[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
   HEARING TO REVIEW U.S. DEPARTMENT OF AGRICULTURE RURAL DEVELOPMENT 
                    PROGRAMS AND THE AGENCY'S RURAL 
                   DEVELOPMENT PROPOSAL FOR THE 2007 
                               FARM BILL 

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON SPECIALTY CROPS, RURAL
                  DEVELOPMENT AND FOREIGN AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 21, 2007

                               __________

                            Serial No. 110-6


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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            BOB GOODLATTE, Virginia, Ranking 
    Vice Chairman                    Minority Member
MIKE McINTYRE, North Carolina        TERRY EVERETT, Alabama
BOB ETHERIDGE, North Carolina        FRANK D. LUCAS, Oklahoma
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 ROBIN HAYES, North Carolina
DENNIS A. CARDOZA, California        TIMOTHY V. JOHNSON, Illinois
DAVID SCOTT, Georgia                 SAM GRAVES, Missouri
JIM MARSHALL, Georgia                JO BONNER, Alabama
STEPHANIE HERSETH, South Dakota      MIKE ROGERS, Alabama
HENRY CUELLAR, Texas                 STEVE KING, Iowa
JIM COSTA, California                MARILYN N. MUSGRAVE, Colorado
JOHN T. SALAZAR, Colorado            RANDY NEUGEBAUER, Texas
BRAD ELLSWORTH, Indiana              CHARLES W. BOUSTANY, Jr., 
NANCY E. BOYDA, Kansas               Louisiana
ZACHARY T. SPACE, Ohio               JOHN R. ``RANDY'' KUHL, Jr., New 
TIMOTHY J. WALZ, Minnesota           York
KIRSTEN E. GILLIBRAND, New York      VIRGINIA FOXX, North Carolina
STEVE KAGEN, Wisconsin               K. MICHAEL CONAWAY, Texas
EARL POMEROY, North Dakota           JEFF FORTENBERRY, Nebraska
LINCOLN DAVIS, Tennessee             JEAN SCHMIDT, Ohio
JOHN BARROW, Georgia                 ADRIAN SMITH, Nebraska
NICK LAMPSON, Texas                  KEVIN McCARTHY, California
JOE DONNELLY, Indiana                TIM WALBERG, Michigan
TIM MAHONEY, Florida

                                 ______

                           Professional Staff

                    Robert L. Larew, Chief of Staff

                     Andrew W. Baker, Chief Counsel

                 April Slayton, Communications Director

           William E. O'Conner, Jr., Minority Staff Director

                                 ______

    Subcommittee on Specialty Crops, Rural Development and Foreign 
                              Agriculture

                MIKE McINTYRE, North Carolina, Chairman

JIM MARSHALL, Georgia                MARILYN N. MUSGRAVE, Colorado, 
HENRY CUELLAR, Texas                 Ranking Minority Member
JOHN T. SALAZAR, Colorado            TERRY EVERETT, Alabama
JOHN BARROW, Georgia                 ADRIAN SMITH, Nebraska
EARL POMEROY, North Dakota           JEFF FORTENBERRY, Nebraska
                                     ROBIN HAYES, North Carolina

                Aleta Botts, Subcommittee Staff Director

                                  (ii)









































                             C O N T E N T S

                              ----------                              
                                                                   Page
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  prepared statement.............................................     8
McIntyre, Hon. Mike, a Representative in Congress from North 
  Carolina, opening statement....................................     1
     Prepared statement..........................................     4
Musgrave, Hon. Marilyn N., a Representative in Congress from 
  Colorado, opening statement....................................     6
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, prepared statement..................................     7
Pomeroy, Hon. Earl, a Representative in Congress from North 
  Dakota, opening statement......................................     8
Salazar, Hon. John T., a Representative in Congress from 
  Colorado, prepared statement...................................     8

                               Witnesses

Dorr, Hon. Thomas C., Under Secretary for Rural Development, U.S. 
  Department of Agriculture, Washington, D.C.....................     9
    Prepared statement...........................................    11
Landkamer, Hon. Colleen, Commissioner, Blue Earth County, MN; 
  President, National Association of Counties, Mankato, MN; on 
  behalf of National Association of Development Organizations....    31
    Prepared statement...........................................    33
Fluharty, Charles W., President, Rural Policy Research Institute; 
  Director and Research Professor, Harry S Truman School of 
  Public Affairs, University of Missouri-Columbia, Columbia, MO..    38
    Prepared statement...........................................    40
Hall, Billy Ray, President, North Carolina Rural Economic 
  Development Center, Inc., Raleigh, NC..........................   105
    Prepared statement...........................................   106
Harris II, D. Richard ``Rick'', President, Sunkist Taylor, LLC, 
  Salinas, CA....................................................   111
    Prepared statement...........................................   113


   HEARING TO REVIEW U.S. DEPARTMENT OF AGRICULTURE RURAL DEVELOPMENT
                    PROGRAMS AND THE AGENCY'S RURAL
                   DEVELOPMENT PROPOSAL FOR THE 2007
                               FARM BILL

                              ----------                              


                       WEDNESDAY, MARCH 21, 2007

                  House of Representatives,
Subcommittee on Specialty Crops, Rural Development 
                           and Foreign Agriculture,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10 a.m., in Room 
1302 of the Longworth House Office Building, Hon. Mike McIntyre 
[Chairman of the Subcommittee] presiding.
    Members present: Representatives McIntyre, Cuellar, 
Salazar, Pomeroy, Peterson (ex officio), Musgrave, Fortenberry, 
and Goodlatte (ex officio).
    Staff present: Aleta Botts, Scott Kuschmider, Rob Larew, 
John Riley, Sharon Rusnak, Debbie Smith, Kristin Sosanie, Brian 
Knipling, Matt Schertz, and Jamie Weyer.

 OPENING STATEMENT OF HON. MIKE McINTYRE, A REPRESENTATIVE IN 
                  CONGRESS FROM NORTH CAROLINA

    The Chairman. The Subcommittee on Specialty Crops, Rural 
Development and Foreign Agriculture to review the U.S. 
Department of Agriculture Rural Development programs and the 
agency's rural development proposal for the 2007 Farm Bill will 
now come to order.
    Good morning and welcome to this Subcommittee's first 
hearing of the 110th Congress. This is a Subcommittee with new 
jurisdiction and I am excited not only to have our traditional 
areas of specialty crops, including tobacco and peanuts and 
sugar, but also excited to expand our jurisdiction to include 
rural economic development, which has never before been under 
this Subcommittee's jurisdiction. I especially appreciate 
Chairman Collin Peterson's willingness to allow us to have this 
jurisdiction in the purview of the important area of rural 
development. We of course also have biotechnology, family 
farms, family security and foreign agricultural programs. We 
also will be having hearings and discussions about those items 
in the weeks and months to come. I want to especially thank my 
staff for their support and all the work that they have done, 
not only in preparation for today, but the work we have done 
over the years together, and I look forward to working together 
on the work of this Subcommittee and working with the 
Agricultural Subcommittee staff and the full Agriculture staff 
as well. So thanks to all of you all for your commitment to me 
and commitment to the work of this Subcommittee and we greatly 
appreciate the work that our staff does.
    Rural America is changing and as I drive across my home 
state of rural North Carolina, we notice changes every time 
that we go by rural communities and notice the changes 
occurring on the farms as well. Federal funds are being 
leveraged into private dollars. Critical infrastructure is 
being repaired and replaced. Businesses large and small are 
being started by innovative entrepreneurs. Rural communities 
are becoming more aware of their unique attributes and more 
understanding of the high quality of life they offer to their 
residents, a quality of life that our country is now returning 
to, the values we hear discussed so much today in all the 
political debates and TV discussions, but the values we know 
have always existed in the heartland of America and in the 
rural communities. America is returning to its roots and I 
think that makes the job of this Subcommittee even more 
exciting. The savviest of these communities will then take that 
understanding of those values and turn them into proposals to 
attract new businesses and investment as they look at 
opportunities to improve their quality of life as well.
    We also know that there is a great need for Federal 
programs to continue to help rural development in what is going 
on in rural America and support rural economic development and 
respond to it in ways that make sense. I hope the witnesses 
today will share this with the Subcommittee; their thoughts and 
ideas on how the changes that are occurring in rural America 
can be made in such a way that Federal programs can continue to 
make a positive impact for the future of rural America. There 
are over 88 Federal rural development programs that exist 
across 16 different Federal agencies. However, the U.S. 
Department of Agriculture is the lead agency for Federal rural 
development policy, and the farm bill is one of the key 
statutory tools that we have for reauthorizing many of these 
programs and making changes. These programs make a huge 
difference in the lives of our rural constituents and it is 
critically important to ensure that these citizens are well 
served. USDA Rural Development funds help provide core services 
and facilities for our rural communities. However, the program 
operates differently than many Federal programs by recognizing 
that rural areas are different in their demographics, their 
needs and their assets.
    One of the advantages of our Federal rural development 
policy is the great flexibility that it offers to our diverse 
rural areas. From emergency services to community centers to 
water and sewer lines, Rural Development programs meet a wide 
array of needs in rural areas. And the District that I have the 
opportunity and privilege to serve in southeastern North 
Carolina, community facility loans are responsible for EMS 
units, fire stations, library and courthouse renovations, and 
town halls. Water and waste disposal money is helping two 
communities in our area with significant water infrastructure 
needs. Housing funds are going to two separate community 
development corporations. All told, in just this year, Federal 
rural development programs will mean over $5 million to 
projects in my District and $288 million over the last 5 years 
to the 7th District of North Carolina that I represent. So I 
know the great work and good work continually that Rural 
Development has done and continues to do and that our great 
State Director, John Cooper, has done.
    As we evaluate these programs today, we should consider how 
best to define ``rural,'' and I encourage all of our 
Subcommittee Members to join us in this discussion. I know I 
have mentioned this to the Under Secretary, who will be 
introduced in just a moment. As Members of this Subcommittee 
and the witnesses know, this isn't an easy question. The 2002 
Farm Bill established different definitions of rural, depending 
on the program. As a default, a population of 50,000 or less 
for any city or town is considered rural. However, for water 
and waste water disposal programs, only a population of 10,000 
or less is eligible. To be eligible for rural housing in 
community facility programs, the limit is 20,000. What is 
considered rural today would've been considered in some ways 
urban or metropolitan, perhaps, 75 years ago. Counties that are 
decidedly rural in nature and character hold county seats that 
are growing in population and acquiring just enough size to 
make them ineligible for certain programs. I hope the witnesses 
and our Under Secretary will help us shed some light on this 
issue and how Congress might address it.
    My hometown of Lumberton, North Carolina is a prime example 
of how this is happening. It had a population of under 20,000 
until the 2000 Census, and then jumped to 23,000, even though 
Robinson County is clearly rural and one of the most rural in 
all of North Carolina. Yet we know that in the county seat, 
many of the rural programs are run out of a town of over 
20,000. We had to deal with issues such as grandfathering and 
what to do about finishing the job with the public county 
library and with the county courthouse, even they are now in a 
town that exceeds the technical population definition. So this 
is an issue that has been near and dear to me personally and I 
know to many of our Subcommittee Members as they struggle with 
this in their respective areas.
    This year we will reauthorize Rural Development programs as 
part of the farm bill reauthorization. Complicating that task 
will be what has happened with regard to funding for Rural 
Development programs that were authorized in the last farm 
bill. Funding for mandatory Rural Development programs 
established in the last farm bill has been largely blocked by 
appropriators. Instead discretionary programs continue to play 
a dominant role in Federal rural economic development policy, 
and with the current tight budget situation, the Subcommittee 
will need to evaluate whether mandatory or discretionary 
funding is the proper mechanism for these programs.
    Additionally, we face some serious budget constraints in 
the current fiscal year as well. I know in North Carolina we 
have the authority to make $12 million in community facility 
loans this fiscal year. However, over the last several years, 
North Carolina has made no less than $38 million in loans each 
year from the program. Obviously the needs outweigh the 
resource.
    I know that one of my favorite verses from the Book of 
Proverbs is, ``Where there is no vision, the people perish.'' 
In rural America, too often we have overlooked and ignored the 
needs historically as a Congress and I want us to change that 
in this Subcommittee. I want to make sure we do give vision for 
people in rural areas, those values I mentioned earlier, the 
great commitment that folks who live in rural communities have 
to this great country, as we see in our Armed Services; as we 
see in the great ideas that come forth from rural America; as 
we see in so many different ways that rural American offers to 
the fabric of our society and who we are as America and as 
Americans. I hope that we will look forward to positively 
shaping that vision to make a real difference in the lives of 
families in all areas of our country, to the work we do on this 
Subcommittee, and my prayer is that God will bless our efforts. 
We may have a vision to show we do care and that rural America 
will have a strong voice and that thorough work we will be 
successful in this.
    Thank you again for joining us for this Subcommittee 
hearing today. I encourage the witnesses to use the 5 minutes 
that will be provided for their statements to highlight the 
most important points of their testimony. Your complete written 
testimony will be submitted in its entirety in the record. This 
Subcommittee will follow the 5 minute rule, allowing 5 minutes 
total for both questions from Members and responses from the 
witnesses. Therefore I will request that Members be concise in 
their questions so that the witness can answer within the 5 
minute block of time. If further time is needed, I invite 
Members to submit questions for the record and allow the 
witnesses to respond in writing. The Subcommittee will also 
take seriously these questions submitted for the record and we 
will expect the witnesses to answer these questions, to inform 
the Members by answering them in a timely manner, preferably 
within 10 days but no later than 2 weeks.
    I am excited about the work of this Committee. I am excited 
about the Members on this Subcommittee. We have a great panel 
of folks. I know that folks from both sides of the aisle want 
to work together to make sure that we are about the success of 
what we can do for rural America.
    [The prepared statement of Mr. McIntyre follows:]

Prepared Statement of Hon. Mike McIntyre, a Representative in Congress 
                          From North Carolina
    Good morning, and welcome to the Subcommittee's first hearing of 
the 110th Congress. I am pleased to welcome Mr. Dorr, the USDA Under 
Secretary for Rural Development, and our other esteemed witnesses for 
this inaugural hearing on a topic that is near and dear to the 
interests of every Member of this Subcommittee.
    Rural America is changing. As I drive across rural North Carolina, 
I notice changes every time I pass through a rural community:

    1. Federal funds are being leveraged into private dollars;

    2. Critical infrastructure is being repaired and replaced;

    3. Businesses large and small are being created by innovative 
        entrepreneurs; and

    4. Rural communities are becoming more aware of their unique 
        attributes and more understanding of just what a high quality-
        of-life they offer to their residents. The savviest of these 
        communities then take that understanding and turn it into 
        proposals to attract new businesses and investment.

Importance of Rural Economic Development
    What has not changed, however, is the need for Federal programs 
that recognize the importance of what is going on in rural America, 
that support rural economic development and then respond in ways that 
make sense. I hope the witnesses today will share with this 
Subcommittee their thoughts on the changes in rural areas and how 
Federal programs are making an impact.
    Over 88 Federal rural development programs exist across 16 
different Federal agencies. However, the U.S. Department of Agriculture 
is the lead agency for Federal rural development policy, and the farm 
bill is one of the key statutory tools for reauthorizing many of these 
programs and making changes. These programs make a huge difference in 
the lives of our rural constituents, and it is critically important to 
ensure these citizens are well-served.
Categories of Rural Development
    USDA Rural Development funds help provide core services and 
facilities for our rural communities. However, the program operates 
differently than many Federal programs by recognizing that rural areas 
differ in their demographics, their needs, and their assets. One of the 
advantages of our Federal rural development policy is the great 
flexibility it offers our diverse rural areas.
    From emergency services to community centers to water lines, rural 
development programs meet a wide array of needs in rural areas. In my 
District of southeastern North Carolina, community facility loans are 
responsible for EMS units, fire trucks, library and courthouse 
renovations, and town halls. Water and waste disposal money is helping 
two communities with significant water infrastructure needs. Housing 
funds are going to two separate community development corporations. All 
told, in just this year, Federal rural development programs will mean 
over $5 million in projects to my District.
Definition of Rural
    As we evaluate these programs, we should consider how best to 
define ``rural''. As the Members of this Subcommittee and the witnesses 
know, this is not an easy question. The 2002 Farm Bill established 
different definitions for ``rural'' depending on the program. As a 
default, a population of 50,000 or less for a city or town is 
considered rural. However, for water and wastewater disposal programs, 
only a population of 10,000 or less is eligible. To be eligible for 
rural housing and community facilities programs, the limit is 20,000.
    What is considered rural today would have been considered 
metropolitan 75 years ago. Counties that are decidedly rural in nature 
and character hold county seats that are growing in population and 
acquiring just enough size to make them ineligible for certain 
programs. I hope the witnesses will be able to shed some light on this 
issue and how Congress might address it.
Funding Issues
    This year, this Subcommittee will reauthorize rural development 
programs as part of a farm bill reauthorization. Complicating that task 
will be what has happened with regard to funding for rural development 
programs that were authorized in the last farm bill.
    Funding for mandatory rural development programs established in the 
last farm bill has largely been blocked by appropriators. Instead, 
discretionary programs continue to play a dominant role in Federal 
rural economic development policy. With the current tight budget 
situation, the Subcommittee will need to evaluate whether mandatory or 
discretionary funding is the proper mechanism for these programs.
    Additionally, we face some serious budget constraints in the 
current fiscal year as well. For example, North Carolina has the 
authority to make $12 million in community facility loans this fiscal 
year. However, over the last 5 years, North Carolina has made no less 
than $38 million in loans each year of this program. Obviously, the 
need far outweighs the resource.
Conclusion
    Thank you again for joining the Subcommittee at this important 
hearing. I would encourage witnesses to use the 5 minutes provided for 
their statements to highlight the most important points in their 
testimony. Your complete written testimony will be submitted in its 
entirety in the record.
    This Subcommittee will follow the 5 minute rule, allowing 5 minutes 
total for both the questions from Members and the responses from 
witnesses. As a result, I would request that Members be concise in 
their questioning of witnesses, so that witnesses can answer within the 
5 minute block of time.
    If further time is needed, I invite Members to submit questions for 
the record and allow the witnesses to respond in writing. The 
Subcommittee will take very seriously these questions submitted for the 
record and expect the witnesses to do their part to inform the Members 
of the Subcommittee by answering these questions in a timely manner, 
preferably within ten days.

    The Chairman. And with that, I would like now to recognize 
my good friend with whom I am honored to serve, the Ranking 
Member from Colorado, Ms. Musgrave, for any opening remarks 
that she would like to have.

OPENING STATEMENT OF HON. MARILYN N. MUSGRAVE, A REPRESENTATIVE 
                   IN CONGRESS FROM COLORADO

    Mrs. Musgrave. Thank you, Mr. Chairman, and I look forward 
to working with you. I admire you a great deal and welcome this 
opportunity. I would like to thank our distinguished guests for 
being with us today and taking the time to be here and offer us 
the information that they have.
    As we look forward to developing a new farm bill in the 
coming months, it is important for all of us to begin our 
deliberations by identifying the Rural Development programs 
that have worked well that were in the 2002 Farm Bill, and by 
recognizing areas where improvement is still needed. This year 
I hope we can improve the programs so that rural America can 
make progress and prosper. I have a great deal of interest in 
how this nation's rural development policies are working and I 
am excited about the opportunity to perfect these programs as 
this Committee works on the new farm bill.
    The Agriculture Committee provided over $1 billion in the 
last farm bill for programs such as Rural Telecommunications 
and Broadband Services, Rural Strategic Investment and Rural 
Business Investment, as well as the value-added market 
development grants and drinking water assistance grants. 
Clearly, many rural development success stories have resulted. 
Over the past 5 years, 10,000 grants and loans have been issued 
to rural communities across the country, providing nearly 4.3 
million rural residents with new or improved water and waste 
disposal services. The Rural Community Advancement Program has 
assisted over 45,000 small businesses and has created or saved 
320,000 U.S. jobs. The Rural Telecommunications Program in the 
2002 Farm Bill has provided roughly 1.6 million rural customers 
with new or improved telecommunication services, including 
high-speed broadband. Yet it is impossible to recognize these 
successes without also recognizing that rural America, and the 
programs designed to serve it, continue to face many 
challenges.
    Perhaps one of the most obvious challenges for us as 
policymakers is to identify and define the rural development 
constituency, because it tends to be even broader than the 
audience for farm and conservation programs. There are 
additional needs and roles to fill beyond production 
agriculture. Maintaining the population base, improving off-
farm job opportunities and providing public services continue 
to be the long-term challenges for many traditionally farming 
areas in eastern Colorado and around the country. As we move 
forward with farm bill reauthorization, I think it is important 
that we consider three policy questions.
    While new programs may be desirable to meet currently 
unfilled needs, should new programs be created, given the 
challenges we face in maintaining a consistent funding level 
for the existing programs? Are there ways to streamline 
programs to reduce complexity, while expanding their scope to 
service a broader constituency and ultimately realize the 
greatest benefit per program dollar? Do existing programs 
fulfill the Rural Development mission to target those 
communities with the greatest financial and infrastructure 
needs? These are among the issues that will be under 
consideration, which I believe that rural practitioners, such 
as those in front of us, can help us to answer.
    I look forward with great interest to the testimony that we 
will hear today. And Mr. Chairman, I thank you again for your 
leadership on these issues.
    The Chairman. Thank you so much, Mrs. Musgrave. The chair 
would request that other Members submit their opening 
statements for the record if you would like, so that the 
witnesses may now begin their testimony and make sure there is 
ample time for questions.
    [The prepared statements of Messers. Peterson, Goodlatte, 
and Salazar follow:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress From Minnesota
    Thank you, Chairman McIntyre and Ranking Member Musgrave for 
holding this hearing today on rural development and the 2007 Farm Bill. 
I welcome Under Secretary Dorr back to our Committee this morning as 
well as all of today's witnesses.
    I would especially like to welcome back Colleen Landkamer to our 
Committee today. In addition to serving as Commissioner of Blue Earth 
County, in Mankato, Minnesota, in my District, Ms. Landkamer was 
recently elected President of the National Association of Counties. She 
has served as a county commissioner from Blue Earth County since 1988, 
she has served on NACo's Board of Directors since 1996, and she has 
been a key figure in the formation and expansion of that organization's 
Rural Action Caucus, a group of more than 100 county officials that 
speaks on rural issues before Members of Congress and the 
Administration.
    I look forward to hearing from the Under Secretary today about the 
USDA's Rural Development proposals. I know your agency worked hard in 
submitting your farm bill proposals earlier this year and while I 
certainly do not agree with every idea in there, I do think we can 
agree that the farm bill that this Congress will write is the most 
important piece of rural development legislation that we will consider.
    The programs we reauthorize in the farm bill will demonstrate our 
level of commitment to rural America. This means maintaining drinking 
water and waste water systems, developing value-added rural businesses 
to help producers capture a greater share of the food dollar, and 
providing reliable high-speed Internet access to hold on to the 
businesses and industries, farm-related or otherwise, that are 
supporting rural America financially. The Ag Innovation Center in my 
state, for example, receives funding through the Value-Added Producer 
Grant Program. This program helps local agricultural producers expand 
their customer base. Programs like these keep rural America competitive 
and productive.
    We are also approaching a new era in farm country as our rural 
communities are leading the way in reducing our dependence on foreign 
oil and fossil fuels with home grown renewable energy. This is the most 
exciting thing I have seen in my lifetime in agriculture. The rural 
development provisions we consider this year can play a key role in 
helping keep the future of farm-based renewable energy locally-owned 
and part of the fabric of rural America.
    Given these challenges, I would like to hear more about USDA's 
intention to have state rural development offices submit new business 
plans for their operations. I am aware of USDA's proposals to 
consolidate some offices and move from a three-tiered system of state, 
regional, and county offices to a two-tiered system of state and 
regional offices only. As I have previously made known to USDA, my 
chief concern is whether the same high level of service can be provided 
with this increased workload. I am even more concerned that this major 
reorganization is taking place the same year Congress prepares to write 
the farm bill, especially as we begin to move to the next phase of 
rural-based renewable energy.
    Once again, I welcome the witnesses and I look forward to their 
testimony today. Thank you, and I yield back my time.
                                 ______
                                 
Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress 
                             From Virginia
    Thank you, Mr. Chairman. I appreciate your holding this hearing, 
and Secretary Dorr, welcome. We are delighted to have you with us.
    Secretary Dorr, I appreciate all of the work you've done on behalf 
of rural America, especially the work that is done by rural development 
in the Commonwealth of Virginia. You work very well with our state and 
local governments on a wide array of economic development initiatives 
that have helped a number of rural communities in my Congressional 
District and elsewhere in the Commonwealth, and we very much appreciate 
that.
    There are tremendous opportunities in rural America but also 
tremendous challenges. Rural America has been attracting more attention 
as a potential source for renewable energy resources. Rural development 
programs, such as the rural broadband initiative, create greater access 
to more information for more Americans. Now those living in Rockbridge 
County or Shenandoah County, Virginia can access the same high speed 
Internet that you could previously only get if you lived near a large 
metropolitan area.
    Access to this technology allows children to learn, businesses to 
grow and local economies to flourish with the creation of jobs and 
businesses in rural communities.
                                 ______
                                 
    Prepared Statement of Hon. John T. Salazar, a Representative in 
                         Congress From Colorado
    Good morning, I first want to thank Chairman McIntyre and Ranking 
Member Musgrave for holding this important hearing.
    I also want to thank both panels for coming to testify today.
    I think it is vitally important that as we write this 2007 Farm 
Bill, we work in a bipartisan manner to streamline and increase funding 
for programs that enhance rural health care, Critical Access Hospitals, 
and rural water infrastructure.
    The 3rd Congressional District of Colorado is home to nine Critical 
Access Hospitals, and that is why I feel that it is extremely important 
to secure funding for the reconstruction and rehabilitation of these 
hospitals.
    Rural water quality and waste water disposal is also an important 
issues to my constituents in Colorado.
    I support funding to reduce the backlog of the grants, loans, and 
other programs that will benefit rural communities by ensuring good 
safe drinking water.
    I think it is extremely important that everyone realize the 
significant issue water quality plays in rural areas in Colorado and 
other western states.
    Thank you again, Mr. Chairman and Ranking Member, and I look 
forward to hearing from the panelists.

    The Chairman. However, before I introduce our first 
witness, Mr. Pomeroy, I want to call on him to briefly make 
some introductions of our Committee staff.

  OPENING STATEMENT OF HON. EARL POMEROY, A REPRESENTATIVE IN 
                   CONGRESS FROM NORTH DAKOTA

    Mr. Pomeroy. Thank you, Mr. Chairman. I will be brief. And 
as you undertake the work of this Committee and your first 
meeting as Chairman, it is also the first meeting of the Staff 
Director of the Subcommittee, Aleta Botts, and I want to 
introduce her to the Committee Members and to the general 
audience. She has worked as my Legislative Director for the 
last several years and before that the Agriculture Legislative 
Assistant. She has a graduate degree in ag economics from the 
University of Kentucky, but I urge you not to hold that against 
her. She is an extraordinary resource to this Committee and 
while our office has felt her departure, I feel that it is our 
contribution to the greater good. So Aleta Botts will serve us 
well as we deal with the weighty matters the two of you have 
outlined in the Congress ahead. Thank you. Oh, by the way, 
there is another markup I am in the middle of, so I will be 
kind of in and out and I apologize for that.
    The Chairman. Thank you. Thank you, Congressman Pomeroy, 
and thank you for letting Aleta come and join us. And Aleta, 
thank you for your work and especially helping to bring us to 
this moment today.
    We would like to welcome the first panel to the table 
today, the Honorable Thomas Dorr, Under Secretary for Rural 
Development for the United States Department of Agriculture 
here in Washington. Under Secretary Dorr has quite a 
distinguished record of service to our country and under 
different Administrations and times in different positions he 
has held. I encourage you to look at his biography. But to 
maximize your time, Under Secretary, please begin as you are 
ready for testimony.

  STATEMENT OF HON. THOMAS C. DORR, UNDER SECRETARY FOR RURAL 
                DEVELOPMENT, U.S. DEPARTMENT OF
                 AGRICULTURE, WASHINGTON, D.C.

    Mr. Dorr. Thank you, Mr. Chairman and Ranking Member 
Musgrave. It is my honor to be here today. I do appreciate the 
opportunity to appear before you to discuss USDA Rural 
Development's programs and budgets, and I particularly must add 
that I look forward to working with this Subcommittee in this 
new format. I would like to take just a moment at the 
beginning, however, to pay tribute to the approximate 6,300 men 
and women who collectively comprise USDA Rural Development. We 
are, as you know, probably one of the most decentralized 
agencies in government. Most of our employees are in the field 
and they do a great job.
    The distinctive characteristic of our agency is, if you 
will, customer service. That begins with a delivery system that 
is unmatched by any other community or economic development 
organization today. It is boots on the ground, the ability to 
provide education, training and technical support, and the 
ability to reach out to the smallest communities, the ones that 
don't have economic development specialists and grant writers 
on their payrolls. This business model makes us both unique and 
a good fit for rural communities. It is a core asset that we 
intend to nurture and build in the years ahead. The world is 
not static. We continue to modernize our administrative systems 
and shift to more efficient financing models. We must reorient 
and retrain our staff to meet new opportunities. There will be 
changes and we are committed to turning these changes into 
opportunities for personal and professional growth for every 
one of our associates. The future is bright. And so as we make 
these changes, we will and we do intend to keep you apprised.
    The President's farm bill proposals clearly envision a 
greater role for Rural Development going forward. For Fiscal 
Year 2008, the President's budget proposes $2.1 billion in 
discretionary budget authority to support a program level of 
$14.9 billion. But this year, I would submit, the budget is 
really only half the story. In addition to the 2008 budget, the 
President's 2007 Farm Bill proposal includes significant new 
initiatives for Critical Access Hospitals, rural water and 
waste water community facilities projects, and renewable 
energy. The farm bill proposal includes over $1.4 billion in 
mandatory budget authority over 10 years to support these 
initiatives; in fact, we have a full plate. We administer over 
40 programs that provide infrastructure, affordable housing, 
essential community facilities and business development 
assistance. The time does not permit to discuss them all, but I 
would like to touch briefly on three highlights.
    The first is healthcare: The President's farm bill proposal 
calls for $85 million in budget authority to support $1.6 
billion in loan guarantees, as well as $5 million in grants, to 
complete the rehabilitation of all 1,283 Critical Access 
Hospitals within the next 5 years. I am sure I don't need to 
dwell at length on the importance of this, but quality rural 
healthcare is a true triple play. Obviously, it directly 
enhances personal safety and the quality of life. But in 
addition, hospitals themselves are major economic engines. And 
finally, from a strategic standpoint, quality healthcare is a 
key attractor for young families, entrepreneurs and new 
businesses.
    Second, the President's farm bill proposal provides an 
additional $500 million to reduce the backlog in funding 
applications for water and waste water, distance learning and 
telemedicine, first responders and broadband access programs. 
Like the Critical Access Hospitals, these directly enhance both 
the quality of life for current residents, as well as the 
attractiveness of a community for prospective newcomers. As 
this Subcommittee knows, Rural Development's community 
facilities programs are oversubscribed. This is not a new 
issue. In the last farm bill, Congress provided an additional 
one-time $360 million to address the backlog that existed at 
that time. The 2002 Farm Bill was signed in May. Because of our 
field staff, we were in fact able to announce that project 
awards the following August, and we can and we will get this 
money out the door quickly to meet critical community facility 
needs.
    Finally, renewable energy has emerged as one of the most 
attractive success stories of this decade. We have overtaken 
Brazil to lead the world in ethanol, and cellulosic ethanol is 
now moving from the labs into the fields. Installed wind 
capacity in the United States has quadrupled since 2000, and we 
led the world in new capacity in 2005 and 2006. In case you did 
not see it this morning in today's Washington Post, Page 3 of 
the A Section, there is a terrific story about the combination 
of wind and hydro in the Northwest. Biodiesel production is up 
from two million gallons in 2000, to 245 million gallons last 
year, with approximately 50 percent growth anticipated for 
2007. And last but not least, research has been accelerated 
across the spectrum of both conventional and alternative energy 
sources. This is extraordinary progress in a very short period 
of time and we are committed to continuing that progress.
    The President's farm bill proposal contains and additional 
$1.6 billion across USDA for energy-related projects. Key 
initiatives for rural development include $210 million in 
budget authority that will support an estimated $2.1 billion 
over 10 years in renewable energy and energy efficiency 
guaranteed loans, $500 million over 10 years for the Renewable 
Energy and Energy Efficiency Grant Programs, and $150 million 
over 10 years for the Biomass Research and Development Program.
    Mr. Chairman, this concludes my prepared remarks this 
morning. I am appreciative of this generous support of the 
Subcommittee for rural America and we look forward to working 
with you in the future to increase economic opportunity and 
improve the quality of life in all rural communities. Thank 
you.
    [The prepared statement of Mr. Dorr follows:]

 Prepared Statement of Hon. Thomas C. Dorr, Under Secretary for Rural 
     Development, U.S. Department of Agriculture, Washington, D.C.
    Mr. Chairman, Members of the Subcommittee, I appreciate this 
opportunity to appear before you to discuss the President's Fiscal Year 
(FY) 2008 budget request for USDA Rural Development.
    USDA Rural Development is committed to the future of rural 
communities. We administer over 40 programs that provide 
infrastructure, affordable housing, essential community facilities, and 
business development assistance to rural communities. In Fiscal Year 
2006, including significant supplemental funding in response to 
Hurricane Katrina, we provided over $15 billion in grants, loans, and 
loan guarantees, and technical assistance. Our current loan portfolio 
exceeds $94 billion.
    The Federal dollars that we bring to the table, however, are just 
the beginning of the story. Rural America today enjoys enormous 
opportunities. Our mission is to empower local communities, encourage 
entrepreneurship, and use Federal incentives to leverage private 
investment and ownership. The goal is not simply economic development 
as measured by dollars out the door; it is sustainable development as 
measured by thriving businesses and communities that offer a better 
future to the next generation. We appreciate your generous support over 
the years for rural America and we look forward to working with you in 
the future to expand economic opportunity and improve the quality of 
life in rural communities.
    Beginning in 1935, our predecessors brought the countryside into 
the 20th century with electricity, telephone service, and modern water 
and wastewater systems. They made it possible for millions of rural 
families to purchase a home or obtain decent, safe, and affordable 
rental housing. They helped many thousands of rural businesses open 
their doors or expand, and helped provide essential community services, 
such as schools and hospitals, in rural communities across the country.
    Much has changed in 72 years, but the commitment of our 
approximately 6,300 employees remains the same. Most of these people 
are not in Washington, D.C. They are scattered across this nation, work 
out of our state and local offices, and are residents of the 
communities they serve. They are your neighbors, your constituents, and 
in at least some cases, I hope your friends. They do a remarkable job 
and I am proud to be a member of their team.
    In today's world, change is a constant. Several of the proposals in 
the FY President's 2008 budget--and on a parallel front, the 
President's 2007 Farm Bill proposals--involve significant changes in 
our program delivery strategies and therefore in our business and 
staffing model.
    Let me emphasize at the outset, however, that I envision a stronger 
and more dynamic and responsive USDA Rural Development in the years 
ahead. Rural America is growing. New opportunities are arising. 
Technology is expanding our options and, over time, will significantly 
change how we live and work. While this necessarily affects how we will 
go about our mission, it is an opportunity for us to serve Rural 
America better.
FY 2008 Budget and the 2007 Farm Bill
    This year's budget is made somewhat more complex by the pending 
reauthorization of the farm bill. The President's budget for Rural 
Development requests $2.1 billion in discretionary budget authority to 
support a program level of $14.9 billion. program to the President's 
budget, the President's 2007 Farm Bill proposal includes significant 
new Rural Development initiatives for Critical Access Hospitals, rural 
water and wastewater and community facilities projects, and renewable 
energy. The proposal includes over $1.4 billion in mandatory budget 
authority, some of it to spread over 10 years. The grant/loan/loan 
guarantee ratios have not yet been determined, so it is not possible at 
this time to project the program level associated with the mandatory 
farm bill funding.
    I will now focus my comments on the major programmatic changes 
proposed in the FY 2008 budget and the underlying reasons for change. 
The changes are not arbitrary. They are, in fact, driven by three 
primary factors: the impact of technology; increasing efficiencies of 
program delivery; and the continuing evolution from grants and direct 
loans to loan guarantees.
Impact of Technology: New Opportunities
    Technology is opening exciting new opportunities for rural America. 
Rural America is dynamic and changing. We must be prepared to adapt 
accordingly:

   Broadband permits decentralization and the displacement of 
        rigid centralized structures by distributed networks. This 
        levels the playing field and makes rural communities 
        increasingly competitive across a wide range of business 
        opportunities. The deployment of affordable broadband to rural 
        communities continues to be a high priority. We will soon be 
        publishing draft revised regulations for comments to address 
        some of the difficulties we have experienced since 2003 in 
        establishing this new and technically challenging program. The 
        2008 budget provides funding to meet all of the anticipated 
        broadband program demand for next year.

   Renewable energy is a national security, economic security, 
        and environmental quality issue. It is also perhaps the 
        greatest new opportunity for economic growth and wealth 
        creation in rural America in our lifetimes. A wide range of 
        renewable technologies are in play, but conventional ethanol, 
        cellulosic ethanol, biodiesel, and wind are distinctively rural 
        resources. We have funded renewable energy and energy 
        efficiency projects using a wide range of business and 
        utilities programs. From Fiscal Year 2001 through FY 2006 Rural 
        Development invested more the $480 million in over 1,100 
        renewable energy and energy efficiency projects. These range 
        from biofuels production and wind farms to anaerobic digesters 
        and a wide range of farm and rural business energy efficiency 
        investments.
Streamlining and Consolidation of Program Authorities
    The 2008 budget for Rural Development maintains the same funding 
streams and transferability as currently exists under RCAP, 
transferability within streams but not among them, the only difference 
is that the appropriation language has been simplified. Building upon 
that model, the Administration's proposal for the 2007 Farm Bill 
provides further, more comprehensive, consolidation and funding 
flexibility for common program authorities. In tandem with these 
legislative proposals is our effort to streamline the regulations for 
these programs that allows for consolidation of common program 
processes. USDA Rural Development administers over 40 programs with a 
combined loan portfolio in excess of $94 billion. While many Rural 
Development programs are highly targeted in purpose, they share 
underlying features with other Rural Development programs. For example, 
the Water and Waste programs and Community Facilities programs quite 
often serve the same rural local governments with different aspects of 
their infrastructure needs. In addition--whatever the purpose--loans 
are loans, grants are grants, and loan guarantees are loan guarantees. 
By standardizing the common elements of the various loans, loan 
guarantee and grant programs within our regulations, we can simplify 
access for borrowers and lending institutions that will no longer have 
to master a new system for each program. It should be emphasized that 
we are not eliminating or combining the programs themselves; we are 
proposing funding flexibility as well as standardizing processes and 
forms to simplify application and administration.
    We have established a Delivery Enhancement Task Force (DET) that 
has worked diligently on the streamlining the regulations effort. This 
Task Force is comprised of representatives from the national as well as 
our field offices. This effort will make it easier for our customers to 
access our programs and for us to administer them. In the end, these 
changes must help us get out of our own way so our field offices can 
encourage more effective rural development. Within the next few months, 
we expect to publish in the Federal Register a proposed rule for 
streamlining certain provisions for our regulations, so we can solicit 
public comments on this proposal. We have also communicated with the 
appropriate committees in Congress to keep them apprised of our 
activities.
    Finally, technology is driving organizational restructuring as 
well. We are bringing functions online, automating data management, and 
increasing transparency and responsiveness. In this regard, we are no 
different from any other large organization with a pre-computer, pre-
Internet legacy structure. I raise this issue today, however, because 
we have reached a point at which new technology and new opportunities 
not only permit but demand adaptation. This is good policy because 
there are remarkable opportunities before us.

    The evolution from grants and direct loans to loan guarantees.

    Finally, several of the most significant changes in the FY 2008 
budget request reflect a longstanding trend of increased reliance on 
loan guarantees rather than grants and direct loans. This has allowed 
us to significantly increase investments in rural America at little or 
no added cost.
    A decade ago, for example, Rural Development's FY 1997 budget 
authority of $2.0 billion supported a program level of $8.0 billion. By 
contrast, the FY 2008 budget request seeks a discretionary budget 
authority of $2.1 billion and a program level of $14.9 billion. Over 
the last decade, therefore, budget authority is virtually unchanged--it 
is actually lower in real terms--while our investment in rural America 
has increased 87 percent. Three factors underlie this trend:

   The Federal Credit Reform Act of 1990 created a significant 
        budgetary and accounting incentive for Rural Development, as 
        for other lending agencies throughout government, to shift 
        funding to guaranteed loans where possible. Guarantees 
        generally have lower subsidy rates and lower costs to 
        administer than direct loan programs.

   In an austere budget environment that we all face, 
        guarantees assume added importance as a means of leveraging 
        private resources and thus stretching scarce Federal dollars.

   Most significantly, loan guarantees are good policy. By 
        requiring that private investors step forward, they orient our 
        programs to market opportunities and sustainable development. 
        Loan guarantees bring private investors to the table. They 
        frequently are the added incentive that convinces local 
        bankers, Farm Credit specialists, and other agribusiness 
        lenders that non-traditional opportunities presented by rural 
        entrepreneurs are worth supporting. Also, local lenders become 
        more vested in their communities by providing more home 
        ownership opportunities. At the same time, however, we 
        recognize that there is no substitute for having Federal 
        involvement. Our default rates bear this out. Loan guarantees 
        are a sound risk mitigation approach. While grants and direct 
        loans remain important parts of our portfolio, the logic of 
        credit reform and sustainable development has been inexorable. 
        Very simply, we have shifted our program delivery funding 
        emphasis and, in the process, we have become significantly more 
        cost-effective. We have dramatically increased investment in 
        rural America at little or no incremental cost to the taxpayer.
Budget Summary
Rural Utilities Programs
    The 2008 budget requests $538 million in budget authority and $6.6 
billion in program level for Rural Utilities programs. These programs 
help provide electric and telecommunications infrastructure, broadband 
access, and modern water and wastewater systems to rural communities. 
The 2008 budget will deliver new or improved service in these areas to 
nearly eight million rural residents.
    The exceptionally strong performance of the rural utilities loan 
portfolio means that these high investment levels can be sustained at 
modest cost. The rural electric program, for example, projects $120,000 
in budget authority to support $4.1 billion in loans. The 
telecommunications program projects about $4 million in budget 
authority to support $690 million in loans. The Water and Wastewater 
program projects $153 million in discretionary budget authority to 
support $1.1 billion in loans, plus an additional $349 million for 
grants to very low income communities. These are among the most 
efficient loan programs to be found anywhere in the Federal Government.
    The Administration is proposing to continue to concentrate funding 
on transmission, distribution and generation upgrades. Rural electric 
cooperatives sell 6.95 percent of the kilowatts sold in the United 
States, and do so across 80 percent of the nation's land mass. The 
challenge of serving a dispersed population remains as serious today as 
it was decades ago, and we will continue to meet the challenge. We 
believe that rural utilities are able to finance new capacity through 
conventional financing. We propose to direct our lending accordingly.
    The President's 2007 Farm Bill proposal also includes $500 million 
in funding over ten years to reduce the backlog in a number of Rural 
Development applications, including rural water and wastewater 
projects.
    Finally, the 2008 budget proposes $300 million for the broadband 
program. We believe that the funds requested will be adequate to meet 
100 percent of the anticipated program demand.
Housing and Community Facilities Programs
    USDA Rural Development's Housing and programs, although not under 
this Committee's jurisdiction, are an important part of Rural 
Development. They assist families with moderate and low incomes achieve 
the dream of home ownership. They help provide decent, safe and 
affordable rental housing. The Community Facilities programs enhance 
the quality of life in rural communities by providing a wide range of 
essential community services. The 2008 budget provides $6.3 billion in 
discretionary funding for these purposes.
    The 2008 budget is committed to protecting the most vulnerable 
members of the community. We are requesting $567 million for Rental 
Assistance within the Multi-Family Housing program. We have launched a 
Multi-Family Housing Revitalization Initiative to protect the lowest 
income tenants from undue rental increases, rehabilitate aging units, 
and extend the viability of the existing portfolio for decades to come.
    The 2008 budget also redirects funding from the Single Family 
Housing direct loan program to guaranteed loans. In recent years, the 
Single Family Housing guaranteed loan program has provided the bulk of 
USDA home ownership assistance. The guaranteed program has also 
accounted for virtually all program growth in this area since 1995. The 
full transition to a guaranteed program will allow us to serve 
significantly more prospective home buyers at any given level of budget 
authority. We will also be proposing legislation to provide subsidized 
Single Family Guaranteed Loans for very low and low income families.
    Finally, for the Community Facilities program--much like the Single 
Family Housing program--we are proposing to shift funding from grants 
to loans and loan guarantees. This will allow us to serve significantly 
more rural communities at any given level of budget authority.
    In addition to the discretionary funding discussed above, the 
President's 2007 Farm Bill proposes $85 million in mandatory budget 
authority to support $1.6 billion in guaranteed loans and $5 million in 
grants for reconstruction and rehabilitation of Rural Critical Access 
Hospitals within 5 years.
Business and Cooperative Programs
    Rural Development's Business and Cooperative programs provide 
funding for rural business development, technical assistance, capacity 
building, and research on agricultural cooperatives. For Fiscal Year 
2008, the President's budget provides $1.3 billion in discretionary 
funding for business and cooperative program investment. Here again, as 
elsewhere throughout the Rural Development budget request, we propose 
to increase cost effectiveness through a greater utilization of 
guaranteed loans.
    As this funding evolution suggests, the Rural Business and 
Cooperative program area--like the rest of USDA Rural Development--is 
in transition. While DET will eventually be deployed across all Rural 
Development program areas, the Business and Cooperative programs are 
leading the effort.
    Finally, Rural Development's business and cooperative programs play 
a leading role in the rapid build out of rural renewable energy 
industries. Corn based ethanol, wind power, and biodiesel have grown 
three-fold, four-fold, and over 100 fold respectively since 2000. 
Cellulosic ethanol is now moving from the labs into production. In view 
of the enormous potential of cellulosic ethanol for reducing our 
dependence on imported oil, supporting its rapid commercialization is a 
high priority.
    The President's 2007 Farm Bill proposal includes $210 million in 
Budget Authority to support an estimated $2.1 billion over 10 years in 
Renewable Energy and Energy Efficiency guaranteed loans; $500 million 
over 10 years for the Renewable Energy and Energy Efficiency grant 
program; and $150 million over 10 years for Biomass Research and 
Development program. This is a very substantial increase in USDA Rural 
Development's role in enhancing America's energy security. We look 
forward to working with you to advance these goals, which I know we all 
share.
Conclusion
    In closing, Mr. Chairman, I want to again emphasize that the future 
for rural America is bright. Enormous new opportunities are emerging. 
We are reorienting programs to new opportunities, adopting more cost-
effective financing strategies, and modernizing our own internal 
operations. I know that the Members of this Subcommittee recognize the 
opportunities before us, and we look forward to working with you to 
bring this promise home to rural communities across the nation. This 
concludes my formal statement and I will be glad to answer any 
questions you may have.

    The Chairman. Thank you so much, Under Secretary Dorr, for 
your excellent job in your presentation. I wanted to ask you 
two or three questions to get us started. One of the most 
significant proposals you mentioned in your testimony is the 
shift from grants to loans to loan guarantees and how this 
shift allows the Department to increase investments in rural 
areas, as you state, ``at little or no added cost.'' However, 
you were referencing the cost to the Department. What studies 
are being conducted to determine how this shift would affect 
the communities that receive these Rural Development dollars? 
For instance, my concern is--wouldn't lower-income communities 
be at a disadvantage, given that they may have less local 
capital to leverage in the pursuit of a loan or a loan 
guarantee? And I know that is the first question I always get 
back home, is, well, is this a loan or a grant? Everybody would 
like to have a grant, we understand that, but this concern we 
have, though, about the disadvantage of less local capital to 
leverage. Can you tell us what studies have been conducted or 
the effect this will have on the lower-income communities?
    Mr. Dorr. Well, this is a regular question and I understand 
the sensitivity to it. What we do know from our experience is 
that in a general sense, when everyone is involved in the 
project, when there is a combination of communities, investors, 
local lenders, as well as government authorities that may be 
impacted by these various projects, there is a tendency for the 
projects to be much more successful. I will give you one very 
short fact, although this does not comport with the water and 
environmental programs, which I think you are probably alluding 
to. But in our B&I programs, in 2001, most of our B&I loan 
programs were handled as direct loans. We had a very 
substantive default rate. It was a very high default rate. We 
have largely transitioned that into accommodating the loan 
guarantee aspects that the statute allows, and our loan default 
rates have dropped dramatically. Now, I realize that some of 
those loans are fairly new, but what we have experienced is 
that when everyone has, so to speak, some skin in the game, 
there is a tendency for these programs to work must more 
effectively.
    On the water and environmental programs, that loan and 
grant program has always been one that has been oversubscribed. 
There is a tendency to always be short of resources and yet, 
one of the things that we proposed last year was not 
accommodated and we are going to submit it again this year, is 
to change our poverty rate loan structure so that we can 
structure our poverty rate at 80 percent of the going rate. 
Excuse me, 60 percent of the going rate and have an 
intermediate rate at 80 percent. And what we have done 
internally in analysis is, using those new numbers we 
determined that with a loan and grant combination, using that 
formula, we are actually able to lower the debt service and the 
cost per constituent in many cases in that program. So we think 
there is some indication that it works very well that way.
    The Chairman. Thank you. I don't have any follow-up on that 
and I appreciate your explanation. One of the questions I had 
asked Secretary Johanns when he testified before this Committee 
was how the $500 million, the USDA proposal to reduce the Rural 
Development backlog, would operate. Now I guess if you could 
clarify this, that includes only backlog funding and not 
funding for any new project requests. I wanted to know if that 
is correct. And also, how much would that decrease the backlog 
in different programs? For example, do we go from a 3 year 
backlog to a 1 year backlog in a particular program, or does 
this rectify the entire situation?
    Mr. Dorr. In the water and environmental programs where we 
received the additional budget authority of 2002, I believe it 
was in the neighborhood of $320 million or $330 million. That 
was leveraged into, I believe, and I would have to verify this, 
but as I recollect, about $760 million of overall program 
funding with the combination loan and grant program. That 
lowered our backlog at the time from about $2.5 billion to $2.6 
billion down to around $1.7 billion or $1.8 billion. History, 
at least in terms of what I have been able to ascertain, 
suggests that you can lower the backlog to: $1\1/2\ billion, 
$1.6 billion, and over a period of time it might reach back up 
$2\1/2\ billion to $3 billion. I believe right now at the end 
of this year, our backlog would approximate at $2.2 billion. So 
this would, I suspect, lower our backlog back into that $1.5 
billion to $1.7 billion area in the water and environmental 
programs. We are proposing to use some of this in broadband and 
some of these other areas as well, if there is in fact a need 
at the time. So that is a moving target and I think that we 
will address a substantial portion of this, but clearly, it 
won't clear it all up.
    The Chairman. All right. And one other question that I 
wanted to ask you about that I alluded to in my opening 
remarks, and I specifically mentioned my hometown and county as 
an example. The county seat of Lumberton possesses a population 
of just over 20,000, which I know now makes it ineligible for 
certain Rural Development programs. It has qualified for some 
rural housing programs in the past by being grandfathered into 
eligibility, based on prior Census data. And then, as I 
mentioned specifically in my remarks, for instance, our county 
public library and our county courthouse, which by definition 
have the word county in their title and serve a countywide 
area, but now are in a city that is over 20,000. We had to go 
back to get special permission from Rural Development to finish 
what had already been started on both of those projects. I 
wanted to know if this is going to be a continuing problem, if 
there is an effort to reexamine the word ``rural,'' and what 
you will be operating under in the meantime, so that 
communities like Lumberton, who may technically have exceeded a 
population data, can still service the predominantly rural 
surrounding area?
    Mr. Dorr. Well, first let me state that a member of your 
next panel, Dr. Fluharty, is going to have some interesting 
observations on the definition of ``rural,'' at least he has 
every time I have heard him, and he does a very good job of it. 
This is almost a ``Solomonesque'' sort of task and I don't mean 
to be flippant about it. As you enunciated in your opening 
statement, we have different population levels that have been 
ascribed to the various programs. B&I is 50,000, CF is 20,000, 
and they vary across the board by program. Then, frequently we 
end up with situations like you just described in Lumberton. 
Then we have to go in and make some additional accommodations.
    In 2003, I put together a task force that, quite frankly, 
when I left office as the Under Secretary in 2003, it didn't 
get completed, I don't believe, but we are working on it again, 
to take a look at what it is we can and should and perhaps can 
do relative to working with all the resources available to 
address some of these rural population areas. But as you note 
and I am sure perceive, as well as other Members of the 
Committee, there is a transition taking place relative to 
urbanization in rural areas. One of the things that I think is 
particularly intriguing is what Secretary Johanns has done in 
the farm bill proposal that he and the President have laid out 
relative to 1031 exchanges. That is just a manifestation of 
this kind of ongoing changing demographic pattern relative to 
rural areas. Another reason I am bringing this up is because I 
think we are all sensitive to it. I don't think we have any 
good, clear, and hard answers. I will assure you that we are 
going to continue to work on it and we will take any insight 
and any suggestions that you may have to offer as well.
    The Chairman. Thank you. We will take you up on that and I 
encourage our Subcommittee Members, and the staff of those 
Members who may not be here, to accept that invitation with 
regard to the definition of ``rural.'' And I would ask, Under 
Secretary, would you be willing to either reinvigorate that 
task force that was in order at 2003, or create your own, so 
that this can be aggressively addressed? Would you be willing 
to do that?
    Mr. Dorr. No, we actually have a group that is now working 
on this issue, again, at my request. And the reason I don't 
have anymore hard information is because it is just a very 
difficult task, but we are working on it. And as soon as we 
pull some things together, we will be delighted to share them 
with the Committee.
    The Chairman. Thank you. We will look forward to that. Mrs. 
Musgrave.
    Mrs. Musgrave. Thank you, Mr. Chairman. Secretary Dorr, you 
talked about the importance of hospitals in these rural 
communities. It has been my experience that very often the 
school district is the larger employer and then the hospital is 
right after them. And of course the quality of healthcare in 
rural America and the access of healthcare is of major concern 
to folks that live out in rural areas. Could you elaborate a 
little bit? I believe you said 1,283 rural hospitals. What is 
going to happen with these rural hospitals? And then that leads 
me into telemedicine and distance learning. And after you talk 
about hospitals, I would like you to comment on criticism, 
really, that has come towards the Broadband Program and some 
folks are not really happy with the way this process has been 
handled. Of course there is a great deal of competition when 
communities are desperate for the ability to use telemedicine 
and distance learning for their education.
    Mr. Dorr. Well, certainly these are--I mean, you are 
hitting on the complexity of the issues. But I would hasten at 
first to point out that I think this plethora of issues that 
you described also clearly indicate opportunity. It is 
occurring at a time in, which in the long run, is very 
opportunistic for rural. I actually reflect back to what I say 
in 1990 was kind of the maturation of broadband technology, but 
we all began to recognize after that, that the ability to have 
access to a broadband pipe essentially allowed you to compete 
in global markets, to live wherever you wish, or to live 
locally and compete globally. But that also amplified the 
circumstances when certain communities and certain people did 
not have access to the same sized pipe that other people in 
urban areas had. But also, with access to that pipe, it also 
made it possible to enhance the quality of healthcare in rural 
areas, because now you could access the kind of expertise that 
may not have enough of a market to reside in those rural areas. 
They would provide services if they could have the diagnostic 
and the information exchange tools that are made possible only 
by broadband.
    So the long answer is: I think it has enhanced rural 
America's opportunities a great deal. I think the ability to 
modernize and rehab critical access care hospitals, which by 
the definition means that they are a 25 bed facility with 
certain structural constraints that enable them to qualify for 
Medicare reimbursement, that enables them the mechanism to 
service these debts, and our critical access care proposal to 
provide financing actually allows their local lenders--their 
local community banks--to have a way to lay off that risk once 
they originate that loan; particularly if it exceeds their 
capital structure, and I think that is the benefit of this 
particular program.
    Back to the broadband side of it, however, I will tell you 
that it was rolled out in a pilot project and then later made 
part of the farm bill in 2002. It has been more complicated to 
deploy a technology in a competitive environment that was 
destined to be, or statutorily required to be, technology 
neutral. We have made some mistakes in doing it. We are in the 
process of having rewritten the regulation. It is presently at 
OMB. It will shortly be, I hope and I think, very soon be made 
available for public comment. At that period of time, you will 
have an opportunity to comment. As soon as that is exposed, I 
will be delighted to come up or have any of our staff come up 
and work with you individually or the Committee as a whole to 
make sure that you feel that we are on the right path with what 
we have got. I think it is the key to unlocking rural America.
    Mrs. Musgrave. Thank you. You are probably very well aware 
of the fact that we have difficulty in attracting doctors and 
nurses and other healthcare providers, so that is a huge issue 
too. And as we think about rural America, one of the most 
poignant things to me is to see the declining population and 
thinking about what the future is for rural America, how our 
young people that want to stay in rural America can't. And I 
wonder what Rural Development programs do you see that have 
worked to really slow this population loss?
    Mr. Dorr. Well, I think there are fundamentally two 
programs that are very key to this. Number one is our Broadband 
Program. Even though we have had difficulty with it since 2002, 
we have actually made a billion dollars, in excess of a billion 
dollars of broadband loans. I think it is also important to 
point out that, since 1995 or 1996, all of our telecom program 
applicants have been required, as they build out and receive 
loan funds from us, they have been required to enhance their 
broadband capability when they build out these new capacities. 
So I think broadband and the access to information, knowledge, 
global markets, has been a significant opportunity to retain 
young people in rural America.
    And the second, quite honestly, is one that we are just 
uncovering and I know that all of you are very familiar with 
it. We talk about it all the time, it is renewable energy and 
renewable energy; carbohydrates; and other renewables. This 
involves building a brand new industry, a brand new 
infrastructure, a brand new regulatory regiment, a brand new 
tax structure, a brand new everything. And these, as we build 
these out, will create high-quality, very sophisticated jobs 
that will make it possible to attract young people to live in 
these rural areas. For the most part, these new renewable 
energy opportunities are rural in nature. They are going to be 
situated in rural areas. They are distributed and they are 
possible only because you have distributed competing. So those 
two things I think are very significant draws for young people 
in rural America.
    Mrs. Musgrave. Thank you. And thank you, Mr. Chairman.
    The Chairman. Thank you so much, Mrs. Musgrave. With the 
Subcommittee's indulgence, we have an opportunity to recognize 
my friend, the Ranking Member and former Chairman of the full 
Agriculture Committee who has joined us, Bob Goodlatte. And Mr. 
Goodlatte, if you have any questions that you would like to 
ask, we would be glad to honor your presence now.
    Mr. Goodlatte. Mr. Chairman, thank you very much and I am 
very pleased to join you and Mrs. Musgrave and the other 
Members of this Subcommittee, and I appreciate your holding 
this hearing on this very important subject. I do have an 
opening statement that I will just submit for the record.
    The Chairman. Yes, sir, gladly.
    Mr. Goodlatte. And I would like to follow up on the line of 
questioning that you suggested in your opening statement and 
before I do that, welcome, Secretary Dorr. We appreciate the 
opportunity to work with you and a lot great folks in Rural 
Development who work in Virginia and have done some great 
things in the communities for my constituents. So I thank you 
for your service to our country and welcome you here today.
    Mr. Dorr. Thank you.
    Mr. Goodlatte. The 2002 Farm Bill provided a definition of 
``rural'' and ``rural area'' for purposes of loan and grant 
eligibility. Many other rural loan and grant programs place 
other population thresholds on eligibility. Are the current 
definitions of ``rural'' and ``rural area'' effective in 
targeting those areas most in need of assistance?
    Mr. Dorr. I don't know that I have a good answer for that, 
quite honestly. Our programs, I guess I would have to say that 
on the surface, the obvious answer would be that probably they 
do, because we are in most cases oversubscribed in our 
programs. So obviously, to expand the definition would just 
permit more applicants. So at the same time, we are fully 
cognizant that there are circumstances, particularly when you 
get into rural communities that are in technically-designated 
urbanized areas that are then, as a result of some definitional 
issues, unable to access programs and it complicates matters. 
As I said at the outset, in my earlier comments, this is an 
issue that we are studying. We are, I guess, at the behest of 
repeating myself, it is a ``Solomonesque'' sort of a challenge 
to try to get the right definition for ``rural,'' and we are 
going to work on it, we are going to continue to work on it. I 
am not certain that we have got the right definitions.
    Mr. Goodlatte. Well, do you believe the definition of rural 
should be different for different programs, or should it be 
more consistent across the programs? And I understand that, 
with fiscal constraints, and hopefully we will find ways to add 
more money here, but if we can't, are we better off having 
these disparities that exist or should we scale back some and 
increase some and have a more consistent definition?
    Mr. Dorr. I wish there was an easy answer and I am not 
trying to dodge it. But for example, when you look at the 
broadband programs, that is a real difficult situation because, 
frequently, you can have an urbanized area and literally get 
right outside of it, 5 miles, and because there are rural 
constituents, they just simply don't have access to broadband, 
because there is not a provider who will lay 5 miles of wire, 
or put up a wireless tower to accommodate that customer. So 
that becomes the real complexity of trying to define it. I 
mean, I think we all believe that those folks ought to, within 
reason, have access to the same services that their urban 
counterparts do. And so that is why I am kind of stumbling on 
this, because it is not an easy thing to deal with. We are 
trying to address it and we have developed some insightful 
approaches in our proposed rule, but at this point, I am really 
not at liberty to go into at this juncture.
    Mr. Goodlatte. Let me play off of your answer to that last 
question regarding broadband service. The commercial providers 
of satellite broadband service claim they can provide service 
to almost every corner of the United States. Do you think this 
could change the nature of our U.S. Broadband Program in terms 
of how we define unserved or under-served areas?
    Mr. Dorr. I don't think there is any question that it has 
implications on it and I quite honestly am not trying to dodge 
this, but I think it would probably be more effective to have 
Jacki Ponti, who administers that program, spend some time 
going into it with you. We have dealt with those issues and 
there are a number of--I guess perhaps the best word is 
``nuances'' to those sorts of applications relative to the 
regulatory regime that is in place, who owns the spectrum and 
how that plays out. So it sometimes becomes more complicated 
than just trying to define a rural area when you make a loan in 
one of these particular situations.
    Mr. Goodlatte. Thank you. With the Chairman's indulgence, 
let me get one more question. It is my understanding that USDA 
Rural Development is in the process of considering possible 
changes in the organization of your state and local offices. I 
wonder if you would comment on those proposed changes and how 
they will impact your ability to administer the existing 
programs.
    Mr. Dorr. Certainly. I would be delighted to. This is 
actually something that has been ongoing since I have been 
involved as the Under Secretary of Rural Development. Early on, 
our programs were much more focused toward certain areas such 
as single-family housing. Most people are not aware, but the 
numbers right now in terms of percentage of home ownership in 
rural America is approximately 75 to 76 percent. I mean, it is 
very, very strong number relative to single-family housing. 
What has happened in the meantime is a result of economic 
changes, cultural changes and statutory changes. Our programs 
have been shifting to more emphasis on renewable energy and on 
business and industry loan programs, and more effort on 
facilitating the deployment of the right kind of infrastructure 
for regional and local communities. And so what we have had to 
do is use a combination of technology and continually 
reevaluate our marketing model to make sure that we were 
providing the right quality and the right level of services, 
and at the same time, doing it within a constrictive number of 
resources.
    And so in fact, what we are actually doing is going to our 
states and saying, ``Tell us what would most effectively 
enhance your ability to provide your services in your states,'' 
and they have come back to us with some proposals. To a large 
extent they could be described as migrating from more of a 
three-tier structure to a two-tier structure, which means 
state, regional and local offices. And what they are finding is 
that with technology and with cross-training and a number of 
things, they are actually much more able to provide the quality 
and level of service out of regional offices. In the cases 
where we actually have 10 states that are already at that 
level, and have been there for several years, and as they are 
deciding that this is the way they want to go, we are 
encouraging them to do so. But this is going to occur in a 
manner that we will not be changing our staff structure at all 
to any great extent.
    Mr. Goodlatte. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you so much, Mr. Goodlatte, and thank 
you for joining us. And now we have just been joined by the 
Chairman of the full Committee, Mr. Collin Peterson, and 
Chairman Peterson, we welcome you to the first hearing by this 
Subcommittee and would welcome any comments or questions you 
may have.
    Mr. Peterson. Well, thank you, Mr. Chairman, and thank you 
for your leadership, and Ranking Member. We look forward to 
some good work out of this Subcommittee.
    The Chairman. Thank you.
    Mr. Peterson. Mr. Dorr, Under Secretary.
    Mr. Dorr. Mr. Chairman.
    Mr. Peterson. Can you give me a status report of where we 
are within the Administration on the loan guarantee situation 
for cellulosic ethanol plants that--some of it is in DOE and I 
don't know what they are doing over there exactly. And I think 
the Secretary, in the farm bill proposal that he put forward, 
had some provisions in there to have some kind of loan 
guarantee authority. So could you tell us kind of where that is 
at within the Administration or what is going on there?
    Mr. Dorr. Well, I will do the best I can. At the risk of 
being redundant and as I believe I have stated at different 
times in the past, when the 2002 Farm Bill was passed with the 
energy title and Rural Development was assigned to implement 
9006, the Renewable Energy and Energy Efficiency Act, it became 
very apparent to me that, yes, we in fact had the ability to 
originate the loans and provide the back office support, 
analyze the credit risks relative to loan guarantees. We did 
not have a lot of the technical expertise that may be involved 
in analyzing these applicants relative to new renewable energy 
technologies. So what I did immediately was engage; because of 
my prior relationship with a number of folks at DOE, and 
working together on the Biomass Research and Development Act, I 
engaged the folks at EERE over at DOE and we subsequently wrote 
a contract with those folks to actually provide us assistance 
in analyzing the technical aspects of these loans. As a result, 
we have had that relationship since implementing the 2002 
program.
    After the Energy Policy Act of 2005 was passed, we have 
been in contact with them. They know that we are more than 
willing to do whatever we can to assist them in their program. 
Obviously, there are a number of issues that have been involved 
in that, that they know far better than I do. And yet, by the 
same token, in the farm bill proposal the President, the 
Secretary, obviously it has passed muster with OMB and others, 
have made a request to insert a request for $210 billion budget 
authority to facilitate our ability at USDA to do upwards of--
in excess of $2 billion of cellulosic loan guarantees. We are 
in the process right now of making sure that we know what we 
have to do to get in line--to get ourselves in order to make 
this happen as quickly as possible. In fact, this law has 
passed and the funds are appropriated. So that is where we are 
at, at this point, relative to where DOE is at.
    Mr. Peterson. Do you have any understanding of why there 
was $7 million put in the continuing resolution to apparently 
have them start up a loan guarantee program, which apparently 
they have never done before? Do you have any idea of what is 
going on there; aren't we duplicating? That is kind of what I 
was mystified about.
    Mr. Dorr. Well, I know that when the Energy Policy Act was 
passed, as a result of that, there were no funds appropriated 
to do much of anything. Since then, I know that there have been 
a number of discussions on this. I am not privy to what it is 
exactly that they are doing or why they are doing it. I do know 
that we have had ongoing conversations, and we have shared 
information with them on loan guarantee programs. Certainly we 
are more than willing to work with them.
    Mr. Peterson. Well, it seems like what is going on that we 
are going to set up a process over there to make loan 
guarantees, and we gave them money to do that. I understand 
that we don't have the money in either place, but I don't know 
how we get this sorted out. So if somebody from the 
Administration can tell us how we can sort this out, and how we 
can get everybody moving in the same direction. I don't really 
care who does it, as long as it gets done. The other question I 
have, Mr. Chairman, if there is time, is now you have limits on 
how much and how big a loan you can make and so forth. I would 
assume that in order for you to, if you are the ones that are 
going to end up doing this, you are going to need some changes 
in those limits as it relates to these plants.
    Mr. Dorr. That is correct and we have indicated in that 
farm bill proposal that we would like to see the limits on our 
cellulosic loan guarantees run to $100 million and 100 percent 
loan guarantee.
    Mr. Peterson. Do you think that is going be enough?
    Mr. Dorr. No, I don't.
    Mr. Peterson. When I heard what these plants are going to 
cost, it may need to be higher than that.
    Mr. Dorr. It may be. I don't know. I think that it is 
clearly a good crack; $100 million is clearly a lot of money. I 
think it is a good crack and a start. Once we get into it if we 
find out that it is not enough, I am sure and confident that we 
will closely counsel with you and let you know.
    Mr. Peterson. Is the $100 million limit in the farm bill 
proposal?
    Mr. Dorr. Yes.
    Mr. Peterson. Is it any other place? Is it in any 
legislative language anyplace, coming out of the 
Administration?
    Mr. Dorr. I believe that we have some draft documentation 
on that, but I will have to check.
    Mr. Peterson. But nobody has introduced anything?
    Mr. Dorr. I don't know.
    Mr. Peterson. Well, if you could check on that.
    Mr. Dorr. Sure.
    Mr. Peterson. Well, thank you, Mr. Chairman.
    The Chairman. Thank you so much, Mr. Chairman, for being 
with us. Mr. Fortenberry.
    Mr. Fortenberry. Thank you, Mr. Chairman. I appreciate the 
opportunity to be with you in this hearing and appreciate the 
opportunity to be on this Subcommittee. I am very grateful for 
your opening statement, particularly one sentence, ``America is 
returning to its roots.'' And to the degree that we are 
empowered to help overcome the barriers for people who wish to 
integrate into rural life through rural entrepreneurial 
opportunities, I think we have a tremendous chance here to help 
that and the benefits from this way of life are extraordinary. 
The values that we hold dear in our country, of hard work and 
personal responsibility and family life and neighbor helping 
neighbor, all flows so beautifully from our rural communities, 
particular farm families, and I just really appreciate you 
capturing the essence of that by saying America is returning to 
its roots.
    Mr. Secretary, thank you for appearing again here. I am 
going to make a number of comments, some of them are specific 
questions and some of them are a little broad. The first is I 
appreciate your comment that the decentralized nature of USDA 
Rural Development has allowed you the flexibility to meet the 
mandates of Congress and to be very effective at it. I agree 
with that. We have an excellent director and a number of 
excellent ongoing programmatic elements in Nebraska that have 
done just that. So I appreciate that comment and affirm what 
you said.
    Second, as you appeared before the other Subcommittee of 
Agriculture that I am on, last week I believe it was, we 
mentioned that, my colleague, Mr. Costa from California, and I 
were interested in a letter, writing a letter to you, in which 
we would ask for your coordination with the Department of 
Energy to basically unpack the myriad of renewable energy 
programs that are out there, either grants, specific programs, 
university initiatives, so that we can have a better 
understanding of how to integrate the two Departments' 
initiatives, so that we are ensuring our taxpayer monies are 
being used most efficiently and to avoid redundancy. I was a 
little surprised by your comment. I appreciate it. This is not 
meant to be pejorative, but you said this is going to take some 
time. What that indicates is there is a very complicated maze 
of renewable energy and alternative energy programs, projects, 
initiatives, out there. But I think, as quickly as we can get 
that, it will be helpful and that letter will be forthcoming 
from us to you this week.
    The third point is I think you have heard a number of 
comments about rural broadband and I appreciate you ranking 
that as one of your priorities in terms of ensuring renewed 
vitalization in rural America. There is some complications here 
and some of the earlier questions alluded to that and I think 
your suggestion is very good, that perhaps the Administrator of 
that program should come back here. I assume this is the 
appropriate Committee that she would testify before, because, 
again, the complexities of new technologies, the complexities 
of what is urban and what was is rural, the complexities of who 
gets loan guarantees and who doesn't, are very real and I think 
we need to unpack that. And it is my understanding that the 
rural telecommunications and broadband services director, 
directors, and I assume that they are in all states, is not 
under the auspices of USDA Rural Development and I would like 
to understand that better, as to why that is not true, unless I 
am mistaken.
    The final question is you have recommended some solutions 
to, again, getting a better handle on the myriad of programming 
elements that are under the auspices of USDA Rural Development 
and you have created a four part platform, if you will. Would 
you unpack that? Again, the emphasis is on renewable energy and 
I think that is important. The emphasis is on business loans 
and business grants and then other community development 
programs. Talk to the reasoning that you have for that 
platform. On the surface, it appears to me to be reasonable and 
a way to help people understand, again, the opportunities that 
are out there to interface with you. I should stop there, since 
I think my question is using up my time. All right, Mr. 
Secretary.
    Mr. Dorr. I hope the answer doesn't use up too much of 
other people's time, and I apologize. First of all, very 
quickly, I do believe that DOE does have a very concise matrix 
of their research programs. The Energy Council that was put in 
place by Secretary Johanns, and I am the Chairman of, in 
December of 2005, has embarked on, for the last several months, 
literally doing an assessment and analysis of all the research 
and commercial development programs at USDA and is ultimately 
putting those into a matrix. I believe the Secretary has 
announced that today as well. That is not yet on line, but it 
should be shortly and that is designed to enable people to 
literally go in and point and click and find out what the 
programs are that they are interested in. This is the first 
step in doing a much larger and bigger matrix, if you may, to 
pull as many of these things together as we can.
    The issue of why there is not a broadband state director or 
under the auspices of a state director in each state, that was 
initially set up because of the complexity of the technology. 
What Administrator Andrew is doing, and I am doing, very well 
is attempting to begin to disperse the knowledge necessary to 
deliver these programs across the board in the states. The 
problem with that program is that you have a myriad of 
technologies, you have an environment in which you can make 
loans to competitors, which is unlike anything we have ever 
done before. We had a rural water system or a rural electric 
administration or rural electric co-op. These were monopolies, 
essentially. They were monopolies into a given market, with 
certain restrictions on contracts, and the ability to build out 
broadband in this manner is something. Because of the change in 
technology, the dramatic change in technology, it was just 
impossible to staff up at the state level. So we had people 
qualified to even understand the technology and the proposals 
that were sent to them. So that is why we have retained a lot 
of that decision making at the national office.
    Mr. Fortenberry. And you accept that as a reasonable 
structure ongoing?
    Mr. Dorr. I think it is a reasonable structure if we get a 
better handle on how exactly we are going to deliver the 
program, and that is not to submit that we are not delivering 
it. I mean, as I said earlier, we have a billion dollars that 
we have placed through that program. We have about $360 million 
in applications in the queue right now. We have had over $2 
billion in applications that we have sent back because they 
didn't comport with our existing regs, and that may be one of 
the problems. But----
    The Chairman. We will let you continue that answer and if 
you will please submit that full answer, that would be great.
    Mr. Dorr. Sure.
    The Chairman. On to our Committee Members' time. Mr. 
Pomeroy, you are next.
    Mr. Pomeroy. Thank you, Mr. Fortenberry. Thank you, Mr. 
Chairman. Mr. Secretary, it is good to see you again. The last 
time you were before the Agriculture Committee, I guess it was, 
we talked about how we might maximize the farmers' 
opportunities to participate in the investment opportunities of 
these ethanol plants. And while in the early going, when 
ethanol had yet to really establish itself on the landscape as 
an almost can't miss investment, farmer co-ops were funding 
these things. Yet, would it have caught fire? Now the money is 
readily available out of Wall Street and less farmer 
participation, diminishing our prospects of trying to help 
farmers achieve some kind of diversity relative to their income 
dreams and the opportunities.
    I had thought, after our visit, that we would see something 
very interesting out of your shop on ways farmers might invest. 
I was thinking, based on what I understood you to say that day, 
that maybe pools, capital pools that might be used almost like 
a real estate investment trust, funding participation in a 
number of plants all over the place. The farmers' stake has not 
been buying a piece of a particular plant, but they would be 
participating in this pool, much like an investor, again, in a 
REIT. What are you thinking today about trying to maximize 
farmers' opportunities to have an ownership piece in this 
emerging ethanol industry, and what can we see out of your shop 
in that regard? Is there something more we can do in the 
Committee to help you?
    Mr. Dorr. Well, you and I have had this brief discussion on 
this and you are spot. One of the concerns that we have is 
whether or not rural America is going to be able to capture a 
large portion of this wealth that is being created. What we 
have done and we have not released them, we are getting very 
close to getting them prepared so that there is some sense to 
them, but we have embarked on, actually over a period of 2 
years, but more specifically the last 6 months, four 
cooperative research contracts to look at investment issues, 
business model issues, red tape and regulatory issues, and more 
specifically, how to go about integrating distributed 
electricity production into legacy systems. We think we are 
getting close to having a cogent summary on this. I think, when 
it is all done, what this will do is point out a number of 
issues regarding how securities laws and other things, which 
are clearly out of my jurisdiction, may or may not impact the 
ability to aggregate small investor capital in these rural 
areas.
    It is pretty clear to me that, as you pointed out, it is 
easy now, on these business models that work, to go out and get 
the capital very quickly, not just in Wall Street: you can pick 
it up in Fargo before they can get it in Minot; or you can pick 
it up in Sioux Falls before you can get it in Brookings. The 
simple fact of the matter is that we have to figure out ways 
that enable the local investors, the bankers, the butchers, the 
barbers, the school bus drivers and everyone who wants to be 
put $5,000 or $10,000 or $15,000 into one of these investment 
pools, or whatever the mechanism may be, so that they can 
participate. I don't think that is an irresponsible suggestion. 
I think it is an issue that traditional security and regulatory 
laws are meant to deal with issues that are much different than 
they are now with distributed computing and our ability to do 
things much quicker and maintain a high level of governance, a 
high level of transparency relative to management fees and risk 
and that sort of thing. I think we need to embark on it. I 
don't think that we at Rural Development are going to be able 
to. What I am hoping that we do is eliminate the questions that 
we are encountering as we go about facilitating the build out 
of this industry, so that you and others may sit down and take 
a look at this and we will be delighted to work any way we can 
to work through it.
    Mr. Pomeroy. I appreciate that and I appreciate and respect 
you for your grasp of this and how you have articulated it. I 
am disappointed in the timeline. You know, the corn production 
in North Dakota is fairly well committed now and the plants are 
already under construction. It has been a critical period of 
time, of development for our industry. The farm bill is upon 
this Committee and if we are to do something creative, we need 
to do it now. And so studying and contemplating and researching 
and publishing, it is all going to press us past, I am afraid, 
the critical time-frames where this matters.
    A final point I would note. I have frustration with the 
Rural Utilities Service. We gave them some money to build out 
broadband and looking at how they have allocated the money in 
North Dakota, anyway, it looks to me that they have built over 
it and not build out. And it was never my intention to commit 
low-interest Federal dollars so that they could put in even a 
co-op owner and general very co-op friendly guy, but co-op 
owned facilities are in direct competition with the private 
sector plant that was already there. That to me seems unfair 
and not the optimal use of these resources that we hoped to 
push this out into the areas that didn't have service. Do you 
have a response? I see I am out of time and I yield.
    The Chairman. Okay. Thank you, Mr. Pomeroy, and we would 
ask the Under Secretary to please respond to that in writing, 
given our time constraints. We are joined by the gentleman from 
Minnesota, Mr. Walz, and the gentleman from Kansas, Mr. Moran. 
And with Mr. Cuellar's permission, in light of the earlier 
round, Mr. Moran, we will call upon you if you have a question, 
sir.
    Mr. Moran. Mr. Chairman, I would ask unanimous consent, I 
am not a Member of this Subcommittee, to sit at the dais and 
ask a question.
    The Chairman. We will allow you to proceed.
    Mr. Moran. And I appreciate Mr. Cuellar's kindness. Thank 
you very much for allowing me to join you, Mr. Chairman and 
Ranking Member. I would follow up on Mr. Pomeroy's comments. 
That was one of the comments I wanted to make. We have 
experienced the same thing in Kansas, in which we are actually 
doubling the building capacity as compared to necessarily 
serving areas that have no broadband service. But before I get 
to that point, I wanted to thank Secretary Dorr for his 
commitment to the issues on which he speaks. I am a fan of 
Secretary Dorr and I appreciate what he is doing at Rural 
Development. I would compliment the Administration in a couple 
of their farm bill proposals. On the renewable energy side, my 
only complaint is that we ought to be doing more and we ought 
to be doing it quicker and this ought to be a Manhattan Project 
for the immediacy of this. I think the benefits that come to 
rural America are just tremendous. But I am pleased with the 
direction the Administration is going and let us just keep 
going in that direction as quickly as possible.
    And on the Critical Access Hospitals, there is perhaps no 
more important a challenge that rural America faces than access 
to healthcare, and Critical Access Hospitals are presumably 
reimbursed at 100 percent, 101 percent, actually, of their 
costs, but it doesn't take into account any depreciation. And 
their ability to replace structures, to replace equipment is so 
limited and your proposal is one that is very worthy. So my 
compliments.
    A couple of comments or questions. Municipalities, I am 
told, are not eligible for loans or grants for the development 
of wind energy. And in Kansas, we have a community college that 
is interested in developing the technical expertise to create a 
program in which they train technicians to work on wind energy 
projects, and the campus itself is interested in becoming 
reliant upon wind energy, but is ineligible for a loan or a 
grant from USDA. And I would ask the opportunity to work with 
you to see if there is something that USDA can do to solve that 
problem--it may take legislative changes. I would ask you to 
work with me to see that we accomplish that. I think that is 
what I would like to see the next phase of wind energy, as 
beyond the large wind farms, but the opportunity for 
businesses, campuses, communities, to access that form of 
energy.
    And then I also would note that FTEs are in short supply at 
Rural Development and we have now passed the continued 
resolution and I am interested in knowing, Mr. Secretary, your 
ability to continue to fund Rural Development programs in 
Kansas and other states using the personnel that we currently 
have in place. Do you see significant changes? And in that 
regard, I also just want to point out that Kansas, like some 20 
other states, are going through a process of closing FSA 
offices and I know that you are going to be very reluctant to 
participate in a dialogue with me about this conversation. But 
I hope that you would take back to USDA the importance of a 
small number of jobs in small communities. And one of the 
things we see, even in our state, in which we are closing FSA 
offices in our smallest communities and placing those offices, 
and the positions that go with them, in the larger more 
regional communities. And of all departments in the U.S. 
Government, in Washington, D.C., the one department that I 
would expect to understand the importance of three or four jobs 
in a community of several hundred people would be USDA. And if 
you can help deliver messages, in fact, there is a great irony 
that we will see Rural Development make a loan or a grant to a 
business in a community to help preserve the cafe or keep the 
grocery store ongoing, to help the local hospital, and at the 
same time FSA is considering closing the office that employs a 
half a dozen people. What one hand is providing, the other hand 
is taking away and I hope that without forcing you to, unless 
you disagree with me, then I don't want you to say anything, 
but if you agree with me, I hope that you will take a message 
back to another side of USDA about the importance of those 
positions. Thank you.
    Mr. Dorr. Let me make one comment on that last component. I 
am very empathetic to what you are saying, on the one hand. On 
the other hand, where we have, in our case, local offices that 
frequently have only two or three people in them, it makes it 
very difficult, and particular in an isolated area, it makes it 
very difficult to have them trained up and capable of 
delivering all of the programs, when they have tended to 
specialize in areas. What we are finding is that our 
productivity and our ability to enhance economic growth and 
development, not just in the regional centers, but throughout 
many of these areas, is considerably enhanced when they use a 
combination of technology, cross-training and collaboration 
amongst our staff to deliver programs in a highly effective 
manner. So I understand the significance of all the jobs that 
you can possibly get in the individual rural communities. On 
the other hand, I have looked at some of our numbers where our 
cost per loan originated sometimes are really way, way too high 
to even justify what we are doing. So we have to look at how we 
can do it in a better, more effective way and yet still obtain 
the requirements that you expect, as laid out in the statute, 
and I think we are doing a pretty good job of it.
    Mr. Moran. Mr. Chairman, thank you for allowing me to join 
you. I only would point out that one USDA official told me that 
what we ought to do is just look to see where Wal-Mart is and 
put our offices there, because they have already done the 
study, and that kind of attitude is very troublesome to me; and 
it was no one at Rural Development.
    Mr. Dorr. I understand. I don't have the Wal-Mart syndrome 
yet.
    The Chairman. All right, thank you. Thank you, gentlemen. 
Thank you, Mr. Moran and Mr. Under Secretary. Mr. Cuellar.
    Mr. Cuellar. Thank you very much, Mr. Chairman, and thank 
you, Mr. Secretary, for being here with us. But I want to 
follow up with what Congressman Moran also talked about. What 
the factors, and I know the general factors of cost-
effectiveness, but what are the factors that you all look at 
for closing a small office? And keep in mind that there are 
ways--you have done budgets and I have done budgets--but what 
are the factors that you all take into consideration? Because I 
am in the same line as Mr. Moran and a couple of other folks, 
that by closing those offices in the small rural areas, I mean, 
the Agriculture Department is the one that's supposed to be 
helping the small rural areas. If you are talking about 
delivering services, I am sure there are other ways and there 
are other alternatives we can look at besides closing those 
offices. There are counties in my District that have said, ``We 
will provide the offices for free. We will provide the office. 
All they have to do is bring the person, the salary, but we 
will provide the spaces.'' So if you have willing partners that 
are willing to provide that, I mean, that is already some 
savings to you all.
    Mr. Dorr. Well, before we get too deeply imbedded in this 
discussion, let me hasten to point out that the national office 
at USDA Rural Development has not made a dictate that we are 
closing X number of offices. What we have had to deal with is 
the change in our program scope, the transition from more, for 
example, direct single-family housing loans to guaranteed 
housing loans. For example, when I first started out, we were 
making about $3 billion worth of single-family housing loans in 
rural America. In our 2008 budget, that will jump to nearly $5 
billion, $4.7 or $4.8, but they are largely guaranteed. They 
are guaranteed loans originated by your local bankers and 
others who run businesses in the community. These programs are 
very effective at getting people who need housing, particularly 
in the less than 100 percent median income area, into housing. 
We can better use our resources to make sure that we provide 
more housing than we can to keep people involved necessarily 
making single-family housing loans, when in fact what we really 
need to do is to retrain them so that they understand how to 
more effectively coordinate water and waste environments, or 
the Critical Access Hospitals, with B&I loan and something of 
that nature that ultimately results in the creation of several 
jobs. The upshot is that almost without question, every one of 
our states are actually redesigning themselves in a way that 
allows them to deliver their programs most effectively. So this 
is not a Washington dictate. I made it very clear, when I 
started out at Rural Development, that our state directors, who 
are all political appointees, are essentially the equivalent of 
CEOs of their state and they and their staffs work, live, eat, 
go to church, play, recreate with the bankers, the developers, 
the local leaders, the local political leaders in their states, 
and to a large extent, in almost every situation, they are 
actually responding to the local demand and the local need. So 
this is not a dictate from us telling them what they ought to 
do because we have defined it.
    Mr. Cuellar. Well, with all due respect, I don't know what 
local input they are getting from my District to close an 
office in Starr County or what they are getting from Mr. Moran 
or the other Members. I mean, did they get input from our 
community to go ahead and close that office? Is that what you 
are saying?
    Mr. Dorr. No, I think what they are doing as CEOs of the 
Rural Development programs, looking at where the demands are 
for their programs, looking at where they need to have their 
people positioned most effectively. For example, we have 
certain states that have a large number of offices that have 
ended up around large urban areas, because they were at one 
point rural. Okay. We don't need them there now and our people 
understood that and redeploying them in areas that are more 
appropriate to delivering Rural Development programs.
    Mr. Cuellar. I mean, I don't want to go into too much 
detail here, but could you have your state person sit down and 
I am sure that Mr. Moran would like to sit down and go over the 
rationale because, with all due respect, I just cannot see that 
they are getting input from our local community to close 
offices, because they will--I mean, I can't see somebody in 
Starr County say, ``Close this office and move it down to 
McClelland or Edinburg, wherever they are talking about, and 
because they will provide better service for us here, so move 
this office out of here.'' I mean, with all due respect, I 
don't think that is correct. I really don't think that is 
correct. I just would like to engage in some sort of a dialogue 
with your person to see how they are making this decision and I 
am sure the Members would like to do this also, because there 
is more than one Member that has a concern about these offices 
closing. But anyway, Mr. Chairman, I thank you very much.
    The Chairman. Sure.
    Mr. Cuellar. One last thing, if I could just ask you. On 
the delivery enhancement task force, I want to give you a 
compliment about that, because I really feel that that is the 
right direction to streamline some of the regulations. You 
know, how do we provide the enhancement or how do we provide 
the service, because this is very important to us here. So 
could you have your state person sit down with me, set up an 
appointment and I would be happy to meet him in Starr County, 
which is the office that they want to close, so he can point 
out the people that are saying to close the office in Starr 
County.
    Mr. Dorr. Certainly. The delivery enhancement task force 
issue is one that we right now are in the process of going 
through the regulation at OMB, so we are not going to be able 
to get into a lot of detail on that at this point, but I will 
certainly have Mr. Daniels sit down and visit with your people, 
relative to the process that he has gone through relative to 
his organizational restructuring.
    Mr. Cuellar. Right. Thank you. Thank you, Mr. Secretary.
    The Chairman. Thank you, Mr. Cuellar. Thank you, Mr. Under 
Secretary. We appreciate your testimony today and we look 
forward to your response in writing within 10 days, under the 
Subcommittee rules, to any of the questions that were not able 
to be fully answered during this time allotted this morning. 
Thank you for the excellent work you do and for your commitment 
to serving our country. May God bless you and your staff in 
that continued commitment and we look forward to working with 
you. With that, we will adjourn this panel and call the next 
panel to please immediately come forward and take your seats so 
we may continue the hearing promptly.
    All right, we are going to begin our second panel now so 
that we can honor the commitment of our panel's time as well as 
the Members' time. I would like to call on a special guest to 
the Subcommittee today, our fellow colleague, Mr. Walz, to 
introduce our first panelist. Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman, and thank you, Ranking 
Member Musgrave and the rest of the Subcommittee, this very 
important Subcommittee, for allowing me the real honor of 
introducing one our next witnesses on the next panel, County 
Commission Colleen Landkamer. She is from my hometown of 
Makato, Minnesota and from Blue Earth County. Colleen is one of 
those people that understands the policies that are made here 
in Washington, the impact they make on real people. And 
Colleen's vast practical knowledge in rural development has 
made southern Minnesota what it is today, one of the most 
livable parts of this country, and to her I say thank you. She 
is visionary, she is a coalition builder, and she has done 
something that sometimes doesn't happen in leadership, 
unfortunately. She has achieved results. She is involved in so 
many things and I know her well, but I had to make a list of 
these things. She serves on the Rural Policy Center Board of 
Directors in Minnesota, the Minnesota Rural Partners Board, 
State Community Health Advisory Committee. She served on the 
Board of Directors of the National Association of Counties for 
the last 12 years. She helped form the Rural Action Caucus. 
Colleen is one of those people involved in so many things, I am 
surprised the State of Minnesota is still functioning today 
with you being here, but I thank you so much for that. She is 
here today to testify in a very important capacity and one that 
I think is going to be a voice of vision for us on this 
Subcommittee and that is as the President of the National 
Association of Counties. So Commissioner Landkamer, thank you 
so much for coming and thank you for what you are doing.
    The Chairman. Thank you, Mr. Walz. And with that, Ms. 
Landkamer, we will let you proceed with your testimony. We 
remind all witnesses on this panel, as you may have heard if 
you were present for the last, we have 5 minutes. If you would 
highlight and summarize your testimony, your full written 
testimony will be part of the record. And responding today, we 
have a 5 minute block of time for both the Members' questions 
and answers. Thank you, ma'am. You may proceed.

 STATEMENT OF HON. COLLEEN LANDKAMER, COMMISSIONER, BLUE EARTH 
                COUNTY, MN; PRESIDENT, NATIONAL
            ASSOCIATION OF COUNTIES, MANKATO, MN; ON
         BEHALF OF NATIONAL ASSOCIATION OF DEVELOPMENT
                         ORGANIZATIONS

    Ms. Landkamer. Thank you, Chairman McIntyre, Ranking Member 
Musgrave and Members of the Subcommittee, for the opportunity 
to testify today on the community and economic development 
challenges and potential facing rural America. And I also want 
to thank my Congressman, Congressman Walz. He does such a great 
job for us and we are so proud to have him here.
    My name is Colleen Landkamer. I am a County Commissioner 
from Blue Earth County, Minnesota, and I currently serve as the 
President of the National Association of Counties. Today I also 
have the privilege of representing NADO, the National 
Association of Development Organizations. NADO is the only 
national organization representing county governments in 
Washington, D.C. NADO is the national voice for local 
government-based regional development organizations. NADO's 
farm bill objectives seek to expand the use renewable energy, 
find new ways to retain and attract young people in production 
agriculture, and support the enactment of an expanded rural 
development initiative that recognizes the local role in 
assisting our counties. We seek to further develop rural 
infrastructure, promote economic development, and expand 
employment opportunities in rural America. Efforts in crafting 
a farm bill should recognize the Federal-local government role 
and our shared responsibilities. We wish to work with the 
Committee in not only providing the local-required resources, 
but also maintaining our local authority in setting priorities 
that are consistent with sound public policy and driven by our 
constituents' needs.
    Mr. Chairman, I want to express our overwhelming support 
for an enhanced rural development title as part of the 2007 
Farm Bill, including increased grant resources for rural 
infrastructure improvements, renewable and alternative energy 
development, business development, broadband deployment and 
community facility enhancements. This morning I would like to 
make three key points on the current status of Federal Rural 
Development policies and programs that should be addressed in 
the reauthorization of the Farm Security and Rural Investment 
Act of 2002.
    First, Mr. Chairman, USDA Rural Development programs need 
to be updated and fully funded. Unfortunately, Federal programs 
often place rural communities at a significant disadvantage. An 
example is the recent trend of shifting USDA Rural Development 
assistance from grants to direct loans and loan guarantees. And 
Mr. Fluharty has a bunch of numbers that will explain this in 
greater detail.
    Second, infrastructure development remains one of the most 
significant roadblocks to economic development and 
competitiveness in rural America. Business leaders in private 
sector industries expect and demand that public entities 
provide basic public infrastructure, especially costly water 
and sewer systems that are essential building blocks for 
economic and community development. Infrastructure should not 
be considered a luxury for rural areas, but instead as a basic 
necessity for economic competitiveness and improved quality of 
life. The move toward more direct loans and loan guarantees is 
putting many USDA programs out of the reach of the most 
distressed and under-served rural communities.
    Third, Federal Rural Development programs must be reshaped 
to promote and reward regional approaches and local 
cooperation. This reflects the reality of today's marketplace, 
for rural communities are not only competing statewide and 
nationally, but also internationally. The Rural Strategic 
Investment Program would provide much needed incentives and 
resources for the development of rural development strategies 
on a regional and local basis. We are pleased that Senate 
Agriculture Nutrition, and Forestry Committee Chairman Tom 
Harkin announced plans to modify RSIP as part of a renamed 
plan, the Rural Collaborative Investment Program. We strongly 
support Chairman Harkin's goals to move rural development 
beyond just categorical programs to a stronger commitment to 
regional rural development strategies and programs designed by 
local leaders.
    In conclusion, I would like to reiterate that NACo and NADO 
feel that USDA Rural Development programs should support the 
basic needs of local communities. We support the existing 
portfolio of USDA Rural Development programs, as well as the 
full implementation and funding of the Rural Strategic 
Investment Program. Thank you again, Chairman McIntyre, Ranking 
Member Musgrave and Members of the Committee, for the 
opportunity to testify with you today. Thank you.
    [The prepared statement of Ms. Landkamer follows:]

Prepared Statement of Hon. Colleen Landkamer, Commissioner, Blue Earth 
 County, MN; President, National Association of Counties, Mankato, MN; 
     on Behalf of National Association of Development Organizations
    Thank you, Chairman McIntyre, Ranking Member Musgrave and Members 
of the Subcommittee for the opportunity to testify today on the 
community and economic development challenges and potential of small 
town and rural America. As this Committee debates and moves forward on 
the rewrite of the Farm Security and Rural Investment Act of 2002, I 
strongly encourage you to make rural development a central theme of the 
proposal.
    My name is Colleen Landkamer. I am a County Commissioner from Blue 
Earth County, Minnesota and I currently serve as President of the 
National Association of Counties (NACo). I have served as a County 
Commissioner in Blue Earth County since 1988. Today, I have the 
privilege of representing NACo, as well as the National Association of 
Development Organizations (NADO).
About the National Association of Counties
    Established in 1935, the National Association of Counties (NACo) is 
the only national organization representing county governments in 
Washington, D.C. Over 2,000 of the 3,066 counties in the United States 
are Members of NACo, representing over 85 percent of the population. 
NACo provides an extensive line of services including legislative, 
research, technical and public affairs assistance, as well as 
enterprise services to its members.
    NACo's membership drives the policymaking process in the 
association through 11 policy steering committees that focus on a 
variety of issues including agriculture and rural affairs, human 
services, health, justice and public safety and transportation. 
Complementing these committees are two bipartisan caucuses--the Large 
Urban County Caucus and the Rural Action Caucus--to articulate the 
positions of the association. NACo's Rural Action Caucus (RAC) 
represents rural county elected officials from any of the 2,187 non-
metropolitan or rural counties. Since its inception in 1997, RAC has 
grown substantially and now includes approximately 1,000 rural county 
officials.
About the National Association of Development Organizations
    The National Association of Development Organizations (NADO) 
provides advocacy, education, research and training for the nation's 
regional development organizations. Building on 4 decades of 
experience, the national network of 542 regional development 
organizations serves as a key catalyst for regional strategic planning, 
partnerships and initiatives that are designed to meet locally-
identified needs and conditions. The core philosophy of regional 
development organizations is to help local government officials and 
communities pool their limited resources to achieve economies of scale, 
build organizational skills and professional expertise, and foster 
regional cooperation and collaborations.
    NADO's members are often known locally as: councils of government, 
area development districts, economic development districts, local 
development districts, planning and development commissions, regional 
development commissions and regional councils of government. Each 
organization is typically governed by a policy board of local 
government officials, with additional representation of business, 
education and community leaders. Depending on local priorities, 
regional development organizations administer and manage a broad range 
of Federal and state programs, including: aging, business development 
finance, community and economic development, emergency preparedness, 
housing, GIS services, rural development, transportation planning and 
workforce development.
Federal-County Partnership
    NACo is also interested in reestablishing the government 
partnership we feel has been lost between the Federal, Executive and 
Legislative branches and county governments. We represent the elected 
county officials in each of the Congressional Districts who in turn are 
elected by our joint constituents. Contrary to other interest groups we 
are not a special interest but rather a government partner in 
addressing our shared constituent's needs and concerns. Congress, over 
the last ten years has forgotten our partnership and enacted pieces of 
legislation that has created unnecessary burdens on local governments.
    We feel the new leadership should look at how proposed legislation 
preempts local authority and creates unfunded mandates as a process of 
enactment and rejects those efforts. Efforts in crafting a farm bill 
should recognize the Federal/Local Government role in our shared 
responsibilities in representing the constituents who elected us. 
County governments have a huge stake in the creation of a rural 
development section that supports the county role. We wish to work with 
the Committee in not only providing required local resources, but 
maintaining our local authority in setting priorities that are 
consistent with sound public policy and driven by our constituents' 
needs.
    In my testimony, Mr. Chairman, I want to express our overwhelming 
support for an enhanced rural development title as part of the 2007 
Farm Bill, including increased grant resources for rural infrastructure 
improvements, renewable and alternative energy development, business 
and entrepreneurial development, broadband deployment and community 
facility enhancements. In addition, our associations strongly support 
the goals and concept of the Rural Strategic Investment Program (RSIP), 
an innovative and forward-thinking rural development program created 
and funded in the 2002 Farm Bill but never implemented.
    This morning, I would like to make three key points on the current 
status of Federal rural development policies and programs that should 
be addressed in the reauthorization of the Farm Security and Rural 
Investment Act of 2002:

   Federal policies and programs, including USDA Rural 
        Development programs authorized in the 2002 Farm Bill, need to 
        be updated and fully funded to ensure our nation's rural 
        regions, counties and communities have the resources, program 
        tools and local flexibility to compete in today's global 
        marketplace. As home to nearly \1/3\ of the nation's 
        population, small town and rural America is diverse, complex 
        and constantly evolving. Unfortunately, Federal policies and 
        programs often place rural counties and communities at a 
        significant disadvantage. An example is the recent trend of 
        shifting USDA Rural Development assistance programs from grants 
        to direct loans and loan guarantees.

   Infrastructure development remains one of the most 
        significant roadblocks to economic development and 
        competitiveness in small town and rural America.  
        Entrepreneurs, small business leaders and private sector 
        industries drive our nation's innovation, competitiveness and 
        job growth. These individuals and entities also rely, expect 
        and demand that public entities such as county governments 
        provide and maintain basic public infrastructure services, 
        especially costly water and sewer systems, that are essential 
        building blocks for economic and community development. 
        Unfortunately, the current portfolio of USDA Rural Development 
        grant programs for infrastructure, renewable energy, broadband 
        and community facility projects are being replaced with 
        additional program authority for direct loan and loan guarantee 
        programs. This puts many USDA programs out of the reach of the 
        most distressed and under-served rural counties and 
        communities.

   Federal rural development policies and programs must be 
        reshaped to promote and reward regional approaches and local 
        cooperation among governmental entities at all levels, 
        nonprofits, economic development organizations, educational 
        institutions and other key community leaders. This reflects the 
        reality of today's marketplace where rural counties and 
        communities are not only competing statewide and nationally, 
        but more likely, internationally. The Rural Strategic 
        Investment Program (RSIP) is an innovative program that would 
        provide much needed incentives and resources for the 
        development of rural development strategies on a regional and 
        local basis, as well as flexible program dollars to implement 
        regional and local projects and priority initiatives.

    First, Mr. Chairman, Federal policies and programs, including USDA 
Rural Development programs authorized in the 2002 Farm Bill, need to be 
updated and fully funded to ensure our nation's rural regions, counties 
and communities have the resources, program tools and local flexibility 
to compete in today's global marketplace. We appreciate and recognize 
the leadership and hard work of this Committee in securing a record $1 
billion in mandatory funds for the rural development title of the Farm 
Security and Rural Investment Act of 2002. However, more than half of 
these new program resources never materialized or were blocked through 
subsequent legislative and administrative actions, resulting in lost 
opportunities for our nation's rural counties and communities.
    As the home to nearly \1/3\ of the nation's population, small town 
and rural America is a diverse, complex and constantly evolving place. 
Rural America comprises 2,187 of the nation's 3,066 counties (counties 
with 50,000 and below population), 75 percent of all local governments 
and 83 percent of the nation's land. Unfortunately, current Federal 
policies and programs often treat rural counties and communities 
differently than their urban counterparts, resulting in a significant 
policy bias and disadvantage for rural regions and counties.
    When examining the FY 2003 Consolidated Federal Funds data, 
according to the Southern Rural Development Initiative, non-
metropolitan areas received $548 less per capita than metropolitan 
areas ($7,242 versus $6,694). Furthermore, per capita funding for 
community resources represented 14.5 percent of funds to metropolitan 
areas, but only 8.9 percent of funds to non-metropolitan areas.
    The FY 2003 findings are consistent with independent studies by the 
W.K. Kellogg Foundation, Rural Policy Research Institute (RUPRI) and 
others that show metropolitan areas received two to five times more, 
per capita, in Federal community development resources than their rural 
counterparts during each year from FY 1994-2001. In addition, a 
disproportionate share of Federal assistance to rural areas comes in 
the form of transfer payments, such as Medicare, Medicaid, Social 
Security and commodity payments. In FY 2003, 68 percent of Federal 
assistance to rural areas represented transfer payments compared to 53 
percent for metro areas.
    While these direct payments are essential for millions of rural 
Americans, it means that current Federal policies are working to simply 
sustain rural America rather than help rural regions and counties 
pursue new economic and community growth opportunities. Meanwhile, 
urban areas often have direct control and access to Federal resources 
for community, human and physical infrastructure improvements that are 
essential building blocks for local development and job growth. Our 
organizations are strong advocates for Federal community and economic 
development support for our urban counties and regions, yet we also 
firmly believe that rural counties and communities should have more 
robust Federal support for their rural development needs. Without an 
even greater commitment by this Committee and Congress to a stronger 
USDA Rural Development grant program, we fear rural regions, counties 
and communities will continue to be at a marked disadvantage in trying 
to build and sustain viable local economies.
    Second, Mr. Chairman, infrastructure development (including 
advanced technology deployment and applications) remains one of the 
most significant roadblocks to economic development in small town and 
rural America. Entrepreneurs, small business leaders and private sector 
industries drive our nation's innovation, competitiveness and job 
growth. These individuals and entities also rely, expect and demand 
that public entities such as county governments provide and maintain 
basic public infrastructure services, especially costly water and sewer 
systems, that are essential building blocks for economic and community 
development. Infrastructure must not be considered a luxury for rural 
areas, but instead a basic necessity for economic competitiveness and 
improved quality of life.
    While USDA Rural Development is an essential partner for our rural 
counties and communities, we are alarmed that its infrastructure, 
housing, broadband and community facilities portfolio are becoming 
increasingly focused on direct loan and loan guarantee programs. In 
fact, the Administration's fiscal 2008 budget proposal recommends deep 
cuts in grants for community facilities, water and waste water, 
broadband and business development programs. There remains an intense 
need for Federal grants to help with seed capital and gap financing for 
our local projects, especially considering the rapidly escalating costs 
for labor, materials and supplies.
    This applies to rural counties and communities struggling to 
establish new water, sewer, broadband and community services, as well 
as countless counties and communities faced with the daunting task of 
replacing infrastructure that is often approaching 50 to 100 years old. 
For distressed and under-served rural counties and communities, 
especially the smaller and more rural areas, the trend of increased 
reliance on Federal direct loan and loan guarantee programs puts costly 
infrastructure improvement projects out of reach. As a result, a good 
portion of our nation's rural counties and communities will continue to 
mark time in the land of lost opportunity.
    According to a 2005 report by the American Society of Civil 
Engineers, the nation's infrastructure remains in serious need of 
improvements and increased Federal investment. The conditions of the 
country's roads, drinking water systems, public transit, wastewater 
disposal, hazardous waste disposal, navigable waterways and energy 
system have worsened since the society's first report card in 2001. The 
improvement costs alone are now calculated at $1.6 trillion over the 
next 5 years. While state and local governments, industry and nonprofit 
organizations are making major contributions to our public 
infrastructure enhancement efforts, this immense job will never be 
completed without the aggressive leadership, participation and 
resources of the Federal Government.
    In addition to the health and social benefits of this long-term and 
on-going process, infrastructure development is vital to the nation's 
ability to maintain and sustain a world-class economy. This will be 
particularly critical as the nation works to expand the renewable fuels 
industry. The transport of raw and finished products, for example, is 
already placing new and growing demands on our infrastructure and 
transportation systems. As proven by USDA Rural Development investments 
over the years, the role of basic public infrastructure and facilities 
are at the core of both sustaining existing businesses, nurturing new 
companies and improving the quality of life in rural counties and 
communities. That is why USDA Rural Development is so significant to 
local efforts to develop water and sewer facilities, technology-related 
infrastructure, broadband services, housing and other essential 
community projects. These are all fundamental for commerce and 
improving the quality of life in our communities. As stated earlier, 
the private sector relies, expects and demands that counties and local 
communities provide and maintain these services and infrastructure.
    In August 2004, I was pleased to participate in an eForum, ``The 
Pulse of Small Town and Rural America,'' that was conducted by the NADO 
Research Foundation with assistance from the W.K. Kellogg Foundation. 
More than 200 regional development professionals, county leaders and 
municipal government officials from across the nation, equipped with 
electronic keypads for instantaneous feedback, were led through a 
series of national and rural policy questions.
    Most notably, participants identified inadequate public 
infrastructure as the leading roadblock to economic development in 
their rural regions. Another highly rated response was limited access 
to venture capital. When asked to identify the second most common 
roadblock to rural economic development, an even greater number 
answered inadequate public infrastructure. Again, this reflects the 
fact that private sector investors and businesses expect and demand 
that local governments and communities have the public infrastructure 
in place before they will locate and remain at a business site or 
within a community.
    NADO members were also asked to identify the USDA Rural Development 
programs they use most frequently to assist their rural communities. 
The top three programs were: water and wastewater programs, Rural 
Business Enterprise Grants (RBEG) and the Intermediary Relending 
Program (IRP). Other key programs included: community facilities, Rural 
Business Opportunity Grants (RBOG), solid waste management and rural 
housing programs. The NADO Research Foundation eForum results were 
consistent with a 2001 survey conducted by NACo, in which water and 
wastewater grants were the overwhelming top issue identified by county 
elected officials from the 20 state sample.
    As the Committee works to reauthorize the existing portfolio of 
USDA Rural Development programs, we also encourage you to help make the 
application process for new and existing programs more user-friendly 
and streamlined. While regional development organizations and other 
technical assistance providers have developed the experience and 
expertise required to navigate the extensive USDA program portfolio and 
application process, it can still be a very burdensome and time 
consuming endeavor. This is especially important considering that over 
33,000 of the nation's 39,000 units of local government have 
populations below 3,000 and 11,500 employ no full-time professional 
employees, according to U.S. Census Bureau data. At the same time, we 
are urging the Committee to make sure that local governments and public 
entities such as regional development organizations are eligible for 
the full slate of USDA Rural Development programs. In recent years, new 
programs or guidelines have been put in place that restricts our access 
to programs for technical assistance and capacity building.
    Third, Mr. Chairman, Federal rural development policies and 
programs must be reshaped to promote and reward regional approaches and 
local cooperation among governmental entities at all levels, 
nonprofits, economic development organizations, educational 
institutions and other key community leaders. This reflects the reality 
of today's marketplace where rural counties and communities are not 
only competing statewide and nationally, but more likely, 
internationally. In addition, new program tools are needed that are 
more flexible and broad to meet the individual and specific needs of 
our rural regions and counties, rather than forcing our rural leaders 
to fit and refigure their projects into the existing set of categorical 
programs.
    The Rural Strategic Investment Program (RSIP) is an innovative 
program that would provide much needed incentives and resources for the 
development of rural development strategies on a regional and local 
basis, as well as flexible program dollars to implement regional and 
local projects and priority initiatives. We greatly appreciate this 
Committee's support in 2002 to create RSIP and to award $100 million in 
mandatory funding to launch this landmark program. Unfortunately, this 
much needed program was blocked in subsequent legislative and 
administrative actions, resulting in lost opportunities and delays in 
implementing important rural development initiatives across the nation.
    We are pleased that Chairman Tom Harkin of the Senate Agriculture, 
Nutrition and Forestry Committee announced on March 13 that he plans to 
support ``a bold new approach to rural competitiveness in the 2007 Farm 
Bill.'' Chairman Harkin is proposing to modify and improve the RSIP 
program as part of a renamed program, the Rural Collaborative 
Investment Program. We strongly support the goals of Chairman Harkin's 
initiative to move rural development beyond just categorical programs 
to a stronger commitment to regional rural development strategies and 
programs designed by local leaders. It is extremely important to ensure 
that under the principles of our Federal/Local partnership embodied in 
America's Federalism model, that a program such as RCIP be administered 
by local and regional officials that represent the needs of our rural 
constituents in a collaborative process with local stakeholders. As 
stated earlier, we must develop and fund new USDA Rural Development 
programs that give rural county and community leaders that same 
flexibility, resources and incentives as currently enjoyed by their 
urban counterparts.
    RSIP would first help address one of the most important but 
underfunded parts of rural community and economic development--rural 
development strategies and institutional capacity to implement 
priorities. Study after study by Federal agencies and universities have 
concluded that additional funding for strategic planning, capacity 
building and technical assistance programs is one of the most pressing 
needs facing rural governments and communities. This stems from the 
fact that most rural local governments simply do not have the financial 
resources to hire professional economic development practitioners. And, 
presently there are few Federal programs designed specifically for 
their needs--unlike urban areas that receive millions of dollars in 
direct funding from HUD and Department of Transportation.
    One of the few technical assistance programs specifically targeted 
at small metropolitan and rural regions is EDA's planning program. 
While this small matching grant program has proven invaluable to our 
local communities and regional development organizations, its true 
purchasing power has been eroded over time. The average EDA planning 
grant of $54,000 for a multi-county region has not changed since the 
early 1970s. The true purchasing power is only $10,718 in 1970 dollars. 
If that same $54,000 had been adjusted upward for inflation, it would 
equal $272,047 in 2005 dollars.
    Despite the declining nature of the Federal matching funds, the 
national network of EDA-funded regional development organizations has 
still made a tremendous impact. According to a thorough program 
evaluation by the Center for Urban Studies at Wayne State University in 
2001, EDA's national network is very effective at developing and 
coordinating local plans, implementing specific projects and 
initiatives, and providing professional expertise and capacity to 
distressed and under-served communities. Yet, to remain competitive on 
a global scale, our rural regions and counties need additional 
resources.
    Programs such as RSIP offer a great opportunity to build upon the 
existing regional and local institutions throughout rural America, 
while also fostering new approaches to developing comprehensive 
regional strategies, new multi-sector partnerships and new program 
flexibility to address the unique needs and potential of each region.
    RSIP would place communities in a better position to address local 
issues on a regional basis, whether it relates to water treatment 
facilities, technology upgrades, closing of a major plant or cleanup 
after a natural disaster. Rural communities would also be more capable 
of taking a proactive approach to innovation, entrepreneurship and 
competitiveness, instead of the traditional reactionary model of rural 
development. Whether it is renewable and alternative energy, youth 
development, value-added agriculture or entrepreneurship, rural America 
has remarkable assets that can be better utilized.
    All of the nation's rural regions, counties and local communities 
must engage in an on-going and dynamic strategic planning process, 
otherwise they will fall prey to complacency and world progress. Even 
local economies that are excelling today are subject to sudden or 
subtle changes in international, national and local markets. Loss of 
local control with the emergence of global companies, consolidation of 
banks and other industries that were once locally owned and controlled 
and other factors will continue to make the task of regional and rural 
development more challenging.
    Even more importantly, RSIP would offer fully flexible 
implementation grants for regional and local projects that are 
identified and prioritized in a region's comprehensive rural 
development strategy. On a national competitive basis, counties, 
nonprofit organizations, educational institutions and other eligible 
organizations would be eligible to apply for project implementation 
resources that address a broad range of community and economic 
development needs, including renewable energy, broadband deployment, 
value-added agricultural development, infrastructure improvements, 
entrepreneurship, business development finance and community facility 
improvements. RSIP investments would not replace the existing USDA 
Rural Development portfolio, but instead would complement and leverage 
existing public, private and philanthropic resources.
    Without a greater commitment to a stronger USDA rural development 
grant portfolio, rural communities will continue to be at a marked 
disadvantage in trying to build and sustain viable local economies. As 
the Committee works on the Rural Development title of the 2007 Farm 
Bill, I encourage you to modify, fully fund and implement the Rural 
Strategic Investment Program (RSIP), address the backlog of pending 
Rural Development applications and enhance grant resources for 
infrastructure, community facilities and business development programs.
    In conclusion, I would like to reiterate the three key points that 
NACo and NADO feel are critical to future rural development programs. 
First, rural communities need Federal development assistance programs 
and policies that allow them to identify, address and meet local needs. 
Second, Federal rural development grant programs need to be fully 
funded, increasingly flexible and locally driven. Third, USDA Rural 
Development programs should support the basic needs of local 
communities, such as water and wastewater systems, telecommunications 
and housing, while also tapping into the rural competitive advantage 
for innovation, entrepreneurship and alternative solutions such as 
renewable energy. We support the existing portfolio of USDA Rural 
Development programs, as well as the full implementation and funding of 
the innovative and forward-thinking Rural Strategic Investment Program.
    Thank you again, Chairman McIntyre, Ranking Member Musgrave and 
Members of the Subcommittee for the opportunity to testify this morning 
on behalf of the National Association of Counties and National 
Association of Development Organizations on these critical rural 
development issues. I appreciate your time and interest. I look forward 
to answering any questions.

    The Chairman. Thank you. Thank you for your concise summary 
and congratulations on your election as President of the 
National Association of Counties. Mr. Charles Fluharty is the 
President of the Rural Policy Research Institute out of 
Columbia, Missouri, and is well known to many areas of rural 
activity policy, research and work and we welcome you and look 
forward to your testimony.

   STATEMENT OF CHARLES W. FLUHARTY, PRESIDENT, RURAL POLICY 
 RESEARCH INSTITUTE; DIRECTOR AND RESEARCH PROFESSOR, HARRY S 
                    TRUMAN SCHOOL OF PUBLIC
     AFFAIRS, UNIVERSITY OF MISSOURI-COLUMBIA, COLUMBIA, MO

    Mr. Fluharty. Thank you, Mr. Chairman. I would like to 
thank you and the Ranking Member for your continued commitment 
to rural America, and congratulate you on your new role. I 
would also like to extend appreciation and congratulations on 
the new staffing design. We look forward to working with a 
highly competent staff on this Subcommittee and look forward to 
working with you as we move forward. I want to apologize for 
the length of my written testimony. I think some of the staff 
probably had to spend more time than they might have liked on 
that, but I do hope it was helpful. There was a reason for that 
and the reason is that there is a relevant analysis and really 
detailed policy thinking which should drive your decisions on 
this Committee. And I was very pleased with the early 
questions.
    What happens when we don't have the same analyses in the 
rural development component of the farm bill that we have in 
the commodity programs is that you tend to have advocates for 
very specialized categorical programs, making a rightful, 
strong case for those programs. That is important and it is 
understandable, but it is unfortunate that we don't get a more 
detailed assessment. Because what occurs is you don't get the 
opportunity to look at new and complex policy design that 
updates incentive programs that were built in the 1950s, 1960s, 
1970s and 1980s. I was honored, Mr. Chairman, to be at NADO 
when you received their national award; very well deserved. And 
I will enter your comments once more and that is, without a 
vision, the people will perish. That is equally true for this 
Committee and for Rural Development. And I would just like to 
speak for a moment for that vision, because I would offer a 
cautionary observation, that we are not doing as well as other 
developed nations with which our rural entrepreneurs compete. 
And this Committee has a wonderful opportunity in this new 
design to truly step up and create a bold and new innovative 
approach. I would just like to offer two or three observations 
regarding that.
    We really do need a new framework. What worked in the 
1960s, 1970s and 1980s is not sufficient today and the 
challenge is, our competitors around the world are doing a much 
better job than we are. That is no one's fault. The Under 
Secretary said we have a ``Solomonesque'' challenge. I believe 
the Ranking Member and you are fully up to that challenge. I 
believe if we don't do this, frankly, we are to some extent 
obviating a wonderful new opportunity, given the renewables' 
potential in our nation. I would just make four points.
    This year the Federal Government will return $550 less per 
capita to rural regions vis-a-vis urban. That is a significant 
Federal flows disadvantage. Second, we do an awful lot of work 
in OECD nations and the challenge is--just let us look at the 
EU for a moment. We just talked about our broadband potential. 
This year the EU will spend $1.6 billion in rural broadband in 
Europe. This past year the EU has committed to a multi-billion 
dollar program for regional rural innovation and they have 
linked that into a very, very significant way to the leader 
program, which is a billion dollars a year to build regional 
entrepreneurship systems that link to collaborative investment 
streams.
    This Committee did the most innovative policy design, I 
would argue, in the last 20 years, in the last bill, with RSIP, 
which Colleen mentioned. That was very, very innovative, but 
unfortunately it has not been funded, but it had very broad 
support. It was the basis for Chairman Harkin's move to at 
least look at something like that on the Senate side. I would 
truly urge you to take that up. I am not saying that is the 
right bill, but I am saying categorical grants, in and of 
themselves, are not sufficient in today's world. I would argue 
that there are five things you should think about: broadband, 
in a very, very significant way; entrepreneurship and 
innovation around renewables. If we are not building 
entrepreneurship systems, starting in our schools, we are 
continuing the dependence on Federal largesse rather than 
lifting up rural entrepreneurship.
    Third, the regional collaboration that Colleen mentioned. 
We have wonderful panelists here who are doing very innovative 
things at the state level and regional collaboration. Key to 
that is new intermediaries. Community colleges are huge in that 
regard. I commend USDA for the rural health commitment to 
Critical Access Hospitals. I would argue that rural health is 
one of our great examples of collaboration. But if we were to 
take a small amount of that, commit it to rural community 
colleges to build sustaining allied rural health workforce, 
which is one of our most critical issues, we could certainly 
move forward.
    And finally, aligning investments streams. The public and 
private investments of multiple committees should be linked 
with the philanthropic commitments that are beginning to come. 
We currently have no vehicle in Federal law to do that. I would 
argue that this Committee can implement those investment stream 
linkages and I think the testimony of my other partners here 
will indicate that it is truly going on, if you look at what 
Billy Ray is doing at the Rural Center. This is not pie in the 
sky. It can be done. There are wonderful labs in the states. 
And I just thank you for your leadership and look forward to 
working with you and your staff. Hopefully we can build this 
bold, innovative, new approach.
    [The prepared statement of Mr. Fluharty follows:]

   Prepared Statement of Charles W. Fluharty, President, Rural Policy
  Research Institute; Director and Research Professor, Harry S Truman 
School of Public Affairs, University of Missouri-Columbia, Columbia, MO
    Chairman McIntyre, Ranking Member Musgrave, and Members of the 
Subcommittee, it is an honor to appear before you again, as we begin a 
new farm bill debate. I applaud your leadership in assuring that rural 
development concerns receive greater attention in this farm bill, and I 
encourage you to craft a bold and innovative rural development title.
    I am Charles W. Fluharty, President of the Rural Policy Research 
Institute, and Associate Director and Research Professor in the Harry S 
Truman School of Public Affairs at the University of Missouri-Columbia. 
RUPRI is a multi-state, interdisciplinary policy research consortium 
jointly sponsored by Iowa State University, the University of Missouri, 
and the University of Nebraska.
    RUPRI conducts research and facilitates dialogue designed to assist 
policy makers in understanding the rural impacts of public policies. 
Continual service is currently provided to Congressional Members and 
staff, Executive Branch agencies, state legislators and executive 
agencies, county and municipal officials, community and farm groups, 
and rural researchers. Collaborative research relationships also exist 
with numerous institutions, organizations and individual scientists 
worldwide. To date, over 250 scholars representing 16 different 
disciplines in 100 universities, all U.S. states and 25 other nations 
have participated in RUPRI projects.
    Mr. Chairman, in testimony before the House and Senate Agriculture 
Committees in 2001 I offered seven recommendations to build a more 
relevant rural policy framework in the 2002 Farm Bill:

    1. Develop a comprehensive national rural policy, driven by 
        specific Federal policy goals and outcomes measures.

    2. Sustain existing categorical program and funding support.

    3. Build rural community capacity, collaboration, and leadership.

    4. Develop a more integrative, cross-sectoral, place-based policy 
        approach.

    5. Address the lack of rural venture and equity capital.

    6. Support approaches which exploit the interdependency of 
        agriculture and the broader rural economy.

    7. Support rural entrepreneurship, in both the public and private 
        sector.

    Six years later, I'm pleased that real progress is being made on 
several of these issues. However, much remains undone, and I continue 
to support these suggestions. Nonetheless, contexts and circumstances 
have altered, as with all things. So this morning I would like to share 
several important new developments which should inform your decision 
making regarding the rural development framework for this new farm 
bill.
    But first, it is important to prioritize the most critical 
components which should drive this Committee's approach in crafting a 
21st century U.S. rural policy framework:
Guiding 21st Century Rural Policy Principles
    1. Three critical Federal policy dynamics must be addressed:

   The Federal Government must increase the current level of 
        Federal rural investment in essential public services, 
        including infrastructure, broadband and community capacity.

   To do this, the Federal Government must overcome a 
        significant and ongoing rural Federal funding disadvantage.

   In doing so, the Federal Government must also reverse recent 
        disinvestments in rural programs.

    2. A new rural policy framework must be created:

   It should center upon rural innovation, entrepreneurship, 
        collaboration and strategic investments.

   This must incent public, private and philanthropic 
        investment cooperation, and build regional frameworks for 
        action.

   Special attention must be given to diversity, gender, 
        poverty and immigration concerns.

    3. Several ``North Star'' principles must drive program design, 
including: 

   Asset-based development.

   Flexibility and local input.

   Investment in new intermediaries.

   Attention to the importance of working landscapes and 
        natural resources; arts, heritage and culture; and renewable 
        fuels, energy and entrepreneurial agriculture.

    4. The Federal Government must create a framework which 
acknowledges and builds upon the growing interdependence of urban, 
suburban and rural areas and constituencies.
The Context for Rural Policy Change
    Policies and budgets are ultimately about visions and values. While 
much of what follows is not new, this critical context should frame 
this Subcommittee's understanding of the important developments 
outlined below, all of which should inform this Subcommittee's 
legislative intent.

    Current ag policy has many goals, but we must acknowledge it has 
failed to adequately assure broad-based rural economic growth. This 
Committee must, finally, address this structural challenge within your 
jurisdiction.

   Rural counties most dependent on commodity payments have 
        consistently posted weaker growth than the rest of rural 
        America.

   Approximately 160 counties are the most dependent on farm 
        commodity payments, having collected $141 billion in farm 
        payments over the past quarter-century--more than half of all 
        Federal payments within that period. During those 25 years, 
        jobs grew in those counties at a \1/2\ percent per year (.05%) 
        rate. Throughout the rest of U.S. rural counties, jobs grew at 
        a rate 2\1/2\ times that (1.3% a year). This comparison begs 
        the question regarding whether there are better ways to boost 
        rural economic growth.

   Half of all non-metro counties lost population from 2000 to 
        2005, but 73 percent of farming dependent and 59 percent of 
        mining dependent counties lost population.\1\
---------------------------------------------------------------------------
    \1\ RUPRI Analysis of Data from the U.S. Census Bureau: Census 2000 
and Census Population Estimates.

   Farming accounts for only 1.7% of total employment, and 6.2% 
---------------------------------------------------------------------------
        of non-metro employment in the U.S.

   Nearly 90% of total farm household income now comes from 
        off-farm sources.

   The manufacturing, local government, retail trade, health 
        care, and accommodations and food services sectors all 
        contribute more to the rural economy than agriculture.

    There is no one rural America. It is a diverse, dynamic and ever-
changing landscape, and public policy must address these new realities.

   51% of all rural residents (30 million Americans) live in 
        the open areas of metropolitan counties.

   Another 10 million fccitizens live in small cities and towns 
        in metropolitan counties.

   Hispanics accounted for over 25 percent of non-metro 
        population growth during the 1990s.\2\
---------------------------------------------------------------------------
    \2\ Kandel, William and John Cromartie. 2004. New Patterns of 
Hispanic Settlement in Rural America. Rural Development Research Report 
No. 49. Economic Research Service, USDA.

   By 2000 half of all non-metro Hispanics lived outside the 
        Southwest, increasingly in areas of the Midwest and 
        Southeast.\3\
---------------------------------------------------------------------------
    \3\ Ibid.

   Nearly \2/3\ of the non-metro population now live in 
        counties adjacent to metro areas. For several decades, these 
        counties have consistently shown a higher rate of population 
        growth than those that are not metro adjacent.\4\
---------------------------------------------------------------------------
    \4\ From ERS Briefing Room: Rural Population and Migration: http://
www.ers.usda.gov/Briefing/Population/Amenities.htm. 

   Between 2000 and 2005 metropolitan counties grew by 6%, 
        micropolitan counties by 2.9% and non-core counties by 1.2%. 
        However, in the same period, 16.6% of metropolitan counties 
        lost population, 37.5% of micropolitan counties lost 
        population, and 56.1% of non-core counties lost population.\5\
---------------------------------------------------------------------------
    \5\ RUPRI Analysis of Data from the U.S. Census Bureau: Census 2000 
and Census Population Estimates.

---------------------------------------------------------------------------
    Rural poverty remains a searing and silent national tragedy.

   The non-metro poverty rate is nearly 2\1/2\ points higher 
        than the metropolitan rate.

   Poverty rates are highest in our nation's most remote rural 
        areas, and high poverty and persistent poverty are 
        disproportionately rural. 340 of our nation's 386 persistent 
        poverty counties are in rural America.

   High and persistent poverty counties are geographically 
        concentrated, and reflect historic race, gender and cultural 
        disadvantage.

    Rural development investments must move beyond categorical programs 
and grants. A new vision must be sought, and systemic commitments to 
change the rural landscape must be funded.

   Unfortunately, we trail most developed nations in creating 
        this framework. In fact, in 2006 the European Union budget for 
        promoting adaptation and development of rural areas and for 
        their LEADER+ program is over =1.1 billion, with an additional 
        =2.2 billion committed to programs in the agri-environment 
        area.

   Likewise, the EU has recently announced multi-billion Euro 
        commitments to both universal rural broadband deployment, and 
        regional innovation programs, which link research universities 
        to regional rural strategies.

    New governance models must be lifted up, and successful new public 
and social entrepreneurship efforts replicated. While many emerging 
successes are worthy of consideration, the Indiana story is 
particularly promising, and the North Carolina Rural Center, 
represented today before this Subcommittee by President Billy Ray Hall, 
is an established national exemplar for state-based innovation.

   Please see accompanying written testimony from Indiana 
        Lieutenant Governor Becky Skillman, presented to the Senate 
        Committee on Agriculture, Nutrition and Forestry, February 13, 
        2007, and Rural Center President Hall's testimony.

    Rural entrepreneurship and innovation systems are essential, if we 
are to optimize new Federal commitments to assist rural regions in 
capturing their competitive advantage in a global economy. These 
approaches must be framed in systemic ways, to link with other public, 
private, NGO and philanthropic resources.

   \1/2\ of all jobs created in the U.S. are in firms less than 
        5 years old.

   Over the past 10 years, every month nearly three people in a 
        thousand create their own job--(in 2005 this represented 
        464,000 people per month - 0.29 percent).\6\ The highest 
        activity is in the Mountain states and Mid-South, lowest in the 
        Heartland, Appalachian, and Mid-Atlantic states.
---------------------------------------------------------------------------
    \6\ Kauffman Index of Entrepreneurial Activity.

   In the 1980s and 1990s the number of net jobs created by 
        businesses less than 5 year olds grew at more than 20 percent 
        per year (equating to millions of jobs), while jobs created by 
        more mature businesses remained essentially flat.\7\
---------------------------------------------------------------------------
    \7\ Research from the University of Maryland and Census Bureau 
quoted by Carl J. Schramm in article in USA Today, June 27, 2006.

   In any 3 year period, five percent of non-employer 
        businesses become employer businesses, equating to 750,000 
        firms, and the fastest growing in the economy.\8\
---------------------------------------------------------------------------
    \8\ Steven J. Davis, John Haltiwanger, and Ron S. Jarmin, 
``Understanding U.S. Business Dynamics: What Can Young, Small Firms 
Add?'' In Understanding Entrepreneurship, Kauffman Foundation.

   Recent SBA research found that net growth in small firm 
        establishment has a large positive impact on gross state 
        product, state personal income, and total state employment. It 
        concluded that state efforts to promote small business 
        formation will be more fruitful in terms of generating economic 
        growth that virtually any other policy option.\9\
---------------------------------------------------------------------------
    \9\ Donald Bruce, John A. Deskins, Brian C. Hill, and Jonathan C. 
Rork, Small Business and State growth: An Econometric Investigation. 
Small Business Administration, Office of Advocacy, February 2007.
---------------------------------------------------------------------------
New Developments Which Should Inform Congressional Decision Making 
        Regarding the Rural Development Title
    As we begin discussion of the Federal Government's framework for 
commitments to rural people and places through the new farm bill, 
several important developments should be taken into account. These are 
detailed below.

   A new rural development perspective within the United States 
        Department of Agriculture/Rural Development, and its impact 
        upon this farm bill process.

   Economic, demographic and institutional changes shaping new 
        perspectives about, and practices within, our nation's rural 
        regions.

   The growing consensus around a new rural vision: Regional 
        Rural Innovation, Collaboration and Strategic Investment.

    A new rural development perspective within the United States 
Department of Agriculture/Rural Development, and its impact upon this 
farm bill process. 

    On February 16-17, 2006, the United States Department of 
Agriculture held its annual Agricultural Outlook Forum. This annual 
event has a distinguished, storied history. Since 1923 the Outlook 
Forum has brought together our nation's most eminent leaders in 
agriculture, a tradition which remains strongly in force today. The 
2006 event, however, was a watershed moment in USDA history, and a 
landmark event for U.S. rural policy. The Forum title, ``Prospering in 
Rural America,'' created a thematic backdrop for the gathering's 
central framework--ensuring the future prosperity of all of rural 
America, through and beyond agriculture.
    This became evident to the over 1,700 participants shortly into the 
keynote address by Secretary of Agriculture Mike Johanns. The full 
import of this moment was fully grasped as he reached the midpoint of 
his address, which contained one of his central points:

        ``This forum is an opportunity to learn and to gauge the 
        changes in agriculture and to get our bearings if you will, not 
        only for the next year but for our future. I found the same to 
        be true over the past months as we traveled across this great 
        country doing our farm bill Forums . . . .

        But we heard ideas and concerns that differ from one crop to 
        the next, and as you might expect, from one region of the 
        country to the next. But interestingly enough--and I started 
        talking about this about halfway through the forums because I 
        found it so interesting--interestingly enough we heard 
        unanimous support for our Rural Development efforts . . .

        After hearing such compelling stories about the importance of 
        Rural Development, I came back to Washington eager to examine 
        the state of our rural economy . . . Reality is that 92 percent 
        of producers, those who manage about \2/3\ of ag land, rely 
        heavily on off-farm income. They choose to carry on the great 
        tradition of American agriculture, but they do not depend on it 
        as their sole source of income or in many cases even as their 
        primary source as income . . .

        I believe future policy must acknowledge what I have just laid 
        out in terms of the changing face of our rural economy . . . If 
        most agricultural producers are dependent on off-farm income, 
        then we must pay special attention to our support of rural 
        economies and beyond agriculture. To quote from a report 
        recently released by the American Farm Bureau Federation: 
        `Farmers are more dependent on rural communities than rural 
        communities are dependent on farm-
        ers.' . . .

        We have an opportunity to develop farm policy that recognizes 
        that this farm economy has changed. With fewer producers 
        overall and the majority of farm production accounted for by a 
        small percentage of producers, we must thoughtfully consider 
        how we deliver support to rural America . . .''

    Secretary Johann's framework was echoed and enhanced by USDA Under 
Secretary for Rural Development Thomas C. Dorr. In his comments, Under 
Secretary Dorr reinforced this emergent emphasis upon broader rural 
economic dynamics:

        ``Keeping family farms in business thus means that farmers need 
        good jobs in town every bit as much as good farm policy out of 
        Washington, D.C. In that respect, they're no different from 
        their neighbors.

        We are by statutory authority the leading advocate for rural 
        America. Our mission is to increase economic opportunity and 
        improve the quality of life in rural communities. And we 
        recognize that the future of rural America depends on 
        entrepreneurship and technology. . . . The issue is simple to 
        state, but much more difficult to address:

        Given the challenges of an intensely competitive, highly 
        networked global economy, what can we do to create sustainable 
        opportunities for growth in rural America?''

    These comments by the Secretary and Under Secretary set the tone 
for one of the most energizing rural policy moments in USDA's recent 
history. As the ensuing Forum sessions unfolded, it became clear that a 
new departmental perspective and commitment was finally taking hold and 
being incorporated within the growing consensus across other Federal 
departments and agencies--namely, that a new rural policy framework 
must become a more central component of the public policy dynamic of 
our nation.
    Over the past year, a tremendous ground swell has been building 
within rural development constituencies, based upon this new USDA 
awareness, as well as a growing sense that other advocacy communities 
with an interest in this legislation also realize that an enlightened 
rural development policy will advantage their interests. With the 
recent release of the Administration's farm bill proposal, as well as 
other legislative proposals currently being introduced, the possibility 
of a landscape-changing farm bill becomes more real.
    Today, under your the leadership, Mr. Chairman, this Subcommittee 
begins the process of engaging USDA in a common commitment to this new 
vision, and the rural people and places of our nation look forward to 
this heightened attention and policy consideration.

    New economic, demographic and institutional changes are shaping new 
perspectives about, and practices within, our nation's rural regions.

    Rural policy considerations have remained a ``back-water'' concern 
for U.S. public policy over the last 4 decades, usually rising only 
with a new farm bill tide, and then receding, after sufficient lip-
service, with only minimal impact. However, over the past decade a 
number of developments are driving significant new attention to these 
opportunities and challenges. These key drivers are outlined below:

    A growing understanding of the true nature of the rural economy, 
and of rural poverty, offers the potential for renewed policy attention 
and innovation.

    As the rural economy in the U.S. continues to consolidate, and as 
commodity producers, whether in agriculture or manufacturing, are 
forced to respond to the dynamics of globalization, it is becoming 
increasingly clear that innovation and technology must drive new rural 
economic engines, and that this is not only possible, but a necessity. 
This has helped to support a new commitment to building regional 
competitiveness strategies that seek to identify and exploit a region's 
unique assets, and build integrative approaches to optimize this 
potential. Furthermore, understanding of the limited value of reliance 
on business attraction strategies and the importance of greater support 
for asset-based innovation and entrepreneurial approaches are now 
widespread.
    There is also no question now that rural is not synonymous with 
agriculture, and that rural economies must become more diverse, as 
rural incomes continue to lag urban, with the greatest lags most often 
occurring in commodity-dependent counties.
    A shift to rural policy focused on regional innovation is well 
under way in many other countries around the globe. While many 
developed countries continue to spend freely on farm subsidies, there 
is an encouraging shift to place-based investments in new rural 
economic engines. This shift is based on a broadly based recognition 
that farm subsidies do not create competitive rural economies. A recent 
OECD publication puts it this way: ``financial redistribution and 
agriculture-based policies are not able to harness the potential of new 
rural economic engines.'' Recognizing this policy dilemma, many 
countries are now implementing new rural policies that emphasize place, 
innovation, and entrepreneurship. (The same OECD report identifies 
innovative rural policies in six different countries, along with the 
EU's LEADER initiative.) \10\
---------------------------------------------------------------------------
    \10\ The New Rural Paradigm: Policies and Governance, Organisation 
for Economic Co-operation and Development. Paris: 2006.
---------------------------------------------------------------------------
    Similarly, attention to rural poverty has increased over the last 
decade. While many organizations, institutions and individuals deserve 
credit for increasing awareness of these concerns, much of this 
enhanced attention is a direct result of an ongoing effort within U.S. 
philanthropy. Recently, the tragedy wrought by Federal and state 
inability to more effectively address the plight of the poor during 
Hurricane Katrina has highlighted this awareness. However, in our 
nation today, persistent poverty remains a rural challenge, with 340 of 
our nation's 386 persistently poor counties being rural. Rural median 
family income is 25% lower, and rural poverty rates 28% higher than 
metro.\11\ And this differential disadvantage is increasingly being 
viewed by decision-makers as a lag on broader regional economies.
---------------------------------------------------------------------------
    \11\ W.K. Kellogg Foundation. 2004. Federal Investment in Rural 
America Falls Behind. Battle Creek, MI.

    These U.S. rural development challenges are heightened by a 
significant structural disadvantage in Federal funding, and uneven, 
episodic and unscaled philanthropic commitments to rural people and 
---------------------------------------------------------------------------
places. 

    Because the Federal Government will continue to devolve roles and 
responsibilities down to states and localities, often in block granting 
structures, the capacity of rural jurisdictions to compete for these 
funds is increasingly important. However, compared to their colleagues 
in urban and suburban governments, rural public decision makers are 
significantly disadvantaged. Most rural jurisdictions have relatively 
few or no research staff, grant-writers, technical assistance funding 
bases, or economic analysts. Many are led by part-time public servants, 
with few or no paid staff at all. On this uneven playing field, urban 
and suburban counterparts will almost always be victorious in competing 
with rural jurisdictions for scarce, competitively awarded state block 
grant funds.
    One of the largest challenges for rural development in the U.S. 
remains the inherent structural disadvantage which rural areas face in 
Federal funding commitments. Current Federal funding policy 
inadvertently, but significantly, disadvantages rural areas. The 
Consolidated Federal Funds Report for 2001 (the most recent reported 
data) shows that the Federal Government returned $6,131 on a per capita 
basis to urban areas, while returning only $6,020 to rural areas.\12\ 
This amounts to a nearly $6 billion annual Federal disadvantage to 
rural areas. However, an equally challenging issue is the difference in 
the nature of these Federal funds.
---------------------------------------------------------------------------
    \12\ Analysis of Consolidated Federal Funds data by the Economic 
Research Service, USDA.
---------------------------------------------------------------------------
    While currently available Federal data is somewhat dated, in Fiscal 
Year 2001, direct payments as a percent of all Federal funds per capita 
were 50.5% in metropolitan areas and 63.9% in non-metropolitan 
America.\13\ This 13% differential funding builds much of the community 
capacity and infrastructure of urban and suburban America. Therefore, 
with each passing year, these dynamics further disadvantage rural 
jurisdictions and organizations, who are forced to compete with their 
metropolitan counterparts on an increasingly uneven playing field, 
without benefit of the professional staff, technical assistance and 
planning resources which this funding secures.
---------------------------------------------------------------------------
    \13\ Ibid.
---------------------------------------------------------------------------
    While not an official Federal data release, the Southern Rural 
Development Initiative has analyzed the FY 2003 Consolidated Federal 
Funds data, and found even greater non-metropolitan disadvantage. Non-
metropolitan areas receive $548 less per capita than metropolitan areas 
($7,242 versus $6,694). Further examination of the functional funding 
categories within the SRDI analysis substantiates the continuing 
community resource disadvantage for non-metropolitan areas. In metro 
areas, 14.5 percent of funds are allocated to community resources, in 
non-metropolitan it is 8.9 percent, a 5.6 percent difference. 
Conversely, non-metropolitan areas have 67% of total funding as income 
security compared to 52.9 percent for metro areas.
    These stark community capacity disadvantages are additive. Each 
year from 1994-2001, the Federal Government spent two to five times 
more, per capita, on urban than rural community development, and \1/3\ 
as much on community resources in rural areas.\14\ Per capita spending 
on community resources in 2001 was $286 per person less in non-metro 
areas than in urban America, a $14.1 billion dollar rural community 
capacity disadvantage (based on 2003 metropolitan classifications of 
Census 2000 population).\15\
---------------------------------------------------------------------------
    \14\ W.K. Kellogg Foundation (2004) ``Federal Investment in Rural 
America Falls Behind.''
    \15\ Economic Research Service/USDA, U.S. Census Bureau.
---------------------------------------------------------------------------
    These rural implications are exacerbated by an ongoing Federal 
``push down'' of funding and statutory responsibility to states and 
localities, which further challenges rural resources and community 
capacity. Federal block granting has become a more common framework for 
these shifts, with increasing use of loan and loan guarantees, and 
fewer direct granting possibilities, which is forcing new 
interjurisdictional cooperation--a good thing, with reduced Federal 
commitments--a huge challenge. However, while the U.S. has a somewhat 
incomplete and incremental regional development framework, these 
challenges have increased interest in new collaboration, and have 
renewed interest in new regional approaches.
    These rural community capacity challenges in Federal funding are 
exacerbated by an equally uneven commitment to rural community and 
economic development by our nation's foundations and corporate grant-
makers. In a May 2004 report, the National Committee for Responsive 
Philanthropy \16\ noted that of the $30 billion distributed annually in 
by our nation's foundations, only $100.5 million was committed to rural 
development. Of 65,000 or so active grant-making foundations in the 
United States, only 184 engaged in rural development grant-making. 
About 20 foundations engaged in rural development grant-making 
accounted for 80% of this total, and two foundations, the W.K. Kellogg 
Foundation and the Ford Foundation, constituted 42%. While the 
significant rural community and economic development commitment of 
these two foundations is commendable, these numbers indicate that the 
majority of grant-making foundations in the U.S. have not seriously 
addressed the developmental needs of rural populations.
---------------------------------------------------------------------------
    \16\ National Committee for Responsive Philanthropy (2004) ``Beyond 
City Limits: The Philanthropic Needs of Rural America.''
---------------------------------------------------------------------------
    Sadly, the same rural differential disadvantage also applies to 
corporate philanthropy. While total corporate grant-making in the U.S. 
amounts to $12 billion annually, a 2000 study of the 124 Fortune 500 
corporations found that corporate grant-making for rural, racial/ethnic 
organizations amounted to 1% of their total racial/ethnic grant-making. 
In total, corporate grant-making for rural groups constituted \7/10\ of 
one percent (.7%) of the grant dollars awarded by the 124 surveyed 
corporations for racial/ethnic giving. Rural organizations received 
only 153 of the 10,905 grants made, approximately 1.4% of all grants.

    New rural governance and investment models emerging across rural 
America are creating an entirely new rural policy framework.

    Despite, or perhaps as a result of these economic challenges, a new 
``Rural Governance'' is expressing itself across the U.S. rural 
landscape. Changes are underway in the processes by which decisions are 
made regarding the distribution of public and private resources and 
responsibilities across multiple stakeholders, including the public, 
private and non-governmental sectors. The dynamics in U.S. federalism 
outlined above are forcing ever greater interdependence of rural 
governmental and nongovernmental organizations, as the central 
government's role continues to reduce over time and circumstance. This 
requires greater coordination, facilitation and negotiation, through 
multiple policy networks which are often diverse and overlapping. While 
this offers a possible new set of strategies to confront the community 
capacity challenge outlined above, it also creates the necessity for 
new intermediaries to be formed and functioning.
    These intermediaries provide the ``glue'' that enables new rural 
governance to express itself, and these new actors are now playing 
critical roles across multiple institutional settings. As an example, 
over 20 states now have a rural policy center, either located in the 
office of the governor, within state government, serving the state 
legislative process, or operating through the private efforts of 
universities or non-governmental organizations. Intermediaries such as 
these are becoming much more relevant to state and local governmental 
decision making, and will play a more important role in the future of 
rural policy, as these processes evolve.
    Some of the most promising new rural intermediary institutions 
assuming increased community and economic development significance in 
the U.S. are our nation's rural community colleges. These institutions, 
often the key human and social capital aggregators in our most isolated 
rural landscapes, have long fulfilled multiple, unfunded roles in 
building regional collaboration. With major changes in our nation's 
workforce investment policy and program design, these rural 
institutions have taken on added responsibilities and significance. It 
could indeed be said that these institutions are building the 
``Extension Service of the Next Century,'' grounded in place, working 
from an asset-based value set, sensitive to local culture and heritage, 
and focused upon building the human capital of some of our nation's 
most disadvantaged rural citizens.
    These new rural intermediaries are as diverse as rural America 
itself, yet community foundations are playing a very significant role 
in many of these dynamics. As but one example, RUPRI is honored to be 
collaborating with the Nebraska Community Foundation, the Heartland 
Center for Leadership Development and the Center for Rural Affairs in a 
promising new initiative, Hometown Competitiveness.\17\ Yet these new 
intermediaries exist in all sectors, governments and NGO organizations, 
and are changing the face of policy decision-making across the rural 
landscape.
---------------------------------------------------------------------------
    \17\ For information on HTC, see the RUPRI Center for Rural 
Entrepreneurship at www.ruraleship.org.
---------------------------------------------------------------------------
    Despite this potential, three critical questions will determine 
whether these forces are passing fads or sustainable platforms for new 
policy innovation:

   Will public sector champion(s) step up, take on the New 
        Governance mantle, and support public and private 
        entrepreneurship?

   Will institutional innovator(s) accept the challenge of 
        building these new intermediary structures, and the burdens of 
        institutional innovation?

   Where are the constituencies to support these innovative 
        leaders and institutions?

    These are not moot questions, and the rural development title 
offers a wonderful opportunity to create innovative support mechanisms 
for rural leadership in these dynamics.

    A new rural entrepreneurial culture and climate has emerged, but 
must be nurtured and scaled.

    Rural economic development must overcome a number of obvious 
challenges. Low population size and density, and limited local demand 
make it difficult to achieve economies of scale. Efforts to achieve 
efficiencies drive consolidation, from school systems to financial 
institutions, often with unintended but very deleterious consequences. 
Remoteness from global markets and poor infrastructure limits rural 
economic opportunities, and core connections to regional and global 
markets exacerbate these challenges. More poorly educated, lower 
skilled workers and the challenges of building rural entrepreneurial 
cultures have limited rural participation in the new global economy. 
However, across the nation today, a new rural entrepreneurial culture 
and climate is flourishing.
    Philanthropy is playing a significant role in these developments, 
but more must be done, and systemic change will only be achieved if 
integrative, long-term investments and programs can be coordinated and 
sustained. Four principles should drive these efforts:

   Focus on the entrepreneur. Systems thinking is required to 
        properly organize and align the training, technical assistance, 
        and financing programs that are available for small businesses 
        and entrepreneurs. Focusing on the entrepreneurs and their 
        needs ensures that all these programs are aligned in a coherent 
        system, that allows entrepreneurs to obtain the support they 
        need without being passed from door to door or given 
        inappropriate advice.

   Focus on the region. Only through regional cooperation 
        across jurisdictions and through regionally-aware institutions 
        can there be sufficient scale, resources, and expertise to 
        enable individual communities to play their full role as 
        supporters of an entrepreneurial climate. It is rare for an 
        individual county to be able to act effectively on its own in 
        economic development, workforce development, transportation or 
        any other complex public service activity. Economic regions 
        invariably cross county and often state boundaries, and these 
        boundaries are irrelevant for the markets entrepreneurs have to 
        be able to serve.

   Focus on the community. Local communities need the tools and 
        resources to identify and build upon their competitive assets, 
        and to make appropriate choices among economic, social, and 
        environmental imperatives. Communities can achieve much if they 
        are open to experimentation and innovation, but they will go 
        nowhere if they continue to do what they have been doing for 
        decades, in spite of the changes that are going on around them.

   Focus on continuous learning. Entrepreneurs, policymakers, 
        community leaders, and service providers all benefit from 
        networks of peer support and learning. Entrepreneurs in 
        particular rely on networks to share ideas, conduct business 
        together, and link to markets, capital, employees, partners, 
        and services. Taking this one step further, entrepreneurship 
        should without a doubt be an integral part of the school 
        curriculum.

    If we are to achieve this, three steps are essential. Anchor 
institutions with the capacity to articulate a vision, advocate for 
change, build partnerships and attract and mobilize resources must be 
built. Second, supportive public policies which ensure adequate 
resources, send positive messages, and build programs with the capacity 
and flexibility to meet the needs of diverse rural regions must be 
crafted. Finally, these approaches must provide support and 
encouragement to both ``opportunity'' and ``necessity'' entrepreneurs, 
and avoid ``picking winners.'' We must also acknowledge that failures 
will occur.

    In summary, a systems approach must have three critical dimensions 
to be totally efficacious:

   Regional framings--embracing both urban and rural, tailored 
        to economic, geographic, cultural and demographic diversity.

   Integrative dynamics--cross-sectoral (entrepreneurship 
        opportunities in agriculture, energy, amenities, education, 
        health etc.), cross-jurisdictional (collaboration across 
        public-private-nonprofit organizations and all levels of 
        government) and cross-functional (entrepreneurship education, 
        training & technical assistance, access to debt and equity 
        capital, networking, infrastructure).

   Cultural contexts--building capacity and support for private 
        and public entrepreneurship, focus on entrepreneurs as 
        converters of rural assets into rural 
        competitiveness.\18\-\21\
---------------------------------------------------------------------------
    \18\ Articulation of scope and potential for entrepreneurship in a 
rural context--Dabson, Brian, Jennifer Malkin et al. (2003) Mapping 
Rural Entrepreneurship. W.K. Kellogg Foundation and CFED.
    \19\ Entrepreneurship in specific contexts--Malkin, Jennifer with 
Brian Dabson et al. (2004) Native Entrepreneurship: Challenges and 
Opportunities for Rural Communities. Northwest Area Foundation and 
CFED.
    \20\ Entrepreneurship as a core economic development strategy--
Brian Dabson (2005) Presentation to the Secretarial Advisory Committee, 
Strengthening America's Communities, Clearwater, Florida, June 2, 2005.
    \21\ Comprehensive guidance for rural communities interested in 
pursuing entrepreneurship--Markley, Deborah, Don Macke & Vicki B. 
Luther (2005) Energizing Entrepreneurs: Charting a Course for Rural 
Communities. RUPRI Center for Rural Entrepreneurship and Heartland 
Center for Leadership Development.

    All this hinges upon the emergence and support of a strong cadre of 
rural public entrepreneurs. This reality is clearly recognized, and 
leadership support for this dynamic is being supported in multiple 
settings across the rural U.S., by major foundations such as the W.K. 
Kellogg Foundation, regional and community foundations, and corporate 
grant-makers.
    Finally, one huge challenge before us remains the development of 
rigorous, quantitative evaluative tools to assess the return on 
investment for public sector commitments to these systems. Absent such, 
we will still have too few risk management tools for public 
entrepreneurs willing to risk such commitments. However, serious 
attention is currently being paid to this deficiency, and many in the 
field are discussing approaches to address this challenge.
    Several final observations should be made regarding regional 
approaches, new governance, and entrepreneurship:

    1. This new framework should be designed to enable an integration 
        of rural initiatives with farm programs, to advantage rural 
        producers, their rural communities and regions, and their 
        children's opportunities to thrive in their rural community in 
        the 21st Century.

    2. The sector considerations which have historically been titles in 
        the farm bill, i.e., energy, conservation, rural development, 
        etc., should become key components in an integrative new rural 
        vision, and should be considered more holistically in future 
        discussions of this farm bill.

    3. Finally, we must better link the research title of this Bill, 
        which frames priorities for our Land Grant University research 
        community, with the new rural vision we seek to support through 
        the Rural Development Title. The unparalleled potential which 
        resides in our Land Grant University research community must be 
        mobilized to enhance the decision support infrastructure for 
        wiser public policy choice in rural America.

    New rural policy and program targeting must be designed, to take 
advantage of these developments and address the emerging 
interdependence of rural and urban people and places, and to build new 
alliances across these constituencies. 

    County level designations of metropolitan, micropolitan and non-
core areas, collectively referred to as core based statistical areas, 
are often used in Federal program targeting. Metropolitan areas are 
defined by the presence of a principal city of at least 50,000 
population, plus surrounding counties that are linked to it through 
commuting ties. Micropolitan areas contain a principal city of 10,000 
to 49,999 plus surrounding counties that are linked to it through 
commuting ties. All other counties not included in metropolitan or 
micropolitan areas are defined as non-core counties. The most recent 
listing of Core Based Statistical Areas for the United States and 
Puerto Rico (December 2005) by the Office of Management and Budget 
includes 369 Metropolitan Statistical Areas (361 in the U.S. and eight 
in Puerto Rico), and 582 Micropolitan Statistical Areas (577 in the 
U.S. and five in Puerto Rico). Metropolitan and micropolitan areas may 
contain one or many counties, and many cross state lines.
    Nonmetropolitan counties, which include both micropolitan and non-
core counties, are often equated with rural. However, official 
definitions of rural and urban involve sub-county geography. Urban 
areas are defined by the U.S. Census Bureau as ``core census block 
groups or blocks that have a population density of at least 1,000 
people per square mile and surrounding census blocks that have an 
overall density of at least 500 people per square mile.'' All territory 
not defined as urban is considered rural. Urban areas are divided into 
two categories: urbanized areas have populations of 50,000 or more, and 
urban clusters have populations from 2,500 to 49,999.
    Both metropolitan and non-metropolitan counties contain both urban 
and rural territory. The following table shows population by both 
county designation and urban and rural geography, and illustrates that 
county level geography does not accurately reflect urban and rural 
population distributions. Over half of all rural people actually reside 
in metropolitan counties. And, over 40 million metropolitan residents 
reside outside of large urbanized areas. It is important, then, to look 
beyond county level designations when targeting rural populations in 
public policy and program design.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Clearly, non-metropolitan residents should be included when 
targeting rural populations. While non-metropolitan counties do include 
some urban residents, with few exceptions non-metropolitan urban 
residents live in small cities and towns, which are not targeted in 
urban programs. Though unintentional, urban targeting tends to usually 
advantage larger urbanized areas, while many smaller cities and towns, 
as well as rural populations within metropolitan counties, often fail 
to receive significant advantage from urban programs; and likewise are 
excluded from rural programs which target only non-metropolitan 
residents. Given these dynamics, and the level of rural population in 
metropolitan areas, policymakers should consider new alternatives for 
precise rural targeting.

    Targeting Regions for Rural Innovation Strategies

    Map 1 shows the core based statistical areas in the United States 
and Puerto Rico. Micropolitan areas are ideal geographies for rural 
regional innovation strategies, as in most cases the principal city in 
the micropolitan area provides the central locale for regional economic 
activity and service delivery.
    Map 2 illustrates the U.S. urbanized and small town geography. The 
green areas represent urbanized areas--cities with populations of 
50,000 or more, which form the principal cities of metropolitan areas. 
In a few cases, boundaries of urbanized areas fall into non-
metropolitan counties, but usually don't account for a significant 
portion of total population. The dark brown areas represent smaller 
cities and towns, urban clusters with populations from 2,500 to 49,999 
in metropolitan counties. The dark orange areas illustrate rural 
territory in metropolitan counties. Over half of all rural residents in 
the United States reside in these areas. Finally, the light orange 
areas represent non-metropolitan counties. The urban clusters of 2,500 
to 49,999 population size exist in non-metropolitan counties, but are 
not shown on this map.
    Maps 3 through 6 illustrate the urbanized and non-urbanized area 
geographies in four states: North Carolina, Georgia, Colorado, and 
Alabama. The maps also include Congressional District boundaries for 
the 110th Congress. Each map is accompanied by a table describing the 
population distribution in each Congressional District in urbanized 
areas (green areas on the map), smaller cities and towns (brown areas), 
and rural areas (dark and light orange areas). As above, the darker 
orange counties are metropolitan counties.
    Finally, Map 7 illustrates this framework in the Des Moines, Iowa 
metropolitan area, showing but one example of the continuum of very 
urban to very rural places that exists within metropolitan areas. In 
fact, Guthrie County is 100 percent rural, even though it is part of 
the metropolitan area.

Map 1.
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Map 2.
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Map 3.
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Map 4.
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Map 5.
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Map 6.
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Map 7.
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Creating 21st Century USDA/RD Programs Which Support These New 
        Realities
    If one is to alter Federal rural development policy to advantage 
new regional framings, serious attention must be given to new Federal 
incentives which promote regional cooperation among local communities, 
governments, and institutions. Currently, no serious systemic RD 
incentives for such approaches exist.
    A common trait in most successful urban renewal and development is 
a true partnership between the public, private and philanthropic 
sectors. Since rural areas typically lack this same level of private 
sector development, and suffer from an overall lack of critical mass, 
forging partnerships among these key actors and potential investors 
will demand new Federal commitments. Building upon an RSIP-type model, 
these Federal incentives and core funding vehicles should support new 
partnership models, with equal ownership and control across local 
officials, private sector leaders (including health care, agriculture, 
utilities, emerging industries, etc.), universities, community colleges 
and the nonprofit sectors, among others. A key sine qua non will be the 
provision of Federal seed capital to support both the regional 
organization and strategic planning as well as the implementation of 
these regional visions.

    If USDA Rural Development is to implement such an approach, four 
challenges must be met: 

    1. A Congressional mandate must be designed, which rewards RD for 
        reconfiguring programs toward a regional approach, and a new 
        mission area.

    2. Incentives must be developed to assure these regional approaches 
        drive program performance assessments.

    3. An organizational capacity which can support regional innovation 
        and deliver these new programs must be built, within a 
        framework which engages appropriate institutional partners. 

    4. Sufficient funding must be committed, to build regional scale 
        and presence. 

    For example, small city CDBG programs have no hard and fast 
priorities or guidelines. By contrast, current USDA investments are 
largely very specific program or project grants or loans, with very 
detailed criteria and delivery dynamics. Addressing this challenge, and 
creating the framework for all that follows could be one of the most 
significant innovations in U.S. rural policy over the last 50 years.
    In this regard, it is important to note that USDA Rural Development 
investments are not driven by any regional investment plan. While state 
R.D. Directors must have a state R.D. plan, their investments in local 
communities and regions are not determined by any regional process or 
assessed against any regional strategy. In contrast, all Economic 
Development Districts that receive EDA funding from Commerce must have 
a Comprehensive Economic Development Strategy (CEDS). Additionally, new 
EDA guidelines demand that all Economic Development District Boards are 
made up of 50%+ local government, 30%+ other sector entities including 
nonprofits, chambers of commerce, higher education, etc. Additionally, 
a CEDS committee must be established by the EDD Board, with a majority 
private sector representation, which must include workforce, chambers 
of commerce, higher education, labor, minority, local government, and 
nonprofit representation. The new EDA guidelines demand that each 
District must also catalog (1) current investments in the region, (2) 
current funding sources, and (3) a catalog of all prior investments. As 
is evident, an opportunity exists to recommend that USDA investments be 
framed within such a regional strategic plan, and interface more 
closely with existing comprehensive economic development strategies for 
regions, such as the EDA CEDS process.
    Given these comments, here are a number of specific ideas for new 
Federal incentives to promote regional cooperation:

    1. In the past, EDA has had a 10% Federal bonus for local 
        communities that participate in an Economic Development 
        District. For example, if you were awarded a $1 million public 
        works grant, the Federal share in the project was increased 
        10%, if you were working in an EDD framework.

    Such a Federal bonus could become part of all loan and grant 
        programs currently operated through USDA/RD, as well as other 
        programs within USDA. While the bonus level and/or local match 
        would be two key variables, the policy principle would be to 
        encourage regional cooperation through this incentive, while 
        not precluding alternative grant proposals from securing 
        Federal support.

    2. A variant of this approach would advantage R.D. proposals for 
        grant and/or loan funding to the extent they were submitted 
        with the support of, and coordination through, other programs 
        which are working in a regional framework within the proposal 
        area. These could include:

     Commerce--Existing regional economic development plans, 
            through Planning and Development Districts, or Councils of 
            Government.

     Labor--Participation in one of the Federal WIRED grants; 
            linkages to the Regional Workforce Investment Boards, etc.

     Health--The programs operated through the Federal Office 
            of Rural Health Policy, including Network and Flex grants, 
            regional plans developed by State Offices of Rural Health, 
            etc.

     USDA--In addition to the incenting vehicle mentioned 
            above, all USDA grant and loan programs could be advantaged 
            if legislative language either provided incentives or 
            requirements for the State Rural Development Director to 
            work with other Federal and/or state level agencies in a 
            regional framework. A number of states are developing such 
            an approach, and specific language could be developed to 
            incent additional R.D. Directors to take such an approach.

    3. Creation of a state block grant and/or regional block grant to 
        promote regional innovation around a hub Micropolitan 
        Statistical Area, through a USDA ``CDBG'' type program. Any 
        number of approaches could be developed to take advantage of 
        the Federal ``micropolitan'' designation. For example, one 
        could create a program called RMAP--Regional Micropolitan 
        Advancement Program. This could be a flexible strategic 
        investment program, along an RSIP model, which would be run 
        through the USDA State R.D. Director's office, to advantage 
        regional partnerships.

    The state director could make funding decisions based on 
        recommendations from Regional Strategic Councils, comprised of 
        representation from state and local foundations, workforce 
        investment boards, community colleges and regional 
        universities, chambers of commerce, local and regional 
        governments, agricultural groups, regional councils and 
        nonprofit representatives. The program focus would need to be 
        diverse enough to cover the diverse asset-based development 
        needs of unique regions, including youth development/retention, 
        entrepreneurship, export assistance for small businesses, 
        infrastructure development and business development, as well as 
        attention to heritage and the arts, and other uniquely 
        designed, asset-based development programs.

    The Federal match rate could be on a sliding scale, based upon the 
        amount of non-Federal investment pooled or leveraged within the 
        region, with a special carve-out for regions which are 
        specifically disadvantaged by lack of internal capacity.

    4. A grant approach which leverages existing state ``small city'' 
        CDBG funds that are grouped to create regional approaches. A 
        number of states are currently creating vehicles which leverage 
        small city CDBG dollars to support regional frameworks. There 
        are any number of ways in which Federal programs could 
        advantage grant or loan applications which are thus matched, or 
        which leverage such state approaches. This could be 
        administered through the state R.D. office, working with the 
        governors, who control the CDBG formulae/program allocations.

    5. If the micropolitan regional approach is unworkable, an 
        alternative would be the creation and promotion of a concept 
        such as a Regional Economic Workshed, similar to the watershed 
        models currently being utilized in USDA to address 
        environmental and natural resource concerns. This approach 
        would use the same type of framework, but addresses the reality 
        that the current rural workforce dynamics cross jurisdictional 
        boundaries, as many rural people often commute 30 to 50 miles 
        to work.

    6. One final program idea, while structurally difficult, would 
        truly be unique, and could be very innovative. It would create 
        a vehicle to enable rural areas working in a regional framework 
        to reinvest the wealth and/or financial returns earned in the 
        region through USDA investments. With this type of revolving 
        loan program, one could enable investments which have been 
        repaid to be revolved into these innovation regions, rather 
        than returned to the Federal treasury, as is currently the 
        practice. Clearly, criteria and accountability around this 
        would be challenging, but such an approach would reward those 
        regions that are working diligently to leverage their 
        innovation opportunities, while reducing further Federal 
        funding demands.

    A New Rural Vision for the Rural Development Title: Regional Rural 
Innovation, Collaboration and Strategic Investment.

    With this Committee's leadership in advocating for enhanced rural 
development emphasis in the Farm Security and Rural Investment Act of 
2002, major new program attention and mandatory funding for rural 
development was obtained. While rural advocates were most appreciative, 
much of this funding never materialized, and many of the new programs 
were not implemented or suffered drastically curtailed funding.
    One of the most innovative approaches within the title was the 
Rural Strategic Investment Program, launched with a modest $100 million 
mandatory funding commitment. We commend this Committee's visionary 
leadership in this effort. Sadly, this program was blocked in ensuing 
legislative and administrative actions, and never implemented.
    Senate Agriculture, Nutrition and Forestry Committee Chairman Tom 
Harkin has recently announced plans to support a ``bold new approach to 
rural competitiveness in the 2007 Farm Bill,'' modifying the RSIP 
approach and enhancing the funding commitment to this initiative: the 
Rural Collaborative Investment Program.
    We anticipate this proposal will reflect much of what is outlined 
below, and I urge this Subcommittee to consider the merits of a similar 
bold initiative in your deliberations.

    A Regional Rural Innovation, Collaboration and Strategic Investment 
System.

    Obviously, until the structural resource disadvantages outlined 
above are addressed, rural America must look internally to better its 
community and economic development opportunities. Rural regions must 
craft a common vision; pool very limited resources, talents, and 
capacities from all sectors; and develop an asset-based approach in 
which new institutional partnerships between the private, NGO and 
philanthropic sectors link with under-resourced rural governments. 
Though challenged by the lack of technical assistance funding available 
for such efforts and the relative lack of philanthropic capacity and 
grant making in rural regions, rural communities have begun this 
effort. However, absent attention to these huge resource disadvantages, 
building the new regional collaboration and investment system outlined 
below will remain a significant challenge. Nevertheless, such 
developments are absolutely essential, if rural regions are to optimize 
their relative competitive advantage.
    Given these challenges, where should policy makers turn in building 
wiser public sector investments in rural community and economic 
development? First, we must acknowledge that what has worked in the 
past will no longer suffice. Once that is evident, regional 
collaboration and investment systems can be considered. When this 
happens, we will move from attraction strategies to entrepreneurship; 
identify and encourage ``functional economic regions'' to build on 
existing assets, broadly defined; and move from sector to place-based 
approaches. This regional framework will be appropriately configured, 
and will engage our institutions of higher education in a new regional 
compact, where public and private entrepreneurship will be central, a 
new rural governance between the public, private and philanthropic 
sectors will be evident, and new regional leadership, through 
innovative institutional renaissance, will be expressed.
    While this may seem a bridge too far, it is already emerging all 
across rural America. Purdue University has designed and developed a 
new Discovery Park, Research Park, and the Center for Regional 
Development, outstanding new intermediaries, creating traction and 
scale for new regional collaboration and investment systems. Dr. Sam 
Cordes, Director of the Center, has worked with the Administration of 
Indiana Governor Mitch Daniels and Lieutenant Governor Becky Skillman 
over the past year to create the Rural Indiana Strategy for Excellence 
2020 (RISE 2020).\22\ This effort has engaged over 150 Indiana 
organizations and institutions, and has become a national model for new 
rural governance and regional innovation. This process resulted in a 
foundation framework and seven pillars for collective work and voice by 
those who care about rural Indiana. Each of these elements is critical 
in the framework. They include civic leadership and engagement; asset-
based community development; regional frameworks; rural innovation; 
diversity access and inclusiveness; youth engagement; and wealth 
creation and retention. A new state agency, the Office of Rural and 
Community Affairs, was created to provide greater rural focus within 
Indiana's executive branch. The seven pillars developed in the RISE 
2020 process were used to target the state's ``Small Cities'' CDBG 
funding investments, along with additional general revenue funds 
committed to this effort, to achieve these outcomes. The first round of 
grants have now been made, and the philanthropic communities of Indiana 
have matched these public investments nearly one to one.
---------------------------------------------------------------------------
    \22\ The Indiana Rural Strategy (2006) http://www.purdue.edu/pcrd/
Indiana%20rural%20strategy.htm and ``Breaking the Boundaries'' Indiana 
Office of Community and Rural Affairs Strategic Plan for Rural Indiana. 
www.ocra.IN.gov.
---------------------------------------------------------------------------
    Northeastern Ohio institutions created an exciting new regional 
competitiveness strategy, linking higher education, the private sector 
and governments across the region and generating significant innovation 
and collaboration success. Multiple counties across the United States 
are beginning to forge collaborative ``functional'' compacts, and 
across the rural landscape Federal, state, regional and local agencies 
and governments are rethinking and defining their appropriate roles and 
responsibilities.
    The growing number of these innovations should result in the 
Federal Government creating incentives for regional partnering, 
expanding investments in basic research and regional community and 
leadership capacity, and funding the development of new public goods 
for regional decision making, all key elements in a national rural 
entrepreneurship framework. Should this occur, the Federal Government 
will become an enabler rather than a driver of such dynamics, as 
regional, state and local actors work together to build effective new 
frameworks for regional governance, public and private collaboration, 
and identification of unique regional assets. Then, a true rural 
entrepreneurial development system can emerge, to enable innovation to 
leverage these assets, across space.
    Globalization has had profound and lasting effects. It also has 
created two unmistakable rural challenges: uneven growth across space, 
and new drivers of sustainable growth, primarily innovation and 
entrepreneurship. Building a Regional Rural Innovation, Collaboration 
and Strategic Investment System, which acknowledges these necessities 
and seeks to address them, has the potential to emerge within the new 
farm bill debate as the organizing framework for the rural development 
title.
    The promise of such a Regional Rural Innovation Policy is premised 
upon the following realities:

    1. National competitiveness is increasingly determined by the 
        summative impact of diverse regional actions, capturing asset-
        based competitive advantage.

    2. Support for such an approach will require a substantive 
        rethinking of core missions across Federal departments, state 
        agencies, and regional and local governments, and a commitment 
        to leadership renaissance within these institutions and 
        organizations.

    3. Funding support for these place-based policies are WTO green-box 
        compliant, non-trade distorting funding opportunities for the 
        Federal Government.

    4. Finally, such a commitment improves the potential for 
        Congressional Agriculture Committees to retain existing funding 
        baselines, and for these Committees to retain statutory 
        responsibility for rural development policy.

    Thank you, again, Mr. Chairman and Members of the Subcommittee, for 
the opportunity to testify before you today. Your continuing leadership 
in crafting a 21st Century rural policy is critical, and I look forward 
to working with you over the course of these farm bill discussions. 
I'll be pleased to answer any questions you have.
    Maps and Tabular Information, Various States Represented on the 
    Subcommittee on Specialty Crops, Rural Development and Foreign 
   Agriculture of the Committee on Agriculture of the U.S. House of 
                              Resentatives
North Carolina
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Colorado
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Minnesota
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Virginia
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Georgia
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Alabama
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Texas
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Nebraska
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

North Dakota
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Kansas
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Prepared Statement of Hon. Rebecca S. Skillman, Lt. Governor, State of 
                       Indiana, Indianapolis, IN
    Dear Mr. Chairman and Members of the Committee,

    Thank you for the strong commitment you have shown to rural America 
by holding a hearing to talk specifically about rural policy in the 
next farm bill. Growing up in Bedford, a rural community in south 
central Indiana, I am truly the product of a small town. I have spent 
most of my career working on the issues that impact our small cities 
and towns. Rural issues are my passion, and I am deeply honored today 
by the opportunity to participate in this conversation with our Federal 
policymakers including our new partners Congressmen Donnelly and 
Ellsworth. Congressmen, we look forward to working closely with you in 
this legislation to advocate for the many needs of small communities 
back in rural Indiana.
    When Governor Mitch Daniels and I took office in January 2005, 
Indiana, like many states, faced grave challenges with the lack of 
economic opportunity for Hoosiers--particularly those citizens living 
in our rural communities. In working to build an economic recovery, we 
pledged that Indiana would not be a state of ``haves'' and ``have-
nots.'' Today, with Governor Daniels' innovation and strong leadership, 
we have turned the corner toward prosperity for every region of our 
state.
    Last year was a banner year for our state. We brought 22,540 new 
jobs to Indiana with an average annual salary of $42,000. These new 
projects represent more than $8 billion in private capital investment 
in Indiana. Agriculture is a significant piece of this new growth. In 
2006, we saw $2.68 billion invested in food and agriculture projects 
which created 1,218 new jobs. This investment included 17 new ethanol 
plants and four biodiesel facilities--all of which are located in rural 
areas such as the Town of Claypool, a community of just under 500 
people in northeast Indiana, Linden, a town of 690 people in west 
central Indiana, and Rensselaer, a city of 5,500 in northwest Indiana.
    Indiana is indeed seeing a new day of opportunity. But, with this 
progress, we know that significant challenges remain for our small 
towns and cities. In Indiana, 75 percent of our land mass is rural, and 
44 percent of our population lives in rural communities. We are a 
manufacturing economy. With recent downturns in the national 
manufacturing sector, we have suffered deep employment losses. In 2004, 
manufacturing accounted for 16 percent of our total employment, down 
from 25 percent in 1980. Such losses have necessitated a transformation 
of our traditional economy.
    Rural Indiana lags behind in this transformation. In non-
metropolitan employment, manufacturing still accounts for 24 percent of 
Hoosier jobs. In addition, educational attainment in rural areas lags 
behind the rest of the state. And, per capita income in non-
metropolitan areas is less than 85 percent of the per capita income in 
metropolitan areas.
    Governor Daniels and I know that such discrepancies cannot be 
ignored. We both know that Indiana's economic recovery will not be 
complete unless it includes all Hoosiers. If we are to continue to have 
a growing agriculture economy, we must have a thriving rural economy. 
If we are to enjoy a statewide economic renaissance, rural Indiana must 
also thrive.
    With that pledge, we have made a commitment to the importance of 
rural Indiana and the need for dedicated resources to build on its 
strengths. In 2005, we created the Office of Community and Rural 
Affairs (OCRA). OCRA is a stand-alone agency that provides resources 
and technical assistance to our small towns and cities. Putting 
economic opportunity first and foremost, the agency has a mission to 
assist rural communities in building capacity to achieve their own 
vision for the future.
    In order to identify the highest priority issues, I convened a 
statewide conversation later branded as the Rural Indiana Strategy for 
Excellence (RISE 2020). Partnering with the Indiana Rural Development 
Council and the Center for Regional Development at Purdue University, 
OCRA held more than twenty listening sessions in which over 650 rural 
constituents participated. From these sessions, seven core areas of 
focus emerged, including the need to:

   Promote regional frameworks and partnerships;

   Build civic leadership and engagement;

   Focus on asset-based community development;

   Build capacity for rural innovation (entrepreneurial 
        culture);

   Promote diversity, access and inclusiveness;

   Promote youth engagement; and

   Leverage resources for wealth creation and retention.

    Using these points of focus as a guide, OCRA set key priorities for 
the agency in a strategic plan we refer to as ``Breaking the 
Boundaries''--a name that reflects our commitment to breaking down the 
current barriers rural communities face in accessing resources and 
developing opportunity. These priorities include:

   Developing a strategy to attract and expand philanthropic 
        capital;

   Attracting and retaining entrepreneurial talent;

   Generating creative practices and programs for rural 
        workforce development;

   Seeking innovations in rural broadband development and 
        deployment; and

   Expanding health and human service delivery to reach 
        marginalized populations.

    In our work, a core philosophy is to build partnerships in and 
leverage resources from the public, private and academic sectors. OCRA 
works very closely with other state agencies involved in economic 
development projects such as our Indiana Economic Development 
Corporation, the Indiana State Department of Agriculture and the 
Department of Workforce Development. The agency also works side-by-side 
with other partners such as the local USDA Rural Development Office, 
universities, utilities and nonprofit organizations to partner and 
complement their core activities.
    Two prominent examples of partnership and leveraging resources 
include the creation of a state Rural Capacity Grant Program and the 
manner in which we administer the Federal Community Development Block 
Grant Program (CDBG). In December 2006, OCRA awarded nearly $3 million 
in a competitive grant process that challenged communities to develop 
creative ways to build capacity in workforce training or education 
needs and in rural entrepreneurship. In the scoring process, extra 
points were given to those communities that included a local match from 
their community foundation. Grants were awarded to 23 community 
partnerships, many of which involved local economic development 
organizations, regional workforce training entities and small business 
development centers. Local matching funds totaled $1.114 million, of 
which $163,000 or 14 percent were local foundation matches.
    In addition to the Rural Capacity Grant Program, OCRA has retooled 
the way it administers the CDBG program to encourage partnerships and 
leverage funding. At present, Indiana's state allocation from the U.S. 
Department of Housing and Urban Development is approximately $27 
million. Historically, there has been no focus by the state on how 
those dollars have been allocated. Beginning in 2007, we have 
restructured the scoring system to include weighted scores that reflect 
OCRA's key priorities such as the development of micro-enterprise 
programs, sewer and water infrastructure and health clinics. As with 
the Rural Capacity grant awards, extra points are given to those 
communities that provide a philanthropic match.
    From our early experience, we have quickly identified community 
foundations as an untapped resource. In Indiana alone, a recent study 
by the Indiana Grantmakers Alliance estimates that $3.3 billion in 
local wealth could be captured through community foundations over the 
next ten years. With the continuing decline in state and Federal 
dollars available for investment in communities, community foundations 
show great promise to become critical strategic investors in Indiana 
and beyond.
    In closing, let me suggest that rural development should happen by 
choice, not by chance. As I hope is evident from my testimony, Governor 
Daniels and I are choosing to invest in rural Indiana so that all 6.2 
million Hoosiers will share in our state's economic recovery. We have 
accomplished a great deal in a very short time by taking stock of our 
resources and developing a framework that enables us to target these 
assets toward solving critical challenges for our rural citizens.
    In sharing our story with the Committee today, we are hopeful that 
policy leaders in other states may be inspired to take similar action 
to strengthen the small towns and cities in their own landscapes. 
Further, we hope that the Committee will carefully consider those 
measures within the Rural Development Title which could be shaped to 
encourage and nurture this model.
    Thank you for this opportunity.

    The Chairman. Thank you, Mr. Fluharty. And that leads into 
your comments about Billy Ray Hall. Billy Ray Hall is President 
of the North Carolina Rural Economic Development Center, based 
in Raleigh but does a great work in my home county. And in our 
home State of North Carolina, 85 of the 100 counties are 
considered rural, so Billy has quite a task to do and does it 
well. Mr. Hall, we look forward to your testimony.

         STATEMENT OF BILLY RAY HALL, PRESIDENT, NORTH
 CAROLINA RURAL ECONOMIC DEVELOPMENT CENTER, INC., RALEIGH, NC

    Mr. Hall. Thank you, Chairman McIntyre and the Ranking 
Member Musgrave. I can't help but to move away from my comments 
to tell you the story about North Carolina. We had 26 
definitions of rural and so we decided to work with a 
committee. We worked for 2 months and we decided that every 
county that didn't have a city over 50,000 would be rural and 
we put out rural programs in those counties. I don't know how 
much help that will be to Secretary Dorr, but I would suggest 
that he might think about it.
    In terms of my comments, and I think it is challenging for 
me to say to you something you don't already know, but I want 
to remind us, if I can, and take a ride with the person who got 
up in rural North Carolina, or rural Colorado or Georgia or 
Texas, this morning. They got up and they went and turned on 
the water. If they were in rural areas, they generally pay 
twice as much for water as if they lived in a major urban area, 
partly because the costs that were underwritten to provide 
those water and sewer systems. They were underwritten in a day 
when we provided more Federal and state support to those areas. 
He then went outside, got in his car and started down the road 
and he saw a for sale sign on a farm. He was reminded, in 1948, 
there were 302,000 farms in North Carolina. In 2004, 4,000 
people sold their farms because they couldn't make a living. He 
is wondering if he is the next one of the 48,000 farmers in 
North Carolina who may lose his farm.
    He drives a little further down the road and he looks at a 
vacant manufacturing building in which his wife used to work in 
and was able to bring home health insurance. She is no longer 
there. She joins the 70,000 people who lost their job in the 
last 5 years in North Carolina as manufacturing moved offshore.
    He then drives on into town and he thinks about his child 
who he is trying to get to stay in school and remembers that 
the workforce in rural areas, over 60 percent have less than a 
high school diploma or a high school diploma. He knows that 
tonight he has to go home and help his child with the homework, 
but he doesn't have access to the Internet, so it is going to 
take him much longer to work on the homework.
    The then moves into the community and moves up to the gas 
station and begins to at least feel a little better because he 
thinks he has heard on the national scene that we are going to 
move to biofuels. The idea, maybe our farmers will produce 
those biofuel feed stocks; and maybe our farmers will own the 
production facilities; and maybe this grocery store or this gas 
station will provide the gas.
    He then moves down the road to the job where he started 
while he farms part time, because he is like \2/3\ of the 
farmers in North Carolina; they have to work off-farm jobs to 
be able to support their farm. He goes in and remembers that he 
has got a patent to work on. He has now created a new business 
but he is not sure how to do the marketing plan, but he has 
hope, just as he did when he was at the gas station, that he 
has heard discussions at the national level that 
entrepreneurship is going to be the new area which we 
emphasize.
    Now, I say that just to remind us of this: there are two 
basic needs in rural America, particularly rural North 
Carolina, that need your attention. The U.S. Department of 
Agriculture has been a major partner with the support groups, 
namely water and sewer. In rural areas, our water and sewer is 
critical. We still have children playing in waste whenever it 
rains and the septic tanks fail. We have systems that need 
grants, not loans. Fairness is the issue. What is a fair price 
to pay for water? Around two percent of median household 
income, if you believe the research.
    Second, we need high-speed Internet. Twenty-six counties in 
rural North Carolina lack 70 percent access or have less than 
70 percent access. Five counties have less than 50 percent, but 
yet we are told that is the road to the future and it is where 
e-learning and e-medicine is going to occur. We need to 
continue supporting the expansion of telecommunications in the 
Department of Agriculture.
    Now as to the citizen's hope for the future. He is 
particularly interested, or she is, in building an 
entrepreneurship support system and hopes that the U.S. 
Department of Agriculture and others will reemphasize a way of 
encouraging entrepreneurs in rural areas, because he knows that 
the major employers are net losers of employment in rural 
America and that small businesses are the hope for the future.
    Finally, he says to himself, ``I hope that the discussion 
at the national level will translate into policies in rural 
North Carolina.'' Our farmers need to produce the feed stock, 
our universities are in a position to do research, and more 
particularly, our farmers and business people would like to be 
the producers of ethanol and soy diesel and other biofuels that 
are possible in the future. That is what I hear from people all 
over North Carolina and we have been listening for 20 years. 
Our relationship with the Department of Agriculture, state 
government and others goes extremely well, but the message is 
quite simple from rural areas. ``We are willing to do 
everything we can, but there comes a limit as to what we can 
afford in the name of a national clean water policy, there 
comes a limit to our opportunities in providing food and 
agricultural products when trade is not favorable to our 
results, and there is a limit as to what we can do in providing 
high-speed Internet when major corporations won't provide it.'' 
We ask for USDA to continue to support the programs and an 
enhanced program that is flexible in supporting local 
priorities. Thank you for this opportunity to speak.
    [The prepared statement of Mr. Hall follows:]

 Prepared Statement of Billy Ray Hall, President, North Carolina Rural 
             Economic Development Center, Inc., Raleigh, NC
    Thank you Chairman McIntyre, Ranking Member Musgrave and Members of 
the Subcommittee for this opportunity to present our views on the 
development needs of rural America, as you prepare legislation to guide 
Federal investments in our communities through USDA.
    I am Billy Ray Hall, President of the North Carolina Rural Economic 
Development Center (Rural Center). For the past twenty years, the Rural 
Center has worked to make life better for people in rural North 
Carolina. As a statewide nonprofit organization, the Rural Center has 
developed, promoted, and implemented sound economic strategies to 
improve the quality of life of rural North Carolinians. Throughout 
these 2 decades, the Rural Center has had a very productive partnership 
with USDA Rural Development, working together on ventures that brought 
new jobs and businesses, infrastructure improvements, innovative 
technology, and community facilities to rural communities.
    Today I will be talking with you about the challenges and 
opportunities before us in rural North Carolina; the lessons that the 
Rural Center has learned over the last 20 years that have bearing on 
the deliberations of this Committee; and why it is critical that USDA 
Rural Development remain a lifeline to our rural communities as we 
grapple with the dramatic changes ahead.
    First, a bit of background on North Carolina. If ever there was a 
study in contrasts, North Carolina is it. Located in the heart of the 
state, the Research Triangle Park is home to multinational companies 
with 40,000 full time employees and a total payroll of $2.7 billion. 
The park is near, and strongly connected to, three world-class 
universities--the University of North Carolina, Duke University and 
N.C. State University. The state's banking and finance industry has 
experienced skyrocketing growth in recent years and achieved a dominant 
position in interstate banking. The combined financial assets 
headquartered in Charlotte total over $1.8 trillion, second only to New 
York City. As a result of such engines of growth, the state as a whole 
has experienced dramatic population growth in the past 2 decades. By 
2030, North Carolina's population is expected to climb to 12 million, 
an increase of nearly 50 percent over the 2,000 total.
    It will come as no surprise to anyone that a large percentage of 
this growth is concentrated in and near our urban centers, especially 
in the Charlotte and Raleigh-Durham-Chapel Hill areas. These urban 
areas and the smaller cities and towns surrounding them consistently 
rank at the top of nearly every national score card as best places to 
live and/or do business. And, we're proud of them.
    That doesn't mean that we have not done right by our rural 
communities in North Carolina. In fact, I would assert that no other 
state in the nation has believed in or stood by its rural areas more 
than ours. I think back to the farm-to-market roads built by Governor 
Kerr Scott beginning in the late forties and to the balanced growth 
policy of Governor Jim Hunt in the seventies, which made good on the 
promise of providing jobs, public services and a good education in all 
parts of the state. And then the N.C. Rural Economic Development Center 
was created in 1987 to address the increasing economic disparity 
between rural and urban areas as a result of dramatic economic change. 
Since that time, the Rural Center has become the state's recognized 
rural policy leader and, thanks to incredibly strong partnerships with 
the N.C. Congressional delegation and Federal agencies, the N.C. 
General Assembly, the philanthropic community and corporate North 
Carolina, we have been able to invest more than $400 million in the 
state's 85 rural counties.
    And yet--even with this substantial commitment by the State of 
North Carolina and the tireless efforts of hundreds of creative local 
leaders, rural North Carolina today finds itself in an intense struggle 
to stay afloat. Consider these facts.

   Rural North Carolina's two great economic pillars, 
        agriculture and manufacturing, have experienced massive job 
        losses over the last 2 decades.

     Agriculture--still a powerful $68 billion industry in 
            North Carolina with great opportunity for growth--now 
            employs less than .25 percent of the population in on-the-
            farm jobs.

     The eighth largest industrial employer in the country, 
            North Carolina is losing manufacturing jobs rapidly, 
            especially in traditional, natural resource based 
            industries. Since 1990, North Carolina's rural counties 
            have lost nearly 150,000 manufacturing jobs, many of which 
            are in textiles, apparel and furniture. In fact, rural 
            areas have lost 70,000 manufacturing jobs just since 2001.

    No state has felt the impact of job loss more than ours!

   Jobs in mills meant that families could earn a decent wage 
        near home and receive basic benefits. Former manufacturing 
        workers now face the reality that their limited education 
        (nearly 60 percent of North Carolina's rural population has 
        only a high school education or less) does not prepare them for 
        the more challenging jobs of the knowledge economy.

   Poverty is on the increase. Rural North Carolina's poverty 
        rate is now estimated to be well over 14 percent, with a total 
        of 564,000 people in poverty and many more living at the 
        economic fringes. Child poverty is 45 percent higher in rural 
        areas than in urban areas and in the state's northeast corner 
        averages 26 percent.

   Rural communities are doing all they can. For example, many 
        of the state's smallest towns now charge twice as much for 
        water service as their large urban counterparts. The average 
        ``ability to pay'' (based on population, per capita income and 
        tax valuation) in North Carolina's towns under 10,000 people is 
        a score of only 6.78 points out of a possible 100. In other 
        words, a vast majority of these towns do not have the capacity 
        to go forward with infrastructure projects, no matter how much 
        they desire to improve services for their local citizens.

    My point is this. We're stretching ourselves to the limit at the 
local and state levels. And I have every reason to believe that North 
Carolina will continue its strong commitment to its rural communities. 
But we cannot address these enormous challenges and take advantage of 
new opportunities in rural North Carolina without a strong Federal 
partner.
    I will now shift my focus to four specific issues that we are 
addressing at the Rural Center, offer my thoughts on what we've learned 
about these issues and suggest ways that Congress, through the farm 
bill and other critical legislation, can help.

    1. Stimulate small business growth and entrepreneurship 
        development.

    As a result of plant closings and job losses suffered by our rural 
        communities, North Carolina was among the first to recognize 
        the importance of homegrown jobs. In the economy of the future, 
        rural communities will become increasingly dependent on risk-
        taking, innovative individuals to create jobs and grow 
        businesses.

    Small business is already a powerful force in rural areas of our 
        state:

     Rural North Carolina has nearly 90,000 establishments with 
            fewer than 50 employees. These small businesses account for 
            more than 95 percent of all establishments in the state's 
            85 rural counties;

     In addition, there are nearly 265,000 self-employment 
            establishments in rural areas;

     While North Carolina's largest establishments (100 
            employees or more) reduced their payrolls by 44,000 jobs 
            during the period 2002-2003, establishments with fewer than 
            20 employees added 43,000 new jobs; and

     A recent survey showed that more than 60 percent of rural 
            businesses are started by individuals who grew up in rural 
            North Carolina and most indicate no intention of selling or 
            relocating their businesses.

    Yet small business owners cite serious concerns. These include a 
        sense of isolation, lack of knowledge about emerging markets, 
        lack of access to capital, limited understanding of available 
        business support services, and the need for more training and 
        education programs tailored for different levels of experience.

    The Rural Center began responding to these needs nearly 20 years 
        ago when it established the North Carolina Microenterprise Loan 
        Program to help rural men and women create small businesses to 
        support themselves and their families, and later added the 
        Capital Access Program, which is operated in conjunction with 
        the state's banks. Together, the two programs have had 
        significant impact on small business development in North 
        Carolina:

     Since 1992, the N.C. Microenterprise Loan Program has 
            served 2,600 businesses and made 1,267 loans totaling 
            nearly $7 million to a diverse customer base that includes 
            47 percent minorities; 53 percent women; and 41 percent 
            low-income individuals.

     Since 1994, the Capital Access Program has made more than 
            1,600 loans totaling $92 million, which have helped create/
            retain over 12,000 jobs.

    Then, in October 2003, the center intensified its small business 
        development efforts by establishing the Institute for Rural 
        Entrepreneurship to serve the needs of rural entrepreneurs and 
        develop statewide policies in support of entrepreneurship. Just 
        last month, the Institute joined with nearly 50 statewide 
        partners for the second annual entrepreneurship summit that 
        drew 600 public and private leaders and announced a dozen 
        initiatives to bolster entrepreneurship development. Among 
        these were:

     The N.C. Consortium for Entrepreneurship Education, a 
            collaboration of the Rural Center, the N.C. Department of 
            Public Instruction, N.C. Community College System, 
            University of North Carolina System and the N.C. 
            Independent Colleges and Universities to improve, increase 
            and connect entrepreneurship education across all age 
            levels; and

     The Rural Venture Fund, a new source of capital 
            specifically designed for qualified businesses in 
            economically distressed counties of North Carolina. It will 
            enable the Rural Center to fill a gap in available types of 
            business finance for rural business owners. This fund will 
            be a unique hybrid capable of making equity investments and 
            issuing subordinated debt. The fund was established with $3 
            million in initial capital; the goal is to identify other 
            sources to reach a total of $7.5 million.

    To support the emergence of a dynamic, growing small business 
        sector in rural North Carolina and rural America:

    The Rural Center supports efforts by Congress to establish a new 
        rural entrepreneurship and microenterprise assistance program 
        to provide training and technical assistance to qualified 
        intermediary organizations, so they in turn can build the 
        capacity and expertise of rural entrepreneurs. A low-interest 
        loan fund should be established to assist this effort, in 
        addition to the technical assistance grants. This is one 
        development strategy that consistently works in rural 
        communities.

    2. Invest in the construction and maintenance of water and sewer 
        infrastructure in rural areas.

    Nothing is more important to the economic future of rural 
        communities than a reliable supply of clean water and 
        dependable systems for disposing of wastewater. One North 
        Carolina state senator became famous for saying, ``If you can't 
        flush, you can't dance.'' The meaning is clear. Without clean 
        water, we cannot grow businesses, we cannot grow neighborhoods, 
        and we cannot ensure the health of our citizens.

    In 2006, the Rural Center completed its Water 2030 Initiative, the 
        most comprehensive water resources study ever undertaken in 
        North Carolina. The study documented the need for $16 billion 
        in public water, sewer and storm water infrastructure 
        investments statewide by 2030. In the near term, the state 
        faces $500 million in immediate, critical capital needs. The 
        project also examined financing options for clean water 
        infrastructure and questions about long-term water supply.

    Here's what we found, in brief:

     Private market loans now account for 70 percent of water 
            and sewer financing in North Carolina, yet low bond ratings 
            prevent more than 60 percent of local governments from 
            qualifying;

     Federal program budgets continue to be reduced, especially 
            grant monies that are so critical for the most impoverished 
            communities;

     By 2030, North Carolina's water consumption is expected to 
            increase from 241 billion gallons a year to 335 billion 
            gallons for households alone; and

     Continued population and industrial growth will place 
            additional pressure on water quality. Currently, water in 
            nearly 3,000 miles of the state's river systems is 
            considered unsafe for drinking and recreation.

    On the state level, the N.C. Water 2030 Initiative has led to 
        renewed calls for a dedicated, permanent state funding source 
        for clean water infrastructure and a new clean water bond fund 
        to finance infrastructure. Bills now before the General 
        Assembly (H.B. 127 and S.B. 208) would set the bond level at 
        $500 million.

    Based on the Water 2030 study and the Rural Center's extensive 
        experience in water and sewer grants management (It manages the 
        state's largest water and sewer grants portfolio and has 
        provided more than $326 million in grants to 426 communities 
        since 1994):

    The Rural Center strongly supports efforts by Congress to increase 
        funding to USDA Rural Development and other agencies to help 
        rural communities invest in water and wastewater 
        infrastructure. 

    3. Ensure that farmers and rural communities benefit from the 
        burgeoning biofuels industry.

    Even though agriculture remains robust and highly diversified in 
        North Carolina, farming as we have come to know it is changing 
        dramatically. Small and medium sized family farms are rapidly 
        disappearing, with serious consequences to the businesses and 
        communities that have depended on them.

    North Carolina leaders believe that the emerging biofuels industry 
        holds tremendous potential for reinvigorating the rural economy 
        of North Carolina. In addition to crops grown in North Carolina 
        including sweet potatoes, corn, soybeans and switch grass, the 
        state has abundant sources of energy in its wood chips, animal 
        waste and municipal waste, creating opportunities for ethanol 
        production from cellulose.

    The private sector is stepping up its efforts to make North 
        Carolina an energy-producing state through investments in 
        research and facilities. In 2006 the North Carolina General 
        Assembly created the Biofuels Industry Strategic Plan Work 
        Group, with the Rural Center as one of five convening agencies. 
        With the participation of more than 40 state, university and 
        industry leaders, the work group has developed a nine-point 
        plan to make this state the top biofuels producer on the East 
        Coast.

    The plan will be submitted to the N.C. General Assembly March 30. 
        Its recommendations include research on biomass feedstocks, 
        creation of a public-private partnership to build a test 
        facility for biofuels production, increased public awareness of 
        the benefits of biofuels, and appropriate, targeted incentives. 
        In addition, it establishes the goal that, by 2015, 10 percent 
        of the liquid fuels sold in the state will come from biofuels 
        grown and produced in North Carolina.

    The 2007 Farm Bill proposed by USDA includes several provisions to 
        advance biofuels research, production and commercialization. 
        The Rural Center recommends passage of these provisions, 
        including:

      (1) Authorize a program to provide direct support to producers of 
            cellulosic ethanol. Conventional ethanol is produced from 
            grain, primarily corn. Cellulosic ethanol--made from such 
            sources as switch grass, wood and straw--has the potential 
            to replace a larger portion of fossil fuels. Targeted 
            Federal investment will be beneficial in helping overcome 
            the initial barriers to production of cellulosic biomass 
            and agricultural processing waste products for ethanol and 
            electric power production.

      (2) Expand and improve the Federal Procurement of Biobased 
            Products program. The program encourages Federal purchases 
            of biobased products.

      (3) Provide loan guarantees for cellulosic ethanol projects in 
            rural areas. The guarantees would support billions in 
            investments in plant-based ethanol production in rural 
            communities providing jobs and stability to the local 
            economy.

    4. Stimulate deployment of broadband technology to rural 
        communities.

    Access to broadband infrastructure is vital for communities to 
        remain competitive in the global market and to support the 
        transition to a knowledge-based economy. With the creation of 
        the e-NC Authority by the General Assembly in 2000, North 
        Carolina became one of the most aggressive states in the 
        country in increasing Internet availability for rural areas.

    Housed by statute in the Rural Center, the e-NC Authority is 
        charged with bringing the benefits of broadband technologies to 
        rural and distressed urban areas of the state. Its primary work 
        centers on assisting counties with Internet connectivity 
        planning and coordination of technology-based economic 
        development initiatives.

    The authority has had a measurable impact on North Carolina by 
        expanding Internet infrastructure, applications, training and 
        economic promise. It has managed over $20 million in incentives 
        grants to build broadband infrastructure across the state and 
        has overseen development and implementation of such demand-
        building activities as the e-Communities Program. The authority 
        also has created a system of Business and Technology 
        Telecenters that serve as hubs of innovation in economically 
        distressed counties.

    But the job is far from done. In 26 rural North Carolina counties, 
        less than 70 percent of households and businesses have the 
        ability to access broadband Internet. Five counties have less 
        than 50 percent access.

    The Rural Center supports efforts by Congress to increase the 
        amount of Federal dollars devoted to broadband build-out in the 
        rural areas. Specifically, the center calls for Congress to:

    Strengthen the Rural Development Telecommunications Program of the 
        U.S. Department of Agriculture. The program provides loans and 
        grants to build broadband infrastructure and to support 
        distance education and telemedicine in rural communities. The 
        e-NC Authority supports making the funding more accessible, 
        providing increased funding through the grant programs, and 
        streamlining the application process to make it easier for 
        distressed communities to apply and participate. In addition, 
        the authority suggests that there be more collaboration with 
        intermediary organizations and that Congress consider changing 
        eligibility requirements to allow statewide organizations such 
        as the e-NC Authority to apply for funds on behalf of the rural 
        communities of the state.

    To conclude, let me state how important a flexible, well-funded 
USDA Rural Development program is to the future of rural areas and 
small towns. Federal funding should be mandatory, providing assured 
funds to State USDA-Rural Development staff to implement programs, 
rather than tied to discretionary funding decisions that are vulnerable 
to changing Administration priorities that leave poor rural communities 
even further behind. Federal rural development programs work best when 
USDA staff, nonprofit intermediaries, community based organizations, 
and local governments leverage each other's strengths, coordinate and 
tap all available resources. Not one of these parties working alone can 
transform a rural region from one of despair to one of hope. Federal 
rural development programs should challenge rural areas to identify 
their own priorities and strategies and then align Federal investments 
with regional strategies. USDA rural development programs can and must 
help state, regional and local partners address the basic needs of 
local communities, such as water and wastewater systems, key community 
facilities, telecommunications, and housing. But they should also be 
agents of change by helping rural areas support new economic ventures 
that build on natural assets and the unique character of rural places. 
Rural development programs also should enhance community and regionally 
based networks that are using innovation and entrepreneurship to form a 
new rural economy.

    The Chairman. Thank you so much. Good to have you from back 
home and thank you for delivering your excellent message within 
the timeframe allotted. Mr. Rick Harris, President of Sunkist 
Taylor, LLC, from Tracy, California, thank you so much for 
traveling the distance to be with us today and we are glad to 
have you here in Washington. You may proceed.

STATEMENT OF D. RICHARD ``RICK'' HARRIS II, PRESIDENT, SUNKIST 
                    TAYLOR, LLC, SALINAS, CA

    Mr. Harris. Thank you very much, Mr. Chairman McIntyre, 
Ranking Member Musgrave, and Members of the Subcommittee. My 
name is Rick Harris. I am President of Sunkist Taylor, LLC, a 
joint venture of Sunkist Growers Farmers Cooperative and Taylor 
Farms, formed in July 2006, in large part to expand the reach 
of a product line we developed and market it through the Value-
Added Grant Program. Some of those products you will see up 
front. It is my pleasure to discuss our experiences with that 
program, kind of taking vision to reality.
    By way of background, Sunkist Growers is a farmer-owned 
citrus marketing cooperative owned by approximately 6,000 
growers in California and Arizona. Eighty percent of these 
growers have fewer than 40 acres and therefore should be 
considered small farmers. In recent years, all citrus producers 
in the U.S. have seen dramatically increased competition from 
foreign suppliers. Additionally, our costs of production have 
risen significantly. These competitive issues have compelled 
Sunkist to search for new market niches in order to increase 
returns for our grower-owners. However, as a farmer-owned 
cooperative, the exploration of some of these new market niches 
is constrained by the capital required to undertake research 
and development of the infrastructure to bring them to reality.
    Some of our grant experience: In 2004, Sunkist was in the 
process of exploring the delivery of fresh-cut, ready-to-eat 
citrus and other fruits to schools. In order to help offset the 
expensive nature of product launch, we were often competing 
against massive marketing budgets of major corporations 
comprising the snack and beverage industry. Sunkist undertook 
the process of applying for one of the USDA value-added grants. 
We were extremely pleased to have been awarded a $450,000 grant 
for Fiscal Year 2004 to assist Sunkist in those efforts. Our 
cooperative growers matched that award with over a million 
dollars in other funds. Those combined public-private funds 
were utilized to develop the packaging and provide working 
capital to begin marketing this line of fresh-cut products, 
called Fun Fruit' to make it more fun for kids at 
schools, into major school districts across the East Coast. Fun 
Fruit' is a line of fresh-cut orange wedges called 
Smiles', de-stemmed seedless grapes called 
Giggles', wedges of pineapples called 
Pals', and sliced apples called Grins', 
and baby carrots called Kidders', again, trying to 
make it fun for kids to eat healthy. As nearly everyone has 
seen in news articles about childhood obesity, our growers have 
been particularly worried that if we lose kids to unhealthy 
snacks now, we won't be selling those whole fruits later to 
adults.
    In addition, we continue to be facing trends that mean more 
eating away from home, what we call kind of cupholder cuisine. 
I sure it is very familiar here in Washington. This is required 
us to think more about convenience. We were originally 
approached by Boston public schools who challenged us to find a 
way to get kids to eat more fruits and vegetables, especially 
because of the difficulty younger kids have with whole fruits. 
The Fun Fruit' concept was created to help wean kids 
away from these unhealthy snacks. In other words, let us mimic 
what the big snack companies do, but make the items healthful. 
We even put the USDA \1/2\ cup requirement on the Fun 
Fruit' packages so that the school districts' food 
service personnel would know that the kids are getting exactly 
the right contribution size. And of course there is no fat in 
that fruit.
    Sunkist Growers has also spent significant resources on 
technology, hence the value-added side, related to this product 
line to improve shelf life and food safety. Since the original 
grant, millions of these packages have been distributed to 
school kids from Boston to New York City, North Carolina and 
now, with our new joint venture, on the West Coast as well. We 
obviously also applaud current efforts to bring more fruits and 
vegetables to schools.
    Recommendations: Looking forward, Sunkist Growers strongly 
recommends an increase in authorization for this program to $60 
million annually in the upcoming farm bill. The history of the 
program has seen it repeatedly funded at less than 50 percent 
of the current $40 million authorization. The funding shortfall 
has caused USDA Rural Development Agency to apply an overall 
award cap at $150,000 in 2005 and $300,000 in 2006. 
Furthermore, penalties have been applied to applicants that 
have previously received awards or have gross sales over a 
particular level. Those penalties significantly compromise our 
ability to return this program to a successful award based upon 
competitive merit. Through these restrictions, the program is 
turning away from the very entities, such as farmer-owned 
cooperatives, that may have the best likelihood of bringing 
sustainable products to the marketplace. Please remember 
Sunkist Growers' single grant award was $450,000. That 
translates to $75 per grower. If the USDA is to continue to 
limit the recipients of these awards and ensure distribution of 
funds to entities with the greatest producer benefit, we 
believe it may be more appropriate to apply standards such as 
those in the Market Access Program.
    [The prepared statement of Mr. Harris follows:]

Prepared Statement of D. Richard ``Rick'' Harris II, President, Sunkist 
                        Taylor, LLC, Salinas, CA
    Mr. Chairman, Members of the Subcommittee, my name is Rick Harris. 
I am the President of Sunkist Taylor, LLC, a joint venture of the 
Sunkist Growers farmer cooperative and Taylor Farms formed in July of 
2006 in large part to expand the reach of a product line we developed 
and marketed through the Value-Added Agricultural Market Development 
Producer Grant program. It is my pleasure to briefly discuss our 
experiences with that program.
Background
    As you may know, Sunkist Growers is a farmer-owned cooperative that 
primarily markets citrus both domestically and throughout the world. 
Eighty percent of our growers have fewer than forty acres and therefore 
should be considered small farmers. There are approximately 6,000 
grower-owners of this cooperative in California and Arizona. Earnings 
derived from Sunkist's activities are returned to the grower-owners on 
a patronage basis, thereby enhancing their overall income.
    In recent years Sunkist, and all citrus producers in the U.S., have 
seen dramatically increased competition from foreign suppliers. Now we 
experience significant competition throughout the year from both 
northern and southern hemisphere production. Additionally, the cost of 
production for citrus has risen significantly due to a variety of 
factors including taxes, regulatory labeling, labor, environmental and 
food safety compliance.
    These competitive issues have compelled Sunkist to search for new 
market niches, beyond traditional citrus marketing, in order to 
increase returns for our grower-members. However, as a farmer-owned 
cooperative, our exploration of some of these new market niches is 
constrained by the capital required to undertake research and 
development of the infrastructure necessary to bring them to reality.
Sunkist Grant Experience
    In 2004, Sunkist was in the process of exploring one of these 
market niches involving the delivery of fresh cut, ready-to-eat citrus 
and other fruits to schools. We anticipated that if the proper 
technology was applied, and infrastructure available, it would be 
possible to enhance our sales to school districts throughout the U.S., 
and then later bringing the product lines to the general public through 
other distribution channels.
    In order to help offset the expensive nature of product launch, 
where we are often competing against the massive marketing budgets of 
the major corporations comprising the snack and beverage industry, 
Sunkist undertook the process of applying for one of USDA's Value-Added 
Agricultural Product Market Development Grants.
    That program was specifically designed to encourage and enhance 
farmer participation in value-added businesses, including through 
farmer cooperatives, to help them capture a larger share of the value 
of their production and improve their overall income from the 
marketplace. It also helps promote economic development and create 
needed jobs in rural areas.
    We were extremely pleased to have been awarded a $450,000 grant in 
Fiscal Year 2004 to assist Sunkist in those efforts. Our cooperative's 
growers matched that award with over $1,000,000 in other funds.
    Those combined public-private funds were utilized to develop the 
packaging and provide working capital to begin marketing this line of 
fresh-cut fruit products named Fun Fruit' to major school 
districts across the East Coast.
    Fun Fruit' is a line of fresh-cut orange wedges, called 
Smiles', de-stemmed seedless grapes called 
Giggles', wedges of pineapples called Pals', 
sliced apples called Grins', and baby carrots called 
Kidders'. As nearly everyone has seen in news articles about 
childhood obesity, our growers have been particularly worried that if 
we lose kids to unhealthy snacks at an early age, we may not be 
marketing whole fruit later on to them as adults. In addition, we 
continue to be facing trends that mean more eating away from 
home.``cupholder cuisine'' as some term it. This has required us to 
think about more convenience.
    We had originally been approached by Boston Public Schools who 
challenged us to find a way that we could get kids to each more fruits 
and vegetables, especially because of the difficulty many younger kids 
have with managing whole fruits. The Fun Fruit' concept we 
created was to help wean kids away from unhealthy snacks--in other 
words, let's mimic what the big snack companies do, but make the items 
healthful. We even put the USDA \1/2\ cup requirement on the Fun 
Fruit' packages so the school district foodservice personnel 
know that the kids are getting the correct serving size. And there is 
no fat in fruit!
    Sunkist Growers has also spent significant resources on technology 
related to this product line in order to improve shelf life and food 
safety. Since the original grant, millions of packages have been 
distributed to school kids from Boston to New York City to North 
Carolina and with our new joint venture, we are now on the West Coast, 
too.
Recommendations for Program Enhancement
    Looking forward, Sunkist Growers strongly recommends that the 
Subcommittee look favorably upon increasing the mandatory authorization 
for this program to $60 million annually in the upcoming farm bill and 
also encouraging full funding of that authorization level. The history 
of the program has seen it repeatedly funded at less than 50% of its 
current $40 million authorization.
    That funding shortfall has caused USDA's Rural Development Agency 
to apply an overall award cap of $150,000 in FY 2005 and $300,000 in FY 
2006. Furthermore, penalties have been applied to applicants that have 
previously received awards or have gross sales over a particular level. 
Those penalties significantly compromise our ability to return to this 
program for a successful award based upon competitive merit.
    Please remember that Sunkist Growers' single grant award was 
$450,000. That translates into $75 per individual grower-member of the 
cooperative under this program.
    While we recognize the difficult position that USDA has been placed 
in, the net effect of these restrictions has been to limit the 
effectiveness of the program. Clearly the program needs robust funding. 
Concurrently, a balanced approach to eligibility for future grants is 
necessary. By limiting the ability to receive multi-year competitive 
merit awards, and utilizing gross sales as a measure of fiscal merit, 
the program is turning away the very entities--such as farmer-owned 
cooperatives--that may have the best likelihood of bringing sustainable 
products to the market place.
    If USDA is to continue to seek to limit the recipients of these 
awards and ensure distribution of funds to entities with the greatest 
producer benefit, we believe that it may be more appropriate to apply 
standards such as those used in the Market Access Program. Under the 
MAP program, no penalties are applied to applications submitted by 
farmer cooperatives.
    However, farmer cooperatives are obligated to provide a 
competitively merit-based application to USDA and to demonstrably carry 
out the terms of that application over the course of the award period. 
In short, the MAP program eligibility guidelines recognize that farmer 
cooperatives are a collection of individual producers acting together 
for their mutual benefit and thereby maximizing the public-private 
investment of funds.
Conclusion
    Congress faces many challenges in the current budget environment. 
We appreciate the difficulty of your task and at the same time, we want 
to emphasize the continued importance of the Value-Added Agricultural 
Market Development Producer Grants and other essential programs that 
seek to enhance the competitiveness of the U.S. agricultural sector, 
strengthen farm income, improve our balance of trade, promote rural 
development, and create jobs.
    Thank you again, Mr. Chairman and Members of the Subcommittee, for 
the opportunity to share our views. I would be pleased to answer any 
questions that you may have.

    The Chairman. Thank you, sir. Thank you for your testimony. 
I would like to yield my time to our Ranking Member of the 
overall Committee and former Chairman of the Committee, Bob 
Goodlatte, if you have any questions.
    Mr. Goodlatte. Thank you, Mr. Chairman. At this time, I 
don't have any questions. I appreciate it.
    The Chairman. All right. Reclaiming my time, I would like 
to just ask one or two quick questions, given our time 
constraints. Mr. Hall, you noted in your testimony that 26 
rural North Carolina counties, in 26 counties, less than 70 
percent of the households and businesses have broadband access. 
The Broadband Program under the USDA has come under a great 
deal of scrutiny due to how the agency defines under-served 
areas. These counties would certainly be considered under-
served with regards to broadband. What thoughts do you have, in 
the criteria we set at the Federal level for under-served, when 
it comes to broadband access?
    Mr. Hall. I think under-served is anything less than, say, 
85 percent of the service area. I think the second part of it 
is geographical coverage. You have got to think about the 
geography of the region and whether you are going to limit the 
developable area. Secretary Dorr, in answering that question, 
talked about the private sector being able to run a line 6 
miles. I think the question is, without a bias to technology, 
which includes wireline and wireless, we could talk about 
under-served areas that do not have geographical coverage of 
some form of wireless so that the people are able to 
participate. I think it is particularly true also in the 
Midwest, when we think about areas being spread, and in Texas 
where densities are low, but the USDA is the sole hope for 
partnering with the private sector in the states to provide 
access in these areas.
    The Chairman. And let me ask you about one other thing. You 
mentioned in your testimony about small businesses and 
innovative entrepreneurs who play such a large role in rural 
areas. One of the true virtues of these homegrown businesses is 
that the local owners have little intention of moving their 
business away simply to capture lower labor costs in another 
town. Your Microenterprise Loan Program and Capital Access 
Program focuses particular on this group of entrepreneurs. Can 
you share with us how these programs work and what the needs 
for capital are for programs like this in rural America?
    Mr. Hall. Yes, sir. And I appreciate you bringing up the 
two programs that we administer. I never realized that 5 
minutes was that short until you told me I had to stop talking 
in 5 minutes. Where I am from in North Carolina it takes about 
5 minutes to say, ``Hi, you all.''
    The Chairman. Yes, I understand.
    Mr. Hall. Two things: We have been running the 
Microenterprise Program now for 14 years and what we have found 
with the 2,700 people we have assisted, the 1,300 loans we have 
made, there are two or three things about entrepreneurs that we 
followed up with focus groups in rural areas. One, 
entrepreneurs, when provided adequate technical assistance and 
appropriate finance, can succeed, not 20 percent of the time as 
they normally do, but 80 percent of the time. That is our track 
record with startup businesses. Second, the entrepreneurs 
themselves, in responding to needs, have identified the need 
for venture or near-venture funding to get their businesses 
into mainstream activity. Many of the Federal programs, like 
the Small Business Investment Corporation's support, are 
targeted to and used in urban areas. Rural areas, where 
entrepreneurs develop and there is a shortage of capital, most 
state programs tend to be incentives that deflect income tax. 
For the small business owner, they are not going to have income 
tax for 2 or 3 years. The issue is how do they get working 
capital in the short term to hold their business in place? And 
that is where equity or near-equity investments are needed. We 
have just recently created a rural venture corporation that 
will be for the first time dedicated to only rural ventures.
    The last part of it, I would say, is in listening to the 
rural entrepreneur. They desperately need a forum where they 
can sit together and discuss their needs in terms of technical 
assistance, marketing assistance and others. I would encourage 
each of us to think about setting those fora in place in rural 
America. They certainly work in the hotbeds, as rated by 
national magazines. Number one, Mecklenburg County and number 
two, Lake County, are both in North Carolina. They are 
designated as hotbeds for entrepreneurship. The critical thing 
they have is councils for entrepreneur development in each 
community. The question is how do we get those in rural areas, 
and how is it supported by USDA as the mechanism that spurs 
entrepreneur development?
    The Chairman. Thank you, sir. Mr. Fluharty, if I may ask 
you, you mentioned in your testimony that a serious 
disadvantage that rural communities face are those where they 
lack grant writers and economic development teams, which many 
of their larger towns have and of course the urban areas tend 
to have. Can you tell us specifically what programs exist that 
close that technical gap, and what mechanism we should look at 
to use to improve technical assistance to rural areas who 
sometimes can't even afford to pay a grant writer much less 
find one?
    Mr. Fluharty. Three quick recommendations: First, 
obviously, in many areas, our council governments or regional 
development organizations do that. I think that is an excellent 
model. Second, within individual sectors, we are finding new 
linkages, whether it is in the state offices or rural health, 
and I would simply look at the rural health infrastructure of 
our nation as a model for what we could do in entrepreneurship 
and innovation from this Committee. Some community colleges in 
many areas are building entrepreneurship programs. We are 
working in Alabama with Governor Riley and Governor Barbour in 
Mississippi on a project from wired USDA, I mean Department of 
Labor, with the community colleges, building entrepreneurship 
in first-generation learners. Again, it is a system to build 
some sort of framework for entrepreneurship, but counties now 
buy in the hospital system, et cetera.
    The really key issue is, Mr. Chairman, what is the 
intermediary, like the center for rural North Carolina, that 
does that? Is it a cog? Is it a new entity? Is it an 
entrepreneurship system you build? But the reality is, without 
CDBG for rural areas, we do not have the ability to compete 
with urban and suburban areas unless we create something. The 
CDBG Program is excellent. It is not year to year. It is not 
continuous. You cannot build a capital plan. You cannot build a 
strategy for a region. The number one thing this Committee 
could do is look at systemic commitments to regional strategies 
for innovation and entrepreneurship in some form, like a rural 
CDBG that would enable an organization like Billy Ray's, or 
counties and regional development organizations, to build that 
human and institutional capacity to capture those 
opportunities. Entrepreneurship systems have to be built. As 
Billy Ray said, once you see it, you can feel how it works in 
letting entrepreneurs build a future. This Committee has the 
potential to do that, Mr. Chairman. I would urge you to look at 
that. Thank you.
    The Chairman. Thank you. And we would look forward to 
working with you on that. Mrs. Musgrave.
    Mrs. Musgrave. I would just like to make a couple of 
comments about community colleges, and you have all emphasized 
what a contribution they make to our communities, our areas, 
our regions, and I would just say wholeheartedly, we have to 
improve community colleges. They can do so much. They have so 
much capacity and we need to help them grow even further. Just 
the other day, I met with court reporters, not a group that I 
had met with, but boy, what an opportunity. I am sitting there 
listening to them and I am thinking as we go to closed 
captioning, what an opportunity for community colleges to 
enable a woman with three kids to work from home with the new 
technology and make $45,000 a year. And I am just hearing 
things all the time that community colleges could engage in to 
improve the workforce and the opportunity for folks in rural 
America. And as I think about that and we emphasize 
entrepreneurship here today, do you have any specific ideas to 
make these community colleges, our land-grant universities, our 
junior colleges, even better in this area?
    Mr. Fluharty. Let me mention three things very quickly. We 
are honored in a collaboration with the American Association of 
Community Colleges and the Rural Community College Alliance in 
building a national institute for rural community colleges. If 
you look at the renewables development, community colleges have 
three advantages. They are thinking about a workforce that will 
remain in place. If we do a study of allied rural healthcare, 
and we have done a lot of work with the Office of Rural Health 
Policy in this, if you raise up a rural man or woman as a 
first-generation learner, train them in allied healthcare in a 
rural community college, their potential for staying within 30 
miles of that training is 92 percent. Where the college is, 
they don't name the college. We all know that. It is, ``I am 
going to the college, because it is there where there is 
nothing else.''
    Second, when we think about building a rural middle class, 
community colleges are the entry point for first-generation 
learners. Third, because of their workforce design, if we build 
asset development systems in renewables in regions around those 
colleges, we can build world-class technology partnerships with 
those institutions. We are very excited to be working with 
these two consortia of community colleges, because they are 
building networks. I would just mention one. A number of these 
colleges are working in pulp and paper cutting-edge technology 
globally. As we think about renewables, we need to think about, 
in USDA, some of those dollars going to existing programs that 
build networks that are already in place and working. I am in 
land-grant system. I am a product of the land-grant system. I 
love the land-grant system. I honestly believe that community 
colleges are creating the extension service of the 21st century 
knowledge economy and we need to better link extension to them 
and build programs that target community colleges. There are 
hundreds of examples of it and we look forward to working with 
your staff to assist in building some models for you.
    Mrs. Musgrave. Well said. You know, as we talked about 
hospitals earlier in rural America, as we talked with Secretary 
Dorr, I look at the community college where I live and I mean, 
RNs are coming out of there. We have a such a nursing shortage 
nationwide, but rural areas are particularly hard hit and I 
just marvel at the ability of these community colleges to meet 
the needs that are so severe in rural Colorado and around the 
nation for healthcare providers. So I am excited to see what we 
can do to make the situation better for community colleges. 
Thank you very much, Mr. Chairman.
    The Chairman. Thank you, Ranking Member Musgrave. Just in 
the interest of time, we are moving right on schedule and we 
will soon conclude by 12 noon, but I would like to invite any 
of the other members of the panel who have not directly 
answered a question, if you have any additional comments you 
would like to make, literally for just a minute or two, 
something you think you need to highlight. Mr. Harris?
    Mr. Harris. Sure. I think it is still on. Okay. One of the 
things I did want to mention is the Sunkist project was really 
a microcosm of what is happening in the Value-Added Grant 
Program that is available to small farmers all the way up to 
major cooperatives. The process that we go through is very much 
like starting a company, where you need a business plan and 
then follow through with the execution. So some of the things 
that actually were talked about on the panel I think kind of 
tie in with the kind of support that even at our level, we 
needed to create this business plan to make those products that 
are out in schools today. But the same thing happens with 
somebody that comes up with an idea and then drives down the 
road and looks for how to actually end up executing that. So 
one of the things that I would recommend, in addition, 
obviously, to increasing the funds for this program, is kind of 
a linkage between the business plan analysis side of the 
program and then the final execution into the product stage.
    The Chairman. Okay, thank you very much. Commissioner?
    Ms. Landkamer. Thank you, Mr. Chairman. I just want to 
reiterate, again, the Federal-local partnership. I think at 
times that gets lost. We actually put many of the programs on 
the ground that you determine are appropriate and we need to be 
at the table when we talk about these things. So I just want to 
say that. And it is all about partnerships and as Mr. Fluharty 
always says, if you have seen one rural community, you have 
seen one rural community. And so all our places are a little 
different and we need that flexibility and the ability to 
leverage dollars in order to make sure that people can stay in 
that community and be sustainable and have a good quality of 
life. So that is what we are looking for and we think that some 
of the programs, like RSIP, could really help do that. So thank 
you.
    The Chairman. Thank you. You have been an excellent panel 
today and before we adjourn, I would like to ask the Ranking 
Member if she has any final comments.
    Mrs. Musgrave. I do not, Mr. Chairman, but thank you.
    The Chairman. Thanks again to our staff, in the advent of 
this new Congress and new Subcommittee with its jurisdiction. 
Thank you, to the members of our panel who have done such a 
great job in your testimony. Under the rules of the Committee, 
the record of today's hearing will remain open for 10 days to 
receive additional material and supplementary written responses 
from witnesses, please note, to any questions that was posed by 
a Member of the panel. Or if you have any additional points or 
testimony you would like to bring to our attention, please 
submit it within the next 10 days. This hearing of the 
Subcommittee on Specialty Crops, Rural Development and Foreign 
Agriculture is now, within the time allotted, adjourned.
    [Whereupon, at 12 p.m., the Subcommittee was adjourned.]

                                  
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