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Congressional Testimony

Gilbert G. Gonzalez
Acting Under Secretary for Rural Development

Before the House Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
March 17, 2005

Mr. Chairman, Members of the Committee, it is a pleasure to present to you the Fiscal Year (FY) 2006 President's Budget request for USDA Rural Development.

I am honored to serve as Acting Under Secretary of Agriculture for Rural Development, and to have the opportunity to work with you to carry out Rural Development's fundamental mission to increase economic opportunity and improve the quality of life in rural America.

Everyday, we bring people and resources together. I believe that given the opportunity, Americans will create strength through investments in their own economic futures. And I believe it is our role at Rural Development to stimulate these efforts in ways that will maximize the benefits of local economies.

With the assistance of this subcommittee, the Bush Administration has established a proud legacy of accomplishments in rural areas, and will work to continue to enhance that legacy.

Overall, 800,000 jobs have been created or saved through combined business, housing, utility, and community development investments by USDA Rural Development over the last four years. Leveraging of these investments with private sector investments are helping to spur economic growth throughout rural America.

The Bush Administration has committed over $55 billion in rural development investments in the last four years to support rural Americans' pursuit of economic opportunities and an improved quality of life.

Rural Development delivers over 40 different programs enhancing business development, housing, community facilities, water supply, waste disposal, electric power, and telecommunications. Rural Development also provides technical assistance to rural families, and business and community leaders to ensure success of those projects. In addition to loan-making responsibilities, Rural Development is responsible for the servicing and collection of a loan portfolio that exceeds $87 billion.

Rural Development is the only Federal organization that can essentially build a town from the ground up through investments in infrastructure, homeownership and job creation through business development programs. We help rural Americans achieve their part of the American Dream, particularly the 60 million rural residents who are not involved in production agriculture.

Rural Development is a catalyst. We focus on our grassroots delivery mechanism, building partnerships that will act to strategically place Federal resources to serve as catalysts for spurring private investment. Partners in this effort include: the Department of Housing and Urban Development, the Department of Energy, the Environmental Protection Agency, the Minority Business Development Agency, the Small Business Administration, the Economic Development Administration, and the National Credit Union Association. In addition, we are working to increase the ability of faith-based organizations to partner with Rural Development to also support local community and economic development.

Successful economic development in rural areas is driven by local strategies, where communities take ownership and focus on developing leadership, technology, entrepreneurship, and higher education opportunities.


Rural Development provides rural individuals, communities, businesses, associations, and others with financial and technical assistance needed to increase economic opportunity and improve the quality of life in rural America. This financial and technical assistance may be provided solely by Rural Development or in collaboration with other public and private organizations promoting development of rural areas.


To realize our vision of creating greater economic opportunities and improved quality of life for rural citizens, we need to structure the delivery of Rural Development programs in a way that can ensure those who are most qualified become aware of our programs and receive needed investment assistance. Rural Development has to do a better job of outreach and education on what programs are available. To accomplish this goal, we have embarked upon an aggressive outreach and marketing effort that focuses on the programs appropriated, rather than on the names of individual agencies. This is a key priority that we believe will reduce confusion about who to contact for assistance and help ensure more efficient utilization of program investment dollars by those who are most qualified. We are also working to better communicate with minority sectors, analyze program delivery, and improve the overall knowledge of what USDA Rural Development can provide to rural citizens and communities.

Rural Development Budget Request

The President's commitment to rural America is strong, and this request will support a total program level of loans and grants of $13.5 billion. Mr. Chairman, this Rural Development request is one component of the President's overarching budget. The most immediate priorities remain defense, homeland security, and deficit reduction. The budget reflects the difficult choices that had to be made among funding opportunities for a variety of meritorious programs.

Over the last four years (FY 2001-FY 2004) with your assistance, Rural Development has delivered $55 billion in loans and grants to rural Americans. Through this infusion of infrastructure investment and local area income stimulus, many rural areas are attracting an increase in private sector investment. These Federal investments are being returned many times over in the form of increased local tax base and new private ventures, with their associated multiplier effects on household incomes and local quality of life.

I will now discuss the requests for specific Rural Development programs.

Rural Housing Programs

The budget request for USDA Rural Development's housing programs totals just under $6.5 billion. This commitment will improve housing conditions, continue to promote homeownership opportunities for minority populations, and initiate our multi-family housing program revitalization initiative. Initially, this will put in place a program of tenant protection for our multi-family housing residents.

Rural Development's multi-family housing program includes about 17,000 properties and 470,000 units, with a loan portfolio value approaching $12 billion. Many of the properties exceed 20 years in age and face substantial rehabilitation needs. A substantial number of owners wish to prepay their loans and remove properties from the program. Rental assistance, a vital component of the program, has steadily risen. Faced with this reality, this Administration acknowledged the need to evaluate tenant protections, the portfolio, and program, and identify alternatives to ensure the program's long-term viability and continued supply of affordable rental housing in rural areas.

Last year, Rural Development engaged private industry experts to:

  1. Review and define potential approaches to protect tenants;
  2. Review issues and develop solutions directly pertaining to the market demand for such housing;
  3. Analyze and develop solutions for the increasing rehabilitation and recapitalization requirements of the aging existing properties; and
  4. Perform a comprehensive property assessment.

A statistically representative sample of the portfolio was selected and reviewed. Based on that review and analysis by outside experts and Rural Development staff, a comprehensive tenant protection and revitalization initiative is being developed. This budget reflects the first component of that initiative, which provides protection for the very low-income tenants residing in the projects. We are requesting $214 million to fund a rural housing voucher program, which will ensure that very low-income and elderly tenants are protected in the event of project prepayment.

A comprehensive legislative proposal is under development to protect tenants and address the issues of rehabilitation needs and prepayment. This proposal will embody the Administration's multi-year initiative to ensure adequate rental housing options remain available for very low-income rural residents and return the multi-family housing program to sound footing.

Pending the outcome of the comprehensive multi-family property assessment, Rural Development did not request funding for section 515 new construction. As a result of the study, we again are not requesting new construction, we are seeking $27 million in the section 515 program loan level for repair and rehabilitation only. New construction needs will be met through the section 538 guaranteed program, which we are requesting to double to a $200 million loan level.

We are also requesting rental assistance of $650 million to support needed renewals, preservation, and a farm labor housing program level comprised of $42 million in loans and $14 million in grants. Rental assistance contracts should be maintained at the current four year term to underscore our commitment to our private partners that future rental assistance income streams will be supported.

The request for single-family direct and guaranteed homeownership loans approaches $5 billion, which will assist about 40,400 rural households who are unable to obtain credit elsewhere. In addition, $36 million is requested for housing repair loans and $30 million for housing repair grants, which will be used to improve existing single family houses mostly occupied by low-income elderly residents.

The community facilities request totals $527 million, including $300 million for direct loans, $210 million for guaranteed loans, and $17 million for grants. It is expected that a portion of the direct loan program will continue to support homeland security and health and safety issues in rural areas. 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.

Rural Utility Programs

USDA Rural Development provides financing for electric, telecommunications, and water and waste disposal services that are essential for economic development in rural areas. The utilities program request exceeds $5 billion, which is comprised of $2.5 billion for electric loan programs, $669 million for rural telecommunication loans, $25 million for distance learning and telemedicine grants, $359 million in loans for broadband transmission, over $1 billion for direct and guaranteed water and waste disposal loans, $377 million for water and waste disposal grants, and $3.5 million for solid waste management grants.

The Rural Telephone Bank (RTB) was established in 1971 to provide a supplemental source of credit to help establish rural telephone companies. 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. However, recent analysis has shown that there are private lenders available to fulfill rural telecommunications lending needs. In addition, funding for this program has exceeded demand.

In fact, there is about $300 million in unadvanced loan balances for loans available for 5 years or more. This indicates that there is little demand for a privatized RTB. The Fiscal Year 2006 budget reflects the Administration's proposal to establish the process and terms to implement dissolution of the RTB. Dissolution will result in the government being repaid for all outstanding government stock and the borrower receiving a cash payout for their outstanding stock. Additional funds are requested for the regular telecommunications program to maintain and enhance the level of federal support available to rural telecommunications. The Fiscal Year 2006 budget proposes $359 million in new discretionary program funding. This, coupled with $1.6 billion in carryover funds, will provide for almost a $2 billion program level.

Rural Business-Cooperative Programs

Since FY 2001, USDA Rural Development has provided $48 billion for rural business development in the form of loans, grants and technical assistance. Funds assisted with the start up, expansion or modernization of businesses and cooperatives in rural areas that have helped create or save over 56,400 jobs.

The Rural Development business and cooperative program budget request for FY 2006 totals about $1.3 billion, the bulk of which is comprised of $900 million for the business & industry (B&I) loan guarantee program.

The rural business enterprise grant, rural business opportunity grant, economic impact initiative, and the empowerment zone and enterprise community programs has been included in the President's new initiative to help strengthen American's transitioning communities, while making better use of taxpayer dollars.

These grant programs will be consolidated and transformed into a new, two-part program: (1) The Strengthening America's Communities Grant Program, a unified economic and community development grant program; and (2) The Economic Development Challenge Fund, an incentive program for communities, modeled after the Millennium Challenge Account.

We are requesting $34 million for the intermediary relending program, $25 million for rural economic development loans, $5.5 million for rural cooperative development grants, and $15.5 million of discretionary funding for the value-added producer grant program.

The ten million dollars of discretionary budget authority for renewable energy will support $286 million in guaranteed loans and $5 million in grants. This program 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. This is important for rural communities and our country's ability to rely less on imported energy. The President is committed to this program and the benefits it holds for America.

During this Administration Rural Development has invested over $190 million in Bioenergy/Biomass ventures including $80 million in value-added and business ventures and $114 million in renewable energy utility upgrades and expansions. Under the Farm Bill section 9006, $44.9 million in grant funds have been provided for 281 applicants for wind power, anaerobic digestion, solar, ethanol plants, direct combustion and fuel pellet suppliers, and other bioenergy related systems.

Administrative Expenses

Delivering these programs to the remote, isolated, and low-income areas of rural America requires administrative expenses sufficient to the task. From FY 1996 through FY 2004, Rural Development's annual delivered program level increased by 111 percent. Over that same period, Rural Development's Salaries and Expenses (S&E) appropriation increased only 17 percent. In Fiscal Year 2001, Rural Development was able to deliver $19 program dollars (loans and grants, plus servicing the ever-growing portfolio) with one dollar of S&E. By FY 2004, Rural Development delivered $23 program dollars with every S&E dollar. Over four years we were able to increase efficiencies, to deliver 21 percent more program dollars with each S&E dollar. Rural Development has the staff and the local distribution mechanism to meet the ambitious program targets outlined earlier, but adequate administrative support must be made available. To maintain our high level of efficiency requires continued improvements which must be based on continuous effort and investment of administrative resources.

With an outstanding loan portfolio exceeding $87 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. New, more sophisticated and complicated programs provided through the FY 2002 Farm Bill (broadband, renewable energy, value-added, etc.), demand increasing technical expertise of our aging workforce.

Limited S&E funding could jeopardize our ability to provide adequate underwriting and loan servicing to safeguard the public's interests.

For FY 2006, the budget proposes a total of $682.8 million for Rural Development S&E or an increase of $58.4 million over FY 2004. Of this increase, $13.3 million will fund salary costs and related expenses; $20 million supports Information Technology (IT) needs, including the web farm and data warehousing, continued expansion and upgrading of systems supporting the evolving multi-family housing program, e-Gov, IT security, and essential licensing and maintenance agreements; $4 million for human capital nvestments, principally training; and $7.6 million to continue relocation of facilities and operations from downtown St. Louis, Missouri.

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 FY 2006 budget request.

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