[Senate Hearing 109-480]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-480
 
     EXAMINING THE UNITED STATES DEPARTMENT OF AGRICULTURE'S RURAL 
                              DEVELOPMENT 
                                PROGRAMS
=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                               __________

                             JUNE 20, 2006

                               __________

                       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


                   SAXBY CHAMBLISS, Georgia, Chairman

RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
JAMES M. TALENT, Missouri            BLANCHE L. LINCOLN, Arkansas
CRAIG THOMAS, Wyoming                DEBBIE A. STABENOW, Michigan
RICK SANTORUM, Pennsylvania          E. BENJAMIN NELSON, Nebraska
NORM COLEMAN, Minnesota              MARK DAYTON, Minnesota
MICHEAL D. CRAPO, Idaho              KEN SALAZAR, Colorado
CHARLES E. GRASSLEY, Iowa

            Martha Scott Poindexter, Majority Staff Director

                David L. Johnson, Majority Chief Counsel

              Vernie Hubert, Majority Deputy Chief Counsel

                      Robert E. Sturm, Chief Clerk

                Mark Halverson, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

Examining the United States Department of Agriculture's Rural 
  Development Programs...........................................     1

                              ----------                              

                         Tuesday, June 20, 2006
                    STATEMENTS PRESENTED BY SENATORS

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............     1
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition, and Forestry..............     2
                              ----------                              

                               WITNESSES
                                Panel I

Dorr, Thomas, Undersecretary, United States Department of 
  Agricultrure, Washington, DC...................................     6

                                Panel II

English, Hon. Glenn, Chief Executive Officer, National Rural 
  Electric Cooperative Association, Arlington, Virginia..........    18
Halliburton, Jane, Supervisor, Story County Iowa, Navada, Iowa...    20
McBride, Mary, Executive Vice President, Comunications and Energy 
  Banking Group CoBand, Denver, Colorado.........................    21
                              ----------                              

                                APPENDIX

Prepared Statements:
    Chambliss, Hon. Saxby........................................    30
    Dorr, Thomas.................................................    32
    English, Hon. Glenn..........................................    46
    Halliburton, Jane............................................    49
    McBride, Mary................................................    57
Document(s) Submitted for the Record:
    Grassley, Hon. Charles.......................................    70
Questions and Answers Submitted for the Record:
    Crapo, Hon. Mike.............................................    74
    Grassley, Hon. Charles.......................................    78
    Leahy, Hon. Patrick..........................................    81
    Lincoln, Hon. Blanche........................................    84
    Thomas Hon. Craig............................................    88



                      EXAMINING THE UNITED STATES 
                   DEPARTMENT OF AGRICULTURE'S RURAL 
                          DEVELOPMENT PROGRAMS

                              ----------                              


                         Tuesday, June 20, 2006

                                       U.S. Senate,
          Committee on Agriculture, Nutrition and Forestry,
                                                    Washington, DC.
    The Committee met at 10:36 a.m., in room SR-328A of the 
Russell Senate Office Building, the Honorable Saxby Chambliss, 
chairman of the committee, presiding.
    Senators present: Senator Chambliss, Senator Lugar, Senator 
Thomas, Senator Talent, Senator Harkin, Senator Lincoln, 
Senator Salazar.

       OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. 
         SENATOR FROM GEORGIA, CHAIRMAN, COMMITTEE ON 
              AGRICULTURE, NUTRITION, AND FORESTRY

    Chairman Chambliss. Good morning. This is a full committee 
hearing to examine the rural development programs of the U.S. 
Department of Agriculture. We welcome all of you here this 
morning. I appreciate our witnesses and members of the public 
being here to review this very important topic as well as those 
who are listening through our website.
    From the beginning of Farm Programs in the 1930's to the 
present day, Federal agriculture policy has been focused 
primarily on the well-being of rural areas across the country. 
Much like their urban counterparts, rural cities and counties 
have changed much over the last 80 years. The challenges faced 
in the last century have evolved and, in many cases, become 
more complex.
    Unlike the past, today rural households depend more on all-
farm income. For example, in 1950 four out of every ten rural 
people lived on a farm and almost a third of the nation's rural 
workforce was engaged directly in production agriculture. 
Today, less than 10 percent of rural people live on a farm, and 
only 14 percent of the rural workforce is employed in farming.
    While the face of rural America may look different, the 
challenges confronting our small towns and communities haven't 
changed fundamentally. Infrastructure and public services are 
often the core of every economic plan.Telecommunications, 
electricity, water and waste disposal systems, and 
transportation infrastructures are essential for a community's 
well-being.
    Investment in rural infrastructure not only enhances the 
well-being of community residents, it also facilitates the 
expansion of existing business and the development of new ones.
    This hearing is the second in a series designed to review 
the Rural Development Programs at the Department of 
Agriculture. We hope to learn more about implementation of the 
Rural Development Title of the 2002 Farm Bill. We also hope to 
better understand the new challenges and makeup of rural 
America so we can buildupon our past success.
    We must be mindful that USDA is the only Federal agency 
with a mandate to provide comprehensive assistance to America's 
rural areas. The Department has done a good job of performing 
this function with limited resources available to it and the 
large demand for its services.
    In addition, while the rural economy has shifted from a 
dependence on farm-based jobs, agriculture is still a major 
source of income. It will be impossible for us to divorce the 
two, and I am convinced that the future success of rural 
America will be integrally connected with the success of the 
U.S. agriculture sector.
    In my home state of Georgia, 23 counties are farm-
dependent, the largest of any state outside of the Great 
Plains. While four out of five rural counties are dominated by 
non-farm activities, those areas that are farming dependent may 
require more attention, since they are limited by remoteness 
from major urban markets and by low population densities.
    Our overriding goal should be to ensure that rural areas 
share in the nation's economic prosperity and we have the 
proper policy options for the future. Over the next few months, 
this Committee will be hearing firsthand from farmers and 
ranchers across the country as we begin preparation for the 
next farm bill.
    I expect to hear a great diversity of opinions as we travel 
from region to region. However, I also expect to hear a common 
sentiment throughout each and every comment regarding the 
desire to create new economic engines in both the farm and 
rural economies.
    Finally, we must be bold and creative in this task, for the 
next farm bill provides us with a unique opportunity to put 
together a more cohesive and coherent Federal effort to close 
the gap between rural and urban areas.
    Before we proceed, I will obviously turn to my Ranking 
Member, Senator Harkin, for any comments you might have to 
make.
    [The prepared statement of Hon. Saxby Chambliss can be 
found in the appendix on page XXX.]

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

    Mr. Harkin. Mr. Chairman, thank you very much. I really 
appreciate you holding this hearing to allow us to examine the 
Rural Development Programs of the Department of Agriculture to 
understand better what is working as well as where there may be 
need for improvement. This hearing will also be valuable, as 
you say, as we move toward writing the Rural Development Title 
in the next farm bill.
    Rural America contributes tremendously to the greatness of 
our nation. It offers many advantages to those of us who live 
there. Yet, in an increasingly competitive global economy, 
rural communities face huge challenges.
    Incomes continue to trail those in urban America. Poverty 
is higher. Rural communities find it harder to grow existing 
businesses or attract new ones; and, as a result, jobs and 
wages lag.
    Too often a potential employer will simply strike a rural 
community off the list for lack of vital service or resource: 
broadband, for example; or it could be transportation, too; or 
it could be adequate water. While some costs may be lower in 
rural areas, others may be higher because of fewer paying 
customers per square mile.
    I am very concerned that USDA assistance falls far short of 
the needs of rural communities for basic, essential services 
such as electricity, telephones, water, wastewater treatment. 
Of course, broadband Internet access is no longer merely a 
desirable option, it is absolutely vital for businesses to 
operate productively and competitively as well as for the 
education of our children and a host of other activities in 
rural communities.
    Living in a small community myself, I have seen what 
happens when a business wants to maintain itself, but they 
can't get broadband and then they have to move to a larger 
city. There goes a few jobs. It may be only six or seven jobs, 
but in a small community those can be vital jobs.
    Or, a small school in a country setting in Iowa where they 
can't get AP courses, and they are denied advanced placement 
courses, but they can get them over broadband. We have AP 
online for kids. But if they don't have it, they can't get it.
    So there are a lot of things that we need to address. USDA 
ought to do more to support daycare centers to foster rural 
employment, proper childcare; it needs more to promote assisted 
living facilities.
    The fact of the matter is hundreds of millions of dollars 
that we dedicated to rural economic development in the farm 
bill have been taken away as a result of President Bush's 
budgets and congressional action. It wasn't just the 
president's budget; it was congressional action, too. So if we 
expect USDA's Rural Development Programs to work, we have to 
provide a reasonable level of resources.
    USDA has to do, I think, a better job of helping to get 
investment dollars, equity capital, to rural areas. USDA has a 
number of programs aimed at helping provide capital to 
businesses.
    In regard to venture capital, I have to be honest to say 
that there was a real failure to carry out the farm bill's 
rural business investment program. The rules created excessive 
burdens and most of the funding, I understand will disappear by 
October 1st of this year.
    We also put in the farm bill a new mechanism that has 
generated a large amount of capital for investment in the Rural 
Economic Development Loan and Grant Program, REDL&G, but again 
much of that money sits idle. I will be interested to find out 
why.
    Funding for grants to producer-owned, value-added 
enterprises has also been cut well below the mandatory funds 
that we dedicated in the farm bill. Yet, it is the value-added 
enterprises many times of the small communities that provide 
those needed jobs. Yet, as I said, the funding has been cut 
below the mandatory funds that we put in the farm bill.
    Despite the concerns I have just expressed, I see a lot of 
opportunities. I see a better future in rural America. Poll 
after poll shows if people are given a choice they would rather 
live in a heavily, densely urban area or in a lesser populated 
rural area. All things being equal, they would rather live in a 
rural area. But if they don't have healthcare and education and 
clean water and transportation and economic opportunity, they 
are forced to live somewhere else.
    Now, so I think we have tremendous potential for economic 
growth and new jobs, especially when we are getting into 
renewable energy and bio-based products. This could kind of 
usher in a whole new golden age of agriculture and rural 
development.
    I would say that obviously most of the funding will have to 
come from the private sector. But we need a creative vision for 
economic growth to make sure that while the private sector and 
the funds and the capital can come in, that they know that 
there is going to be an underpinning-- as I always call it, the 
``veins and arteries''--of commerce that the government can 
provide in terms of transportation and water and communications 
and things like that. That is where this part of the USDA is 
going to be so vital in the years to come.
    Mr. Chairman, I just want to associate myself with your 
remarks also, that in rural America today fewer and fewer 
people are living on the farms. Fewer and fewer people in rural 
America are getting their income from farms, so we have to be 
looking at other areas, other ways, of providing that economic 
growth. Hopefully, through this hearing and through the next 
farm bill we can kind of come up with some of the creative 
vision.
    Thank you very much, Mr. Chairman.
    Chairman Chambliss. I will turn to our members who are here 
for any opening comments.
    Senator, Lugar, do you have any?
    Mr. Lugar. Mr. Chairman, I look forward to the testimony. I 
second the thoughts that Senator Harkin expressed about the 
energy title and how it may affect USDA and development, just 
very specifically: methane digesters, windmills, biofuel 
production facilities.
    It is a potential golden age for Rural America. All of this 
cannot be provided by the Federal Government, but the spurs of 
the development people we are to hear from today could be very 
helpful for private investment.
    Chairman Chambliss. Senator Salazar.
    Mr. Salazar. Thank you very much, Mr. Chairman and Senator 
Harkin, for holding this hearing on this really important 
topic. I associate myself with both of your comments.
    I do believe that there is a lot of work that we have to do 
out there in rural America to make sure that this reality of 
two Americas is one that we can deal with and provide the kinds 
of opportunities to rural America that we see occurring for 
Americans who live in urban America. I very much look forward 
to this hearing and the testimony of the witnesses.
    Chairman Chambliss. Senator Lincoln.
    Ms. Lincoln. Thank you, Mr. Chairman. I just want to 
associate myself with all of my colleagues who have indicated 
to Secretary Dorr how important rural development is our state. 
It is critically important. We are certainly all aware that 
since the 2002 Farm Bill appropriators have limited rural 
development dollars.
    Although I wholeheartedly agree with Senator Lugar that 
private industry has got to be the real engine that moves the 
development of biofuels and other things in rural America, 
government is truly the seed dollars that attract that private 
capital in there. Without those seed dollars, we just won't see 
anything happen.
    The recent reconciliation in the proposed budget, I think 
have seen very disproportionate cuts in rural development. It 
is of great concern to me. We look forward to your testimony 
and, hopefully, a visit from you in Arkansas. We have been 
trying to get you down there. We hope we can get you down 
there.
    Thank you, Mr. Secretary, and thanks, Mr. Chairman.
    Chairman Chambliss. It's a great place to visit, Mr. 
Secretary.
    [General laughter.]
    Chairman Chambliss. Senator Talent.
    Mr. Talent. We hope you will stop in Missouri on your way 
to Arkansas.
    [General laughter.]
    Mr. Talent. I, too, am grateful for the hearing. Mr. 
Chairman, I am going to have to step out for a little bit, but 
I hope I am back to ask about a couple of issues, and if not, I 
will put the questions in the record.
    One of them is the Value-Added Development Grants, which I 
was the sponsor of when I was in the House, and I think have 
been very effective. But I know your priorities have been on-
farm projects, and this has made it difficult to use those 
grants for ethanol, biodiesel, renewable type issues. I wanted 
to know what you thought of in terms of whether we should be 
more flexible?
    Also, I have so many communities complaining about median 
household income is figured for the purposes of the census and 
how that affects their eligibility for grants. I think that is 
something we need to look at, at some point. don't know whether 
to do it administratively or legislatively or whatever.
    However we fund the grants--and I tend to agree that the 
appropriators have overlooked the important partnership role 
that the government can play, if this stuff is done 
appropriately. But if we are defining median household income 
in a way that excludes a lot of rural America, we are really 
defeating our own purposes.
    Also, it is good to get some of these communities and help 
them before they absolutely hit bottom. I mean, it is actually 
easier to keep them from falling all the way down than it is to 
restore them.
    But the way these regulations are interpreted now means 
they have to be absolutely so low before we help them that it 
just makes the problem more difficult. So these are the kinds 
of issues that I am hoping we can address today. I'm glad to 
have you here, Mr. Secretary.
    Thank you, Mr. Chairman.
    Chairman Chambliss. Senator Thomas.
    Mr. Thomas. Thank you, Mr. Chairman. I don't have a 
statement. I am glad you are having this hearing. This is a 
very important program to us all. Certainly we are interested 
in looking at how we might, as we go through the next farm 
bill, if it's possible, restructure.
    I know there are some 40 programs here. Maybe there are 
ways to make them more efficient. Maybe there are ways to do 
some things in their funding, getting the councils involved, so 
that there is local participation and so on.
    So thank you very much, sir.
    Chairman Chambliss. OK. Our first panel today consists of 
Mr. Thomas Door, undersecretary, United States Department of 
Agriculture here in Washington.
    Tom, we are always pleased to have you come back to visit 
with us, and we look forward to your testimony and your 
response to questions today.
    So, welcome.

    STATEMENT OF THOMAS DORR, UNDERSECRETARY, UNITED STATES 
           DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

    Mr. Dorr. Thank you, Mr. Chairman.
    Mr. Chairman and members of the committee, thank you for 
the opportunity to testify today concerning USDA Rural 
Development's mission and its program. As we approach the next 
farm bill, all of us recognize that there are difficul choices 
to be made.
    For USDA Rural Development, however, the bottom line is 
that technology and markets are creating extraordinary new 
opportunities for economic growth and wealth creation in rural 
America.
    Our job is to help provide the leadership, the technical 
support, the investment capital, and the business models that 
allow rural entrepreneurs in rural communities who need these 
to realize their potential.
    We administer over 40 programs covering: infrastructure, 
housing, community facilities, and economic development. This 
year we will, in fact, deliver approximately $17.4 billion in 
program level driven by a budget authority of just $1.96 
billion. By themselves, however, the individual programs are 
just a toolkit. The important thing is accomplishing the 
mission. On that score, let me very briefly touch on some key 
points.
    First, we recognize that rural policy is much broader than 
just farm policy. Roughly, 60 million people live in rural 
America, most of them don't farm, as you've indicated this 
morning, and 96 percent of rural income is non-farm.
    In addition, the great majority of farm families rely 
heavily on off-farm income. As the Farm Bureau put in their 
``MAAPP Report'' ``Farmers are more dependent on rural 
communities than rural communities are dependent on farmers.''
    It used to be that the surrounding farms kept the small 
towns alive. Today, the jobs in towns keep small family farms 
viable, and that is a big difference. The viability of 
America's small towns and the strength of the rural economy, 
off- as well as on-farm, are therefore vital issues for the 
next farm bill.
    Second, sustainable development must be--it must be--
market-driven. If we don't leverage private investment, if we 
sit back and rely on a program-driven model, we are wasting in 
my view a historic opportunity.
    Third, to unleash entrepreneurial development, we need to 
leverage the resources that we already have. The nation's Farm 
Balance Sheet, in my view, is illustrative. According to USDA's 
February 2006 estimates, farm equity, free and clear equity, in 
the United States today exceeds $1.45 trillion. That dwarfs any 
amount of money government could conceivably provide for rural 
development.
    We need business models that harness these resources to a 
strategy for sustainable development and wealth creation in 
rural communities and entrepreneurs to make it work. The key 
for us is to encourage partnerships and leveraging, and we are 
shifting our funding emphasis from grants and direct loans to 
loan guarantees to leverage these investments.
    We are also focused on building partnerships with state and 
local governments, tribal entities and private investors to 
bring non-Federal dollars to the table. In terms of ``bang for 
the buck,'' therefore in my view we punch well above our 
weight.
    In the 2007 budget, rural development is 1.5 percent of 
USDA's budget authority but 11.5 percent of USDA's program 
level. That is just the leveraging from loans and loan 
guarantees not including the private investment dollars that 
our private partners bring to the table.
    Finally, we are working harder to do even better. We have a 
very active program delivery task force, which is working to 
standardize the application process. We are moving important 
functions online and reducing costs and we are looking for ways 
to reduce stovepiping and cross-train our field staff to 
improve the efficiency of our local offices. This is a never 
ending process, and it is one we take very seriously.
    So in closing, Mr. Chairman, let me express my appreciation 
for the very generous support President Bush and the Congress 
have given USDA Rural Development. Rural America enjoys 
extraordinary opportunities from biobased products to ethanol, 
biodiesel, wind, and other new energy sources to broadband-
driven manufacturing and service businesses. These are 
opportunities we cannot afford to miss. We are committed to 
helping realize that potential, and I know that you are as 
well. We look forward to working with you.
    Thank you and I'll be happy to take or answer any questions 
that you may have for me.
    [The prepared statement of Mr. Dorr can be found in the 
appendix on page XXX.]
    Chairman Chambliss. Thank you very much for that positive 
statement.
    Last month, the Committee held a hearing on the Broadband 
Loan and Grant Program. One of the most controversial aspects 
of the program is the program's ability to lend into service 
areas with one or more existing providers. The ability to lend 
into competitive markets is in contrast to the traditional 
telecommunications program.
    To what extent has the Department sought to ensure that 
priority for all loans already made and currently pending serve 
areas unserved or underserved. Do you believe that lending into 
markets where service already exists is the most appropriate 
use for Federal dollars in rural areas?
    Mr. Dorr. That is a broad question and a very timely 
question that concerns everyone. First of all, we are in 
complete concurrence that broadband and deployment of broadband 
to rural America is key for rural America's ability to survive 
and actually grow and grow aggressively. We think it can 
happen.
    The broadband program has been a complex and complicated 
program to deliver largely because we were provided the 
opportunity to deploy these assets into competitive 
environments and simultaneously understanding that the basic 
charge is to develop while deliver broadband to the unserved 
areas.
    The difficulty, though, unlike to when we electrified rural 
America, is that we do not have a monopoly environment in which 
we can string wire or broadband into an environment in which we 
are the only provider.
    Second, these technologies are evolving at a very rapid 
pace, so everything from fiber to the home, wireless to WiFi to 
WiMax to cellular technology is something that we need and have 
been considering.
    We are in the process of reworking a set of rules. They are 
in the administrative review process. I cannot at this point, 
according to general counsel's advice, go into that information 
at this point.
    But we think in the long run with the help of a gentleman 
from your state, Mr. Jim Andrew, who is doing a terrific job 
for us over therein that program, trying to get his arms around 
it think that we will address a number of these issues. I am 
not sure that answers specifically everything that you want, 
but I'll be glad to follow up.
    Chairman Chambliss. Well, obviously this issue arose when 
we had Administrator Andrew up. I see Jim is with you today, 
and I think he is doing an excellent job over there. But I 
think that this is a complex issue, and I appreciate your 
response. It is often difficult to serve unserved areas without 
going through served areas. I think that is a lot of what the 
issue evolves around.
    Jim and I grew up in the rural electric co-op industry in 
our state. My home county first had electricity in 1934. I have 
talked to residents firsthand about their experience of 
electricity coming into unserved areas. I liken that a lot to 
where we are with broadband today, because everybody now has 
electricity. If we are going to continue to grow both 
economically and otherwise in rural America, it is important 
that we put broadband in place in unserved areas.
    So I do think it is a very complicated policy you have to 
deal with. I know it is in good hands with you and Jim, and we 
are going to continue to dialog with you about this as we work 
through this very sensitive area.
    The Rural Electric Utility Loan and Guarantee Program 
recently received an adequate rating from the Office of 
Management and Budget. It notes that RUS has developed new 
performance measures and baselines to show the impact the loan 
funding is having on rural electrification.
    Can you detail what improvements are being made to the 
program and how the focus of the program is shifting as rural 
areas confront aging infrastructure and new demands for 
improved service?
     Mr. Dorr. Well, I'm not sure that I have a specific 
response for you, but let me simply put it this way. We have 
looked at the lack of growth that has occurred in both the 
development of generation and transmission after the peak 
growth period in the late seventies and the early eighties. It 
is a concern that the utilities organization at Rural 
Development, including Mr. Andrew and others,is evaluating very 
closely, and they are anticipating a great growth in demand for 
these programs.
    In my view, they are substantially above what we have 
historically been dealing with over the last several years 
along with growth in transmission. Rural Utilities is in the 
process of evaluating how best to deal with that now.
    I know that Jim, as well as myself, have been reaching out 
and discussing with interested parties, the NRECA and others, 
as to what is the most appropriate approach to take to this. 
The interesting thing that I think we are beginning to deal 
with is the fact that in these new energy models much of what 
is evolving in the technology is distributed in nature.
    Distributed energy production, whether it be wind or 
whether it be ethanol or biodiesel, required different kinds of 
regulations and different kinds of investment in models and tax 
structures in order that they be integrated into the legacy 
models.
    That is something that we are looking at closely. We are 
trying to figure out now how best to research so that we 
understand better how to do this, but that is an underlying 
theme that I think we have to be very attentive to.
    Chairman Chambliss. The U.S. Department of Agriculture and 
the Department of Energy collaborate through the Biomass 
Research and Development Initiative to coordinate and 
accelerate all Federal biobased product and bio-energy research 
and development. How does Rural Development coordinate with the 
initiative, and how does the initiative's vision and efforts 
affect Rural Development's work?
    Mr. Dorr. It is a very interesting initiative and one that 
is very effective. Obviously, it was authored by Senator Lugar 
and Senator Harkin back, I believe, in 2000. At that time we 
were directed, or the administration then was directed, to 
collaborate between USDA and DoE.
    They have put together the Federal Advisory Committee. They 
have been involved in delivering or taking the research 
applications, defining the issues, and defining a road map as 
to how to get to a much more biobased energy model.
    One of the things that came out of that was, quite frankly, 
a realization that this collaboration between DoE and USDA was 
effective to the extent that when the energy title was passed 
in the 2002 Farm Bill, specifically Section 9006, the energy 
efficiency and renewable energy package.
    At the time I was serving as undersecretary, I made a very 
direct effort to engage DoE to collaborate with us so that 
Rural Development uses DoE in the development of the kind of 
technical expertise to evaluate these grant and loan 
applications. It has worked very well. I think it has been a 
good partnership, and we anticipate continuing it.
    Chairman Chambliss, let me just conclude by saying that 
Senator Lugar makes an excellent point in that we need to 
continue to do our part from the Federal level relative to 
providing funds for service, particularly of unserved areas, on 
these critical issues like alternative energy as well as 
broadband.
    But by the same token, we need to incentivize the private 
sector to invest in not only unserved areas but underserved 
areas. As you think through the policies that we need to 
continue to modify USDA, I hope you will remember that I think 
all of us want to make sure, No. 1, that our constituents are 
well served with all of the quality of life issues that we have 
talked about, but at the same time that in a lot of instances 
it is better if the government gets out of the way and lets the 
private sector operate.
    So we look forward to continuing to work with you on this.
    Senator Harkin.
    Mr. Dorr. Thank you.
    Mr. Harkin. Thank you, Mr. Chairman.
    Mr. Secretary, I just want to follow up a little bit on the 
broadband issue. I will just make this statement. I think RUS 
made some fairly substantial errors when they set up the 
programs in terms of applications are expensive, waits are 
long, cash requirements are too onerous. We had a whole dearth 
of applications occur for a considerable time; some loan 
capacity was lost.
    I understand the USDA now may lose the ability to make up 
to $900 million in low-interest loans if the money is not 
obligated by September 30th. Is USDA going to be able to 
obligate those funds for good projects?
    Mr. Dorr. There were a number of issues that you described 
that are being addressed in this new regulation that I talked 
about. Again, I am not at liberty to go into the details, but 
we are doing everything we possibly can to make that program a 
strong and viable program, very sensitive to the issues of not 
only making the loans, but of the opportunity that broadband 
does bring to rural areas--particularly vibrant, growing rural 
regions of the country.
    Mr. Harkin. Mr. Secretary, the GAO indicates that 
considerable broadband loans went to clearly suburban areas. 
Have you put procedures in place so that this doesn't happen in 
the future?
    Mr. Dorr. We are addressing a number of these issues 
through the new regulation, and, hopefully, we will have that 
handled appropriately.
    Mr. Harkin. Is that imminent?
    Mr. Dorr. It is in administration review at this point. We 
are doing everything we can to move this along very quickly.
    Mr. Harkin. Well, that's good. Again, on this whole issue 
of broadband, I know that some of the players in the private 
sector who have been involved in taking broadband to some rural 
communities have been hard to deal with on this issue.
    But in many cases where they say they are serving a 
community, we looked into that. We found that they may be 
serving the downtown area, the small downtown, but they are not 
serving the people out and around the town. And so therefore 
they say, ``Well, we're providing that service.''
    Some time ago, I did a little study on the rural 
electrification program, Mr. Chairman. Literally, there were 
debates at that time on the floor of the Senate and in the news 
media of the fact that power companies were quite capable of 
getting electricity out to farms.
    If the farmers want to pay for it, they will string a line 
out there. The fact is they couldn't pay for it. There was no 
way that it could be done. A lot of power companies were 
opposed to the Rural Electrification Program on that basis. The 
Congress went ahead and passed it, and I think the rest of 
history.
    I think we have to see the same thing here in broadband, 
that yes there are going to be people out there opposed to it, 
because if they just hold out long enough, maybe they can 
squeeze people to pay enough for it.
    Well, that is going to hinder economic development in rural 
areas. That is why I think we need to be more aggressive in 
reshaping the rules and regulations--I don't think we ever 
intended for this to serve suburban areas---- but also to get 
out to rural areas and those small communities where they may 
have a service but not everybody gets it.
    We need to be more aggressive, I think, in getting the 
funds out to do that. So I hope that this new regulation you 
talked about will do that. I haven't seen it, but I hope it 
will do that.
    Second, I just want to talk a little bit about REDL&G and 
again trying to get funds through the Rural Economic 
Development Loan and Grant Program, called ``REDL&G.'' I'm 
concerned that there is a lot of money in this account that is 
not being put to use.
    In fact, the administration, I understand they are asking 
it to be rescinded. If that isn't so, correct me if I'm wrong 
on that. So I would ask: why isn't Rural Development working to 
promote the use of these funds rather than seeking a 
rescission, if they are seeking rescission? I'm told they are.
    Mr. Dorr. I think we have watched that program with 
interest. Quite honestly, I believe in the FY 07 budget that 
Rural Development presented we have increased our proposed 
usage of REDL&G monies of about $10 million. I believe we have 
increased the--well, let me check here. I had that number here 
someplace. I think we are going to end up with about $30, 
excuse me----
    Mr. Harkin. Mr. Dorr, can I interrupt?
    Mr. Dorr. Sure.
    Mr. Harkin. I have staff to tell me that the president's 
budget recommended a rescission of, roughly, $80 million from 
the REDL&G Program.
    Mr. Dorr. I believe that's correct. I believe that's 
correct, and we are proposing in our FY 07 budget approximately 
thirty-two million dollars in loans and about $10 million in 
grants.
    We have not been able to use all the grant money. We have 
not had an adequate number of applicants for the grants, and as 
a result we are considering a different way to do a better job 
of marketing that program so that we do acquire more applicants 
for those grants.
    Mr. Harkin. Do you feel that you are putting out enough 
information that these funds are available? I just know that in 
Iowa these funds have been used for everything from medical and 
childcare facilities, manufacturing plants to industrial parks. 
I think it has been put to good use.
    Mr. Dorr. They have been put to good use. Let me just back 
up a moment. When I first became the undersecretary during my 
recess appointment in 2002, it became fairly apparent that 
Rural Development was an amalgamation of program areas after 
the reorganization process in the mid-nineties when we had 
Farmers Home Administration, Rural Electrification 
Administration, and we had the Rural Business Co-op Service.
    It was a time of difficulty within the organization. The 
programs were trying to figure out who they were. There were 
the ``brands''. For example the Farmers Home Administration had 
been lost.
    Consequently, we spent a fair amount of time trying to 
develop a better branding or marketing or outreach initiative, 
if you may. It isn't perfect, but we have made a lot of 
progress. We are aggressively devolving down to the state level 
and to the people within the organization in a way to give them 
more authority so that they are doing a better job of 
advocating for these programs that we have, getting the 
information out at the state level.
    Have we done everything perfectly? Perhaps not, but I think 
we have made a lot of progress in making people more aware of 
our programs. I think that is self-evident in the context that 
we have gone from approximately $9 billion in program delivery 
to this year nearly $17 billion. We haven't gotten everything 
right, but we're sure working on it, and we are going to 
continue.
    Mr. Harkin. I appreciate your candor on that, and I just 
hope that they get more information, more word out on that. 
Just last, very briefly, the Value-Added Development Grant 
Program, the 2002 Farm Bill expanded this and we provided 
mandatory funds every year for this. The administration has 
regularly requested that the program be cut off by 60 percent. 
Our appropriators follow that.
    Could you just address yourself to the Value-Added 
Development Grant Program and how you see this as a part of our 
Rural Development Program, the Value-Added Development Grant 
Program?
    Mr. Dorr. I think the Value-Added Development Grant Program 
in conjunction with a program of similar ilk, Section 9006 
Energy and Efficiency Program, are terrific programs.
    These sorts of things ebb and they flow in the context of 
utilization of financing and how they work, but the remarkable 
thing about this program is that it has provided some up-front 
cash on a matching basis to folks who are particularly 
interested in developing new value-added ventures within their 
farming and rural communities. We have seen a great deal of 
success in that program, and we think it is a strong program. 
We would anticipate it to continue that way. I think we are on 
the right track.
    I would make one other added comment. When I became the 
undersecretary again late last summer and looking at the 
program, it became evident that there were a number of small 
applicants that perhaps ought to be addressed. We this year set 
aside $1.5 million to that program to be utilized for small 
grants, $25,000 and under, so that we would particularly make 
an effort to get small producers engaged in this process and 
make it an easy and applicable effort to get to. We announced 
that funding source, I think, last week and we would expect 
that to be a successful component of this program as well.
    Mr. Harkin. OK. Mr. Secretary, I appreciate that. Just if 
you have any advice or suggestions on what we need to do in the 
next farm bill, because biobased products are going to be big, 
as we have all talked about, in rural economic development.
    It seems to me that we want to help promote that in terms 
of the value-added part of it. This could be a real key to 
providing that kind of economic growth for the biotech, 
biobased products and value-added products from agriculture, 
especially in the energy area.
    Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Chairman Chambliss. I am told that we are going to have a 
vote at 11:15 on the Dorgan Amendment, but we are going to go 
as long as we can here, and then we will come back after that 
vote.
    Senator Lugar.
    Mr. Lugar. Well, thank you very much, Mr. Chairman.
    Mr. Dorr, already the investments in corn ethanol are 
coming along well, and we wish more production could occur 
sooner.
    But I took a look at a plant in Rensselaer, Indiana, a 
small county. Here, about 40 million gallons of ethanol are 
going to be produced each year. At current prices, that is a 
$100 million to $120 million coming into that county quite 
apart from about 100,000 to 110,000 bushels of corn that will 
be purchased locally from farmers there.
    The impact of that kind of money as something coming into 
that county is going to be dynamic. Now, how well either rural 
people or the small town people or whoever deals with this 
remains to be seen, I think. But, nevertheless, it is a happy 
prospect. This is not going to be a backwater.
    I was intrigued with, Senator Harkin, I heard a professor 
from Dartmouth College last week at an Aspen Institute 
breakfast discussing cellulosic ethanol. In addition to being a 
professor, he is also apparently a part of a startup of a 
cellulosic ethanol situation, an entrepreneur.
    We were querying him about this, because our president has 
talked about cellulosic ethanol due to the fact that it could 
probably be produced in all 50 of the states whereas corn 
ethanol probably is going to be restricted to 15 states or so 
in our part of the country.
    But he pointed out that it would require a different kind 
of grass to grow in the North, in the South, and the middle 
regions and the various, which is a new twist on this. We hear 
of switchgrass frequently, but there are all sorts of grasses 
in this country.
    As a matter of fact, there are about 34 million acres in 
set-aside. A lot of those acres have been growing grass for a 
long time. I mention all this because all sorts of things 
happen when people get big ideas.
    For example, the suggestion that our cornland is going to 
be overtaken by energy production, as if there were not a lot 
of acres out there somewhere that are not being utilized, that 
we have set aside really to protect or restore pricing in the 
past, for example.
    I am just curious, I'm not asking you how programs are 
working now in Rural Development, but what sort of capacity do 
you have in the Department to be thinking through this process?
    My guess in the corn ethanol area, here private enterprise, 
as the financial pages point out every day, is very active. 
Therefore, the loan guarantees are less required, and in some 
cases they are not going to be required at all. People will 
simply go into it. But in the cellulosic ethanol business, here 
things go very tediously.
    Now, in my conversation with Secretary Bodman, they are 
working through the loan guarantees so that a Canadian firm, 
Iogen, might conceivably start a plant in Idaho this August. 
That seems less and less likely because whatever the 
bureaucratic function is it seems to be taking quite a while, 
even though our last farm bill sort of set those guarantees up, 
and so I am not optimistic about this.
    I have called Al Hubbard at the White House and suggested 
they had better get moving on it. If this is something the 
president really wants, that bureaucrats don't move that 
rapidly. But I'm just curious, you have mentioned a 
collaboration with Energy.
    The cellulosic thing, nothing seems to be happening very 
fast, and yet the urgency of this seems to be apparent for 
states, not just 15. My guess is still the research, there is a 
legion of problems there that USDA has been working on for some 
time, but it's not really clear where this is coming to the 
fore. I just want some assurance of somebody being in charge.
    Who has enough vision to understand what is occurring out 
there and begin to organize it in a way which all of us will 
not be in a frustration every time we have a hearing as to why 
nothing is happening when we all have a pretty good idea of 
what ought to be happening, and if we were administering it, we 
would make it happen? Can you offer us any assurance?
    Mr. Dorr. Well, I would love to offer you lots of 
assurance. I think the thing about the entire new bioenergy 
arena, even though many of us like yourself, like Senator 
Harkin, and several others have been heavily involved in this 
industry since 1975--I was on the first Checkoff Board in Iowa, 
the board of directors of the corn growers, and we passed the 
first checkoff.
    But I think it's important to remember, although this 
perhaps doesn't give us any solace, but it is important to 
remember, that as this evolved it was actually three farmers 
that worked out the dry-milling process on the ethanol basis: 
the Broins out of Minnesota, the Fagans out of Minnesota, and 
the VanderGriends out of Sheldon, Iowa.
    It was three farmers that put this thing together. It was a 
family business owner, Tony George, who committed to putting 
ethanol into his Indy racing as a premium fuel. It is these 
kinds of independent things that tend to happen if you provide 
the right kind of incentives.
    I don't know what the perfect package of incentives is, but 
I do know that DoE is clearly interested, and they have visited 
with us on the loan guarantee programs. To the extent that we 
can be of any help and any assistance in that, we will.
    I also know that cellulosic research is evolving probably 
in a more rapid manner than we expect, although I don't know 
how many years it is going to take. But we do have to bridge 
this ``death valley,'' if you may, going from 
precommercialization to commercialization. That is a tough shot 
for people.
    The underlying part of this, in my view, it gets back to 
what I said earlier, there is $1.45 trillion of equity in rural 
America. We are looking at the possibility in cellulosic 
ethanol of taking corn-based ethanol on a per acre basis from 
maybe 450 to 460 gallons per acre to using some of the 
cellulose out of the stober (phonetic) up to 1,000 gallons per 
acre, which is a tremendous gain. If we can get the right mix 
of these things, I think it will happen pretty fast.
    But the bottom line, we are building a brand new industry. 
It is a brand new industry that has its own distribution 
challenges. It has its own pricing challenges. it has all of 
those things that you end up with in a new business.
    I don't have the perfect answer. I don't know how to give 
you that perfect answer. But I will tell you that, from a 
private sector point of view, in my estimation, we will make 
rather lightening progress when all of the things click, and we 
will wonder why it didn't happen earlier.
    Mr. Lugar. Thank you. We will stay in touch. Chairman 
Chambliss. Senator Salazar.
    Mr. Salazar. Thank you very much, Undersecretary Dorr. 
Staying on that same line of thinking from Senator Lugar and 
others concerning the bioenergy future of rural America, 
yesterday we had a panel of experts on the Energy Committee who 
talked about cellulosic ethanol, and they are determined to get 
us to a point where we can actually commercialize cellulosic 
ethanol within 6 years. It is part of the president's 
initiative, and the experts at DoE tell us that we will get 
there within 6 years.
    Yet, some of the witnesses from the biodiesel industry who 
also talked about moving into a greater diversification of the 
feed stock so that we not only use soy, but we start using 
canola and trying to push further in that direction because of 
the oil content of canola.
    I would imagine that most of us who are sitting on this 
Committee are going to be looking at this energy title of this 
farm bill as a great, golden opportunity and a new chapter of 
opportunity for rural America.
    My question to you is: as we anticipate those things 
happening in the life of this next farm bill, what is it that 
we ought to be doing differently in terms of anticipating some 
of those opportunities and needs out in rural America?
    I looked at your testimony last night, and I saw that from 
2001 to 2005 there were 89 ethanol projects that were supported 
by USDA, mostly loan guarantees, but a total of $84 million.
    If you were to take us from where we are today at 2006, 
looking out ahead and 6 years and the reality of cellulosic 
ethanol, tell us what kinds of things we could be doing as a 
policy out of this Committee, out of this Congress to help 
incentivize this successful wave that I think is coming toward 
us?
    Mr. Dorr. Certainly. I don't know that I have any better 
sense than, frankly, anyone else does. I mean, as I have 
already indicated, this is an evolving industry and an evolving 
market. But I would go back to something I said earlier, and 
that is that these are largely distributed energy production 
business models that are primarily rural focused.
    In that context, it is going to require a different set of 
regulations. For example, to incorporate 20-megawatt wind 
generation farms into larger, more traditional regulated 
generation transmission structures, if that becomes 
economically viable, it is going to require different kinds of 
tax structures or investment vehicles.
    I would even suggest that disclosure requirements to make 
it possible for small investors in these rural communities to 
participate in these programs are critically important. For 
example, if you are going to build a $150 million ethanol 
facility and you want to raise 40 percent equity, it is very 
easy right now to go to New York or Chicago or someplace and 
get one check for $60 million.
    Now, I would be the last guy to suggest that we impose 
movement on capital, but I would also tell you that as a farmer 
and a rural person I would love to see this wealth, this equity 
wealth, be manifested and kept in the rural area.
    The simple fact of the matter is if you are going to raise 
$60 million in my hometown of Marcus, Iowa, instead of taking 
one transaction, it is going to take 3,000 transactions. How do 
you mitigate that problem? Does that mean that we shouldn't do 
it? No, absolutely not.
    What it does mean is we should look at ways to develop 
investment vehicles to maintain the governance, the 
transparency, and the clarity to make it possible for the 
plumber, the school bus driver, the school teacher, the tenant 
farmer, and the landowner to invest in these as equity vehicles 
so that when the developer comes in and is looking for equity 
money he can go get it from that source and not necessarily 
having to go to Chicago or Des Moines or Omaha or New York. 
That is going to require that we address disclosure issues and 
other things that are involved with the SEC.
    Now, these are far beyond my expertise. But I would just 
simply submit that we do have technology. We do have computer 
technology. We do have the ability to track things quickly. We 
ought to be able to somehow devise a fix so that the local 
people in our rural communities can invest in these. That is a 
big issue that I think we could all use a lot of help on. I 
don't know that I've got the answers to that.
    Mr. Salazar. Let me just say, Mr. Secretary, I very much 
look forward to working with you on that issue, and I know that 
members of this Committee do as well. Because with the 
bioenergy revolution I think out in rural communities, I think 
all of us share the concern of wanting to make sure that some 
of that ownership and some of that benefit remains there at the 
local level. I very much look forward to working with you on 
that.
    Can I ask just one more quick question? I know my time is 
up, Chairman Chambliss.
    Chairman Chambliss. (Moving head up and down.)
    Mr. Salazar. The president's budget looking ahead, as I 
recall--this has been some time ago when I looked at the 
detail--indicated that there was going to be, the proposal was 
that we were cutting about $318 million, as I recall from Rural 
Development Programs.
    Whatever the amount is, I don't know if that $318 million 
is correct but it's close to that amount, what impact is it 
going to have in a practical way on your ability to deliver the 
Rural Development Programs that are currently authorized?
    Mr. Dorr. I'm not certain of that number. I am, quite 
frankly, certain that we are not losing three hundred and some 
million dollars of budget authority. I do know that our 
programs, as I said earlier, ebb and flow. Yet, there has been 
a continual pattern of growth in these programs, and a very 
consistent one.
    The loss that you reflect on right now may be as a result 
of the aggregate number that is a result of the supplemental 
for Hurricane Katrina, so there may be some reduction in that. 
I think that we have strong programs. I think that we have a 
strong delivery mechanism.
    I would simply point out that we have 800 offices 
throughout the United States, and we have over 5,000 people in 
the field. Our people, our local people, live, they eat, they 
go to church, they educate their kids with the people in those 
communities.
    We take a lot of pride in the fact that they are very 
sensitive to what is going on and help foster and develop and 
``bubble up'' economic development opportunities in the rural 
communities. We are going to continue to push that, and I think 
we will be successful at it.
    Will we always have enough money in every individual 
program? I suspect not. But will we in the long run? Because 
the market is sensitive to what the demands are and address 
most of them in one way or the other? I think, likely.
    Mr. Salazar. Thank you, Mr. Chairman.
    Chairman Chambliss. We've got less than 5 minutes left in 
the vote, so we want to break for that. Mr. Dorr, there may be 
other questions afterwards. We are going to ask you to stick 
around. But before we go, Senator Harkin has one request.
    Mr. Harkin. Just following up, Mr. Secretary, on the Value-
Added Grant Program and the Market Development Grant Program, 
just in order to inform us as to where we are in this and 
looking ahead to the next farm bill, Mr. Chairman, I would like 
to ask if we can get the figures, for the record, on the number 
of applications that have come in and the share of them that 
have been approved and funded?
    Mr. Dorr. Yes, sir.
    Mr. Harkin. I just think there is a lot more that have come 
in. I think it might inform us as to what the demand is out 
there for it.
    Mr. Dorr. Certainly.
    Mr. Harkin. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary.
    Chairman Chambliss. Have you voted?
    Ms. Lincoln. I have not voted. I've got constituents in the 
hallway. Is there at least 11 minutes left in the vote?
    Chairman Chambliss. No. We've got about 3 minutes left, 
yeah.
    Ms. Lincoln. Well, I have two questions for Mr. Secretary, 
or three, and I will just submit them for the record. Is that 
all right?
    Chairman Chambliss. Or, you can come back after the vote, 
whichever. We are going to come right back.
    Ms. Lincoln. OK.
    [Recess.]
    Chairman Chambliss. Well, Mr. Dorr, it looks like you're 
off the hook here.
    [General laughter.]
    Chairman Chambliss. I don't think any of my colleagues are 
going to be coming back that want to inquire of you. There will 
be some questions I know that will want to be submitted for the 
record.
    Let's see, is Blanche's staff here?
    [No response.]
    Chairman Chambliss. Her questions will be submitted to the 
record, then, for the record.
    Thank you very much for being here. We look forward to 
staying in touch and, again, discussing a dialog on the complex 
issues we have talked about.
    Mr. Dorr. Thank you, Mr. Chairman. I appreciate your 
counsel.
    Chairman Chambliss. Our next panel consists of three 
individuals: The Honorable Glenn English, chief executive 
officer of the National Rural Electric Cooperative Association 
located in Arlington, Virginia; Ms. Jane Halliburton, 
supervisor of Story County, Iowa, from Nevada Iowa; and Ms. 
Mary McBride, executive vice president, Communications and 
Energy Banking Group, CoBank, Denver Colorado. Welcome to all 
three of you.
    Glenn, we are always glad to see you back on the Hill and 
to see you on this side. We will look forward to hearing your 
testimony. Glenn, we will start with you, go to Ms. 
Halliburton, and Ms. McBride. Welcome all of you.

 STATEMENT OF THE HON. GLENN ENGLISH, CHIEF EXECUTIVE OFFICER, 
  NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION, ARLINGTON, 
                            VIRGINIA

    Mr. English. Thank you very much, Mr. Chairman. I want to 
commend you and the Committee for holding these hearings. Rural 
development is an extremely important topic, particularly as 
far as rural electric cooperatives are concerned. We have been 
creating value, as far as infrastructure is concerned, for 
rural communities for over years now.
    Mr. Chairman, I think that it is best summed up in a 
meeting that I had earlier this year at Homeland Security in 
discussions that we were having there regarding Rita and 
Katrina and kind of doing in the aftermath on what could be 
done differently. One of the senior officials at Homeland 
Security made the point to us that the one thing that they 
found is that recovery was impossible until they got the 
electric power back on.
    Virtually everything that they were doing required some 
kind of electric power. Whether it was a clean water supply or 
whether it was telecommunications or healthcare, they all 
required electricity. I think far too often that is something 
that is underappreciated and misunderstood until we don't have 
it.
    I was pleased to see that Homeland Security recognized that 
and also we tried to make sure that they understood the breadth 
and the scope of electrical operatives. I think a lot of people 
don't appreciate and understand that as well.
    We cover, roughly, three-quarters of all the land mass of 
the United States. While we serve the fewest number of people, 
about 12 percent of all the folks in the country that are being 
served, we do have a huge land mass, and it requires an 
infrastructure that takes up 43 percent of all the electric 
utility industry.
    Over the next few years, we are going to have an even 
greater impact in growth, I think, as electric cooperatives 
continue to increase in their size. We right now serve about 40 
million people across this country. We are growing about twice 
as fast as other sectors of the electric utility industry.
    Also, we have a new billing cycle that is going to be 
underway, Mr. Chairman. In 2001, Vice President Cheney made the 
point that the capacity that we have as far as generation of 
electric power in this country had pretty much been consumed, 
and to meet the future economic needs of the country there is 
going to have to be a considerable amount of growth in the 
entire electric utility industry.
    What the vice president was pointing out, that we were only 
going to require between 1,300 and 1,900 new power plants over 
a 20-year period. That certainly affects electric cooperatives 
in the same fashion as it affects the rest of the industry.
    We expect that we are going to need somewhere in the 
neighborhood of $28 billion in new construction of power plants 
in order to meet the needs of our members, even over the next 
10 years. Obviously, that is a major amount of growth.
    Over the past 5 years, roughly, 60 percent of all the 
financing for electric cooperatives has come from the private 
sector, and about 40 percent has come from the Rural Utility 
Service.
    However, as we move forward to meet these new needs in 
constructing this new generation and making certain that we are 
doing our part to help keep the economy of this country moving, 
we would expect that there will even be a bigger percentage of 
the financing that will be necessary to come from the Rural 
Utility Service.
    Now, we have seen an increasing growth, as you are aware in 
your native state of Georgia, in some of the more suburban 
areas of the country, and that is where a lot of this new 
financing has gone.
    However, we will serve the rural areas of the country, and 
we obviously are going to need a huge amount of resources in 
order to meet that need. We anticipate over and above what the 
president has requested electric cooperatives in order to build 
this generation is going to need somewhere in the neighborhood 
of $6 billion, which is $2.2 billion over and above what the 
president's budget request was this year.
    Now, what this cost of this financing is, roughly, $25 
million a year for the Rural Utility Service. We are prepared 
to make certain that, for budget purposes, we don't increase 
that impact as far as the Federal budget is concerned. So we 
will be doing our part to help pick up the cost of financing 
that $6 billion that is anticipated that we will need. Mr. 
Chairman, I want to thank you again for the opportunity to 
appear here, and I will be happy to answer any questions that 
you might have for me.
    [The prepared statement of Mr. English can be found in the 
appendix on page XXX.]
    Chairman Chambliss. Well, thank you. We are always glad to 
have you here.
    Ms. Halliburton, we will look forward to hearing from you.

 STATEMENT OF JANE HALLIBURTON, SUPERVISOR, STORY COUNTY IOWA, 
                          NEVADA IOWA

    Ms. Halliburton. Thank you, Chairman Chambliss and Ranking 
Member Harkin, for allowing me to appear this morning on behalf 
of the National Association of Counties and the National 
Association of Development Organizations on the importance of a 
strong rural development in our next farm bill.
    My name is Jane Halliburton, and I am a county supervisor 
from Story County, Iowa. I currently serve on the NACo Board of 
Directors. NACo is the only national organization that 
represents county governments. NADO represents regional 
development organizations nationwide.
    As you know, rural America is a diverse and constantly 
changing place. This morning I would like to make three key 
points on the state of rural development programs and then make 
some recommendations on the upcoming farm bill reauthorization.
    First, rural communities need Federal development 
assistance programs and policies that allow them to identify, 
address, and meet local needs.
    Second, Federal rural development policies need to build on 
the genuine intent but unfulfilled promise of the 2002 Farm 
Bill.
    Third, USDA rural development programs should support the 
basic needs of local communities such as water and wastewater 
systems, telecommunications, and housing while also tapping 
into the rural competitive advantage for innovation, 
entrepreneurship, and alternative solutions such as renewable 
energy.
    When examining the different types of assistance targeted 
to urban versus rural areas, an alarming trend is discovered. 
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 DOT's highway 
and transit programs, the bulk of rural assistance is in the 
form of loans and transfer payments such as social security and 
AG payments and competitive grant programs.
    The Kellogg Foundation calculated this disparity in a July 
2004 study and found that the Federal Government spent from two 
up to five times as much on metropolitan versus rural community 
development.
    By funneling billions of dollars in grants each year to 
urban areas, a distinct advantage over our rural communities, 
while urban areas are building the communities and industries 
of tomorrow, rural areas are forced to make do with the 
economies and legacies of yesterday.
    Federal rural development policies need to build on the 
genuine intent but unfulfilled promise of the 2002 Farm Bill. 
Passage of the bill was a landmark event for rural development, 
because it allocated $1 billion worth of mandatory funding to a 
variety of programs within the rural development title.
    However, several of the most innovative programs were not 
implemented. For example, the Rural Strategic Investment 
Program was an attempt to build local capacity within regions 
by bringing the public and private sectors together.
    The underlying goal was to place rural regions and 
communities in the driver's seat to chart their future. It 
represented one of few Federal incentives to promote regional 
collaborations and public/private investments, but the program 
was never fully implemented and the funding was later 
rescinded.
    Last, critical public infrastructure such as water and 
wastewater and telecommunications are still sorely needed in 
numerous communities throughout rural America. In 2004, NADO 
conducted an E-forum with 200 regional development 
professionals and local government officials. When asked, 
``What is the major roadblock to economic development in your 
region,'' the highest rated response was: ``Inadequate public 
infrastructure.''
    Private sector investors and businesses expect and demand 
that local governments and communities have the public 
infrastructure in place before they will locate in a community.
    For rural America to fully compete in today's global 
economy, there must be greater deployment of high-speed 
broadband capacity. A recent study found that rural America 
continues to lag behind urban areas in broadband adoption. 
Specifically, the study found that only 24 percent of rural 
Americans have high-speed connections compared to 39 percent of 
urban Americans.
    A recent ``Des Moines Register'' article showed what 
happens when individuals have Internet capacity and an 
entrepreneurial spirit. In Soldier, Iowa, a town of 207, a 
family owned bookstore is now selling 95 percent of its 
inventory online. We would urge the Committee to look for ways 
to further close the digital divides so other small businesses 
can succeed online.
    I would again like to thank Chairman Chambliss and Ranking 
Member Harkin for the opportunity to appear, and we stand ready 
to work with you in crafting a farm bill that develops our 
rural communities. I would be happy to respond to any 
questions.
    [The prepared statement of Ms. Halliburton can be found in 
the appendix on page XXX.]
    Chairman Chambliss. Thank you very much, Ms. Halliburton. 
Ms. McBride.

     STATEMENT OF MARY McBRIDE, EXECUTIVE VICE PRESIDENT, 
   COMMUNICATIONS AND ENERGY BANKING GROUP, CoBANK, DENVER, 
                            COLORADO

    Ms. McBride. Thank you. Thank you, Chairman Chambliss. My 
name is Mary McBride. I am executive vice president for the 
Communications and Energy Banking Group, for CoBank. CoBank 
provides financial services to 2,400 customers throughout the 
United States.
    These customers are also CoBank's member owners and 
include: rural electric cooperatives, farmer-owned 
cooperatives, rural water systems, and rural telecommunications 
companies. In 2005, we extended over $26 billion in loans and 
leases to help capitalize these rural-focused businesses.
    We currently have relationships with about 200 other 
lenders including over 100 commercial banks where we work 
together to meet the credit needs of rural America and 
agriculture.
    CoBank and our members are involved in a number of programs 
under the USDA Rural Development Program. Let me briefly 
mention six areas of interest: the first one is the USDA Rural 
Utility Service.
    An important part of CoBank's mission is serving the needs 
of our customers in the area of electric distribution and power 
supply. CoBank currently provides approximately $7 billion in 
loans to rural electric cooperatives.
    Many of our rural electric cooperative customers have 
borrowing relationships with both RUS and CoBank. The need for 
financing for baseload power plants and stronger transmission 
systems is increasing substantially. CoBank anticipates 
increasing our lending for baseload generation to help meet 
this demand.
    We also agree with NRECA that RUS will need additional 
funding for baseload generation. We look forward to working 
with RUS and other lenders in joint efforts to address the 
emerging needs for generation for rural electric cooperatives. 
CoBank also anticipates increased lending to rural 
telecommunications companies. We currently provide $2.9 billion 
in capital to these rural businesses.
    Although not part of the jurisdiction of this Committee, I 
would be remiss if I did not mention the importance of the 
Universal Service Fund to rural communities. Most rural 
telecommunications businesses serve sparsely populated areas, 
and therefore have higher costs than those serving urban and 
suburban areas. Maintaining a strong USF is essential to rural 
communities and rural telecommunications businesses.
    Second, the second issue is value-added agricultural 
grants. The Value-Added Producer Grants Program authorized in 
the farm bill has been used by a number of agricultural 
cooperatives. The program is helpful in supporting feasibility 
studies and providing startup working capital.
    Unfortunately, while the 2002 Farm Bill authorized $40 
million annually for this program, it has been funded at 
significantly lower levels. We believe that full funding of the 
Value-Added Producer Grants Program is important to encouraging 
new ventures relating to rural development.
    The third area of interest is rural business investment 
companies. The 2002 Farm Bill provided for the creation of 
rural business investment companies to encourage equity 
investments in rural America. This RBIC provision could be more 
successful if the regulations allowed for a streamlined process 
for establishing non-leveraged RBICs that are seeking no 
guarantees from the Federal Government.
    Fourth, the USDA Cooperative Development Program: the USDA 
has a long history of providing research, technical and 
educational assistance to farmer cooperatives. Continued 
support for this assistance will help new cooperative 
enterprises to me developed.
    Fifth, the USDA Business and Industry Loan Guarantee 
Program: in order to facilitate credit for some CoBank 
customers, we do at times work with certain customers to obtain 
B&I loan guarantees from USDA. The guarantee can be very 
helpful for agricultural cooperatives with low equity.
    While we have found the USDA staff involved with this 
program to be knowledgeable of the agricultural industry and to 
possess good credit skills, rigid program guidelines and 
procedures create difficulties in dealing with fluid situations 
that exist with many borrowers.
    Last, would be biofuels initiatives: CoBank is the leading 
lender to the biofuel sector in the country. New biofuel 
facilities are creating new jobs and economic activity in rural 
communities. The tax and other incentives provided to the 
biofuels sector are of utmost importance as this industry 
progresses. We look forward to working with this Committee on 
further actions to strengthen the biofuel sector in the next 
farm bill.
    Thank you for the opportunity to testify, and I am 
certainly willing to answer any questions that you might have.
    [The prepared statement of Ms. McBride can be found in the 
appendix on page XXX.]
    Chairman Chambliss. Thank you.
    Mr. English, you note in your testimony that over the next 
decade we are going to need $28 billion in capital to keep up 
with the future demand for power generation and transmission. 
If the current funding at RUS for electric programs continues 
as projected, will there be a shortfall in lending? I think you 
have already answered that question.
    Will the private sector be able to meet the additional 
demand for that capital over and above what we know is going to 
be coming out of RUS?
    Mr. English. Well, Mr. Chairman, a portion of this 
obviously is going to have to come from the private sector, no 
question about that. But keep in mind that in the private 
sector you are going to have a huge demand by other segments of 
the electric utility industry, particularly investor-owned 
utilities.
    We are going to need, particularly as far as that 
generation that is going to apply to the most rural and the 
poorest areas of this country, we are going to need the Rural 
Utility Service to be a major player in this area as they have 
traditionally been. That is the reason that we are very hopeful 
that we will be able to acquire funding at $2.2 billion above 
what the president included in his budget--I should say the 
loan levels.
    To that point, the actual cost of this program, as I 
mentioned before, and the budget impact we expect to continue 
to be in the $25 million area as it has been traditionally, or 
has been in the last few years.
    Chairman Chambliss. Are co-ops around the country finding 
it difficult to borrow money in the private sector, or is that 
something that has eased off in the last several years?
    Mr. English. Well, the credit rating of electric 
cooperatives right now is very, very good. We over the past 
decade, unlike so many in the electric utility business, did 
stay home, did take care of business, did focus on the 
membership that we had in delivering the service they needed. 
That turned out to be a very wise business decision as well as 
our job, so I think at this particular point we are in very 
good shape.
    But as I said, that is not to say that RUS won't be needed 
and needed greatly by the electric cooperatives to meet this 
task. This is a huge task. Mr. Chairman, we are going to have 
to increase generation by a third over the next 10 years, and 
that is a huge increase for us, in order to meet the needs of 
rural America.
    Chairman Chambliss. As I recall from my experience, there 
was a phasing out of the lending of funds to co-ops that 
started out in rural areas like IBMC in my state and now we 
have been overwhelmed by urbanization. Has that, in fact, 
happened now? In other words, are co-ops that serve primarily 
urban areas ineligible for current loan funds from RUS?
    Mr. English. Well, we have the ``once rule, always rule'', 
rule, Mr. Chairman, that has been in place for some time. What 
we have found, as I mentioned, is that there is more private 
funding taking place as far as electric cooperatives.
    A lot of it is focused into the suburban areas and the 
growth that has taken place there, but it has been primarily 
because of the needs are such that they need that money very 
rapidly. Given the time that it takes to go through and get an 
RUS loan, many times that has discouraged them. There has been 
that.
    There have been some other practices by the Federal 
Government that has encouraged them to go elsewhere for some 
funding. But for the last 5 years, 60 percent of the funding 
has come from the private sector as opposed to percent by the 
Rural Utility Service.
    Chairman Chambliss. Well, every region of the country will 
be different. Overall, what sectors of the rural economy are 
experiencing the greatest level of growth and demand for power 
and what sectors of the rural economy do you expect will be 
driving the need for additional generation?
    Mr. English. Well, there was a discussion earlier today, 
Mr. Chairman, about renewables. We expect that there will be 
growth. We are all very hopeful we will be able to reduce our 
dependence on foreign energy and produce more of that energy 
here at home. This should be a new industry for rural America.
    As I mentioned, since we provide power for three-quarters 
of rural America or three-quarters of the geographic area in 
this country, that includes nearly all of the areas that are 
going to be producing this new energy.
    That is going to require a good deal of power, and it puts 
additional responsibilities on us not only to build a 
generation to make sure that power is going to be available, 
but it also puts us in a position of making sure that that 
power is the most cost-effective we can. Namely, we want to try 
hold those rates down. Any beginning business, startup 
business, is at risk.
    As you heard Secretary Dorr talking about earlier, it is 
their hope that we will see a lot of local rural communities 
investing in these new businesses. We want to try to help keep 
those costs as low as we can. That is going to be the job that 
we undertake.
    Obviously, financing plays into that. Depending upon what 
interest rates are, depending on whether we can acquire that 
money to build what is going to be very expensive generation 
for the future, that will play a big role I think in what the 
open costs are for these new startup businesses.
    Chairman Chambliss. Ms. Halliburton, you note a recent 
survey of NADO members citing inadequate public infrastructure 
as a leading roadblock to economic development in rural 
regions. Do you believe that private sector venture capital is 
available but only once localities address infrastructure 
needs, or once infrastructure development is addressed will 
localities need assistance to access that venture capital?
    Ms. Halliburton. Well, of course my flip answer to that 
would be yes, sir, because it does vary from region to region. 
But our experience has demonstrated that it is very, very 
important to have a solid infrastructure in place to be able to 
attract new development into that area.
    When I say ``infrastructure,'' I'm talking not only about 
what is currently in place and trying to repair and maintain 
that in the rural areas, but then to develop new--whether it is 
telecommunications or renewable energy. To attract that venture 
capital, can sometimes be very difficult. That is going to vary 
from region to region.
    Chairman Chambliss. How significant is the availability of 
broadband access to economic development in your county and 
those in close proximity? And, what is the greatest impact that 
broadband access will have on rural areas in your opinion?
    Ms. McBride. Oh, it is highly significant particularly, I 
mean, across the country, but I can give you some examples in 
my very own county. In the county seat of Nevada, we have a 
business that has started up that is really a family owned 
business. They have quilting supplies. But because they do have 
the availability of broadband, that business has expanded 
rapidly. The majority of their business is now done over the 
Internet. There is the example I gave you of a tiny community 
of just over 200 where they are having, again, significant 
success.
    The accessibility and the reliability are not at all 
consistent, so this varies greatly from one area of the country 
to another, from one area of a state to another. We find that 
rural people, they have this great entrepreneurial spirit, and 
they will take advantage of every opportunity they have. But 
the assistance to make sure that that access is there is of 
primary importance, and I think that will only continue to 
increase.
    Chairman Chambliss. Ms. McBride, in your written and verbal 
statements, you note that CoBank works with commercial banks to 
meet the needs of rural business. In Washington, we often hear 
about the disagreements involving farm credit and the 
commercial banking trade organizations. Tell us how CoBank has 
an interworking relationship with commercial banks relative to 
rural development?
    Ms. McBride. Certainly. In a number of our loans, which 
would be in agribusiness, communications and on the energy 
side, we work with commercial banks in a risk---- sharing 
capacity. When loans get extremely large and they are too large 
for our individual balance sheet or for the individual balance 
sheets of the commercial banks, we syndicate those loans and we 
share the risks in those various transactions. As noted in the 
testimony, we work with, roughly, about a hundred commercial 
banks in that capacity.
    Chairman Chambliss. In your statement, you note that CoBank 
is the leading lender to the biofuels industry. Why is that, 
and how long has CoBank been involved in financing ethanol 
plants?
    Ms. McBride. CoBank has been involved in financing ethanol 
plants since about 1992. Many of these ethanol plants were 
begun by farmers and essentially by farmer-owned cooperatives 
back in the early nineties.
    Owing to our close relationship with those farmer-owned 
cooperatives, we began to fund those plants as they were 
started up, and that led to us increasing funding over the past 
several years. Now we are the largest lender to the ethanol 
industry in the country.
    Chairman Chambliss. Are you seeing more and more activity 
coming into your institution?
    Ms. McBride. Yes. I mean, I would say we probably get four 
to five calls a day on ethanol plants. What we are seeing that 
has principally changed from the early 1990's is that in the 
early 1990's these were farmer-owned entities; they were 
locally controlled. Now we are seeing increasingly Wall Street 
firms and international firms coming in to set up ethanol 
plants.
    Chairman Chambliss. What about biodiesel? Are you getting a 
lot of inquiries relative to construction of that type of 
facility?
    Ms. McBride. Yes. Yes, we are. We've got, I believe, four 
biodiesel facilities that we have financed to date, and we are 
seeing increasingly more areas in biodiesel and moving further 
along into other biomass transactions also.
    Chairman Chambliss. In your statement, you talk about the 
increased need for financing of baseload generation. Could you 
expand on how CoBank might work with RUS to finance baseload 
generation facilities?
    Ms. McBride. Certainly. We work very closely with RUS. As I 
mentioned also in the testimony, we are looking at increasing 
our capacity for lending for baseload generation. Through 
frequent meetings with RUS, we try to determine where they have 
needs and gaps and see if we can fill in those gaps, whether it 
is for interim financing or for longer-term financing.
    I would also state that we agree with Mr. English here that 
the needs that this industry is facing are so vast that they 
are going to need more than what RUS can lend currently and 
what CoBank and others in the industry can lend currently.
    Chairman Chambliss. What about nuclear generation 
facilities, do you get many inquiries relative to proposals 
regarding construction of nuclear generation facilities?
    Ms. McBride. We are beginning to hear a little bit about 
that. We have heard from a couple of our cooperative customers 
who were beginning to express some interest there. It has not 
gotten as far with us yet to a loan application or down the 
road that far, so we are beginning to hear something on that 
and know that it is an area that we need to start spending some 
time on.
    Chairman Chambliss. Mr. English. I know we in Georgia are 
looking at expanding VAGL, which our co-ops certainly have a 
large stake in. What about nuclear generation facilities around 
the country? Are you seeing more and more interest from co-ops 
relative to that?
    Mr. English. There is, Mr. Chairman. Normally, what we will 
see from electric cooperatives that we will try to do a joint 
venture usually with one of the investor-owned utilities. Those 
are very expensive propositions. We may very well see some 
partnering between electric cooperatives in building some new 
generation.
    However, also I should mention that as well as the Rural 
Utility Service and CoBank that we have the Cooperative Finance 
Corporation that also plays a big role as far as electric 
cooperatives are concerned in helping finance the needs of 
electrical cooperatives, and I expect they will play a big role 
in building this new generation as well. But it is going to 
take all this financing to undertake something of this size.
    In fact, it has been estimated that the costs may, and I'm 
not talking about lending but the total costs of the program, 
be in the neighborhood of $35 billion or more just for electric 
cooperatives alone. This is a lot of money that is going to be 
needed in a very short period of time if we are going to 
achieve this objective and meet the needs of our country.
    Chairman Chambliss. Well, let me thank all three of you for 
being here today and presenting testimony. We are going to 
leave the record open for 5 days for any questions, written 
questions, that may be submitted. We would ask that you address 
those promptly and get your answers back to us. Again, thanks 
all of you for being here. We look forward to staying in touch 
with you.
    This hearing will be concluded.
    [Whereupon, at 12:22 p.m., Tuesday, June 20, 2006, the 
hearing was adjourned.]
      
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                             June 20, 2006



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                             June 20, 2006




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                         QUESTIONS AND ANSWERS

                             June 20, 2006




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