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Congressional Testimony

Statement of Christopher A. McLean
Former Utilities Programs Acting Administrator

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

Mr. Chairman, members of the subcommittee, thank you for the opportunity to discuss the Presidentís FY 2001 budget and program proposals for the Utilities Programs (Utilities Programs). I want to begin by thanking you and the members of the subcommittee for your continued support for the infrastructure programs and policies of rural America. Together, we are helping invest in communities that create the opportunity for a rural renaissance.

This year, the Nation will mark the millennium with a celebration of 65 years of rural electrification and 60 years since the first USDA financed drinking water project. While the accomplishments and progress in providing modern, reliable, and affordable utilities to rural communities these past 65 years are impressive, we must continue, now more than ever, our progress. If not, we run the risk of putting rural America on the wrong side of not only the digital divide but an economic and social divide as well.

Safe, affordable, modern utility infrastructure is a key component of economic competitiveness. It is also a fundamental building block of economic development. Dramatic regulatory and market changes are occurring in the telecommunications, electric, and water utility sectors. Without the help of the Utilities Programs, rural America will have a more difficult time keeping pace with the revolutionary changes being experienced in these industries. It is imperative that the Federal government be actively involved in providing a funding network of support services to rural communities to ensure full participation in the 21st century economy.

At Utilities Programs, we are continuously working to enhance rural utility efficiency by encouraging system mergers, leveraging private capital, and forging new partnerships for economic development. We are reforming our program regulations to be more customer friendly, focusing our resources on rural development and loan security.

The nearly $42 billion Utilities Programs loan portfolio includes investments in approximately 7,500 small community and rural water and wastewater systems, and 2,000 telecommunications and electric systems serving rural America. This 65-year old local/Federal partnership is an American success story. It is a partnership providing critical infrastructure to 80 percent of the Nationís landmass while enhancing the lives of the Nationís rural population, which constitutes 25 percent of the Nationís population based on 1990 census data. That infrastructure spurs economic growth, creates jobs, and improves the quality of life in rural America. The vitality of rural communities truly depends on access to modern, reliable, and affordable utilities.


Utilities Programs is proactively responding to the rapidly changing utilities market. The success of the public-private partnership between Utilities Programs and its borrowers depends on the ability of borrowers to respond quickly to changing conditions. Consistent with the spirit of restructuring, the Utilities Programs continues to streamline its policies, offering borrowers more flexibility in financing, while ensuring safe, reliable modern utility service to rural Americans.


An important step in the rural development is to create a diversified rural economy, which invests in infrastructure, quality education and health care to foster economic growth. Affordable power creates economic vitality and employment. Modern wastewater treatment systems along with clean drinking water improve the rural environment and health. Modern telecommunications keep America connected. We also must provide children in rural America with educational opportunities that will enable them to compete with the best and brightest from around the world. Health facilities serving the rural population need access through telecommunications to the best medical advice available. Rural businesses need state-of-the-art communication technologies and affordable power to create new jobs and enhance the quality of life. All Americans should have a healthy environment, safe, clean drinking water, and have their commercial and recreational water resources protected from contamination. Utilities Programs is helping rural communities in each of these areas.

Our goal is to help provide rural America with the tools and resources necessary to realize the full extent of its potential. We are applying creative thinking, personal commitment, and customer service to program delivery.


The Utilities Programs Telecommunications Program assists the private sector in developing, planning, and financing the construction of telecommunications infrastructure in rural America.

Loans made by the Utilities Programs Telecommunications Program and Rural Telephone Bank (RTB) affect the lives of many rural residents. Utilities Programs and the RTB are working hard to assist borrowers to enhance the standard of living, ensure quality of life, and bring about economic development to rural America.

This yearís telecommunications budget proposes $300 million in Treasury-rate loans and $120 million in loan guarantee authority. This $420 million in loans can be provided at no-subsidy cost to the Government. Coupled with these loan funds, the budget also proposes $7.8 million in budget authority to support $75 million in direct hardship loans to the poorest, neediest, and highest cost to serve areas.

The budget also reflects our commitment to privatize the RTB within the next 10 years. By establishing the RTB as a performance based organization, the RTB can demonstrate that its financial and managerial independence is consistent with privatization goals. The budget proposes $2.6 million in budget authority to support $175 million in RTB loans. This budget authority, as well as administrative expenses, proposes to be paid from the unobligated RTB liquidating account balance in FY 2001, again reflecting no additional cost to taxpayers for loan program operations.


The Distance Learning and Telemedicine Program (DLT) provides financial assistance for rural education and health care providers seeking to utilize advanced telecommunications technologies. DLT loans and grants provide needed infrastructure and high technology end-use equipment for rural areas. This program is a powerful complement to the e-rate. The e-rate is a program administered by the Universal Service Administrative Company under the Federal Communications Commission. Funded up to $2.25 billion annually through contributions to universal service, the e-rate provides discounts for monthly services and connections directly to our Nationís schools, libraries, and rural health care facilities.

For the Distance Learning and Telemedicine program, the budget proposes $300 million in Treasury-rate loan, at zero subsidy budget authority cost, and $25 million in grants. An additional $102 million will be used to finance a broad band rural internet access loan and grant pilot program.

Since 1993, the DLT program has funded 306 projects totaling $83 million in 44 states and two U.S. territories. These projects serve 850 schools and learning centers and 600 hospitals and rural health clinics. The DLT programs provide seed money to leverage almost two times its investment from other private and public sources. Telemedicine projects are providing new and improved health care services to rural residents in underserved areas. In the Distance Learning Telemedicine Program, regulations underwent major revisions during 1999. The changes were designed to more effectively promote the programís loan component and to more clearly delineate the application requirements for the loan, grant, and loan and grant combination programs. A new combination loan and grant program was also introduced in which loans are paired up with grants on a 10 to 1 ratio. That is, for every $10 in loan applications, the applicant would receive an additional $1 in grant funds.

The efforts and policies of the Clinton-Gore Administration in the areas of electronic commerce and access to the Internet are key to a renaissance of booming economic growth for rural America. With this growth comes the greatest opportunity for rural America to market its resources, tourism, business opportunities, as well as improve its quality of life since rural electrification in the 1930s. Advances in telecommunications and computer technology make rural America vulnerable to the digital divide between the ďhaveĒ and ďhave-nots.Ē Low income rural communities are especially vulnerable to this growing disparity due to the high capital investment requirements, low customer density, and distance involved.


The Electric Program budget proposes $25.9 million in budget authority to support a program level of $1.55 billion dollars. The Presidentís Budget requests $5 million in budget authority for a hardship program level of $50 million; $21 million budget authority for a municipal rate program level of $300 million. The budget proposal provides an $800 million funding level for guaranteed loans through the Federal Financing Bank loan guarantees which do not require any subsidy budget authority. In addition, the budget proposal provides $40,000 in budget authority for a $400 million loan guarantee program for private sector loan guarantees. Again this year we are requesting the Budget Authority be provided in a single, unrestricted amount for electric and telecommunication programs. This flexibility permits us to more effectively manage the demand of these programs.

The Utilities Programs Electric Program continues to serve one of the most effective local/public partnerships of the Federal government. Todayís program ensures that all areas of our nation have access to reliable, reasonably affordable, electric energy. We are also forging new and strengthened relationships with private lenders to offer Utilities Programs guarantee loans.

Utilities Programs is also working with several power supply borrowers to secure badly needed peak power utilities and transmission upgrades to meet rapidly growing demand in capacity short regions. Due to this outreach and other factors demand continues to remain high for the Utilities Programs Electric Programs.

A good example of how Utilities Programs electric programs can affect the quality of rural communities is in Douglassville County, Texas. Bowie-Cass Electric Cooperative of Douglassville, Texas developed a construction work plan totaling $17,872,000 to construct new facilities, extend service to approximately 3,800 new customers and improve existing facilities. Of this, Utilities Programs electric program loan funds will provide financing in the amount of $6,300,000 which will leverage $2,700,000 of supplemental financing, $72,000 in aid to construction contribution and $8,800,000 of Co-op generated funds. A portion of these funds will be used to extend service to a new Skills Center in the State that will employ 10-15 people. This Center will work with local colleges to produce the highly skilled technicians the employers of the area require. Without this type of training, employers in this rural area would be faced with employee shortages and might be forced to relocate.


This budget seeks $502 million in budget authority for Water and Waste Disposal (WWD) grants; $5 million in budget authority for solid waste management grants; and $140.2 million in budget authority to support over $1 billion in WWD direct loans and $75 million in guaranteed loans.

The budget request earmarks $20 million for Colonias along the U.S.-Mexico border, $16.2 million for technical assistance and training grants, $7.3 million for the circuit rider technical assistance program, $20 million for rural Alaskan villages, and $30 million in budget authority for loans and grants in Federally designated Empowerment Zones and Enterprise Communities. Our budget request will also allow third-party grantees (such as rural water circuit riders) to make over 28,000 water systems and 29,000 wastewater system contacts to assist communities with intensive assistance, and through a clearinghouse effort taking 28,000 telephone calls and 11,000 electronic bulletin board and web site contacts.

As a result of WWD strong technical assistance efforts, both from staff and third-party grantees/contractors, loan delinquency and loan losses will remain low. Currently, 1 percent of approximately 7,400 borrowers are delinquent and since the inception of the water and waste disposal program less than 0.1 percent of the amount loaned has been written off.

The Utilities Programs program improves the quality of life and health of about 1.9 million Americans each year by bringing safe drinking water and environmentally sound wastewater facilities to those rural communities in the greatest need. A field network of Rural Development employees who deliver the program through ďhand-onĒ technical and financial assistance through the Rural Community Advancement Program.


The Water 2000 Initiative has been very successful at investing in the people and places where safe, dependable drinking water is needed most. The program has been so successful that demand for funds exceeds supply.

In a state-by-state safe drinking water assessment performed in 1995, Utilities Programs found that at least 2.5 million rural Americans had very critical needs for safe, dependable drinking water, including almost 1 million people who had no water piped into their homes. Approximately 5.6 million more were found to have serious needs under the Safe Drinking Water Act standards. At that time, the costs of meeting rural drinking water needs were estimated at $10 billion.

Under Water 2000 targeting guidelines, over 5 fiscal years, Utilities Programs has committed over $2 billion in loans and grants to over 1,700 of the nationís highest priority safe drinking water projects. Water 2000 projects serve communities with the most limited financial resources and highest poverty rates and the most acute water related health challenges. Once completed, Water 2000 projects funded as of October 1999 will provide about 400,000 Americans out of the 2.5 million Americans with critical needs, water for the first time from properly constructed, maintained and tested public sources.

The conditions in Gilmer County, West Virginia, are typical of those targeted by Water 2000. Many of the 116 residents to be served have wells in the flood plain, and most of their wells neither comply with current Federal and state regulations nor provide drinking water that meets accepted standards. In addition to families, better water is needed to benefit the children of Troy Elementary School where the water is of poor quality, in part because of its high sodium content. The new Gilmer County Public Service Water District project will unquestionably improve health conditions for those it will serve. In addition, it should encourage both residential and commercial growth, which are badly needed in an area with an unemployment rate well above the national average. As with most Water 2000 projects the $200,000 loan and $494,000 grant provided by Utilities Programs are being supplemented with other funds including a grant for 45 percent of the total project cost also being provided through the Housing & Urban Developmentís Small Cities Community Development Block Grant program.

We are proud of our record of helping rural communities help themselves build safe, clean drinking water infrastructure for thousands of Americans with strong emphasis on those who truly need our services most. As the level of demand illustrates, this is a huge job that directly affects the health and safety and economic well-being of rural America.


The Presidentís budget includes a $5 million grant initiative in the Rural Development Community Facilities program to be administered by Utilities Programs that will add new transmitters to the National Oceanic and Atmospheric Administration (NOAA) Radio Network. Utilities Programs estimates that at current costs, it will take about $50 million to increase NOAA radio coverage from its current 80 percent to 95 percent. The $5 million in the Presidentís Budget is an important commitment and tremendous initial step towards protecting the lives of rural Americans.

When disastrous weather strikes, the difference between survival and the loss of human life can be a matter of minutes. With early warning, families, especially children and the elderly can be afforded sufficient time to protect themselves in the face of oncoming tornadoes, flash floods and hurricanes. NOAA Early Warning Weather Radio network can help provide that margin of safety. NOAA weather radio provides warnings of dangerous weather conditions to nearly 80 percent of all Americans. The 20 percent of Americans without NOAA weather radio broadcasts are, however, almost entirely in rural areas.


The Utilities Programs strives to increase its program outreach, participation, and delivery to minorities. This goal addresses the heart of our mission. We combine our technical and financial resources to reach out and assist those communities, tribes and other groups with limited resources. The Utilities Programs outreach efforts have touched the vast expanse of our country-from rural Alaskan Villages to Colonias along the U.S.-Mexico border and communities in the Mississippi Delta.

Since the earliest days of rural electrification, this agency has focused special attention on tribal communities. One of our earliest electric borrowers was the Navajo Nation. In telecommunications, five out of the seven tribally owned telephone companies are Utilities Programs borrowers. The significant Utilities Programs investments in utilities in Alaska provide service to some of the most remote native Alaskan villages. Just this year, the Utilities Programs Telecommunications Program made its second loan to Sandwich Isles Communications to provide state of the art telecommunications service to native Hawaiians living on homeland territory. The DLT program has also funded 21 projects serving tribal areas.

Utilities Programs investments in drinking water and wastewater projects serving tribal and rural Alaskan communities have increased by nearly 400 percent since FY 1993, and continue to grow. Utilities Programs is uniquely dedicated to helping unserved and under-served communities. We expect that in Fiscal Year 2000, the annual investment in tribes from our Water and Environmental Programs will exceed $25 million. Twelve million dollars were earmarked in FY 2000 for waste water grants. For FY 2001, the Presidentís proposed budget earmarks $24 million for Native Americans of which $16 million is proposed to be used for water and waste loans and grants. Additionally, we are intensifying coordination of funds with the Indian Health Service and the U.S. Environmental Protection Agency at higher levels than ever before.


USDA/Utilities Programs continues to help rural America build its future. Our ability to succeed in the next century depends, to a large extent, on the investments in productivity enhancing modern infrastructure. Nowhere is that need greater than in rural America. With your continued support, Utilities Programs will play a significant role in advancing rural Americaís quality of life and enhancing its competitiveness in the global marketplace.

Before closing, I would like to urge the Committee to provide the requested funding for Rural Development Salaries and Expenses. We cannot manage the $42 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.

Thank you Mr. Chairman and the members of the committee.

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