[Senate Hearing 107-850]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-850

    RURAL ECONOMIC DEVELOPMENT ISSUES FOR THE NEW FEDERAL FARM BILL

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


                               __________

                             AUGUST 2, 2001

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov


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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                       TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont            RICHARD G. LUGAR, Indiana
KENT CONRAD, North Dakota            JESSE HELMS, North Carolina
THOMAS A. DASCHLE, South Dakota      THAD COCHRAN, Mississippi
MAX BAUCUS, Montana                  MITCH McCONNELL, Kentucky
BLANCHE L. LINCOLN, Arkansas         PAT ROBERTS, Kansas
ZELL MILLER, Georgia                 PETER G. FITZGERALD, Illinois
DEBBIE A. STABENOW, Michigan         CRAIG THOMAS, Wyoming
BEN NELSON, Nebraska                 WAYNE ALLARD, Colorado
MARK DAYTON, Minnesota               TIM HUTCHINSON, Arkansas
PAUL DAVID WELLSTONE, Minnesota      MICHEAL D. CRAPO, Idaho

              Mark Halverson, Staff Director/Chief Counsel

            David L. Johnson, Chief Counsel for the Minority

                      Robert E. Sturm, Chief Clerk

              Keith Luse, Staff Director for the Minority

                                  (ii)

  
                            C O N T E N T S

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                                                                   Page

Hearing(s):

Rural Economic Development Issues for the New Federal Farm Bill..    01

                              ----------                              

                        Thursday, August 2, 2001
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from Iowa, Chairman, Committee 
  on Agriculture, Nutrition, and Forestry........................    01
Baucus, Hon. Max, a U.S. Senator from Montana....................    04
Dayton, Hon. Mark, a U.S. Senator from Minnesota.................    06
Wellstone, Hon. Paul, a U.S. Senator from Minnesota..............    03
                              ----------                              

                               WITNESSES

Cassidy, Jack, Senior Vice President, CoBank, Greenwoodville, 
  Colorado.......................................................    21
Dearlove, Karen, President, Indiana Association of Regional 
  Councils, Jasper, Indiana......................................    14
Hassebrook, Chuck, Center for Rural Affairs, Walthill, Nebraska..    11
Kolsrud, David, CORN-er Stone Farmers Cooperative, Luverne, 
  Minnesota, on behalf of the National Cooperative Business 
  Association....................................................    07
Lane, Steve, President, Iowa Independent Bankers Association, 
  Gowrie, Iowa, on behalf of the Independent Community Bankers of 
  America........................................................    20
Markley, Deborah M., Chair, Rural Equity Capital Initiative, 
  Rural Policy Research Institute, Chapel Hill, North Carolina...    18
Phillips, Ronald L., President, Coastal Enterprises, Inc., 
  Wiscasset, Maine...............................................    09
Wynn, Curtis, Chief Executive Officer, Roanoke Electric 
  Cooperative, Rich Square, North Carolina.......................    16
                              ----------                              

                                APPENDIX

Prepared Statements:
    Lugar Hon. Richard G.........................................    34
    Cassidy, Jack................................................   101
    Dearlove, Karen,.............................................    68
    Hassebrook, Chuck............................................    60
    Kolsrud, David...............................................    41
    Steve Lane...................................................    91
    Markley, Deborah M...........................................    83
    Phillips, Ronald L...........................................    49
    Wynn, Curtis.................................................    80
Document(s) Submitted for the Record:
    Stabenow, Hon. Debbie........................................   108
    National Council of Farmer Cooperatives; David Graves, 
      President..................................................   114
    Regional Report: Angels Unite to Invest Locally, The Wall 
      Street Journal.............................................   119
Questions and Answers:
    Cassidy,Jack.................................................   134
    Dearlove, Karen..............................................   124
    Hassebrook, Chuck............................................   122
    Lane, Steve..................................................   132
    Markley, Deborah.............................................   128


 
    RURAL ECONOMIC DEVELOPMENT ISSUES FOR THE NEW FEDERAL FARM BILL

                              ----------                              


                        THURSDAY, AUGUST 2, 2001

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:33 p.m., in 
room SR-328A, Russell Senate Office Building, Hon. Tom Harkin, 
[Chairman of the Committee], presiding.
    Present or submitting a statement: Senators Harkin, Baucus, 
Wellstone, Dayton, and Lugar.

    STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, 
              CHAIRMAN, COMMITTEE ON AGRICULTURE, 
                    NUTRITION, AND FORESTRY

    The Chairman. The Senate Committee on Agriculture, 
Nutrition and Forestry will come to order. Today, we are having 
a full committee hearing on rural economic development issues 
for the new Farm bill.
    We have a distinguished panel of witnesses. We apologize 
for being a little late. We just had two votes in a row and I 
thought it would be best to get our votes out of the way before 
we came over so that we wouldn't have to go back.
    I will just make my opening statement and then I will yield 
to my friend from Minnesota for a statement and for 
introductions.
    Today, we move ahead with development of the new Farm bill 
and this afternoon's hearing will focus on what I believe will 
be a critical component of the new Farm bill, and that is rural 
economic development.
    There are steps we must take now to encourage growth and 
opportunity in rural America. We must help create the basic 
infrastructure required to do business and create jobs. In the 
20th century, rural America requires miles of telephone wire 
and water lines for households. These are the conduits of 
commerce. We needed farm-to-market roads. We have to have a 
continued commitment in these areas.
    In the new century, the barriers to rural economic 
development are more complicated than just asphalt and wire. 
Our businesses need broadband to compete. Our family farmers 
need new markets for their products and they need help and 
support to fashion and shape their crops to meet these new 
markets. Entrepreneurs need greater access to capital, 
especially equity capital.
    These are great challenges, but when we look at the 
challenges we faced when rural electrification came in in the 
1930's, only 10 percent of the homes in rural America had 
electricity in the early 1930's--only one out of ten. It used 
to be said that if you wanted something newfangled like 
electricity, move to the city. Well, thankfully, we didn't do 
that and those days are long past us.
    The barriers to rural economic growth in this century are 
new and we need to address those. We have only scratched the 
surface of developing farm-based sources of renewable energy, 
for example. Anything we can produce from a barrel of oil we 
can produce on our farms. It will increase farm income and 
decrease our dependence on foreign oil. That is just one area 
of adding value from processing and broadening the market.
    We need to explore other ways of lifting up rural 
businesses. As I said, they are being choked by a lack of 
access to capital. Last year, I proposed legislation with 
Senator Craig--I guess he is not on this committee any longer--
that would create a rural equity fund to address this issue.
    What other steps can we take to structure financial 
assistance to generate the most good efficiently and within our 
limited resources? Well, we have to look at the poor 
coordination of current Federal programs in these areas, and do 
what we can to bring them together in a more cohesive, coherent 
pattern.
    The current budgetary climate requires USDA rural 
development programs to leverage funds effectively from other 
Federal departments, from State and local programs, and most 
importantly from private sources. These areas to which we have 
to look in the new Farm bill.
    There are three guidelines I believe we have to follow for 
rural development assistance. First, assistance must be 
targeted to where the need is great, but also where the funds 
can best be utilized.
    Second, solutions must be community-based, not a top-down 
approach, but bottom up, and to a greater extent more holistic 
and not programmatic.
    Third, programs must be rooted in the traditional values of 
rural America--hard work, no free rides. That is a recipe for 
more successful rural economic development assistance.
    We have a lot of challenges. I look forward to hearing the 
thoughts and the comments and the views not only of my fellow 
members of the committee, but especially the distinguished 
panel before us. I can assure you that rural development is 
going to be a key part of the next Farm bill, one on which we 
are going to focus a lot of attention.
    Just keep in mind that 1 out of 15 people who live in rural 
America farm. The rest live in small towns, communities, 
acreages, things like that, and to the extent they have a 
better quality of life, so do our farmers. If our farmers have 
better incomes from value-added, they can then support the 
other people who live in rural America. This is a very--I don't 
know whether the word is ``synergistic'' or what, but it is 
something that we have to pull together in both ways in the new 
Farm bill.
    With that, I would recognize my friend and colleague from 
Minnesota for any opening statement and for purposes of an 
introduction.

STATEMENT OF HON. PAUL WELLSTONE, A U.S. SENATOR FROM MINNESOTA

    Senator Wellstone. Well, Mr. Chairman, I am going to be 
very brief. Let me just include my full statement in the 
record, if that is all right.
    The Chairman. Without objection.
    Senator Wellstone. I want to introduce David Kolsrud, and I 
want to first of all apologize, though, to everyone. Because of 
the votes, I got way backed up and don't get to stay very long.
    Not only will your testimony be part of the record, but my 
Jewish guilt tells me I have to read every bit of what you say 
because I won't be here. I don't want you to think I am not 
interested, just the opposite. We got into a ridiculous 
schedule conflict.
    Very, very quickly, only one comment about what you said, 
which is I love being in schools, but one of the things that 
really gets me down in what we call greater Minnesota, in the 
smaller-town, rural areas, is that quite often the students 
will talk about how the advice they have been given is to get 
ahead, you need to get a good education. So far, so good.
    Actually, the rural translation of that is to get ahead, 
get a good education so you can get out of here because there 
is nothing left for you to do, there is nothing here, which is 
the exact opposite of what you want to have happen. That is 
what this hearing is all about.
    I put a lot of emphasis on education, I put a lot of 
emphasis on entrepreneurship, I put a lot of emphasis on 
empowerment, the three E's, where people think what happens in 
the community is not going to be independent of what we do. 
This value-added agriculture and how we keep more capital in 
this process in our communities is great.
    I am so interested in tele-work and the potential it has 
for citizens in rural Minnesota and rural America, and all the 
other issues that everybody seems to think somehow are urban--
good education, good health care, affordable housing, 
transportation, affordable child care. Let's not forget that 
those are every bit as compelling issues in rural communities.
    Ultimately, these young people stay on the basis of two 
considerations. Can I afford to? In other words, if I am going 
to farm, am I going to get a decent price? If I am going to 
work, am I going to get a decent job at a decent wage? If I am 
going to try to grow a business, can I grow a business? The 
second thing young people is ``do I want to,'' and that is 
quality of life. Is there going to be good education for our 
kids, is there going to be good health care? This is a really 
important hearing, and I am very apologetic about being in and 
out.
    A special welcome to you, David. David is from Luverne and 
is the manager and also a member of CORN-er Stone Farmers 
Cooperative, in Luverne. This is a farmer-owned cooperative 
that processes corn into ethanol through AgriEnergy LLC. David 
is also a farmer. He grows corn and soybeans on 500 acres, and 
in some ways that is what it is all about as we look to the 
future of Minnesota.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Wellstone.
    Senator Baucus.

   STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA

    Senator Baucus. Thank you, Mr. Chairman. I appreciate your 
moving swiftly on the Farm bill. The plight in much of my State 
is very similar to that in Minnesota, and also other States. 
Our people are hurting, and they are hurting severely.
    I might also say that the subject of today's hearing is of 
particular importance to my home State. We have the lowest wage 
per-capita income in the country, the lowest, 50th in the 
Nation. We rank 47th in earned and unearned per-capita income. 
We were 10th in 1946, we were 38th about 6, 8, 10 years ago; 
now, we are last, 50th. Yes, lower than DC. That includes DC. 
We are the lowest.
    That is due primarily to a lot of reasons. I won't go into 
all the reasons, but a lot of it has to do with transition, 
with the pressures of globalization, transition from a natural-
resource-based commodity State--agriculture, forest products, 
mining--to a modern society where those industries 
comparatively don't earn the same rate of return as do others, 
such as financial services and high-tech industries, software, 
and what not.
    When we talk about a farm bill, which is our No. 1 
industry, agriculture, still, thank goodness, it is not only 
the basic commodity provisions and support provisions, the 
safety net, et cetera; it is also all of the related 
development issues that are so important, so integral and so 
tied to, I am quite confident, not only my State, particularly 
eastern Montana, but all other rural areas in the country, and 
most particularly rural areas that are really rural; that is, 
with a great distance between communities, between farmers.
    The population density of the State of Montana is six 
people per square mile. ``Rural'' west of the 100th meridian is 
really ``rural'' because it doesn't rain, and when it doesn't 
rain, there just aren't quite as many people. When there aren't 
quite as many people, it is harder to connect the dots and 
cross t's and develop the enterprises that boost incomes.
    We are really struggling. I won't go into all the things we 
are trying to do in our State to try to turn that around, but 
one thing we did is I put together a large economic development 
conference and we highlighted Ireland. We brought some people 
from Ireland over because Ireland about 10, 15 years ago was a 
basket case. We brought the Irish who put this together in 
Ireland and they explained some of the ideas that they had that 
might be appropriate for Montana.
    I might say that the essence of the Irish success story is 
really several-fold. One is they did get some assistance, but 
not a lot, from the EU. They attracted high-tech companies 
primarily through education. They trained their people to the 
next higher level of skill sets so they could attract the 
Microsofts of the world, and so forth, to come there.
    Now, they didn't have any money to put into education, so 
what did they do? The ``then'' generation pulled themselves up 
by the bootstraps and they sacrificed. They just paid for it 
because they knew Ireland was going to have to change and they 
knew their kids had to have better lives.
    All I am saying here is that when we put together a farm 
bill, there are just so many ways where we have the obligation 
not to just turn the crank and put more dollars into various 
programs, but we have to think very creatively, recognizing how 
much the world economy has changed.
    I might say that USDA rural development programs have been 
a lifeline in the meantime for our State's economy, even though 
I said our wage per-capita income is last in the Nation. 
Between 1994 and 1999, USDA successfully used its resources to 
provide over $500 million for business development and for 
housing and community activities in our State.
    I am the chief architect in the Senate, along with the late 
John Chafee, and John Warner, of the last highway bill, the 
1990 highway bill. That makes a big difference to a State like 
Montana to have highways that aren't full of potholes and that 
work, and it has helped our State tremendously. We need a lot 
more. Highways alone aren't going to do it, and commodity 
support alone isn't going to do it.
    Help for co-operatives and really being creative in helping 
co-operatives is one way, and securing the necessary capital. I 
hear over and over again how smaller entities, smaller 
entrepreneurs just can't find the capital to begin to put 
together something in a community, say, in eastern Montana, a 
canola plant or something just to get things going, get things 
started. We certainly need some technical assistance; that is 
helpful, too.
    Equity and capital is one of the biggest stumbling blocks I 
am finding in our State. The assistance programs, the Business 
and Industry Guarantee Loan Program is widely used. It is very 
helpful. That program provides up to 80-percent guarantee. It 
does help, but I hear more and more the need to leverage to get 
still more capital available in Montana.
    As we work together, Mr. Chairman, I just want to emphasize 
those needs and that our communities have great infrastructure 
needs, too. It is water, it is sewage; all of these come 
together.
    I might also add help for our Indian nations. We have to 
work together, tribes and State, local and Federal Government. 
The days are past when we try to get into these big issues of 
who is more sovereign than the other, and so forth. Rather, the 
question is how do we work together because we all are part of 
America.
    I encourage us, as well, to work not only on traditional 
programs, but also to spend some emphasis on Native American 
lands and our tribes. They are ready. They, too, are going 
through tremendous change and it is positive.
    In summation, Mr. Chairman, I just want to thank you for 
holding this hearing. It is really critical. I just want to 
thank all of you who are here testifying. You have a lot of 
ideas and you have a lot of experience. My only suggestion is, 
as we move ahead, that we engage in some mind-bending here and 
really listen to people at home so we have a better idea how to 
make the fit and provide the resources that they really need.
    Thank you.
    The Chairman. I thank the Senator from Montana. I want to 
thank him for being a very great member of this committee, and 
recognize that the Senator from Montana also wears another hat 
as the chairman of our Finance Committee. Working together on 
some of these rural development issues will be most important 
in both of our areas, and you can help us develop what we can 
do in agriculture and hopefully some things may spill over into 
the Finance area and we can work together on that.
    Senator Baucus. Sure. Thank you, Mr. Chairman.
    The Chairman. We are glad to have the chairman of the 
Finance Committee on the Agriculture Committee, aside from 
being a personal friend.
    Senator Baucus. Thank you, Mr. Chairman.
    The Chairman. Senator Baucus and I came to Congress 
together in 1974.
    Senator Baucus. Yes, Watergate babies.
    The Chairman. I won't talk about that, but it is true.
    Senator Baucus. Thank you.
    The Chairman. Thank you, Senator Baucus.
    Senator Dayton.

  STATEMENT OF HON. MARK DAYTON, A U.S. SENATOR FROM MINNESOTA

    Senator Dayton. Thank you, Mr. Chairman. I don't have an 
opening statement. I would like to hear from the panel, but I 
would like just to thank you and congratulate you on really an 
outstanding set of hearings this month. The breadth and the 
scope of the topics we have covered, from conservation to 
economic development, as well as the essential underpinnings of 
the farm program, has been very, very enlightening and the 
breadth of it has been very impressive.
    Thank you.
    The Chairman. Well, I too want to thank the Senator from 
Minnesota for being such a diligent member of this committee 
and being present at almost all of our hearings that we have 
had here and having input into these hearings. I appreciate 
that very, very much.
    Senator Dayton. Thank you. It has been an excellent 
tutorial for me.
    The Chairman. For all of us.
    Senator Lugar's statement will be made part of the record.
    [The prepared statement of Senator Lugar can be found in 
the appendix on page 34.]
    Now, we turn to our panel and we will start here with Mr. 
Kolsrud and just work across. I will introduce each of you as 
you come up. I ask you, if you could, to limit your comments to 
about five minutes. We will use a light system here, I hope, if 
it works today. If you take about five minutes to just sum up 
what you think your major points are, all of your statements 
will be made part of the record in their entirety, and then at 
the end we can have time to open it up for a general 
discussion.
    First, we will turn to Mr. Kolsrud. Senator Wellstone 
introduced him earlier, but I am told that he only lives about 
five miles from Iowa anyway. In Iowa, we say that it just as 
good.
    Mr. Kolsrud, welcome to the committee.

STATEMENT OF DAVID KOLSRUD, CORN-ER STONE FARMERS COOPERATIVE, 
   LUVERNE, MINNESOTA, ON BEHALF OF THE NATIONAL COOPERATIVE 
                      BUSINESS ASSOCIATION

    Mr. Kolsrud. Thank you, Mr. Chairman and committee members. 
It is a great pleasure to be here today and it is an honor to 
testify in front of this committee on behalf of the National 
Cooperative Business Association in support of new equity 
capital for rural America.
    As I was introduced, my name is David Kolsrud. My wife and 
farm 500 acres of corn and soybeans in southwest Minnesota, and 
we live five miles from Iowa and one mile from South Dakota.
    I am manager of CORN-er Stone Farmers Cooperative. It is a 
cooperative in extreme southwest Minnesota that has a corn-
into-fuel ethanol plant, and we have members in South Dakota 
and Iowa who are working with us or our members to help make 
corn fuel ethanol in Luverne at a plant called AgriEnergy LLC, 
of which the co-op owns 68 percent.
    CORN-er Stone is a member of the National Cooperative 
Business Association, which represents co-operatives across all 
industries, including agriculture. Last year, NCBA organized a 
coalition to build a consensus on a solution to the extreme 
shortage of equity capital in rural America. Several of those 
coalition members are also testifying here today.
    The result of the coalition effort was the National Rural 
Cooperative and Business Equity Fund Act, introduced by 
Chairman Harkin, Senator Craig and several members of this 
committee in the 106th Congress. It was also included in S. 20, 
introduced by Senator Daschle and others earlier this year. The 
Act is supported by a diverse coalition, including 
organizations representing electric and telephone co-
operatives, both co-operative and private lenders, and farmers.
    Mr. Chairman, Senator Daschle and members of this committee 
who have cosponsored this legislation, we thank you for your 
leadership and your support. Now, we are asking you to include 
this legislation in the next Farm bill.
    From my perspective as a farmer, a cooperative business 
owner and resident of rural America, I can tell you that this 
is one of the most important things this committee can do to 
have a lasting and positive impact on rural communities. 
Raising equity is a daunting task for all rural businesses, 
regardless of how they are organized or what they produce or 
where they are located, but it is particularly hard for new 
farmer-owned co-operatives.
    In my view, the lack of equity capital is among the most 
significant barriers to further economic growth in rural areas. 
Let me illustrate by using a personal example. CORN-er Stone 
Farmers Cooperative is a new-generation co-op. New generation 
co-ops are different than other co-operatives or the 
traditional co-ops because the farmers commit cash and 
commodities to the co-op in order to process them, and they 
hope to get value back out of those products by owning the 
facilities in which they process them.
    The bottom line is that farmers bear a disproportionate 
amount of risk in these new-generation co-operatives to receive 
a potential reward for investing in them. As a result, high 
capital requirements coupled with a limited number of pool 
investors--that is, farmers who have limited resources that are 
stretched even thinner when the farming economy is depressed--
that combination limits the ability of new-generation co-ops to 
generate equity, which creates barriers to developing value-
added co-ops and other ventures.
    Despite all these challenges, in 1995 a group of farmers in 
southwest Minnesota got together to form CORN-er Stone Farmers 
Cooperative, with the goal of building an ethanol plant. We 
spent two years trying to raise the equity and secure the 
financing for the $21 million plant. It was nearly an 
impossible task.
    The goal of our equity drive was $9 million. We raised $3 
million from 201 farmers, or $15,000 per member. It was not 
enough. Ultimately, with the help of Stearns Bank, local banks 
that provided subordinated debt, private investors, help from 
the city of Luverne, a guaranteed loan from USDA, and $4 
million in personal guarantees, some of which was done by 
farmers who put up their homes and farms as collateral in order 
to secure the loan to build AgriEnergy LLC, that is what it 
took to build our plant.
    After we got it built and running, in our first three years 
of operation we have generated over $50 million of additional 
revenue, most of which stays in the community. We have created 
28 high-paying jobs and returned a dollar per bushel over the 
market price to our farmers. It almost never happened. Why? 
Because we couldn't raise the equity.
    There are hundreds of examples of how equity barriers limit 
development of new rural businesses and expansion of existing 
ones. Fortunately, there is a solution, and part of the 
solution is including the authority for a new source of equity 
capital for rural America. Part of this would be in a new bill.
    This legislation should contain the following provisions. 
It should provide a private corporation with the flexibility to 
manage the equity fund in a way that is both financially sound 
and good for rural communities.
    It should provide for incentives to attract private 
investment in the fund, including a Federal match and 
guarantees on investment. It should be governed by 
representatives of the fund's investors and the Department of 
Agriculture.
    It should target equity investments on a variety of rural 
businesses, both farm and non-farm. It should require that 
businesses applying for the equity be sponsored by a local 
entity, such as a bank or development council. It should 
require that the equity fund receive and invest a substantial 
amount of their own equity.
    Mr. Chairman, my written testimony includes additional 
comments for legislation that would help expand the co-ops, but 
let me close by saying this. Members of rural co-operatives and 
other rural Americans are not asking for the Government to do 
it all. We want to own our own future. We want to capture 
downstream revenue through new ventures, and we want to invest 
our own financial resources and assets to make it happen. Too 
often, it isn't enough. A new source of equity capital will 
help fill that gap and make the difference.
    Mr. Chairman, I want to thank you again for the opportunity 
to testify here today.
    [The prepared statement of Mr. Kolsrud can be found in the 
appendix on page 41.]
    The Chairman. Mr. Kolsrud, thank you very much for an 
excellent statement.
    Now, we turn to Mr. Ron Phillips, of Coastal Enterprises, 
Inc., of Wiscasset, Maine. Welcome to the committee.

      STATEMENT OF RONALD L. PHILLIPS, PRESIDENT, COASTAL 
              ENTERPRISES, INC., WISCASSET, MAINE

    Mr. Phillips. Thank you very much, and thank you for 
inviting me to testify today as you craft development policy 
for the important 2002 Farm bill.
    My name is Ron Phillips and I am president of Coastal 
Enterprises, a community development corporation and community 
development financial institution based in the rural coastal 
village of Wiscasset, Maine. I have submitted a written 
statement and I will make a few verbal remarks and offer some 
recommendations.
    I am here today representing an informal coalition of rural 
non-profit organizations coordinated by the National Rural 
Housing Coalition that are working to promote Federal rural 
development policies. I also serve on the boards of the 
National Congress for Community Economic Development, the 
National Community Capital Association, and the Rural Advisory 
Council of Local Initiative Support Corporations. These 
organizations represent some 2,000 CDCs and CDFIs working in 
rural America to do the kind of development work we are talking 
about.
    In fact, the Rural LISC organization, Senator Harkin, has a 
campaign going nationally called the Stand Up for Rural America 
Campaign. I have one bumper sticker here for you. Maybe we can 
get some more for the rest of the committee members.
    The Chairman. I would like to have that.
    Mr. Phillips. This campaign alone has helped to generate a 
lot of attention, especially from the private banking system, 
to devote resources to rural America.
    With over 20 years of rural economic and affordable housing 
experience, we have helped unleash entrepreneurial talent and 
created new jobs and housing for thousands of Mainers. We have 
invested and leveraged over $350 million.
    CEI has been involved with USDA programs since the early 
1980's and one program very important to us in the Intermediary 
Relending Program. With $11 million in what we call IRP 
financing alone, CEI has generated over $60 million in capital 
for 117 rural businesses in wood products, seaweed and fish 
processing, manufacturing, child and foster care services, and 
new information and environmental technology firms employing 
over 2,500 Mainers.
    One recent project in Washington County was Washington 
County Psychotherapy Associates. With support from the town of 
Calais, the IRP program, rural development, CEI and Key Bank, a 
financing package of over $2 million was put together to create 
a 20-bed treatment center for troubled youth. The project not 
only met a much-needed service in the community, but created 
economic impact by renovating an idle former Hathaway shirt 
factory facility, keeping scarce dollars for the service in-
State, and importantly keeping the kids in a community familiar 
to them. This is the kind of impact USDA programs are having in 
our rural communities.
    There are still huge challenges that lie ahead, however, 
and much-needed resources to meet these challenges. There are 
54 million people living in rural America, 16.8 percent of whom 
live in poverty. While the Farm bill is a critical piece of 
legislation for American farmers, it must also address issues 
facing rural residents, 90 percent of whom derive their income 
from a non-farm economy.
    A startling fact is that despite the recent economic boom, 
the average rural worker earns less than in 1979. Even as 
startling, of the 250 poorest counties in America, 244 are 
rural. Some 2,000 rural CDCs nationwide have vast potential to 
assist Federal efforts in revitalizing rural places. Our 
development financing is directed to value-added farm, fish and 
forest product enterprises, small businesses, affordable 
housing, child care facilities, education, job training, health 
care, nutrition and hunger reduction, elder care, and arts and 
cultural programs.
    USDA is the only Federal agency with a mandate to provide 
comprehensive assistance to America's rural areas who can't 
simply turn to their tax base to fund their development. USDA's 
very good housing, business, water and utility programs are 
perennially underfunded and over-subscribed.
    One statistic I came up with researching this testimony was 
that the USDA's appropriation has been reduced over $500 
million a year, and no other Federal agency has picked up the 
slack. In addition to dwindling Federal resources, private 
capital investments over the last decade have predominantly 
flowed to a few urban and suburban areas.
    Let me try to go over some recommendations which are 
important for the committee to consider for the Farm bill. With 
this next farm bill, Congress has an opportunity to lay out a 
vision of rural America that captures our ideals of what rural 
America can be, a place where we live, a place where we work, 
and a place where we recreate. We must expand our way of 
thinking about resources we spend and the priority we place on 
how policies affect rural areas.
    I have four recommendations for you.
    We urge the committee to take a bold action to support what 
we are calling the rural endowment initiative. Our coalition is 
putting together this concept and we are very glad to work with 
the committee on this. We believe we could put together a 
funding program for mandatory funding building on decades from 
lessons learned from Government programs and community-based 
development strategies. This initiative could spur the creation 
of long-term assets in our farm and rural communities.
    I read in the New York Times the other day on the front 
page that one of the biggest and hottest and fastest growing 
sectors for rural economies are State prisons. They quote a 
statistic here that of the 245 new State prisons that have been 
constructed in recent years, 212 of them are in rural 
communities. They are faster-growing than Wal-Mart. We need 
choices and the rural endowment initiative could give such 
choices.
    We urge the committee to increase authorizations to USDA 
programs that they already have ongoing, such as the 
Intermediary Relending Program, the Rural Business Enterprise 
Program for Micro Enterprises, and the Rural Business 
Opportunity Grant to help communities and organizations plan 
for their futures. Our own State Office of Rural Development 
has offered recommendations that are consistent with these that 
I am giving you.
    We urge the committee especially to create a rural venture 
capital finance program. I am glad my colleague has brought 
that up, and it was mentioned by one or two Senators earlier. 
This could be similar to the SBA's investment program, the SBIC 
program, hopefully a little bit more flexible, or the United 
States Treasury's Community Development Financial Institute 
Program.
    It really is astonishing that the USDA does not have an 
equity finance program. It really should do this. There is one 
bill, Senate bill 3242, that would establish a national rural 
cooperative and business equity fund, and we would simply urge 
that community development organizations have a way of 
participating directly in it. We would be very glad to work 
with you on that.
    Finally, we urge the committee to mandate the establishment 
of an assistant secretary's working group on rural development. 
Rural issues, policies and programs that affect rural America 
are far too often relegated to the back burner in Washington.
    We just got selected by the SBA to run their new Markets 
Venture Capital Program, a lot of which is affecting rural 
communities. Just as an example, the way they set up the rules 
and the criteria for what rural communities can participate 
don't really reflect how rural life exists. We just need some 
way to get access to and get people listening to us on how to 
create criteria, what eligibility is all about in rural 
America.
    Basically, this concludes my testimony. Thank you very much 
for this opportunity.
    [The prepared statement of Mr. Phillips can ber found in 
the appendix on page 49.]
    The Chairman. Thank you very much, Mr. Phillips, for your 
excellent testimony and for being here today. I will want to 
explore further with you the idea of the rural endowment 
initiative.
    Next, we turn to someone who is not a stranger to this 
committee, Mr. Chuck Hassebrook, from the Center for Rural 
Affairs, from Walthill, Nebraska.
    Welcome back to the committee.

   STATEMENT OF CHUCK HASSEBROOK, CENTER FOR RURAL AFFAIRS, 
                       WALTHILL, NEBRASKA

    Mr. Hassebrook. Thank you, Mr. Chairman and Senator Dayton. 
I appreciate the opportunity to testify today because this farm 
bill really presents an opportunity to make a profound 
difference for rural America.
    We are in the midst of an opportunity crisis in the farm 
and ranch communities in our region. Farm and ranch counties in 
our region, in the States of Iowa, Kansas, Minnesota, Nebraska 
and the Dakotas have poverty rates that are 50 percent higher 
than our metropolitan counties.
    Most people don't recognize this, but of the Nation's 20 
lowest-income counties, half are farm and ranch counties in 
Nebraska and the Dakotas. The Nation's two lowest-income 
counties are Nebraska farm and ranch counties. That, in part, 
reflects the dependence of these counties on agriculture. They 
don't have the natural amenities to become tourism centers. 
They are not located so as to become centers for growth in 
manufacturing.
    The contribution of agriculture to rural community 
development is declining. The farm and ranch share of profit in 
the food system is falling at a rate that, were the trend line 
extended to the year 2030, the farm and ranch share of food 
system profit would be zero. We are losing our young. The 
number of beginning farmers, of farmers under the age of 35, 
has fallen by 60 percent over the last 20 years.
    There is also a positive side. There are opportunities for 
these communities. Segmentation in markets in creating 
opportunities for family farmers and ranchers to earn premiums 
for producing food in ways that make it worth more to 
consumers. There was a Successful Farming and Better Homes and 
Gardens survey of consumers reported recently that demonstrated 
that 57 percent of American consumers say they would pay a 
premium for pork produced on a small family farm, and 71 
percent say they would pay a premium for pork produced on a 
farm that is environmentally responsible. That is an 
opportunity.
    There is also opportunity, I believe, in the explosion of 
knowledge. We are becoming a knowledge-based society in which 
opportunity is primarily going to be--at least genuine 
opportunity is primarily going to be available to those who 
apply knowledge. To the extent that we focus on embodying 
knowledge in new products to sell to farmers, it is primarily 
going to be the input sector that benefits.
    To the extent that we can focus our efforts on developing 
new knowledge and developing new production systems that enable 
farmers and ranchers to apply that knowledge by using more of 
their management and skills to cut input costs and produce 
products that are worth more to consumers, then we can create 
opportunity in rural America and turn that declining farm and 
ranch share of profit around.
    The final opportunity, in my judgment, lies in 
entrepreneurship. The farm and ranch counties in our region 
have twice the rate of self-employment as metropolitan 
counties. In Nebraska farm and ranch counties, 70 percent of 
the net job growth over the last decade was in non-farm self-
employment. That presents an opportunity, but by and large our 
rural development programs have not focused on promoting small-
scale entrepreneurship.
    We propose to change that. First, we propose an 
agricultural community revitalization initiative that would 
commit $500 million of mandatory spending, less than two 
percent of what we spent last year on direct payments for 
relief, and commit that to long-term solutions for farm 
profitability, to initiatives that assist farmers and ranchers 
in earning a fair income from the marketplace by responding to 
consumer demand and initiatives that support new enterprise 
development in rural communities.
    We are proposing that this be a regionally administered 
program that is regionally responsive and that makes 
competitive grants to the best ideas that come forward to 
increase the farm and ranch share of profit in the food system 
and to increase self-employment opportunities in farming and 
ranching and in our agricultural communities.
    Second, we propose a beginning farmer and rancher 
initiative that would include refining and strengthening some 
of our existing credit programs for beginning farmers, but that 
would also take some innovative approaches that provide 
technical assistance and training in business management and 
business planning and e-commerce for beginning farmers, and 
incentives for retiring farmers to work with beginning farmers 
by leasing their land or their facilities to the beginning 
farmer.
    Finally, we propose a set of initiatives to support small 
business development in agricultural communities. We propose 
that the Intermediary Relending Program be expanded to $100 
million through mandatory funding, and that a portion of that 
be set aside for the smallest businesses, businesses with five 
or fewer employees, and that it not only be available to 
provide loans, but that it also be available to provide 
technical assistance and training in business management, 
business planning, e-commerce and things like that, because we 
can often get our biggest bang for the buck in those types of 
initiatives.
    One other change in the Intermediary Relending Program is 
we would revise the prohibition on loans for agricultural 
production so it no longer prohibits loans to farmers and 
ranchers to add farm-related businesses like a cheese plant to 
their farming operation.
    Finally, we propose an initiative to encourage savings to 
support small business development. As part of that, we would 
revise the Rural Business Enterprise Program to support 
individual development accounts so that the Federal Government 
could match money saved and placed in an individual development 
account by low- and moderate-income rural people to be used 
ultimately to start a new small business. We think these types 
of initiatives can really unleash some of the entrepreneurial 
spirit in rural America.
    It is time to close, but my key point is that we have 
underinvested in entrepreneurial approaches, and by committing 
a small portion of the baseline of mandatory funding we can 
create a big increase in support for entrepreneurship and make 
a very big boost for rural community viability.
    Thank you.
    [The prepared statement of Mr. Hassebrook can be found in 
the appendix on page 60.]
    The Chairman. Thank you very much, Mr. Hassebrook; as 
usual, a very provocative and strong statement. I appreciate 
that.
    Next, we turn to Ms. Karen Dearlove, of the Indiana 
Association of Regional Councils.
    Ms. Dearlove, welcome to the committee.

STATEMENT OF KAREN DEARLOVE, PRESIDENT, INDIANA ASSOCIATION OF 
               REGIONAL COUNCILS, JASPER, INDIANA

    Ms. Dearlove. Thank you, Chairman Harkin and honored 
members of this committee, for the opportunity to testify today 
on behalf of my rural local elected officials, the Indiana 
Association of Regional Councils and the National Association 
of Development Organizations on the importance of a strong 
rural development title within this next farm bill.
    I am Karen Dearlove, seventh-generation Hoosier and 
Executive Director of Indiana 15 Regional Planning Commission 
for the past 11 years, during which time we have been awarded 
four national innovation awards. I am not serving my second 
year as the President of the Indiana Association of Regional 
Councils, and this fall I will start my seventh year on the 
board of the National Association of Development Organizations.
    Serving a 6-county rural region, Indiana 15 develops and 
administers a variety of State and Federal grant and loan 
programs for communities facilities, economic development, 
rural transportation, comprehensive land use planning, 
historical preservation, tourism development, business 
development, and natural disaster recovery projects. We also 
provide technical governmental services, including mapping and 
geographic information systems and the codification of 
municipal ordinances.
    On the local level, my board of 43 directors consists of 
county and municipal elected officials, business leaders and 
citizens to govern Indiana 15. This board structure inherently 
makes Indiana 15 and my peer regional development organizations 
responsive to local needs and accountable to local elected 
officials.
    The Indiana Association of Regional Councils represents the 
11 regional development organizations at the State level, while 
NADO represents a national network of 320 regional 
organizations that provide professional and technical 
assistance to over 2,000 counties and 15,000 small cities and 
towns.
    This afternoon, Mr. Chairman, I want to briefly cover three 
main points on the Nation's current rural development programs.
    First, the current structure of Federal assistance programs 
fails to adequately provide rural communities with the tools to 
develop sustainable economies. When examining the different 
types of Federal assistance targeted to urban areas versus 
rural areas, an alarming trend is revealed.
    While urban communities receive a substantial amount of 
direct Federal grant funding for infrastructure development, 
such as HUD's Community Development Block Grant and the 
Department of Transportation's highway and transit programs, 
statistically the bulk of assistance to rural communities is in 
the form of loans and transfer payments, such as Social 
Security and ag payments.
    By targeting billions of dollars in grants each year to 
urban areas, the Federal Government has provided our 
metropolitan areas with a distinct economic advantage not 
equitably afforded to our rural communities. While urban areas 
are building the communities and economies of tomorrow, rural 
areas are struggling to maintain the economies and legacies of 
yesterday, while trying to piece together ever-shrinking, 
competitive grant programs and loan programs to develop 
infrastructure and capacity for the future.
    Second, Mr. Chairman, USDA rural development programs must 
be better funded, more streamlined and more flexible to meet 
local needs. Support for water and wastewater infrastructure 
still ranks as the overwhelming No. 1 need of rural communities 
by recent surveys of both the National Association of 
Development Organizations and the National Association of 
Counties.
    Funding for transportation, advanced telecommunications and 
local capacity-building also ranked high on these lists. In 
addition, rural areas also need quality schools, affordable 
health care and accessible child care to attract and retain 
viable, sustainable industries.
    As a specific example of the assistance provided by 
regional development organizations, Indiana 15 brought together 
partners to establish the Crawford County Day Care and Youth 
Service Bureau Alternative School Project. This joint facility 
now provides over 170 children and youth with a variety of 
services for one of the most economically distressed counties 
in the State of Indiana, and after three years of development 
efforts the only public day care now exists. The programs of 
the Youth Service Bureau have been expanded, unfortunately 
without funding or in partnership with USDA due to a lack of 
sufficient funding for the Community Facilities Program.
    Third, and finally, Mr. Chairman, the next Farm bill should 
include a new program focused on building the long-term 
capacity of rural areas. Study after study by Federal agencies 
and universities have concluded that additional funding for 
capacity-building and technical assistance programs is one of 
the most pressing needs facing rural local governments. It is 
often difficult for the Nation's 14,000-plus rural communities 
to access either public or private sector funds theoretically 
designed to assist in community and economic development 
efforts.
    Unassisted, rural communities have an extremely time 
dealing with burdensome, complicated and frequently illogical 
paperwork or procedures required to apply for Federal funds. 
One solution is to implement the proposed rural impact program, 
a multi-county approach to local capacity-building that would 
ensure that Federal dollars are maximized in rural areas, while 
affording communities the flexibility and authority necessary 
to overcome the ever-changing challenges of rural America.
    For example, from 1999 to present, Indiana 15 has assisted 
local governments and not-for-profits with more than 60 
projects totaling more than $40 million, while having only 6 
full-time staff. Yet, Indiana 15 exists on the basis that only 
one-quarter of our operating budget is funded annually by 
county per-capita fees and an EDA planning grant, both of which 
are at the same funding level as 20 years ago. We do not, nor 
have we ever received operational support from USDA because 
such a consistent technical support and capacity-building 
program today does not exist. The bottom line is that USDA 
rural development programs need to be more focused on building 
long-term capacity in local communities and on providing more 
assistance directly to local communities.
    In closing, Mr. Chairman and members of the committee, I 
want to thank you sincerely for inviting me here today on 
behalf of the Indiana Association of Regional Councils and the 
National Association of Development Organizations. I would 
sincerely welcome any questions you may have.
    Thank you.
    [The prepared statement of Ms. Dearlove can be found in the 
appendix on page 68.]
    The Chairman. Ms. Dearlove, thank you very much. I look 
forward to looking more at the rural impact program that you 
have proposed. That sounds pretty interesting.
    Next, we turn to Mr. Curtis Wynn, Chief Executive Officer 
of the Roanoke Electric Cooperative of Rich Square, North 
Carolina.
    Mr. Wynn, welcome.

  STATEMENT OF CURTIS WYNN, CHIEF EXECUTIVE OFFICER, ROANOKE 
       ELECTRIC COOPERATIVE, RICH SQUARE, NORTH CAROLINA

    Mr. Wynn. Thank you, Mr. Chairman. For the record, I am 
Curtis Wynn, CEO of Roanoke Electric Cooperative, in Rich 
Square, North Carolina. I am also representing the National 
Rural Electric Cooperative Association, NRECA, which is made up 
of 900 not-for-profit, consumer-owned electric utilities that 
provide central station electric service to more than 34 
million mostly rural consumers.
    I commend you, Mr. Chairman, and the committee for 
convening this hearing on rural development programs, and thank 
you for the opportunity to be here to testify before you. These 
programs are increasingly important to rural areas. Rural 
communities want and deserve the same opportunities for growth 
that our urban counterparts enjoy.
    North Carolina's economy has seen phenomenal growth in the 
last decade. However, much of that growth has been concentrated 
in the urban areas. I believe that many of you have seen 
similar patterns of development in your respective States. 
Allow me to briefly paint a picture of one example, which is my 
rural northeastern North Carolina community.
    For decades, several of our counties have been among the 
most impoverished and underdeveloped counties in the State. 
Bertie, Halifax, Hertford and Northampton Counties were also 
recently reclassified by the North Carolina Department of 
Commerce as distressed counties, and this category is more 
severe than depressed counties.
    Our poverty levels range above 30 percent. In many of the 
counties, basic infrastructure, particularly natural gas, 
sewage lines and treatment facilities, is missing. The region 
is also isolated technologically. Television signals come in 
weakly from the relatively distant big cities. Many residents 
lack cable service and even telephones. Few T1 lines have been 
run to this area, resulting in minimal local service provider 
options. Northeastern North Carolina is thus on the wrong side 
of the digital divide, with less than 10 percent of our 
residents online. Legislation is needed to encourage private 
investment and projects that existing venture capital funds do 
not accommodate.
    Electric co-operatives meet community needs through their 
economic and community development activities. These expanded 
efforts create jobs and opportunity in the community and are 
enabled through USDA's Rural Economic Development Loan and 
Grant Program, also known as REDLG. Over the lifetime of the 
program, REDLG has provided over $140 million in loans and over 
$66 million in grants to rural communities. These loans and 
grants have leveraged nearly $1.2 billion in non-Federal 
capital for 851 projects. Over 25,000 jobs have been created.
    Mr. Chairman, the REDLG program has brought significant 
economic development opportunities to rural America. Over the 
last decade, in North Carolina the electric co-operatives have 
provided loans totaling more than $20 million which have been 
leveraged to over $150 million in commercial projects, creating 
over 4,600 jobs. The financing of these loans have come from 
private and public sources, including $4.6 million in rural 
utility services loans and $15.5 million from a cooperatively 
created statewide revolving loan fund. Projects have included 
the building of cotton gins, renovations and expansions of 
medical centers, water infrastructure facilities, and 
industrial parks and businesses to go with those.
    The co-operatives' commitment to their communities is more 
than economic development and job creation. It is also about 
building and sustaining viable communities. In our region, 
Roanoke Electric Cooperative has taken full advantage of USDA's 
REDLG program. In just 24 months, we have closed two zero-
interest loans for $846,000. Through the REDLG program, we have 
helped to create nearly 200 jobs and retained another 150 jobs, 
and have raised another $1.3 million from other publicly and 
privately funded sources. These funds have leveraged over $11 
million in investments.
    Access to capital, along with a commitment to build human 
capacity through continuous collaboration with local 
governments, non-profits, community-based organizations and 
faith-based organizations are allowing us to reshape a 
community that time has forgotten. Preparing our community puts 
us in line for public-private partnerships that are so badly 
needed for sustained growth.
    While the REDLG program has worked well over the last 
decade, the funds available for loans and grants have declined 
over the last six years. I believe certain changes will reverse 
this trend and make REDLG even more successful in the future. 
I, along with our national association, look forward to working 
with you, Mr. Chairman, and other members of the committee to 
adapt REDLG to current economic realities and to reinvigorate 
this very important program.
    The health and vitality of rural communities is of great 
concern to me personally, and of great concern to the rural 
electric co-operatives that serve this population. Through 
encouraging capital investment in our rural communities and 
taking advantage of new opportunities, rural communities can 
remain a vital part of the American economy. Rural communities 
are worth our investment.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Wynn can be found in the 
appendix on page 80.]
    The Chairman. Mr. Wynn, thank you very much for an 
excellent statement.
    Now, we turn to Dr. Deborah Markley, the Chair of the Rural 
Equity Capital Initiative of the Rural Policy Research 
Institute, of Chapel Hill, North Carolina.
    Welcome to the committee, Dr. Markley. Please proceed.

 STATEMENT OF DEBORAH M. MARKLEY, CHAIR, RURAL EQUITY CAPITAL 
INITIATIVE, RURAL POLICY RESEARCH INSTITUTE, CHAPEL HILL, NORTH 
                            CAROLINA

    Ms. Markley. Thank you, Mr. Chairman and members of the 
committee. I am the Chair of the Rural Policy Research 
Institute's Rural Equity Capital Initiative, which is a 
research project funded by USDA's Fund for Rural America.
    I want to speak today about equity capital in rural 
America, and it has been mentioned several times during this 
hearing already. What I would like to do is to talk 
specifically about what we have learned as part of this 
research project, after spending the last 3 1/2 years in the 
dirt, so to speak, studying innovative venture capital funds 
that have focused investments on rural businesses and 
entrepreneurs in real rural communities all across the country.
    There is a lot to be learned from these venture funds. We 
have learned that successful rural-focused venture funds are 
not one-size-fits-all. There is a great deal of innovation 
locally, regionally and at the State level that needs to be 
recognized and rewarded. These are not traditional venture 
capital funds, traditional Wall Street venture capital funds, 
and very often the funds that are focused on rural investments 
value both social as well as financial returns.
    For successful rural-focused venture funds, local 
intelligence is really key. These funds have spent time and 
money identifying their rural market, looking at potential 
deals, and when deals did not exist actually developing 
entrepreneurs and businesses. Traditional venture capitalists 
don't operate in rural markets because, in part, of the lack of 
local intelligence that they have. It is much harder to make 
good investment decisions without it.
    Successful rural-focused venture funds also have skilled 
management teams who are close to their investments, the rural 
businesses and rural entrepreneurs, so they can investigate the 
deals before the investment and they can provide the support 
and technical assistance after the investment is made. Venture 
capital investing is a hands-on process and it is often about 
providing much more than dollars.
    We have also learned that there is an important role for 
the Federal Government to play in supporting existing 
institutions and creating new institutions within rural 
America. The funds we studied are small. The industry is not 
widespread. The cost of starting up a rural-focused venture 
fund is high, both in terms of time and money--things that are 
often in short supply in rural America.
    What should the Federal role look like in helping to create 
a venture capital industry in rural America? First of all, 
scale is important. We need to get more venture capital into 
rural America. We need to help more entrepreneurs develop new 
businesses, we need to help more existing businesses in rural 
America grow.
    Any Federal effort needs to be capitalized at a level that 
can help the industry achieve this scale, and also leverage 
private sector funds, a very important component of any effort. 
It needs to be recognized that innovation occurs at the local 
level. This is where the need for venture capital is 
identified, this is where the local intelligence is generated, 
and this is where the investment decisions need to be made.
    We need to use the lessons that we have learned from 
looking on the ground at venture capital institutions that are 
making investments in rural areas to figure out how the Federal 
Government can best encourage new institutions and support the 
existing ones. Any Federal support needs to come with some 
strings attached. The venture funds that receive Federal 
investment need to be able to demonstrate a comprehensive 
strategy for identifying rural deals and making rural 
investments, that they know how to get out there and identify 
deals, identify entrepreneurs develop the deal flow within 
rural America.
    They need to demonstrate the commitment of an experienced 
management team, a plan for providing technical assistance and 
management assistance to their companies, and also evidence of 
entrepreneurial strategies for partnering with other programs 
and organizations across jurisdictions so that we can begin to 
reward a regional approach to creating solutions for getting 
more equity capital into rural America.
    For any Federal program, rural targeting is really critical 
to increasing the supply of venture capital in rural America. 
Without explicit targeting of investments to rural-focused 
venture funds, investments are not going to occur in rural 
America. Whether it is by increasing the rural targeting in 
existing programs like the community development financial 
institutions funds or the new markets initiative or a new 
rural-focused venture capital initiative, there needs to be 
rural targeting so that the money gets out to rural-focused 
funds and rural businesses and entrepreneurs.
    Supporting rural entrepreneurship and rural economic 
development contains a lot of ingredients, one of which is 
venture capital. Building venture capital infrastructure in 
rural America is not going to provide a silver bullet to rural 
communities across the country, but without expanded access to 
venture capital, it is going to be harder for rural 
entrepreneurs to start businesses and harder for existing rural 
businesses to grow and adjust and deal with the global economy.
    There are innovative venture funds in Iowa, in Minnesota 
and in Maine that are doing creative equity investing in rural 
enterprises. We need to use what we have learned about their 
success to craft a Federal policy to support an expanded 
venture capital capacity in rural America.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Markley can be found in the 
appendix on page 83.]
    The Chairman. Dr. Markley, thank you very much. We will get 
back to you. If you have a couple of specific examples, we 
might go over that if you have those.
    Now, on behalf of the lifeline to so many of our farmers 
and rural families out there, on behalf of both the Iowa 
Independent Bankers Association and the Independent Community 
Bankers of America, Mr. Steve Lane, President of the Iowa 
Independent Bankers Association.
    Welcome to the committee, Steve.

 STATEMENT OF STEVE LANE, PRESIDENT, IOWA INDEPENDENT BANKERS 
    ASSOCIATION, GOWRIE, IOWA, ON BEHALF OF THE INDEPENDENT 
                  COMMUNITY BANKERS OF AMERICA

    Mr. Lane. Thank you, Chairman Harkin, for today's hearing 
on rural development. Rural development is essential for 
farmers to have an economic opportunity off the farm as well as 
on the farm.
    I am Steve Lane, President of the Iowa Independent Bankers, 
and also President and CEO of Security Savings Bank, a $48 
million ag bank located in Gowrie, Iowa. I also represent the 
Independent Community Bankers of America.
    We hope the new farm program will secure significant new 
money for rural development. Statistics and trends reveal that 
off-farm jobs are of increasing importance to the farm sector. 
Counties dependent on agriculture are losing population. Farm 
programs and rural development need to be at center stage. 
Farmers are struggling to make their operating cash-flows. The 
big problem is profits and equity. Many farmers and their 
spouses are working off farms 40 hours a week to cover living 
expenses. Rural development is in crisis.
    My town works very hard to try to attract new businesses. 
We offer many incentives, one of them being exemptions from 
property taxes. These incentives by themselves have not been 
enough. Basically, we need more money and some new programs. 
Success means keeping people currently there in the communities 
and attracting new ones to move in. Otherwise, at some point 
communities are falling below their critical mass of people 
needed to sustain a small community.
    Let me suggest four principles of rural development: target 
scarce resources to rural areas based on population; provide 
tools to complement the private sector; target resources to 
various sizes and types of businesses, including individuals; 
and maintain a rural population base and infrastructure.
    In regard to targeting rural communities, let's ensure that 
rural programs target rural areas with scarce Federal dollars. 
This creates new jobs in the local area where people live. A 
population criteria would be the key to deciding where scarce 
Federal moneys go. The B&I program targets loans to communities 
of 50,000 or less.
    Second, let's complement the efforts of the private sector. 
There are about 3,000 ag banks and several thousand non-ag 
banks in rural areas. Let's be sure that these programs can be 
used by all these areas.
    We need to focus particularly on value-added agriculture. 
If we can process more of these products in the local area 
rather than shipping the commodities across the country or to 
large cities for processing and packing, the local farmers will 
reap the benefits. The key is locally oriented value-added 
incentives that help create a better market for our farmers, 
and also create jobs for farmers who need off-farm income.
    Mr. Chairman, I would like to applaud you for the 
legislation to establish a rural equity fund. A broad coalition 
supports this bill to spur businesses and cooperative 
development. The rural equity fund will encourage private 
investment in value-added agricultural enterprises and small 
business startups and expansions.
    As you know, large venture capitalists are not interested 
in rural America. This legislation creates a private-public 
partnership designed to attract equity investment to co-
operatives and other businesses and ventures in rural America. 
The funds would be capitalized by investments from private 
sector institutions, and the Government would match these 
moneys up to a specific level.
    From a banker's perspective, there funds could provide 
equity financing to help complete the loan package or debt 
financing for the banks. The intent is to target rural 
businesses in rural areas. The need for more equity financing 
in rural America was highlighted by the Center for the Study of 
Rural America's 1999 report on the topic. Let's put this into 
the Farm bill.
    My written statement has other suggestions. These include 
prohibiting USDA from raising fees on B&I programs to 3.25 
percent, eliminating fees for all users of B&I programs, 
including targeted funding and authorities to B&I programs for 
smaller-size business loans with streamlined applications, and 
providing incentives for banks that promote and develop value-
added agriculture.
    Mr. Chairman, rural development should be a key part of our 
new farm bill, a working partner to build a stronger farm 
safety net. Off-farm jobs go hand-in-hand with a new and 
improved farm bill in accomplishing the goal of keeping farmers 
on the land and keeping Main Street vibrant and keeping rural 
America healthy.
    Thank you.
    [The prepared statement of Mr. Lane can be found in the 
appendix on page 91.]
    The Chairman. Steve, thank you very much for your great 
leadership in my State and nationally, and thank you very much 
for a very excellent statement. I appreciate it very much.
    Now, we will conclude with Mr. Jack Cassidy, Senior Vice 
President of CoBank, of Greenwoodville, Colorado.

   STATEMENT OF JACK CASSIDY, SENIOR VICE PRESIDENT, CoBANK, 
                    GREENWOODVILLE, COLORADO

    Mr. Cassidy. Thank you, Mr. Chairman. I appreciate the 
opportunity to appear before the committee today and testify on 
this important initiative.
    My name is Jack Cassidy. I am Senior Vice President for 
Board and Corporate Relations with CoBank. We are headquartered 
in Denver, Colorado, but we operate throughout the United 
States, and also have an international program as well.
    With $24 billion in assets, CoBank is the largest bank in 
the Farm Credit System. We provide financial services to about 
2,600 customers, who are also our member-owners. These member-
owners are all corporate enterprises that include farmer-owned 
co-operatives, rural water systems, telecommunications 
companies, and electric systems. We also provide financing to 
support the export of agricultural products.
    CoBank works with many other financial institutions, 
including commercial banks through syndicating and purchasing 
loans. These alliances with other financial institutions help 
us meet the growing needs of the many businesses we serve. In 
the past 18 months, CoBank has acted as the agent for $4 
billion in loans sold to other lenders. We also purchased $2.5 
billion in loans from other lenders.
    I would add that that facilitates the flow of capital to 
these rural areas. Most of these businesses are very rural-
oriented, and so our ability to work with other lenders on 
these activities helps move that capital to those communities.
    This partnership of commercial banks and other lenders 
brings new sources of capital to meet the needs of rural 
businesses, while at the same time spreading risk among the 
lenders. We consider the development of these alliances with 
other lenders as critical, and have plans to place even greater 
emphasis on this area in the future.
    Unfortunately, many rural communities have not shared in 
the prosperity of the 1990's. It has been difficult for many 
rural businesses to obtain the necessary equity capital, as 
others have already noted, and to grow and create new market 
opportunities and new employment. In addition, rural 
communities often do not have access to technology and 
communications systems that are vital to economic growth, as 
Mr. Wynn noted in his area.
    I would like to comment on four areas of policy 
recommendations for the committee to consider.
    First, we think it is important that the rural co-
operatives be acknowledged in advancing the economic interests 
of rural America, and we would like to mention a few steps that 
can be taken to strengthen the role of co-ops, especially in 
the area of value-added initiatives.
    Second, we would make a couple of comments about CoBank's 
authorities and adjustments that might make it easier for us to 
serve some of these rural businesses and communities; third, 
talk a little bit about equity capital in rural America; 
finally, improvements that might be made to the USDA B&I loan 
program.
    With regard to value-added businesses and co-operatives, 
for decades CoBank customers have been leaders in marketing and 
processing agricultural products to obtain a greater share of 
the consumer food dollar for the American farmer. We believe 
strongly, as do our member-owners, that value-added initiatives 
are one of the keys to a prosperous farm sector.
    We would suggest some adjustments to existing Federal 
programs that could help support farmer-owned value-added 
enterprises. For example, we would support expansion of the 
Value-Added Technical Assistance Grants Program. We would 
support making a separate agency in USDA called the Farm 
Business Cooperative Service that would be dedicated and 
focused on supporting farmer co-operatives.
    As part of a revitalized farm business-cooperative service, 
we support funding for research, education and technical 
programs for farmers and co-operatives. We would recommend that 
not less than $6 million annually for cooperative grants be 
provided to the Farm Business Cooperative Service.
    In the international arena, we think there are some 
adjustments that could be made that would help make U.S. value-
added products more easily sold overseas. We have joined a long 
list of commodity and exports organizations in recommending 
legislative improvements to the USDA's Supplier Credit 
Guarantee Program, in particular lengthening the authorized 
program tenors from 6 months to 1 year, increasing the 
guarantee coverage, and reducing the program fees and enhancing 
the effectiveness of this program to assist co-ops market their 
products in international markets.
    With regard to our own lending authorities, we would have 
three specific recommendations. As noted earlier, we work with 
many commercial lenders to sell and purchase interest in loans. 
All loans purchased by CoBank must be originated by commercial 
lenders that make loans to companies that are very similar to 
the types of loans that we make directly to farmer-owned co-
ops. This excludes some transactions involving companies where 
food or fiber operations may be only part of a larger 
enterprise.
    CoBank has been unable to participate in such loan 
syndications when asked to do so by commercial banks. By 
allowing us to participate in such transactions, we could 
strengthen our existing partnerships with commercial lenders 
and bring an additional source of capital to these rural 
companies and agricultural businesses.
    Second, under current law CoBank may provide financing to 
communications companies that are eligible to borrow from the 
Rural Utilities Service. However, many of the communications 
companies interested in providing Internet, broadband and other 
types of advanced communications services to rural communities 
today do not borrow from the RUS and there are not eligible to 
borrow from CoBank. If we had the authority to finance such 
companies, we would help ensure that rural communities would be 
afforded greater access to the technology that is vital to 
their future.
    Third, under current law CoBank can finance the export of 
farm machinery and other farm-related products that are used 
on-farm and in foreign countries. This on-farm requirement 
limits our ability to finance the sale of some U.S. 
agricultural-related products simply because the foreign 
purchaser plans to use these products someplace other than on 
the farm.
    For example, we can only help a co-op sell its used 
packaging or processing equipment if the foreign purchaser is 
going to use that equipment on a farm. For a cooperative trying 
to get the best price for its outdated equipment, there is 
little concern about whether the equipment will be used on the 
farm or somewhere else, and we would recommend that change.
    With regard to the equity capital and venture capital, many 
others have commented on that. I would just commend the 
chairman and this committee for the efforts that have been made 
in that area. We strongly support the rural equity legislation 
that has been introduced, the Harkin-Craig bill, and we are 
pleased to be part of the coalition that would like to see that 
legislation adopted.
    The final comments I would make relate to the B&I loan 
program. I associate myself with the comments that Mr. Lane has 
made. Our comments would be very similar. We have worked with 
the National Council of Farmer Cooperatives to come up with 
some other recommendations that would make the B&I loan program 
particularly more helpful to farmer-owned co-ops.
    We would like to see the maximum loan guarantee increased. 
In today's environment, if you want to have a big job-creating 
company, a $25 million limit is somewhat restrictive. We would 
like to see the minimum loan guarantee of 90 percent put in 
place for most co-ops and eliminate the geographic restrictions 
in the case of farmer-owned and value-added products.
    Many of our farmer-owned facilities are located in areas 
that cannot really be described as rural, but because they are 
farmer-owned facilities, even if they are located in an urban 
area, the benefits flow back to the farmers in the rural 
communities, and the current geographic and population 
limitations that exist create something of a problem.
    Finally, as part of the Farm Credit System, I would note 
that CoBank is a key link in channeling private sector funds 
from the Nation's money markets to businesses operating in 
rural America. In recent years, Congress, through various 
initiatives, has greatly expanded the authorities of commercial 
banks and provided them with virtually unlimited access to GSEs 
through the Federal home loan bank system and the Federal 
Agricultural Mortgage Corporation.
    Congress took these actions as part of an effort to make 
more capital available to rural America. Congress has an 
opportunity with this farm bill to take additional steps to 
make capital more available by providing needed updates to Farm 
Credit's charter and considering innovative ways to facilitate 
the ability of lenders to work together to meet the needs of 
our rural communities.
    In closing, CoBank is committed to rural America. Our 
slogan is ``CoBank-Rural America's Cooperative Bank.'' Those 
are more than just words to us. We live by that slogan and that 
is who our customers are. Those are the people who own the 
bank, and we appreciate this opportunity to be here today and 
present this testimony to the committee.
    I would be happy to answer any questions. Thank you, Mr. 
Chairman.
    [The prepared statement of Mr. Cassidy follows can be found 
in the appendix on page 101.]
    The Chairman. Mr. Cassidy, thank you very much. Thank you 
all for very succinct and very pointed statements. As I said, 
your entire statements will be part of the record.
    At the outset, I also want to request of each of you that 
as we proceed ahead into this fall that you continue to give us 
the benefit of your suggestions, advice and input as we develop 
this farm bill. We will, to the best of our ability, try to 
keep in contact with you either through the organizations some 
of you are representing here or individually, as the case may 
be, to try to keep you up to date as to what the progress will 
be on the Farm bill.
    The House has finished their work on the proposed new farm 
bill. I have not really had a chance to look at it yet. I only 
know what I read about it, but it seems to me that there really 
wasn't a lot of attention paid to the rural economic 
development portion of a farm bill. It just sort of continues 
on with what we have been doing.
    I read your statements before and looked at them again here 
while you were talking today, and as I understand it, most of 
you are saying we have had a fairly good basis in the past, we 
have done some good things in the past, but we have entered a 
new era and many of the programs and things we did in the past 
aren't keeping up; that we have to find some different ways of 
getting capital and getting support out to rural areas for 
value-added. That was not something that was around much either 
in concept or actuality a few years ago. The whole idea of 
Internet access, broadband access in rural areas is something 
that is new.
    How we provide the kind of planning and support--a couple 
of you referred to that, about how it is not just important to 
get the money out, but many of these areas lack the kinds of 
resources to adequately plan, take an assessment of the 
possible areas of economic development in their areas and put 
together good proposals. A lot of these are kind of farmed out 
to different entities, I guess.
    I am interested again in thoughts you have on how we 
provide more help and support for the planning process, on how 
to get people together with the private sector, because 
obviously the private sector has to be the engine that drives 
this. If you get the private sector in to meet with these 
people to say, OK, here is where you will have promising areas 
of economic development and growth in your geographic area and 
get them really involved in this process.
    I might say this, Mr. Cassidy. I am always a little 
concerned about how we balance raising guarantees. Obviously, 
everyone would like to have a 100-percent guarantee. If you do 
that, do you really keep close tabs on what is happening?
    Obviously, we want the private sector involved, but not to 
the point where if everything is gone, it is all written off 
and we pay for it anyway. We have seen debacles like that in 
the past. Somehow we have to balance that and I am not smart 
enough right now to figure it out. Some way of having that 
support, but we need to have the private sector keeping tabs on 
what is happening out there and to keep them towing the line on 
some of these projects.
    Those are just my general thoughts in listening to this. I 
intend to make rural economic development a very integral part 
of the Farm bill on the Senate side. As I said in my opening, 
there has got to be more of a balance in this area of providing 
just straight support to our agricultural producers, but then 
balancing it by providing support for the infrastructure that 
is out there.
    We have a basis on which to go. We have experience in this 
area. It is just that we have to change some of the ways we 
have been doing it and provide for avenues of getting more 
equity capital into rural America. That is why we have this 
fund up. Some of you mentioned the rural equity fund that 
Senator Craig and I have worked together on for quite a while, 
which I hope to put in the new Farm bill. Again, I ask you to 
take a look at it. Nothing is written in stone around here. If 
you have thoughts on how we should change it or modify it or 
improve it, we certainly welcome that from any of you in that 
regard.
    The rural endowment initiative that Mr. Phillips raised is 
sort of what I have been talking about, getting Federal funds 
to support a planning process, and if it comes together, then a 
series of annual grants to keep them implementing the plans, as 
I understand it. It sounds like a good concept.
    Can you tell me if there has been any basis for that in 
past programs or not? Is this building on something that we 
have been doing in the past?
    Mr. Phillips. Actually, if you look at some of the work 
that went on with HUD in the enterprise zones and communities, 
there is a lot of emphasis on bringing everybody together to 
plan strategies. Those are the good things.
    The CDFI fund is sort of interesting because although they 
are investing in individual CDFI institutions, they are 
investing in a business plan which represents a widespread 
market development or market strategy that involves a lot of 
different institutions, particularly the banking institutions. 
There is precedent for Federal agencies to really support local 
collaboration planning. That is the good news.
    The bad news is that often communities are inspired to be 
brought together by some of the Federal programs and ideas, but 
there is no implementation money or flexible capital to then 
invest and followup. What happens then is all the entities that 
are participating have to go off and access--not to demean the 
value of silos, but to go after programs that are separately 
funded and try to do a patchwork of putting together the actual 
implementation of these local plans that come together, not 
that this is a perfect world and you are going to have just a 
single door to go through for the implementation grants.
    For example, we have heard a lot here about individual 
things, the B&I, the IDA programs, tweaking different programs 
that USDA has, which are really good things to do to improve 
those. Those are all the pieces. The question is can we have 
some kind of way of looking at the whole as a more holistic way 
of following through with funding. If you do a rural endowment 
initiative and it has mandatory funding around it, it links 
with and coordinates with other types of things going on. You 
don't have to maybe make separate applications; you are funding 
something much more comprehensive in approach. While we want to 
support planning, the implementation funding for these might be 
separate tracks that then just help fragment local communities.
    I would also say, too, that one of the panelists here 
mentioned the Federal Home Loan Bank, which is sort of an 
interesting thing because there is access. What we have been 
doing at CEI is trying to access private capital. We have 
leveraged up a lot. We have three equity funds going and all of 
those are principally targeted to northern New England, and 
especially Maine.
    Now, most of the investment capital for those funds are 
private. They are small funds and we struggle with creating our 
own capacity to work on enterprises and new enterprise 
creation, which is actually what the real challenge is in rural 
America. We have had some success and we have a lot of banks to 
pay attention to this. CRA has certainly driven that.
    The Federal Home Loan Bank is something like a $700 billion 
network of 12 regions throughout this country. I am on the 
board of directors of the Federal Home Loan Bank of Boston and 
have been trying to move them toward more equity investment and 
encouraging their membership to make more equity investment in 
funds such as ours.
    One of the local banks in Maine actually drew down what 
they call an advance, which comes from Wall Street, and 
borrowed money at a managed discounted rate so they can manage 
the interest rate payment back on those funds, and made an 
equity investment in our fund which doesn't have a current 
earning.
    Now, this is, as I said, a $600 or $700 billion gateway to 
the private capital market. If, in the Farm bill, as someone 
suggested, you can focus on how we leverage those kinds of 
relationships through GSE-sponsored institutions, that is just 
one piece of how to help empower what we are doing as grass-
roots groups and then make sure implementation capital is 
there, which is the real problem for these kinds of 
comprehensive strategies we are trying to put together.
    The Chairman. Steve Lane, the independent bankers that I 
know in Iowa and others I know across the country have been on 
the front line of being the source of lending not only to 
farmers, but to people in rural areas, small businesses in our 
small towns. It would seem to me, taking your idea of 
leveraging--these are the people who know the area; they know 
the people who bank there. Usually, these banks have been there 
a long time and they know the area.
    It would seem to me that would be one way that we could 
leverage it by somehow getting it to our smaller community 
banks out there, who don't have a lot of deposits, by the way. 
They have a lot of need for loaning, but they don't have a lot 
of deposits. Somehow, if we could get access to that to get it 
to our banks, maybe that might be a way of doing it.
    I don't know, Steve, if you have any thoughts on that or 
not.
    Mr. Lane. Well, that is a good idea. Our community banks 
are always looking for different access to areas of funding to 
help these small entities. The problem that we have, and maybe 
this would help, is the expertise in these areas. We are not 
involved with a lot of these Government programs. 
Unfortunately, the time that our loan officers go through to 
work on these loans and applications is frustrating and they 
don't like to work with them.
    The Chairman. I understand that. In fact, you made some 
mention about a low-documentation program, like SBA does.
    Mr. Lane. Yes. We utilize the SBA low-doc quite a bit. It 
is a program that is a 2- to 3-page application that we can 
fill out. We have a 36-hour turnaround in response to other 
information needed or rejection or acceptance. Some of the USDA 
programs that we deal with may take three weeks to fill out the 
forms, and it may take another three weeks before we hear any 
response back. By that time, there is a new form that needs to 
be filled out. It is very frustrating sometimes to our loan 
officers, where they enjoy the low-doc SBA program. 
Unfortunately, the maximum is a dollar limit of $150,000, I 
believe, on the small businesses.
    The Chairman. What is the loan limit on some of our USDA 
programs?
    Richard tells me that the loan guarantee is $25 million. He 
also says we probably couldn't do low-doc up that high, but we 
could do it someplace up there. He says we can definitely do it 
in the Farm bill. There you go.
    Mr. Lane. Great. We appreciate it.
    The Chairman. That is a great suggestion. We could take 
that mirror image to the SBA program, make it a low-
documentation program. I don't know how high we can get it, but 
we can work on that.
    You say SBA is only $160,000, though?
    Mr. Lane. $150,000, I believe.
    The Chairman. $150,000. Well, we would have to go 
considerably higher than that to make it worthwhile.
    Mr. Lane. Yes.
    The Chairman. It is a great suggestion. That is something 
we could do.
    One other thing I wanted to bring up was targeting of funds 
and, how we allocate resources. One of the common criteria is 
income. The poorer you are, the higher priority. Again, a lot 
of logic to that, but then there is another proposal or another 
key, and that is who is going to use the funds in the best and 
most effective way, who is the most capable.
    How we balance that and how we judge that, I don't know. If 
you just say what is the poorest area and put the money there, 
that may not be the most viable place right now. Maybe a place 
that is up a notch but they have the capability to use it and 
really use those funds and they have good planning, maybe this 
ought to have some weight. We are wrestling with that.
    Do any of you have any thoughts on that?
    Mr. Wynn?
    Mr. Wynn. I would like to suggest, Mr. Chairman, that one 
of the things that we are seeing in our region is just that 
very same thing. We are wrestling with how do we create a 
capacity to handle those things, and one of the keys that we 
are seeing is collaboration where groups are coming together to 
prove that.
    You are going to find that that capacity is being created 
all along, so that you can prove your case that you are ready 
to receive those funds once they come to your region. Some of 
the smaller entities that we deal with are not in a position to 
make the most benefit of some of the funds. We acknowledge 
that, but if they can be partnered with someone or another 
entity----
    The Chairman. Regionalize it, you mean?
    Mr. Wynn. Regionalized, and bring in collaboration. Some 
criteria that makes us prove that we are collaborating and 
working together to the greatest extent possible would be 
something I would love to see, if it is not already there. Co-
ops can do a lot of that in terms of collaborating, bringing 
that capacity to a region.
    Mr. Hassebrook. I do think that one of the factors in 
targeting needs to be looking at population loss because one of 
the best indicators that an area is devoid of economic 
opportunity is when it is losing its population. That needs to 
be a factor as well.
    We find in some programs, in a State like Nebraska, like 
the Rural Business Enterprise Grant Program, because our rural 
areas are losing population and are not as populated as some 
other rural areas, those programs don't really extend to States 
like Nebraska in a meaningful way. We do need to find ways to 
direct some resources to rural areas that are facing the most 
severe opportunity crisis, and part of that is being measured 
by population loss.
    The Chairman. Yes, Mr. Phillips?
    Mr. Phillips. Senator Harkin, the target issue is something 
that is very important and it is one that we have struggled 
with over the years at CEI on how to advise the Federal 
Government on policies in that direction.
    For us, it ought to be a ``both and'' in terms of the 
answer to how one targets; that is, when ought to direct 
resources to the extent possible to distressed communities and 
regions that have the kinds of measures and metrics that show 
that more help is needed. Of course, the way those resources 
are delivered in communities is important.
    I also think people who are of low income on an individual 
basis--and also when you break down census tracks, they may be 
next to a more wealthy area, so pockets of poverty do not show 
up when looking at rural communities. Our way of looking at 
targeting is to target both benefiting people as well as a 
place or a region. I would really strongly recommend that when 
we do targeting that it is a ``both and,'' that it is not just 
a physical location, a place, which I do think is important, 
but it is also people who reside in these places.
    I am from the town of Waldoboro, in coastal Maine, with a 
5,000 population. It is a very distressed community within its 
own right, but it is part of Lincoln County, which is an 
affluent county and has some of the richest people in the State 
in that area. They will not show up on the distressed metrics 
when you look at that particular community.
    The Chairman. Ms. Dearlove?
    Ms. Dearlove. Another point on this is also where there is 
innovation going on and a lack of resources to actually bring 
it to fruition. Just recently, we have been a part of bringing 
together a coalition of a municipal electric utility, a rural 
telephone cooperative and a private utility provider to 
implement, if we can pull it off, actually a first of its kind 
telecommunications infrastructure in two of our rural 
distressed counties.
    The comment was made earlier about those that are not 
participating in the Rural Utilities Service program. We have 
our rural telephone cooperative that also is not accessing 
those loan programs because of the bureaucracy of the paper. 
They will not do it. We are looking to fill that role and 
provide that administrative capacity, be the tamer of the paper 
tiger and pull this off.
    I would like a brief opportunity to remark on 
telecommunications. This is an optional utility. It is high-
risk when it is very rural, and current regulatory restraints 
on municipal electric departments on how rural telephone co-
operatives can use their equity buildup in their telephone 
utility don't exactly mesh because at this point it is still an 
optional utility. There is a pivotal, critical role for the 
Federal Government--I would like to see it through USDA--in 
rural development, be able to bridge that gap.
    High-risk loans are a difficult matter. There does need to 
be capital infusion to make telecommunications work in these 
areas. The writing is on the wall of where the private 
telecommunications providers are not out there. Timeframe is 
short, in my mind, for rural communities to take advantage and 
get that infrastructure in place because the corporation 
centers are already moving. Development is already occurring on 
this information highway and the rural areas are far, far 
behind the eight ball on this. There are opportunities, there 
is innovation at work, but there is a huge gap and there is no 
source at this time to bridge it.
    The Chairman. One last thing before we close up the 
hearing. Mr. Hassebrook mentioned segmentation in markets and 
new markets. I see down the road in agriculture--now, I am 
getting back basically to farmers--that there are going to be 
opportunities for, I don't want to use the word ``non-
traditional,'' but for farming that is not just geared toward 
production of the major crops--corn, beans, wheat, cotton, 
rice--but other things.
    Maybe now they are niche markets, but they may become 
bigger markets in the future for food, but also for non-food 
items, too. Regardless of how you feel about biotechnology--and 
I happen to be a supporter of biotech--there are going to be 
opportunities in the future for farmers to grow biotech-
engineered crops for pharmaceuticals. In soybeans you are going 
to see all kinds of new opportunities because of the healthful 
aspects of isoflavins and the things they can derive from 
soybeans. I just think you are going to see areas going in that 
direction.
    How do we provide the kind of, first of all, research 
support, but also the kind of technical and financial support 
for a farmer and their family who may want to change some of 
their operation to take advantage of these, but because their 
investments are already in equipment that is geared toward one 
type of production and their technical expertise is geared 
toward that production, they really don't know how?
    If they want to, they may see an economic opportunity, but 
how do you shift a part of your operation over? What do you do? 
How do you operate it? How do you get access to the markets? 
All these things, plus the economic support for that, may hold 
for existing farmers today, but it is also true of young and 
beginning farmers. They may not have any kind of capital for 
the big combines and the big planters and stuff that they need 
to farm the 2,000 acres, but if they could start off with 3, 4, 
5, 600 acres, make a good living and buildup their capital, 
maybe they can get into other things.
    I am looking for suggestions along that line and any 
thoughts you have on how we provide that kind of support for 
farmers. I see that in a rural development mode, not just for 
farm income, but in a rural development mode.
    You kind of touched on it, Chuck, so if you have any other 
ideas on it, let me know.
    Mr. Hassebrook. Now?
    The Chairman. Yes. I have to go vote here pretty soon.
    Mr. Hassebrook. That is what we want to do with our 
Agricultural Community Revitalization and Enterprise 
initiative----
    The Chairman. ACRE. I have read about it.
    Mr. Hassebrook [continuing]. Commit funding to that so we 
can make grants to non-profits, to units of government that can 
be specifically set up to provide technical assistance in 
making those changes, training in things like e-commerce that 
help people make those changes. Also we could make grants to a 
non-profit that might be working with a network of farmers that 
could then turn around and re-grant some of those funds to 
those farmers to make those kinds of changes in their 
operations they need to make to produce for those new markets.
    We talk about niches, but the mass market is turning to 
some extent into a collection of niches, and the niches that 
provide the greatest opportunities for family farmers and 
ranchers are those that enable them to add value to the 
product, to make it unique by what they do, by application of 
their own management. That is what we are seeing in these 
premium markets for natural meat, for example. Those are 
production systems that take more management and skill by the 
farmer, and that is what creates an opportunity because if it 
is just producing the same thing but using a different seed, it 
is pretty easy for anybody to switch to that and pretty soon 
the returns get driven down, just like commodities.
    There are great opportunities for farmers to use their 
management and skill to produce things in ways that make them 
worth more to consumers. To tap those we have to do what you 
are talking about, provide more technical assistance, more 
training, maybe some seed funds, and also funding to develop 
the new co-operatives to link those farmers with the consumers 
who want what they have.
    The Chairman. I had a farm family in here last week 
testifying. I know this family. I was out to their farm; it has 
been probably 15, 20 years since I have been out to their farm, 
but they changed all their production practices. Ms. Roseman 
and her husband were here testifying. She and her husband have 
600 acres in western Iowa, around Harlan, out in that area. 
They have changed their whole production practice.
    They have 600 acres. Both he and his wife work on the farm. 
They have two sons, one in college and one in high school, who 
work there all summer, plus they have a year-around hired 
person who they pay to work there on 600 acres. She said they 
are doing pretty well, but she said it was pretty painful 
getting there because they didn't have the technical support, 
nor the expertise. They were production-oriented farmers, as 
everyone else is. It just took them a long time to get there. 
They said they didn't really have the kind of capital and 
stuff, but they just bore up under it for quite a few years and 
now they are doing all right. That is the kind of thing that 
maybe we can try to look at helping.
    Yes, Jack?
    Mr. Cassidy. Mr. Chairman, if I can add to that, we think 
the farmer co-ops that are going to be survivors and prospering 
5 and 10 years from now are going to fill some of that role.
    The Chairman. You are right.
    Mr. Cassidy. They have to become more than just depository 
entities for what the farmer produces. They are thinking more 
and more in terms of the partnership with the farmer, providing 
the technical expertise. We need to make sure the support 
system that allows our co-ops to thrive is in place, whether it 
is the USDA programs or the credit programs that the Farm 
Credit System provides to those farmer-owned entities. We would 
encourage you to keep looking at those sorts of things.
    The Chairman. We certainly will. In fact, she said that 
almost all of the marketing they have done and been able to do 
has been through co-operatives of one form or another.
    Mr. Cassidy. We are glad to hear that.
    Mr. Hassebrook. Senator Harkin, I would draw your attention 
to this book that was handed out, ``The New American Farmer,'' 
that details many examples of farmers who are doing just the 
kind of innovative things you are talking about.
    The Chairman. There may be some opportunities out there. I 
will be very provocative here. We have been thinking for a long 
time that you have farmers who need off-farm income. Almost all 
farmers today have some form of off-farm income. Well, how 
about maybe some of those who live in rural areas providing 
some on-farm income? Just turn it around. Those who live in 
rural areas may have a job or something, but they could, with 
support and some capital, some expertise and help, maybe 
provide some little niche areas like that that could be very 
helpful. I sort of turn it around like that, perhaps the other 
way, too.
    I am going to have to go because I am going to have to 
vote, but I just want to thank you all very much for all the 
work you have done in this area of rural development. As I said 
in the beginning, as we proceed on with this legislation, any 
thoughts, suggestions, advice that you have we are more than 
eager to get as to how we really make rural development part of 
the next Farm bill, and really make it shine and have a major 
emphasis on it.
    Thank you all very much for being here.
    The committee will stand adjourned until the call of the 
Chair.
    [Whereupon, at 4:15 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                             August 2, 2001



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                             August 2, 2001



      
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                         QUESTIONS AND ANSWERS

                             August 2, 2001



      
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