of the most poorly-housed populations in the country, and, as I have already pointed out, 46 percent of rural Latino children live in poverty. The 113 additional units that the proposed budget increase provides will ensure that at least a few of these children are able to live in the safe, pleasant housing that is so often out of reach for farmworkers.

Housing Programs is working to improve tenants' quality of life and self-sufficiency by promoting on-site services such as computer training, reading programs for children, resume preparation for job seekers, tutoring services for children and adults, health services, Meals on Wheels, and fitness classes. By working together with the Office of the Inspector General (OIG) to find and correct any fraud or abuse, we are also making sure that the most vulnerable in our society are protected. This partnership with the OIG complements our implementation of the reforms you mandated, as well as the over 100 administrative measures we have taken to improve the program.

For those families with low and moderate incomes who wish to rent apartments, Housing Programs has begun providing the Section 538 Rural Rental Housing guaranteed loan program. The average rent for a Section 538 apartment is $455 per month. The President's proposed budget of $200 million for this program will allow Housing Programs to provide almost 5,400 new apartments to rural families. Included in the President's budget is a legislative proposal which would remove the requirement that 20 percent of loans be subsidized, thereby removing the main source of subsidy cost. This legislative change would allow Housing Programs to receive twice as much money and provide twice as many apartments as it would be able to were the subsidy requirement to remain.

I have discussed the rental housing options Housing Programs provides rural American families and their communities. Now I would like to spend a few minutes telling you about how we serve rural families who have demonstrated their ability to repay a loan and wish to own their home. The Section 502 direct loan program, and its companion program, the Mutual Self-Help Housing program, are targeted at people who earn 80 percent or less than the median income in their area. These programs give borrowers and their children the boost they need to move out of poverty. We recently commissioned the USDA Economic Research Service (ERS) to conduct a national survey of borrowers who have received Section 502 direct loans since 1995, whether for Self- Help or for contractor-built homes. The results were impressive. First, 25 percent of borrowers had at some time received government rental assistance. As a matter of fact, we know that many of the families who participate in the Self-Help program are farmworkers who once lived in Housing Programs-funded farm labor housing. Now these families are paying a mortgage, and by the time they leave the program they are likely to have moved off interest credit and to be paying the note rate on their loans. The ERS survey shows that 83 percent of borrowers were first-time homebuyers. Ninety percent said that they were living in a better home than they were before, and 61 percent said they were living in a better neighborhood than before. To show you what a good investment we have been making over the past four years, Section 502 homes seem to have appreciated in value, with a median purchase price of $64,800 and an estimated current value of $72,000. Housing Programs borrowers are sinking roots into their communities, providing their children with so many benefits: a comfortable and safe home they can be proud of, a better neighborhood, and, eventually, equity against which to borrow for a college education, a business expansion, or even another home.

Let me share with you what a difference the Section 502 direct loan program has made in the life of one Mississippi family. Ms. Ruby Jean Lee is a 48-year-old single parent of three children, ages eleven, thirteen, and seventeen. She is currently employed at Northwest Community College in Senatobia and earns an annual income of $9,300. Until a few days ago, she and her children were living in an overcrowded old wood-frame house with a leaky roof, weak floors, inadequate heat, and nonfunctional plumbing. In July 1998, Ms. Lee applied for a Section 502 direct loan. She was certified eligible, and in October she closed her loan of $65,000. She and her children moved into their new three-bedroom, two-bathroom home in February 1999. Ms. Lee and her children finally have a water-tight roof, good heating system, solid floors, and indoor plumbing that works. The Section 502 direct loan program that is included in the President's budget will allow for 1,730 more such opportunities, for a total of 16,630 families.

The President's budget provides a $4 million increase for the Self-Help Housing Technical Assistance Grant program, bringing the program level to $30 million. This increase will allow Housing Programs to provide approximately 16 new technical assistance grants to Self-Help organizations in underserved communities such as Empowerment Zones and Enterprise Communities, as well as in areas which currently do not have a Self-Help program. It will also allow 1,900 families to build their own homes, an increase of 370.

For low- and moderate-income families, Housing Programs offers the Section 502 Single Family guaranteed loan program. This program eliminates the downpayment barrier that prevents many young families from becoming homeowners by providing financing for the full value of the home. The President's budget of $3.2 billion for the Section 502 guaranteed loan program will finance more than 34,000 homes.

Housing Programs multi- and single-family housing programs provide high quality, affordable housing to rural American families. Communities benefit from these programs not only because they increase their housing stock but also because they realize the jobs, local taxes, and fees generated by construction. Using the National Association of Home Builders' estimates of the economic benefits generated by housing construction, the President's budget for Housing Programs multi-family housing will create and preserve more than 8,000 jobs in construction and construction-related industries, $268 million in wages, and $142 million in combined federal, state, and local revenues and fees. The President's single family housing budget will create and preserve more than 35,000 jobs, $1.1 billion in wages, and $601 million in revenues and fees.

In order to retain and attract young working families, rural communities must offer not only safe and affordable homes but also good day care and schools. Today, rural children under the age of six face higher poverty rates than older children, with children of color bearing a disproportionate burden: young African American children are three times as likely to be poor as white children, and young Latino and Native American children are twice as likely. Research by ERS suggests that the reason young children suffer higher poverty rates than older children is that rural areas lack the child care facilities which enable parents to go to work. Many rural parents face a tough choice: go to work to increase their family's income but worry constantly about whether their children are safe and well cared for, or live in poverty in order to stay at home to take good care of their children. Housing Programs's Farm Labor Housing and Community Facilities programs offer a way out of this dilemma by providing much-needed safe, high quality child care facilities.

Although housing complexes financed through the Farm Labor Housing program are not required to provide child care facilities, these facilities are an eligible loan purpose of the program, and many borrowers have taken advantage of the opportunity to provide them to their tenants. These facilities are critical to farmworker families, whose economic circumstances are sometimes so dire that they must bring their young children with them into the fields. Housing Programs is continuing to encourage its Farm Labor Housing borrowers to build child care facilities. Housing Programs has also greatly augmented the number of child care facilities it funds through the Community Facilities program, financing 13 centers in 1995, 19 in 1996, 33 in 1997, and 46 in 1998. The facilities financed in 1997 and 1998 alone will serve more than 10,000 children, and we plan to continue this high level of commitment to providing child care facilities.

One of the biggest determinants of success in life is education, and mobile young families often relocate to be near good schools. Because small rural communities have difficulty obtaining funds to build and repair educational facilities, Housing Programs provides these communities with Community Facilities direct loans, guarantees, and grants. Housing Programs has funded schools, including schools for people with mental or physical disabilities, teacher housing, dormitories, and all- purpose college campus buildings. We have also joined a partnership with the American Indian Higher Education Consortium to assist this organization with funding tribal colleges. Since 1993, we have provided $3 million in direct loans and grants to build college facilities in Montana, North Dakota, and Arizona. In addition, Rural Development State Directors with large Native American populations have been expanding their outreach and communication with tribal leaders. As a result of this interaction, we expect in the future to be funding more community facilities and housing for Native Americans.

The President's proposed $473 million budget for the Community Facilities direct loan, guaranteed loan, and grant programs will ensure that we are able to continue these expanded child care and educational services, as well as to continue our commitment to providing high quality health care and emergency services facilities. The increases in the direct loan and grant programs will allow Housing Programs to expand services in the most distressed communities, including Empowerment Zones and Enterprise Communities.

Housing Programs Programs Provide Rural America's Elderly Poor with Safe and Affordable Housing

In 1996, 9 million of rural America's 54 million people were 60 years old or older. Twenty-nine percent of rural seniors between the ages of 60-74 were poor or near-poor (100-149 percent of the poverty level), as were a staggering 42 percent of people over the age of 74. Poverty among seniors increases with the degree to which their surroundings are rural, with elderly poverty rates being highest in the most remote areas and the lowest in urban centers. Ironically, because the likelihood of poverty among seniors increases with age, those who typically have the greatest need for assistance with the tasks of every day life are the least able to pay for it.

The children of the Great Depression worked all their lives to build the rural economy. Many of them did not work in jobs with retirement plans, and they survive on their monthly social security check, food stamps, and Supplemental Security Income (SSI). Many of them are living in housing worse than what they had during the Depression and to varying degrees are struggling to take care of themselves. Often, their children lack the resources to help them, as do their communities. Every day, through its home repair, rental housing, and community facilities programs, Housing Programs provides modern housing for the first time to elderly people who have been chopping wood for heating or walking to a well for water because their homes are so decrepit.

The Section 504 grant and loan programs directly address the housing rehabilitation needs of very low-income seniors who own their own homes.2 The median income of beneficiaries of both programs is less than $9,000. Often, our customers have no choice but to remain in the substandard homes in which they have lived for decades, and the programs makes a tremendous difference in their quality of life. The President proposes a budget of $30 million for the grant program and $32.4 million for the loan program. Combined, this funding will allow both of these heavily oversubscribed programs to improve the homes of 11,200 households with basics most Americans take for granted: a roof that does not leak, indoor plumbing, an air conditioner, an electric or gas heating system, a solid floor, or an electrical system that meets the fire code. They will also allow seniors to retrofit their homes to accommodate disabilities, for example by installing low counters, handrails, and ramps for wheel chairs.

The Section 515 program provides a highly valued residential alternative to relatively independent rural seniors who find that they can no longer keep up with the yard work and structural maintenance that homeownership requires. In addition to being virtually maintenance- free, Section 515 apartments for elderly and disabled people are equipped with special amenities such as strategically placed handrails and emergency call buttons or lights with which to signal for help. They are also wheelchair accessible. Managers of these complexes often arrange for services such as transportation, grocery and pharmaceutical delivery, Meals on Wheels, health screenings, and entertainment, and they make sure that the community rooms stay in constant use. In addition, a small percentage of Section 515 complexes offer congregate facilities in which seniors receive at least one meal per day. Many seniors in Section 515 housing receive Rental Assistance, as well, enabling their small incomes to go further to cover costs of prescription drugs, food, and other necessities.

Margaret Bakken is one of the more than 180,000 seniors who is currently benefiting from Section 515 housing. She also receives Rental Assistance. In October 1989, she and her husband Norbert Bakken, who then were 77 and 85 years old respectively, completed an application to live in the Section 515-funded Pine Ridge Apartments in Ridgeland, Wisconsin. Their rural Chetek home was heated only by wood and lacked plumbing and an indoor toilet. Mr. Bakken was physically unable to chop wood and haul water, so Mrs. Bakken had to perform these demanding tasks every day. At the time she and her husband applied to live at Pine Ridge, she could no longer keep up with these chores and with the maintenance of her old house. She was worried about how she and her husband would survive the coming winter. Mr. and Mrs. Bakken were overjoyed and extremely grateful that their application was accepted and that they could move into a warm, comfortable, and secure apartment. Without the aid of the Section 515 program and a monthly Rental Assistance payment of $261, the Bakkens could not have afforded such a nice home on their annual income of $6,960. In December 1995, Mr. Bakken passed away. Mrs. Bakken, now 87 years old, remains a tenant at Pine Ridge Apartments. She tells us she loves her home and enjoys the quiet, safe environment. The assistance she receives through Housing Programs allows her to live a comfortable life, unlike many of her peers.

In addition to providing housing repair loans and grants and subsidized rental housing, Housing Programs also provides elderly rural Americans with numerous community facilities, including assisted living facilities, boarding homes, adult day care centers, intergenerational care centers, retirement homes, and nursing homes. The program also invests heavily in rural health care facilities, from which seniors typically benefit in great measure. In 1997, Housing Programs invested $51 million--23 percent of its total Community Facilities funds for the year--to either build or make improvements to 33 senior facilities. In 1998, we invested $43 million in 40 facilities. We plan to continue our commitment to serving the ever-increasing rural elderly population.

Housing Programs and Its Partners Leverage Their Resources to Build Communities

None of the programs I have described would be successful without the help of our many partners. Without the strong interest and support of our network of 2,000 private lenders, the Section 502 guaranteed loan program would not have been able to help 39,400 families become homeowners last year. These same lenders are also working hard to make our Section 538 guaranteed loan program a success. Our nonprofit technical assistance grantees are at the heart of the Section 523 Mutual Self-Help Housing program, which has made homeownership a reality for thousands of people for whom it seemed impossible. Nonprofit organizations also help package our loans, performing valuable outreach to underserved communities in the process and helping to stretch our limited staff resources. And our nonprofit and government partners in the Rural Home Loan Partnership have played pivotal roles in expanding the reach of the Section 502 direct loan program. Thanks to the combined efforts of the Rural Local Initiatives Support Corporation (Rural LISC), the Federal Home Loan Bank System, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and Housing Programs, in 1998 the Partnership made home loans worth $19.8 million ($13 million in Section 502 direct loans, $6.8 million from private and nonprofit lenders) to help 284 families become homeowners. Nonprofit community development corporations provided them with homebuyer education to ensure that they will be successful borrowers.

Finally, let me discuss the contributions of our most important partners, the citizens of rural America. So often we hear of how a town's citizens rally to improve the housing conditions of one of our customers. In an Appalachian community in eastern Ohio, for example, students at the high school build one new home each year for a local family. In a community with an unemployment rate of 10 percent, their contribution makes a real difference. Recently, one young couple with a four-year-old child received one of these homes, which they financed through a $70,000 Section 502 direct loan. Through this arrangement, the family was able to save $20,000 in labor costs, and the students learned marketable construction skills.

Another fine example of Housing Programs and a community working together to improve the life of a local resident took place in southern New Mexico. An eighty-six-year-old woman, who has been deaf since childhood, has lived her whole life in the home her parents built. When the woman's friends approached the local public works office and the local Rural Development office for assistance, her home lacked a septic system and indoor plumbing, had no kitchen facilities other than a wood stove, and had a leaking roof and a dirt floor. Rural Development was able to provide a Section 504 grant for $7,500. The public works employees began soliciting help from the community to augment this grant. They were able to secure $10,000 in materials and donated labor. Many citizens from the town, as well as Rural Development and public works employees, provided their labor to the renovations. When the renovations were completed, the home had a new roof, floor, kitchen, septic system, and remodeled interior. Because so many people from the city, various businesses, and private individuals donated their time, money, and materials to remodel this home, this Section 504 grant truly turned into a community development project.

Mr. Chairman and members of the Committee, with your continued support, Housing Programs and our thousands of partners around the country will continue to lay the foundations for a strong rural America.


  1. Throughout this testimony, I describe current socioeconomic conditions in rural America. All of the statistics and trends I cite come from the USDA Economic Research Service's (ERS's) 1997 and 1998 Rural Conditions and Trends Socioeconomic Conditions Issues, as well as from 1998 Agricultural Outlook reports. ERS typically reports these data in terms of "non-metropolitan" and "metropolitan." For convenience, I use the term "rural" to refer to non-metropolitan and "urban" to refer to metropolitan.
  2. The Section 504 grant program is limited to rural seniors while the Section 504 loan program is available to any rural person with a very low income. However, 60 percent of loan program beneficiaries are seniors.

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