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Congressional Testimony

Statement of Thomas C. Dorr
Under Secretary for Rural Development

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


Thank you Mr. Chairman.

Mr. Chairman, Members of the Committee, I appreciate the opportunity to come before this committee to present to you the President's Fiscal Year (FY) 2004 Budget request for USDA Rural Development.

This is my first opportunity to appear before you - as Under Secretary for Rural Development - I am honored by the opportunity President Bush has given me to serve my country in this position and to assist him in directing Federal resources to help rural America grow and prosper in an ever-changing environment.

My own roots in rural America run deep. For all but nine years of my life I have lived, worked and enjoyed life on a farm in Northwest Iowa, and I am appreciative for the values these experiences have instilled in me.

I seek daily to apply those fundamental values and life experiences to the way we do business at Rural Development. My goal as Under Secretary is to pursue a clear vision and encourage a renewed commitment to the people and communities of rural America. I come to work each day determined to renew the energy and belief in ourselves and in all of rural America. By so doing, this will enable us to assure continued focus on our outreach efforts. This new sensitivity and belief in ourselves - not just as an agency or department - but our belief in the good people of rural America will drive all our efforts in Rural Development.

So I come before this Committee Mr. Chairman with a keen understanding of rural issues and a strong desire to implement federal programs provided through this President and Congress in a way that families and communities can utilize most effectively the available resources and opportunities.

Vision

The President's 2004 budget proposal is key to economic revitalization in rural America. It strongly supports our vision of Rural Development as the Venture Capitalist for Rural America. Rural Development provides equity, liquidity and technical assistance to finance and foster growth in existing and new opportunities for homeownership, business development, and critical community and technology infrastructure. The return on this equity is the economic growth realized through direct assistance and incentivizing private market forces.

So why do I say Rural Development is the venture capitalist of rural America? Because we, the President, and Congress believe in rural America. We believe the return on our investment will be a stronger rural economy and a higher quality of life, along with all the ancillary benefits derived from utilizing the talents of all rural Americans. Revitalized economic activity provides new opportunities for rural youth and helps stem out-migration from rural areas. It is critically important that we find ways to entice our young people to stay or even return to Rural America.

Mission

It is with this vision in mind that Rural Development's mission has been designed to deliver programs in a way that will support 1) increasing economic opportunity and 2) improving the quality of life of rural residents.

Historically, Rural Development has been associated with the old Farmers Home Administration - the lender of last resort. However, in order to properly address these mission goals, it is important to recognize the changes that have occurred throughout rural America. In the 1980 Census, it was revealed that over 960 counties derived at least 20 percent of gross income from production agriculture. The 2000 Census data indicated only 262 counties retain that distinction. These changes in our rural economy drive our efforts today. We must be aggressive in helping our communities develop new economic vehicles that will enable them to grow and prosper. The philosophies and drive of the old Farmers Home Administration no longer apply to today's Rural Development and today's rural communities.

It is with this renewed sense of understanding and purpose that Rural Development, under President Bush's leadership, has become rural America's venture capital firm. I would add that in contrast to reports that Rural America is dying, there is no reason to believe that we can't have economic growth in rural America. We have the essential tools and resources at hand.

Responsibilities

Through Rural Development's Business Programs; Housing Programs; and Utilities Programs we offer a multitude of programs that support economic development.

Let me share with you a brief overview of the wide range of programs we administer.

RURAL HOUSING

Housing is important because a home is the basis for the family. This President feels a safe secure home is the foundation for the family unit. In addition, owning a home is the oldest and best form of building equity. This is why the President has proposed a 32 percent increase for single-family housing direct loans in his 2004 budget.

In general, we provide loans and repair grants for single family, multi-family, and farm labor housing.

We also provide rural community facility loans and grants for municipal, health care, child and adult care facilities; as well as public safety equipment and facilities.

Business ProgramsS

Through our rural business programs, we provide Business and Industry Guaranteed loans,

Fund the Intermediary Relending Program, which provides capital for local revolving loan funds, and

Have implemented the Value-Added Agricultural Product Market Development grants programs (VADGs).

RURAL UTILITIES

In our rural utilities program, we support technology infrastructure through rural Broadband - Telemedicine/Distance Learning;

Rural Community water and wastewater loans and grants; and

Electric and telephone direct and guaranteed loans.

Our programs may be traditional in name - but they must be used in new and innovative ways.

Business Programss should be mindful of the need to improve business knowledge and skills. Serious attention needs to be given to business strategies, finance, marketing and decision making that will enable farmers, business and community leaders to lead dynamic, creative businesses that can succeed.

Housing Programss must think about how its various programs can serve as a foundation for helping rural families build wealth through homeownership. We must be aggressive in ensuring that America's minority families gain access to financial resources that will allow increased levels of minority homeownership. The President has set a goal of assisting 5.5 million more minority families in attaining their dream of homeownership by the year 2010. It is a goal that we are diligently working to meet.

Finally, our Utilities Programs must focus on the future. Technology infrastructure will do for rural America in the 21st century what railroads did in the 19th century and highways in the 20th century. Rural America's economic future and her ability to remain viable in the global community will be dependent upon the development of the necessary communications infrastructure.

In all of these programs, it is important to remember that our effectiveness in delivering Rural Development programs will ultimately be measured by a rigorous standard of accountability. This accountability applies to our Congress, President and most importantly the rural citizens, which our programs are intended to benefit.

In that vein, we have several major initiatives underway:

Priority Initiatives

One of our top initiatives is to look at the effectiveness of the current cooperative model for assisting farmers and ranchers. The traditional cooperative model was developed with good intentions. However cooperatives are now struggling to convert the equity and dreams of many rural Americans and agricultural producers into the kinds of economic opportunity they need and desire. Rural Development's Business Programs group should be at the focal point of this discussion and we intend to be.

We are also focused on addressing and shoring up our multi-family housing portfolio. There are many converging dynamics relative to the current portfolio, including the fact that it is an aging portfolio with many building complexes over twenty years old.

Another focus is on doing a better job of marketing our programs to rural America. Simply put, we must work harder to assure that the people of rural America are aware of what is available to assist them with their local efforts and initiatives to increase economic opportunities and improve quality of life. I believe that local communities are the cradles of innovation and, if properly encouraged and assisted, they will provide models and vehicles to help all of rural America better address its changing landscape.

Cooperation, coordination, and collaboration, both within Rural Development and with other public and private partners will be essential to maximizing the impacts of our programs. Our commitment will be evident through an extensive communications effort, to raise the visibility of Rural Development, and minimize the perception that programs are operated under individual agencies. We recognize Rural Development needs to articulate comprehensive development themes, and not promote individual agencies and their specific programs. We also recognize there is still a public perception that the Farmers Home Administration exists, with its role of being the lender of last resort. Rural Development will engage in a comprehensive communications plan that will clarify our mission to the public, clearly identify our accessibility, and underscore our commitment to cooperation, coordination, and collaboration across our programs.

Summary

Rural communities, much like agriculture, have been undergoing critical changes that are important to their long-term sustainability and growth. The goal of the President and Rural Development is to support these communities and place at their disposal the tools they need to succeed. I know you share this common value and desire to support rural Americans in their efforts to capitalize on economic opportunities and an improved quality of life for their families and communities. With the support of the President, Congress, and public and private sector partners, the economic future of rural America will be strong.

Rural Development Budget Request

Mr. Chairman, the President's commitment to rural America is reflected in the budget request for FY 2004. The Rural Development request totals $2.3 billion in budget authority, to support $12 billion in direct loans, loan guarantees, grants and technical assistance, and to pay administrative expenses.

I will now discuss the requests for specific programs.

Utilities Programs

The Utilities Programs (Utilities Programs) provides financing for essential infrastructure needs including electric, data/telecommunications, and water and waste disposal services that are prerequisite for economic development in rural areas. The Utilities Programs program request totals nearly $4.9 billion in program level, which is comprised of $2.6 billion for electric loans, $495 million for rural data/telecommunication loans, $50 million for Distance Learning and Telemedicine loans, $25 million for Distance Learning and Telemedicine grants, almost $200 million in loans and $2 million in grants to support broadband transmission, $1.1 billion for direct and guaranteed Water and Waste Disposal loans, $346 million for Water and Waste Disposal Grants, and $3.5 million for Solid Waste Management Grants.

Electric program funding will benefit about 3.3 million consumers from systems improvement, through upgrading almost 187 rural electric systems. Approximately 59,800 jobs will be created as a result of facilities constructed with Electric program funds. Almost 133,000 new subscribers will receive telecommunications service, over 495,000 existing subscribers will receive improved service, and about 11,385 jobs will be generated as a result of facilities constructed with Telecommunications funds. Utilities Programs will be analyzing loans made in 2002 and 2003 to determine ways to improve the electric and telecommunication programs. This will include a review of potential targeting opportunities to increase funding to needy areas. Under the Distance Learning and Telemedicine programs, approximately 140 schools will receive distance learning facilities and 55 health care providers will receive telemedicine facilities. Over 40,500 jobs will be generated as a result of facilities constructed with water and waste disposal program funds, as about 648 rural water systems and about 347 rural waste systems are developed or expanded in compliance with the Safe Drinking Water Act and Federal and State environmental standards.

The Rural Telephone Bank (RTB) was established in 1972 to provide a supplemental source of credit to help establish rural telephone companies. This has proved to be remarkably successful, and efforts have been underway to privatize the bank. In 1996, the RTB began repurchasing Class "A" stock from the Federal government, thereby beginning the process of transformation from a Federally funded organization to a fully privatized banking institution. A private bank will have greater flexibility in providing support to rural America which will increase economic development opportunities. The Fiscal Year 2004 budget reflects the Administration's commitment to a fully privatized RTB that does not require Federal funds to finance the loans it makes.

I would like to underscore two points in our Rural Utilities budget request. First, regarding broadband loans, we are building on the $1.455 billion loan program recently announced. Mandatory funding is provided for this program under the Farm Bill. For FY 2004, we are not seeking additional mandatory money, but, rather, are requesting $9.1 million in discretionary budget authority. We believe programs should compete for resources through the annual appropriations process. This level of discretionary budget authority will support almost $200 million of loans, continuing support for expanding broadband access in rural America. Second, we propose to provide the nearly $1.5 billion Water and Waste program level by relying on higher loan levels in meeting communities' needs. This increased reliance on loans is possible due to the low interest rate environment, the extensive funding provided in FY 2002 under the Farm Bill, and the demonstrated needs in the current application pipeline.

Business Programss

One key to creating economic opportunity in rural areas is the development of new business and employment opportunities. These opportunities are essential to retaining youth and ensuring young, emerging leaders remain in rural areas. But, local lending institutions frequently do not have the capacity or capital needed to sustain local businesses and generate new economic growth. Agricultural producers do not have a ready mechanism, or information necessary, to utilize the equity available in farmland for other business purposes. Such equity could be leveraged into other activities, providing capital infusions into capital-starved areas. Business Programss (Business Programs) programs, particularly the Business and Industry (B&I) loan guarantee program, were enacted to supplement the efforts of local lending institutions in providing capital to stimulate job creation and economic expansion. Cooperative Services' research and technical assistance has the capacity to assist in the identification and creation of new business structures and financing mechanisms to support innovative capital formation and utilization in rural America.

The Business Programs budget request for FY 2004 totals about $718 million program level, the bulk of which represents over $600 million for the B&I loan guarantee program. Additionally, we are requesting to maintain the FY 2003 President's program levels for the majority of the remaining Business Programs programs ($44 million for the Rural Business Enterprise Grant program, $3 million for the Rural Business Opportunity Grant program, $40 million for the Intermediary Relending Program, $15 million for Rural Economic Development loans, and $9 million for Rural Cooperative Development Grants.

The Farm Bill provided mandatory funding for Value-Added grants and Renewable Energy Systems and Energy Efficiency Improvements. We are not seeking those mandatory funds, but rather request discretionary funding to support these programs. As I stated earlier, the Administration believes programs should compete for funding in the appropriations process. For FY 2004, we are requesting $2 million for Value-Added producer grants, and $3 million to support the Renewable Energy program. Through lessons learned from the Value-Added program administered with mandatory FY 2002 funds under the Farm Bill, $2 million can be effectively deployed to promote value-added activities and stimulate income generation in rural areas. Three million dollars for renewable energy will assist in fulfilling the President's Energy Policy that encourages a clean and diverse portfolio of domestic energy supplies to meet future energy demands. In addition to helping diversify our energy portfolio, the development of renewable energy supplies will be environmentally friendly and assist in stimulating the national rural economy through the jobs created and additional incomes to farmers, ranchers, and rural small businesses.

Housing Programs

The budget request for programs administered by the Housing Programs (Housing Programs) totals $5.7 billion. This commitment will improve housing conditions in rural areas, and, in particular, improve homeownership opportunities for minority populations. Rural Development has implemented a "5-Star Commitment," which supports the President's homeownership initiative. Under this 5-Star plan, our goal is to increase minority participation in housing programs by ten percent over the next few years.

The request for single family direct and guaranteed homeownership loans totals almost $4.1 billion, which will assist about 49,000 households, who are unable to obtain credit elsewhere. The Housing Programs request maintains the program level for housing repair loans and grants, $35 million for housing repair loans and almost $32 million for housing repair grants, which will be used to improve 10,000 existing single family houses, mostly occupied by low income elderly residents.

This budget also supports my commitment to focus on repair, rehabilitation, and preservation of multi-family housing projects, with the goal of developing a comprehensive strategy for program overhaul. We are proposing a rental-housing request of $71 million for direct loans, $100 million for multi-family guaranteed loans, $42 million for farm labor housing loans, $17 million for farm labor housing grants, and $740 million in rental assistance. Housing Programs has an existing multi-family housing portfolio of $12 billion, that includes 17,500 projects. Many of these projects are 20 years old or older, and face rehabilitation needs. Given the demands for repair/rehabilitation and preservation of existing projects, and our ongoing study of program alternatives, we are deferring a request for new construction funding this year.

This budget provides an increase in farm labor housing loans and maintenance of farm labor housing grants. In total, the farm labor-housing program will rise to $59 million, which will address pressing needs for farm worker housing across the country. This program provides housing to the poorest housed workers of any sector in the economy, and supports agriculture's need for dependable labor to harvest the abundance produced by rural farms.

The budget includes $740 million for Rental Assistance, a slight increase over the current level. These payments are used to reduce the rent in multi-family and farm labor housing projects to no more than 30 percent of the income of very low-income occupants (typically female heads of households or the elderly, with annual incomes averaging about $8,000). This level of funding will provide rental assistance to almost 45,000 households, most of which would be used for renewing expiring contracts in existing projects.

The request for community facilities funding holds program levels to the FY 2003 President's Budget - $250 million for direct loans, $210 million for guaranteed loans, and $17 million for grants. Community facilities programs finance rural health facilities, childcare facilities, fire and safety facilities, jails, education facilities, and almost any other type of essential community facility needed in rural America. These funds will support 140 new or improved health care facilities, 370 new or improved public safety facilities, and 95 new or improved educational facilities.

Administrative Expenses

These requested program levels provide ambitious targets for accomplishments, for which this Committee will be proud. However, delivering these programs to the remote, isolated, and low income areas of rural America requires administrative expenses sufficient to the task. Over the last several years, Rural Development has administered growing program levels, and new programs, with modest Salaries and Expenses (S&E) funding increases. From FY 1996 through FY 2002 Rural Development's annual delivered program level increased by 79 percent. Over that same period Rural Development's S&E appropriation increased 13 percent. Rural Development curtailed employment, and Full Time Equivalent (FTE) staffing fell 15 percent.

With an outstanding loan portfolio exceeding $86 billion, fiduciary responsibilities mandate that Rural Development maintain adequately trained staff, employ state of the art automated financial systems, and monitor borrowers' activities and loan security to ensure protection of the public's financial interests. Curtailed S&E funding in the past strained our ability to provide adequate underwriting and loan servicing to safeguard the public's interests.

For 2004, the budget proposes a total of $680 million for Rural Development S&E, an increase of $50 million from the FY 2003 President's Budget. The bulk of this increase is consumed by: pay costs; automated systems maintenance, enhancement, and operational cost increases; and funding the mandatory move of staff from downtown St. Louis to the Goodfellow Facility, a former military instillation. Twelve million dollars is requested to support enhancements of three automated financial systems - the Guaranteed Loan System, the Dedicated Loan Origination System, and the Utilities Programs Loan Servicing System, which maintain accounting and servicing information on direct and guaranteed loans across the mission area. Over $17 million is needed to fund the General Services Administration (GSA)-mandated move of Rural Development staff in St. Louis. We are also requesting $1.6 million to support several specific initiatives: continuing to monitor guaranteed single and multi-family housing lenders; funding studies and analysis of outsourcing; and continued Credit Reform modeling and analysis support. In FY 2002, Rural Development received a clean audit opinion for the first time since 1994. However, the Office of the General Counsel and the General Accounting Office view our cash flow modeling efforts as short-term solutions, and recommend continued analysis and refinements. Contract assistance is needed to improve data collection, sensitivity analysis, and validation. Improvements in Credit Reform processes provide assurance that program budget cost estimates are reasonable. Our clean audit opinion was hard-won, and we thank this Committee for resources provided in the past to achieve this goal. We are committed to maintaining this high standard.

Rural Development is also requesting a modest (4 FTE) increase in staffing. These 4 FTEs will be senior analysts, with cutting-edge financial and analytical skills. They will be spread across the organization and provide financial and administrative analytical assistance to senior managers.

Rural Development is very appreciative of the funding provided in prior years for automated financial systems development, which allowed Rural Development to continue to support systems for guaranteed loans, multi-family housing loans, Utilities Programs systems modernization, and the Program Funds Control System. This funding will allow Rural Development to continue to address long delayed automated systems development needs, but these are major projects and will not be completed in one year. We urge the committee to fund the President's FY 2004 $680 million S&E request.

Mr. Chairman, Members of the Committee, this concludes my formal statement. We 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.

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