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Congressional Testimony

Statement of Curtis M. Anderson
Acting Administrator, Utilities Programs

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


Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to present the Fiscal Year 2006 President's Budget for Rural Development utilities programs.

A strong rural America is important for a strong Nation. We consider the rural utilities programs an important part of the USDA Rural Development mission. Safe, affordable, modern utility infrastructure is an investment in economic competitiveness and serves as a fundamental building block of economic development. Changes in the landscape of rural America, along with developments in technology, and changes in market structure combined with an aging utility infrastructure is occurring in the electric, telecommunications and water sectors. Without the help of USDA Rural Development's rural utility programs, rural citizens face monumental challenges in participating in today's economy as well as maintaining and improving their quality of life.

The forty billion dollars RUS loan portfolio includes investments in 7,500 small community rural water and waste disposal systems and approximately 2,000 electric and telecommunications systems serving rural America. This local/Federal partnership is an ongoing success story. Eighty percent of the Nation's landmass continues to be rural, encompassing 25 percent of the population. For an economy to prosper, we need infrastructure investment to spur economic growth, create jobs and improve the quality of life in rural America.

Electric Program

The electric program budget proposes $6 million in budget authority to support a program level of $2.52 billion. The President's budget requests $920 thousand in budget authority for a hardship program level of $100 million and over $5 million in budget authority for a $100 million program level for municipal rate loans. The direct Treasury rate loan program level is proposed to be $700 million provided for with a budget authority of $70 thousand. The guarantee of Federal Financing Bank (FFB) direct loans is proposed at a program level of $1.62 billion with no budget authority required. The FFB loans are made at the cost of money to the Federal government plus 1/8th of a percent. As a result, no budget authority is required for this part of the FFB electric loan program. Over the past 4 years, we have eliminated most of the backlog of loan applications and we strongly believe that the President's budget request will meet the demand during the FY 2006.

The electric program provides financing for rural electric cooperative to expand and upgrade the transmission and distribution systems needed to meet the demands of economic growth across our Nation.

Advanced Telecommunications in Rural America

The area of rural telecommunications is the most rapidly changing aspect of rural utilities infrastructure. Job growth, economic development, and continued quality of life in rural America require access to today's high speed telecommunications.

At the forefront of our telecommunications program is the broadband program created by the 2002 Farm Bill. The broadband loan program is distinctive from all other lending programs within the agency's portfolio. Nearly half of the applicants are "start-up" companies with little, if any, history of doing business in this industry. In addition, two distinctly different characteristics are at play - competition (rather than a monopolistic environment) and multi-state businesses (rather than a single cooperative or independent company serving a single rural community). Very few of the applications are designed to serve a single rural community or even a small grouping of geographically close rural communities. Most are applications requesting to serve 50, 75, or in excess of 100 rural communities in multiple States. In these multiple community applications, the vast majority of the communities already have broadband service available in some of the proposed service area; in some instances, from more than one provider. As you can imagine, these factors contribute to increased review and processing efforts.

In fiscal year 2004, the agency made 33 loans totaling $602.9 million which will serve 535 communities. This means those communities are connected to global business opportunities, improved quality education and modern health care that was not available without those high speed telecommunications connections. Since 2001, telecommunications loan programs have provided funding to make available internet access to 1.3 million rural residents.

In order to balance fiduciary responsibility with mission delivery, USDA is focusing on "quality loans." A failed business plan translates not only into loss of taxpayer investment, but deprives millions of citizens living in rural communities of the technology needed to attract new businesses, create jobs, and deliver quality education and health care services.

Building on USDA's experience and local presence in serving rural communities, we bring a unique lending expertise that includes the tools necessary to examine, and provide solutions for, the financial and the technical challenges facing entities dedicated to serving rural America. This model has resulted in a lending agency with unprecedented success in our other programs and we are dedicated to bringing that same level of success to this program.

From the beginning, the President has recognized the importance of broadband technology to our rural communities. The President stated, "…we must bring the promise of broadband technology to millions of Americans… and broadband technology is going to be incredibly important for us to stay on the cutting edge of innovation here in America." The Bush Administration has been unwavering in its support for this and other programs that will revitalize and strengthen our rural communities.

Let me assure you that we are on track, we remain focused, and we will complete our mission. We must continue to balance fiduciary responsibility with mission delivery everyday. Our unique lending expertise - the marriage of financial and technical analysis - helps to maximize the success rate of borrowers' business models. We will strive to do our part for rural America in fulfilling the President's promise of bringing broadband service to millions of citizens. Making bad loans helps no one, making successful loans helps everyone.

Telecommunications Budget

The Fiscal Year 2006 budget proposes a broadband loan program level of $359 million driven by $10 million in budget authority. This replaces the mandatory funding provided in the Farm Bill. In addition, $1.6 billion in unused loan authority that the Farm Bill provided remains available.

Included in the discretionary broadband loans is $30 million in direct 4 percent loans requiring $2.4 million in budget authority; $299 million in direct Treasury rate loans requiring $6.4 million in budget authority and $30 million in guaranteed loans requiring $1.1 million in budget authority.

In the regular telecommunications program, the 2006 Budget calls for a program level of $669 million. Included is $145 million in direct 5 percent loans, $424 million in direct Treasury rate loans, and $100 million in Federal Financing Bank (FFB) direct loans guaranteed by RUS. All of this is driven by $212 thousand in budget authority.

The budget also reflects the Administration's commitment to resolve the complicated issues involving the administration of the Rural Telephone Bank by proposing dissolution. When the Rural Telephone Bank was created in 1971, there was no lender other than what was available through the USDA. However, there are now major lenders that provide a commercial source of rural telecommunications financing. In addition, funding for this program has exceeded demand. There are about $300 million in unadvanced loan balances for loans available for 5 years or more. Dissolution will result in the government being repaid for all outstanding stock and the borrowers receiving a cash payout for their outstanding stock. Since the Administration is recommending dissolution, the budget does not request any budget authority to support RTB lending for FY 2006. To ensure that rural telecommunications providers have access to adequate levels of financing, the budget requests that the standard RUS telecommunications loan programs be increased by $175 million.

Distance Learning and Telemedicine

Distance learning and telemedicine technologies are having a profound impact on the lives of rural residents. Helping rural schools and learning centers to take advantage of the information age and enabling rural hospitals and health care centers to have access to quality medical services only found in large hospitals, the distance learning and telemedicine (DLT) program pulls together the best of Federal assistance and local leadership.

The DLT grants are budgeted at $25 million, the same as Congress appropriated for Fiscal Year 2005. The Budget proposes to zero out the loan program, simply because the nature of the prospective applicants, schools and hospitals, have placed the ability to repay loans out of reach.

Water and Environmental Programs

The water and environmental programs provide the most basic of infrastructure needs for rural citizens: clean, safe, affordable drinking water and ecologically sound waste disposal. No element is more vital to human life and dignity as clean, safe water. Rural communities are challenged to provide this vital service while facing increasing regulatory requirements and persistent drought conditions across a large area of the country.

The budget request seeks $449.6 million in budget authority for a program level of $1.455 billion in loans and grants. The proposed loan levels are $1 billion in direct loans and $75 million in loan guarantees for water and waste disposal programs. The direct loan program requires $69 million in budget authority. To augment the loan programs, the budget request includes $377 million in grants. In addition, the budget requests an additional $3.5 million in solid waste management grants.

Summary

Rural utility infrastructure programs are interwoven in the fabric of USDA Rural Development programs. To provide safe, clean, water; modern communications; and reliable electric power means businesses can develop, homes can have light and heat, and markets can be opened to the rest of the world.

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