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Congressional Testimony

Statement of John Rosso
Administrator, Business Programs

Before the House Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
March 19, 2003

Mr. Chairman and members of the Subcommittee, I am pleased to appear before you today to present the Administration's Fiscal Year (FY) 2004 budget for Rural Development's rural business and cooperative programs.

Mr. Chairman, the programs and services of Rural Development, in partnership with other public and private sector businesses, continue to improve the economic climate of rural areas through the creation or preservation of sustainable business opportunities and jobs. Rural Development continues to invest in rural America, especially in the under-served rural areas and populations. Rural Development programs, help close the gap in opportunity for these under-served rural areas and populations, moving them toward improved economic growth by providing capital, technology and technical assistance. The $718 million requested in this budget for Rural Development programs will assist in creating or saving about 72,646 jobs and providing financial assistance to more than 2,269 businesses and cooperatives.

Business and Industry Guaranteed Loan Program

For the Business and Industry (B&I) program, the FY 2004 budget includes $29 million in budget authority to support $602 million in guaranteed loans. We estimate that the funding requested for FY 2004 would create or save about 19,156 jobs. We anticipate the demand for this program to continue to be strong.

The Business and Industry program allows lenders to better meet the needs of rural businesses. Through the lender's reduced exposure on guaranteed loans, they are able to meet the needs of more businesses at rates and terms the businesses can afford. B&I guaranteed loans may also be used by individual farmers to purchase cooperative stock in a start-up and existing cooperative established for value-added processing.

I would like to share a success story to illustrate how this program has improved the economic climate in an under-served area of rural America. Finger Lakes Construction in Wayne County, New York, is a general contractor that specializes in the construction of post frame and steel frame buildings. They employ 115 people and have built numerous buildings for residential, commercial, and agricultural customers throughout central and western New York. The company had financed a considerable amount of their growth out of cash flow, which negatively affected their working capital. A $1,062,000 Business and Industry Loan capitalized those investments, and the company now has the working capital to meet their goals. The September 11, 2001, disaster and high out-migration of several New York communities has seriously affected many businesses, including the construction industry in many areas of New York state. This B&I guarantee helped to preserve local jobs within the State.

Intermediary Relending Program

The FY 2004 budget also includes $17.3 million in budget authority to support $40 million in loans under the Intermediary Relending Program (IRP). The initial investment of this proposed level of funding will create or save an estimated 9,000 jobs. Because these funds are loaned three or four times by the intermediary over the 30-year loan term, we estimate that over 30,600 jobs will eventually be created or saved.

Participation by other private credit funding sources is encouraged in the IRP program, since this program requires the intermediary to provide, at a minimum, 25 percent in matching funds. The demand for this program continues to be strong. To illustrate the benefits IRP provides to rural America, I would like to share with you a story from Dimmit County, Texas.

The Neighborhood Housing Service of Dimmit County is a non-profit organization that has successfully administered $1.75 million in IRP funds and received an additional $750,000 in FY 2002. The Neighborhood Housing Service has successfully loaned this money to businesses in an economically depressed part of Texas. Dimmit County is a poor community with a large portion of its population at or below the poverty level, with unemployment in the double digits. Dimmit County benefits from these loans through the creation of new businesses and additional employment opportunities. Overall, the Neighborhood Housing Service has made loans to 15 businesses, created 115 jobs, and continues to provide the communities with critical loans to support the livelihood in Dimmit and surrounding counties.

Rural Business Enterprise Grant Program

For the Rural Business Enterprise Grant (RBEG) program, the FY 2004 budget includes $44 million. We anticipate that this level of funding will create or save over 16,300 jobs. The demand for these grants continues to be strong. The purpose of this program is to assist small and emerging businesses. It is estimated that each dollar of investment of an RBEG generates another $2.40 in private capital.

Among the many eligible grant purposes under this program is the renovation of existing facilities by the grantee to support small and emerging business development in rural areas. For example, renovation of an older building in the downtown area of rural Uniontown, Washington, and converting it into a business incubator was a way for this community to revitalize their downtown area and spur business development and job creation. A $75,000 RBEG will help to save and create 15 jobs in the business incubator. The first tenant of this building is a bakery, and other space is being prepared for additional tenants in this small agricultural community.

Rural Economic Development Loan Program

The FY 2004 budget includes $15 million in Rural Economic Development Loans. This program represents a unique partnership, since it directly involves the rural electric and telecommunications borrowers in community and economic development projects. It provides zero-interest loans to intermediaries, who invest the funds locally. In FY 2002, each dollar invested through these programs attracted an estimated $9.91 in other capital. This is one reason why Rural Development is the venture capitalist in rural America. The return on our equity from rural America is strong.

I'd like to provide an example of how this program can assist. The Gibson Electric Cooperative was awarded a $400,000 Rural Economic Development Loan to assist the Williams Sausage Company, Union City, Tennessee, purchase machinery and equipment for a major expansion of the plant. The business is a major purchaser of hogs in the region and provides a market for local farmers in Tennessee, Kentucky, and Missouri. It is estimated that there will be 60 jobs created and 140 jobs saved by this one business assisted with Rural Economic Development Loan funds.

Rural Business Opportunity Grant Program

The FY 2004 budget includes $3 million for Rural Business Opportunity Grants to provide much-needed technical assistance and capacity building in rural areas. The demand for this program continues to grow. Many rural areas need to develop economic and community development strategies that will attract private investment capital and Federal and State assistance. Also, the vast majority of rural communities are served by part-time officials who do not have the time or training necessary to compete with large communities for funding that may be available to them. The funds requested under this program will provide invaluable assistance to communities as they take their first step toward overcoming these impediments.

To illustrate, the Irwin County Board of Education in Ocilla, Georgia, will provide a construction consultant and professional staff to: (1) oversee the construction of an education facility; and (2) work with student interns, oversee demonstration projects, and facilitate meetings and education events. This Agricultural Demonstration and Education Farm project will cost an estimated $740,000, $45,000 of which is from a Rural Business Opportunity Grant. This is yet another example of the value in leveraging Rural Development funds.

Renewable Energy Grants Program

The Renewable Energy Systems and Energy Efficiency Improvements Program was authorized by the Farm Security and Rural Investment Act of 2002. The program authorizes loans, loan guarantees, and grants to farmers, ranchers, and rural small businesses to: (1) purchase renewable energy systems; and (2) make energy efficiency improvements. The FY 2004 budget proposes $3 million in discretionary funds, rather than mandatory funds authorized under the Farm Bill. The program supports the President's Energy Policy by helping to develop renewable energy supplies that are environmentally friendly. In addition, the program contributes to local rural economies through the jobs created and additional income to rural small businesses, farmers, and ranchers.

Cooperative Services

The functions of our cooperative programs are authorized under both the Cooperative Marketing Act of 1926 and the Agricultural Marketing Act of 1946. Our programs serve as the focal point of national activity to help farmers and other rural residents help themselves by providing the necessary advice and assistance.

Rural Development recently produced a report titled "Cooperatives in the 21st Century." This report identifies the challenges and opportunities that face farmer cooperatives in the years ahead, and offers strategies to increase their chances of success. External forces besetting cooperatives are examined, as are their internal strengths and weaknesses. Priority issues are listed that cooperative members, leaders and advisors need to address. The report serves as a catalyst for further thought and discussion on how farmer cooperatives can enhance the income and quality of life available to their members.

In addition to providing written assistance, Rural Development helps cooperatives by providing hands-on instruction. Rural Development is providing technical assistance to the Southwestern Peanut Growers Association (SWPGA), a cooperative involving peanut growers in TX, OK, and NM. The cooperative is making a transition from a Commodity Credit Corporation (CCC) designated sales agent for government-owned peanuts to a marketing cooperative. To maintain this activity, SWPGA must develop a marketing and processing business in the peanut industry. Rural Development is working with them to develop a business plan.

Rural Cooperative Development Grant Program

For the Rural Cooperative Development Grants (RCDG) Program, the FY 2004 budget requests $11 million. Of this amount, up to $1.5 million would be used for projects, which focus on assistance to small minority producers through their cooperative businesses. This program complements our internal National and State Office technical assistance efforts by encouraging the establishment of centers for cooperative development. The centers provide expertise for conducting feasibility analysis, outreach, and other forms of technical assistance for new and existing cooperatives.

The Farm Bill formalized the value-added grant program authorizing $240 million in mandatory funding spread over six years. Over the past two years, 293 grants have been awarded for nearly $57.5 million. This program has four component parts including value-added producer grants, agriculture innovation centers, agricultural marketing resource center, and research on the impact of value-added projects. Eligibility for this grant program was greatly expanded in the Farm Bill and the program encourages applications for grants less than the $500,000 maximum allowed to provide benefits to as many producers as possible.

Five hundred thousand dollars will be used for Cooperative Research Agreement in a competitive program. Cooperative Services will provide a program of research on applied and theoretical cooperative issues affecting agricultural and other rural cooperatives. The use of cooperative agreements requires substantial involvement of our staff with the universities' and non-profits' staff leveraged to conduct the research. Personnel and funds for a competitive program are requested to bring research efforts back up to a level justified by current farm conditions; rapid industrialization, concentration, and integration in production agriculture; quickly evolving information, communications, and biological technologies; and transformation of the social and economic structures of rural areas. Funds are requested in FY 2004 to fund the cooperative agreements with Cooperative Services researchers and operations of the direct cost of conducting the competitive process to be funded out of the Salaries and Expense account.

One example is the Cooperative Development Center at Montana State University-Northern. Since the fall of 2000, the Center has helped to form the Montana Natural Beef (LLC), Amazing Grains Cooperative, Flathead Native Beef Cooperative and Peaks & Prairies Oil Seed Growers Cooperative. Seven other cooperative groups are also receiving assistance. The Center has also conducted workshops on business formation and marketing; provides assistance in specialty food-product development, and facilitates business development through the use of a commercial kitchen.

The Appropriate Technology Transfer for Rural Areas Program (ATTRA) provides technical information to producers and their advisors on the best sustainable production practices. We are requesting $2.0 million for this program. This funding would support responses to over 18,000 direct inquiries from agricultural producers, extension personnel, and others on sustainable practices that reduce dependence on chemicals and is more environmentally friendly. ATTRA funding also supports a website that provides instant information to agricultural producers.

Mr. Chairman, this concludes my testimony for the Rural Development FY 2004 budget for rural business and cooperative programs. I look forward to working with you and other Committee members to administer our programs. I will be happy to answer any questions the Committee might have.

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