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Congressional Testimony

Statement of Dayton J. Watkins
Former Business Programs Administrator

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

Mr. Chairman and members of the Subcommittee, I am pleased to appear before you today to present the Administration's Fiscal Year 2001 Budget for the Business Programs (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, and specifically 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.

The creation of 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. The programs of the Business Programs help close the gap in opportunity for these areas, bringing them closer to sharing in the benefits of the Nation's economic growth. The $1.5 billion requested for the programs in this budget will assist in creating or saving about 105,000 jobs and provide financial assistance to more than 4,200 businesses.


For the Business and Industry Program (B&I), the FY 2001 budget includes $13 million in budget authority to support $1.25 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 about 40,000 jobs. But equally as important, under the guaranteed loan program, we are able to help the local lender provide financing and thus help build community stability.

Of the $1.25 billion requested for the guaranteed program we are again proposing to make available $250 million for financing for cooperative businesses with a particular emphasis on new value-added cooperatives as a policy objective. Priority will be given to projects involving farmer-owned value-added cooperatives. In addition, this financing is available for guarantees of individual farmerís purchase of 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. In FY 1999, $44.4 million of B&I Guaranteed funding was obligated to support cooperative business. In FY 2000, $32 million of B&I Guaranteed funding has been obligated to date. In FY 2001, priority will continue to be given to cooperative businesses.


The FY 2001 budget also includes $32.8 million in budget authority to support $64.5 million in loans under the Intermediary Relending Program (IRP). The initial investment of this level of funding will create or save an estimated 14,500 jobs, but because these funds are re-loaned 3 or 4 times by the intermediary, we estimate that over 49,300 jobs will result eventually. In an effort to be of more assistance through this program, we revised the regulation 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 President's budget also provides that $4 million of the request for IRP shall be for Native Americans. The Administration is directing Federal lending entities to work more closely with Tribal governments and lenders to resolve some of the concerns private lenders have with tUtilities Programst lands and sovereignty issues.

The IRP regulation is now 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 provide immediate feedback to borrowers concerning their applications. Pursuant to Rural Developmentís 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. To illustrate the benefits the IRP provides to rural America, the Southern Kentucky Economic Development Corporation (SKEDC) has loaned in excess of $1.5 million to more than 10 ultimate recipients, leveraging approximately $11 million in new private investments. As a direct result of the IRP and leveraged funds, more than 200 new jobs have been created.

One ultimate recipient organization that directly benefited from the IRP funds was in Laurel, Kentucky. The Grocery Company needed to expand its transportation fleet and construct a modern new warehouse including the installation of a state-of-the- art computer tracking system for inventory control and uniform pricing. The warehouse was expanded by 37,000 square feet for a total of 237,000 square feet under one roof. Thirty new jobs were created, bringing the companyís total employment to 290 persons. The total project value was $1,361,000, which included a $150,000 ultimate recipient loan from the SKEDC. The Grocery Company now serves 600 retail stores in Indiana, Ohio, West Virginia, Tennessee, and Kentucky.


For the Rural Business Enterprise Grants Program, the FY 2001 budget includes almost $40.7 million. We anticipate that this level of funding will create or save over 12,700 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.


The FY 2001 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. These borrowers are the intermediaries through which the funds are invested locally. Each dollar invested through these programs attracts an additional $3 in other capital. The loan program provides 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. To support the Vice Presidentís Reinvention of Government Plain Language Initiative, we have recently published plain language regulations as a proposed rule. When implemented, these plain language regulations will provide a more efficient and customer friendly procedure for accessibility to the programs.


The FY 2001 budget includes $8 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 Rural process, that the most significant non-capital need in most rural areas is the capacity to develop the economic and community development strategies 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 large communities for funding that may be available to them. The funds requested under this program will aid in providing that invaluable assistance that allows communities to take the first step in assisting themselves.


For the Rural Cooperative Development Grants (RCDG), the FY 2001 budget requests $6 million. This program complements our internal National and State Office technical assistance efforts by encouraging the establishment of centers for cooperative development. Demand for technical assistance through RCDG has exceeded available funding by approximately five or six times over the past few years. Ten centers were funded in FY 1999 and 13 in FY 1998. They provide a focus of development expertise that devotes extensive time to conducting feasibility analysis and outreach for newly developing cooperatives. Business Programs has demonstrated how we are able to harness a variety of resources to enhance cooperative development efforts. In 1999, the National Pork Producers Council (NPPC) asked for technical assistance to explore cooperative solutions to the concentration issues facing the pork industry and its producers. Business Programs aggressively worked with a NPPC Task Force to explore formation of a nationwide cooperative business structure of independent pork producers. The result of these efforts has been the incorporation of the Pork America Cooperative in January 2000. Business Programs will continue its technical assistance in cooperative development as the newly formed organization develops its business plan, membership base and operations.


The Appropriate Technology Transfer for Rural Areas (ATTRA) program provides technical information to producers and their advisors on best sustainable production practices. A funding increase to $2 million is requested to enhance delivery of this effective program. Direct responses to over 15,000 inquires were made in 1999, in addition to information provided through the ATTRA web site. Requests from agricultural producers, extension personnel, and others focus primarily on sustainable practices that reduce dependence on chemicals and is more environmentally friendly.


The FY 2001 budget requests $2 million in funding for cooperative research agreements. These agreements help assure our nationís farmers and their cooperatives have a sound basis on which to make critical economic decisions. In a time of considerable stress and structural change in U.S. Agriculture, it is essential that group action marketing endeavors be on the most solid ground possible.


The Presidentís FY 2001 budget requests $1.5 million to support cooperatives involved with processing and marketing bio-based products. Of that amount, $1 million is for a pilot program for Utilities Programs electric borrowers to demonstrate the efficiency of bio-mass fuel generation.


The FY 2001 budget requests $5 million in funding for the National Sheep Industry Improvement Center. The Center, while having significant delays in implementing their program, has now made a major grant to an intermediary revolving fund that is loaning money to the sheep and goat industry. In addition, $5 million of the National Sheep Industry Improvement Centerís permanent funding has been used to assist the industry in market promotion in light of the unfair trade practices found in the International Trade Commission case against Australia and New Zealand.


The Presidentís FY 2001 budget requests $130 million to cooperative capitalization fund that would be used to provide equity capital for new livestock and other cooperatives and help finance construction of cooperative-owned processing facilities.


For the Rural Empowerment Zones and Enterprise Communities, the Presidentís FY 2001 budget requests $15 million to provide grants to designated rural areas including 5 Rural Empowerment Zones and 20 Rural Enterprise Communities. The purpose of this program is to target Federal, State, and local resources to low-income rural areas to demonstrate that innovative, comprehensive, and strategic alliances between private, public, and nonprofit entities can work in concert to improve the economic strength of rural communities.


Before closing, I would like to urge the Committee to provide the requested funding for Rural Development Salaries and Expenses. We cannot manage the $4.3 billion portfolio without qualified staff. We cannot maintain qualified staff without adequate funding. In addition, our computer systems cannot keep up with the growing portfolio.


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 to benefit all of rural America. Each year we have used all of our resources in this new business environment, but still, the need exists for additional resources to accommodate the needs of those communities not yet experiencing the positive impact of America's economic prosperity. Mr. Chairman, this concludes my formal statement on the FY 2001 Budget. I would be happy to respond to any questions the Subcommittee may have regarding the Business Programs programs of the Rural Development Mission Area.

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