[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW U.S. DEPARTMENT OF AGRICULTURE RURAL DEVELOPMENT
PROGRAMS AND THE AGENCY'S RURAL
DEVELOPMENT PROPOSAL FOR THE 2007
FARM BILL
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON SPECIALTY CROPS, RURAL
DEVELOPMENT AND FOREIGN AGRICULTURE
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MARCH 21, 2007
__________
Serial No. 110-6
Printed for the use of the Committee on Agriculture
agriculture.house.gov
----------
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COMMITTEE ON AGRICULTURE
COLLIN C. PETERSON, Minnesota, Chairman
TIM HOLDEN, Pennsylvania, BOB GOODLATTE, Virginia, Ranking
Vice Chairman Minority Member
MIKE McINTYRE, North Carolina TERRY EVERETT, Alabama
BOB ETHERIDGE, North Carolina FRANK D. LUCAS, Oklahoma
LEONARD L. BOSWELL, Iowa JERRY MORAN, Kansas
JOE BACA, California ROBIN HAYES, North Carolina
DENNIS A. CARDOZA, California TIMOTHY V. JOHNSON, Illinois
DAVID SCOTT, Georgia SAM GRAVES, Missouri
JIM MARSHALL, Georgia JO BONNER, Alabama
STEPHANIE HERSETH, South Dakota MIKE ROGERS, Alabama
HENRY CUELLAR, Texas STEVE KING, Iowa
JIM COSTA, California MARILYN N. MUSGRAVE, Colorado
JOHN T. SALAZAR, Colorado RANDY NEUGEBAUER, Texas
BRAD ELLSWORTH, Indiana CHARLES W. BOUSTANY, Jr.,
NANCY E. BOYDA, Kansas Louisiana
ZACHARY T. SPACE, Ohio JOHN R. ``RANDY'' KUHL, Jr., New
TIMOTHY J. WALZ, Minnesota York
KIRSTEN E. GILLIBRAND, New York VIRGINIA FOXX, North Carolina
STEVE KAGEN, Wisconsin K. MICHAEL CONAWAY, Texas
EARL POMEROY, North Dakota JEFF FORTENBERRY, Nebraska
LINCOLN DAVIS, Tennessee JEAN SCHMIDT, Ohio
JOHN BARROW, Georgia ADRIAN SMITH, Nebraska
NICK LAMPSON, Texas KEVIN McCARTHY, California
JOE DONNELLY, Indiana TIM WALBERG, Michigan
TIM MAHONEY, Florida
______
Professional Staff
Robert L. Larew, Chief of Staff
Andrew W. Baker, Chief Counsel
April Slayton, Communications Director
William E. O'Conner, Jr., Minority Staff Director
______
Subcommittee on Specialty Crops, Rural Development and Foreign
Agriculture
MIKE McINTYRE, North Carolina, Chairman
JIM MARSHALL, Georgia MARILYN N. MUSGRAVE, Colorado,
HENRY CUELLAR, Texas Ranking Minority Member
JOHN T. SALAZAR, Colorado TERRY EVERETT, Alabama
JOHN BARROW, Georgia ADRIAN SMITH, Nebraska
EARL POMEROY, North Dakota JEFF FORTENBERRY, Nebraska
ROBIN HAYES, North Carolina
Aleta Botts, Subcommittee Staff Director
(ii)
C O N T E N T S
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Page
Goodlatte, Hon. Bob, a Representative in Congress from Virginia,
prepared statement............................................. 8
McIntyre, Hon. Mike, a Representative in Congress from North
Carolina, opening statement.................................... 1
Prepared statement.......................................... 4
Musgrave, Hon. Marilyn N., a Representative in Congress from
Colorado, opening statement.................................... 6
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, prepared statement.................................. 7
Pomeroy, Hon. Earl, a Representative in Congress from North
Dakota, opening statement...................................... 8
Salazar, Hon. John T., a Representative in Congress from
Colorado, prepared statement................................... 8
Witnesses
Dorr, Hon. Thomas C., Under Secretary for Rural Development, U.S.
Department of Agriculture, Washington, D.C..................... 9
Prepared statement........................................... 11
Landkamer, Hon. Colleen, Commissioner, Blue Earth County, MN;
President, National Association of Counties, Mankato, MN; on
behalf of National Association of Development Organizations.... 31
Prepared statement........................................... 33
Fluharty, Charles W., President, Rural Policy Research Institute;
Director and Research Professor, Harry S Truman School of
Public Affairs, University of Missouri-Columbia, Columbia, MO.. 38
Prepared statement........................................... 40
Hall, Billy Ray, President, North Carolina Rural Economic
Development Center, Inc., Raleigh, NC.......................... 105
Prepared statement........................................... 106
Harris II, D. Richard ``Rick'', President, Sunkist Taylor, LLC,
Salinas, CA.................................................... 111
Prepared statement........................................... 113
HEARING TO REVIEW U.S. DEPARTMENT OF AGRICULTURE RURAL DEVELOPMENT
PROGRAMS AND THE AGENCY'S RURAL
DEVELOPMENT PROPOSAL FOR THE 2007
FARM BILL
----------
WEDNESDAY, MARCH 21, 2007
House of Representatives,
Subcommittee on Specialty Crops, Rural Development
and Foreign Agriculture,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 10 a.m., in Room
1302 of the Longworth House Office Building, Hon. Mike McIntyre
[Chairman of the Subcommittee] presiding.
Members present: Representatives McIntyre, Cuellar,
Salazar, Pomeroy, Peterson (ex officio), Musgrave, Fortenberry,
and Goodlatte (ex officio).
Staff present: Aleta Botts, Scott Kuschmider, Rob Larew,
John Riley, Sharon Rusnak, Debbie Smith, Kristin Sosanie, Brian
Knipling, Matt Schertz, and Jamie Weyer.
OPENING STATEMENT OF HON. MIKE McINTYRE, A REPRESENTATIVE IN
CONGRESS FROM NORTH CAROLINA
The Chairman. The Subcommittee on Specialty Crops, Rural
Development and Foreign Agriculture to review the U.S.
Department of Agriculture Rural Development programs and the
agency's rural development proposal for the 2007 Farm Bill will
now come to order.
Good morning and welcome to this Subcommittee's first
hearing of the 110th Congress. This is a Subcommittee with new
jurisdiction and I am excited not only to have our traditional
areas of specialty crops, including tobacco and peanuts and
sugar, but also excited to expand our jurisdiction to include
rural economic development, which has never before been under
this Subcommittee's jurisdiction. I especially appreciate
Chairman Collin Peterson's willingness to allow us to have this
jurisdiction in the purview of the important area of rural
development. We of course also have biotechnology, family
farms, family security and foreign agricultural programs. We
also will be having hearings and discussions about those items
in the weeks and months to come. I want to especially thank my
staff for their support and all the work that they have done,
not only in preparation for today, but the work we have done
over the years together, and I look forward to working together
on the work of this Subcommittee and working with the
Agricultural Subcommittee staff and the full Agriculture staff
as well. So thanks to all of you all for your commitment to me
and commitment to the work of this Subcommittee and we greatly
appreciate the work that our staff does.
Rural America is changing and as I drive across my home
state of rural North Carolina, we notice changes every time
that we go by rural communities and notice the changes
occurring on the farms as well. Federal funds are being
leveraged into private dollars. Critical infrastructure is
being repaired and replaced. Businesses large and small are
being started by innovative entrepreneurs. Rural communities
are becoming more aware of their unique attributes and more
understanding of the high quality of life they offer to their
residents, a quality of life that our country is now returning
to, the values we hear discussed so much today in all the
political debates and TV discussions, but the values we know
have always existed in the heartland of America and in the
rural communities. America is returning to its roots and I
think that makes the job of this Subcommittee even more
exciting. The savviest of these communities will then take that
understanding of those values and turn them into proposals to
attract new businesses and investment as they look at
opportunities to improve their quality of life as well.
We also know that there is a great need for Federal
programs to continue to help rural development in what is going
on in rural America and support rural economic development and
respond to it in ways that make sense. I hope the witnesses
today will share this with the Subcommittee; their thoughts and
ideas on how the changes that are occurring in rural America
can be made in such a way that Federal programs can continue to
make a positive impact for the future of rural America. There
are over 88 Federal rural development programs that exist
across 16 different Federal agencies. However, the U.S.
Department of Agriculture is the lead agency for Federal rural
development policy, and the farm bill is one of the key
statutory tools that we have for reauthorizing many of these
programs and making changes. These programs make a huge
difference in the lives of our rural constituents and it is
critically important to ensure that these citizens are well
served. USDA Rural Development funds help provide core services
and facilities for our rural communities. However, the program
operates differently than many Federal programs by recognizing
that rural areas are different in their demographics, their
needs and their assets.
One of the advantages of our Federal rural development
policy is the great flexibility that it offers to our diverse
rural areas. From emergency services to community centers to
water and sewer lines, Rural Development programs meet a wide
array of needs in rural areas. And the District that I have the
opportunity and privilege to serve in southeastern North
Carolina, community facility loans are responsible for EMS
units, fire stations, library and courthouse renovations, and
town halls. Water and waste disposal money is helping two
communities in our area with significant water infrastructure
needs. Housing funds are going to two separate community
development corporations. All told, in just this year, Federal
rural development programs will mean over $5 million to
projects in my District and $288 million over the last 5 years
to the 7th District of North Carolina that I represent. So I
know the great work and good work continually that Rural
Development has done and continues to do and that our great
State Director, John Cooper, has done.
As we evaluate these programs today, we should consider how
best to define ``rural,'' and I encourage all of our
Subcommittee Members to join us in this discussion. I know I
have mentioned this to the Under Secretary, who will be
introduced in just a moment. As Members of this Subcommittee
and the witnesses know, this isn't an easy question. The 2002
Farm Bill established different definitions of rural, depending
on the program. As a default, a population of 50,000 or less
for any city or town is considered rural. However, for water
and waste water disposal programs, only a population of 10,000
or less is eligible. To be eligible for rural housing in
community facility programs, the limit is 20,000. What is
considered rural today would've been considered in some ways
urban or metropolitan, perhaps, 75 years ago. Counties that are
decidedly rural in nature and character hold county seats that
are growing in population and acquiring just enough size to
make them ineligible for certain programs. I hope the witnesses
and our Under Secretary will help us shed some light on this
issue and how Congress might address it.
My hometown of Lumberton, North Carolina is a prime example
of how this is happening. It had a population of under 20,000
until the 2000 Census, and then jumped to 23,000, even though
Robinson County is clearly rural and one of the most rural in
all of North Carolina. Yet we know that in the county seat,
many of the rural programs are run out of a town of over
20,000. We had to deal with issues such as grandfathering and
what to do about finishing the job with the public county
library and with the county courthouse, even they are now in a
town that exceeds the technical population definition. So this
is an issue that has been near and dear to me personally and I
know to many of our Subcommittee Members as they struggle with
this in their respective areas.
This year we will reauthorize Rural Development programs as
part of the farm bill reauthorization. Complicating that task
will be what has happened with regard to funding for Rural
Development programs that were authorized in the last farm
bill. Funding for mandatory Rural Development programs
established in the last farm bill has been largely blocked by
appropriators. Instead discretionary programs continue to play
a dominant role in Federal rural economic development policy,
and with the current tight budget situation, the Subcommittee
will need to evaluate whether mandatory or discretionary
funding is the proper mechanism for these programs.
Additionally, we face some serious budget constraints in
the current fiscal year as well. I know in North Carolina we
have the authority to make $12 million in community facility
loans this fiscal year. However, over the last several years,
North Carolina has made no less than $38 million in loans each
year from the program. Obviously the needs outweigh the
resource.
I know that one of my favorite verses from the Book of
Proverbs is, ``Where there is no vision, the people perish.''
In rural America, too often we have overlooked and ignored the
needs historically as a Congress and I want us to change that
in this Subcommittee. I want to make sure we do give vision for
people in rural areas, those values I mentioned earlier, the
great commitment that folks who live in rural communities have
to this great country, as we see in our Armed Services; as we
see in the great ideas that come forth from rural America; as
we see in so many different ways that rural American offers to
the fabric of our society and who we are as America and as
Americans. I hope that we will look forward to positively
shaping that vision to make a real difference in the lives of
families in all areas of our country, to the work we do on this
Subcommittee, and my prayer is that God will bless our efforts.
We may have a vision to show we do care and that rural America
will have a strong voice and that thorough work we will be
successful in this.
Thank you again for joining us for this Subcommittee
hearing today. I encourage the witnesses to use the 5 minutes
that will be provided for their statements to highlight the
most important points of their testimony. Your complete written
testimony will be submitted in its entirety in the record. This
Subcommittee will follow the 5 minute rule, allowing 5 minutes
total for both questions from Members and responses from the
witnesses. Therefore I will request that Members be concise in
their questions so that the witness can answer within the 5
minute block of time. If further time is needed, I invite
Members to submit questions for the record and allow the
witnesses to respond in writing. The Subcommittee will also
take seriously these questions submitted for the record and we
will expect the witnesses to answer these questions, to inform
the Members by answering them in a timely manner, preferably
within 10 days but no later than 2 weeks.
I am excited about the work of this Committee. I am excited
about the Members on this Subcommittee. We have a great panel
of folks. I know that folks from both sides of the aisle want
to work together to make sure that we are about the success of
what we can do for rural America.
[The prepared statement of Mr. McIntyre follows:]
Prepared Statement of Hon. Mike McIntyre, a Representative in Congress
From North Carolina
Good morning, and welcome to the Subcommittee's first hearing of
the 110th Congress. I am pleased to welcome Mr. Dorr, the USDA Under
Secretary for Rural Development, and our other esteemed witnesses for
this inaugural hearing on a topic that is near and dear to the
interests of every Member of this Subcommittee.
Rural America is changing. As I drive across rural North Carolina,
I notice changes every time I pass through a rural community:
1. Federal funds are being leveraged into private dollars;
2. Critical infrastructure is being repaired and replaced;
3. Businesses large and small are being created by innovative
entrepreneurs; and
4. Rural communities are becoming more aware of their unique
attributes and more understanding of just what a high quality-
of-life they offer to their residents. The savviest of these
communities then take that understanding and turn it into
proposals to attract new businesses and investment.
Importance of Rural Economic Development
What has not changed, however, is the need for Federal programs
that recognize the importance of what is going on in rural America,
that support rural economic development and then respond in ways that
make sense. I hope the witnesses today will share with this
Subcommittee their thoughts on the changes in rural areas and how
Federal programs are making an impact.
Over 88 Federal rural development programs exist across 16
different Federal agencies. However, the U.S. Department of Agriculture
is the lead agency for Federal rural development policy, and the farm
bill is one of the key statutory tools for reauthorizing many of these
programs and making changes. These programs make a huge difference in
the lives of our rural constituents, and it is critically important to
ensure these citizens are well-served.
Categories of Rural Development
USDA Rural Development funds help provide core services and
facilities for our rural communities. However, the program operates
differently than many Federal programs by recognizing that rural areas
differ in their demographics, their needs, and their assets. One of the
advantages of our Federal rural development policy is the great
flexibility it offers our diverse rural areas.
From emergency services to community centers to water lines, rural
development programs meet a wide array of needs in rural areas. In my
District of southeastern North Carolina, community facility loans are
responsible for EMS units, fire trucks, library and courthouse
renovations, and town halls. Water and waste disposal money is helping
two communities with significant water infrastructure needs. Housing
funds are going to two separate community development corporations. All
told, in just this year, Federal rural development programs will mean
over $5 million in projects to my District.
Definition of Rural
As we evaluate these programs, we should consider how best to
define ``rural''. As the Members of this Subcommittee and the witnesses
know, this is not an easy question. The 2002 Farm Bill established
different definitions for ``rural'' depending on the program. As a
default, a population of 50,000 or less for a city or town is
considered rural. However, for water and wastewater disposal programs,
only a population of 10,000 or less is eligible. To be eligible for
rural housing and community facilities programs, the limit is 20,000.
What is considered rural today would have been considered
metropolitan 75 years ago. Counties that are decidedly rural in nature
and character hold county seats that are growing in population and
acquiring just enough size to make them ineligible for certain
programs. I hope the witnesses will be able to shed some light on this
issue and how Congress might address it.
Funding Issues
This year, this Subcommittee will reauthorize rural development
programs as part of a farm bill reauthorization. Complicating that task
will be what has happened with regard to funding for rural development
programs that were authorized in the last farm bill.
Funding for mandatory rural development programs established in the
last farm bill has largely been blocked by appropriators. Instead,
discretionary programs continue to play a dominant role in Federal
rural economic development policy. With the current tight budget
situation, the Subcommittee will need to evaluate whether mandatory or
discretionary funding is the proper mechanism for these programs.
Additionally, we face some serious budget constraints in the
current fiscal year as well. For example, North Carolina has the
authority to make $12 million in community facility loans this fiscal
year. However, over the last 5 years, North Carolina has made no less
than $38 million in loans each year of this program. Obviously, the
need far outweighs the resource.
Conclusion
Thank you again for joining the Subcommittee at this important
hearing. I would encourage witnesses to use the 5 minutes provided for
their statements to highlight the most important points in their
testimony. Your complete written testimony will be submitted in its
entirety in the record.
This Subcommittee will follow the 5 minute rule, allowing 5 minutes
total for both the questions from Members and the responses from
witnesses. As a result, I would request that Members be concise in
their questioning of witnesses, so that witnesses can answer within the
5 minute block of time.
If further time is needed, I invite Members to submit questions for
the record and allow the witnesses to respond in writing. The
Subcommittee will take very seriously these questions submitted for the
record and expect the witnesses to do their part to inform the Members
of the Subcommittee by answering these questions in a timely manner,
preferably within ten days.
The Chairman. And with that, I would like now to recognize
my good friend with whom I am honored to serve, the Ranking
Member from Colorado, Ms. Musgrave, for any opening remarks
that she would like to have.
OPENING STATEMENT OF HON. MARILYN N. MUSGRAVE, A REPRESENTATIVE
IN CONGRESS FROM COLORADO
Mrs. Musgrave. Thank you, Mr. Chairman, and I look forward
to working with you. I admire you a great deal and welcome this
opportunity. I would like to thank our distinguished guests for
being with us today and taking the time to be here and offer us
the information that they have.
As we look forward to developing a new farm bill in the
coming months, it is important for all of us to begin our
deliberations by identifying the Rural Development programs
that have worked well that were in the 2002 Farm Bill, and by
recognizing areas where improvement is still needed. This year
I hope we can improve the programs so that rural America can
make progress and prosper. I have a great deal of interest in
how this nation's rural development policies are working and I
am excited about the opportunity to perfect these programs as
this Committee works on the new farm bill.
The Agriculture Committee provided over $1 billion in the
last farm bill for programs such as Rural Telecommunications
and Broadband Services, Rural Strategic Investment and Rural
Business Investment, as well as the value-added market
development grants and drinking water assistance grants.
Clearly, many rural development success stories have resulted.
Over the past 5 years, 10,000 grants and loans have been issued
to rural communities across the country, providing nearly 4.3
million rural residents with new or improved water and waste
disposal services. The Rural Community Advancement Program has
assisted over 45,000 small businesses and has created or saved
320,000 U.S. jobs. The Rural Telecommunications Program in the
2002 Farm Bill has provided roughly 1.6 million rural customers
with new or improved telecommunication services, including
high-speed broadband. Yet it is impossible to recognize these
successes without also recognizing that rural America, and the
programs designed to serve it, continue to face many
challenges.
Perhaps one of the most obvious challenges for us as
policymakers is to identify and define the rural development
constituency, because it tends to be even broader than the
audience for farm and conservation programs. There are
additional needs and roles to fill beyond production
agriculture. Maintaining the population base, improving off-
farm job opportunities and providing public services continue
to be the long-term challenges for many traditionally farming
areas in eastern Colorado and around the country. As we move
forward with farm bill reauthorization, I think it is important
that we consider three policy questions.
While new programs may be desirable to meet currently
unfilled needs, should new programs be created, given the
challenges we face in maintaining a consistent funding level
for the existing programs? Are there ways to streamline
programs to reduce complexity, while expanding their scope to
service a broader constituency and ultimately realize the
greatest benefit per program dollar? Do existing programs
fulfill the Rural Development mission to target those
communities with the greatest financial and infrastructure
needs? These are among the issues that will be under
consideration, which I believe that rural practitioners, such
as those in front of us, can help us to answer.
I look forward with great interest to the testimony that we
will hear today. And Mr. Chairman, I thank you again for your
leadership on these issues.
The Chairman. Thank you so much, Mrs. Musgrave. The chair
would request that other Members submit their opening
statements for the record if you would like, so that the
witnesses may now begin their testimony and make sure there is
ample time for questions.
[The prepared statements of Messers. Peterson, Goodlatte,
and Salazar follow:]
Prepared Statement of Hon. Collin C. Peterson, a Representative in
Congress From Minnesota
Thank you, Chairman McIntyre and Ranking Member Musgrave for
holding this hearing today on rural development and the 2007 Farm Bill.
I welcome Under Secretary Dorr back to our Committee this morning as
well as all of today's witnesses.
I would especially like to welcome back Colleen Landkamer to our
Committee today. In addition to serving as Commissioner of Blue Earth
County, in Mankato, Minnesota, in my District, Ms. Landkamer was
recently elected President of the National Association of Counties. She
has served as a county commissioner from Blue Earth County since 1988,
she has served on NACo's Board of Directors since 1996, and she has
been a key figure in the formation and expansion of that organization's
Rural Action Caucus, a group of more than 100 county officials that
speaks on rural issues before Members of Congress and the
Administration.
I look forward to hearing from the Under Secretary today about the
USDA's Rural Development proposals. I know your agency worked hard in
submitting your farm bill proposals earlier this year and while I
certainly do not agree with every idea in there, I do think we can
agree that the farm bill that this Congress will write is the most
important piece of rural development legislation that we will consider.
The programs we reauthorize in the farm bill will demonstrate our
level of commitment to rural America. This means maintaining drinking
water and waste water systems, developing value-added rural businesses
to help producers capture a greater share of the food dollar, and
providing reliable high-speed Internet access to hold on to the
businesses and industries, farm-related or otherwise, that are
supporting rural America financially. The Ag Innovation Center in my
state, for example, receives funding through the Value-Added Producer
Grant Program. This program helps local agricultural producers expand
their customer base. Programs like these keep rural America competitive
and productive.
We are also approaching a new era in farm country as our rural
communities are leading the way in reducing our dependence on foreign
oil and fossil fuels with home grown renewable energy. This is the most
exciting thing I have seen in my lifetime in agriculture. The rural
development provisions we consider this year can play a key role in
helping keep the future of farm-based renewable energy locally-owned
and part of the fabric of rural America.
Given these challenges, I would like to hear more about USDA's
intention to have state rural development offices submit new business
plans for their operations. I am aware of USDA's proposals to
consolidate some offices and move from a three-tiered system of state,
regional, and county offices to a two-tiered system of state and
regional offices only. As I have previously made known to USDA, my
chief concern is whether the same high level of service can be provided
with this increased workload. I am even more concerned that this major
reorganization is taking place the same year Congress prepares to write
the farm bill, especially as we begin to move to the next phase of
rural-based renewable energy.
Once again, I welcome the witnesses and I look forward to their
testimony today. Thank you, and I yield back my time.
______
Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress
From Virginia
Thank you, Mr. Chairman. I appreciate your holding this hearing,
and Secretary Dorr, welcome. We are delighted to have you with us.
Secretary Dorr, I appreciate all of the work you've done on behalf
of rural America, especially the work that is done by rural development
in the Commonwealth of Virginia. You work very well with our state and
local governments on a wide array of economic development initiatives
that have helped a number of rural communities in my Congressional
District and elsewhere in the Commonwealth, and we very much appreciate
that.
There are tremendous opportunities in rural America but also
tremendous challenges. Rural America has been attracting more attention
as a potential source for renewable energy resources. Rural development
programs, such as the rural broadband initiative, create greater access
to more information for more Americans. Now those living in Rockbridge
County or Shenandoah County, Virginia can access the same high speed
Internet that you could previously only get if you lived near a large
metropolitan area.
Access to this technology allows children to learn, businesses to
grow and local economies to flourish with the creation of jobs and
businesses in rural communities.
______
Prepared Statement of Hon. John T. Salazar, a Representative in
Congress From Colorado
Good morning, I first want to thank Chairman McIntyre and Ranking
Member Musgrave for holding this important hearing.
I also want to thank both panels for coming to testify today.
I think it is vitally important that as we write this 2007 Farm
Bill, we work in a bipartisan manner to streamline and increase funding
for programs that enhance rural health care, Critical Access Hospitals,
and rural water infrastructure.
The 3rd Congressional District of Colorado is home to nine Critical
Access Hospitals, and that is why I feel that it is extremely important
to secure funding for the reconstruction and rehabilitation of these
hospitals.
Rural water quality and waste water disposal is also an important
issues to my constituents in Colorado.
I support funding to reduce the backlog of the grants, loans, and
other programs that will benefit rural communities by ensuring good
safe drinking water.
I think it is extremely important that everyone realize the
significant issue water quality plays in rural areas in Colorado and
other western states.
Thank you again, Mr. Chairman and Ranking Member, and I look
forward to hearing from the panelists.
The Chairman. However, before I introduce our first
witness, Mr. Pomeroy, I want to call on him to briefly make
some introductions of our Committee staff.
OPENING STATEMENT OF HON. EARL POMEROY, A REPRESENTATIVE IN
CONGRESS FROM NORTH DAKOTA
Mr. Pomeroy. Thank you, Mr. Chairman. I will be brief. And
as you undertake the work of this Committee and your first
meeting as Chairman, it is also the first meeting of the Staff
Director of the Subcommittee, Aleta Botts, and I want to
introduce her to the Committee Members and to the general
audience. She has worked as my Legislative Director for the
last several years and before that the Agriculture Legislative
Assistant. She has a graduate degree in ag economics from the
University of Kentucky, but I urge you not to hold that against
her. She is an extraordinary resource to this Committee and
while our office has felt her departure, I feel that it is our
contribution to the greater good. So Aleta Botts will serve us
well as we deal with the weighty matters the two of you have
outlined in the Congress ahead. Thank you. Oh, by the way,
there is another markup I am in the middle of, so I will be
kind of in and out and I apologize for that.
The Chairman. Thank you. Thank you, Congressman Pomeroy,
and thank you for letting Aleta come and join us. And Aleta,
thank you for your work and especially helping to bring us to
this moment today.
We would like to welcome the first panel to the table
today, the Honorable Thomas Dorr, Under Secretary for Rural
Development for the United States Department of Agriculture
here in Washington. Under Secretary Dorr has quite a
distinguished record of service to our country and under
different Administrations and times in different positions he
has held. I encourage you to look at his biography. But to
maximize your time, Under Secretary, please begin as you are
ready for testimony.
STATEMENT OF HON. THOMAS C. DORR, UNDER SECRETARY FOR RURAL
DEVELOPMENT, U.S. DEPARTMENT OF
AGRICULTURE, WASHINGTON, D.C.
Mr. Dorr. Thank you, Mr. Chairman and Ranking Member
Musgrave. It is my honor to be here today. I do appreciate the
opportunity to appear before you to discuss USDA Rural
Development's programs and budgets, and I particularly must add
that I look forward to working with this Subcommittee in this
new format. I would like to take just a moment at the
beginning, however, to pay tribute to the approximate 6,300 men
and women who collectively comprise USDA Rural Development. We
are, as you know, probably one of the most decentralized
agencies in government. Most of our employees are in the field
and they do a great job.
The distinctive characteristic of our agency is, if you
will, customer service. That begins with a delivery system that
is unmatched by any other community or economic development
organization today. It is boots on the ground, the ability to
provide education, training and technical support, and the
ability to reach out to the smallest communities, the ones that
don't have economic development specialists and grant writers
on their payrolls. This business model makes us both unique and
a good fit for rural communities. It is a core asset that we
intend to nurture and build in the years ahead. The world is
not static. We continue to modernize our administrative systems
and shift to more efficient financing models. We must reorient
and retrain our staff to meet new opportunities. There will be
changes and we are committed to turning these changes into
opportunities for personal and professional growth for every
one of our associates. The future is bright. And so as we make
these changes, we will and we do intend to keep you apprised.
The President's farm bill proposals clearly envision a
greater role for Rural Development going forward. For Fiscal
Year 2008, the President's budget proposes $2.1 billion in
discretionary budget authority to support a program level of
$14.9 billion. But this year, I would submit, the budget is
really only half the story. In addition to the 2008 budget, the
President's 2007 Farm Bill proposal includes significant new
initiatives for Critical Access Hospitals, rural water and
waste water community facilities projects, and renewable
energy. The farm bill proposal includes over $1.4 billion in
mandatory budget authority over 10 years to support these
initiatives; in fact, we have a full plate. We administer over
40 programs that provide infrastructure, affordable housing,
essential community facilities and business development
assistance. The time does not permit to discuss them all, but I
would like to touch briefly on three highlights.
The first is healthcare: The President's farm bill proposal
calls for $85 million in budget authority to support $1.6
billion in loan guarantees, as well as $5 million in grants, to
complete the rehabilitation of all 1,283 Critical Access
Hospitals within the next 5 years. I am sure I don't need to
dwell at length on the importance of this, but quality rural
healthcare is a true triple play. Obviously, it directly
enhances personal safety and the quality of life. But in
addition, hospitals themselves are major economic engines. And
finally, from a strategic standpoint, quality healthcare is a
key attractor for young families, entrepreneurs and new
businesses.
Second, the President's farm bill proposal provides an
additional $500 million to reduce the backlog in funding
applications for water and waste water, distance learning and
telemedicine, first responders and broadband access programs.
Like the Critical Access Hospitals, these directly enhance both
the quality of life for current residents, as well as the
attractiveness of a community for prospective newcomers. As
this Subcommittee knows, Rural Development's community
facilities programs are oversubscribed. This is not a new
issue. In the last farm bill, Congress provided an additional
one-time $360 million to address the backlog that existed at
that time. The 2002 Farm Bill was signed in May. Because of our
field staff, we were in fact able to announce that project
awards the following August, and we can and we will get this
money out the door quickly to meet critical community facility
needs.
Finally, renewable energy has emerged as one of the most
attractive success stories of this decade. We have overtaken
Brazil to lead the world in ethanol, and cellulosic ethanol is
now moving from the labs into the fields. Installed wind
capacity in the United States has quadrupled since 2000, and we
led the world in new capacity in 2005 and 2006. In case you did
not see it this morning in today's Washington Post, Page 3 of
the A Section, there is a terrific story about the combination
of wind and hydro in the Northwest. Biodiesel production is up
from two million gallons in 2000, to 245 million gallons last
year, with approximately 50 percent growth anticipated for
2007. And last but not least, research has been accelerated
across the spectrum of both conventional and alternative energy
sources. This is extraordinary progress in a very short period
of time and we are committed to continuing that progress.
The President's farm bill proposal contains and additional
$1.6 billion across USDA for energy-related projects. Key
initiatives for rural development include $210 million in
budget authority that will support an estimated $2.1 billion
over 10 years in renewable energy and energy efficiency
guaranteed loans, $500 million over 10 years for the Renewable
Energy and Energy Efficiency Grant Programs, and $150 million
over 10 years for the Biomass Research and Development Program.
Mr. Chairman, this concludes my prepared remarks this
morning. I am appreciative of this generous support of the
Subcommittee for rural America and we look forward to working
with you in the future to increase economic opportunity and
improve the quality of life in all rural communities. Thank
you.
[The prepared statement of Mr. Dorr follows:]
Prepared Statement of Hon. Thomas C. Dorr, Under Secretary for Rural
Development, U.S. Department of Agriculture, Washington, D.C.
Mr. Chairman, Members of the Subcommittee, I appreciate this
opportunity to appear before you to discuss the President's Fiscal Year
(FY) 2008 budget request for USDA Rural Development.
USDA Rural Development is committed to the future of rural
communities. We administer over 40 programs that provide
infrastructure, affordable housing, essential community facilities, and
business development assistance to rural communities. In Fiscal Year
2006, including significant supplemental funding in response to
Hurricane Katrina, we provided over $15 billion in grants, loans, and
loan guarantees, and technical assistance. Our current loan portfolio
exceeds $94 billion.
The Federal dollars that we bring to the table, however, are just
the beginning of the story. Rural America today enjoys enormous
opportunities. Our mission is to empower local communities, encourage
entrepreneurship, and use Federal incentives to leverage private
investment and ownership. The goal is not simply economic development
as measured by dollars out the door; it is sustainable development as
measured by thriving businesses and communities that offer a better
future to the next generation. We appreciate your generous support over
the years for rural America and we look forward to working with you in
the future to expand economic opportunity and improve the quality of
life in rural communities.
Beginning in 1935, our predecessors brought the countryside into
the 20th century with electricity, telephone service, and modern water
and wastewater systems. They made it possible for millions of rural
families to purchase a home or obtain decent, safe, and affordable
rental housing. They helped many thousands of rural businesses open
their doors or expand, and helped provide essential community services,
such as schools and hospitals, in rural communities across the country.
Much has changed in 72 years, but the commitment of our
approximately 6,300 employees remains the same. Most of these people
are not in Washington, D.C. They are scattered across this nation, work
out of our state and local offices, and are residents of the
communities they serve. They are your neighbors, your constituents, and
in at least some cases, I hope your friends. They do a remarkable job
and I am proud to be a member of their team.
In today's world, change is a constant. Several of the proposals in
the FY President's 2008 budget--and on a parallel front, the
President's 2007 Farm Bill proposals--involve significant changes in
our program delivery strategies and therefore in our business and
staffing model.
Let me emphasize at the outset, however, that I envision a stronger
and more dynamic and responsive USDA Rural Development in the years
ahead. Rural America is growing. New opportunities are arising.
Technology is expanding our options and, over time, will significantly
change how we live and work. While this necessarily affects how we will
go about our mission, it is an opportunity for us to serve Rural
America better.
FY 2008 Budget and the 2007 Farm Bill
This year's budget is made somewhat more complex by the pending
reauthorization of the farm bill. The President's budget for Rural
Development requests $2.1 billion in discretionary budget authority to
support a program level of $14.9 billion. program to the President's
budget, the President's 2007 Farm Bill proposal includes significant
new Rural Development initiatives for Critical Access Hospitals, rural
water and wastewater and community facilities projects, and renewable
energy. The proposal includes over $1.4 billion in mandatory budget
authority, some of it to spread over 10 years. The grant/loan/loan
guarantee ratios have not yet been determined, so it is not possible at
this time to project the program level associated with the mandatory
farm bill funding.
I will now focus my comments on the major programmatic changes
proposed in the FY 2008 budget and the underlying reasons for change.
The changes are not arbitrary. They are, in fact, driven by three
primary factors: the impact of technology; increasing efficiencies of
program delivery; and the continuing evolution from grants and direct
loans to loan guarantees.
Impact of Technology: New Opportunities
Technology is opening exciting new opportunities for rural America.
Rural America is dynamic and changing. We must be prepared to adapt
accordingly:
Broadband permits decentralization and the displacement of
rigid centralized structures by distributed networks. This
levels the playing field and makes rural communities
increasingly competitive across a wide range of business
opportunities. The deployment of affordable broadband to rural
communities continues to be a high priority. We will soon be
publishing draft revised regulations for comments to address
some of the difficulties we have experienced since 2003 in
establishing this new and technically challenging program. The
2008 budget provides funding to meet all of the anticipated
broadband program demand for next year.
Renewable energy is a national security, economic security,
and environmental quality issue. It is also perhaps the
greatest new opportunity for economic growth and wealth
creation in rural America in our lifetimes. A wide range of
renewable technologies are in play, but conventional ethanol,
cellulosic ethanol, biodiesel, and wind are distinctively rural
resources. We have funded renewable energy and energy
efficiency projects using a wide range of business and
utilities programs. From Fiscal Year 2001 through FY 2006 Rural
Development invested more the $480 million in over 1,100
renewable energy and energy efficiency projects. These range
from biofuels production and wind farms to anaerobic digesters
and a wide range of farm and rural business energy efficiency
investments.
Streamlining and Consolidation of Program Authorities
The 2008 budget for Rural Development maintains the same funding
streams and transferability as currently exists under RCAP,
transferability within streams but not among them, the only difference
is that the appropriation language has been simplified. Building upon
that model, the Administration's proposal for the 2007 Farm Bill
provides further, more comprehensive, consolidation and funding
flexibility for common program authorities. In tandem with these
legislative proposals is our effort to streamline the regulations for
these programs that allows for consolidation of common program
processes. USDA Rural Development administers over 40 programs with a
combined loan portfolio in excess of $94 billion. While many Rural
Development programs are highly targeted in purpose, they share
underlying features with other Rural Development programs. For example,
the Water and Waste programs and Community Facilities programs quite
often serve the same rural local governments with different aspects of
their infrastructure needs. In addition--whatever the purpose--loans
are loans, grants are grants, and loan guarantees are loan guarantees.
By standardizing the common elements of the various loans, loan
guarantee and grant programs within our regulations, we can simplify
access for borrowers and lending institutions that will no longer have
to master a new system for each program. It should be emphasized that
we are not eliminating or combining the programs themselves; we are
proposing funding flexibility as well as standardizing processes and
forms to simplify application and administration.
We have established a Delivery Enhancement Task Force (DET) that
has worked diligently on the streamlining the regulations effort. This
Task Force is comprised of representatives from the national as well as
our field offices. This effort will make it easier for our customers to
access our programs and for us to administer them. In the end, these
changes must help us get out of our own way so our field offices can
encourage more effective rural development. Within the next few months,
we expect to publish in the Federal Register a proposed rule for
streamlining certain provisions for our regulations, so we can solicit
public comments on this proposal. We have also communicated with the
appropriate committees in Congress to keep them apprised of our
activities.
Finally, technology is driving organizational restructuring as
well. We are bringing functions online, automating data management, and
increasing transparency and responsiveness. In this regard, we are no
different from any other large organization with a pre-computer, pre-
Internet legacy structure. I raise this issue today, however, because
we have reached a point at which new technology and new opportunities
not only permit but demand adaptation. This is good policy because
there are remarkable opportunities before us.
The evolution from grants and direct loans to loan guarantees.
Finally, several of the most significant changes in the FY 2008
budget request reflect a longstanding trend of increased reliance on
loan guarantees rather than grants and direct loans. This has allowed
us to significantly increase investments in rural America at little or
no added cost.
A decade ago, for example, Rural Development's FY 1997 budget
authority of $2.0 billion supported a program level of $8.0 billion. By
contrast, the FY 2008 budget request seeks a discretionary budget
authority of $2.1 billion and a program level of $14.9 billion. Over
the last decade, therefore, budget authority is virtually unchanged--it
is actually lower in real terms--while our investment in rural America
has increased 87 percent. Three factors underlie this trend:
The Federal Credit Reform Act of 1990 created a significant
budgetary and accounting incentive for Rural Development, as
for other lending agencies throughout government, to shift
funding to guaranteed loans where possible. Guarantees
generally have lower subsidy rates and lower costs to
administer than direct loan programs.
In an austere budget environment that we all face,
guarantees assume added importance as a means of leveraging
private resources and thus stretching scarce Federal dollars.
Most significantly, loan guarantees are good policy. By
requiring that private investors step forward, they orient our
programs to market opportunities and sustainable development.
Loan guarantees bring private investors to the table. They
frequently are the added incentive that convinces local
bankers, Farm Credit specialists, and other agribusiness
lenders that non-traditional opportunities presented by rural
entrepreneurs are worth supporting. Also, local lenders become
more vested in their communities by providing more home
ownership opportunities. At the same time, however, we
recognize that there is no substitute for having Federal
involvement. Our default rates bear this out. Loan guarantees
are a sound risk mitigation approach. While grants and direct
loans remain important parts of our portfolio, the logic of
credit reform and sustainable development has been inexorable.
Very simply, we have shifted our program delivery funding
emphasis and, in the process, we have become significantly more
cost-effective. We have dramatically increased investment in
rural America at little or no incremental cost to the taxpayer.
Budget Summary
Rural Utilities Programs
The 2008 budget requests $538 million in budget authority and $6.6
billion in program level for Rural Utilities programs. These programs
help provide electric and telecommunications infrastructure, broadband
access, and modern water and wastewater systems to rural communities.
The 2008 budget will deliver new or improved service in these areas to
nearly eight million rural residents.
The exceptionally strong performance of the rural utilities loan
portfolio means that these high investment levels can be sustained at
modest cost. The rural electric program, for example, projects $120,000
in budget authority to support $4.1 billion in loans. The
telecommunications program projects about $4 million in budget
authority to support $690 million in loans. The Water and Wastewater
program projects $153 million in discretionary budget authority to
support $1.1 billion in loans, plus an additional $349 million for
grants to very low income communities. These are among the most
efficient loan programs to be found anywhere in the Federal Government.
The Administration is proposing to continue to concentrate funding
on transmission, distribution and generation upgrades. Rural electric
cooperatives sell 6.95 percent of the kilowatts sold in the United
States, and do so across 80 percent of the nation's land mass. The
challenge of serving a dispersed population remains as serious today as
it was decades ago, and we will continue to meet the challenge. We
believe that rural utilities are able to finance new capacity through
conventional financing. We propose to direct our lending accordingly.
The President's 2007 Farm Bill proposal also includes $500 million
in funding over ten years to reduce the backlog in a number of Rural
Development applications, including rural water and wastewater
projects.
Finally, the 2008 budget proposes $300 million for the broadband
program. We believe that the funds requested will be adequate to meet
100 percent of the anticipated program demand.
Housing and Community Facilities Programs
USDA Rural Development's Housing and programs, although not under
this Committee's jurisdiction, are an important part of Rural
Development. They assist families with moderate and low incomes achieve
the dream of home ownership. They help provide decent, safe and
affordable rental housing. The Community Facilities programs enhance
the quality of life in rural communities by providing a wide range of
essential community services. The 2008 budget provides $6.3 billion in
discretionary funding for these purposes.
The 2008 budget is committed to protecting the most vulnerable
members of the community. We are requesting $567 million for Rental
Assistance within the Multi-Family Housing program. We have launched a
Multi-Family Housing Revitalization Initiative to protect the lowest
income tenants from undue rental increases, rehabilitate aging units,
and extend the viability of the existing portfolio for decades to come.
The 2008 budget also redirects funding from the Single Family
Housing direct loan program to guaranteed loans. In recent years, the
Single Family Housing guaranteed loan program has provided the bulk of
USDA home ownership assistance. The guaranteed program has also
accounted for virtually all program growth in this area since 1995. The
full transition to a guaranteed program will allow us to serve
significantly more prospective home buyers at any given level of budget
authority. We will also be proposing legislation to provide subsidized
Single Family Guaranteed Loans for very low and low income families.
Finally, for the Community Facilities program--much like the Single
Family Housing program--we are proposing to shift funding from grants
to loans and loan guarantees. This will allow us to serve significantly
more rural communities at any given level of budget authority.
In addition to the discretionary funding discussed above, the
President's 2007 Farm Bill proposes $85 million in mandatory budget
authority to support $1.6 billion in guaranteed loans and $5 million in
grants for reconstruction and rehabilitation of Rural Critical Access
Hospitals within 5 years.
Business and Cooperative Programs
Rural Development's Business and Cooperative programs provide
funding for rural business development, technical assistance, capacity
building, and research on agricultural cooperatives. For Fiscal Year
2008, the President's budget provides $1.3 billion in discretionary
funding for business and cooperative program investment. Here again, as
elsewhere throughout the Rural Development budget request, we propose
to increase cost effectiveness through a greater utilization of
guaranteed loans.
As this funding evolution suggests, the Rural Business and
Cooperative program area--like the rest of USDA Rural Development--is
in transition. While DET will eventually be deployed across all Rural
Development program areas, the Business and Cooperative programs are
leading the effort.
Finally, Rural Development's business and cooperative programs play
a leading role in the rapid build out of rural renewable energy
industries. Corn based ethanol, wind power, and biodiesel have grown
three-fold, four-fold, and over 100 fold respectively since 2000.
Cellulosic ethanol is now moving from the labs into production. In view
of the enormous potential of cellulosic ethanol for reducing our
dependence on imported oil, supporting its rapid commercialization is a
high priority.
The President's 2007 Farm Bill proposal includes $210 million in
Budget Authority to support an estimated $2.1 billion over 10 years in
Renewable Energy and Energy Efficiency guaranteed loans; $500 million
over 10 years for the Renewable Energy and Energy Efficiency grant
program; and $150 million over 10 years for Biomass Research and
Development program. This is a very substantial increase in USDA Rural
Development's role in enhancing America's energy security. We look
forward to working with you to advance these goals, which I know we all
share.
Conclusion
In closing, Mr. Chairman, I want to again emphasize that the future
for rural America is bright. Enormous new opportunities are emerging.
We are reorienting programs to new opportunities, adopting more cost-
effective financing strategies, and modernizing our own internal
operations. I know that the Members of this Subcommittee recognize the
opportunities before us, and we look forward to working with you to
bring this promise home to rural communities across the nation. This
concludes my formal statement and I will be glad to answer any
questions you may have.
The Chairman. Thank you so much, Under Secretary Dorr, for
your excellent job in your presentation. I wanted to ask you
two or three questions to get us started. One of the most
significant proposals you mentioned in your testimony is the
shift from grants to loans to loan guarantees and how this
shift allows the Department to increase investments in rural
areas, as you state, ``at little or no added cost.'' However,
you were referencing the cost to the Department. What studies
are being conducted to determine how this shift would affect
the communities that receive these Rural Development dollars?
For instance, my concern is--wouldn't lower-income communities
be at a disadvantage, given that they may have less local
capital to leverage in the pursuit of a loan or a loan
guarantee? And I know that is the first question I always get
back home, is, well, is this a loan or a grant? Everybody would
like to have a grant, we understand that, but this concern we
have, though, about the disadvantage of less local capital to
leverage. Can you tell us what studies have been conducted or
the effect this will have on the lower-income communities?
Mr. Dorr. Well, this is a regular question and I understand
the sensitivity to it. What we do know from our experience is
that in a general sense, when everyone is involved in the
project, when there is a combination of communities, investors,
local lenders, as well as government authorities that may be
impacted by these various projects, there is a tendency for the
projects to be much more successful. I will give you one very
short fact, although this does not comport with the water and
environmental programs, which I think you are probably alluding
to. But in our B&I programs, in 2001, most of our B&I loan
programs were handled as direct loans. We had a very
substantive default rate. It was a very high default rate. We
have largely transitioned that into accommodating the loan
guarantee aspects that the statute allows, and our loan default
rates have dropped dramatically. Now, I realize that some of
those loans are fairly new, but what we have experienced is
that when everyone has, so to speak, some skin in the game,
there is a tendency for these programs to work must more
effectively.
On the water and environmental programs, that loan and
grant program has always been one that has been oversubscribed.
There is a tendency to always be short of resources and yet,
one of the things that we proposed last year was not
accommodated and we are going to submit it again this year, is
to change our poverty rate loan structure so that we can
structure our poverty rate at 80 percent of the going rate.
Excuse me, 60 percent of the going rate and have an
intermediate rate at 80 percent. And what we have done
internally in analysis is, using those new numbers we
determined that with a loan and grant combination, using that
formula, we are actually able to lower the debt service and the
cost per constituent in many cases in that program. So we think
there is some indication that it works very well that way.
The Chairman. Thank you. I don't have any follow-up on that
and I appreciate your explanation. One of the questions I had
asked Secretary Johanns when he testified before this Committee
was how the $500 million, the USDA proposal to reduce the Rural
Development backlog, would operate. Now I guess if you could
clarify this, that includes only backlog funding and not
funding for any new project requests. I wanted to know if that
is correct. And also, how much would that decrease the backlog
in different programs? For example, do we go from a 3 year
backlog to a 1 year backlog in a particular program, or does
this rectify the entire situation?
Mr. Dorr. In the water and environmental programs where we
received the additional budget authority of 2002, I believe it
was in the neighborhood of $320 million or $330 million. That
was leveraged into, I believe, and I would have to verify this,
but as I recollect, about $760 million of overall program
funding with the combination loan and grant program. That
lowered our backlog at the time from about $2.5 billion to $2.6
billion down to around $1.7 billion or $1.8 billion. History,
at least in terms of what I have been able to ascertain,
suggests that you can lower the backlog to: $1\1/2\ billion,
$1.6 billion, and over a period of time it might reach back up
$2\1/2\ billion to $3 billion. I believe right now at the end
of this year, our backlog would approximate at $2.2 billion. So
this would, I suspect, lower our backlog back into that $1.5
billion to $1.7 billion area in the water and environmental
programs. We are proposing to use some of this in broadband and
some of these other areas as well, if there is in fact a need
at the time. So that is a moving target and I think that we
will address a substantial portion of this, but clearly, it
won't clear it all up.
The Chairman. All right. And one other question that I
wanted to ask you about that I alluded to in my opening
remarks, and I specifically mentioned my hometown and county as
an example. The county seat of Lumberton possesses a population
of just over 20,000, which I know now makes it ineligible for
certain Rural Development programs. It has qualified for some
rural housing programs in the past by being grandfathered into
eligibility, based on prior Census data. And then, as I
mentioned specifically in my remarks, for instance, our county
public library and our county courthouse, which by definition
have the word county in their title and serve a countywide
area, but now are in a city that is over 20,000. We had to go
back to get special permission from Rural Development to finish
what had already been started on both of those projects. I
wanted to know if this is going to be a continuing problem, if
there is an effort to reexamine the word ``rural,'' and what
you will be operating under in the meantime, so that
communities like Lumberton, who may technically have exceeded a
population data, can still service the predominantly rural
surrounding area?
Mr. Dorr. Well, first let me state that a member of your
next panel, Dr. Fluharty, is going to have some interesting
observations on the definition of ``rural,'' at least he has
every time I have heard him, and he does a very good job of it.
This is almost a ``Solomonesque'' sort of task and I don't mean
to be flippant about it. As you enunciated in your opening
statement, we have different population levels that have been
ascribed to the various programs. B&I is 50,000, CF is 20,000,
and they vary across the board by program. Then, frequently we
end up with situations like you just described in Lumberton.
Then we have to go in and make some additional accommodations.
In 2003, I put together a task force that, quite frankly,
when I left office as the Under Secretary in 2003, it didn't
get completed, I don't believe, but we are working on it again,
to take a look at what it is we can and should and perhaps can
do relative to working with all the resources available to
address some of these rural population areas. But as you note
and I am sure perceive, as well as other Members of the
Committee, there is a transition taking place relative to
urbanization in rural areas. One of the things that I think is
particularly intriguing is what Secretary Johanns has done in
the farm bill proposal that he and the President have laid out
relative to 1031 exchanges. That is just a manifestation of
this kind of ongoing changing demographic pattern relative to
rural areas. Another reason I am bringing this up is because I
think we are all sensitive to it. I don't think we have any
good, clear, and hard answers. I will assure you that we are
going to continue to work on it and we will take any insight
and any suggestions that you may have to offer as well.
The Chairman. Thank you. We will take you up on that and I
encourage our Subcommittee Members, and the staff of those
Members who may not be here, to accept that invitation with
regard to the definition of ``rural.'' And I would ask, Under
Secretary, would you be willing to either reinvigorate that
task force that was in order at 2003, or create your own, so
that this can be aggressively addressed? Would you be willing
to do that?
Mr. Dorr. No, we actually have a group that is now working
on this issue, again, at my request. And the reason I don't
have anymore hard information is because it is just a very
difficult task, but we are working on it. And as soon as we
pull some things together, we will be delighted to share them
with the Committee.
The Chairman. Thank you. We will look forward to that. Mrs.
Musgrave.
Mrs. Musgrave. Thank you, Mr. Chairman. Secretary Dorr, you
talked about the importance of hospitals in these rural
communities. It has been my experience that very often the
school district is the larger employer and then the hospital is
right after them. And of course the quality of healthcare in
rural America and the access of healthcare is of major concern
to folks that live out in rural areas. Could you elaborate a
little bit? I believe you said 1,283 rural hospitals. What is
going to happen with these rural hospitals? And then that leads
me into telemedicine and distance learning. And after you talk
about hospitals, I would like you to comment on criticism,
really, that has come towards the Broadband Program and some
folks are not really happy with the way this process has been
handled. Of course there is a great deal of competition when
communities are desperate for the ability to use telemedicine
and distance learning for their education.
Mr. Dorr. Well, certainly these are--I mean, you are
hitting on the complexity of the issues. But I would hasten at
first to point out that I think this plethora of issues that
you described also clearly indicate opportunity. It is
occurring at a time in, which in the long run, is very
opportunistic for rural. I actually reflect back to what I say
in 1990 was kind of the maturation of broadband technology, but
we all began to recognize after that, that the ability to have
access to a broadband pipe essentially allowed you to compete
in global markets, to live wherever you wish, or to live
locally and compete globally. But that also amplified the
circumstances when certain communities and certain people did
not have access to the same sized pipe that other people in
urban areas had. But also, with access to that pipe, it also
made it possible to enhance the quality of healthcare in rural
areas, because now you could access the kind of expertise that
may not have enough of a market to reside in those rural areas.
They would provide services if they could have the diagnostic
and the information exchange tools that are made possible only
by broadband.
So the long answer is: I think it has enhanced rural
America's opportunities a great deal. I think the ability to
modernize and rehab critical access care hospitals, which by
the definition means that they are a 25 bed facility with
certain structural constraints that enable them to qualify for
Medicare reimbursement, that enables them the mechanism to
service these debts, and our critical access care proposal to
provide financing actually allows their local lenders--their
local community banks--to have a way to lay off that risk once
they originate that loan; particularly if it exceeds their
capital structure, and I think that is the benefit of this
particular program.
Back to the broadband side of it, however, I will tell you
that it was rolled out in a pilot project and then later made
part of the farm bill in 2002. It has been more complicated to
deploy a technology in a competitive environment that was
destined to be, or statutorily required to be, technology
neutral. We have made some mistakes in doing it. We are in the
process of having rewritten the regulation. It is presently at
OMB. It will shortly be, I hope and I think, very soon be made
available for public comment. At that period of time, you will
have an opportunity to comment. As soon as that is exposed, I
will be delighted to come up or have any of our staff come up
and work with you individually or the Committee as a whole to
make sure that you feel that we are on the right path with what
we have got. I think it is the key to unlocking rural America.
Mrs. Musgrave. Thank you. You are probably very well aware
of the fact that we have difficulty in attracting doctors and
nurses and other healthcare providers, so that is a huge issue
too. And as we think about rural America, one of the most
poignant things to me is to see the declining population and
thinking about what the future is for rural America, how our
young people that want to stay in rural America can't. And I
wonder what Rural Development programs do you see that have
worked to really slow this population loss?
Mr. Dorr. Well, I think there are fundamentally two
programs that are very key to this. Number one is our Broadband
Program. Even though we have had difficulty with it since 2002,
we have actually made a billion dollars, in excess of a billion
dollars of broadband loans. I think it is also important to
point out that, since 1995 or 1996, all of our telecom program
applicants have been required, as they build out and receive
loan funds from us, they have been required to enhance their
broadband capability when they build out these new capacities.
So I think broadband and the access to information, knowledge,
global markets, has been a significant opportunity to retain
young people in rural America.
And the second, quite honestly, is one that we are just
uncovering and I know that all of you are very familiar with
it. We talk about it all the time, it is renewable energy and
renewable energy; carbohydrates; and other renewables. This
involves building a brand new industry, a brand new
infrastructure, a brand new regulatory regiment, a brand new
tax structure, a brand new everything. And these, as we build
these out, will create high-quality, very sophisticated jobs
that will make it possible to attract young people to live in
these rural areas. For the most part, these new renewable
energy opportunities are rural in nature. They are going to be
situated in rural areas. They are distributed and they are
possible only because you have distributed competing. So those
two things I think are very significant draws for young people
in rural America.
Mrs. Musgrave. Thank you. And thank you, Mr. Chairman.
The Chairman. Thank you so much, Mrs. Musgrave. With the
Subcommittee's indulgence, we have an opportunity to recognize
my friend, the Ranking Member and former Chairman of the full
Agriculture Committee who has joined us, Bob Goodlatte. And Mr.
Goodlatte, if you have any questions that you would like to
ask, we would be glad to honor your presence now.
Mr. Goodlatte. Mr. Chairman, thank you very much and I am
very pleased to join you and Mrs. Musgrave and the other
Members of this Subcommittee, and I appreciate your holding
this hearing on this very important subject. I do have an
opening statement that I will just submit for the record.
The Chairman. Yes, sir, gladly.
Mr. Goodlatte. And I would like to follow up on the line of
questioning that you suggested in your opening statement and
before I do that, welcome, Secretary Dorr. We appreciate the
opportunity to work with you and a lot great folks in Rural
Development who work in Virginia and have done some great
things in the communities for my constituents. So I thank you
for your service to our country and welcome you here today.
Mr. Dorr. Thank you.
Mr. Goodlatte. The 2002 Farm Bill provided a definition of
``rural'' and ``rural area'' for purposes of loan and grant
eligibility. Many other rural loan and grant programs place
other population thresholds on eligibility. Are the current
definitions of ``rural'' and ``rural area'' effective in
targeting those areas most in need of assistance?
Mr. Dorr. I don't know that I have a good answer for that,
quite honestly. Our programs, I guess I would have to say that
on the surface, the obvious answer would be that probably they
do, because we are in most cases oversubscribed in our
programs. So obviously, to expand the definition would just
permit more applicants. So at the same time, we are fully
cognizant that there are circumstances, particularly when you
get into rural communities that are in technically-designated
urbanized areas that are then, as a result of some definitional
issues, unable to access programs and it complicates matters.
As I said at the outset, in my earlier comments, this is an
issue that we are studying. We are, I guess, at the behest of
repeating myself, it is a ``Solomonesque'' sort of a challenge
to try to get the right definition for ``rural,'' and we are
going to work on it, we are going to continue to work on it. I
am not certain that we have got the right definitions.
Mr. Goodlatte. Well, do you believe the definition of rural
should be different for different programs, or should it be
more consistent across the programs? And I understand that,
with fiscal constraints, and hopefully we will find ways to add
more money here, but if we can't, are we better off having
these disparities that exist or should we scale back some and
increase some and have a more consistent definition?
Mr. Dorr. I wish there was an easy answer and I am not
trying to dodge it. But for example, when you look at the
broadband programs, that is a real difficult situation because,
frequently, you can have an urbanized area and literally get
right outside of it, 5 miles, and because there are rural
constituents, they just simply don't have access to broadband,
because there is not a provider who will lay 5 miles of wire,
or put up a wireless tower to accommodate that customer. So
that becomes the real complexity of trying to define it. I
mean, I think we all believe that those folks ought to, within
reason, have access to the same services that their urban
counterparts do. And so that is why I am kind of stumbling on
this, because it is not an easy thing to deal with. We are
trying to address it and we have developed some insightful
approaches in our proposed rule, but at this point, I am really
not at liberty to go into at this juncture.
Mr. Goodlatte. Let me play off of your answer to that last
question regarding broadband service. The commercial providers
of satellite broadband service claim they can provide service
to almost every corner of the United States. Do you think this
could change the nature of our U.S. Broadband Program in terms
of how we define unserved or under-served areas?
Mr. Dorr. I don't think there is any question that it has
implications on it and I quite honestly am not trying to dodge
this, but I think it would probably be more effective to have
Jacki Ponti, who administers that program, spend some time
going into it with you. We have dealt with those issues and
there are a number of--I guess perhaps the best word is
``nuances'' to those sorts of applications relative to the
regulatory regime that is in place, who owns the spectrum and
how that plays out. So it sometimes becomes more complicated
than just trying to define a rural area when you make a loan in
one of these particular situations.
Mr. Goodlatte. Thank you. With the Chairman's indulgence,
let me get one more question. It is my understanding that USDA
Rural Development is in the process of considering possible
changes in the organization of your state and local offices. I
wonder if you would comment on those proposed changes and how
they will impact your ability to administer the existing
programs.
Mr. Dorr. Certainly. I would be delighted to. This is
actually something that has been ongoing since I have been
involved as the Under Secretary of Rural Development. Early on,
our programs were much more focused toward certain areas such
as single-family housing. Most people are not aware, but the
numbers right now in terms of percentage of home ownership in
rural America is approximately 75 to 76 percent. I mean, it is
very, very strong number relative to single-family housing.
What has happened in the meantime is a result of economic
changes, cultural changes and statutory changes. Our programs
have been shifting to more emphasis on renewable energy and on
business and industry loan programs, and more effort on
facilitating the deployment of the right kind of infrastructure
for regional and local communities. And so what we have had to
do is use a combination of technology and continually
reevaluate our marketing model to make sure that we were
providing the right quality and the right level of services,
and at the same time, doing it within a constrictive number of
resources.
And so in fact, what we are actually doing is going to our
states and saying, ``Tell us what would most effectively
enhance your ability to provide your services in your states,''
and they have come back to us with some proposals. To a large
extent they could be described as migrating from more of a
three-tier structure to a two-tier structure, which means
state, regional and local offices. And what they are finding is
that with technology and with cross-training and a number of
things, they are actually much more able to provide the quality
and level of service out of regional offices. In the cases
where we actually have 10 states that are already at that
level, and have been there for several years, and as they are
deciding that this is the way they want to go, we are
encouraging them to do so. But this is going to occur in a
manner that we will not be changing our staff structure at all
to any great extent.
Mr. Goodlatte. Thank you. Thank you, Mr. Chairman.
The Chairman. Thank you so much, Mr. Goodlatte, and thank
you for joining us. And now we have just been joined by the
Chairman of the full Committee, Mr. Collin Peterson, and
Chairman Peterson, we welcome you to the first hearing by this
Subcommittee and would welcome any comments or questions you
may have.
Mr. Peterson. Well, thank you, Mr. Chairman, and thank you
for your leadership, and Ranking Member. We look forward to
some good work out of this Subcommittee.
The Chairman. Thank you.
Mr. Peterson. Mr. Dorr, Under Secretary.
Mr. Dorr. Mr. Chairman.
Mr. Peterson. Can you give me a status report of where we
are within the Administration on the loan guarantee situation
for cellulosic ethanol plants that--some of it is in DOE and I
don't know what they are doing over there exactly. And I think
the Secretary, in the farm bill proposal that he put forward,
had some provisions in there to have some kind of loan
guarantee authority. So could you tell us kind of where that is
at within the Administration or what is going on there?
Mr. Dorr. Well, I will do the best I can. At the risk of
being redundant and as I believe I have stated at different
times in the past, when the 2002 Farm Bill was passed with the
energy title and Rural Development was assigned to implement
9006, the Renewable Energy and Energy Efficiency Act, it became
very apparent to me that, yes, we in fact had the ability to
originate the loans and provide the back office support,
analyze the credit risks relative to loan guarantees. We did
not have a lot of the technical expertise that may be involved
in analyzing these applicants relative to new renewable energy
technologies. So what I did immediately was engage; because of
my prior relationship with a number of folks at DOE, and
working together on the Biomass Research and Development Act, I
engaged the folks at EERE over at DOE and we subsequently wrote
a contract with those folks to actually provide us assistance
in analyzing the technical aspects of these loans. As a result,
we have had that relationship since implementing the 2002
program.
After the Energy Policy Act of 2005 was passed, we have
been in contact with them. They know that we are more than
willing to do whatever we can to assist them in their program.
Obviously, there are a number of issues that have been involved
in that, that they know far better than I do. And yet, by the
same token, in the farm bill proposal the President, the
Secretary, obviously it has passed muster with OMB and others,
have made a request to insert a request for $210 billion budget
authority to facilitate our ability at USDA to do upwards of--
in excess of $2 billion of cellulosic loan guarantees. We are
in the process right now of making sure that we know what we
have to do to get in line--to get ourselves in order to make
this happen as quickly as possible. In fact, this law has
passed and the funds are appropriated. So that is where we are
at, at this point, relative to where DOE is at.
Mr. Peterson. Do you have any understanding of why there
was $7 million put in the continuing resolution to apparently
have them start up a loan guarantee program, which apparently
they have never done before? Do you have any idea of what is
going on there; aren't we duplicating? That is kind of what I
was mystified about.
Mr. Dorr. Well, I know that when the Energy Policy Act was
passed, as a result of that, there were no funds appropriated
to do much of anything. Since then, I know that there have been
a number of discussions on this. I am not privy to what it is
exactly that they are doing or why they are doing it. I do know
that we have had ongoing conversations, and we have shared
information with them on loan guarantee programs. Certainly we
are more than willing to work with them.
Mr. Peterson. Well, it seems like what is going on that we
are going to set up a process over there to make loan
guarantees, and we gave them money to do that. I understand
that we don't have the money in either place, but I don't know
how we get this sorted out. So if somebody from the
Administration can tell us how we can sort this out, and how we
can get everybody moving in the same direction. I don't really
care who does it, as long as it gets done. The other question I
have, Mr. Chairman, if there is time, is now you have limits on
how much and how big a loan you can make and so forth. I would
assume that in order for you to, if you are the ones that are
going to end up doing this, you are going to need some changes
in those limits as it relates to these plants.
Mr. Dorr. That is correct and we have indicated in that
farm bill proposal that we would like to see the limits on our
cellulosic loan guarantees run to $100 million and 100 percent
loan guarantee.
Mr. Peterson. Do you think that is going be enough?
Mr. Dorr. No, I don't.
Mr. Peterson. When I heard what these plants are going to
cost, it may need to be higher than that.
Mr. Dorr. It may be. I don't know. I think that it is
clearly a good crack; $100 million is clearly a lot of money. I
think it is a good crack and a start. Once we get into it if we
find out that it is not enough, I am sure and confident that we
will closely counsel with you and let you know.
Mr. Peterson. Is the $100 million limit in the farm bill
proposal?
Mr. Dorr. Yes.
Mr. Peterson. Is it any other place? Is it in any
legislative language anyplace, coming out of the
Administration?
Mr. Dorr. I believe that we have some draft documentation
on that, but I will have to check.
Mr. Peterson. But nobody has introduced anything?
Mr. Dorr. I don't know.
Mr. Peterson. Well, if you could check on that.
Mr. Dorr. Sure.
Mr. Peterson. Well, thank you, Mr. Chairman.
The Chairman. Thank you so much, Mr. Chairman, for being
with us. Mr. Fortenberry.
Mr. Fortenberry. Thank you, Mr. Chairman. I appreciate the
opportunity to be with you in this hearing and appreciate the
opportunity to be on this Subcommittee. I am very grateful for
your opening statement, particularly one sentence, ``America is
returning to its roots.'' And to the degree that we are
empowered to help overcome the barriers for people who wish to
integrate into rural life through rural entrepreneurial
opportunities, I think we have a tremendous chance here to help
that and the benefits from this way of life are extraordinary.
The values that we hold dear in our country, of hard work and
personal responsibility and family life and neighbor helping
neighbor, all flows so beautifully from our rural communities,
particular farm families, and I just really appreciate you
capturing the essence of that by saying America is returning to
its roots.
Mr. Secretary, thank you for appearing again here. I am
going to make a number of comments, some of them are specific
questions and some of them are a little broad. The first is I
appreciate your comment that the decentralized nature of USDA
Rural Development has allowed you the flexibility to meet the
mandates of Congress and to be very effective at it. I agree
with that. We have an excellent director and a number of
excellent ongoing programmatic elements in Nebraska that have
done just that. So I appreciate that comment and affirm what
you said.
Second, as you appeared before the other Subcommittee of
Agriculture that I am on, last week I believe it was, we
mentioned that, my colleague, Mr. Costa from California, and I
were interested in a letter, writing a letter to you, in which
we would ask for your coordination with the Department of
Energy to basically unpack the myriad of renewable energy
programs that are out there, either grants, specific programs,
university initiatives, so that we can have a better
understanding of how to integrate the two Departments'
initiatives, so that we are ensuring our taxpayer monies are
being used most efficiently and to avoid redundancy. I was a
little surprised by your comment. I appreciate it. This is not
meant to be pejorative, but you said this is going to take some
time. What that indicates is there is a very complicated maze
of renewable energy and alternative energy programs, projects,
initiatives, out there. But I think, as quickly as we can get
that, it will be helpful and that letter will be forthcoming
from us to you this week.
The third point is I think you have heard a number of
comments about rural broadband and I appreciate you ranking
that as one of your priorities in terms of ensuring renewed
vitalization in rural America. There is some complications here
and some of the earlier questions alluded to that and I think
your suggestion is very good, that perhaps the Administrator of
that program should come back here. I assume this is the
appropriate Committee that she would testify before, because,
again, the complexities of new technologies, the complexities
of what is urban and what was is rural, the complexities of who
gets loan guarantees and who doesn't, are very real and I think
we need to unpack that. And it is my understanding that the
rural telecommunications and broadband services director,
directors, and I assume that they are in all states, is not
under the auspices of USDA Rural Development and I would like
to understand that better, as to why that is not true, unless I
am mistaken.
The final question is you have recommended some solutions
to, again, getting a better handle on the myriad of programming
elements that are under the auspices of USDA Rural Development
and you have created a four part platform, if you will. Would
you unpack that? Again, the emphasis is on renewable energy and
I think that is important. The emphasis is on business loans
and business grants and then other community development
programs. Talk to the reasoning that you have for that
platform. On the surface, it appears to me to be reasonable and
a way to help people understand, again, the opportunities that
are out there to interface with you. I should stop there, since
I think my question is using up my time. All right, Mr.
Secretary.
Mr. Dorr. I hope the answer doesn't use up too much of
other people's time, and I apologize. First of all, very
quickly, I do believe that DOE does have a very concise matrix
of their research programs. The Energy Council that was put in
place by Secretary Johanns, and I am the Chairman of, in
December of 2005, has embarked on, for the last several months,
literally doing an assessment and analysis of all the research
and commercial development programs at USDA and is ultimately
putting those into a matrix. I believe the Secretary has
announced that today as well. That is not yet on line, but it
should be shortly and that is designed to enable people to
literally go in and point and click and find out what the
programs are that they are interested in. This is the first
step in doing a much larger and bigger matrix, if you may, to
pull as many of these things together as we can.
The issue of why there is not a broadband state director or
under the auspices of a state director in each state, that was
initially set up because of the complexity of the technology.
What Administrator Andrew is doing, and I am doing, very well
is attempting to begin to disperse the knowledge necessary to
deliver these programs across the board in the states. The
problem with that program is that you have a myriad of
technologies, you have an environment in which you can make
loans to competitors, which is unlike anything we have ever
done before. We had a rural water system or a rural electric
administration or rural electric co-op. These were monopolies,
essentially. They were monopolies into a given market, with
certain restrictions on contracts, and the ability to build out
broadband in this manner is something. Because of the change in
technology, the dramatic change in technology, it was just
impossible to staff up at the state level. So we had people
qualified to even understand the technology and the proposals
that were sent to them. So that is why we have retained a lot
of that decision making at the national office.
Mr. Fortenberry. And you accept that as a reasonable
structure ongoing?
Mr. Dorr. I think it is a reasonable structure if we get a
better handle on how exactly we are going to deliver the
program, and that is not to submit that we are not delivering
it. I mean, as I said earlier, we have a billion dollars that
we have placed through that program. We have about $360 million
in applications in the queue right now. We have had over $2
billion in applications that we have sent back because they
didn't comport with our existing regs, and that may be one of
the problems. But----
The Chairman. We will let you continue that answer and if
you will please submit that full answer, that would be great.
Mr. Dorr. Sure.
The Chairman. On to our Committee Members' time. Mr.
Pomeroy, you are next.
Mr. Pomeroy. Thank you, Mr. Fortenberry. Thank you, Mr.
Chairman. Mr. Secretary, it is good to see you again. The last
time you were before the Agriculture Committee, I guess it was,
we talked about how we might maximize the farmers'
opportunities to participate in the investment opportunities of
these ethanol plants. And while in the early going, when
ethanol had yet to really establish itself on the landscape as
an almost can't miss investment, farmer co-ops were funding
these things. Yet, would it have caught fire? Now the money is
readily available out of Wall Street and less farmer
participation, diminishing our prospects of trying to help
farmers achieve some kind of diversity relative to their income
dreams and the opportunities.
I had thought, after our visit, that we would see something
very interesting out of your shop on ways farmers might invest.
I was thinking, based on what I understood you to say that day,
that maybe pools, capital pools that might be used almost like
a real estate investment trust, funding participation in a
number of plants all over the place. The farmers' stake has not
been buying a piece of a particular plant, but they would be
participating in this pool, much like an investor, again, in a
REIT. What are you thinking today about trying to maximize
farmers' opportunities to have an ownership piece in this
emerging ethanol industry, and what can we see out of your shop
in that regard? Is there something more we can do in the
Committee to help you?
Mr. Dorr. Well, you and I have had this brief discussion on
this and you are spot. One of the concerns that we have is
whether or not rural America is going to be able to capture a
large portion of this wealth that is being created. What we
have done and we have not released them, we are getting very
close to getting them prepared so that there is some sense to
them, but we have embarked on, actually over a period of 2
years, but more specifically the last 6 months, four
cooperative research contracts to look at investment issues,
business model issues, red tape and regulatory issues, and more
specifically, how to go about integrating distributed
electricity production into legacy systems. We think we are
getting close to having a cogent summary on this. I think, when
it is all done, what this will do is point out a number of
issues regarding how securities laws and other things, which
are clearly out of my jurisdiction, may or may not impact the
ability to aggregate small investor capital in these rural
areas.
It is pretty clear to me that, as you pointed out, it is
easy now, on these business models that work, to go out and get
the capital very quickly, not just in Wall Street: you can pick
it up in Fargo before they can get it in Minot; or you can pick
it up in Sioux Falls before you can get it in Brookings. The
simple fact of the matter is that we have to figure out ways
that enable the local investors, the bankers, the butchers, the
barbers, the school bus drivers and everyone who wants to be
put $5,000 or $10,000 or $15,000 into one of these investment
pools, or whatever the mechanism may be, so that they can
participate. I don't think that is an irresponsible suggestion.
I think it is an issue that traditional security and regulatory
laws are meant to deal with issues that are much different than
they are now with distributed computing and our ability to do
things much quicker and maintain a high level of governance, a
high level of transparency relative to management fees and risk
and that sort of thing. I think we need to embark on it. I
don't think that we at Rural Development are going to be able
to. What I am hoping that we do is eliminate the questions that
we are encountering as we go about facilitating the build out
of this industry, so that you and others may sit down and take
a look at this and we will be delighted to work any way we can
to work through it.
Mr. Pomeroy. I appreciate that and I appreciate and respect
you for your grasp of this and how you have articulated it. I
am disappointed in the timeline. You know, the corn production
in North Dakota is fairly well committed now and the plants are
already under construction. It has been a critical period of
time, of development for our industry. The farm bill is upon
this Committee and if we are to do something creative, we need
to do it now. And so studying and contemplating and researching
and publishing, it is all going to press us past, I am afraid,
the critical time-frames where this matters.
A final point I would note. I have frustration with the
Rural Utilities Service. We gave them some money to build out
broadband and looking at how they have allocated the money in
North Dakota, anyway, it looks to me that they have built over
it and not build out. And it was never my intention to commit
low-interest Federal dollars so that they could put in even a
co-op owner and general very co-op friendly guy, but co-op
owned facilities are in direct competition with the private
sector plant that was already there. That to me seems unfair
and not the optimal use of these resources that we hoped to
push this out into the areas that didn't have service. Do you
have a response? I see I am out of time and I yield.
The Chairman. Okay. Thank you, Mr. Pomeroy, and we would
ask the Under Secretary to please respond to that in writing,
given our time constraints. We are joined by the gentleman from
Minnesota, Mr. Walz, and the gentleman from Kansas, Mr. Moran.
And with Mr. Cuellar's permission, in light of the earlier
round, Mr. Moran, we will call upon you if you have a question,
sir.
Mr. Moran. Mr. Chairman, I would ask unanimous consent, I
am not a Member of this Subcommittee, to sit at the dais and
ask a question.
The Chairman. We will allow you to proceed.
Mr. Moran. And I appreciate Mr. Cuellar's kindness. Thank
you very much for allowing me to join you, Mr. Chairman and
Ranking Member. I would follow up on Mr. Pomeroy's comments.
That was one of the comments I wanted to make. We have
experienced the same thing in Kansas, in which we are actually
doubling the building capacity as compared to necessarily
serving areas that have no broadband service. But before I get
to that point, I wanted to thank Secretary Dorr for his
commitment to the issues on which he speaks. I am a fan of
Secretary Dorr and I appreciate what he is doing at Rural
Development. I would compliment the Administration in a couple
of their farm bill proposals. On the renewable energy side, my
only complaint is that we ought to be doing more and we ought
to be doing it quicker and this ought to be a Manhattan Project
for the immediacy of this. I think the benefits that come to
rural America are just tremendous. But I am pleased with the
direction the Administration is going and let us just keep
going in that direction as quickly as possible.
And on the Critical Access Hospitals, there is perhaps no
more important a challenge that rural America faces than access
to healthcare, and Critical Access Hospitals are presumably
reimbursed at 100 percent, 101 percent, actually, of their
costs, but it doesn't take into account any depreciation. And
their ability to replace structures, to replace equipment is so
limited and your proposal is one that is very worthy. So my
compliments.
A couple of comments or questions. Municipalities, I am
told, are not eligible for loans or grants for the development
of wind energy. And in Kansas, we have a community college that
is interested in developing the technical expertise to create a
program in which they train technicians to work on wind energy
projects, and the campus itself is interested in becoming
reliant upon wind energy, but is ineligible for a loan or a
grant from USDA. And I would ask the opportunity to work with
you to see if there is something that USDA can do to solve that
problem--it may take legislative changes. I would ask you to
work with me to see that we accomplish that. I think that is
what I would like to see the next phase of wind energy, as
beyond the large wind farms, but the opportunity for
businesses, campuses, communities, to access that form of
energy.
And then I also would note that FTEs are in short supply at
Rural Development and we have now passed the continued
resolution and I am interested in knowing, Mr. Secretary, your
ability to continue to fund Rural Development programs in
Kansas and other states using the personnel that we currently
have in place. Do you see significant changes? And in that
regard, I also just want to point out that Kansas, like some 20
other states, are going through a process of closing FSA
offices and I know that you are going to be very reluctant to
participate in a dialogue with me about this conversation. But
I hope that you would take back to USDA the importance of a
small number of jobs in small communities. And one of the
things we see, even in our state, in which we are closing FSA
offices in our smallest communities and placing those offices,
and the positions that go with them, in the larger more
regional communities. And of all departments in the U.S.
Government, in Washington, D.C., the one department that I
would expect to understand the importance of three or four jobs
in a community of several hundred people would be USDA. And if
you can help deliver messages, in fact, there is a great irony
that we will see Rural Development make a loan or a grant to a
business in a community to help preserve the cafe or keep the
grocery store ongoing, to help the local hospital, and at the
same time FSA is considering closing the office that employs a
half a dozen people. What one hand is providing, the other hand
is taking away and I hope that without forcing you to, unless
you disagree with me, then I don't want you to say anything,
but if you agree with me, I hope that you will take a message
back to another side of USDA about the importance of those
positions. Thank you.
Mr. Dorr. Let me make one comment on that last component. I
am very empathetic to what you are saying, on the one hand. On
the other hand, where we have, in our case, local offices that
frequently have only two or three people in them, it makes it
very difficult, and particular in an isolated area, it makes it
very difficult to have them trained up and capable of
delivering all of the programs, when they have tended to
specialize in areas. What we are finding is that our
productivity and our ability to enhance economic growth and
development, not just in the regional centers, but throughout
many of these areas, is considerably enhanced when they use a
combination of technology, cross-training and collaboration
amongst our staff to deliver programs in a highly effective
manner. So I understand the significance of all the jobs that
you can possibly get in the individual rural communities. On
the other hand, I have looked at some of our numbers where our
cost per loan originated sometimes are really way, way too high
to even justify what we are doing. So we have to look at how we
can do it in a better, more effective way and yet still obtain
the requirements that you expect, as laid out in the statute,
and I think we are doing a pretty good job of it.
Mr. Moran. Mr. Chairman, thank you for allowing me to join
you. I only would point out that one USDA official told me that
what we ought to do is just look to see where Wal-Mart is and
put our offices there, because they have already done the
study, and that kind of attitude is very troublesome to me; and
it was no one at Rural Development.
Mr. Dorr. I understand. I don't have the Wal-Mart syndrome
yet.
The Chairman. All right, thank you. Thank you, gentlemen.
Thank you, Mr. Moran and Mr. Under Secretary. Mr. Cuellar.
Mr. Cuellar. Thank you very much, Mr. Chairman, and thank
you, Mr. Secretary, for being here with us. But I want to
follow up with what Congressman Moran also talked about. What
the factors, and I know the general factors of cost-
effectiveness, but what are the factors that you all look at
for closing a small office? And keep in mind that there are
ways--you have done budgets and I have done budgets--but what
are the factors that you all take into consideration? Because I
am in the same line as Mr. Moran and a couple of other folks,
that by closing those offices in the small rural areas, I mean,
the Agriculture Department is the one that's supposed to be
helping the small rural areas. If you are talking about
delivering services, I am sure there are other ways and there
are other alternatives we can look at besides closing those
offices. There are counties in my District that have said, ``We
will provide the offices for free. We will provide the office.
All they have to do is bring the person, the salary, but we
will provide the spaces.'' So if you have willing partners that
are willing to provide that, I mean, that is already some
savings to you all.
Mr. Dorr. Well, before we get too deeply imbedded in this
discussion, let me hasten to point out that the national office
at USDA Rural Development has not made a dictate that we are
closing X number of offices. What we have had to deal with is
the change in our program scope, the transition from more, for
example, direct single-family housing loans to guaranteed
housing loans. For example, when I first started out, we were
making about $3 billion worth of single-family housing loans in
rural America. In our 2008 budget, that will jump to nearly $5
billion, $4.7 or $4.8, but they are largely guaranteed. They
are guaranteed loans originated by your local bankers and
others who run businesses in the community. These programs are
very effective at getting people who need housing, particularly
in the less than 100 percent median income area, into housing.
We can better use our resources to make sure that we provide
more housing than we can to keep people involved necessarily
making single-family housing loans, when in fact what we really
need to do is to retrain them so that they understand how to
more effectively coordinate water and waste environments, or
the Critical Access Hospitals, with B&I loan and something of
that nature that ultimately results in the creation of several
jobs. The upshot is that almost without question, every one of
our states are actually redesigning themselves in a way that
allows them to deliver their programs most effectively. So this
is not a Washington dictate. I made it very clear, when I
started out at Rural Development, that our state directors, who
are all political appointees, are essentially the equivalent of
CEOs of their state and they and their staffs work, live, eat,
go to church, play, recreate with the bankers, the developers,
the local leaders, the local political leaders in their states,
and to a large extent, in almost every situation, they are
actually responding to the local demand and the local need. So
this is not a dictate from us telling them what they ought to
do because we have defined it.
Mr. Cuellar. Well, with all due respect, I don't know what
local input they are getting from my District to close an
office in Starr County or what they are getting from Mr. Moran
or the other Members. I mean, did they get input from our
community to go ahead and close that office? Is that what you
are saying?
Mr. Dorr. No, I think what they are doing as CEOs of the
Rural Development programs, looking at where the demands are
for their programs, looking at where they need to have their
people positioned most effectively. For example, we have
certain states that have a large number of offices that have
ended up around large urban areas, because they were at one
point rural. Okay. We don't need them there now and our people
understood that and redeploying them in areas that are more
appropriate to delivering Rural Development programs.
Mr. Cuellar. I mean, I don't want to go into too much
detail here, but could you have your state person sit down and
I am sure that Mr. Moran would like to sit down and go over the
rationale because, with all due respect, I just cannot see that
they are getting input from our local community to close
offices, because they will--I mean, I can't see somebody in
Starr County say, ``Close this office and move it down to
McClelland or Edinburg, wherever they are talking about, and
because they will provide better service for us here, so move
this office out of here.'' I mean, with all due respect, I
don't think that is correct. I really don't think that is
correct. I just would like to engage in some sort of a dialogue
with your person to see how they are making this decision and I
am sure the Members would like to do this also, because there
is more than one Member that has a concern about these offices
closing. But anyway, Mr. Chairman, I thank you very much.
The Chairman. Sure.
Mr. Cuellar. One last thing, if I could just ask you. On
the delivery enhancement task force, I want to give you a
compliment about that, because I really feel that that is the
right direction to streamline some of the regulations. You
know, how do we provide the enhancement or how do we provide
the service, because this is very important to us here. So
could you have your state person sit down with me, set up an
appointment and I would be happy to meet him in Starr County,
which is the office that they want to close, so he can point
out the people that are saying to close the office in Starr
County.
Mr. Dorr. Certainly. The delivery enhancement task force
issue is one that we right now are in the process of going
through the regulation at OMB, so we are not going to be able
to get into a lot of detail on that at this point, but I will
certainly have Mr. Daniels sit down and visit with your people,
relative to the process that he has gone through relative to
his organizational restructuring.
Mr. Cuellar. Right. Thank you. Thank you, Mr. Secretary.
The Chairman. Thank you, Mr. Cuellar. Thank you, Mr. Under
Secretary. We appreciate your testimony today and we look
forward to your response in writing within 10 days, under the
Subcommittee rules, to any of the questions that were not able
to be fully answered during this time allotted this morning.
Thank you for the excellent work you do and for your commitment
to serving our country. May God bless you and your staff in
that continued commitment and we look forward to working with
you. With that, we will adjourn this panel and call the next
panel to please immediately come forward and take your seats so
we may continue the hearing promptly.
All right, we are going to begin our second panel now so
that we can honor the commitment of our panel's time as well as
the Members' time. I would like to call on a special guest to
the Subcommittee today, our fellow colleague, Mr. Walz, to
introduce our first panelist. Mr. Walz.
Mr. Walz. Thank you, Mr. Chairman, and thank you, Ranking
Member Musgrave and the rest of the Subcommittee, this very
important Subcommittee, for allowing me the real honor of
introducing one our next witnesses on the next panel, County
Commission Colleen Landkamer. She is from my hometown of
Makato, Minnesota and from Blue Earth County. Colleen is one of
those people that understands the policies that are made here
in Washington, the impact they make on real people. And
Colleen's vast practical knowledge in rural development has
made southern Minnesota what it is today, one of the most
livable parts of this country, and to her I say thank you. She
is visionary, she is a coalition builder, and she has done
something that sometimes doesn't happen in leadership,
unfortunately. She has achieved results. She is involved in so
many things and I know her well, but I had to make a list of
these things. She serves on the Rural Policy Center Board of
Directors in Minnesota, the Minnesota Rural Partners Board,
State Community Health Advisory Committee. She served on the
Board of Directors of the National Association of Counties for
the last 12 years. She helped form the Rural Action Caucus.
Colleen is one of those people involved in so many things, I am
surprised the State of Minnesota is still functioning today
with you being here, but I thank you so much for that. She is
here today to testify in a very important capacity and one that
I think is going to be a voice of vision for us on this
Subcommittee and that is as the President of the National
Association of Counties. So Commissioner Landkamer, thank you
so much for coming and thank you for what you are doing.
The Chairman. Thank you, Mr. Walz. And with that, Ms.
Landkamer, we will let you proceed with your testimony. We
remind all witnesses on this panel, as you may have heard if
you were present for the last, we have 5 minutes. If you would
highlight and summarize your testimony, your full written
testimony will be part of the record. And responding today, we
have a 5 minute block of time for both the Members' questions
and answers. Thank you, ma'am. You may proceed.
STATEMENT OF HON. COLLEEN LANDKAMER, COMMISSIONER, BLUE EARTH
COUNTY, MN; PRESIDENT, NATIONAL
ASSOCIATION OF COUNTIES, MANKATO, MN; ON
BEHALF OF NATIONAL ASSOCIATION OF DEVELOPMENT
ORGANIZATIONS
Ms. Landkamer. Thank you, Chairman McIntyre, Ranking Member
Musgrave and Members of the Subcommittee, for the opportunity
to testify today on the community and economic development
challenges and potential facing rural America. And I also want
to thank my Congressman, Congressman Walz. He does such a great
job for us and we are so proud to have him here.
My name is Colleen Landkamer. I am a County Commissioner
from Blue Earth County, Minnesota, and I currently serve as the
President of the National Association of Counties. Today I also
have the privilege of representing NADO, the National
Association of Development Organizations. NADO is the only
national organization representing county governments in
Washington, D.C. NADO is the national voice for local
government-based regional development organizations. NADO's
farm bill objectives seek to expand the use renewable energy,
find new ways to retain and attract young people in production
agriculture, and support the enactment of an expanded rural
development initiative that recognizes the local role in
assisting our counties. We seek to further develop rural
infrastructure, promote economic development, and expand
employment opportunities in rural America. Efforts in crafting
a farm bill should recognize the Federal-local government role
and our shared responsibilities. We wish to work with the
Committee in not only providing the local-required resources,
but also maintaining our local authority in setting priorities
that are consistent with sound public policy and driven by our
constituents' needs.
Mr. Chairman, I want to express our overwhelming support
for an enhanced rural development title as part of the 2007
Farm Bill, including increased grant resources for rural
infrastructure improvements, renewable and alternative energy
development, business development, broadband deployment and
community facility enhancements. This morning I would like to
make three key points on the current status of Federal Rural
Development policies and programs that should be addressed in
the reauthorization of the Farm Security and Rural Investment
Act of 2002.
First, Mr. Chairman, USDA Rural Development programs need
to be updated and fully funded. Unfortunately, Federal programs
often place rural communities at a significant disadvantage. An
example is the recent trend of shifting USDA Rural Development
assistance from grants to direct loans and loan guarantees. And
Mr. Fluharty has a bunch of numbers that will explain this in
greater detail.
Second, infrastructure development remains one of the most
significant roadblocks to economic development and
competitiveness in rural America. Business leaders in private
sector industries expect and demand that public entities
provide basic public infrastructure, especially costly water
and sewer systems that are essential building blocks for
economic and community development. Infrastructure should not
be considered a luxury for rural areas, but instead as a basic
necessity for economic competitiveness and improved quality of
life. The move toward more direct loans and loan guarantees is
putting many USDA programs out of the reach of the most
distressed and under-served rural communities.
Third, Federal Rural Development programs must be reshaped
to promote and reward regional approaches and local
cooperation. This reflects the reality of today's marketplace,
for rural communities are not only competing statewide and
nationally, but also internationally. The Rural Strategic
Investment Program would provide much needed incentives and
resources for the development of rural development strategies
on a regional and local basis. We are pleased that Senate
Agriculture Nutrition, and Forestry Committee Chairman Tom
Harkin announced plans to modify RSIP as part of a renamed
plan, the Rural Collaborative Investment Program. We strongly
support Chairman Harkin's goals to move rural development
beyond just categorical programs to a stronger commitment to
regional rural development strategies and programs designed by
local leaders.
In conclusion, I would like to reiterate that NACo and NADO
feel that USDA Rural Development programs should support the
basic needs of local communities. We support the existing
portfolio of USDA Rural Development programs, as well as the
full implementation and funding of the Rural Strategic
Investment Program. Thank you again, Chairman McIntyre, Ranking
Member Musgrave and Members of the Committee, for the
opportunity to testify with you today. Thank you.
[The prepared statement of Ms. Landkamer follows:]
Prepared Statement of Hon. Colleen Landkamer, Commissioner, Blue Earth
County, MN; President, National Association of Counties, Mankato, MN;
on Behalf of National Association of Development Organizations
Thank you, Chairman McIntyre, Ranking Member Musgrave and Members
of the Subcommittee for the opportunity to testify today on the
community and economic development challenges and potential of small
town and rural America. As this Committee debates and moves forward on
the rewrite of the Farm Security and Rural Investment Act of 2002, I
strongly encourage you to make rural development a central theme of the
proposal.
My name is Colleen Landkamer. I am a County Commissioner from Blue
Earth County, Minnesota and I currently serve as President of the
National Association of Counties (NACo). I have served as a County
Commissioner in Blue Earth County since 1988. Today, I have the
privilege of representing NACo, as well as the National Association of
Development Organizations (NADO).
About the National Association of Counties
Established in 1935, the National Association of Counties (NACo) is
the only national organization representing county governments in
Washington, D.C. Over 2,000 of the 3,066 counties in the United States
are Members of NACo, representing over 85 percent of the population.
NACo provides an extensive line of services including legislative,
research, technical and public affairs assistance, as well as
enterprise services to its members.
NACo's membership drives the policymaking process in the
association through 11 policy steering committees that focus on a
variety of issues including agriculture and rural affairs, human
services, health, justice and public safety and transportation.
Complementing these committees are two bipartisan caucuses--the Large
Urban County Caucus and the Rural Action Caucus--to articulate the
positions of the association. NACo's Rural Action Caucus (RAC)
represents rural county elected officials from any of the 2,187 non-
metropolitan or rural counties. Since its inception in 1997, RAC has
grown substantially and now includes approximately 1,000 rural county
officials.
About the National Association of Development Organizations
The National Association of Development Organizations (NADO)
provides advocacy, education, research and training for the nation's
regional development organizations. Building on 4 decades of
experience, the national network of 542 regional development
organizations serves as a key catalyst for regional strategic planning,
partnerships and initiatives that are designed to meet locally-
identified needs and conditions. The core philosophy of regional
development organizations is to help local government officials and
communities pool their limited resources to achieve economies of scale,
build organizational skills and professional expertise, and foster
regional cooperation and collaborations.
NADO's members are often known locally as: councils of government,
area development districts, economic development districts, local
development districts, planning and development commissions, regional
development commissions and regional councils of government. Each
organization is typically governed by a policy board of local
government officials, with additional representation of business,
education and community leaders. Depending on local priorities,
regional development organizations administer and manage a broad range
of Federal and state programs, including: aging, business development
finance, community and economic development, emergency preparedness,
housing, GIS services, rural development, transportation planning and
workforce development.
Federal-County Partnership
NACo is also interested in reestablishing the government
partnership we feel has been lost between the Federal, Executive and
Legislative branches and county governments. We represent the elected
county officials in each of the Congressional Districts who in turn are
elected by our joint constituents. Contrary to other interest groups we
are not a special interest but rather a government partner in
addressing our shared constituent's needs and concerns. Congress, over
the last ten years has forgotten our partnership and enacted pieces of
legislation that has created unnecessary burdens on local governments.
We feel the new leadership should look at how proposed legislation
preempts local authority and creates unfunded mandates as a process of
enactment and rejects those efforts. Efforts in crafting a farm bill
should recognize the Federal/Local Government role in our shared
responsibilities in representing the constituents who elected us.
County governments have a huge stake in the creation of a rural
development section that supports the county role. We wish to work with
the Committee in not only providing required local resources, but
maintaining our local authority in setting priorities that are
consistent with sound public policy and driven by our constituents'
needs.
In my testimony, Mr. Chairman, I want to express our overwhelming
support for an enhanced rural development title as part of the 2007
Farm Bill, including increased grant resources for rural infrastructure
improvements, renewable and alternative energy development, business
and entrepreneurial development, broadband deployment and community
facility enhancements. In addition, our associations strongly support
the goals and concept of the Rural Strategic Investment Program (RSIP),
an innovative and forward-thinking rural development program created
and funded in the 2002 Farm Bill but never implemented.
This morning, I would like to make three key points on the current
status of Federal rural development policies and programs that should
be addressed in the reauthorization of the Farm Security and Rural
Investment Act of 2002:
Federal policies and programs, including USDA Rural
Development programs authorized in the 2002 Farm Bill, need to
be updated and fully funded to ensure our nation's rural
regions, counties and communities have the resources, program
tools and local flexibility to compete in today's global
marketplace. As home to nearly \1/3\ of the nation's
population, small town and rural America is diverse, complex
and constantly evolving. Unfortunately, Federal policies and
programs often place rural counties and communities at a
significant disadvantage. An example is the recent trend of
shifting USDA Rural Development assistance programs from grants
to direct loans and loan guarantees.
Infrastructure development remains one of the most
significant roadblocks to economic development and
competitiveness in small town and rural America.
Entrepreneurs, small business leaders and private sector
industries drive our nation's innovation, competitiveness and
job growth. These individuals and entities also rely, expect
and demand that public entities such as county governments
provide and maintain basic public infrastructure services,
especially costly water and sewer systems, that are essential
building blocks for economic and community development.
Unfortunately, the current portfolio of USDA Rural Development
grant programs for infrastructure, renewable energy, broadband
and community facility projects are being replaced with
additional program authority for direct loan and loan guarantee
programs. This puts many USDA programs out of the reach of the
most distressed and under-served rural counties and
communities.
Federal rural development policies and programs must be
reshaped to promote and reward regional approaches and local
cooperation among governmental entities at all levels,
nonprofits, economic development organizations, educational
institutions and other key community leaders. This reflects the
reality of today's marketplace where rural counties and
communities are not only competing statewide and nationally,
but more likely, internationally. The Rural Strategic
Investment Program (RSIP) is an innovative program that would
provide much needed incentives and resources for the
development of rural development strategies on a regional and
local basis, as well as flexible program dollars to implement
regional and local projects and priority initiatives.
First, Mr. Chairman, Federal policies and programs, including USDA
Rural Development programs authorized in the 2002 Farm Bill, need to be
updated and fully funded to ensure our nation's rural regions, counties
and communities have the resources, program tools and local flexibility
to compete in today's global marketplace. We appreciate and recognize
the leadership and hard work of this Committee in securing a record $1
billion in mandatory funds for the rural development title of the Farm
Security and Rural Investment Act of 2002. However, more than half of
these new program resources never materialized or were blocked through
subsequent legislative and administrative actions, resulting in lost
opportunities for our nation's rural counties and communities.
As the home to nearly \1/3\ of the nation's population, small town
and rural America is a diverse, complex and constantly evolving place.
Rural America comprises 2,187 of the nation's 3,066 counties (counties
with 50,000 and below population), 75 percent of all local governments
and 83 percent of the nation's land. Unfortunately, current Federal
policies and programs often treat rural counties and communities
differently than their urban counterparts, resulting in a significant
policy bias and disadvantage for rural regions and counties.
When examining the FY 2003 Consolidated Federal Funds data,
according to the Southern Rural Development Initiative, non-
metropolitan areas received $548 less per capita than metropolitan
areas ($7,242 versus $6,694). Furthermore, per capita funding for
community resources represented 14.5 percent of funds to metropolitan
areas, but only 8.9 percent of funds to non-metropolitan areas.
The FY 2003 findings are consistent with independent studies by the
W.K. Kellogg Foundation, Rural Policy Research Institute (RUPRI) and
others that show metropolitan areas received two to five times more,
per capita, in Federal community development resources than their rural
counterparts during each year from FY 1994-2001. In addition, a
disproportionate share of Federal assistance to rural areas comes in
the form of transfer payments, such as Medicare, Medicaid, Social
Security and commodity payments. In FY 2003, 68 percent of Federal
assistance to rural areas represented transfer payments compared to 53
percent for metro areas.
While these direct payments are essential for millions of rural
Americans, it means that current Federal policies are working to simply
sustain rural America rather than help rural regions and counties
pursue new economic and community growth opportunities. Meanwhile,
urban areas often have direct control and access to Federal resources
for community, human and physical infrastructure improvements that are
essential building blocks for local development and job growth. Our
organizations are strong advocates for Federal community and economic
development support for our urban counties and regions, yet we also
firmly believe that rural counties and communities should have more
robust Federal support for their rural development needs. Without an
even greater commitment by this Committee and Congress to a stronger
USDA Rural Development grant program, we fear rural regions, counties
and communities will continue to be at a marked disadvantage in trying
to build and sustain viable local economies.
Second, Mr. Chairman, infrastructure development (including
advanced technology deployment and applications) remains one of the
most significant roadblocks to economic development in small town and
rural America. Entrepreneurs, small business leaders and private sector
industries drive our nation's innovation, competitiveness and job
growth. These individuals and entities also rely, expect and demand
that public entities such as county governments provide and maintain
basic public infrastructure services, especially costly water and sewer
systems, that are essential building blocks for economic and community
development. Infrastructure must not be considered a luxury for rural
areas, but instead a basic necessity for economic competitiveness and
improved quality of life.
While USDA Rural Development is an essential partner for our rural
counties and communities, we are alarmed that its infrastructure,
housing, broadband and community facilities portfolio are becoming
increasingly focused on direct loan and loan guarantee programs. In
fact, the Administration's fiscal 2008 budget proposal recommends deep
cuts in grants for community facilities, water and waste water,
broadband and business development programs. There remains an intense
need for Federal grants to help with seed capital and gap financing for
our local projects, especially considering the rapidly escalating costs
for labor, materials and supplies.
This applies to rural counties and communities struggling to
establish new water, sewer, broadband and community services, as well
as countless counties and communities faced with the daunting task of
replacing infrastructure that is often approaching 50 to 100 years old.
For distressed and under-served rural counties and communities,
especially the smaller and more rural areas, the trend of increased
reliance on Federal direct loan and loan guarantee programs puts costly
infrastructure improvement projects out of reach. As a result, a good
portion of our nation's rural counties and communities will continue to
mark time in the land of lost opportunity.
According to a 2005 report by the American Society of Civil
Engineers, the nation's infrastructure remains in serious need of
improvements and increased Federal investment. The conditions of the
country's roads, drinking water systems, public transit, wastewater
disposal, hazardous waste disposal, navigable waterways and energy
system have worsened since the society's first report card in 2001. The
improvement costs alone are now calculated at $1.6 trillion over the
next 5 years. While state and local governments, industry and nonprofit
organizations are making major contributions to our public
infrastructure enhancement efforts, this immense job will never be
completed without the aggressive leadership, participation and
resources of the Federal Government.
In addition to the health and social benefits of this long-term and
on-going process, infrastructure development is vital to the nation's
ability to maintain and sustain a world-class economy. This will be
particularly critical as the nation works to expand the renewable fuels
industry. The transport of raw and finished products, for example, is
already placing new and growing demands on our infrastructure and
transportation systems. As proven by USDA Rural Development investments
over the years, the role of basic public infrastructure and facilities
are at the core of both sustaining existing businesses, nurturing new
companies and improving the quality of life in rural counties and
communities. That is why USDA Rural Development is so significant to
local efforts to develop water and sewer facilities, technology-related
infrastructure, broadband services, housing and other essential
community projects. These are all fundamental for commerce and
improving the quality of life in our communities. As stated earlier,
the private sector relies, expects and demands that counties and local
communities provide and maintain these services and infrastructure.
In August 2004, I was pleased to participate in an eForum, ``The
Pulse of Small Town and Rural America,'' that was conducted by the NADO
Research Foundation with assistance from the W.K. Kellogg Foundation.
More than 200 regional development professionals, county leaders and
municipal government officials from across the nation, equipped with
electronic keypads for instantaneous feedback, were led through a
series of national and rural policy questions.
Most notably, participants identified inadequate public
infrastructure as the leading roadblock to economic development in
their rural regions. Another highly rated response was limited access
to venture capital. When asked to identify the second most common
roadblock to rural economic development, an even greater number
answered inadequate public infrastructure. Again, this reflects the
fact that private sector investors and businesses expect and demand
that local governments and communities have the public infrastructure
in place before they will locate and remain at a business site or
within a community.
NADO members were also asked to identify the USDA Rural Development
programs they use most frequently to assist their rural communities.
The top three programs were: water and wastewater programs, Rural
Business Enterprise Grants (RBEG) and the Intermediary Relending
Program (IRP). Other key programs included: community facilities, Rural
Business Opportunity Grants (RBOG), solid waste management and rural
housing programs. The NADO Research Foundation eForum results were
consistent with a 2001 survey conducted by NACo, in which water and
wastewater grants were the overwhelming top issue identified by county
elected officials from the 20 state sample.
As the Committee works to reauthorize the existing portfolio of
USDA Rural Development programs, we also encourage you to help make the
application process for new and existing programs more user-friendly
and streamlined. While regional development organizations and other
technical assistance providers have developed the experience and
expertise required to navigate the extensive USDA program portfolio and
application process, it can still be a very burdensome and time
consuming endeavor. This is especially important considering that over
33,000 of the nation's 39,000 units of local government have
populations below 3,000 and 11,500 employ no full-time professional
employees, according to U.S. Census Bureau data. At the same time, we
are urging the Committee to make sure that local governments and public
entities such as regional development organizations are eligible for
the full slate of USDA Rural Development programs. In recent years, new
programs or guidelines have been put in place that restricts our access
to programs for technical assistance and capacity building.
Third, Mr. Chairman, Federal rural development policies and
programs must be reshaped to promote and reward regional approaches and
local cooperation among governmental entities at all levels,
nonprofits, economic development organizations, educational
institutions and other key community leaders. This reflects the reality
of today's marketplace where rural counties and communities are not
only competing statewide and nationally, but more likely,
internationally. In addition, new program tools are needed that are
more flexible and broad to meet the individual and specific needs of
our rural regions and counties, rather than forcing our rural leaders
to fit and refigure their projects into the existing set of categorical
programs.
The Rural Strategic Investment Program (RSIP) is an innovative
program that would provide much needed incentives and resources for the
development of rural development strategies on a regional and local
basis, as well as flexible program dollars to implement regional and
local projects and priority initiatives. We greatly appreciate this
Committee's support in 2002 to create RSIP and to award $100 million in
mandatory funding to launch this landmark program. Unfortunately, this
much needed program was blocked in subsequent legislative and
administrative actions, resulting in lost opportunities and delays in
implementing important rural development initiatives across the nation.
We are pleased that Chairman Tom Harkin of the Senate Agriculture,
Nutrition and Forestry Committee announced on March 13 that he plans to
support ``a bold new approach to rural competitiveness in the 2007 Farm
Bill.'' Chairman Harkin is proposing to modify and improve the RSIP
program as part of a renamed program, the Rural Collaborative
Investment Program. We strongly support the goals of Chairman Harkin's
initiative to move rural development beyond just categorical programs
to a stronger commitment to regional rural development strategies and
programs designed by local leaders. It is extremely important to ensure
that under the principles of our Federal/Local partnership embodied in
America's Federalism model, that a program such as RCIP be administered
by local and regional officials that represent the needs of our rural
constituents in a collaborative process with local stakeholders. As
stated earlier, we must develop and fund new USDA Rural Development
programs that give rural county and community leaders that same
flexibility, resources and incentives as currently enjoyed by their
urban counterparts.
RSIP would first help address one of the most important but
underfunded parts of rural community and economic development--rural
development strategies and institutional capacity to implement
priorities. Study after study by Federal agencies and universities have
concluded that additional funding for strategic planning, capacity
building and technical assistance programs is one of the most pressing
needs facing rural governments and communities. This stems from the
fact that most rural local governments simply do not have the financial
resources to hire professional economic development practitioners. And,
presently there are few Federal programs designed specifically for
their needs--unlike urban areas that receive millions of dollars in
direct funding from HUD and Department of Transportation.
One of the few technical assistance programs specifically targeted
at small metropolitan and rural regions is EDA's planning program.
While this small matching grant program has proven invaluable to our
local communities and regional development organizations, its true
purchasing power has been eroded over time. The average EDA planning
grant of $54,000 for a multi-county region has not changed since the
early 1970s. The true purchasing power is only $10,718 in 1970 dollars.
If that same $54,000 had been adjusted upward for inflation, it would
equal $272,047 in 2005 dollars.
Despite the declining nature of the Federal matching funds, the
national network of EDA-funded regional development organizations has
still made a tremendous impact. According to a thorough program
evaluation by the Center for Urban Studies at Wayne State University in
2001, EDA's national network is very effective at developing and
coordinating local plans, implementing specific projects and
initiatives, and providing professional expertise and capacity to
distressed and under-served communities. Yet, to remain competitive on
a global scale, our rural regions and counties need additional
resources.
Programs such as RSIP offer a great opportunity to build upon the
existing regional and local institutions throughout rural America,
while also fostering new approaches to developing comprehensive
regional strategies, new multi-sector partnerships and new program
flexibility to address the unique needs and potential of each region.
RSIP would place communities in a better position to address local
issues on a regional basis, whether it relates to water treatment
facilities, technology upgrades, closing of a major plant or cleanup
after a natural disaster. Rural communities would also be more capable
of taking a proactive approach to innovation, entrepreneurship and
competitiveness, instead of the traditional reactionary model of rural
development. Whether it is renewable and alternative energy, youth
development, value-added agriculture or entrepreneurship, rural America
has remarkable assets that can be better utilized.
All of the nation's rural regions, counties and local communities
must engage in an on-going and dynamic strategic planning process,
otherwise they will fall prey to complacency and world progress. Even
local economies that are excelling today are subject to sudden or
subtle changes in international, national and local markets. Loss of
local control with the emergence of global companies, consolidation of
banks and other industries that were once locally owned and controlled
and other factors will continue to make the task of regional and rural
development more challenging.
Even more importantly, RSIP would offer fully flexible
implementation grants for regional and local projects that are
identified and prioritized in a region's comprehensive rural
development strategy. On a national competitive basis, counties,
nonprofit organizations, educational institutions and other eligible
organizations would be eligible to apply for project implementation
resources that address a broad range of community and economic
development needs, including renewable energy, broadband deployment,
value-added agricultural development, infrastructure improvements,
entrepreneurship, business development finance and community facility
improvements. RSIP investments would not replace the existing USDA
Rural Development portfolio, but instead would complement and leverage
existing public, private and philanthropic resources.
Without a greater commitment to a stronger USDA rural development
grant portfolio, rural communities will continue to be at a marked
disadvantage in trying to build and sustain viable local economies. As
the Committee works on the Rural Development title of the 2007 Farm
Bill, I encourage you to modify, fully fund and implement the Rural
Strategic Investment Program (RSIP), address the backlog of pending
Rural Development applications and enhance grant resources for
infrastructure, community facilities and business development programs.
In conclusion, I would like to reiterate the three key points that
NACo and NADO feel are critical to future rural development programs.
First, rural communities need Federal development assistance programs
and policies that allow them to identify, address and meet local needs.
Second, Federal rural development grant programs need to be fully
funded, increasingly flexible and locally driven. Third, USDA Rural
Development programs should support the basic needs of local
communities, such as water and wastewater systems, telecommunications
and housing, while also tapping into the rural competitive advantage
for innovation, entrepreneurship and alternative solutions such as
renewable energy. We support the existing portfolio of USDA Rural
Development programs, as well as the full implementation and funding of
the innovative and forward-thinking Rural Strategic Investment Program.
Thank you again, Chairman McIntyre, Ranking Member Musgrave and
Members of the Subcommittee for the opportunity to testify this morning
on behalf of the National Association of Counties and National
Association of Development Organizations on these critical rural
development issues. I appreciate your time and interest. I look forward
to answering any questions.
The Chairman. Thank you. Thank you for your concise summary
and congratulations on your election as President of the
National Association of Counties. Mr. Charles Fluharty is the
President of the Rural Policy Research Institute out of
Columbia, Missouri, and is well known to many areas of rural
activity policy, research and work and we welcome you and look
forward to your testimony.
STATEMENT OF CHARLES W. FLUHARTY, PRESIDENT, RURAL POLICY
RESEARCH INSTITUTE; DIRECTOR AND RESEARCH PROFESSOR, HARRY S
TRUMAN SCHOOL OF PUBLIC
AFFAIRS, UNIVERSITY OF MISSOURI-COLUMBIA, COLUMBIA, MO
Mr. Fluharty. Thank you, Mr. Chairman. I would like to
thank you and the Ranking Member for your continued commitment
to rural America, and congratulate you on your new role. I
would also like to extend appreciation and congratulations on
the new staffing design. We look forward to working with a
highly competent staff on this Subcommittee and look forward to
working with you as we move forward. I want to apologize for
the length of my written testimony. I think some of the staff
probably had to spend more time than they might have liked on
that, but I do hope it was helpful. There was a reason for that
and the reason is that there is a relevant analysis and really
detailed policy thinking which should drive your decisions on
this Committee. And I was very pleased with the early
questions.
What happens when we don't have the same analyses in the
rural development component of the farm bill that we have in
the commodity programs is that you tend to have advocates for
very specialized categorical programs, making a rightful,
strong case for those programs. That is important and it is
understandable, but it is unfortunate that we don't get a more
detailed assessment. Because what occurs is you don't get the
opportunity to look at new and complex policy design that
updates incentive programs that were built in the 1950s, 1960s,
1970s and 1980s. I was honored, Mr. Chairman, to be at NADO
when you received their national award; very well deserved. And
I will enter your comments once more and that is, without a
vision, the people will perish. That is equally true for this
Committee and for Rural Development. And I would just like to
speak for a moment for that vision, because I would offer a
cautionary observation, that we are not doing as well as other
developed nations with which our rural entrepreneurs compete.
And this Committee has a wonderful opportunity in this new
design to truly step up and create a bold and new innovative
approach. I would just like to offer two or three observations
regarding that.
We really do need a new framework. What worked in the
1960s, 1970s and 1980s is not sufficient today and the
challenge is, our competitors around the world are doing a much
better job than we are. That is no one's fault. The Under
Secretary said we have a ``Solomonesque'' challenge. I believe
the Ranking Member and you are fully up to that challenge. I
believe if we don't do this, frankly, we are to some extent
obviating a wonderful new opportunity, given the renewables'
potential in our nation. I would just make four points.
This year the Federal Government will return $550 less per
capita to rural regions vis-a-vis urban. That is a significant
Federal flows disadvantage. Second, we do an awful lot of work
in OECD nations and the challenge is--just let us look at the
EU for a moment. We just talked about our broadband potential.
This year the EU will spend $1.6 billion in rural broadband in
Europe. This past year the EU has committed to a multi-billion
dollar program for regional rural innovation and they have
linked that into a very, very significant way to the leader
program, which is a billion dollars a year to build regional
entrepreneurship systems that link to collaborative investment
streams.
This Committee did the most innovative policy design, I
would argue, in the last 20 years, in the last bill, with RSIP,
which Colleen mentioned. That was very, very innovative, but
unfortunately it has not been funded, but it had very broad
support. It was the basis for Chairman Harkin's move to at
least look at something like that on the Senate side. I would
truly urge you to take that up. I am not saying that is the
right bill, but I am saying categorical grants, in and of
themselves, are not sufficient in today's world. I would argue
that there are five things you should think about: broadband,
in a very, very significant way; entrepreneurship and
innovation around renewables. If we are not building
entrepreneurship systems, starting in our schools, we are
continuing the dependence on Federal largesse rather than
lifting up rural entrepreneurship.
Third, the regional collaboration that Colleen mentioned.
We have wonderful panelists here who are doing very innovative
things at the state level and regional collaboration. Key to
that is new intermediaries. Community colleges are huge in that
regard. I commend USDA for the rural health commitment to
Critical Access Hospitals. I would argue that rural health is
one of our great examples of collaboration. But if we were to
take a small amount of that, commit it to rural community
colleges to build sustaining allied rural health workforce,
which is one of our most critical issues, we could certainly
move forward.
And finally, aligning investments streams. The public and
private investments of multiple committees should be linked
with the philanthropic commitments that are beginning to come.
We currently have no vehicle in Federal law to do that. I would
argue that this Committee can implement those investment stream
linkages and I think the testimony of my other partners here
will indicate that it is truly going on, if you look at what
Billy Ray is doing at the Rural Center. This is not pie in the
sky. It can be done. There are wonderful labs in the states.
And I just thank you for your leadership and look forward to
working with you and your staff. Hopefully we can build this
bold, innovative, new approach.
[The prepared statement of Mr. Fluharty follows:]
Prepared Statement of Charles W. Fluharty, President, Rural Policy
Research Institute; Director and Research Professor, Harry S Truman
School of Public Affairs, University of Missouri-Columbia, Columbia, MO
Chairman McIntyre, Ranking Member Musgrave, and Members of the
Subcommittee, it is an honor to appear before you again, as we begin a
new farm bill debate. I applaud your leadership in assuring that rural
development concerns receive greater attention in this farm bill, and I
encourage you to craft a bold and innovative rural development title.
I am Charles W. Fluharty, President of the Rural Policy Research
Institute, and Associate Director and Research Professor in the Harry S
Truman School of Public Affairs at the University of Missouri-Columbia.
RUPRI is a multi-state, interdisciplinary policy research consortium
jointly sponsored by Iowa State University, the University of Missouri,
and the University of Nebraska.
RUPRI conducts research and facilitates dialogue designed to assist
policy makers in understanding the rural impacts of public policies.
Continual service is currently provided to Congressional Members and
staff, Executive Branch agencies, state legislators and executive
agencies, county and municipal officials, community and farm groups,
and rural researchers. Collaborative research relationships also exist
with numerous institutions, organizations and individual scientists
worldwide. To date, over 250 scholars representing 16 different
disciplines in 100 universities, all U.S. states and 25 other nations
have participated in RUPRI projects.
Mr. Chairman, in testimony before the House and Senate Agriculture
Committees in 2001 I offered seven recommendations to build a more
relevant rural policy framework in the 2002 Farm Bill:
1. Develop a comprehensive national rural policy, driven by
specific Federal policy goals and outcomes measures.
2. Sustain existing categorical program and funding support.
3. Build rural community capacity, collaboration, and leadership.
4. Develop a more integrative, cross-sectoral, place-based policy
approach.
5. Address the lack of rural venture and equity capital.
6. Support approaches which exploit the interdependency of
agriculture and the broader rural economy.
7. Support rural entrepreneurship, in both the public and private
sector.
Six years later, I'm pleased that real progress is being made on
several of these issues. However, much remains undone, and I continue
to support these suggestions. Nonetheless, contexts and circumstances
have altered, as with all things. So this morning I would like to share
several important new developments which should inform your decision
making regarding the rural development framework for this new farm
bill.
But first, it is important to prioritize the most critical
components which should drive this Committee's approach in crafting a
21st century U.S. rural policy framework:
Guiding 21st Century Rural Policy Principles
1. Three critical Federal policy dynamics must be addressed:
The Federal Government must increase the current level of
Federal rural investment in essential public services,
including infrastructure, broadband and community capacity.
To do this, the Federal Government must overcome a
significant and ongoing rural Federal funding disadvantage.
In doing so, the Federal Government must also reverse recent
disinvestments in rural programs.
2. A new rural policy framework must be created:
It should center upon rural innovation, entrepreneurship,
collaboration and strategic investments.
This must incent public, private and philanthropic
investment cooperation, and build regional frameworks for
action.
Special attention must be given to diversity, gender,
poverty and immigration concerns.
3. Several ``North Star'' principles must drive program design,
including:
Asset-based development.
Flexibility and local input.
Investment in new intermediaries.
Attention to the importance of working landscapes and
natural resources; arts, heritage and culture; and renewable
fuels, energy and entrepreneurial agriculture.
4. The Federal Government must create a framework which
acknowledges and builds upon the growing interdependence of urban,
suburban and rural areas and constituencies.
The Context for Rural Policy Change
Policies and budgets are ultimately about visions and values. While
much of what follows is not new, this critical context should frame
this Subcommittee's understanding of the important developments
outlined below, all of which should inform this Subcommittee's
legislative intent.
Current ag policy has many goals, but we must acknowledge it has
failed to adequately assure broad-based rural economic growth. This
Committee must, finally, address this structural challenge within your
jurisdiction.
Rural counties most dependent on commodity payments have
consistently posted weaker growth than the rest of rural
America.
Approximately 160 counties are the most dependent on farm
commodity payments, having collected $141 billion in farm
payments over the past quarter-century--more than half of all
Federal payments within that period. During those 25 years,
jobs grew in those counties at a \1/2\ percent per year (.05%)
rate. Throughout the rest of U.S. rural counties, jobs grew at
a rate 2\1/2\ times that (1.3% a year). This comparison begs
the question regarding whether there are better ways to boost
rural economic growth.
Half of all non-metro counties lost population from 2000 to
2005, but 73 percent of farming dependent and 59 percent of
mining dependent counties lost population.\1\
---------------------------------------------------------------------------
\1\ RUPRI Analysis of Data from the U.S. Census Bureau: Census 2000
and Census Population Estimates.
Farming accounts for only 1.7% of total employment, and 6.2%
---------------------------------------------------------------------------
of non-metro employment in the U.S.
Nearly 90% of total farm household income now comes from
off-farm sources.
The manufacturing, local government, retail trade, health
care, and accommodations and food services sectors all
contribute more to the rural economy than agriculture.
There is no one rural America. It is a diverse, dynamic and ever-
changing landscape, and public policy must address these new realities.
51% of all rural residents (30 million Americans) live in
the open areas of metropolitan counties.
Another 10 million fccitizens live in small cities and towns
in metropolitan counties.
Hispanics accounted for over 25 percent of non-metro
population growth during the 1990s.\2\
---------------------------------------------------------------------------
\2\ Kandel, William and John Cromartie. 2004. New Patterns of
Hispanic Settlement in Rural America. Rural Development Research Report
No. 49. Economic Research Service, USDA.
By 2000 half of all non-metro Hispanics lived outside the
Southwest, increasingly in areas of the Midwest and
Southeast.\3\
---------------------------------------------------------------------------
\3\ Ibid.
Nearly \2/3\ of the non-metro population now live in
counties adjacent to metro areas. For several decades, these
counties have consistently shown a higher rate of population
growth than those that are not metro adjacent.\4\
---------------------------------------------------------------------------
\4\ From ERS Briefing Room: Rural Population and Migration: http://
www.ers.usda.gov/Briefing/Population/Amenities.htm.
Between 2000 and 2005 metropolitan counties grew by 6%,
micropolitan counties by 2.9% and non-core counties by 1.2%.
However, in the same period, 16.6% of metropolitan counties
lost population, 37.5% of micropolitan counties lost
population, and 56.1% of non-core counties lost population.\5\
---------------------------------------------------------------------------
\5\ RUPRI Analysis of Data from the U.S. Census Bureau: Census 2000
and Census Population Estimates.
---------------------------------------------------------------------------
Rural poverty remains a searing and silent national tragedy.
The non-metro poverty rate is nearly 2\1/2\ points higher
than the metropolitan rate.
Poverty rates are highest in our nation's most remote rural
areas, and high poverty and persistent poverty are
disproportionately rural. 340 of our nation's 386 persistent
poverty counties are in rural America.
High and persistent poverty counties are geographically
concentrated, and reflect historic race, gender and cultural
disadvantage.
Rural development investments must move beyond categorical programs
and grants. A new vision must be sought, and systemic commitments to
change the rural landscape must be funded.
Unfortunately, we trail most developed nations in creating
this framework. In fact, in 2006 the European Union budget for
promoting adaptation and development of rural areas and for
their LEADER+ program is over =1.1 billion, with an additional
=2.2 billion committed to programs in the agri-environment
area.
Likewise, the EU has recently announced multi-billion Euro
commitments to both universal rural broadband deployment, and
regional innovation programs, which link research universities
to regional rural strategies.
New governance models must be lifted up, and successful new public
and social entrepreneurship efforts replicated. While many emerging
successes are worthy of consideration, the Indiana story is
particularly promising, and the North Carolina Rural Center,
represented today before this Subcommittee by President Billy Ray Hall,
is an established national exemplar for state-based innovation.
Please see accompanying written testimony from Indiana
Lieutenant Governor Becky Skillman, presented to the Senate
Committee on Agriculture, Nutrition and Forestry, February 13,
2007, and Rural Center President Hall's testimony.
Rural entrepreneurship and innovation systems are essential, if we
are to optimize new Federal commitments to assist rural regions in
capturing their competitive advantage in a global economy. These
approaches must be framed in systemic ways, to link with other public,
private, NGO and philanthropic resources.
\1/2\ of all jobs created in the U.S. are in firms less than
5 years old.
Over the past 10 years, every month nearly three people in a
thousand create their own job--(in 2005 this represented
464,000 people per month - 0.29 percent).\6\ The highest
activity is in the Mountain states and Mid-South, lowest in the
Heartland, Appalachian, and Mid-Atlantic states.
---------------------------------------------------------------------------
\6\ Kauffman Index of Entrepreneurial Activity.
In the 1980s and 1990s the number of net jobs created by
businesses less than 5 year olds grew at more than 20 percent
per year (equating to millions of jobs), while jobs created by
more mature businesses remained essentially flat.\7\
---------------------------------------------------------------------------
\7\ Research from the University of Maryland and Census Bureau
quoted by Carl J. Schramm in article in USA Today, June 27, 2006.
In any 3 year period, five percent of non-employer
businesses become employer businesses, equating to 750,000
firms, and the fastest growing in the economy.\8\
---------------------------------------------------------------------------
\8\ Steven J. Davis, John Haltiwanger, and Ron S. Jarmin,
``Understanding U.S. Business Dynamics: What Can Young, Small Firms
Add?'' In Understanding Entrepreneurship, Kauffman Foundation.
Recent SBA research found that net growth in small firm
establishment has a large positive impact on gross state
product, state personal income, and total state employment. It
concluded that state efforts to promote small business
formation will be more fruitful in terms of generating economic
growth that virtually any other policy option.\9\
---------------------------------------------------------------------------
\9\ Donald Bruce, John A. Deskins, Brian C. Hill, and Jonathan C.
Rork, Small Business and State growth: An Econometric Investigation.
Small Business Administration, Office of Advocacy, February 2007.
---------------------------------------------------------------------------
New Developments Which Should Inform Congressional Decision Making
Regarding the Rural Development Title
As we begin discussion of the Federal Government's framework for
commitments to rural people and places through the new farm bill,
several important developments should be taken into account. These are
detailed below.
A new rural development perspective within the United States
Department of Agriculture/Rural Development, and its impact
upon this farm bill process.
Economic, demographic and institutional changes shaping new
perspectives about, and practices within, our nation's rural
regions.
The growing consensus around a new rural vision: Regional
Rural Innovation, Collaboration and Strategic Investment.
A new rural development perspective within the United States
Department of Agriculture/Rural Development, and its impact upon this
farm bill process.
On February 16-17, 2006, the United States Department of
Agriculture held its annual Agricultural Outlook Forum. This annual
event has a distinguished, storied history. Since 1923 the Outlook
Forum has brought together our nation's most eminent leaders in
agriculture, a tradition which remains strongly in force today. The
2006 event, however, was a watershed moment in USDA history, and a
landmark event for U.S. rural policy. The Forum title, ``Prospering in
Rural America,'' created a thematic backdrop for the gathering's
central framework--ensuring the future prosperity of all of rural
America, through and beyond agriculture.
This became evident to the over 1,700 participants shortly into the
keynote address by Secretary of Agriculture Mike Johanns. The full
import of this moment was fully grasped as he reached the midpoint of
his address, which contained one of his central points:
``This forum is an opportunity to learn and to gauge the
changes in agriculture and to get our bearings if you will, not
only for the next year but for our future. I found the same to
be true over the past months as we traveled across this great
country doing our farm bill Forums . . . .
But we heard ideas and concerns that differ from one crop to
the next, and as you might expect, from one region of the
country to the next. But interestingly enough--and I started
talking about this about halfway through the forums because I
found it so interesting--interestingly enough we heard
unanimous support for our Rural Development efforts . . .
After hearing such compelling stories about the importance of
Rural Development, I came back to Washington eager to examine
the state of our rural economy . . . Reality is that 92 percent
of producers, those who manage about \2/3\ of ag land, rely
heavily on off-farm income. They choose to carry on the great
tradition of American agriculture, but they do not depend on it
as their sole source of income or in many cases even as their
primary source as income . . .
I believe future policy must acknowledge what I have just laid
out in terms of the changing face of our rural economy . . . If
most agricultural producers are dependent on off-farm income,
then we must pay special attention to our support of rural
economies and beyond agriculture. To quote from a report
recently released by the American Farm Bureau Federation:
`Farmers are more dependent on rural communities than rural
communities are dependent on farm-
ers.' . . .
We have an opportunity to develop farm policy that recognizes
that this farm economy has changed. With fewer producers
overall and the majority of farm production accounted for by a
small percentage of producers, we must thoughtfully consider
how we deliver support to rural America . . .''
Secretary Johann's framework was echoed and enhanced by USDA Under
Secretary for Rural Development Thomas C. Dorr. In his comments, Under
Secretary Dorr reinforced this emergent emphasis upon broader rural
economic dynamics:
``Keeping family farms in business thus means that farmers need
good jobs in town every bit as much as good farm policy out of
Washington, D.C. In that respect, they're no different from
their neighbors.
We are by statutory authority the leading advocate for rural
America. Our mission is to increase economic opportunity and
improve the quality of life in rural communities. And we
recognize that the future of rural America depends on
entrepreneurship and technology. . . . The issue is simple to
state, but much more difficult to address:
Given the challenges of an intensely competitive, highly
networked global economy, what can we do to create sustainable
opportunities for growth in rural America?''
These comments by the Secretary and Under Secretary set the tone
for one of the most energizing rural policy moments in USDA's recent
history. As the ensuing Forum sessions unfolded, it became clear that a
new departmental perspective and commitment was finally taking hold and
being incorporated within the growing consensus across other Federal
departments and agencies--namely, that a new rural policy framework
must become a more central component of the public policy dynamic of
our nation.
Over the past year, a tremendous ground swell has been building
within rural development constituencies, based upon this new USDA
awareness, as well as a growing sense that other advocacy communities
with an interest in this legislation also realize that an enlightened
rural development policy will advantage their interests. With the
recent release of the Administration's farm bill proposal, as well as
other legislative proposals currently being introduced, the possibility
of a landscape-changing farm bill becomes more real.
Today, under your the leadership, Mr. Chairman, this Subcommittee
begins the process of engaging USDA in a common commitment to this new
vision, and the rural people and places of our nation look forward to
this heightened attention and policy consideration.
New economic, demographic and institutional changes are shaping new
perspectives about, and practices within, our nation's rural regions.
Rural policy considerations have remained a ``back-water'' concern
for U.S. public policy over the last 4 decades, usually rising only
with a new farm bill tide, and then receding, after sufficient lip-
service, with only minimal impact. However, over the past decade a
number of developments are driving significant new attention to these
opportunities and challenges. These key drivers are outlined below:
A growing understanding of the true nature of the rural economy,
and of rural poverty, offers the potential for renewed policy attention
and innovation.
As the rural economy in the U.S. continues to consolidate, and as
commodity producers, whether in agriculture or manufacturing, are
forced to respond to the dynamics of globalization, it is becoming
increasingly clear that innovation and technology must drive new rural
economic engines, and that this is not only possible, but a necessity.
This has helped to support a new commitment to building regional
competitiveness strategies that seek to identify and exploit a region's
unique assets, and build integrative approaches to optimize this
potential. Furthermore, understanding of the limited value of reliance
on business attraction strategies and the importance of greater support
for asset-based innovation and entrepreneurial approaches are now
widespread.
There is also no question now that rural is not synonymous with
agriculture, and that rural economies must become more diverse, as
rural incomes continue to lag urban, with the greatest lags most often
occurring in commodity-dependent counties.
A shift to rural policy focused on regional innovation is well
under way in many other countries around the globe. While many
developed countries continue to spend freely on farm subsidies, there
is an encouraging shift to place-based investments in new rural
economic engines. This shift is based on a broadly based recognition
that farm subsidies do not create competitive rural economies. A recent
OECD publication puts it this way: ``financial redistribution and
agriculture-based policies are not able to harness the potential of new
rural economic engines.'' Recognizing this policy dilemma, many
countries are now implementing new rural policies that emphasize place,
innovation, and entrepreneurship. (The same OECD report identifies
innovative rural policies in six different countries, along with the
EU's LEADER initiative.) \10\
---------------------------------------------------------------------------
\10\ The New Rural Paradigm: Policies and Governance, Organisation
for Economic Co-operation and Development. Paris: 2006.
---------------------------------------------------------------------------
Similarly, attention to rural poverty has increased over the last
decade. While many organizations, institutions and individuals deserve
credit for increasing awareness of these concerns, much of this
enhanced attention is a direct result of an ongoing effort within U.S.
philanthropy. Recently, the tragedy wrought by Federal and state
inability to more effectively address the plight of the poor during
Hurricane Katrina has highlighted this awareness. However, in our
nation today, persistent poverty remains a rural challenge, with 340 of
our nation's 386 persistently poor counties being rural. Rural median
family income is 25% lower, and rural poverty rates 28% higher than
metro.\11\ And this differential disadvantage is increasingly being
viewed by decision-makers as a lag on broader regional economies.
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\11\ W.K. Kellogg Foundation. 2004. Federal Investment in Rural
America Falls Behind. Battle Creek, MI.
These U.S. rural development challenges are heightened by a
significant structural disadvantage in Federal funding, and uneven,
episodic and unscaled philanthropic commitments to rural people and
---------------------------------------------------------------------------
places.
Because the Federal Government will continue to devolve roles and
responsibilities down to states and localities, often in block granting
structures, the capacity of rural jurisdictions to compete for these
funds is increasingly important. However, compared to their colleagues
in urban and suburban governments, rural public decision makers are
significantly disadvantaged. Most rural jurisdictions have relatively
few or no research staff, grant-writers, technical assistance funding
bases, or economic analysts. Many are led by part-time public servants,
with few or no paid staff at all. On this uneven playing field, urban
and suburban counterparts will almost always be victorious in competing
with rural jurisdictions for scarce, competitively awarded state block
grant funds.
One of the largest challenges for rural development in the U.S.
remains the inherent structural disadvantage which rural areas face in
Federal funding commitments. Current Federal funding policy
inadvertently, but significantly, disadvantages rural areas. The
Consolidated Federal Funds Report for 2001 (the most recent reported
data) shows that the Federal Government returned $6,131 on a per capita
basis to urban areas, while returning only $6,020 to rural areas.\12\
This amounts to a nearly $6 billion annual Federal disadvantage to
rural areas. However, an equally challenging issue is the difference in
the nature of these Federal funds.
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\12\ Analysis of Consolidated Federal Funds data by the Economic
Research Service, USDA.
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While currently available Federal data is somewhat dated, in Fiscal
Year 2001, direct payments as a percent of all Federal funds per capita
were 50.5% in metropolitan areas and 63.9% in non-metropolitan
America.\13\ This 13% differential funding builds much of the community
capacity and infrastructure of urban and suburban America. Therefore,
with each passing year, these dynamics further disadvantage rural
jurisdictions and organizations, who are forced to compete with their
metropolitan counterparts on an increasingly uneven playing field,
without benefit of the professional staff, technical assistance and
planning resources which this funding secures.
---------------------------------------------------------------------------
\13\ Ibid.
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While not an official Federal data release, the Southern Rural
Development Initiative has analyzed the FY 2003 Consolidated Federal
Funds data, and found even greater non-metropolitan disadvantage. Non-
metropolitan areas receive $548 less per capita than metropolitan areas
($7,242 versus $6,694). Further examination of the functional funding
categories within the SRDI analysis substantiates the continuing
community resource disadvantage for non-metropolitan areas. In metro
areas, 14.5 percent of funds are allocated to community resources, in
non-metropolitan it is 8.9 percent, a 5.6 percent difference.
Conversely, non-metropolitan areas have 67% of total funding as income
security compared to 52.9 percent for metro areas.
These stark community capacity disadvantages are additive. Each
year from 1994-2001, the Federal Government spent two to five times
more, per capita, on urban than rural community development, and \1/3\
as much on community resources in rural areas.\14\ Per capita spending
on community resources in 2001 was $286 per person less in non-metro
areas than in urban America, a $14.1 billion dollar rural community
capacity disadvantage (based on 2003 metropolitan classifications of
Census 2000 population).\15\
---------------------------------------------------------------------------
\14\ W.K. Kellogg Foundation (2004) ``Federal Investment in Rural
America Falls Behind.''
\15\ Economic Research Service/USDA, U.S. Census Bureau.
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These rural implications are exacerbated by an ongoing Federal
``push down'' of funding and statutory responsibility to states and
localities, which further challenges rural resources and community
capacity. Federal block granting has become a more common framework for
these shifts, with increasing use of loan and loan guarantees, and
fewer direct granting possibilities, which is forcing new
interjurisdictional cooperation--a good thing, with reduced Federal
commitments--a huge challenge. However, while the U.S. has a somewhat
incomplete and incremental regional development framework, these
challenges have increased interest in new collaboration, and have
renewed interest in new regional approaches.
These rural community capacity challenges in Federal funding are
exacerbated by an equally uneven commitment to rural community and
economic development by our nation's foundations and corporate grant-
makers. In a May 2004 report, the National Committee for Responsive
Philanthropy \16\ noted that of the $30 billion distributed annually in
by our nation's foundations, only $100.5 million was committed to rural
development. Of 65,000 or so active grant-making foundations in the
United States, only 184 engaged in rural development grant-making.
About 20 foundations engaged in rural development grant-making
accounted for 80% of this total, and two foundations, the W.K. Kellogg
Foundation and the Ford Foundation, constituted 42%. While the
significant rural community and economic development commitment of
these two foundations is commendable, these numbers indicate that the
majority of grant-making foundations in the U.S. have not seriously
addressed the developmental needs of rural populations.
---------------------------------------------------------------------------
\16\ National Committee for Responsive Philanthropy (2004) ``Beyond
City Limits: The Philanthropic Needs of Rural America.''
---------------------------------------------------------------------------
Sadly, the same rural differential disadvantage also applies to
corporate philanthropy. While total corporate grant-making in the U.S.
amounts to $12 billion annually, a 2000 study of the 124 Fortune 500
corporations found that corporate grant-making for rural, racial/ethnic
organizations amounted to 1% of their total racial/ethnic grant-making.
In total, corporate grant-making for rural groups constituted \7/10\ of
one percent (.7%) of the grant dollars awarded by the 124 surveyed
corporations for racial/ethnic giving. Rural organizations received
only 153 of the 10,905 grants made, approximately 1.4% of all grants.
New rural governance and investment models emerging across rural
America are creating an entirely new rural policy framework.
Despite, or perhaps as a result of these economic challenges, a new
``Rural Governance'' is expressing itself across the U.S. rural
landscape. Changes are underway in the processes by which decisions are
made regarding the distribution of public and private resources and
responsibilities across multiple stakeholders, including the public,
private and non-governmental sectors. The dynamics in U.S. federalism
outlined above are forcing ever greater interdependence of rural
governmental and nongovernmental organizations, as the central
government's role continues to reduce over time and circumstance. This
requires greater coordination, facilitation and negotiation, through
multiple policy networks which are often diverse and overlapping. While
this offers a possible new set of strategies to confront the community
capacity challenge outlined above, it also creates the necessity for
new intermediaries to be formed and functioning.
These intermediaries provide the ``glue'' that enables new rural
governance to express itself, and these new actors are now playing
critical roles across multiple institutional settings. As an example,
over 20 states now have a rural policy center, either located in the
office of the governor, within state government, serving the state
legislative process, or operating through the private efforts of
universities or non-governmental organizations. Intermediaries such as
these are becoming much more relevant to state and local governmental
decision making, and will play a more important role in the future of
rural policy, as these processes evolve.
Some of the most promising new rural intermediary institutions
assuming increased community and economic development significance in
the U.S. are our nation's rural community colleges. These institutions,
often the key human and social capital aggregators in our most isolated
rural landscapes, have long fulfilled multiple, unfunded roles in
building regional collaboration. With major changes in our nation's
workforce investment policy and program design, these rural
institutions have taken on added responsibilities and significance. It
could indeed be said that these institutions are building the
``Extension Service of the Next Century,'' grounded in place, working
from an asset-based value set, sensitive to local culture and heritage,
and focused upon building the human capital of some of our nation's
most disadvantaged rural citizens.
These new rural intermediaries are as diverse as rural America
itself, yet community foundations are playing a very significant role
in many of these dynamics. As but one example, RUPRI is honored to be
collaborating with the Nebraska Community Foundation, the Heartland
Center for Leadership Development and the Center for Rural Affairs in a
promising new initiative, Hometown Competitiveness.\17\ Yet these new
intermediaries exist in all sectors, governments and NGO organizations,
and are changing the face of policy decision-making across the rural
landscape.
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\17\ For information on HTC, see the RUPRI Center for Rural
Entrepreneurship at www.ruraleship.org.
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Despite this potential, three critical questions will determine
whether these forces are passing fads or sustainable platforms for new
policy innovation:
Will public sector champion(s) step up, take on the New
Governance mantle, and support public and private
entrepreneurship?
Will institutional innovator(s) accept the challenge of
building these new intermediary structures, and the burdens of
institutional innovation?
Where are the constituencies to support these innovative
leaders and institutions?
These are not moot questions, and the rural development title
offers a wonderful opportunity to create innovative support mechanisms
for rural leadership in these dynamics.
A new rural entrepreneurial culture and climate has emerged, but
must be nurtured and scaled.
Rural economic development must overcome a number of obvious
challenges. Low population size and density, and limited local demand
make it difficult to achieve economies of scale. Efforts to achieve
efficiencies drive consolidation, from school systems to financial
institutions, often with unintended but very deleterious consequences.
Remoteness from global markets and poor infrastructure limits rural
economic opportunities, and core connections to regional and global
markets exacerbate these challenges. More poorly educated, lower
skilled workers and the challenges of building rural entrepreneurial
cultures have limited rural participation in the new global economy.
However, across the nation today, a new rural entrepreneurial culture
and climate is flourishing.
Philanthropy is playing a significant role in these developments,
but more must be done, and systemic change will only be achieved if
integrative, long-term investments and programs can be coordinated and
sustained. Four principles should drive these efforts:
Focus on the entrepreneur. Systems thinking is required to
properly organize and align the training, technical assistance,
and financing programs that are available for small businesses
and entrepreneurs. Focusing on the entrepreneurs and their
needs ensures that all these programs are aligned in a coherent
system, that allows entrepreneurs to obtain the support they
need without being passed from door to door or given
inappropriate advice.
Focus on the region. Only through regional cooperation
across jurisdictions and through regionally-aware institutions
can there be sufficient scale, resources, and expertise to
enable individual communities to play their full role as
supporters of an entrepreneurial climate. It is rare for an
individual county to be able to act effectively on its own in
economic development, workforce development, transportation or
any other complex public service activity. Economic regions
invariably cross county and often state boundaries, and these
boundaries are irrelevant for the markets entrepreneurs have to
be able to serve.
Focus on the community. Local communities need the tools and
resources to identify and build upon their competitive assets,
and to make appropriate choices among economic, social, and
environmental imperatives. Communities can achieve much if they
are open to experimentation and innovation, but they will go
nowhere if they continue to do what they have been doing for
decades, in spite of the changes that are going on around them.
Focus on continuous learning. Entrepreneurs, policymakers,
community leaders, and service providers all benefit from
networks of peer support and learning. Entrepreneurs in
particular rely on networks to share ideas, conduct business
together, and link to markets, capital, employees, partners,
and services. Taking this one step further, entrepreneurship
should without a doubt be an integral part of the school
curriculum.
If we are to achieve this, three steps are essential. Anchor
institutions with the capacity to articulate a vision, advocate for
change, build partnerships and attract and mobilize resources must be
built. Second, supportive public policies which ensure adequate
resources, send positive messages, and build programs with the capacity
and flexibility to meet the needs of diverse rural regions must be
crafted. Finally, these approaches must provide support and
encouragement to both ``opportunity'' and ``necessity'' entrepreneurs,
and avoid ``picking winners.'' We must also acknowledge that failures
will occur.
In summary, a systems approach must have three critical dimensions
to be totally efficacious:
Regional framings--embracing both urban and rural, tailored
to economic, geographic, cultural and demographic diversity.
Integrative dynamics--cross-sectoral (entrepreneurship
opportunities in agriculture, energy, amenities, education,
health etc.), cross-jurisdictional (collaboration across
public-private-nonprofit organizations and all levels of
government) and cross-functional (entrepreneurship education,
training & technical assistance, access to debt and equity
capital, networking, infrastructure).
Cultural contexts--building capacity and support for private
and public entrepreneurship, focus on entrepreneurs as
converters of rural assets into rural
competitiveness.\18\-\21\
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\18\ Articulation of scope and potential for entrepreneurship in a
rural context--Dabson, Brian, Jennifer Malkin et al. (2003) Mapping
Rural Entrepreneurship. W.K. Kellogg Foundation and CFED.
\19\ Entrepreneurship in specific contexts--Malkin, Jennifer with
Brian Dabson et al. (2004) Native Entrepreneurship: Challenges and
Opportunities for Rural Communities. Northwest Area Foundation and
CFED.
\20\ Entrepreneurship as a core economic development strategy--
Brian Dabson (2005) Presentation to the Secretarial Advisory Committee,
Strengthening America's Communities, Clearwater, Florida, June 2, 2005.
\21\ Comprehensive guidance for rural communities interested in
pursuing entrepreneurship--Markley, Deborah, Don Macke & Vicki B.
Luther (2005) Energizing Entrepreneurs: Charting a Course for Rural
Communities. RUPRI Center for Rural Entrepreneurship and Heartland
Center for Leadership Development.
All this hinges upon the emergence and support of a strong cadre of
rural public entrepreneurs. This reality is clearly recognized, and
leadership support for this dynamic is being supported in multiple
settings across the rural U.S., by major foundations such as the W.K.
Kellogg Foundation, regional and community foundations, and corporate
grant-makers.
Finally, one huge challenge before us remains the development of
rigorous, quantitative evaluative tools to assess the return on
investment for public sector commitments to these systems. Absent such,
we will still have too few risk management tools for public
entrepreneurs willing to risk such commitments. However, serious
attention is currently being paid to this deficiency, and many in the
field are discussing approaches to address this challenge.
Several final observations should be made regarding regional
approaches, new governance, and entrepreneurship:
1. This new framework should be designed to enable an integration
of rural initiatives with farm programs, to advantage rural
producers, their rural communities and regions, and their
children's opportunities to thrive in their rural community in
the 21st Century.
2. The sector considerations which have historically been titles in
the farm bill, i.e., energy, conservation, rural development,
etc., should become key components in an integrative new rural
vision, and should be considered more holistically in future
discussions of this farm bill.
3. Finally, we must better link the research title of this Bill,
which frames priorities for our Land Grant University research
community, with the new rural vision we seek to support through
the Rural Development Title. The unparalleled potential which
resides in our Land Grant University research community must be
mobilized to enhance the decision support infrastructure for
wiser public policy choice in rural America.
New rural policy and program targeting must be designed, to take
advantage of these developments and address the emerging
interdependence of rural and urban people and places, and to build new
alliances across these constituencies.
County level designations of metropolitan, micropolitan and non-
core areas, collectively referred to as core based statistical areas,
are often used in Federal program targeting. Metropolitan areas are
defined by the presence of a principal city of at least 50,000
population, plus surrounding counties that are linked to it through
commuting ties. Micropolitan areas contain a principal city of 10,000
to 49,999 plus surrounding counties that are linked to it through
commuting ties. All other counties not included in metropolitan or
micropolitan areas are defined as non-core counties. The most recent
listing of Core Based Statistical Areas for the United States and
Puerto Rico (December 2005) by the Office of Management and Budget
includes 369 Metropolitan Statistical Areas (361 in the U.S. and eight
in Puerto Rico), and 582 Micropolitan Statistical Areas (577 in the
U.S. and five in Puerto Rico). Metropolitan and micropolitan areas may
contain one or many counties, and many cross state lines.
Nonmetropolitan counties, which include both micropolitan and non-
core counties, are often equated with rural. However, official
definitions of rural and urban involve sub-county geography. Urban
areas are defined by the U.S. Census Bureau as ``core census block
groups or blocks that have a population density of at least 1,000
people per square mile and surrounding census blocks that have an
overall density of at least 500 people per square mile.'' All territory
not defined as urban is considered rural. Urban areas are divided into
two categories: urbanized areas have populations of 50,000 or more, and
urban clusters have populations from 2,500 to 49,999.
Both metropolitan and non-metropolitan counties contain both urban
and rural territory. The following table shows population by both
county designation and urban and rural geography, and illustrates that
county level geography does not accurately reflect urban and rural
population distributions. Over half of all rural people actually reside
in metropolitan counties. And, over 40 million metropolitan residents
reside outside of large urbanized areas. It is important, then, to look
beyond county level designations when targeting rural populations in
public policy and program design.
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Clearly, non-metropolitan residents should be included when
targeting rural populations. While non-metropolitan counties do include
some urban residents, with few exceptions non-metropolitan urban
residents live in small cities and towns, which are not targeted in
urban programs. Though unintentional, urban targeting tends to usually
advantage larger urbanized areas, while many smaller cities and towns,
as well as rural populations within metropolitan counties, often fail
to receive significant advantage from urban programs; and likewise are
excluded from rural programs which target only non-metropolitan
residents. Given these dynamics, and the level of rural population in
metropolitan areas, policymakers should consider new alternatives for
precise rural targeting.
Targeting Regions for Rural Innovation Strategies
Map 1 shows the core based statistical areas in the United States
and Puerto Rico. Micropolitan areas are ideal geographies for rural
regional innovation strategies, as in most cases the principal city in
the micropolitan area provides the central locale for regional economic
activity and service delivery.
Map 2 illustrates the U.S. urbanized and small town geography. The
green areas represent urbanized areas--cities with populations of
50,000 or more, which form the principal cities of metropolitan areas.
In a few cases, boundaries of urbanized areas fall into non-
metropolitan counties, but usually don't account for a significant
portion of total population. The dark brown areas represent smaller
cities and towns, urban clusters with populations from 2,500 to 49,999
in metropolitan counties. The dark orange areas illustrate rural
territory in metropolitan counties. Over half of all rural residents in
the United States reside in these areas. Finally, the light orange
areas represent non-metropolitan counties. The urban clusters of 2,500
to 49,999 population size exist in non-metropolitan counties, but are
not shown on this map.
Maps 3 through 6 illustrate the urbanized and non-urbanized area
geographies in four states: North Carolina, Georgia, Colorado, and
Alabama. The maps also include Congressional District boundaries for
the 110th Congress. Each map is accompanied by a table describing the
population distribution in each Congressional District in urbanized
areas (green areas on the map), smaller cities and towns (brown areas),
and rural areas (dark and light orange areas). As above, the darker
orange counties are metropolitan counties.
Finally, Map 7 illustrates this framework in the Des Moines, Iowa
metropolitan area, showing but one example of the continuum of very
urban to very rural places that exists within metropolitan areas. In
fact, Guthrie County is 100 percent rural, even though it is part of
the metropolitan area.
Map 1.
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Map 2.
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Map 3.
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Map 4.
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Map 5.
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Map 6.
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Map 7.
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Creating 21st Century USDA/RD Programs Which Support These New
Realities
If one is to alter Federal rural development policy to advantage
new regional framings, serious attention must be given to new Federal
incentives which promote regional cooperation among local communities,
governments, and institutions. Currently, no serious systemic RD
incentives for such approaches exist.
A common trait in most successful urban renewal and development is
a true partnership between the public, private and philanthropic
sectors. Since rural areas typically lack this same level of private
sector development, and suffer from an overall lack of critical mass,
forging partnerships among these key actors and potential investors
will demand new Federal commitments. Building upon an RSIP-type model,
these Federal incentives and core funding vehicles should support new
partnership models, with equal ownership and control across local
officials, private sector leaders (including health care, agriculture,
utilities, emerging industries, etc.), universities, community colleges
and the nonprofit sectors, among others. A key sine qua non will be the
provision of Federal seed capital to support both the regional
organization and strategic planning as well as the implementation of
these regional visions.
If USDA Rural Development is to implement such an approach, four
challenges must be met:
1. A Congressional mandate must be designed, which rewards RD for
reconfiguring programs toward a regional approach, and a new
mission area.
2. Incentives must be developed to assure these regional approaches
drive program performance assessments.
3. An organizational capacity which can support regional innovation
and deliver these new programs must be built, within a
framework which engages appropriate institutional partners.
4. Sufficient funding must be committed, to build regional scale
and presence.
For example, small city CDBG programs have no hard and fast
priorities or guidelines. By contrast, current USDA investments are
largely very specific program or project grants or loans, with very
detailed criteria and delivery dynamics. Addressing this challenge, and
creating the framework for all that follows could be one of the most
significant innovations in U.S. rural policy over the last 50 years.
In this regard, it is important to note that USDA Rural Development
investments are not driven by any regional investment plan. While state
R.D. Directors must have a state R.D. plan, their investments in local
communities and regions are not determined by any regional process or
assessed against any regional strategy. In contrast, all Economic
Development Districts that receive EDA funding from Commerce must have
a Comprehensive Economic Development Strategy (CEDS). Additionally, new
EDA guidelines demand that all Economic Development District Boards are
made up of 50%+ local government, 30%+ other sector entities including
nonprofits, chambers of commerce, higher education, etc. Additionally,
a CEDS committee must be established by the EDD Board, with a majority
private sector representation, which must include workforce, chambers
of commerce, higher education, labor, minority, local government, and
nonprofit representation. The new EDA guidelines demand that each
District must also catalog (1) current investments in the region, (2)
current funding sources, and (3) a catalog of all prior investments. As
is evident, an opportunity exists to recommend that USDA investments be
framed within such a regional strategic plan, and interface more
closely with existing comprehensive economic development strategies for
regions, such as the EDA CEDS process.
Given these comments, here are a number of specific ideas for new
Federal incentives to promote regional cooperation:
1. In the past, EDA has had a 10% Federal bonus for local
communities that participate in an Economic Development
District. For example, if you were awarded a $1 million public
works grant, the Federal share in the project was increased
10%, if you were working in an EDD framework.
Such a Federal bonus could become part of all loan and grant
programs currently operated through USDA/RD, as well as other
programs within USDA. While the bonus level and/or local match
would be two key variables, the policy principle would be to
encourage regional cooperation through this incentive, while
not precluding alternative grant proposals from securing
Federal support.
2. A variant of this approach would advantage R.D. proposals for
grant and/or loan funding to the extent they were submitted
with the support of, and coordination through, other programs
which are working in a regional framework within the proposal
area. These could include:
Commerce--Existing regional economic development plans,
through Planning and Development Districts, or Councils of
Government.
Labor--Participation in one of the Federal WIRED grants;
linkages to the Regional Workforce Investment Boards, etc.
Health--The programs operated through the Federal Office
of Rural Health Policy, including Network and Flex grants,
regional plans developed by State Offices of Rural Health,
etc.
USDA--In addition to the incenting vehicle mentioned
above, all USDA grant and loan programs could be advantaged
if legislative language either provided incentives or
requirements for the State Rural Development Director to
work with other Federal and/or state level agencies in a
regional framework. A number of states are developing such
an approach, and specific language could be developed to
incent additional R.D. Directors to take such an approach.
3. Creation of a state block grant and/or regional block grant to
promote regional innovation around a hub Micropolitan
Statistical Area, through a USDA ``CDBG'' type program. Any
number of approaches could be developed to take advantage of
the Federal ``micropolitan'' designation. For example, one
could create a program called RMAP--Regional Micropolitan
Advancement Program. This could be a flexible strategic
investment program, along an RSIP model, which would be run
through the USDA State R.D. Director's office, to advantage
regional partnerships.
The state director could make funding decisions based on
recommendations from Regional Strategic Councils, comprised of
representation from state and local foundations, workforce
investment boards, community colleges and regional
universities, chambers of commerce, local and regional
governments, agricultural groups, regional councils and
nonprofit representatives. The program focus would need to be
diverse enough to cover the diverse asset-based development
needs of unique regions, including youth development/retention,
entrepreneurship, export assistance for small businesses,
infrastructure development and business development, as well as
attention to heritage and the arts, and other uniquely
designed, asset-based development programs.
The Federal match rate could be on a sliding scale, based upon the
amount of non-Federal investment pooled or leveraged within the
region, with a special carve-out for regions which are
specifically disadvantaged by lack of internal capacity.
4. A grant approach which leverages existing state ``small city''
CDBG funds that are grouped to create regional approaches. A
number of states are currently creating vehicles which leverage
small city CDBG dollars to support regional frameworks. There
are any number of ways in which Federal programs could
advantage grant or loan applications which are thus matched, or
which leverage such state approaches. This could be
administered through the state R.D. office, working with the
governors, who control the CDBG formulae/program allocations.
5. If the micropolitan regional approach is unworkable, an
alternative would be the creation and promotion of a concept
such as a Regional Economic Workshed, similar to the watershed
models currently being utilized in USDA to address
environmental and natural resource concerns. This approach
would use the same type of framework, but addresses the reality
that the current rural workforce dynamics cross jurisdictional
boundaries, as many rural people often commute 30 to 50 miles
to work.
6. One final program idea, while structurally difficult, would
truly be unique, and could be very innovative. It would create
a vehicle to enable rural areas working in a regional framework
to reinvest the wealth and/or financial returns earned in the
region through USDA investments. With this type of revolving
loan program, one could enable investments which have been
repaid to be revolved into these innovation regions, rather
than returned to the Federal treasury, as is currently the
practice. Clearly, criteria and accountability around this
would be challenging, but such an approach would reward those
regions that are working diligently to leverage their
innovation opportunities, while reducing further Federal
funding demands.
A New Rural Vision for the Rural Development Title: Regional Rural
Innovation, Collaboration and Strategic Investment.
With this Committee's leadership in advocating for enhanced rural
development emphasis in the Farm Security and Rural Investment Act of
2002, major new program attention and mandatory funding for rural
development was obtained. While rural advocates were most appreciative,
much of this funding never materialized, and many of the new programs
were not implemented or suffered drastically curtailed funding.
One of the most innovative approaches within the title was the
Rural Strategic Investment Program, launched with a modest $100 million
mandatory funding commitment. We commend this Committee's visionary
leadership in this effort. Sadly, this program was blocked in ensuing
legislative and administrative actions, and never implemented.
Senate Agriculture, Nutrition and Forestry Committee Chairman Tom
Harkin has recently announced plans to support a ``bold new approach to
rural competitiveness in the 2007 Farm Bill,'' modifying the RSIP
approach and enhancing the funding commitment to this initiative: the
Rural Collaborative Investment Program.
We anticipate this proposal will reflect much of what is outlined
below, and I urge this Subcommittee to consider the merits of a similar
bold initiative in your deliberations.
A Regional Rural Innovation, Collaboration and Strategic Investment
System.
Obviously, until the structural resource disadvantages outlined
above are addressed, rural America must look internally to better its
community and economic development opportunities. Rural regions must
craft a common vision; pool very limited resources, talents, and
capacities from all sectors; and develop an asset-based approach in
which new institutional partnerships between the private, NGO and
philanthropic sectors link with under-resourced rural governments.
Though challenged by the lack of technical assistance funding available
for such efforts and the relative lack of philanthropic capacity and
grant making in rural regions, rural communities have begun this
effort. However, absent attention to these huge resource disadvantages,
building the new regional collaboration and investment system outlined
below will remain a significant challenge. Nevertheless, such
developments are absolutely essential, if rural regions are to optimize
their relative competitive advantage.
Given these challenges, where should policy makers turn in building
wiser public sector investments in rural community and economic
development? First, we must acknowledge that what has worked in the
past will no longer suffice. Once that is evident, regional
collaboration and investment systems can be considered. When this
happens, we will move from attraction strategies to entrepreneurship;
identify and encourage ``functional economic regions'' to build on
existing assets, broadly defined; and move from sector to place-based
approaches. This regional framework will be appropriately configured,
and will engage our institutions of higher education in a new regional
compact, where public and private entrepreneurship will be central, a
new rural governance between the public, private and philanthropic
sectors will be evident, and new regional leadership, through
innovative institutional renaissance, will be expressed.
While this may seem a bridge too far, it is already emerging all
across rural America. Purdue University has designed and developed a
new Discovery Park, Research Park, and the Center for Regional
Development, outstanding new intermediaries, creating traction and
scale for new regional collaboration and investment systems. Dr. Sam
Cordes, Director of the Center, has worked with the Administration of
Indiana Governor Mitch Daniels and Lieutenant Governor Becky Skillman
over the past year to create the Rural Indiana Strategy for Excellence
2020 (RISE 2020).\22\ This effort has engaged over 150 Indiana
organizations and institutions, and has become a national model for new
rural governance and regional innovation. This process resulted in a
foundation framework and seven pillars for collective work and voice by
those who care about rural Indiana. Each of these elements is critical
in the framework. They include civic leadership and engagement; asset-
based community development; regional frameworks; rural innovation;
diversity access and inclusiveness; youth engagement; and wealth
creation and retention. A new state agency, the Office of Rural and
Community Affairs, was created to provide greater rural focus within
Indiana's executive branch. The seven pillars developed in the RISE
2020 process were used to target the state's ``Small Cities'' CDBG
funding investments, along with additional general revenue funds
committed to this effort, to achieve these outcomes. The first round of
grants have now been made, and the philanthropic communities of Indiana
have matched these public investments nearly one to one.
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\22\ The Indiana Rural Strategy (2006) http://www.purdue.edu/pcrd/
Indiana%20rural%20strategy.htm and ``Breaking the Boundaries'' Indiana
Office of Community and Rural Affairs Strategic Plan for Rural Indiana.
www.ocra.IN.gov.
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Northeastern Ohio institutions created an exciting new regional
competitiveness strategy, linking higher education, the private sector
and governments across the region and generating significant innovation
and collaboration success. Multiple counties across the United States
are beginning to forge collaborative ``functional'' compacts, and
across the rural landscape Federal, state, regional and local agencies
and governments are rethinking and defining their appropriate roles and
responsibilities.
The growing number of these innovations should result in the
Federal Government creating incentives for regional partnering,
expanding investments in basic research and regional community and
leadership capacity, and funding the development of new public goods
for regional decision making, all key elements in a national rural
entrepreneurship framework. Should this occur, the Federal Government
will become an enabler rather than a driver of such dynamics, as
regional, state and local actors work together to build effective new
frameworks for regional governance, public and private collaboration,
and identification of unique regional assets. Then, a true rural
entrepreneurial development system can emerge, to enable innovation to
leverage these assets, across space.
Globalization has had profound and lasting effects. It also has
created two unmistakable rural challenges: uneven growth across space,
and new drivers of sustainable growth, primarily innovation and
entrepreneurship. Building a Regional Rural Innovation, Collaboration
and Strategic Investment System, which acknowledges these necessities
and seeks to address them, has the potential to emerge within the new
farm bill debate as the organizing framework for the rural development
title.
The promise of such a Regional Rural Innovation Policy is premised
upon the following realities:
1. National competitiveness is increasingly determined by the
summative impact of diverse regional actions, capturing asset-
based competitive advantage.
2. Support for such an approach will require a substantive
rethinking of core missions across Federal departments, state
agencies, and regional and local governments, and a commitment
to leadership renaissance within these institutions and
organizations.
3. Funding support for these place-based policies are WTO green-box
compliant, non-trade distorting funding opportunities for the
Federal Government.
4. Finally, such a commitment improves the potential for
Congressional Agriculture Committees to retain existing funding
baselines, and for these Committees to retain statutory
responsibility for rural development policy.
Thank you, again, Mr. Chairman and Members of the Subcommittee, for
the opportunity to testify before you today. Your continuing leadership
in crafting a 21st Century rural policy is critical, and I look forward
to working with you over the course of these farm bill discussions.
I'll be pleased to answer any questions you have.
Maps and Tabular Information, Various States Represented on the
Subcommittee on Specialty Crops, Rural Development and Foreign
Agriculture of the Committee on Agriculture of the U.S. House of
Resentatives
North Carolina
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Colorado
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Minnesota
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Virginia
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Georgia
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Alabama
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Texas
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Nebraska
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
North Dakota
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Kansas
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Hon. Rebecca S. Skillman, Lt. Governor, State of
Indiana, Indianapolis, IN
Dear Mr. Chairman and Members of the Committee,
Thank you for the strong commitment you have shown to rural America
by holding a hearing to talk specifically about rural policy in the
next farm bill. Growing up in Bedford, a rural community in south
central Indiana, I am truly the product of a small town. I have spent
most of my career working on the issues that impact our small cities
and towns. Rural issues are my passion, and I am deeply honored today
by the opportunity to participate in this conversation with our Federal
policymakers including our new partners Congressmen Donnelly and
Ellsworth. Congressmen, we look forward to working closely with you in
this legislation to advocate for the many needs of small communities
back in rural Indiana.
When Governor Mitch Daniels and I took office in January 2005,
Indiana, like many states, faced grave challenges with the lack of
economic opportunity for Hoosiers--particularly those citizens living
in our rural communities. In working to build an economic recovery, we
pledged that Indiana would not be a state of ``haves'' and ``have-
nots.'' Today, with Governor Daniels' innovation and strong leadership,
we have turned the corner toward prosperity for every region of our
state.
Last year was a banner year for our state. We brought 22,540 new
jobs to Indiana with an average annual salary of $42,000. These new
projects represent more than $8 billion in private capital investment
in Indiana. Agriculture is a significant piece of this new growth. In
2006, we saw $2.68 billion invested in food and agriculture projects
which created 1,218 new jobs. This investment included 17 new ethanol
plants and four biodiesel facilities--all of which are located in rural
areas such as the Town of Claypool, a community of just under 500
people in northeast Indiana, Linden, a town of 690 people in west
central Indiana, and Rensselaer, a city of 5,500 in northwest Indiana.
Indiana is indeed seeing a new day of opportunity. But, with this
progress, we know that significant challenges remain for our small
towns and cities. In Indiana, 75 percent of our land mass is rural, and
44 percent of our population lives in rural communities. We are a
manufacturing economy. With recent downturns in the national
manufacturing sector, we have suffered deep employment losses. In 2004,
manufacturing accounted for 16 percent of our total employment, down
from 25 percent in 1980. Such losses have necessitated a transformation
of our traditional economy.
Rural Indiana lags behind in this transformation. In non-
metropolitan employment, manufacturing still accounts for 24 percent of
Hoosier jobs. In addition, educational attainment in rural areas lags
behind the rest of the state. And, per capita income in non-
metropolitan areas is less than 85 percent of the per capita income in
metropolitan areas.
Governor Daniels and I know that such discrepancies cannot be
ignored. We both know that Indiana's economic recovery will not be
complete unless it includes all Hoosiers. If we are to continue to have
a growing agriculture economy, we must have a thriving rural economy.
If we are to enjoy a statewide economic renaissance, rural Indiana must
also thrive.
With that pledge, we have made a commitment to the importance of
rural Indiana and the need for dedicated resources to build on its
strengths. In 2005, we created the Office of Community and Rural
Affairs (OCRA). OCRA is a stand-alone agency that provides resources
and technical assistance to our small towns and cities. Putting
economic opportunity first and foremost, the agency has a mission to
assist rural communities in building capacity to achieve their own
vision for the future.
In order to identify the highest priority issues, I convened a
statewide conversation later branded as the Rural Indiana Strategy for
Excellence (RISE 2020). Partnering with the Indiana Rural Development
Council and the Center for Regional Development at Purdue University,
OCRA held more than twenty listening sessions in which over 650 rural
constituents participated. From these sessions, seven core areas of
focus emerged, including the need to:
Promote regional frameworks and partnerships;
Build civic leadership and engagement;
Focus on asset-based community development;
Build capacity for rural innovation (entrepreneurial
culture);
Promote diversity, access and inclusiveness;
Promote youth engagement; and
Leverage resources for wealth creation and retention.
Using these points of focus as a guide, OCRA set key priorities for
the agency in a strategic plan we refer to as ``Breaking the
Boundaries''--a name that reflects our commitment to breaking down the
current barriers rural communities face in accessing resources and
developing opportunity. These priorities include:
Developing a strategy to attract and expand philanthropic
capital;
Attracting and retaining entrepreneurial talent;
Generating creative practices and programs for rural
workforce development;
Seeking innovations in rural broadband development and
deployment; and
Expanding health and human service delivery to reach
marginalized populations.
In our work, a core philosophy is to build partnerships in and
leverage resources from the public, private and academic sectors. OCRA
works very closely with other state agencies involved in economic
development projects such as our Indiana Economic Development
Corporation, the Indiana State Department of Agriculture and the
Department of Workforce Development. The agency also works side-by-side
with other partners such as the local USDA Rural Development Office,
universities, utilities and nonprofit organizations to partner and
complement their core activities.
Two prominent examples of partnership and leveraging resources
include the creation of a state Rural Capacity Grant Program and the
manner in which we administer the Federal Community Development Block
Grant Program (CDBG). In December 2006, OCRA awarded nearly $3 million
in a competitive grant process that challenged communities to develop
creative ways to build capacity in workforce training or education
needs and in rural entrepreneurship. In the scoring process, extra
points were given to those communities that included a local match from
their community foundation. Grants were awarded to 23 community
partnerships, many of which involved local economic development
organizations, regional workforce training entities and small business
development centers. Local matching funds totaled $1.114 million, of
which $163,000 or 14 percent were local foundation matches.
In addition to the Rural Capacity Grant Program, OCRA has retooled
the way it administers the CDBG program to encourage partnerships and
leverage funding. At present, Indiana's state allocation from the U.S.
Department of Housing and Urban Development is approximately $27
million. Historically, there has been no focus by the state on how
those dollars have been allocated. Beginning in 2007, we have
restructured the scoring system to include weighted scores that reflect
OCRA's key priorities such as the development of micro-enterprise
programs, sewer and water infrastructure and health clinics. As with
the Rural Capacity grant awards, extra points are given to those
communities that provide a philanthropic match.
From our early experience, we have quickly identified community
foundations as an untapped resource. In Indiana alone, a recent study
by the Indiana Grantmakers Alliance estimates that $3.3 billion in
local wealth could be captured through community foundations over the
next ten years. With the continuing decline in state and Federal
dollars available for investment in communities, community foundations
show great promise to become critical strategic investors in Indiana
and beyond.
In closing, let me suggest that rural development should happen by
choice, not by chance. As I hope is evident from my testimony, Governor
Daniels and I are choosing to invest in rural Indiana so that all 6.2
million Hoosiers will share in our state's economic recovery. We have
accomplished a great deal in a very short time by taking stock of our
resources and developing a framework that enables us to target these
assets toward solving critical challenges for our rural citizens.
In sharing our story with the Committee today, we are hopeful that
policy leaders in other states may be inspired to take similar action
to strengthen the small towns and cities in their own landscapes.
Further, we hope that the Committee will carefully consider those
measures within the Rural Development Title which could be shaped to
encourage and nurture this model.
Thank you for this opportunity.
The Chairman. Thank you, Mr. Fluharty. And that leads into
your comments about Billy Ray Hall. Billy Ray Hall is President
of the North Carolina Rural Economic Development Center, based
in Raleigh but does a great work in my home county. And in our
home State of North Carolina, 85 of the 100 counties are
considered rural, so Billy has quite a task to do and does it
well. Mr. Hall, we look forward to your testimony.
STATEMENT OF BILLY RAY HALL, PRESIDENT, NORTH
CAROLINA RURAL ECONOMIC DEVELOPMENT CENTER, INC., RALEIGH, NC
Mr. Hall. Thank you, Chairman McIntyre and the Ranking
Member Musgrave. I can't help but to move away from my comments
to tell you the story about North Carolina. We had 26
definitions of rural and so we decided to work with a
committee. We worked for 2 months and we decided that every
county that didn't have a city over 50,000 would be rural and
we put out rural programs in those counties. I don't know how
much help that will be to Secretary Dorr, but I would suggest
that he might think about it.
In terms of my comments, and I think it is challenging for
me to say to you something you don't already know, but I want
to remind us, if I can, and take a ride with the person who got
up in rural North Carolina, or rural Colorado or Georgia or
Texas, this morning. They got up and they went and turned on
the water. If they were in rural areas, they generally pay
twice as much for water as if they lived in a major urban area,
partly because the costs that were underwritten to provide
those water and sewer systems. They were underwritten in a day
when we provided more Federal and state support to those areas.
He then went outside, got in his car and started down the road
and he saw a for sale sign on a farm. He was reminded, in 1948,
there were 302,000 farms in North Carolina. In 2004, 4,000
people sold their farms because they couldn't make a living. He
is wondering if he is the next one of the 48,000 farmers in
North Carolina who may lose his farm.
He drives a little further down the road and he looks at a
vacant manufacturing building in which his wife used to work in
and was able to bring home health insurance. She is no longer
there. She joins the 70,000 people who lost their job in the
last 5 years in North Carolina as manufacturing moved offshore.
He then drives on into town and he thinks about his child
who he is trying to get to stay in school and remembers that
the workforce in rural areas, over 60 percent have less than a
high school diploma or a high school diploma. He knows that
tonight he has to go home and help his child with the homework,
but he doesn't have access to the Internet, so it is going to
take him much longer to work on the homework.
The then moves into the community and moves up to the gas
station and begins to at least feel a little better because he
thinks he has heard on the national scene that we are going to
move to biofuels. The idea, maybe our farmers will produce
those biofuel feed stocks; and maybe our farmers will own the
production facilities; and maybe this grocery store or this gas
station will provide the gas.
He then moves down the road to the job where he started
while he farms part time, because he is like \2/3\ of the
farmers in North Carolina; they have to work off-farm jobs to
be able to support their farm. He goes in and remembers that he
has got a patent to work on. He has now created a new business
but he is not sure how to do the marketing plan, but he has
hope, just as he did when he was at the gas station, that he
has heard discussions at the national level that
entrepreneurship is going to be the new area which we
emphasize.
Now, I say that just to remind us of this: there are two
basic needs in rural America, particularly rural North
Carolina, that need your attention. The U.S. Department of
Agriculture has been a major partner with the support groups,
namely water and sewer. In rural areas, our water and sewer is
critical. We still have children playing in waste whenever it
rains and the septic tanks fail. We have systems that need
grants, not loans. Fairness is the issue. What is a fair price
to pay for water? Around two percent of median household
income, if you believe the research.
Second, we need high-speed Internet. Twenty-six counties in
rural North Carolina lack 70 percent access or have less than
70 percent access. Five counties have less than 50 percent, but
yet we are told that is the road to the future and it is where
e-learning and e-medicine is going to occur. We need to
continue supporting the expansion of telecommunications in the
Department of Agriculture.
Now as to the citizen's hope for the future. He is
particularly interested, or she is, in building an
entrepreneurship support system and hopes that the U.S.
Department of Agriculture and others will reemphasize a way of
encouraging entrepreneurs in rural areas, because he knows that
the major employers are net losers of employment in rural
America and that small businesses are the hope for the future.
Finally, he says to himself, ``I hope that the discussion
at the national level will translate into policies in rural
North Carolina.'' Our farmers need to produce the feed stock,
our universities are in a position to do research, and more
particularly, our farmers and business people would like to be
the producers of ethanol and soy diesel and other biofuels that
are possible in the future. That is what I hear from people all
over North Carolina and we have been listening for 20 years.
Our relationship with the Department of Agriculture, state
government and others goes extremely well, but the message is
quite simple from rural areas. ``We are willing to do
everything we can, but there comes a limit as to what we can
afford in the name of a national clean water policy, there
comes a limit to our opportunities in providing food and
agricultural products when trade is not favorable to our
results, and there is a limit as to what we can do in providing
high-speed Internet when major corporations won't provide it.''
We ask for USDA to continue to support the programs and an
enhanced program that is flexible in supporting local
priorities. Thank you for this opportunity to speak.
[The prepared statement of Mr. Hall follows:]
Prepared Statement of Billy Ray Hall, President, North Carolina Rural
Economic Development Center, Inc., Raleigh, NC
Thank you Chairman McIntyre, Ranking Member Musgrave and Members of
the Subcommittee for this opportunity to present our views on the
development needs of rural America, as you prepare legislation to guide
Federal investments in our communities through USDA.
I am Billy Ray Hall, President of the North Carolina Rural Economic
Development Center (Rural Center). For the past twenty years, the Rural
Center has worked to make life better for people in rural North
Carolina. As a statewide nonprofit organization, the Rural Center has
developed, promoted, and implemented sound economic strategies to
improve the quality of life of rural North Carolinians. Throughout
these 2 decades, the Rural Center has had a very productive partnership
with USDA Rural Development, working together on ventures that brought
new jobs and businesses, infrastructure improvements, innovative
technology, and community facilities to rural communities.
Today I will be talking with you about the challenges and
opportunities before us in rural North Carolina; the lessons that the
Rural Center has learned over the last 20 years that have bearing on
the deliberations of this Committee; and why it is critical that USDA
Rural Development remain a lifeline to our rural communities as we
grapple with the dramatic changes ahead.
First, a bit of background on North Carolina. If ever there was a
study in contrasts, North Carolina is it. Located in the heart of the
state, the Research Triangle Park is home to multinational companies
with 40,000 full time employees and a total payroll of $2.7 billion.
The park is near, and strongly connected to, three world-class
universities--the University of North Carolina, Duke University and
N.C. State University. The state's banking and finance industry has
experienced skyrocketing growth in recent years and achieved a dominant
position in interstate banking. The combined financial assets
headquartered in Charlotte total over $1.8 trillion, second only to New
York City. As a result of such engines of growth, the state as a whole
has experienced dramatic population growth in the past 2 decades. By
2030, North Carolina's population is expected to climb to 12 million,
an increase of nearly 50 percent over the 2,000 total.
It will come as no surprise to anyone that a large percentage of
this growth is concentrated in and near our urban centers, especially
in the Charlotte and Raleigh-Durham-Chapel Hill areas. These urban
areas and the smaller cities and towns surrounding them consistently
rank at the top of nearly every national score card as best places to
live and/or do business. And, we're proud of them.
That doesn't mean that we have not done right by our rural
communities in North Carolina. In fact, I would assert that no other
state in the nation has believed in or stood by its rural areas more
than ours. I think back to the farm-to-market roads built by Governor
Kerr Scott beginning in the late forties and to the balanced growth
policy of Governor Jim Hunt in the seventies, which made good on the
promise of providing jobs, public services and a good education in all
parts of the state. And then the N.C. Rural Economic Development Center
was created in 1987 to address the increasing economic disparity
between rural and urban areas as a result of dramatic economic change.
Since that time, the Rural Center has become the state's recognized
rural policy leader and, thanks to incredibly strong partnerships with
the N.C. Congressional delegation and Federal agencies, the N.C.
General Assembly, the philanthropic community and corporate North
Carolina, we have been able to invest more than $400 million in the
state's 85 rural counties.
And yet--even with this substantial commitment by the State of
North Carolina and the tireless efforts of hundreds of creative local
leaders, rural North Carolina today finds itself in an intense struggle
to stay afloat. Consider these facts.
Rural North Carolina's two great economic pillars,
agriculture and manufacturing, have experienced massive job
losses over the last 2 decades.
Agriculture--still a powerful $68 billion industry in
North Carolina with great opportunity for growth--now
employs less than .25 percent of the population in on-the-
farm jobs.
The eighth largest industrial employer in the country,
North Carolina is losing manufacturing jobs rapidly,
especially in traditional, natural resource based
industries. Since 1990, North Carolina's rural counties
have lost nearly 150,000 manufacturing jobs, many of which
are in textiles, apparel and furniture. In fact, rural
areas have lost 70,000 manufacturing jobs just since 2001.
No state has felt the impact of job loss more than ours!
Jobs in mills meant that families could earn a decent wage
near home and receive basic benefits. Former manufacturing
workers now face the reality that their limited education
(nearly 60 percent of North Carolina's rural population has
only a high school education or less) does not prepare them for
the more challenging jobs of the knowledge economy.
Poverty is on the increase. Rural North Carolina's poverty
rate is now estimated to be well over 14 percent, with a total
of 564,000 people in poverty and many more living at the
economic fringes. Child poverty is 45 percent higher in rural
areas than in urban areas and in the state's northeast corner
averages 26 percent.
Rural communities are doing all they can. For example, many
of the state's smallest towns now charge twice as much for
water service as their large urban counterparts. The average
``ability to pay'' (based on population, per capita income and
tax valuation) in North Carolina's towns under 10,000 people is
a score of only 6.78 points out of a possible 100. In other
words, a vast majority of these towns do not have the capacity
to go forward with infrastructure projects, no matter how much
they desire to improve services for their local citizens.
My point is this. We're stretching ourselves to the limit at the
local and state levels. And I have every reason to believe that North
Carolina will continue its strong commitment to its rural communities.
But we cannot address these enormous challenges and take advantage of
new opportunities in rural North Carolina without a strong Federal
partner.
I will now shift my focus to four specific issues that we are
addressing at the Rural Center, offer my thoughts on what we've learned
about these issues and suggest ways that Congress, through the farm
bill and other critical legislation, can help.
1. Stimulate small business growth and entrepreneurship
development.
As a result of plant closings and job losses suffered by our rural
communities, North Carolina was among the first to recognize
the importance of homegrown jobs. In the economy of the future,
rural communities will become increasingly dependent on risk-
taking, innovative individuals to create jobs and grow
businesses.
Small business is already a powerful force in rural areas of our
state:
Rural North Carolina has nearly 90,000 establishments with
fewer than 50 employees. These small businesses account for
more than 95 percent of all establishments in the state's
85 rural counties;
In addition, there are nearly 265,000 self-employment
establishments in rural areas;
While North Carolina's largest establishments (100
employees or more) reduced their payrolls by 44,000 jobs
during the period 2002-2003, establishments with fewer than
20 employees added 43,000 new jobs; and
A recent survey showed that more than 60 percent of rural
businesses are started by individuals who grew up in rural
North Carolina and most indicate no intention of selling or
relocating their businesses.
Yet small business owners cite serious concerns. These include a
sense of isolation, lack of knowledge about emerging markets,
lack of access to capital, limited understanding of available
business support services, and the need for more training and
education programs tailored for different levels of experience.
The Rural Center began responding to these needs nearly 20 years
ago when it established the North Carolina Microenterprise Loan
Program to help rural men and women create small businesses to
support themselves and their families, and later added the
Capital Access Program, which is operated in conjunction with
the state's banks. Together, the two programs have had
significant impact on small business development in North
Carolina:
Since 1992, the N.C. Microenterprise Loan Program has
served 2,600 businesses and made 1,267 loans totaling
nearly $7 million to a diverse customer base that includes
47 percent minorities; 53 percent women; and 41 percent
low-income individuals.
Since 1994, the Capital Access Program has made more than
1,600 loans totaling $92 million, which have helped create/
retain over 12,000 jobs.
Then, in October 2003, the center intensified its small business
development efforts by establishing the Institute for Rural
Entrepreneurship to serve the needs of rural entrepreneurs and
develop statewide policies in support of entrepreneurship. Just
last month, the Institute joined with nearly 50 statewide
partners for the second annual entrepreneurship summit that
drew 600 public and private leaders and announced a dozen
initiatives to bolster entrepreneurship development. Among
these were:
The N.C. Consortium for Entrepreneurship Education, a
collaboration of the Rural Center, the N.C. Department of
Public Instruction, N.C. Community College System,
University of North Carolina System and the N.C.
Independent Colleges and Universities to improve, increase
and connect entrepreneurship education across all age
levels; and
The Rural Venture Fund, a new source of capital
specifically designed for qualified businesses in
economically distressed counties of North Carolina. It will
enable the Rural Center to fill a gap in available types of
business finance for rural business owners. This fund will
be a unique hybrid capable of making equity investments and
issuing subordinated debt. The fund was established with $3
million in initial capital; the goal is to identify other
sources to reach a total of $7.5 million.
To support the emergence of a dynamic, growing small business
sector in rural North Carolina and rural America:
The Rural Center supports efforts by Congress to establish a new
rural entrepreneurship and microenterprise assistance program
to provide training and technical assistance to qualified
intermediary organizations, so they in turn can build the
capacity and expertise of rural entrepreneurs. A low-interest
loan fund should be established to assist this effort, in
addition to the technical assistance grants. This is one
development strategy that consistently works in rural
communities.
2. Invest in the construction and maintenance of water and sewer
infrastructure in rural areas.
Nothing is more important to the economic future of rural
communities than a reliable supply of clean water and
dependable systems for disposing of wastewater. One North
Carolina state senator became famous for saying, ``If you can't
flush, you can't dance.'' The meaning is clear. Without clean
water, we cannot grow businesses, we cannot grow neighborhoods,
and we cannot ensure the health of our citizens.
In 2006, the Rural Center completed its Water 2030 Initiative, the
most comprehensive water resources study ever undertaken in
North Carolina. The study documented the need for $16 billion
in public water, sewer and storm water infrastructure
investments statewide by 2030. In the near term, the state
faces $500 million in immediate, critical capital needs. The
project also examined financing options for clean water
infrastructure and questions about long-term water supply.
Here's what we found, in brief:
Private market loans now account for 70 percent of water
and sewer financing in North Carolina, yet low bond ratings
prevent more than 60 percent of local governments from
qualifying;
Federal program budgets continue to be reduced, especially
grant monies that are so critical for the most impoverished
communities;
By 2030, North Carolina's water consumption is expected to
increase from 241 billion gallons a year to 335 billion
gallons for households alone; and
Continued population and industrial growth will place
additional pressure on water quality. Currently, water in
nearly 3,000 miles of the state's river systems is
considered unsafe for drinking and recreation.
On the state level, the N.C. Water 2030 Initiative has led to
renewed calls for a dedicated, permanent state funding source
for clean water infrastructure and a new clean water bond fund
to finance infrastructure. Bills now before the General
Assembly (H.B. 127 and S.B. 208) would set the bond level at
$500 million.
Based on the Water 2030 study and the Rural Center's extensive
experience in water and sewer grants management (It manages the
state's largest water and sewer grants portfolio and has
provided more than $326 million in grants to 426 communities
since 1994):
The Rural Center strongly supports efforts by Congress to increase
funding to USDA Rural Development and other agencies to help
rural communities invest in water and wastewater
infrastructure.
3. Ensure that farmers and rural communities benefit from the
burgeoning biofuels industry.
Even though agriculture remains robust and highly diversified in
North Carolina, farming as we have come to know it is changing
dramatically. Small and medium sized family farms are rapidly
disappearing, with serious consequences to the businesses and
communities that have depended on them.
North Carolina leaders believe that the emerging biofuels industry
holds tremendous potential for reinvigorating the rural economy
of North Carolina. In addition to crops grown in North Carolina
including sweet potatoes, corn, soybeans and switch grass, the
state has abundant sources of energy in its wood chips, animal
waste and municipal waste, creating opportunities for ethanol
production from cellulose.
The private sector is stepping up its efforts to make North
Carolina an energy-producing state through investments in
research and facilities. In 2006 the North Carolina General
Assembly created the Biofuels Industry Strategic Plan Work
Group, with the Rural Center as one of five convening agencies.
With the participation of more than 40 state, university and
industry leaders, the work group has developed a nine-point
plan to make this state the top biofuels producer on the East
Coast.
The plan will be submitted to the N.C. General Assembly March 30.
Its recommendations include research on biomass feedstocks,
creation of a public-private partnership to build a test
facility for biofuels production, increased public awareness of
the benefits of biofuels, and appropriate, targeted incentives.
In addition, it establishes the goal that, by 2015, 10 percent
of the liquid fuels sold in the state will come from biofuels
grown and produced in North Carolina.
The 2007 Farm Bill proposed by USDA includes several provisions to
advance biofuels research, production and commercialization.
The Rural Center recommends passage of these provisions,
including:
(1) Authorize a program to provide direct support to producers of
cellulosic ethanol. Conventional ethanol is produced from
grain, primarily corn. Cellulosic ethanol--made from such
sources as switch grass, wood and straw--has the potential
to replace a larger portion of fossil fuels. Targeted
Federal investment will be beneficial in helping overcome
the initial barriers to production of cellulosic biomass
and agricultural processing waste products for ethanol and
electric power production.
(2) Expand and improve the Federal Procurement of Biobased
Products program. The program encourages Federal purchases
of biobased products.
(3) Provide loan guarantees for cellulosic ethanol projects in
rural areas. The guarantees would support billions in
investments in plant-based ethanol production in rural
communities providing jobs and stability to the local
economy.
4. Stimulate deployment of broadband technology to rural
communities.
Access to broadband infrastructure is vital for communities to
remain competitive in the global market and to support the
transition to a knowledge-based economy. With the creation of
the e-NC Authority by the General Assembly in 2000, North
Carolina became one of the most aggressive states in the
country in increasing Internet availability for rural areas.
Housed by statute in the Rural Center, the e-NC Authority is
charged with bringing the benefits of broadband technologies to
rural and distressed urban areas of the state. Its primary work
centers on assisting counties with Internet connectivity
planning and coordination of technology-based economic
development initiatives.
The authority has had a measurable impact on North Carolina by
expanding Internet infrastructure, applications, training and
economic promise. It has managed over $20 million in incentives
grants to build broadband infrastructure across the state and
has overseen development and implementation of such demand-
building activities as the e-Communities Program. The authority
also has created a system of Business and Technology
Telecenters that serve as hubs of innovation in economically
distressed counties.
But the job is far from done. In 26 rural North Carolina counties,
less than 70 percent of households and businesses have the
ability to access broadband Internet. Five counties have less
than 50 percent access.
The Rural Center supports efforts by Congress to increase the
amount of Federal dollars devoted to broadband build-out in the
rural areas. Specifically, the center calls for Congress to:
Strengthen the Rural Development Telecommunications Program of the
U.S. Department of Agriculture. The program provides loans and
grants to build broadband infrastructure and to support
distance education and telemedicine in rural communities. The
e-NC Authority supports making the funding more accessible,
providing increased funding through the grant programs, and
streamlining the application process to make it easier for
distressed communities to apply and participate. In addition,
the authority suggests that there be more collaboration with
intermediary organizations and that Congress consider changing
eligibility requirements to allow statewide organizations such
as the e-NC Authority to apply for funds on behalf of the rural
communities of the state.
To conclude, let me state how important a flexible, well-funded
USDA Rural Development program is to the future of rural areas and
small towns. Federal funding should be mandatory, providing assured
funds to State USDA-Rural Development staff to implement programs,
rather than tied to discretionary funding decisions that are vulnerable
to changing Administration priorities that leave poor rural communities
even further behind. Federal rural development programs work best when
USDA staff, nonprofit intermediaries, community based organizations,
and local governments leverage each other's strengths, coordinate and
tap all available resources. Not one of these parties working alone can
transform a rural region from one of despair to one of hope. Federal
rural development programs should challenge rural areas to identify
their own priorities and strategies and then align Federal investments
with regional strategies. USDA rural development programs can and must
help state, regional and local partners address the basic needs of
local communities, such as water and wastewater systems, key community
facilities, telecommunications, and housing. But they should also be
agents of change by helping rural areas support new economic ventures
that build on natural assets and the unique character of rural places.
Rural development programs also should enhance community and regionally
based networks that are using innovation and entrepreneurship to form a
new rural economy.
The Chairman. Thank you so much. Good to have you from back
home and thank you for delivering your excellent message within
the timeframe allotted. Mr. Rick Harris, President of Sunkist
Taylor, LLC, from Tracy, California, thank you so much for
traveling the distance to be with us today and we are glad to
have you here in Washington. You may proceed.
STATEMENT OF D. RICHARD ``RICK'' HARRIS II, PRESIDENT, SUNKIST
TAYLOR, LLC, SALINAS, CA
Mr. Harris. Thank you very much, Mr. Chairman McIntyre,
Ranking Member Musgrave, and Members of the Subcommittee. My
name is Rick Harris. I am President of Sunkist Taylor, LLC, a
joint venture of Sunkist Growers Farmers Cooperative and Taylor
Farms, formed in July 2006, in large part to expand the reach
of a product line we developed and market it through the Value-
Added Grant Program. Some of those products you will see up
front. It is my pleasure to discuss our experiences with that
program, kind of taking vision to reality.
By way of background, Sunkist Growers is a farmer-owned
citrus marketing cooperative owned by approximately 6,000
growers in California and Arizona. Eighty percent of these
growers have fewer than 40 acres and therefore should be
considered small farmers. In recent years, all citrus producers
in the U.S. have seen dramatically increased competition from
foreign suppliers. Additionally, our costs of production have
risen significantly. These competitive issues have compelled
Sunkist to search for new market niches in order to increase
returns for our grower-owners. However, as a farmer-owned
cooperative, the exploration of some of these new market niches
is constrained by the capital required to undertake research
and development of the infrastructure to bring them to reality.
Some of our grant experience: In 2004, Sunkist was in the
process of exploring the delivery of fresh-cut, ready-to-eat
citrus and other fruits to schools. In order to help offset the
expensive nature of product launch, we were often competing
against massive marketing budgets of major corporations
comprising the snack and beverage industry. Sunkist undertook
the process of applying for one of the USDA value-added grants.
We were extremely pleased to have been awarded a $450,000 grant
for Fiscal Year 2004 to assist Sunkist in those efforts. Our
cooperative growers matched that award with over a million
dollars in other funds. Those combined public-private funds
were utilized to develop the packaging and provide working
capital to begin marketing this line of fresh-cut products,
called Fun Fruit' to make it more fun for kids at
schools, into major school districts across the East Coast. Fun
Fruit' is a line of fresh-cut orange wedges called
Smiles', de-stemmed seedless grapes called
Giggles', wedges of pineapples called
Pals', and sliced apples called Grins',
and baby carrots called Kidders', again, trying to
make it fun for kids to eat healthy. As nearly everyone has
seen in news articles about childhood obesity, our growers have
been particularly worried that if we lose kids to unhealthy
snacks now, we won't be selling those whole fruits later to
adults.
In addition, we continue to be facing trends that mean more
eating away from home, what we call kind of cupholder cuisine.
I sure it is very familiar here in Washington. This is required
us to think more about convenience. We were originally
approached by Boston public schools who challenged us to find a
way to get kids to eat more fruits and vegetables, especially
because of the difficulty younger kids have with whole fruits.
The Fun Fruit' concept was created to help wean kids
away from these unhealthy snacks. In other words, let us mimic
what the big snack companies do, but make the items healthful.
We even put the USDA \1/2\ cup requirement on the Fun
Fruit' packages so that the school districts' food
service personnel would know that the kids are getting exactly
the right contribution size. And of course there is no fat in
that fruit.
Sunkist Growers has also spent significant resources on
technology, hence the value-added side, related to this product
line to improve shelf life and food safety. Since the original
grant, millions of these packages have been distributed to
school kids from Boston to New York City, North Carolina and
now, with our new joint venture, on the West Coast as well. We
obviously also applaud current efforts to bring more fruits and
vegetables to schools.
Recommendations: Looking forward, Sunkist Growers strongly
recommends an increase in authorization for this program to $60
million annually in the upcoming farm bill. The history of the
program has seen it repeatedly funded at less than 50 percent
of the current $40 million authorization. The funding shortfall
has caused USDA Rural Development Agency to apply an overall
award cap at $150,000 in 2005 and $300,000 in 2006.
Furthermore, penalties have been applied to applicants that
have previously received awards or have gross sales over a
particular level. Those penalties significantly compromise our
ability to return this program to a successful award based upon
competitive merit. Through these restrictions, the program is
turning away from the very entities, such as farmer-owned
cooperatives, that may have the best likelihood of bringing
sustainable products to the marketplace. Please remember
Sunkist Growers' single grant award was $450,000. That
translates to $75 per grower. If the USDA is to continue to
limit the recipients of these awards and ensure distribution of
funds to entities with the greatest producer benefit, we
believe it may be more appropriate to apply standards such as
those in the Market Access Program.
[The prepared statement of Mr. Harris follows:]
Prepared Statement of D. Richard ``Rick'' Harris II, President, Sunkist
Taylor, LLC, Salinas, CA
Mr. Chairman, Members of the Subcommittee, my name is Rick Harris.
I am the President of Sunkist Taylor, LLC, a joint venture of the
Sunkist Growers farmer cooperative and Taylor Farms formed in July of
2006 in large part to expand the reach of a product line we developed
and marketed through the Value-Added Agricultural Market Development
Producer Grant program. It is my pleasure to briefly discuss our
experiences with that program.
Background
As you may know, Sunkist Growers is a farmer-owned cooperative that
primarily markets citrus both domestically and throughout the world.
Eighty percent of our growers have fewer than forty acres and therefore
should be considered small farmers. There are approximately 6,000
grower-owners of this cooperative in California and Arizona. Earnings
derived from Sunkist's activities are returned to the grower-owners on
a patronage basis, thereby enhancing their overall income.
In recent years Sunkist, and all citrus producers in the U.S., have
seen dramatically increased competition from foreign suppliers. Now we
experience significant competition throughout the year from both
northern and southern hemisphere production. Additionally, the cost of
production for citrus has risen significantly due to a variety of
factors including taxes, regulatory labeling, labor, environmental and
food safety compliance.
These competitive issues have compelled Sunkist to search for new
market niches, beyond traditional citrus marketing, in order to
increase returns for our grower-members. However, as a farmer-owned
cooperative, our exploration of some of these new market niches is
constrained by the capital required to undertake research and
development of the infrastructure necessary to bring them to reality.
Sunkist Grant Experience
In 2004, Sunkist was in the process of exploring one of these
market niches involving the delivery of fresh cut, ready-to-eat citrus
and other fruits to schools. We anticipated that if the proper
technology was applied, and infrastructure available, it would be
possible to enhance our sales to school districts throughout the U.S.,
and then later bringing the product lines to the general public through
other distribution channels.
In order to help offset the expensive nature of product launch,
where we are often competing against the massive marketing budgets of
the major corporations comprising the snack and beverage industry,
Sunkist undertook the process of applying for one of USDA's Value-Added
Agricultural Product Market Development Grants.
That program was specifically designed to encourage and enhance
farmer participation in value-added businesses, including through
farmer cooperatives, to help them capture a larger share of the value
of their production and improve their overall income from the
marketplace. It also helps promote economic development and create
needed jobs in rural areas.
We were extremely pleased to have been awarded a $450,000 grant in
Fiscal Year 2004 to assist Sunkist in those efforts. Our cooperative's
growers matched that award with over $1,000,000 in other funds.
Those combined public-private funds were utilized to develop the
packaging and provide working capital to begin marketing this line of
fresh-cut fruit products named Fun Fruit' to major school
districts across the East Coast.
Fun Fruit' is a line of fresh-cut orange wedges, called
Smiles', de-stemmed seedless grapes called
Giggles', wedges of pineapples called Pals',
sliced apples called Grins', and baby carrots called
Kidders'. As nearly everyone has seen in news articles about
childhood obesity, our growers have been particularly worried that if
we lose kids to unhealthy snacks at an early age, we may not be
marketing whole fruit later on to them as adults. In addition, we
continue to be facing trends that mean more eating away from
home.``cupholder cuisine'' as some term it. This has required us to
think about more convenience.
We had originally been approached by Boston Public Schools who
challenged us to find a way that we could get kids to each more fruits
and vegetables, especially because of the difficulty many younger kids
have with managing whole fruits. The Fun Fruit' concept we
created was to help wean kids away from unhealthy snacks--in other
words, let's mimic what the big snack companies do, but make the items
healthful. We even put the USDA \1/2\ cup requirement on the Fun
Fruit' packages so the school district foodservice personnel
know that the kids are getting the correct serving size. And there is
no fat in fruit!
Sunkist Growers has also spent significant resources on technology
related to this product line in order to improve shelf life and food
safety. Since the original grant, millions of packages have been
distributed to school kids from Boston to New York City to North
Carolina and with our new joint venture, we are now on the West Coast,
too.
Recommendations for Program Enhancement
Looking forward, Sunkist Growers strongly recommends that the
Subcommittee look favorably upon increasing the mandatory authorization
for this program to $60 million annually in the upcoming farm bill and
also encouraging full funding of that authorization level. The history
of the program has seen it repeatedly funded at less than 50% of its
current $40 million authorization.
That funding shortfall has caused USDA's Rural Development Agency
to apply an overall award cap of $150,000 in FY 2005 and $300,000 in FY
2006. Furthermore, penalties have been applied to applicants that have
previously received awards or have gross sales over a particular level.
Those penalties significantly compromise our ability to return to this
program for a successful award based upon competitive merit.
Please remember that Sunkist Growers' single grant award was
$450,000. That translates into $75 per individual grower-member of the
cooperative under this program.
While we recognize the difficult position that USDA has been placed
in, the net effect of these restrictions has been to limit the
effectiveness of the program. Clearly the program needs robust funding.
Concurrently, a balanced approach to eligibility for future grants is
necessary. By limiting the ability to receive multi-year competitive
merit awards, and utilizing gross sales as a measure of fiscal merit,
the program is turning away the very entities--such as farmer-owned
cooperatives--that may have the best likelihood of bringing sustainable
products to the market place.
If USDA is to continue to seek to limit the recipients of these
awards and ensure distribution of funds to entities with the greatest
producer benefit, we believe that it may be more appropriate to apply
standards such as those used in the Market Access Program. Under the
MAP program, no penalties are applied to applications submitted by
farmer cooperatives.
However, farmer cooperatives are obligated to provide a
competitively merit-based application to USDA and to demonstrably carry
out the terms of that application over the course of the award period.
In short, the MAP program eligibility guidelines recognize that farmer
cooperatives are a collection of individual producers acting together
for their mutual benefit and thereby maximizing the public-private
investment of funds.
Conclusion
Congress faces many challenges in the current budget environment.
We appreciate the difficulty of your task and at the same time, we want
to emphasize the continued importance of the Value-Added Agricultural
Market Development Producer Grants and other essential programs that
seek to enhance the competitiveness of the U.S. agricultural sector,
strengthen farm income, improve our balance of trade, promote rural
development, and create jobs.
Thank you again, Mr. Chairman and Members of the Subcommittee, for
the opportunity to share our views. I would be pleased to answer any
questions that you may have.
The Chairman. Thank you, sir. Thank you for your testimony.
I would like to yield my time to our Ranking Member of the
overall Committee and former Chairman of the Committee, Bob
Goodlatte, if you have any questions.
Mr. Goodlatte. Thank you, Mr. Chairman. At this time, I
don't have any questions. I appreciate it.
The Chairman. All right. Reclaiming my time, I would like
to just ask one or two quick questions, given our time
constraints. Mr. Hall, you noted in your testimony that 26
rural North Carolina counties, in 26 counties, less than 70
percent of the households and businesses have broadband access.
The Broadband Program under the USDA has come under a great
deal of scrutiny due to how the agency defines under-served
areas. These counties would certainly be considered under-
served with regards to broadband. What thoughts do you have, in
the criteria we set at the Federal level for under-served, when
it comes to broadband access?
Mr. Hall. I think under-served is anything less than, say,
85 percent of the service area. I think the second part of it
is geographical coverage. You have got to think about the
geography of the region and whether you are going to limit the
developable area. Secretary Dorr, in answering that question,
talked about the private sector being able to run a line 6
miles. I think the question is, without a bias to technology,
which includes wireline and wireless, we could talk about
under-served areas that do not have geographical coverage of
some form of wireless so that the people are able to
participate. I think it is particularly true also in the
Midwest, when we think about areas being spread, and in Texas
where densities are low, but the USDA is the sole hope for
partnering with the private sector in the states to provide
access in these areas.
The Chairman. And let me ask you about one other thing. You
mentioned in your testimony about small businesses and
innovative entrepreneurs who play such a large role in rural
areas. One of the true virtues of these homegrown businesses is
that the local owners have little intention of moving their
business away simply to capture lower labor costs in another
town. Your Microenterprise Loan Program and Capital Access
Program focuses particular on this group of entrepreneurs. Can
you share with us how these programs work and what the needs
for capital are for programs like this in rural America?
Mr. Hall. Yes, sir. And I appreciate you bringing up the
two programs that we administer. I never realized that 5
minutes was that short until you told me I had to stop talking
in 5 minutes. Where I am from in North Carolina it takes about
5 minutes to say, ``Hi, you all.''
The Chairman. Yes, I understand.
Mr. Hall. Two things: We have been running the
Microenterprise Program now for 14 years and what we have found
with the 2,700 people we have assisted, the 1,300 loans we have
made, there are two or three things about entrepreneurs that we
followed up with focus groups in rural areas. One,
entrepreneurs, when provided adequate technical assistance and
appropriate finance, can succeed, not 20 percent of the time as
they normally do, but 80 percent of the time. That is our track
record with startup businesses. Second, the entrepreneurs
themselves, in responding to needs, have identified the need
for venture or near-venture funding to get their businesses
into mainstream activity. Many of the Federal programs, like
the Small Business Investment Corporation's support, are
targeted to and used in urban areas. Rural areas, where
entrepreneurs develop and there is a shortage of capital, most
state programs tend to be incentives that deflect income tax.
For the small business owner, they are not going to have income
tax for 2 or 3 years. The issue is how do they get working
capital in the short term to hold their business in place? And
that is where equity or near-equity investments are needed. We
have just recently created a rural venture corporation that
will be for the first time dedicated to only rural ventures.
The last part of it, I would say, is in listening to the
rural entrepreneur. They desperately need a forum where they
can sit together and discuss their needs in terms of technical
assistance, marketing assistance and others. I would encourage
each of us to think about setting those fora in place in rural
America. They certainly work in the hotbeds, as rated by
national magazines. Number one, Mecklenburg County and number
two, Lake County, are both in North Carolina. They are
designated as hotbeds for entrepreneurship. The critical thing
they have is councils for entrepreneur development in each
community. The question is how do we get those in rural areas,
and how is it supported by USDA as the mechanism that spurs
entrepreneur development?
The Chairman. Thank you, sir. Mr. Fluharty, if I may ask
you, you mentioned in your testimony that a serious
disadvantage that rural communities face are those where they
lack grant writers and economic development teams, which many
of their larger towns have and of course the urban areas tend
to have. Can you tell us specifically what programs exist that
close that technical gap, and what mechanism we should look at
to use to improve technical assistance to rural areas who
sometimes can't even afford to pay a grant writer much less
find one?
Mr. Fluharty. Three quick recommendations: First,
obviously, in many areas, our council governments or regional
development organizations do that. I think that is an excellent
model. Second, within individual sectors, we are finding new
linkages, whether it is in the state offices or rural health,
and I would simply look at the rural health infrastructure of
our nation as a model for what we could do in entrepreneurship
and innovation from this Committee. Some community colleges in
many areas are building entrepreneurship programs. We are
working in Alabama with Governor Riley and Governor Barbour in
Mississippi on a project from wired USDA, I mean Department of
Labor, with the community colleges, building entrepreneurship
in first-generation learners. Again, it is a system to build
some sort of framework for entrepreneurship, but counties now
buy in the hospital system, et cetera.
The really key issue is, Mr. Chairman, what is the
intermediary, like the center for rural North Carolina, that
does that? Is it a cog? Is it a new entity? Is it an
entrepreneurship system you build? But the reality is, without
CDBG for rural areas, we do not have the ability to compete
with urban and suburban areas unless we create something. The
CDBG Program is excellent. It is not year to year. It is not
continuous. You cannot build a capital plan. You cannot build a
strategy for a region. The number one thing this Committee
could do is look at systemic commitments to regional strategies
for innovation and entrepreneurship in some form, like a rural
CDBG that would enable an organization like Billy Ray's, or
counties and regional development organizations, to build that
human and institutional capacity to capture those
opportunities. Entrepreneurship systems have to be built. As
Billy Ray said, once you see it, you can feel how it works in
letting entrepreneurs build a future. This Committee has the
potential to do that, Mr. Chairman. I would urge you to look at
that. Thank you.
The Chairman. Thank you. And we would look forward to
working with you on that. Mrs. Musgrave.
Mrs. Musgrave. I would just like to make a couple of
comments about community colleges, and you have all emphasized
what a contribution they make to our communities, our areas,
our regions, and I would just say wholeheartedly, we have to
improve community colleges. They can do so much. They have so
much capacity and we need to help them grow even further. Just
the other day, I met with court reporters, not a group that I
had met with, but boy, what an opportunity. I am sitting there
listening to them and I am thinking as we go to closed
captioning, what an opportunity for community colleges to
enable a woman with three kids to work from home with the new
technology and make $45,000 a year. And I am just hearing
things all the time that community colleges could engage in to
improve the workforce and the opportunity for folks in rural
America. And as I think about that and we emphasize
entrepreneurship here today, do you have any specific ideas to
make these community colleges, our land-grant universities, our
junior colleges, even better in this area?
Mr. Fluharty. Let me mention three things very quickly. We
are honored in a collaboration with the American Association of
Community Colleges and the Rural Community College Alliance in
building a national institute for rural community colleges. If
you look at the renewables development, community colleges have
three advantages. They are thinking about a workforce that will
remain in place. If we do a study of allied rural healthcare,
and we have done a lot of work with the Office of Rural Health
Policy in this, if you raise up a rural man or woman as a
first-generation learner, train them in allied healthcare in a
rural community college, their potential for staying within 30
miles of that training is 92 percent. Where the college is,
they don't name the college. We all know that. It is, ``I am
going to the college, because it is there where there is
nothing else.''
Second, when we think about building a rural middle class,
community colleges are the entry point for first-generation
learners. Third, because of their workforce design, if we build
asset development systems in renewables in regions around those
colleges, we can build world-class technology partnerships with
those institutions. We are very excited to be working with
these two consortia of community colleges, because they are
building networks. I would just mention one. A number of these
colleges are working in pulp and paper cutting-edge technology
globally. As we think about renewables, we need to think about,
in USDA, some of those dollars going to existing programs that
build networks that are already in place and working. I am in
land-grant system. I am a product of the land-grant system. I
love the land-grant system. I honestly believe that community
colleges are creating the extension service of the 21st century
knowledge economy and we need to better link extension to them
and build programs that target community colleges. There are
hundreds of examples of it and we look forward to working with
your staff to assist in building some models for you.
Mrs. Musgrave. Well said. You know, as we talked about
hospitals earlier in rural America, as we talked with Secretary
Dorr, I look at the community college where I live and I mean,
RNs are coming out of there. We have a such a nursing shortage
nationwide, but rural areas are particularly hard hit and I
just marvel at the ability of these community colleges to meet
the needs that are so severe in rural Colorado and around the
nation for healthcare providers. So I am excited to see what we
can do to make the situation better for community colleges.
Thank you very much, Mr. Chairman.
The Chairman. Thank you, Ranking Member Musgrave. Just in
the interest of time, we are moving right on schedule and we
will soon conclude by 12 noon, but I would like to invite any
of the other members of the panel who have not directly
answered a question, if you have any additional comments you
would like to make, literally for just a minute or two,
something you think you need to highlight. Mr. Harris?
Mr. Harris. Sure. I think it is still on. Okay. One of the
things I did want to mention is the Sunkist project was really
a microcosm of what is happening in the Value-Added Grant
Program that is available to small farmers all the way up to
major cooperatives. The process that we go through is very much
like starting a company, where you need a business plan and
then follow through with the execution. So some of the things
that actually were talked about on the panel I think kind of
tie in with the kind of support that even at our level, we
needed to create this business plan to make those products that
are out in schools today. But the same thing happens with
somebody that comes up with an idea and then drives down the
road and looks for how to actually end up executing that. So
one of the things that I would recommend, in addition,
obviously, to increasing the funds for this program, is kind of
a linkage between the business plan analysis side of the
program and then the final execution into the product stage.
The Chairman. Okay, thank you very much. Commissioner?
Ms. Landkamer. Thank you, Mr. Chairman. I just want to
reiterate, again, the Federal-local partnership. I think at
times that gets lost. We actually put many of the programs on
the ground that you determine are appropriate and we need to be
at the table when we talk about these things. So I just want to
say that. And it is all about partnerships and as Mr. Fluharty
always says, if you have seen one rural community, you have
seen one rural community. And so all our places are a little
different and we need that flexibility and the ability to
leverage dollars in order to make sure that people can stay in
that community and be sustainable and have a good quality of
life. So that is what we are looking for and we think that some
of the programs, like RSIP, could really help do that. So thank
you.
The Chairman. Thank you. You have been an excellent panel
today and before we adjourn, I would like to ask the Ranking
Member if she has any final comments.
Mrs. Musgrave. I do not, Mr. Chairman, but thank you.
The Chairman. Thanks again to our staff, in the advent of
this new Congress and new Subcommittee with its jurisdiction.
Thank you, to the members of our panel who have done such a
great job in your testimony. Under the rules of the Committee,
the record of today's hearing will remain open for 10 days to
receive additional material and supplementary written responses
from witnesses, please note, to any questions that was posed by
a Member of the panel. Or if you have any additional points or
testimony you would like to bring to our attention, please
submit it within the next 10 days. This hearing of the
Subcommittee on Specialty Crops, Rural Development and Foreign
Agriculture is now, within the time allotted, adjourned.
[Whereupon, at 12 p.m., the Subcommittee was adjourned.]