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Congressional Testimony

Statement of Jill Long Thompson
Former Under Secretary for Rural Development

Before the House Subcommittee on Appropriations for Agriculture, Rural Development,
Food and Drug Administration, and Related Agencies

Mr. Chairman, Members of the Committee, it is a pleasure to present to you the President's FY 2001 Budget Request for the Rural Development Mission Area of USDA. With your permission, I will summarize my statement and request that the full text of the statement be presented in the hearing record.

Before discussing the budget request for 2001, 1 am pleased to share with you some of the results of the funding the Committee provided Rural Development for FY 1999. 1 am very proud of the results, and I think the Committee will be as well. With the $1.7 billion appropriated for Rural Development programs in FY 1999, investments totaling $9.9 billion were made in rural people, communities, and businesses. A conservative estimate of the economic impact of that investment is $18 billion. The following is a sample of the successes.

While the aggregate statistics are impressive, they do not tell the human side of the story which is substantial, but is difficult to report statistically. Actual successes are described below.

Mr. Chairman, as you and the Committee review the FY 2001 Budget request for Rural Development, please keep in mind that the reason each of these programs was authorized, in some cases decades ago, was concern that rural America was being left behind economically. Although there has been significant progress during the past three decades in addressing these needs, the poverty rate in many rural communities is still unacceptable. After showing some improvement in the 1970's, many rural areas are once again significantly lagging behind the improvement in the national economy. And more recently there has been increased concern about the future economic opportunities of rural communities due to the concentration of agricultural production and processing.

We all know that as farming operations increase in size and processing operations vertically integrate, ties to the rural community are weakened. Larger farms can purchase their production supplies and capital from larger and more distant sources. Larger farms also find it easier to negotiate directly with processors rather than local buyers. This often results in less income being retained in local communities and less capital available for other business needs and for diversifying the local economy to counter the effects of concentration. This situation is exacerbated by consolidation in the banking, retailing, and in health care. Consequently, there are fewer rural economic hubs than once existed. And evidence shows that the greater the distance from an economic hub, the lower the economic growth rate.

Mr. Chairman, although there have been significant successes in rural areas generated by the programs we administer, the Federal government is not, nor should it be, a substitute for the wealth generating capacity of the private sector. That is why we, in Rural Development, continue to stress that cooperatives are a good solution to some of the development needs in rural areas. Agricultural producers have the opportunity to maximize their position in negotiating prices for their commodities through marketing cooperatives. They can also increase their profits by utilizing cooperatives to process and add value to their commodities. An example is a new cooperative soybean processing plant whose farmer-owners will realize an additional 40 cents per bushel. Most of the additional earnings remain in the local community. We would like to see more cooperative business operations such as this one and others that we have financed in recent years. Through market forces, member-owned cooperatives help grow local economies and rural communities.

We believe it is our responsibility to assist the private sector make these opportunities a reality. This has been the focus and the message of the President's "New Markets" initiative to encourage the private sector to view poverty stricken rural and urban areas as potential market opportunities. Last fall, I had the pleasure of accompanying the President to Hermitage, Arkansas, to demonstrate the success of a very small cooperative venture that includes 17 member producers. Three years ago, before the cooperative was formed, these producers sold 3,400,20 pounds cases of tomatoes worth $60,000, but 15 of the producers were on the verge of bankruptcy. Last year the sales had increased to 570,000 cases worth $4 million. During peak season, the cooperative employs 120 people in a town with a population of less than 700.

Other examples include a very small cooperative in northern Florida that is selling its fresh vegetables and fruits to local school districts. In cases of some producers incomes tripled as they provide very competitively priced, nutritious, and fresh produce to school children. Rural Development was a partner in this cooperative. Much of the work was done by the Natural Resources Conservation Service, the Farm Service Agency, and, of course, the farmers. Another success story is a wheat farmers' cooperative in Colorado that purchased a bakery that was closing. They now process their own wheat into bakery products that are sold to a national sandwich chain and local supermarkets in the Denver area. They have already exceeded their capacity and are looking at options for expanding their operations.

In addition to the economic successes enjoyed by these operations, Mr. Chairman, is the satisfaction one sees on the faces of the producers when they realize they can be just as entrepreneurial as some of the "dot com" companies. Success breeds success. Seeing people realize they can be in charge of determining their future is one of the most rewarding parts of this job. A few years ago, I told you of the joy I saw in people's faces after they had completed building their own homes through our mutual and self help housing programs. Believe me, that joy is equaled when I see agricultural producers realize they can take greater control and generate greater profits in the food chain. They no longer feel captive of the markets.

I urge each Member of the Committee to visit some of these operations and enjoy that experience for themselves. You have appropriated the funds that made it possible.


Mr. Chairman, the President's commitment to improving the economies of rural America continues and that is reflected in the budget request for FY 2001. The Rural Development budget request for programs is $12.4 billion, $1.3 billion higher than the level enacted for FY 2000. This level requires only about $300 million in additional budget authority, not counting what is requested in the Farm Safety Net proposals, which I will discuss later. But, Mr. Chairman, if the Rural Development Mission is to deliver programs of this amount and carry out our fiduciary responsibilities of protecting the $80 billion loan portfolio, we must have sufficient administrative expenses.


The request for administrative expenses for FY 2001 is $581 million, $48 million higher than appropriated for FY 2000 and includes $20 million increase to support a new guaranteed loan accounting system and other system improvements. I realize the burden this places on the Committee, but the potential risk that may occur without the appropriate level of oversight far overshadows this cost. For example, between housing loans of the Housing Programs and the farm credit operations of the Farm Service Administration, we are obligating about $8 billion in guaranteed loans annually, and we do not have an automated accounting system that provides the capacity to manage these funds. This is irresponsible and a legacy, I do not want to leave.

Yet, because we cannot afford to reduce staffing any further than we have, I have made the decision to reduce other administrative expenses, including investments in accounting systems, to maintain the staffing level needed to deliver the programs and do the best we can in managing the assets with which we have been entUtilities Programsted. These were not good decisions, and are decisions I would prefer not to make. For example, when I became Under Secretary, the training budget for Rural Development was about $11 million. Over the past years we have reduced that budget to about $2 million in training that we classify as mandatory, i.e, the minimum needed for our staff to perform at acceptable levels. The loan programs we administer are much more complex than anything found in the private sector, and we have a significant number of new employees that are coming on board. We are not providing them adequate training. We have also reduced travel from over $21 million to just over $11 million at a time when we need to travel more to adequately supervise and monitor our loan portfolio. We have made these decisions because we had to, but I have concerns about our ability to maintain our fiduciary responsibilities.

Mr. Chairman, the $48 million increase requested for salaries and expenses is about 40 percent of the pay cost increases that we have had to absorb during the time that I have served in this job. This is the same as a reduction in funding. An important part of the efforts to modernize field operations for the Natural Resource Conservation Service, the Farm Service Agency and the Rural Development agencies is the effective consolidation of three separate and largely redundant administrative systems into one under the Support Services Bureau. This glaring inefficiency needs to be eliminated.

Consolidated support would be provided for information technology, financial management, travel, procurement, civil rights, and human resource management. These services would be provided under the direction of an Executive Director who would report to a Board of Directors comprised of the heads of the serviced agencies. Unfortunately, language in the FY 2000 Appropriations Act prevented us from implementing our plans for the Support Services Bureau. I would ask you to take a look at that language and work with us to modernize our operations. By pooling resources in the administrative area, each agency will be in a better position to provide greater program support. Mr. Chairman, Members of the Committee, the Natural Resources Conservation Service, Farm Service Agency and Rural Development are, for the most part, located in the same offices, and we are going to share one information system. Does it not, therefore, make good sense that we have one personnel system, one travel administration system, and one procurement system that serves all three?

Mr. Chairman, before I leave the area of administrative expenses, I would also like to advise the Committee that the Office of General Counsel is critical to our success in protecting the interest of the taxpayers. We consider the Office to be an integral part of our team, and they are particularly helpful to us in resolving the problems we encounter in our more complex lending programs, such as like the multi-family housing and the electric loan programs. They have my support and I believe they deserve the support of the Committee.


Mr Chairman, I shall now discuss the requests for the various programs administered by Rural Development.

Housing Programs

I was honored to attend the 50th anniversary of the single family housing loan program in December of last year in Georgia at the home built with the first loan issued under this program. The wife of the family with the first loan and the widower of the Farmers Home Administration employee making the first loan also attended. While the ownership has changed, the home is still in immaculate condition. The story of how much this home, and hundreds of thousands like it, have meant to rural families, and rural connnunities, is something that should be told again and again. This country can be very proud of this home ownership program.

The budget request for the programs administered by the Housing Programs totals $6.7 billion, almost $900 million more than the level appropriated for FY 2000, requiring almost $200 million more in budget authority. This increase reflects the Administration's commitment to improving housing conditions in rural areas and, in particular, improving homeownership opportunities, a key ingredient in building stable communities and economies. The request for single family housing, direct and guaranteed loans totals $5 billion and will support about 64,000 housing units and, in the process, provide nearly 44,000 jobs, primarily in the construction trades.

We are proposing a modest increase in the multi-family housing program which provides housing for some of our most vulnerable citizens. A significant portion of these units are occupied by female heads of household, generally elderly females or single mothers, with annual incomes of about $7,300. The budget request will provide for the construction of 1,400 new units and the rehabilitation of over 4,000 existing units. Mr. Chairman, while there is a significant need for new multi-family housing throughout rural areas, we also have a significant problem in meeting the need for rehabilitation of an aging portfolio, and in maintaining the availability of these units for very low income tenants. The request for the multi-family housing guaranteed loan program will provide for the construction of about 6,400 units. The request for rental assistance is $680 million, $40 million higher than the level available for 2000. Most of the request is needed to renew contracts for 42,800 units. Without rental assistance, it would be impossible to provide affordable rental housing for very low income families, most of whom have no other housing alternative.

As I have told the Committee on many occasions, one of the great joys of this job is to see the satisfaction and absolute joy on the faces of families and their children when they have completed building their own homes with the help of new neighbors. The mutual and self help program is community building at the most basic level, neighbor helping neighbor in the construction of new homes. The Administration is requesting a significant increase in this grant program, $12 million which is used to provide the technical expertise and supervision during construction. Families participating in the program receive loans through the single family direct loan program.

We are also requesting modest increases in the farm labor housing loans and grants --$5 million of it to be appropriated for emergency assistance for migrant and seasonal farm workers. This program, although authorized in the 1990 Farm Bill, was not funded until last year's emergency supplemental appropriations act. The contribution of migrant and seasonal farmworkers to feeding our nation is often overlooked. The $20 million made available for the first time last year is equally important and a very small cost to pay, compared with the value these families contribute to this economy. The assistance was used to pay back rent and utilities, school fees, and a number of other obligations that could not be met, due to natural disasters destroying the crops these individuals and families would have harvested.

Mr. Chairman, I would also like to thank the Committee for having the foresight to provide $6 million in FY 2000 for the Rural Community Development Initiative. These funds will be used by a wide variety of organizations to assist us in helping rural communities to become more self-reliant. It is through these efforts that we endeavor to teach community leaders that dependence on the Federal government is not the answer to long-term economic problems. The communities, themselves, must develop the capacity to build local economies. It is also through efforts like this that we engage other organizations with resources to work with us in building homes for low income families. We are very proud of the number of funding partnerships we have established in the past couple of years. Through these efforts we are stretching the capacity of the tax dollars with which we are entUtilities Programsted.

Mr. Chairman, we are also requesting a significant increase in the low-income housing-repair loan and grant program, This program provides the very basic improvements in owner occupied single family homes to make the house safe and livable. However, the most important contribution of the program may be that it allows elderly men and women to live the remainder of their lives in their own homes with a degree of dignity. It is also one of the most utilized programs we have in most disaster situations. It was used extensively in North Carolina following Hurricane Floyd.

The request for community facilities totals $484 million, $24 million of which is for grants, including $6 million to continue the Rural Community Development Initiative being implemented this year, and $5 million for the hazardous weather early warning alert system, the need for which has been recently demonstrated again in rural Georgia. Increasing the community facilities grant program is one of our highest needs. We can accomplish more with this program than almost any program in our portfolio. As Members of the Committee realize, this program finances rural health facilities, child care facilities, fire and safety facilities, jails, education facilities, and almost any other type of essential community needed in rural America. However, it is very difficult to reach many of the more impoverished communities that are unable to repay loans. Additional grant funds are needed to offset the cost of these loans.

Business ProgramsS

Mr. Chairman, the key to creating economic opportunity in rural areas is the development of new businesses and employment opportunities. This is primarily the role of the private sector. However, due to concentration and integration of the agriculture industry, and more recently the consolidation of the banking industry, local lending institutions frequently do not have the capacity or the capital needed to sustain local businesses and generate new growth. Further, something that should not be overlooked is that frequently, the Rural Business Cooperative Service is only a partner, and sometimes a minor partner, in the loans made through these programs. We expend a lot of effort in every program, including housing and utilities, to leverage other monies into the projects we finance.

The programs, particularly the Business and Industry loan guarantee program, were enacted to supplement the efforts of local lending institutions in providing that capital. The program requested for the Business Programs is $1.5 billion with the majority for the Business and Industry Loan Guarantee program, $1.2 billion, compared with $869 million in FY 2000. We will also again establish a policy objective of $200 million of the total for the development or expansion of cooperative businesses. As you know, we have established similar priorities in other years, and while we have not yet achieved our objectives, the level used by cooperatives is increasing each year. For example, through the first quarter of FY 2000, we almost matched the level used by cooperatives in FY 1999.

I am particularly pleased that this budget request includes funding for a Cooperative Equity Capital Fund which will be used to assist producers of livestock and other cooperatives to counter the effects of market concentration. This request is included in the Farm Safety Net proposal as a mandatory expenditure of the Commodity Credit Corporation. I have mentioned that the lack of capital is a major problem that rural areas face in economic growth. While not everyone agrees on how much is lacking, all areas on the lack of equity capital. This need is greatest when crop and livestock prices are depressed. More and more producers are beginning to realize that the only means of gaining a greater share of the food dollar is to own the processing or manufacturing facilities. We intend to use this program to meet some of that demand and we will be submitting legislation for the consideration of Congress outlining how we intend to use the program.

Complementing this request is an increase in cooperative development grants which will be used to assist in the development of new cooperatives. These grants are made to cooperative development centers which augment our internal staff resources in providing technical, financial, and management assistance in the creation and maturation of new cooperative ventures. As provided in last year's Appropriations Act, a portion of these funds will be devoted to assist small and minority producers who more frequently and more quickly feel the effects of price reductions. The same producers can benefit more through the use of cooperatives to market or process their commodities. The Administration will also again be submitting legislation to authorize assistance to non-agriculturally related cooperatives. I believe such authority is important to the economic success of rural areas.

We are proposing that the Intermediary Relending Program be increased by almost 70 percent. The demand for this program is increasing significantly. With part of the increase we wish to improve our ability to assist tribal governments establish revolving loan funds. We plan to do this in conjunction with the Small Business Administration and the Department of Treasury's Community Development Programs Financial Institutions. This joint effort would not only aid tribal governments establish lending capacity, but also to aid private sector lenders in dealing with some of the obstacles they have encountered in lending to tribal organizations. The importance of these small revolving loan funds to rural communities is demonstrated not only in the successes of this program, but also in the fact that a significant portion of other grant programs are used to establish similar loan funds.

We are also proposing an $8 million level for the Rural Business Opportunity Grant program, a 100 percent increase over the level provided for FY 2000. This program was authorized in the 1996 Farm Bill and funded for the first time for the current fiscal year. These funds can be used by a variety of organizations, such as the Empowerment Zones/Enterprise Communities, Rural Conservation and Development districts, and others to develop economic development strategies.

The budget request also includes $3.5 million in budget authority for bio-mass demonstration projects. Specifically, $2 million will be available for firms that will use the Business and Industry loan guarantee program to develop, process, or market bio-based products; $1 million will be available for electric borrowers to demonstrate the value of generating electricity using bio-based products as the fuel, and $500,000 will be available for cooperative development grants for cooperatives that process or market bio-based products.

The National Sheep Industry Improvement Center has recently reached an agreement with the Livestock Production Association to establish a revolving loan fund for improving the infrastructure of the sheep and goat industry. We are requesting $5 million of the remaining $30 million authorized for this program to augment that effort.

We are also requesting $15 million for the third year of the Empowerment Zones/Enterprise Communities designated in the second round of this program.

Utilities Programs

The Utilities Programs (Utilities Programs) provides financing for electric, telecommunications, and water and waste disposal services that are the backbone of economic development. Last fall, we celebrated the 50th anniversary of the telecommunications program, and this year we will celebrate the 60th and 65th year of the water and waste disposal and electric programs, respectively. The successes of these programs and the benefits they have provided to rural America are unparalleled. Over $70 billion has been invested in rural America through these programs, and the economic growth they have generated has repaid the cost 100 fold. And even more remarkable is that less than one percent of the amount loaned has been lost through defaults. The capital investment generated by the program levels requested in the budget will generate about 100,000 jobs. But more important is the opportunities generated, particularly through the telecommunications programs. It has long been the policy of Utilities Programs that fiber optic cable be used for telecommunication rather than the copper wire that is found in most urban areas. However, much of the rural traffic still must be routed through other exchanges with less capacity. The "digital divide" is composed of issues such as this.

Mr. Chairman, if I remember correctly, you were one of the last Members of Congress to receive telephone service in your home, so you know first hand the importance of these programs to the prosperity of rural America. When President Clinton announced the Digital Initiative in early February, he was criticized for constructing a political deal. He said, "This is not a political deal. If I had waited for the market to solve universal telephone access, there would still be places in Arkansas where people wouldn't have a phone." Paraphrasing another comment in that regard, the bottom line of the President's proposal is a better bottom line for firms in the technology industry. The President knows how important these programs have been to rural America over the decades and he sees the opportunities they can bring in the future.

The level requested for the programs administered by the Utilities Programs is $4.3 billion, the same as is available for FY 2000. We are requesting $1.5 billion, for electric loans requiring $26 million in budget authority. Again this year, we respectfully request that the budget authority be provided in a single amount, rather than by individual program. This additional flexibility permits us to more effectively manage demand for the four different programs.

Our request also includes $670 million for telecommunication loans, including those made by the Rural Telephone Bank, and an additional $325 million for the distance learning/telemedicine programs, which includes a significant increase for grant funds. One of my concerns with the lack of opportunity in many rural areas is that unless we are able to reach the children in poverty-stricken families and provide them the opportunity to expand their education, they will soon be left behind by the technology-driven economy and the rapidity with which knowledge is changing. Distance teaming/telemedicine program is one of the best tools we have for ensuring that they are not left behind. We also request $102 million to finance a broadband internet access loan and grant pilot program.

The request for water and waste disposal programs is $1.6 billion. It will require less budget authority than was available in FY 1999, but a significant increase over FY 2000. With this funding we estimate that we will build, improve, or expand 1,155 water and waste disposal systems serving 2.4 million people and create 42,000 jobs in the construction-related fields. In addition, we will improve our leveraging of funds with State Revolving funds that are also used to finance water and waste disposal systems to ensure that each dollar provided by the taxpayers is used to its maximum. Our primary target is still those residents without safe, dependable water in their homes, especially those with the most serious quality or quantity problems--the systems classified as Water 2000 systems.

When we were challenged early in this Administration to provide every resident in rural America with safe, dependable water in their homes, we knew that we could not meet the ultimate objective. However, the challenge has led to the reduction in the number of rural residents without this basic necessity from 1.1 million in 1990, to under 700,000 now. This is something we all should be proud of. We will continue to pursue that objective in FY 2001, although frankly the ultimate objective may not be reachable due to sparsity of population making affordable systems improbable or terrain that increases cost to the point that systems are not affordable.

Mr. Chairman, before I close, I must return to the issue of administrative expenses. These programs which contribute so much to the economies and the quality of life in rural America cannot continue to be delivered without adequate support of the dedicated employees and the automated systems that are needed to ensure proper accounting of the taxpayers dollars. To continue down the path that we have been on in the past few years may be penny wise, but it is dollar foolish. I am very proud of our accomplishments in reducing expenses. But, being economical and reducing expenses where one can is different than not providing the resources needed for our staff to operate successfully. Since I have held this position, the Rural Development Mission Area has met every streamlining target it has been given, but we have also been asked to absorb $80 million in pay raises and other inflationary items that also should be considered as reductions, but never are. Rural Development and other USDA entities have reached the breaking point and without some relief, all of us may face the embarrassment of a major failure. I do not want this on my record, and I, as a former Member of Congress, am sure that none of you want to be responsible for such a failure either.

The Congress, Administration, and taxpayers, have every right to be proud of the fact that we have eliminated the word "deficit" from policy discussions. Let us now move on to ensuring that every individual in this country has the opportunity to participate in a dynamic, growing economy, but do so with the recognition that delivering these programs wisely costs money. The economic growth we create with these investments in rural America more than pay for the cost of the programs and the associated administrative cost. It is time we started counting both sides of the ledger.

Mr. Chairman, Members of the Committee, this concludes my formal statement. The Administrators and I would be glad to answer any questions you may have. Thank you for the opportunity to appear before you to discuss the Rural Development budget request with you.

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