[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



     HEARING TO REVIEW RURAL DEVELOPMENT PROGRAMS IN ADVANCE OF THE
                             2012 FARM BILL

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

                                HEARING

                               BEFORE THE

   SUBCOMMITTEE ON RURAL DEVELOPMENT, BIOTECHNOLOGY, SPECIALTY CROPS,
                        AND FOREIGN AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 20, 2010

                               __________

                           Serial No. 111-55


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov



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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            FRANK D. LUCAS, Oklahoma, Ranking 
    Vice Chairman                    Minority Member
MIKE McINTYRE, North Carolina        BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California        SAM GRAVES, Missouri
DAVID SCOTT, Georgia                 MIKE ROGERS, Alabama
JIM MARSHALL, Georgia                STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South     RANDY NEUGEBAUER, Texas
Dakota                               K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
JIM COSTA, California                JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana              ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota           DAVID P. ROE, Tennessee
STEVE KAGEN, Wisconsin               BLAINE LUETKEMEYER, Missouri
KURT SCHRADER, Oregon                GLENN THOMPSON, Pennsylvania
DEBORAH L. HALVORSON, Illinois       BILL CASSIDY, Louisiana
KATHLEEN A. DAHLKEMPER,              CYNTHIA M. LUMMIS, Wyoming
Pennsylvania                         THOMAS J. ROONEY, Florida
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
SCOTT MURPHY, New York
WILLIAM L. OWENS, New York
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho

                                 ______

                           Professional Staff

                    Robert L. Larew, Chief of Staff

                     Andrew W. Baker, Chief Counsel

                 April Slayton, Communications Director

                 Nicole Scott, Minority Staff Director

                                 ______

Subcommittee on Rural Development, Biotechnology, Specialty Crops, and 
                          Foreign Agriculture

                MIKE McINTYRE, North Carolina, Chairman

BOBBY BRIGHT, Alabama                K. MICHAEL CONAWAY, Texas, Ranking 
JIM MARSHALL, Georgia                Minority Member
HENRY CUELLAR, Texas                 DAVID P. ROE, Tennessee
LARRY KISSELL, North Carolina        GLENN THOMPSON, Pennsylvania
WALT MINNICK, Idaho                  BILL CASSIDY, Louisiana

             Scott Kuschmider, Subcommittee Staff Director

                                  (ii)



















                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     4
McIntyre, Hon. Mike, a Representative in Congress from North 
  Carolina, opening statement....................................     1
    Prepared statement...........................................     3
    Submitted letter.............................................    69
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, prepared statement..................................     6
Thompson, Hon. Glenn, a Representative in Congress from 
  Pennsylvania, submitted letter.................................    69

                               Witnesses

Tonsager, Hon. Dallas P., Under Secretary for Rural Development, 
  U.S. Department of Agriculture, Washington, D.C.; accompanied 
  by Hon. Jonathan Adelstein, Administrator, Rural Utilities 
  Service, USDA; Judith Canales, Administrator, Business and 
  Cooperative Programs, USDA; and Tammye Trevino, Administrator, 
  Housing and Community Facility Programs, USDA..................     7
    Prepared statement...........................................     9
    Submitted letter by Mr. Adelstein............................    72
    Submitted questions..........................................    75
Higginbotham, Thomas, Executive Director, Northeast Nebraska 
  Economic Development District; Member, Board of Directors, 
  National Association of Development Organizations, Norfolk, NE.    24
    Prepared statement...........................................    25
Miller, Ed, Director of Economic Development, King and Queen 
  County, Virginia, Mechanicsville, VA...........................    30
    Prepared statement...........................................    31
Beaulac, Jr., Willard L., Senior Vice President, PathStone 
  Corporation, Rochester, NY.....................................    32
    Prepared statement...........................................    34
Bahnson, Mark, General Manager, Bloomingdale Communications, 
  Bloomingdale, MI; on behalf of National Telecommunications 
  Cooperative Association........................................    39
    Prepared statement...........................................    41
    Supplementary information....................................    73
Miller, Ralph E. ``Eddie'', Director of Community Development, 
  North Carolina Association of Electric Cooperatives, Raleigh, 
  NC.............................................................    47
    Prepared statement...........................................    49
Ayers, Ed.D., Van H., Board Member, Delta Land and Community; 
  Agriculture and Rural Development Specialist, University of 
  Missouri Extension, Bloomfield, MO.............................    51
    Prepared statement...........................................    53

 
     HEARING TO REVIEW RURAL DEVELOPMENT PROGRAMS IN ADVANCE OF THE
                             2012 FARM BILL

                              ----------                              


                         TUESDAY, JULY 20, 2010

                  House of Representatives,
 Subcommittee on Rural Development, Biotechnology, 
          Specialty Crops, and Foreign Agriculture,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 1300, Longworth House Office Building, Hon. Mike McIntyre 
[Chairman of the Subcommittee] presiding.
    Members present: Representatives McIntyre, Bright, Kissell, 
Minnick, Peterson (ex officio), Conaway, Thompson, and Cassidy.
    Staff present: Claiborn Crain, Liz Friedlander, Tyler 
Jameson, John Konya, Scott Kuschmider, Clark Ogilvie, James 
Ryder, Patricia Barr, Mike Dunlap, Tamara Hinton, Jamie 
Mitchell, and Sangina Wright.

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

    The Chairman. Good morning. Welcome here today to the 
Agriculture Committee room. As Chairman of the Subcommittee, I 
want to welcome everyone to this morning's hearing.
    I am Mike McIntyre from North Carolina. I am glad to have 
you all here with us today.
    We want to start our meeting promptly on time so that we 
can finish on time with today's very busy voting schedule. We 
also want to honor the time, of course, of our witnesses who 
have come, as well as others who have come to hear the 
important testimony of the two panels that we have.
    The first panel today, I would like to thank Under 
Secretary Dallas Tonsager for taking the time to come and be 
with us and to bring his various Administrators with him, who I 
will ask him to introduce when you are called upon to begin 
your testimony. The Administrators themselves will not be 
presenting testimony today, but they are at the witness table 
to answer questions from the Members.
    This is, of course, the Subcommittee on Rural Development, 
Biotechnology, Specialty Crops, and Foreign Agriculture; and 
today our topic is on rural development.
    I also want to thank our second panel of witnesses that 
will be coming forward, and they will be recognized as they 
come in a little while.
    Today, we continue to examine the farm policy programs in 
advance of the 2012 Farm Bill. This process started back in 
April, during the spring, with full Committee hearings and has 
continued through the spring and the first half of the summer 
with field hearings across the country, including one that I 
was able to conduct on behalf of the entire Agriculture 
Committee in my home State of North Carolina just last month. 
So I am excited to have had the opportunity to have been out in 
the field myself to hear from folks, as well as to be here in 
Washington in our nation's capital.
    The Subcommittee has already begun diligent oversight and 
hearings with regard to rural development during this session 
of Congress, not only looking at implementation from the last 
farm bill of various programs, but also examining the Recovery 
Act funds targeted to five rural development loan and grant 
programs within the water, housing, business, and 
telecommunications mission areas.
    While this Committee remains very much interested in the 
process by which Recovery Act funds are moving from the agency 
to uses to which they were intended, I would like to focus on 
the future of these programs once the Recovery Act is passed. 
So we don't want to only be dealing with the current situation, 
but we want to have an eye toward the future as well and where 
we are headed.
    Now, while the backlog of some of these programs is 
expected to be significantly reduced, the infrastructure 
development and financing needs in rural America will not 
disappear. We want to make sure that as we look ahead today 
from our government and non-government witnesses we talk about 
the strengths and the weaknesses in the areas of rural 
development where we need to focus, given our current 
resources.
    We also want to know how the Recovery Act has helped or 
where it may have hindered administration of your programs. So 
please be honest and candid with us so that we can do the best 
honest and candid assessment ourselves.
    We want to make sure, also, that new regulations on the 
Broadband Loan Program and Grant Program are being--we are 
moving ahead. We know there has been some delay, but we want to 
make sure those awards that are due out by the end of September 
are in proper order.
    Also, if there is anything that the USDA is applying to the 
new regulations, given what it has learned in administering a 
large amount of Recovery Act funds and in the short amount of 
time we have today, we still would like to hear about that.
    The interim final rule for the Microenterprise Assistance 
Program, something that emanated from this Subcommittee that I 
have a great interest in, helping write that piece of 
legislation, the interim final rules were finally published 
after lengthy delay. We know there are some questions that have 
already arisen regarding the interest rates, grants, and 
matching requirements. We want to make sure that program gives 
us the strongest bang for our buck to help small business.
    We know the fastest job generator today in America is small 
business and that in particular the very small business or 
microenterprises that employ less than ten people, which the 
Microenterprise Assistance Program is targeted toward. A 
program like this can be a vital incubator for small businesses 
and startups in parts of the country where they are needed 
most. So we want to make sure today that we hear what you have 
to say and we hear it in the most candid way possible, and that 
we make sure that--we all know we have anecdotal stories. We 
want to make sure that those stories have the broadest 
application possible as we look ahead.
    I would remind our witnesses today to use the 5 minutes 
provided for their statements to highlight the most important 
points in your testimony. Please do not read your statement 
unless you know you can read it within the 5 minutes allotted. 
We would like for you to highlight. That way we will have more 
time to discuss with you the questions that may be asked.
    Members are also reminded that they can submit additional 
questions for the record for up to 10 calendar days after this 
hearing.
    Also, if there is information that a particular witness 
cannot provide immediately today, please know that you have up 
to 10 calendar days to provide that and please affirm that you 
will in your testimony if, for some reason, you cannot provide 
the exact or accurate information today.
    With that, again, thank you all for coming. We thank you 
for the good work that you do.
    [The prepared statement of Mr. McIntyre follows:]

Prepared Statement of Hon. Mike McIntyre, a Representative in Congress 
                          from North Carolina
    As Chairman of the Subcommittee, I want to welcome everyone to this 
morning's hearing. I would like to thank Under Secretary Dallas 
Tonsager for appearing before our Committee once again. He is 
accompanied today by program Administrators from across the RD mission: 
Jonathan Adelstein, Judy Canales, and Tammye Trevino. The 
Administrators will not be presenting testimony today, but they are at 
the witness table to answer questions from Members.
    I also want to thank our second panel of witnesses as well, as some 
of you were able to make it on relatively short notice. On behalf of 
the Committee, I thank you for your attendance and I look forward to 
your testimony.
    My name is Mike McIntyre, and I represent the rural Seventh 
District of North Carolina. I will be as brief as possible because 
another Subcommittee will be holding a hearing in this room later 
today, so it is imperative we keep things moving.
    We are here today to continue the House Agriculture Committee's 
examination into farm policy programs in advance of the 2012 Farm Bill. 
This process started in April with full Committee hearings, it 
continued throughout the spring and early summer with field hearings 
across the country, including one that I was proud to chair in my home 
State of North Carolina, and it continues this month with review of 
farm bill titles at the Subcommittee level.
    This Subcommittee has already been diligent in rural development 
oversight during the 111th Congress. Not only have we looked at 
implementation of programs since the last farm bill, but we have 
examined Recovery Act funds targeted to five Rural Development loan and 
grant programs within the water, housing, business, and 
telecommunications mission areas.
    While this Subcommittee remains very much interested in the process 
by which Recovery Act funds are moving from the agency to the uses for 
which they were intended, I would like to focus on the future of these 
programs once the Recovery Act has passed. While the backlog in some of 
these programs is expected to be significantly reduced, the 
infrastructure, development, and financing needs in rural America are 
not going to disappear.
    Chairman Peterson kicked off the farm bill hearing process when he 
did in order to encourage stakeholders to think about new ways of doing 
things if they could get a better result with the same amount of 
resources. Keeping that in mind, I look forward to today's discussion 
from both our government and non-government witnesses about the 
strengths and the weaknesses of our rural development programs given 
their current resources. Has the Recovery Act helped or hindered 
program administration? And what can be done better in the future 
keeping in mind the budget constraints we will face in writing the next 
farm bill?
    And while we are do not want to spend as much time looking 
backwards and looking forwards, the implementation of current programs 
is of great interest to this Subcommittee. I understand the new 
regulations on the broadband loan and grant program have been delayed 
until the Broadband Initiatives Program awards under the Recovery Act 
are due to be made by the end of September. If there is anything the 
USDA is applying to the new regulations given what it has learned in 
administering a large amount of Recovery Act funds in a short amount of 
time, we would love to hear it.
    In addition, the interim final rule for the Rural Microenterprise 
Assistance Program--a program I helped write and strongly support--was 
recently published after a lengthy delay, and some are already 
questioning whether the levels of interest rates, grants, and matching 
requirements will give that program the strongest bang for its buck. 
Especially in today's economy, a program like RMAP can be a vital 
incubator for small business startups in parts of the country where 
they are needed most.
    Finally, I would note that not every program in rural development 
is under this Subcommittee's jurisdiction, or even within the full 
Committee's jurisdiction. Nevertheless, we are interested in the 
administration and capability of all rural development programs because 
they are vitally important to many of our constituents, which is why I 
have asked for all three Administrators to join us today.
    When I chaired a farm bill hearing in North Carolina last month, I 
heard from more than one witness about how USDA Rural Development is an 
essential partner in developing, promoting, and implementing strategies 
to bring new homes, businesses, infrastructure, and technologies to 
small North Carolina communities. Many of us can tell similar stories 
and point to examples in our own districts where USDA has helped 
private individuals, businesses, or nonprofits leverage public 
resources into something tangible that improved the quality of life in 
their town. Ensuring that these opportunities remain for rural America 
are the goals we want to meet in writing the next farm bill.
    I would remind our witnesses today to use the 5 minutes provided 
for their statements to highlight the most important points in their 
testimony if they cannot read their entire statement in less than 5 
minutes. As always, Members will be permitted to submit additional 
questions for the record for up to 10 calendar days after the hearing.
    At this time, I would yield to Ranking Member Conaway for any 
opening statement he would like to make.

    The Chairman. I will now call on our Ranking Member, the 
other Mike, Mr. Mike Conaway.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    Mr. Conaway. Thank you, Mr. Chairman; and, witnesses, thank 
you very much for being here this morning.
    Today's hearing is intended to review rural development 
programs in advance of our next farm bill work. I believe that 
while that is important in discussing it to find out what is 
working, I think it is even more important to hold a hearing 
where programs are not working as Congress intended. 
Unfortunately, there are several significant issues in the way 
our programs are being implemented, and I hope they can be 
addressed today. I am glad that Mr. Tonsager has brought with 
him his Administrators to provide timely and thorough answers 
to the questions.
    From the days of first notice of funding, it was clear that 
significant problems existed in the specific approach USDA has 
used to implement broadband provisions of the stimulus bill. A 
year ago, this Subcommittee was assured that changes could and 
would be made to address the concerns that we had, and those 
that our industry partners shared. However, USDA instead 
decided to forge ahead with a rule that would prove deficient 
before the application period even opened. As a result, only 13 
remote projects were funded using half the funds set aside for 
these remote areas.
    This Subcommittee previously expressed concern over the 
Davis-Bacon provisions and how they might be applied to the 
infrastructure projects under the stimulus spending. Our fears 
were confirmed when the USDA acknowledged that these provisions 
would increase project costs by 20 percent above the farm bill 
programs. When small rural towns are struggling to find ways to 
pay for critical water and sewer needs, and when grants are 
being sought for rural broadband projects because a loan is not 
a viable option, these artificial cost increases simply do not 
make sense.
    I am hoping Mr. Tonsager can demonstrate that USDA has done 
everything in their power to put out guidance in a timely 
manner to applicants and has exercised every bit of flexibility 
afforded by statute to minimize artificial costs on the 
stimulus bill.
    On several occasions, we were assured that RUS had 
sufficient resources to implement the stimulus bill without 
detracting from other obligations, and yet 2 years have passed 
without implementation of the Broadband Loan Program under the 
2008 Farm Bill, even though we were assured that rules would be 
published well before now.
    Furthermore, Secretary Vilsack has since stated that USDA 
has no intention of implementing the loan program before Fiscal 
Year 2011. I look forward to a rational explanation for why 
USDA has failed and now refuses to implement a loan program 
that I believe is the cornerstone to some of the efforts to 
connect rural America.
    We are also aware that USDA is pursuing a project called 
the Know Your Food, Know Your Farmer initiative. Only a select 
few of our rural development programs contain any authority 
that might support this initiative, and that authority includes 
very limited funding. And yet USDA seems to be drawing nearly 
every program that exists into an initiative that could 
ultimately disadvantage meritorious projects that favor certain 
size entities beyond the intent of Congress and the scope of 
the law. I look forward to an explanation of this initiative 
and how much of our scarce Rural Development resources USDA 
will try to divert to this initiative.
    This Subcommittee has previously highlighted the need for 
interagency cooperation. There are 16 Federal agencies 
administering over 88 programs that target rural development. 
While I look forward to hearing more about what USDA is doing 
to effectively coordinate the rural development efforts and use 
taxpayer funds initially, I am also looking forward to the 
testimony from our second panel of witnesses to get an update 
on how programs are being implemented out in the countryside. I 
appreciate the time our witnesses took today to share their 
insights with us.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    The chair would request that any other Members who would 
like to have opening statements submit them for the record so 
that witnesses may begin their testimony. We can ensure that 
there is ample time for questions from all the Members that may 
be present.
    [The prepared statement of Mr. Peterson follows:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress from Minnesota
    Thank you, Chairman McIntyre for calling today's hearing. I want to 
commend you for the work you have done on this Subcommittee in 
conducting oversight of rural development programs, and in particular, 
those programs that received funding through the Recovery Act.
    Since 1980, USDA has been designated as the lead Federal agency in 
promoting rural economic development. It administers the greatest 
number of Federal rural development programs. The Federal role in rural 
economic policy will only be as effective as the programs USDA 
provides.
    As with other programs in the farm bill, I want to hear today, both 
from USDA and from our second panel, about implementation of farm bill 
rural development programs: what can be done to get more out of them, 
which programs need improvement, and how well current funding is being 
utilized.
    Considering the tough budget climate we are operating in, we need 
to be sure that rural development programs justify the taxpayer 
investment in them. The best way for us to do that is to spend wisely 
and show how these programs help everyday rural Americans.
    While there are a lot of moving parts to Rural Development 
programs, their various missions are all focused on serving the rural 
areas of greatest need through loans, grants and technical assistance, 
in areas that lack sufficient private investment. Many of these vital 
programs are oversubscribed, so I would like to hear from USDA to what 
extent the program backlogs have been reduced in the wake of the 
Recovery Act.
    These programs finance basic infrastructure in rural America that 
most urban and suburban residents take for granted. Reliable, 
affordable broadband Internet service, for example, is one of the most 
important needs facing rural America today. It is vital to job creation 
and retention, economic development, entrepreneurship, education, and 
medical technology. The Recovery Act provided a large infusion of funds 
to the Rural Utilities Service to deploy broadband to rural, unserved 
areas, and I look forward to hearing from Under Secretary Tonsager and 
Administrator Adelstein on their progress to date, and how they expect 
USDA's rural broadband loan and grant program will operate in the 
future once all the Recovery Act awards are made.
    Ever since I was elected, I have employed staff in my district 
office to work full time on economic development issues. A lot of that 
work happens in consultation with USDA's Office of Rural Development, 
and we have accomplished a lot with the help of the Department's 
programs. So I know firsthand the value that these programs provide and 
the potential return on investment that exists.
    Along those lines, I welcome the witnesses today who hopefully will 
provide some good insights on how Rural Development funds work on the 
ground out in rural America.
    I yield back my time.

    The Chairman. Today, we do welcome our first panel of 
witnesses now, the Honorable Dallas Tonsager, Under Secretary 
for Rural Development with the U.S. Department of Agriculture.
    Thank you, sir, for joining us. And, also, if you would 
please introduce the Administrators that we greatly appreciate 
taking their time to join us as well; and then you may proceed 
with your testimony.
    Mr. Tonsager. Thank you, Mr. Chairman. We, too, appreciate 
the opportunity to be here today.
    I would introduce my Administrators, Tammye Trevino, the 
Administrator of the Rural Housing Service; Judy Canales, the 
Administrator of the Rural Business and Cooperative Service; 
and Jonathan Adelstein, the Administrator of the Rural 
Utilities Service.
    The Chairman. Thank you, and thank you to each of you for 
your service as well.
    You may proceed, Mr. Under Secretary.

          STATEMENT OF HON. DALLAS P. TONSAGER, UNDER
SECRETARY FOR RURAL DEVELOPMENT U.S. DEPARTMENT OF AGRICULTURE, 
   WASHINGTON, D.C.; ACCOMPANIED BY HON. JONATHAN ADELSTEIN, 
 ADMINISTRATOR, RURAL UTILITIES SERVICE, USDA; JUDITH CANALES,
  ADMINISTRATOR, BUSINESS AND COOPERATIVE PROGRAMS, USDA; AND 
 TAMMYE TREVINO, ADMINISTRATOR, HOUSING AND COMMUNITY FACILITY 
                         PROGRAMS, USDA

    Mr. Tonsager. Thank you, Mr. Chairman, Ranking Member 
Conaway, and the Members of the Committee. We would like to 
thank you for the opportunity to discuss the implementation of 
Title VI of 2008 Farm Bill and the Recovery Act.
    I would like to express my appreciation for the 
collaboration we enjoyed with you, Mr. Chairman, and the 
Subcommittee over the past year and a half. We share a deep 
commitment to rural America and an understanding of its unique 
challenges and opportunities. We look forward to continued 
partnership with you to bring those opportunities to fruition.
    USDA Rural Development is committed to the future of rural 
communities. Rural America includes some of the nation's most 
dynamic, rapidly growing areas. But the aggregate statistics 
tell another story. Rural America on average is older, less 
educated, and has a lower income than the nation as a whole. 
The average per capita income is approximately $11,000 below 
the urban and suburban average. Unemployment and poverty rates 
are higher; nine out of the ten nation's persistent poverty 
counties are rural.
    USDA's strategic plan published earlier this year by 
Secretary Vilsack focuses squarely on these challenges. The 
Secretary has identified five pillars to support a new 
foundation for growth and opportunity in rural communities.
    The first is development of new markets to provide 
additional income opportunities for farmers and ranchers by 
promoting exports abroad and supporting domestic, local, and 
regional food systems that keep wealth in rural communities.
    Second, provide new opportunities for prosperity and small 
business growth by investing in rural broadband access.
    Third, create green jobs that can't be exported by 
promoting the production of renewable energy in communities 
across the country.
    Fourth, stimulate rural economies by promoting outdoor 
recreation like hunting, fishing, and other activities that 
create jobs as well as conserving the national resources we 
cherish.
    And, finally, create new income opportunities for rural 
landowners by facilitating the creation of ecosystem markets 
that reward them for taking care of the environment.
    This is a challenging agenda. It is also a necessary one. 
The implementation of the last farm bill has coincided with the 
most severe economic crisis since the 1930s. In response, the 
Congress provided $4.36 billion in ARRA budget authority to 
support an estimated $21.2 billion in investment in broadband, 
single family housing, community facilities, water and waste, 
and business development.
    As of July 2nd, Rural Development has committed over $17.4 
billion of this total; and my written testimony details the 
numbers. We are on track to fully obligating our Recovery Act 
dollars by September 30th of this year. I cannot express highly 
enough my appreciation for the job done by our staff in rising 
to the occasion.
    I appreciate as well the additional S&E funding that 
Congress provided which was invaluable in allowing us to 
address critical staffing issues on the accelerated basis 
necessary.
    In closing, we look forward to working with you on the 2012 
Farm Bill. Let me briefly note a few key areas for further 
discussion.
    First, the ability under ARRA to provide a flexible mix of 
loans and grants to broadband applications has been extremely 
important. The Farm Bill Loan Program does not have this 
flexibility. This was an issue that was discussed at length 
during consideration of the last farm bill, and it is a 
question that will surely be revisited.
    Second, we would be eager to discuss with you options for 
streamlining and rationalizing program delivery. Rural 
Development administers over 40 programs. Many of them are 
small and overlapping. This is a complex issue. We understand 
that Members often have very targeted objectives in mind in 
crafting program authorities, but there may well be significant 
administrative efficiencies to be gained through consolidation, 
provided that there is no negative impact on the service we 
provide. We are open to discussion on this question.
    Another important initiative for the Obama Administration 
is regionalism. We are encouraged that the President has chosen 
to seek pilot funding for a regional initiative in the 2011 
budget, and we look forward to continuing the discussion as we 
move towards the 2012 Farm Bill.
    Finally, I expect that the definition of rural will be as 
contentious in this next farm bill as it was in the last. We 
have in draft a report to Congress on this question and will 
submit it to you later this summer.
    It is easy to describe the difficulties with the existing 
definition of rural. The challenge is to identify a different 
definitional scheme that does not create as many problems as it 
solves.
    This is a difficult question, as this Subcommittee fully 
appreciates, and I know that we will have extended discussions 
with you as we move forward.
    These are sensitive questions on which we want to work 
collaboratively with stakeholders and the Congress before 
proposing significant changes. I am glad the Subcommittee is 
beginning the discussions now in order to provide time for 
thoughtful consideration. I know that you share our commitment 
to improving the services to rural America; and I welcome your 
thoughts, comments, and questions as we begin this discussion.
    Thank you, sir.
    [The prepared statement of Mr. Tonsager follows:]

  Prepared Statement of Hon. Dallas P. Tonsager, Under Secretary for 
  Rural Development, U.S. Department of Agriculture, Washington, D.C.
    Chairman McIntyre, Ranking Member Conaway, and Members of the 
Committee, thank you for this opportunity to discuss implementation of 
Title VI of the Food, Conservation, and Energy Act of 2008 (2008 Farm 
Bill). I would like at the outset to acknowledge and express my 
appreciation for the close working relationship we have enjoyed with 
you, Mr. Chairman, and the Subcommittee over the past year and a half. 
We share a deep commitment to rural America. We understand, as do you, 
the unique challenges faced by rural communities. We recognize the 
remarkable new opportunities for rural America now on the horizon, and 
we look forward to a continued partnership with you to bring those 
opportunities to fruition.
    Rural America is the backbone of our great nation. It comprises \3/
4\ of the nation's land area and is home to more than 50 million 
people. Rural America is our farms and forests; our mountains, deserts, 
and plains; our small towns and smaller cities. Agriculture has 
historically been the iconic industry, but today more than 95 percent 
of rural income is earned off the farm, with manufacturing, mining, 
forestry, tourism, and services sustaining employment and driving 
growth in most rural counties.
    USDA Rural Development is committed to the future of these rural 
communities. Rural America includes some of the nation's most dynamic, 
rapidly growing areas. But the aggregate statistics tell another story. 
On average, rural America is older, less educated, and lower income 
than the nation as a whole, with an average per capital income 
approximately $11,000 below the urban and suburban average. Average 
unemployment and poverty rates are higher. Nine out of ten of the 
nation's persistent poverty counties are rural.
    Three generations after the mechanization of agriculture and the 
onset of mass farm consolidation, too many rural communities have yet 
to find the diversified economic base to replace the jobs that have 
been lost. The consequence continues to be the loss of population due 
to out-migration as young people question the prospects for finding 
employment and raising families in rural areas. Far too many rural 
communities remain unable to offer economic opportunity to their young 
people, especially highly educated young people. The young, educated, 
and upwardly mobile leave rural areas in disproportionate numbers, and 
the cycle of decline continues. Reversing that dynamic and transforming 
rural America for the next Century is our mission.
    USDA's Strategic Plan published earlier this summer by Secretary 
Vilsack focuses squarely on this challenge. The Secretary has 
identified five pillars to support a new foundation for growth and 
opportunity in rural communities in a rapidly changing 21st century 
economy:

   Develop new markets to provide additional income 
        opportunities for farmers and ranchers by promoting exports 
        abroad and supporting domestic local and regional food systems 
        that keep wealth in rural communities;

   Provide new opportunities for prosperity and small business 
        growth by investing in rural broadband access;

   Create green jobs that can't be exported by promoting the 
        production of renewable energy in communities across the 
        country;

   Stimulate rural economies by promoting outdoor recreation 
        like hunting, fishing and other activities that create jobs as 
        well as conserving the natural resources we cherish; and

   Create new income opportunities for rural landowners by 
        facilitating the creation of ecosystems markets that reward 
        them for taking care of the environment.

    This is a challenging agenda. It is also a necessary one. USDA 
Rural Development is at the heart of it, and I welcome this opportunity 
to discuss implementation of the Title VI provisions of the 2008 Farm 
Bill, and the impact of the American Recovery and Reinvestment Act 
(ARRA) on these programs as we look ahead to the 2012 Farm Bill.
    The implementation of the last farm bill has coincided with the 
most severe economic crisis since the 1930's. In response, the Congress 
provided an additional $4.36 billion in ARRA budget authority to 
support an estimated $22 billion in investments in broadband, single 
family housing, community facilities, water and waste services, and 
business development. As of July 9, 2010, Rural Development has 
committed over $18 billion of this total, which includes:

   Business and Industry Guaranteed Loan Program (B&I): As of 
        July 9, 2010, the B&I program has approved 485 loan guarantees 
        to rural businesses in 49 states. One hundred percent of 
        recipients have been small businesses, and these investments 
        have created or saved an estimated 29,469 jobs. As of July 9, 
        2010, the B&I program had obligated 92.3 percent of its 
        projected $1.572 billion in ARRA program level funding.

   Rural Business Enterprise Grant Program (RBEG): The RBEG 
        program assists rural businesses in creating or retaining rural 
        jobs. A total of 189 projects, have been approved including at 
        least one in every state. About $19.25 (99.2 percent) million 
        of the available ARRA funding has been obligated as of July 9, 
        2010.

   Broadband: The Rural Development Broadband Initiatives 
        Program (BIP) authorized by ARRA provides both loan and grant 
        assistance. Since the Farm Bill Broadband Loan program does not 
        include a grant component, BIP required the development of a 
        new program, and initial awards were not made until December 
        2009. As of July 9, 2010, the BIP program has awarded $1.413 
        billion to construct 102 broadband projects in 37 states and 
        one territory. These projects will serve approximately 600,000 
        rural households, 102,000 businesses, and nearly 5,000 anchor 
        institutions (hospitals, schools, community centers, and 
        libraries). The $1.458 billion awarded to date is 43.5 percent 
        of the total projected program level of $3.35 billion.

   Water/Wastewater Infrastructure: As of July 9, 2010, the 
        Rural Development Water and Waste Disposal Loan and Grant 
        program has obligated 726 loans and grants totaling $2.62 
        billion to rural communities in 52 states and Territories, many 
        of which had long been backlogged for this perennially 
        oversubscribed program. The $2.62 billion obligated to date 
        represents 80.3 percent of the available funding. An additional 
        $245 million in Water program funding has been announced but 
        not yet obligated, which brings the total funding commitment to 
        date to 88 percent of the available funds.

   Community Facilities: As of July 9, 2010, the Rural 
        Development Community Facilities program has obligated over 
        $891 million in ARRA funding to recipients in 48 states. 
        Including projects announced but not yet obligated, the 
        Community Facilities program has provided ARRA funding totaling 
        just over $1 billion to 1,282 rural communities for libraries, 
        emergency services facilities, critical access hospitals, 
        courthouses, and other essential community services. This 
        represents 81.1 percent of the total funds available.

   Single-Family Housing (SFH): As of July 9, 2010, the Rural 
        Development Single Family program has assisted more than 90,000 
        families in purchasing or refinancing their homes. The SFH-
        Guaranteed program has obligated 99.6 percent of the available 
        $10.1 billion in ARRA funds. The SFH-Direct program has 
        obligated 69.4 percent of the $1.562 billion available.

    Although authorized by the Recovery Act, these investments flowed 
through our regular Title VI programs, with a number of additional ARRA 
requirements. These included prevailing wage and Buy American 
provisions as well as rigorous recipient reporting requirements to 
increase transparency and accountability. Including our regularly 
appropriated, non-Recovery Act dollars, our total investment in rural 
America in Fiscal Year 2009 exceeded $31.4 billion. We are on track to 
have obligated all of our Recovery Act funding by September 30, 2010. I 
cannot express highly enough my appreciation for the tireless work of 
our staff in managing a workload that was literally doubled overnight 
with the passage of ARRA.
    At the same time our dedicated staff worked to implement ARRA, they 
faced the challenge of implementing a number of new provisions in non-
ARRA programs mandated by the farm bill. In the interests of time, I 
will limit my comments today to the Title VI programs that are either 
new, that have been significantly changed, or that have been the object 
of particular interest by this Subcommittee.

   Broadband Loan Program: The Recovery Act provided an 
        opportunity to make significant investments to bring broadband 
        to rural communities and has drawn new interest from across the 
        country. We have studied the applications and awards under BIP 
        in order to improve the pending new regulations for the farm 
        bill program. The two programs are not directly comparable: the 
        farm bill program is loan-only, while BIP provides the 
        flexibility to provide a competitively awarded mix of loans and 
        grants. Nonetheless, we believe that there will be valuable 
        insights to incorporate into the final Broadband Loan Program 
        rule, which we now anticipate publishing by the end of this 
        calendar year.

   Rural Microentrepreneur Assistance Program (RMAP): The RMAP 
        program is one of the most exciting new initiatives from the 
        2008 Farm Bill. It provides funding through community based 
        intermediary institutions to make small loans and technical 
        assistance to microentrepreneurs. This holds great promise for 
        targeting assistance to startup and home based ventures, which 
        are often particularly important in rural communities. I would 
        also note that there is a clear synergy between RMAP and the 
        rural broadband program, which will give even the smallest 
        rural entrepreneur access to regional, national, and even 
        global markets.

    The Interim Rule to implement RMAP was published in the Federal 
        Register on May 28, 2010. A Notice of Funding Availability 
        (NOFA) was published on June 3. A total of $45.1 million is 
        available in FY 2010 for loans, grants, and technical 
        assistance. The initial application window closed July 16, and 
        we are beginning to evaluate the responses. We anticipate 
        announcing initial awards by late summer.

   Value-Added Producer Grant Program (VAPG): The VAPG program 
        is a tool for enhancing producers' incomes and encouraging 
        wealth creation in rural America. The 2008 Farm Bill made 
        significant changes related to minority and socially 
        disadvantaged producers and mid-tier value chains. These issues 
        are complex and, in response to comments from stakeholders and 
        our own internal analysis, the initial FY 2009 NOFA 
        implementing this program was withdrawn. A revised NOFA for 
        Fiscal Year 2009 was published on September 1, 2009, with the 
        application window closing on November 30. Rural Development 
        received 550 applications in response to the FY 2009 NOFA and, 
        on June 3, 2010, we announced approximately $22.5 million in 
        funding for 195 projects.

    To implement new permanent regulations for the VAPG program, USDA 
        published a proposed rule on May 28, 2010. The public comment 
        period closed on June 28, 2010. We anticipate publication of an 
        interim final rule in the Fall and publication of the FY 2010 
        NOFA shortly thereafter.

   SEARCH Grants (Special Evaluation Assistance for Rural 
        Communities and Households Program): The SEARCH Grant program 
        is an important enhancement to the Rural Development Water and 
        Wastewater Program. It will provide predevelopment planning 
        grants for feasibility studies, design assistance, and 
        technical assistance to financially distressed rural 
        communities of 2,500 or fewer inhabitants for water and waste 
        disposal projects. This will remove a significant barrier to 
        many of our neediest communities as they seek to provide 
        essential community services to their residents. A Final Rule 
        for the SEARCH Grant Program was published on June 24, 2010, 
        although no funds are available in the current fiscal year. 
        SEARCH Grants will be available in FY 2011 if Congress provides 
        funding.

    Our topic today is Title VI, but in closing I wish to acknowledge 
as well the dedication and effort of our Business Programs and Energy 
Division staff in implementing the important new energy initiatives 
created or expanded in Title IX of the farm bill. We have testified on 
that subject separately, and I know that we will have many 
opportunities to revisit Title IX with you. Renewable energy is one of 
Secretary Vilsack's five pillars for rural development, and for good 
reason: It provides an extraordinary opportunity for rural producers, 
landowners, businesses, investors, and utilities as we build the 
production capacity and smart grid necessary to transition America to a 
new, cleaner energy system in the decades ahead.
    As we look ahead, we also look forward to your continued counsel as 
we seek to apply the lessons learned in ARRA to the administration of 
our ``baseline'' non-ARRA programs. In particular, ARRA has afforded us 
an opportunity to observe the impact of a loan component in the rural 
broadband program. I anticipate this will be an ongoing topic of 
discussion in the months ahead.
    The ability under ARRA to provide a flexible mix of loans and 
grants to broadband applicants is worthy of study and discussion. The 
existing farm bill loan program does not have this flexibility. This 
was an issue that was discussed at length during consideration of the 
last farm bill, and it is a question that may be revisited as we 
consider the next one.
    Looking ahead, we would also be eager to discuss with you options 
for streamlining and rationalizing program delivery. Rural Development 
administers over 40 programs. Many of them are small and overlapping. 
We understand that Members often have very targeted objectives in mind 
in crafting program authorities, but there may well be significant 
administrative efficiencies to be gained through consolidation. We 
would of course wish to ensure that any reorganization preserves and 
enhances our outreach and service to rural communities.
    Another important initiative for the Obama Administration is 
looking at how communities can work together in regions. We are 
encouraged that the 2011 budget proposed to explore smart regional 
approaches within the current farm bill programs, and we look forward 
to continuing this discussion as we move towards the 2012 Farm Bill. 
Broadband, renewable energy, the smart grid, transportation, water and 
wastewater services, and many essential community services such as 
hospitals and emergency services are inherently regional in character. 
It is clear that a holistic multi-community and multi-county approach 
leverages resources and rationalizes planning, and we look forward to 
working with you to find ways to move rural communities in this 
direction.
    Finally, I expect that the definition of rural will be as 
contentious in the next farm bill as it was in the last. We have in 
draft a report to the Congress on this question and will submit it to 
you in the coming months. It is easy to describe the difficulties with 
the existing definitions of rural; the challenge is to identify a 
definitional scheme that does not create as many problems as it solves. 
This is a difficult question, as this Subcommittee fully appreciates, 
and I know that we will have extended discussions with you as we move 
forward.
    These are sensitive questions on which we want to work 
collaboratively with stakeholders and the Congress before proposing 
significant changes. I am glad that the Subcommittee is beginning this 
discussion now, in order to provide time for thoughtful consideration. 
I know that you share our commitment to improving our service to rural 
America, and I welcome your thoughts, comments, and questions as we 
begin this discussion. Thank you.

    The Chairman. Thank you, Mr. Under Secretary.
    Can you explain the notice in the Federal Register 
yesterday regarding the Microenterprise Assistance Program, why 
nonprofits have previously been excluded, and if this change 
was made in response to concerns of the stakeholders involved?
    Mr. Tonsager. The Microenterprise Assistance Program we are 
very excited about. I just want to put that on the table. We 
think it is an extremely useful tool in rural communities, 
especially the ones we are trying to get to the most.
    I will ask Administrator Canales to comment on your 
question.
    The Chairman. Welcome, Ms. Canales.
    Ms. Canales. Good morning, Mr. Chairman, and good morning, 
Ranking Member Conaway.
    Indeed, yesterday we published a notice in the Federal 
Register that makes clear the eligibility for nonprofits, both 
public and private, that can be participants in the Rural 
Microenterprise Assistance Program. This was something that was 
not an intentional exclusion, over the long run, these 
organizations, nonprofits, have been a big participant of all 
of our rural business programs. In making that correction, we 
are also going to look at extending our first round so that 
those organizations can have the opportunity to apply if they 
thought they could not initially.
    The Chairman. Do you expect revisiting the interim final 
rule again this fiscal year? I know there have been concerns 
that have been raised about interest rates, grant rates, and 
the addition of some of the unauthorized provisions limiting 
Federal assistance to the rural loan, and requiring some credit 
test--of the total loan and requiring some credit test.
    Ms. Canales. We are taking a look at this. I know there has 
been a concern in regards to the timing, but this is a new 
program, and this is also a very new opportunity for us to 
delve into the microlending at the level that it is. So we want 
to make sure that the rule fully relates to the Congress' 
intent, as well as listens to the various stakeholder groups 
from around the United States that have commented. So, for that 
reason, we will be looking very closely at the comments that 
these organizations have communicated to us.
    The Chairman. Thank you.
    Mr. Under Secretary or Mr. Adelstein, one of you may want 
to address the concern that we have with the Broadband Loan 
Program, what it will look like in the future, especially if 
there is the growing concern about when grants may no longer be 
part of a mix. In your testimony you stated that you studied 
the applications and awards in order to improve the pending new 
regulations for the program. Can you share with us anything you 
have learned so far, or anything that might be useful to this 
Committee on the statutory side of things, as we now consider a 
new farm bill and its effect on broadband?
    Mr. Tonsager. First of all, we are very pleased about the 
ARRA Broadband Program. We have spent a significant amount of 
time, of course, implementing that program; and we are rapidly 
approaching the round two announcements. We will be involved 
with the round two announcements in the very near future.
    We of course arrived here a little over a year ago 
collectively, so that is the only time we have had to deal with 
the farm bill broadband program.
    I think it does make sense that we look closely at what we 
have learned with this mix of grant-loan combinations. 
Obviously, we have wanted to address the most difficult, 
challenging parts of rural America in this grant-loan 
combination mix. We want to use every resource we can have to 
address broadband.
    I am going to turn it over to Administrator Adelstein to 
talk about the farm bill program broadband issue, and maybe he 
can address your questions directly.
    The Chairman. Welcome, Mr. Adelstein.
    Mr. Adelstein. Thank you, Mr. Chairman.
    One of the lessons, as the Under Secretary indicated, is 
that it is very difficult to have a business case in some of 
the most remote rural areas for a loan-only program. One of the 
concerns that was raised in previous Congresses was that RUS 
was making loans in areas that were not sufficiently rural, 
that weren't the most remote. That is why we attempted in the 
first round of the ARRA Broadband Program to go to the most 
remote areas.
    As the Ranking Member said, in the first round of ARRA 
funding we are still continuing to do that. But in serving the 
most difficult to serve areas, we, of course, still want to 
make sure the taxpayer is paid back. In many cases, the 
business case is the most difficult in the areas that are 
hardest to serve. We found the broadband program has been 
essential in order to provide a grant component that has 
enabled those businesses to balance out the project so they can 
take on a loan and responsibly service the debt for those 
loans. We sometimes need to reduce that loan amount, just as we 
do in the water program, where we carefully calibrate the 
amount of grant versus the amount of loan.
    This has been very successful in the Recovery Act Broadband 
Program to get broadband to places that otherwise wouldn't be 
possible. We have literally transformed communities by 
providing broadband to these areas.
    The other big lesson we have had is the importance of 
flexibility. We learned in the first round and we have learned 
in the Farm Bill Broadband Program in the past that there is a 
need for additional flexibility for us to work with our 
borrowers, to work with our grantees to ensure that we can meet 
their needs in a way that allows them to continue to operate 
their business as they have.
    The Chairman. Thank you, sir.
    I am going to now proceed to our Ranking Member for 
questions he may have.
    Mr. Conaway. Thank you, Mr. Chairman.
    Let me just preface remarks by I know you guys have a 
spectacularly difficult job. Congress lays on all kinds of new 
initiatives and new programs and new, ``Gee whiz, this is a 
great idea things,'' on you. You also come up with those ideas 
yourselves. I understand there is a tension with limited 
resources to do everything everybody wants to get done, your 
side, our side; and somehow you parse that out and figure out 
how to get it done.
    These examples of the definition of rural, that is, the 
study, is late. By statute, it should have already been here. 
Our frustration, of course, is that we have some things we 
think are a good idea. We have no leverage whatsoever to make 
that happen, other than to drag you in here and explain to the 
world that that study is not done.
    You said, late this summer--this summer--that you think 
that you will have that study done?
    Mr. Tonsager. Yes.
    Mr. Conaway. With respect to stimulus spending, there are 
lots of differences of opinion as to whether or not that is the 
right way to go. But is there any doubt in anybody's mind that 
money in the stimulus program that has not yet been spent is 
stimulative? Anybody remotely think that money that hasn't been 
spent yet is doing anything that those who favor the stimulus 
plan said it does or would do?
    Mr. Tonsager. If I understand--forgive me, but----
    Mr. Conaway. That was a terribly phrased question. The idea 
that, unless you spend it, it can't possibly be stimulative, 
that view.
    Mr. Tonsager. Right. We very much feel we are on track to 
use all of the funds.
    Mr. Conaway. Okay. With respect to the broadband issues, 13 
projects--and maybe you don't have the detail of the 
granularity to tell us, but could you walk us through, say, 
three of those projects than have actually broken ground where 
it is moving forward? We are 19 months into this session and 
well into 17 months of stimulus activity. Can you talk to us 
briefly about a specific project that has actually broken 
ground?
    Mr. Tonsager.  Go ahead, Jonathan.
    Mr. Adelstein. Well, certainly. There is a project in 
Kansas, a Kansas rural telephone company, that is a large 
project that already has broken ground. A number of these 
projects have done a lot of pre-engineering work. We have many 
of them that have broken ground. The one in Kansas, in 
particular, is a very large project, 4,600 square miles in 
rural Kansas, that they have already begun to do work on.
    There are other examples of that. Those that haven't broken 
ground are already engaged in pre-construction activities, 
which have involved hiring and job creation.
    Mr. Conaway. The stimulus money has got to be spent by the 
end of September.
    Mr. Adelstein. Correct.
    Mr. Conaway. And you are on track to get all of that money 
spent?
    Mr. Adelstein. Absolutely, we are on track. We have met all 
of our milestones. There are a large number of announcements 
coming up very shortly.
    Mr. Conaway. So the projects will be finished, the taxpayer 
will be able to get a completion certificate that the project 
is throwing out broadband service by September 30?
    Mr. Adelstein. No, by obligation we mean that the funds 
have been committed by the Federal Government. The actual 
projects take a longer period of time.
    Mr. Conaway. Yes. Those commitments, though, have to be 
something beyond just an Executive Branch commitment. You have 
to have signed a contract with somebody, right?
    Mr. Adelstein. Yes, that will be a full contract, signed, 
sealed, and delivered that they will deliver what it is the 
taxpayer is funding.
    Mr. Conaway. Okay. Back to the conflict between you guys 
doing what Secretary Vilsack and what the President wants to 
you do versus what Congress wants you to do.
    Know Your Food, Know Your Farmer, that doesn't appear to 
have a lot of authority for it under the law. Yet you have 
pushed that one forward. You have not done a study on the 
definition of rural. You have not done a lot of things we can 
list. But you have decided that Know Your Food, Know Your 
Farmer is a big deal. How much money are we spending on that?
    Mr. Tonsager. I am going to ask the Administrator to speak 
to that, but first I want to talk about Know Your Farmer, Know 
Your Food a little bit.
    One of the great struggles in rural America is local 
economics, developing businesses locally that do generate local 
activity. I think Know Your Farmer, Know Your Food addresses 
that very well. I think it does create an economic opportunity 
in a lot of rural communities that is hard to generate at 
times.
    Mr. Conaway. Before this initiative, folks in rural America 
didn't realize they could grow things and sell it to local 
markets?
    Mr. Tonsager. No, of course they did. They understood that. 
I think that there has been a movement that has grown for some 
years relative to local foods, and our hope is to enhance that 
and encourage that.
    Mr. Conaway. How much resources have you put against that 
program?
    Mr. Tonsager. I will ask the Administrator to speak to that 
specifically.
    Ms. Canales. Yes, sir, Mr. Conaway. There are a couple of 
programs specifically that I am responsible for within the 
Rural Business and Cooperative Programs. Our flagship program, 
the Business and Industry Loan Guarantee Program, had a five 
percent set-aside for local food usage; and we surpassed that 
in Fiscal Year 2010. Actually, 14 percent of our entire 
Business and Industry loan portfolio went to some type of local 
food activity.
    Mr. Conaway. What is the dollar amount on that?
    Ms. Canales. The dollar amount on that particular amount 
was $188 million in loan guarantees. Remember these are local 
businesses that get that loan--the bank has to make the loan 
with that loan guarantee. So that is our contribution, and that 
was 14 percent.
    The previous year, in Fiscal Year 2009, it was 7.7 percent. 
So there is additional activity to that.
    So, in total, over Fiscal Year 2009 and 2010 to date--
because, as you know, we are not done yet with Fiscal Year 
2010--and we are still making loans, by the way--it is $276 
million.
    Now also----
    Mr. Conaway. That is gross loans. That is not----
    Ms. Canales. Right, because you are not looking at all the 
other leveraged amounts. Because there are other monies that go 
into projects. There may be a local contribution. There may be 
an SBA loan. That is a deal-to-deal scenario.
    The other part that I wanted to mention to you is the 
Value-Added Producer Grant Program which, as you know, has been 
a very, very active program. We are very pleased that we were 
able to reach 45 states to make it a truly national program: 
$22 million, 195 projects throughout the United States. So if 
you look at that combined amount, $22 million and the $276 
million, you are reaching almost $300 million.
    Mr. Conaway. Okay, thank you.
    The Chairman. Thank you, Mr. Conaway.
    Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman.
    Welcome to everybody here, and I especially want to say 
hello to Ms. Canales. She was good enough to come visit. 
Chairman McIntyre and I, our districts are side by side; and we 
share a lot of common challenges in our rural development 
opportunities. And Ms. Canales was good enough to come to a 
joint session of the Chairman's worst counties and some of the 
worst counties in my district coming together; and she was able 
to come in, talk to folks. We really appreciated that visit 
immensely, and the follow up that has come out of that.
    My question, Mr. Under Secretary, it really relates to the 
reason why we needed Ms. Canales to come visit us. In large 
part--there are other reasons, too, but in large part there are 
areas within our nation, especially my district and, as I 
mentioned, Chairman McIntyre's district where trade deals in 
effect took away certain industries from places, and really put 
those areas at disadvantages before the national economy went 
down. Those areas saw their economy had already gone down 
because they lost their industry so fast, especially in 
textiles, furniture making, so forth and so on.
    We almost have seen where the winners and losers in certain 
industries have created winners and losers within areas. My 
question is, as we look towards the new farm bill, how can we 
address those areas? As Ms. Canales came and visited those 
areas that were suffering before, and it is more than just an 
economic downturn for the nation, that there are certain 
inherent problems not of their own making where you--how do you 
attract new industry? How do you attract the upturn in the 
economy when you are facing the situation that these areas have 
faced because they just don't have anything to build on? The 
traditional agriculture is doing well, but the infrastructure 
to a certain degree has been lost.
    So in that area of our rural economy how can we look 
towards--give a little extra attention to them so that we can 
kind of recognize, as Ms. Canales came down, recognize these 
areas are trying to overcome more than just a downturn in the 
economy. When everything starts going again will they be okay, 
because they weren't okay before?
    Mr. Tonsager. That is a challenge faced by many rural 
communities, and I appreciate the question regarding that.
    I think especially as we go into the 2012 discussion we 
should focus on those very stressed areas that you described. 
We do have tools, and as an agency we like to think of 
ourselves as a problem-solving agency. So we want to engage in 
a problem-solving way in the long term in this case, as you 
described it to me.
    On the northern plains, we developed an ethanol industry. 
That is not necessarily the solution for everybody. We hope 
energy can be the solution for a lot of areas in development. 
But we brought together farmers, private investors, and others 
in two groups that created these ventures, that created the 
jobs. I think we have to look a lot to ourselves for the 
investment and for the capital necessary to build these kinds 
of ventures.
    We think that the Secretary's approach to regionalism makes 
a lot of sense. The idea is to try to get communities to work 
together that may have been competitive with each other in the 
past, and spend some time together and see if they can find 
mutually beneficial strategies. We like feasibility studies, we 
like business plans, we like Value-Added Producer Grant 
Programs that causes those kinds of things to happen.
    Because local economies really have to be built by local 
people, and the more they understand about their opportunities 
the better opportunity they have to be successful.
    I think we have a lot to talk about about the tools that we 
can possibly provide to help the communities that you describe. 
From our staff perspective we do want to form groups and 
efforts that help regions like yours be successful.
    Mr. Kissell. Thank you, sir.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Kissell.
    Mr. Thompson.
    Mr. Thompson. Thank you, Chairman, Ranking Member, and Mr. 
Under Secretary. I really appreciate everyone's testimony 
today.
    Mr. Under Secretary, you mention that prevailing wages are 
required to qualify for stimulus funding in your testimony. I 
have a specific project in mind in my district, actually, a 
visiting nurse agency building that typically would qualify 
under the program prior to the stimulus. It certainly qualifies 
today under the provisions of the stimulus.
    But the situation that happened, though, was they found 
that they had to find other alternatives to pursue that 
project. Because when it came down to it, they knew they could 
afford the project until all the new conditions with the 
stimulus monies, which specifically was prevailing wage, was 
imposed; and prevailing wage was enough to put them over--
beyond the resources that would be available to be able to do 
that project. They couldn't afford that increased cost because 
of the prevailing wage requirement. Is there anything--or what 
can be done to address this?
    Mr. Tonsager. We certainly would want to continue to work 
with them to see if we can develop strategies that would help 
them do the project. We have a complement of laws that we have 
to deal with regarding the stimulus money and our normal 
programs. So, in that case, what we would attempt to do is sit 
down with them--and I am not quite sure which program area you 
are referring to, probably Community Facilities.
    Mr. Thompson. Community Facilities and rural economic 
development specifically. It just struck me, though, that 
stimulus was supposed to be above and beyond; and these folks 
applied early. This was a very early project that was brought 
to my attention, a great project. This is an agency that 
touches a lot of lives in rural communities, a very rural area. 
And it just struck me that if stimulus was above and beyond, 
why, because they were pursuing Community Facilities monies, 
where was the baseline of the program that always has been 
here?
    And, frankly, let me say USDA does a great job with that, 
the Commonwealth of Pennsylvania, the state office, the 
regional offices, we are very proud of the work they do in our 
rural communities. This part was very, very frustrating not 
just certainly to those folks in that rural community, but to 
me, that we added the prevailing wage component that 
essentially priced the project out of affordability.
    Mr. Tonsager. If I could, I would ask Ms. Trevino to offer 
any ideas she might have regarding the project.
    Ms. Trevino. Thank you, Mr. Chairman and Members of the 
Committee.
    We were instructed to use prevailing rate wage rates with 
all our CF projects, and so with the ARRA money it was 
something we had to impose. So there was no getting around 
that.
    Mr. Thompson. Was there a rationale why that was? I don't 
believe--just a point of clarification, prior to the ARRA 
stimulus money, was prevailing wage a required component within 
a Community Facilities program?
    Ms. Trevino. Well, I believe it was something that was 
imposed just on ARRA. So, many of the projects that were 
difficult to fund based on the prevailing wage increase went 
through fiscal year money instead of the ARRA funding.
    Mr. Tonsager. I would add that this is statutory for us. 
What we do in the regular program it would not be a critical 
element. That is for the existing program, the non-stimulus 
program.
    Mr. Thompson. Yes. Certainly a part that makes--that part 
of what was added to statute puts our rural communities just at 
a tremendous disadvantage.
    I also know this project was really looking to use local 
contractors. They wanted to hire local folks to stimulate those 
local rural communities, and yet for many different reasons 
prevailing wage priced them out of that market, and projects 
that they would have to go to bigger cities, much further away 
than Clarion County, Pennsylvania.
    Mr. Adelstein, just real quickly, because I am running out 
of time, in November 2009, 20 of my colleagues actually on the 
Small Business Committee and I sent you a letter, which I am 
submitting for the record, describing our concern with the 
implementation for funding for rural broadband within the 
stimulus.
    [The document referred to is located on p. 67.]
    Mr. Thompson. Specifically, our letter suggests giving 
prioritization to rural areas with the greatest need, improving 
the website, the complexity of the application process, the 
difficulty of requiring the 10 year limitation on the sale or 
lease of ARRA-funded facilities, matching contributions and a 
definition of a remote area--and my time is limited. Actually, 
it has expired. But I guess what I would ask, it would be great 
to get a follow up now that it has been--I know that we have an 
initial follow up, and I appreciate that. But, now that we are 
many months down the line it would be great to kind of get a 
follow up and see where we are with all those.
    Mr. Adelstein. Thank you. I would be happy to respond, if I 
could, now.
    Basically, we have addressed all the issues that have been 
raised by you and others in terms of the second round of 
funding that we did. In the second NOFA, we eliminated the 
requirement that there be a remote definition but instead 
prioritized funding toward the most remote rural areas. We did 
provide for more flexible funding for the grant, we changed the 
way that we focused on last mile, and we had the Commerce 
Department focus on the middle-mile projects, splitting those 
up. We tried to be more flexible. The website has been updated 
since then. We have attempted to address all those issues. I 
would be happy to go line by line in response to the record, if 
that would be helpful.
    Mr. Thompson. I appreciate that. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Thompson.
    Mr. Cassidy.
    Mr. Cassidy. I came in late so I am not sure to whom to 
address my questions, but I will try to throw it out and let 
you pick, if you will.
    In my office, there is someone who helps communities with 
grant applications. She tells me the process is complex, that 
it can take up to a week of a full-time worker for a community 
which, by definition almost, has few resources to apply. 
Indeed, sometimes they have to a hire professional grant 
worker, grant writer, in order to get their grants, which we 
are depriving a minimally resourced community of resources in 
order to get the resources, if you will. Any thoughts? How can 
we make this better?
    Mr. Tonsager. We do have challenges relative to our 
application processes, and we do seek to try and make those 
work as well as we can. There are also technical service 
providers, such as planning districts and other parties, who 
will assist communities with development of those grant 
applications.
    Sometimes it is a matter of degree. Sometimes the projects 
are very large, involving a significant amount of money, and do 
require a significant amount of work to get there.
    I do appreciate the concern expressed, that we have 40 some 
programs, with an application process that is, in many cases, 
different for each. And so is there opportunity to take a look 
at that? Yes, there probably is.
    I guess, coming into the farm bill, we would want to have a 
dialogue with you about streamlining some of the programs, not 
to eliminate anybody from getting a program, not to seek to 
reduce the funding for a program, but to look exactly at that. 
Because some of these----
    Mr. Cassidy. Can I ask staff, both sides, to make a meeting 
with your office so that it becomes an action point, as opposed 
to a thing we could do? Is that okay, Mr. McIntyre?
    The Chairman. Yes.
    Mr. Cassidy. Because I can tell you from the front lines 
folks are having a difficult time navigating this.
    I know of one rural community that hired someone to do a 
grant application for the broadband. The contractor screwed it 
up, and they have lost their opportunity, even though later 
review showed they had a strong application. So, again, it 
becomes almost a feed-in, if you will. So can we work that out?
    Mr. Tonsager. We would very much look forward to it.
    Mr. Cassidy. Next--and I don't know this. You can tell me I 
perhaps should, and I apologize if I should. You have specific 
funds within the Business and Industry program for loans, loan 
guarantees to rural food enterprise entrepreneurs that process 
and distribute through locally and regionally. In my community, 
both Southern University and LSU have ag extension stations 
which do some of this, but they are, frankly, cash strapped 
right now. Is it possible for these ag extension stations to 
apply for some of these funds, either directly, or through a 
subsidiary, in order to bring this process to the people whom 
they serve?
    Mr. Tonsager. We would certainly be happy to meet with them 
and explore every program we have that may potentially be used 
for them in some way. Of course, whether it is debt service, or 
whether they have the capacity for debt service would be a 
question for them. We do have some grant programs that maybe 
could be beneficial through themselves or a subsidiary, but we 
would want to go through it with them to make sure we get them 
on the right track.
    Mr. Cassidy. Just so--I have an example. I was in 
Birmingham, Alabama. They have taken a plot of ground which was 
unused next to a housing project and set up an urban garden. 
The people that run this urban garden then sell their 
organically grown food to high-end restaurants in town, as well 
as consume it themselves.
    Now it is a consortium of private individuals that put it 
together initially. But, again, within these ag extension 
stations we have folks whose full-time job is to implement 
such. So just as an example, is that something that could 
potentially access grants or funding through this program?
    Mr. Tonsager. Well, we would want to explore it with them 
and make sure we could help. I would ask the Administrator, 
Judy, to comment as well.
    Ms. Canales. Thank you, Mr. Cassidy.
    In fact, I attended a Value-Added Producer Grant Program 
conference held in Biloxi, Mississippi, 2 weeks ago that was 
all extension folks. They were coming from around the United 
States, and they have been very keen on exactly what you are 
talking about. And many of them have been able to provide 
technical assistance, assist with feasibility studies and so 
forth, for clients to be able to access the Value-Added 
Producer Grant.
    Another group which is actually also in your state are the 
1890 organizations, educational institutions. They, too, have 
also received some support from USDA, from my organization to 
provide technical assistance to businesses in their service 
area.
    And then the other part I wanted to make sure you were 
mindful of is the Rural Microenterprise Assistance Program that 
we are launching--we are deep into the application process 
now--also includes technical assistance monies to 
organizations. Universities are eligible entities to apply, to 
be able to assist with technical assistance. So we would love 
to have this conversation with you and become more familiar 
with the groups that you know of that would want to get 
involved in this.
    Mr. Tonsager. I am reminded as well we have to make sure it 
is a rural project and also reference you to the ag marketing 
service that could also potentially be helpful on the project.
    Mr. Cassidy. Thank you.
    The Chairman. Thank you, Mr. Cassidy.
    Mr. Under Secretary, Secretary Vilsack identified 
increasing populations in rural communities as a goal for the 
next farm bill. Can you identify what, if any, programs in 
Rural Development could be better utilized to meet this goal, 
or how they might be changed in any way to meet this goal?
    Mr. Tonsager. That is a pretty broad challenge to me. I 
think the Secretary is very frustrated with the out-migration 
we see in a lot of rural communities. He really has pressed us 
hard to look at our programs to see what programs specifically 
can be helpful to bring that growth back, or to at least 
mitigate the decrease in population in rural areas.
    I tend to focus on the business-related programs and those 
that help enterprises create jobs, because without job 
creation, without wealth creation, the migration is difficult 
to stop. Many of our programs support rural communities and 
services that help attract people to rural communities--good 
community facilities, good housing, and so forth--but you have 
to have a component of that that pays the bills. For example, 
the programs related to bio-energy that might help us create 
projects that create economic growth, job creation, use of 
local materials for new product production, are really 
fundamental keys. I offer that as an opinion from my 
perspective about what really has to happen for jobs, for 
communities to be created and that is job creation.
    The Chairman. Thank you, sir.
    Mr. Conaway, do you have an additional question?
    Mr. Conaway. I do have one other one real quick, actually 
two, kind of a follow up on Mr. Thompson's conversation with 
you about prevailing wage or Davis-Bacon.
    If projects cost 20 percent more than they would have 
otherwise cost without the Davis-Bacon provision, does that 
mean the projects then are 20 percent smaller than they would 
have been, or that communities have to find that 20 percent 
somewhere else? How does that work?
    Mr. Tonsager. Generally speaking, the whole project would 
be eligible for the grant-loan combination. So I don't think 
that they would be necessarily 20 percent smaller.
    Administrator Adelstein would like to comment about it.
    Mr. Adelstein. Yes, in terms of Davis-Bacon, the ARRA 
Broadband Program initially referred to it. The applicant is 
able to bid for the full price of the project, including the 
wages. So they would submit to us in their application what 
their anticipated wage rates would be, and if they were higher 
then they would be eligible for a larger overall grant-loan 
combination.
    Mr. Conaway. So the grant which is provided by taxpayers 
across this country to fund that piece of it, or they would be 
required to borrow more money than they would have otherwise 
had to borrow. Is that a fair assessment?
    Mr. Adelstein. I would say so. The Act requires Davis-Bacon 
wage rates. The idea was to create high-paying jobs, make sure 
that these jobs that were created under this are good jobs you 
can sustain your family with and earn a good living.
    Mr. Conaway. Yes, I have heard that argument.
    One final thing, under section 6110 of the farm bill which 
was signed in May of 2008 there is a provision for access to 
the Rural Broadband Loan Program that Secretary Vilsack has 
announced that some 3 years into the deal we will finally 
implement it in 2011. There has already been a requirement that 
one of those pesky annual reports to Congress be made. And if 
the loan program is not functioning that report would be 
relatively quick for 2009 and 2010, I guess. But could you give 
us the rationale, Dallas, as to why the continued delay in this 
loan program under the farm bill?
    Mr. Tonsager. We are addressing the loan program, and we 
want to move forward with it. We do believe we have learned a 
lot, as talked about previously, going through this grant-loan 
process. Of course, that grant-loan mix has predominated under 
the circumstances for the last 18 months on the application 
process.
    Jonathan, can you add to that?
    Mr. Adelstein. That is right. We have seen very little 
interest in the Farm Bill Loan Program while the ARRA Program 
has been in place, and we are taking the lessons from ARRA into 
account.
    We also learned from the FCC's National Broadband Plan what 
their plan is, and we wanted to make sure we had a program that 
fit in with what the FCC had in mind. So we are moving quickly 
now to get those regs done, get them done right.
    I actually worked on the original farm bill when I was on 
the staff for the U.S. Senate on that, so I understand the 
importance of it. We are certainly working on that.
    Mr. Conaway. Sure. The provision authorizes some $25 
million a year for each year. Do you know off the top of your 
head, since we have lost 2\1/2\ years of that authorization, 
does it carry forward? Does the full $125 million that was 
authorized over the 5 years, will your program have access to 
that? Or is it just $25 million per year from this point 
forward?
    Mr. Adelstein. Those were multi-year monies, so in fact, 
those funds can be rolled over into the next year, which was 
another consideration. Because we are likely to get a larger 
demand for the Farm Bill Loan Program as ARRA expires, I think 
the interest is going to quickly rise on that. We want to 
transition people into that program that didn't make it in ARRA 
and have other loan needs; and so having those additional funds 
will be very useful for that purpose.
    Mr. Conaway. Thank you, Mr. Chairman.
    Thanks, everybody. I appreciate you being here today.
    The Chairman. Do any of the panelists have a remaining 
question?
    You do, Mr. Cassidy?
    Mr. Cassidy. Now, you may or may not be able to answer 
this. I am not quite sure how broad your kind of authority is. 
But you mention on page three of your testimony that USDA's 
core support--core goal is to support rural communities, 
providing incentives to help the environment. And yet I gather 
that the President's budget calls for using conservation funds 
for other purposes. And so it is seems as if we are at cross 
purposes. We desire to strengthen the ecosystems, if you will, 
and yet the President's budget is diverting conservation funds. 
Any comments, thoughts, illuminations, disabusements?
    Mr. Tonsager. That core goal is not part of my mission 
area. I do not have an intimate knowledge of the conservation 
programs or the directions they are moving. Clearly, the 
Secretary wants conservation and believes ecomarkets are an 
important part of the economy that we are moving into in the 
future, but, beyond that, I really couldn't comment.
    Mr. Cassidy. I yield back.
    The Chairman. Thank you very much.
    I want to thank all of our panelists and the excellent job 
that you have done and the service that you give to our 
country. Thank you for your commitment.
    Mr. Tonsager, thank you especially for bringing all of your 
Administrators with you. And, to the Administrators, we look 
forward to our continued work with you. God bless each of you.
    We will now just take a momentary break to in order to 
change panels. You may stand up and stretch if you are in the 
audience and need a break.
    [Recess.]
    The Chairman. The second panel should be seated. We need to 
proceed.
    We want to welcome today our second panel of witnesses. 
We'll let each of you describe exactly what your position is.
    Is Dr. Ayers in the room?
    Not seeing him in place yet, Mr. Higginbotham, we will 
proceed with you, if you would like to proceed.

          STATEMENT OF THOMAS HIGGINBOTHAM, EXECUTIVE
             DIRECTOR, NORTHEAST NEBRASKA ECONOMIC
  DEVELOPMENT DISTRICT; MEMBER, BOARD OF DIRECTORS, NATIONAL 
                   ASSOCIATION OF DEVELOPMENT
                   ORGANIZATIONS, NORFOLK, NE

    Mr. Higginbotham. Good morning, Mr. Chairman, Ranking 
Member Conaway, and Members of the Subcommittee.
    My name is Tom Higginbotham. I am the Executive Director 
for the Northeast Nebraska Economic Development District, 
headquartered in Norfolk. I also serve on the Board of 
Directors for the National Association of Development 
Organizations. I thank you for the opportunity to testify today 
on USDA Rural Development programs in advance of the 2012 Farm 
Bill.
    My goal today is to offer some concrete examples about the 
effectiveness of USDA's rural business programs and to provide 
suggestions as you look toward the next farm bill.
    This morning, I will limit my remarks to three main points:
    First, USDA's business loan, grant, and technical 
assistance programs for the Rural Business and Cooperative 
Service are essential resources for rural communities as they 
try to create economic opportunities and improve the quality of 
life for their citizens. With USDA's assistance, rural 
communities across the nation are now better positioned to 
pursue new jobs and wealth-generating opportunities.
    Together with our 501(c)(3) nonprofit, Northeast Economic 
Development Incorporated maintains a rural business grant and 
loan portfolio of $2.2 million, which comprises more than 45 
percent of our business. Since 2001, these funds have helped to 
create or retain more than 450 jobs throughout our region.
    Second, USDA's Rural Business Enterprise Grant Program and 
Intermediary Relending Program are highly effective sources 
that allow intermediaries to assist rural entrepreneurs, 
business leaders, and local officials as they pursue innovative 
development strategies and business opportunities.
    I would like to highlight one instance where USDA RBEG 
funding was crucial for the operation of four small businesses 
in our region.
    After 2008 flooding that occurred in Platte County, Colfax, 
and Butler County, NED, Inc. received $200,000 of rural RBEG 
funding to assist these businesses to rebuild. After using 
these funds, it was able to provide assistance to four 
businesses: Kracl Funeral Chapel, John's Tire Sales and 
Service, Grubaugh Machine, and Creative Touch.
    With the help of these funds, Kracl Funeral Chapel retained 
five full-time employees and continued operations as usual; 
John's Tire Sales and Service retained two full-time employees 
and changed their business focus to tire sales, which increased 
their profitability; and Creative Touch retained four full-time 
positions. Finally, Grubaugh Machine, a family owned business, 
retained three full-time positions and purchased some new 
equipment, which helped them expand their business.
    Without the assistance of USDA's RBEG program provided to 
help these businesses get back on their feet after the 
flooding, they might not be in operation today.
    It is important to note that, while these types of programs 
are taken for granted in a more urban setting, in a highly 
rural area such as ours there may only be one tire center and 
one funeral home. The loss of these specialized services to our 
citizens could be great.
    But my region is not the only one benefiting from USDA's 
programs. My written testimony includes examples from around 
the nation that the USDA funding has helped toward the job and 
wealth creation of many businesses and entrepreneurs.
    Finally, Mr. Chairman, the Administration's newly proposed 
Regional Innovation Initiative will make USDA's infrastructure 
investments more efficient and effective by rewarding regional 
approaches to rural development. The initiative will allocate 
funds competitively among innovative regional economic 
development projects tailored to local needs and opportunities. 
The initiative's new approach will lead to increased efficiency 
as rural community capacity is enhanced through greater 
coordination and leveraging of regional funds.
    NADO supports the goal of moving rural development towards 
commitment to regional strategies designed by local leaders. We 
urge the Subcommittee to support this promising initiative.
    Mr. Chairman and Members of the Committee, thank you for 
the opportunity to testify today; and I welcome any questions.
    [The prepared statement of Mr. Higginbotham follows:]

     Prepared Statement of Thomas Higginbotham, Executive Director,
  Northeast Nebraska Economic Development District; Member, Board of 
Directors, National Association of Development Organizations, Norfolk, 
                                   NE
    Thank you, Chairman McIntyre, Ranking Member Conaway and Members of 
the Subcommittee, for the opportunity to testify today on U.S. 
Department of Agriculture (USDA) Rural Development programs in advance 
of the 2012 Farm Bill.
    My name is Thomas Higginbotham. I am Executive Director of the 
Northeast Nebraska Economic Development District, headquartered in 
Norfolk. I also serve on the Board of Directors of the National 
Association of Development Organizations (NADO).
    Before I begin, let me first thank the Subcommittee for your 
leadership and support of rural development programs. The broad 
portfolio of USDA Rural Development programs for business development, 
community facilities, broadband and telecommunications, and value-added 
agriculture production and marketing are essential to the long-term 
economic competitiveness of our nation's small urban and rural 
communities.
    My goal today in covering this important topic is to offer some 
concrete examples about the effectiveness of USDA's rural business 
programs and to provide suggestions as you look toward the next farm 
bill. As debate begins on the rewrite of the farm bill, I strongly 
encourage Members of this Subcommittee to make rural business, and 
rural development programs in general, a central theme of the proposal. 
These programs are critical to economic expansion in rural America.
About the National Association of Development Organizations
    The National Association of Development Organizations (NADO) 
provides advocacy, education, research and training for a national 
network of 520 regional development organizations. NADO members--known 
locally as councils of governments, economic development districts, 
local development districts, planning and development districts, 
regional councils and regional planning commissions--are focused on 
strengthening local governments, communities and economies through 
regional solutions, partnerships and strategies.
    This morning, I would like to focus my remarks on three key points.

    1. USDA's business loan, grant and technical assistance programs 
        provided through the Rural Business and Cooperative Service 
        (RBS), are essential resources for rural communities as they 
        strive to create economic opportunities and improve the quality 
        of life for their citizens. With USDA's assistance, rural 
        communities across the nation are now in a better position to 
        pursue new job and wealth-generating opportunities, whether in 
        traditional sectors such as agriculture and natural-resource 
        based industries or emerging science and technology fields.

    2. USDA Rural Development's Rural Business Enterprise Grant (RBEG) 
        program and Intermediary Relending Program (IRP) are highly 
        effective resources that allow intermediaries to assist rural 
        entrepreneurs, business leaders and local officials as they 
        pursue innovative development strategies and business 
        opportunities. NADO encourages the Committee to look at ways to 
        increase funding resources for these small yet invaluable 
        programs.

    3. The Administration's newly proposed Regional Innovation 
        Initiative will make USDA's infrastructure investments more 
        efficient and effective by rewarding regional strategic 
        approaches to rural development. The Regional Innovation 
        Initiative will provide incentives and resources for the 
        enrichment of rural development strategies on a regional and 
        local basis to implement area-wide priority projects and 
        initiatives. NADO urges the Subcommittee to support this 
        promising initiative.

    First, Mr. Chairman, USDA's vital business loan, grant and 
technical assistance programs provided through the Rural Business and 
Cooperative Service (RBS) are essential resources for rural communities 
as they strive to create economic opportunities and improve the quality 
of life for their citizens.

    The ability to create and sustain viable small businesses and 
generate wealth is the core of successful community and economic 
development. However, rural and small metropolitan communities face 
special challenges, such as limited access to capital and technological 
infrastructure and a depleted employment base that restricts their 
ability to attract and retain these new businesses.
    Through its portfolio of over 18 different loan, grant and 
technical assistance programs, RBS provides rural businesses and 
entrepreneurs the tools needed to overcome some of those challenges, 
harness their independent spirit and better position themselves to 
pursue innovative opportunities. These opportunities result in new job 
creation and wealth generation for their communities, whether in 
traditional sectors such as agriculture and natural-resource based 
industries or emerging science and technology fields.
    The Northeast Nebraska Economic Development District (NENEDD) 
covers a 17 county region of our state. The total population of the 
region is 214,271, of which nearly 70,000 is concentrated in our three 
largest communities. Of the 117 communities in the NENEDD footprint, 
110 have a population less than 2,500. Our region faces many of the 
economic challenges common to rural communities throughout the country. 
The University of Nebraska-Lincoln, Bureau of Business Research Service 
Population Projections forecasts a population loss in our region of 
20,251 from years 2000 to 2030. From 1999 to 2009, the State of 
Nebraska documented a net job loss of more than 11,000, of which, 2,000 
were from our 17 county region.
    Our local governments do not qualify for direct grant assistance 
offered through programs such as the HUD Community Development Block 
Grant program. As USDA Rural Development is one of the few Federal 
agencies focused on providing resources for rural business and 
community development, our communities depend on USDA to provide the 
assistance they need.
    For this reason, USDA Rural Development is one of NENEDD's key 
grant and loan partners. NENEDD, together with our 501(c)(3) nonprofit 
organization, Northeast Economic Development, Inc. (NED, Inc.), 
maintains a USDA rural business grant and loan portfolio that is worth 
$2.2 million and comprises more than 45 percent of our organizations' 
total business. Since 2001, these funds have helped to create or retain 
more than 450 jobs throughout our region.
    The ever-changing character of rural America's economic drivers 
requires that Federal assistance programs incorporate a level of 
flexibility that allows the programs to grow with the changing needs of 
its recipients. According to recent U.S. Census data, in 1990 Northeast 
Nebraska's two biggest industries were Retail Trade and Agriculture. By 
2000, the two biggest industries had switched to Manufacturing and 
Education/Health/Social Services. Today, Manufacturing is the only 
industry that employs more than 20,000 people. Educational Services, 
Agricultural Services and Retail Trade industries employ more than 
10,000. The Wholesale Trade industry employs the second-fewest number 
of people at 3,881, and Public Administration employs the fewest at 
3,215.
    In Northeast Nebraska, the flexible nature of the USDA RBS programs 
allows our lenders and intermediaries to respond to the evolving nature 
of the region's economy and the changing needs of our businesses and 
entrepreneurs. As the Subcommittee works to evaluate USDA rural 
business programs, NADO encourages you to ensure this flexibility is 
maintained.
    Second, Mr. Chairman, USDA's Rural Business Enterprise Grant (RBEG) 
program and Intermediary Relending Program (IRP) are highly effective 
resources that allow intermediaries to assist rural entrepreneurs, 
business leaders and local officials as they pursue innovative 
development strategies and business opportunities. When traditional 
banks are not interested in financing rural companies, these funds fill 
that gap. NADO encourages the Subcommittee to look at ways to increase 
funding resources for these small yet invaluable programs. In addition, 
we encourage USDA Rural Development and Congress to provide as much 
flexibility as possible in these programs to allow intermediary 
investments in new and emerging knowledge-based firms which often lack 
the traditional collateral required by Federal lending programs.
    As one of the smaller USDA initiatives, the RBEG program is often 
overlooked. However, the broad nature of RBEG assistance combined with 
its focus on small business development makes the program an 
indispensable tool in many rural regions across the country. In total, 
RBEG investments have helped to create or retain more than 180 jobs in 
our region.
    After the 2008 flooding that occurred in Platte, Colfax and Butler 
Counties, Northeast Economic Development (NED), Inc. received a 
$200,000 Rural Business Enterprise Grant (RBEG) for the establishment 
of a disaster assistance revolving loan fund (RLF) to assist local 
businesses rebuild. Under the disaster assistance RLF, businesses were 
provided a zero percent interest loan for up to 90 percent of the total 
project cost.
    Using this funding, NED, Inc. was able to provide assistance to 
four businesses: Kracl Funeral Chapel, Inc. (Schuyler, NE), John's Tire 
Sales & Service (Schuyler, NE), Grubaugh Machine, Inc. (Platte Center, 
NE) and Creative Touch, Inc. (Schuyler, NE). With the help of these 
funds, Kracl Funeral Chapel, Inc. retained five full-time employees and 
continued operations as usual; John's Tire Sales & Service retained two 
full-time employees and changed their business focus to tire sales 
instead of a gas service shop, helping them become more profitable; and 
Creative Touch, Inc. retained four full-time positions. Finally, 
Grubaugh Machine, Inc., a family-owned business, retained three full-
time positions and purchased a new piece of equipment which has helped 
them expand their operation.
    Without the assistance USDA's RBEG program provided to help these 
businesses get back on their feet after the flooding, they might not be 
in operation today. While these types of businesses are taken for 
granted in more urban settings, in a highly rural area such as ours, 
there may be only one tire center or one funeral home in a community or 
county. Their closure would result in a complete loss of vital and 
specialized services to our citizens.
    USDA Rural Development's Intermediary Relending Program (IRP) is 
another invaluable and often overlooked resource for rural regions. 
Since 2001, NENEDD and NED, Inc. have been awarded a total of $1.5 
million in USDA IRP funds through three separate awards. Using these 
funds, we made 58 loans, generated more than $23 million in leveraged 
funds and helped to create or retain more than 435 jobs throughout our 
region.
    Recently, IRP gap financing was the key ingredient needed to 
complete a medical expansion project. Dr. Randall Hedlund owns and 
operates The Family Chiropractic Center, a successful chiropractic 
clinic in Albion (Boone County, NE). The business, which began in 2000, 
was operated in a 1,400 square-foot space that Dr. Hedlund leased. 
However, in 2008, due to the tremendous growth of his business and the 
desire to offer an improved health care facility, Dr. Hedlund embarked 
on an expansion project.
    At the same time, the Boone County Economic Development, the City 
of Albion and other business leaders in town saw the need to recruit a 
dentist to Albion to replace two retiring dentists. Community leaders 
encouraged Dr. Hedlund to expand the scope of his project to include 
additional office space that would accommodate the needs of one new 
dentist and one other professional business, such as an attorney or 
accountant. Through a combination of bank financing and IRP loan funds, 
Dr. Hedlund was able to finance a new three-bay professional office 
building.
    Through its loan program, NED, Inc. staff provided key technical 
assistance in business plan preparation and $100,000 in IRP loan funds 
to help finance the project. Since its completion, this project has 
retained two and created ten full-time positions.
    But my region is not the only one benefiting from USDA's critical 
business program assistance.
    Holley's Sweets, a small rural business in Coffee County, Alabama 
was able to expand its operations due to assistance from the Southeast 
Alabama Regional Planning and Development Commission and USDA Rural 
Economic Development Loan and Grant (REDLG) investments. Holley's 
Sweets began baking flavored cakes in a small house using two ovens. 
The cakes were sold to local grocery and convenience stores. The 
company continued to grow and needed more space, a larger freezer and a 
loading dock. In 2001, a new 15,000 square-foot bakery facility was 
constructed with financing that included a $450,000 REDLG loan. After 
this critical expansion was completed, the company's sales grew to over 
$1 million annually and they were able to add 56 new jobs.
    In 1995, the Androscoggin Valley Council of Governments (AVCOG) in 
Auburn, Maine secured an RBEG award of $500,000. Of this total, 
$425,000 was for microlending and $75,000 was dedicated for technical 
assistance. To date, AVCOG has lent over $900,000 that has leveraged an 
additional $14.8 million in owner equity and private funds. The average 
RBEG loan amount is approximately $27,000, and the program has helped 
AVCOG and its partners create or retain 350 jobs in its rural region. 
AVCOG has also been awarded three IRP loans for a total of $3.5 
million. To date, the AVCOG IRP program has lent nearly $8.4 million 
that has leveraged over $43.7 million in other capital investments.
    The Southern Georgia Regional Commission in Valdosta was the first 
recipient of IRP funds in the nation in 1989. Since then, the 
commission has received four additional IRP awards for a total of 
$2,899,790. The commission also received RBEG funds totaling $268,400. 
Combined with RLF recapitalized funds and private leverage, over $17 
million has been injected into the commission's 18 county area and 
1,291 jobs have been created.
    The North Central Pennsylvania Regional Planning and Development 
Commission (North Central) in Ridgeway administers five separate IRP 
loan pools with an aggregate value of over $4.3 million. North Central 
used this loan portfolio to assist DuBrook, Inc., a concrete 
manufacturer owned and operated by Rosemary Barber. DuBrook, Inc. 
operates at four facilities in Pennsylvania: one in St. Marys (Elk 
County), one in DuBois (Clearfield County) and two in Butler County. To 
remain competitive and efficient, DuBrook needed to upgrade its 
equipment to include the acquisition of four advance front discharge 
mixers. With the commitment of $200,000 from the North Central IRP loan 
pool, Rosemary was able to leverage additional loans from the 
Clearfield County Industrial Development Authority and the local bank. 
These new mixers will enable DuBrook to run a more efficient and 
technology advanced service and retain 70 jobs.
    North Central also facilitated the preparation of two RBEG awards 
that provided additional opportunities for economic growth in its rural 
six-county area. One grant was for $99,000 to establish a small 
revolving loan program in the Coalport area of southern Clearfield 
County. North Central submitted the successful application, established 
a local loan intake committee, provided the essential staff training of 
the local industrial development corporation, and monitored the 
activity of the initial loans. As a result, the Glendale Industrial 
Development Corporation now has a small loan pool that can give their 
local businesses access to capital.
    Since opening in 1994, Big Equipment Company of Havre, Montana has 
sought the financial assistance of the Bear Paw Development Corporation 
to help start the business, purchase a building for the business 
operations, and purchase additional equipment and inventory as it grew. 
Bear Paw Development Corporation has provided $450,000 in IRP funds, 
combined with other Federal dollars and Montana Department of Commerce 
micro-business loan funds to meet the financing needs of Big Equipment 
over the years. Since opening its doors, the company has grown from one 
employee and $200,000 in sales to 15 employees and over $4 million in 
sales.
    In 2005, the Catawba Regional Development Corporation (an affiliate 
of Catawba Regional Council of Governments in Rock Hill, South 
Carolina) provided $112,000 in IRP loan funds to J&S Enterprises (the 
real estate holding company of an operating company called Davis Neon). 
Davis Neon is a contract commercial sign manufacturer in Heath Springs, 
South Carolina, population 1,044. The company had outgrown its former 
manufacturing plant and acquired a 150,000 square foot former textile 
distribution facility. At the time the loan was made, Davis Neon 
employed 95 people, making the company one of the largest employers in 
the small town of Heath Springs. Through the building, machinery and 
equipment acquisition, the company was able to add 25 new manufacturing 
jobs.
    Finally, Mr. Chairman, the Administration's newly proposed Regional 
Innovation Initiative will make USDA's infrastructure investments more 
efficient and effective by rewarding regional strategic approaches to 
rural development. This reflects the reality of today's marketplace 
where rural communities are not only competing statewide and 
nationally, but more likely, internationally. The Regional Innovation 
Initiative will provide incentives and resources for the enrichment of 
rural development strategies on a regional and local basis to implement 
area-wide priority projects and initiatives. NADO urges the 
Subcommittee to support this promising initiative.
    The Regional Innovation Initiative is designed to provide a new 
framework for USDA to promote economic development and job creation in 
rural communities. The initiative's new approach will lead to increased 
efficiency as rural community capacity is enhanced through greater 
coordination and leveraging of regional funding. We strongly support 
the goal of moving rural development toward a commitment to regional 
strategies designed by local leaders.
    To support this regionally based, locally driven approach, USDA 
requested a set-aside in the FY 2011 Budget of more than $280 million 
of existing program funds, roughly five percent of the funding from 
approximately 20 existing USDA programs, including USDA's rural 
business programs. The initiative will allocate funds competitively 
among innovative regional economic development projects tailored to 
local needs and opportunities.
    NADO was encouraged by early reports indicating the draft FY 2011 
Department of Agriculture Appropriations bill approved by the House 
Agriculture Appropriations Subcommittee includes $176 million to 
support the Regional Innovation Initiative. We urge Congress to 
finalize its commitment to fund this program and adopt provisions 
included in the President's FY 2011 Budget request giving USDA 
authority to set aside funding needed to begin the initiative.
    We applaud the Secretary for advancing the importance of regional 
approaches to rural competitiveness. We also understand the immense 
pressures on the Federal budget. At the same time, we encourage 
Congress to dedicate new resources for rewarding and promoting regional 
economic development across rural America, not just the proposed carve-
out of existing programs.
    The Regional Innovation Initiative will help address one of the 
most important but under-funded parts of rural community and economic 
development-rural development strategies and institutional capacity to 
implement priorities.
    Most rural local governments simply lack the financial resources to 
hire professional economic development practitioners, and few Federal 
programs are specifically designed for their needs. Our rural regions 
are lagging behind in economic development, job creation and growth, 
but not because they lack the assets or willingness needed to 
strengthen their communities. Whether through the timber, agricultural, 
natural resources, energy or manufacturing industries, rural regions 
truly are key drivers of America's economic and national security. What 
they lack are the resources to successfully leverage those assets into 
economic growth opportunities for their own citizens.
    The Regional Innovation Initiative will provide these regions with 
resources and a framework to examine their strengths, move beyond 
current program stovepipes, and develop a structure leveraging those 
assets to addresses challenges in their local economies. The initiative 
also recognizes the value of working regionally. No community will have 
to ``go it alone'' but by the same account, no community can thrive 
alone. In order to benefit from this new initiative, communities will 
have to work together to address their common priorities and goals.
    Ultimately, the proposal will provide rural regions with the 
resources necessary to build their workforce and strengthen their 
existing community infrastructure, creating prosperous rural 
communities where people want to live and raise families. The 
Initiative will also provide much-needed incentives and resources for 
the enrichment and implementation of regional rural development 
strategies. NADO urges the Subcommittee to support this promising 
initiative.
    In closing, I urge your continued support of USDA Rural Development 
programs, especially vital business loan, grant and technical 
assistance programs. USDA Rural Development is an essential partner and 
funding source for rural regions. It is also a vital tool for regional 
development organizations such as NENEDD as we strive to provide 
assistance and build capacity for the communities that rely on us for 
expertise and assistance. I urge you to support enhanced funding for 
USDA Rural Development programs in the next farm bill and increased 
emphasis on regional development strategies through initiatives such as 
the Regional Innovation Initiative.
    Thank you again, Mr. Chairman and Members of the Subcommittee, for 
the opportunity to testify today on the views of NADO and our members. 
I welcome any questions.

    The Chairman. Thank you. Thank you for the good work the 
National Association of Development Organizations does. I know 
many of us are quite familiar with the good work that you do, 
and we thank you.
    While we are on that end of the table--I believe you may 
also have been the second one to sit down--Mr. Ed Miller from 
Mechanicsville, Virginia, if you will tell us what you do and 
proceed with your testimony, please.

          STATEMENT OF ED MILLER, DIRECTOR OF ECONOMIC
         DEVELOPMENT, KING AND QUEEN COUNTY, VIRGINIA,
                       MECHANICSVILLE, VA

    Mr. Ed Miller. Yes, sir.
    Mr. Chairman, first of all, I would like to thank the 
Committee for giving me the opportunity to be here today. My 
name is Ed Miller, and I serve as Director of Economic 
Development for King and Queen County, Virginia.
    King and Queen County is located in the middle peninsula of 
Virginia. We are a very rural farming community with a 
population of approximately 6,600 people. The County has no 
public water or sewer systems and no broadband infrastructure, 
so we truly are very rural.
    Because of the lack of public utilities and high-speed 
Internet, economic development, and specifically working on 
business attraction efforts in our County, is very difficult. 
One of the difficulties we have is our state in particular 
basically has a lot of incentives for bigger projects, 
manufacturing projects, if you will, office projects, but none 
that deal with very rural type projects. So we depend a great 
deal on the rural development programs of USDA.
    I would like to mention a few programs that we have used.
    We have been assisted in our efforts to help small startup 
businesses with the RBEG program, the Rappahannock Tribal 
Council, and that is a non-recognized tribe in Virginia. They 
are located in King and Queen County, and they have received 
USDA funds for a market study for a water bottling facility 
they are looking at on tribal land.
    Grant-loan funds from USDA have also been obligated for a 
library building in King and Queen. Right now, our library 
building is a double-wide trailer that is 15 years old, so we 
were very appreciative of that, and construction will start on 
that very soon.
    We also requested funding from USDA for some kitchen 
equipment for our schools and a new hangar for our regional 
Life Evac medical helicopter. There is only one Life Evac 
evacuation system in our region, it is located in King and 
Queen, and they haven't had a hangar since their inception. So 
we are working with USDA on getting that.
    My experience with USDA and with the Rural Development 
programs have generally been very favorable. I do have a couple 
of comments, though, that I would like to share on some things 
I think that might be improved.
    For example, with startup businesses, and particularly in 
rural areas, some of the information that is requested under 
the RBEG program is quite difficult for them to put together 
and particularly as a startup business. It requires a great 
deal of paperwork and they have to hire people to help them to 
do it, and it is just very hard on them, particularly when you 
are looking to start up a business.
    I think the other thing that needs to be remembered in 
those programs is that if these businesses could go to a bank 
and get the funding, they probably would. I think the process 
needs to be a little easier for them than if they would go to a 
bank and have to try to get those loans.
    One question that I know that we don't quite understand in 
King and Queen County, when we are doing the applications, why 
things are asked for, like the charter for the county. It would 
seem to me that it is pretty obvious if you are a county in 
Virginia you are chartered, and we have been there since the 
1600s.
    There are other issues with the applications, because they 
seem to be geared both towards the public sector and the 
private sector, and there are some questions that private 
sector applicants might need to answer where the public sector 
might not. So I am just asking that maybe in the future those 
things could be looked at and perhaps simplified just a bit.
    I noticed when I was going and inputting information into 
the system the other day for the ARRA, to put in the system 
about what has been obligated to us, it was interesting because 
when you go in, it will ask you the same thing several times, 
like your address and all that identifying information. It 
would seem to me you could put that in once and be done with it 
and move on.
    The other interesting thing was, at least as I understood 
it, if you received a loan-grant for a program, you had to do 
two separate reports. It would seem to me there would be a 
place that would say loan and grant, you could put the 
information for both and just do one. Those are some things I 
have seen in working on those applications.
    Finally, and I know a lot has been said here about 
broadband, it was very interesting in King and Queen, as I say, 
we are quite rural, and we were basically told in round one 
that we were not considered to be a rural county. So we were 
very confused with that. Now, I understand that some of the 
rules changed in round two and we did apply in round two, but 
it was just an interesting thing for us to see.
    I certainly appreciate the time you have afforded me to 
give this testimony. If there are any questions, I would be 
glad to answer them.
    [The prepared statement of Mr. Ed Miller follows:]

Prepared Statement of Ed Miller, Director of Economic Development, King 
             and Queen County, Virginia, Mechanicsville, VA
    Good morning. My name is Ed Miller and I serve as Director of 
Economic Development for King and Queen County, Virginia. I would like 
to thank the Committee for giving me the opportunity to appear before 
you today. King and Queen County, located in the Middle Peninsula of 
Virginia, is a very rural farming community with a population of 
approximately 6,600 people. The County has no public water or sewer 
system and no broadband infrastructure. Because of the lack of public 
utilities and high speed Internet, economic development and 
specifically business attraction is difficult to achieve. Also, 
economic development incentives from the Commonwealth of Virginia are 
generally geared toward office headquarters or manufacturing projects 
with large capital investments and a large number of employees which 
generally do not look at rural areas like King and Queen. That is why 
the United States Department of Agriculture (USDA) and its Rural 
Development Programs are critical to economic development efforts in 
rural communities in Virginia.
    We have been assisted in our efforts to help small ``start-up'' 
businesses by receiving a Rural Business Enterprise Grant (RBEG) from 
USDA. The Rappahannock Tribal Council, located in King and Queen 
County, received USDA funds for a market study to determine if a 
natural spring water bottling project on tribal property should 
proceed. Also, grant-loan funds from USDA have been obligated for a 
library building in King and Queen and we have requested grant-loan 
funds to upgrade kitchen equipment in our schools. Our regional public 
use airport, which is located in the County, has submitted an 
application to USDA for grant-loan funds for a hangar for its regional 
Life Evac helicopter. USDA rural development programs are very 
important to King and Queen County.
    My experience with the administration of the Rural Development 
Programs has generally been favorable. However, the amount of 
information that a small ``start-up'' business is required to submit as 
part of the RBEG Revolving Loan application can be overwhelming. Also, 
it needs to be remembered that if these firms could get funding from a 
bank they would. The process and the requirements for the loan need to 
be simplified. Also, I do not understand why a local government has to 
submit its organizational documents, including its charter, as part of 
an application process. Finally, the ARRA reporting should be 
simplified.
    Again, thank you for the opportunity to address the Committee.

    The Chairman. Thank you very much.
    Mr. Beaulac.

 STATEMENT OF WILLARD L. BEAULAC, Jr., SENIOR VICE PRESIDENT, 
              PathStone CORPORATION, ROCHESTER, NY

    Mr. Beaulac. Mr. Chairman, Mr. Ranking Member, my name is 
Lee Beaulac. Thank you very much again for inviting me to share 
a few thoughts here this morning.
    My name is Lee Beaulac. I am the Senior Vice President for 
Community and Economic Development at PathStone Corporation. We 
are a 45 year old nonprofit community development finance 
institution certified by the U.S. Department of Treasury to 
work in seven states and in Puerto Rico.
    PathStone is an intermediary lender for both the SBA and 
USDA under the Intermediary Relending Program and we have 
deployed about $16 million, mostly to very small and micro-
businesses, and mostly in New York and to some extent in Ohio 
and in Puerto Rico. These funds have further leveraged $41 
million in private sector financing.
    Small firms in rural areas need capital finance startup, as 
well as expansion costs, but research still indicates that 
SBA's per capita spending is significantly less in rural areas 
than in urban communities. This is leaving a significant 
financing gap for nontraditional lenders like PathStone to 
address, and this gap has widened over the last 2 years as 
conventional banks have begun to cut back on their small 
business lending.
    According to the FDIC, bank lending is down $30 billion, or 
four percent, from where it was last year, and the SBA reports 
its lending through conventional banks is at its lowest level 
in 2 years.
    The upheaval in the financial services industry has 
resulted in credit drying up for businesses in low-income 
communities, loan-to-value ratios are falling, lines of credit 
are disappearing, and commitments are evaporating.
    As a result of the precipitous decline of the availability 
of credit from private financial institutions, demand is 
increasing for the entire range of local, regional and national 
loan funds, micro-loan programs, venture capital and 
intermediary organizations.
    The tremendous increase in demand for loans and services 
experienced by PathStone over the past 2 years comes at a time 
when access to operating and grant programs is beginning to dry 
up. In this environment, USDA programs, like the Intermediary 
Relending Program and the Rural Business Enterprise Grant 
Program become even more critical as we work to provide the 
financing for rural businesses needed to stay afloat and 
maintain jobs.
    Through the IRP, USDA makes loans, as you probably know, to 
public and nonprofit intermediary lenders, who then in turn 
make loans to private enterprises in rural communities. In many 
cases, the loan made available through IRP is one of the few 
sources of fixed-rate term financing available to small 
businesses for working capital, lines of credit and equipment. 
With an average size of $100,000 a loan, an upper limit of 
$250,000, the IRP is targeting small businesses that are the 
backbone of the rural economy.
    You may know this, but USDA has administered IRP since 
1988. There are currently 400 intermediaries across the 
country, and USDA has not suffered a single default under the 
IRP program in the 20 years it has been administering the 
program. That is quite a record.
    A typical intermediary revolves IRP funds three times over 
the life of the 30 year loan. It is also a huge leveraging 
factor from the IRP, something like $7.30 for every dollar 
loaned through the IRP program. We have been using IRP since 
1995, and it has been critically important for us, particularly 
as we identify certain sectors within the economy that have 
traditionally not had access to conventional credit and 
capital.
    We have several sector intervention strategies. The IRP is 
a very integral part of that. So has been the RBEG, the Rural 
Business Enterprise Grant program. The RBEG has allowed us to 
essentially work in the Adirondack region of New York to help 
microentrepreneurs who have very limited markets based on low 
density of population, remote rural locations and bad weather, 
have access to a worldwide market through the Web. RBEG has 
been able to fuel the training and technical assistance to move 
microentrepreneurs onto the Web.
    I also wanted to mention very quickly, it is very 
important, the rural entrepreneurship relending--I am sorry, 
the assistance program. We supported the RMAP as part of the 
2008 Farm Bill. We believe it is critically important for USDA 
to have a program that addresses microlending. The programs we 
talked about here before, B&I and all the other ones, really 
don't serve microloan entrepreneurs.
    We are disappointed it has been 25 months since the 
enactment of this law for Rural Development to actually issue 
its rules. It has been very frustrating for us, because on a 
number of levels the rules they have issued have not really 
conformed to the direction this Committee gave them; and that 
is, issues of the interest rate that the borrower will borrow 
from USDA on, the amount of technical assistance that will be 
paid for.
    There is a limit on 75 percent of the total financing need 
from the RMAP program. It is limited to 75 percent of the total 
deal. These are really problematic issues, and especially 
problematic for smaller organizations in more remote rural 
areas of this country.
    So I would urge the Committee to again support IRP, RBEG, 
certainly the B&I program, but really direct USDA to 
essentially come full circle, issue these rules and get the 
money out in the street. In our opinion, there is nothing more 
important to rural development than access to credit and 
capital, and USDA is a critical component of that.
    Thank you very much.
    [The prepared statement of Mr. Beaulac follows:]

 Prepared Statement of Willard L. Beaulac, Jr., Senior Vice President, 
                  PathStone Corporation, Rochester, NY
    Thank you, Chairman McIntyre and Ranking Member Conaway for the 
opportunity to testify as a witness regarding the Unites States 
Department of Agriculture's (USDA) rural development programs and 
specifically our experience at PathStone in working with the USDA 
programs to support economic development efforts and finance small 
businesses throughout Upstate New York.
    My name is Lee Beaulac. I work for PathStone Corporation where I 
serve as Vice President for Community and Economic Development. 
PathStone is a private not-for-profit organization based in Rochester, 
New York that provides business finance, training and technical 
assistance to small and micro-businesses as well as a myriad of housing 
activities including homeownership assistance and multi-family 
development. We also develop and finance community facilities. Founded 
in 1969, PathStone is active in the states of New York, Pennsylvania, 
New Jersey, Ohio, Indiana, Vermont, Virginia and Puerto Rico.
    PathStone is a Community Development Finance Institution, certified 
by the U.S. Department of the Treasury. In this capacity, we provide 
financing to existing and start-up businesses, primarily in rural 
communities and small towns. Our loan capital comes from both the 
private and pubic sectors. Commercial finance institutions invest funds 
in our organization which, in turn, makes loans to businesses in hard 
to reach markets. With respect to public sources of capital, PathStone 
is an ``intermediary'' lender for both the Small Business 
Administration (SBA) and for the Department of Agriculture. We have 
deployed approximately $16 million in loan capital into over 450 
businesses in New York State and Puerto Rico since 1992, these funds 
have further leveraged over $41 million in additional investment.
The Importance of USDA Business Financing Programs
    Small businesses, defined by the Small Business Administration 
(SBA) as firms with 500 or fewer employees, make-up 90 percent of all 
rural businesses and more than 75 percent of these rural firms have 20 
or fewer employees.
    Small firms in rural areas need capital to finance start-up as well 
as expansion costs and yet research indicates that SBA's per capita 
spending is significantly less in rural areas than in urban 
communities.
    This leaves a significant financing gap for non-traditional lenders 
like PathStone to address and this gap has widened over the last 2 
years as conventional banks have cut back on their small business 
lending. Since 1992 PathStone has averaged $500,000 per year in new 
lending. Over the past 2 years we've averaged over $2.3 million in new 
loans, which is further evidence of the dramatic increase in demand for 
loans and services from a ``non-traditional'' lender like PathStone. 
While in good times non-traditional financial institutions like Path 
Stone have been viewed as the lenders of last resort we are 
increasingly becoming a critical sources of capital, if not the only 
source of capital for a wide range of businesses as the regulatory 
environment tightens and conventional lenders pull back.
    According to the latest figures from the Federal Deposit Insurance 
Corporation, bank lending is down $30 billion, or four percent, from 
where it was at this time last year and the SBA reports that its 
lending through conventional banks is at its lowest level in 2 years.
    The upheaval in the financial services industry has resulted in 
credit drying up for businesses in low income communities--loan to 
value ratios are falling, lines of credits are disappearing, and 
commitments are evaporating. As a result of the precipitous decline of 
the availability of credit from private financial institutions, demand 
is increasing for the entire range of local, regional and national loan 
funds, micro loan programs, venture capital and intermediary 
organizations to fill this expanding void created by the reluctance of 
private financial institutions to provide credit. At the same time 
these same mission driven organizations are also facing a liquidity 
shortage as traditional non-governmental sources of capital--from 
private philanthropic organizations, the bond market, and private 
financial institutions--are no longer available. The tremendous 
increase in demand for loans and services experienced by PathStone over 
the past 2 years comes at a time when access to operating and grant 
capital is shrinking while demand for these funds by nonprofit 
institutions has increased dramatically.
    In this environment USDA programs like the Intermediary Relending 
program (IRP) become even more critical as we work to provide the 
financing the rural businesses need to stay afloat and maintain jobs.
Intermediary Relending Program (IRP)
    Through the IRP, USDA makes loans to public and private nonprofit 
intermediary lenders that in turn make loans to private business 
enterprises in rural areas. In many cases the loans made available 
through the IRP are one of the few sources of fixed rate, term 
financing available to small rural businesses for working capital, 
lines of credit and equipment. With an average loan size of $100,000 
and an upward limit of $250,000, the IRP is targeting small businesses 
that are the backbone of the rural economy.
    USDA has administered the IRP since 1988 and currently USDA has 
some 400 intermediary lenders participating in the program and these 
lenders have made over $700 million in IRP loans to rural businesses 
across the country. The USDA has not suffered a single default under 
the IRP in the 20 plus years that it has administered the program.
    Beyond the importance of the patient, flexible capital provided by 
the IRP, there are three other factors of note:

    1. Job Creation--The average IRP loan is $100,000 and according to 
        USDA, on average, each loan for that amount creates or saves 
        76.5 jobs. A recent survey of the community development 
        corporations that administer IRP funds reported $3,000 cost per 
        job;

    2. Continuing Source of Capital--A typical intermediary revolves 
        IRP funds three times over the life of the 30 year loan to an 
        IRP lender which means that every dollar in Federal funds lent 
        to an IRP intermediary translates to $3 lending to a rural 
        business; and

    3. Leverage--a recent survey of IRP borrowers indicates that 
        projects financed with IPR are able to leverage significant 
        additional capital largely from conventional lenders. IRP 
        borrowers surveyed leveraged as much as $7.3 per every $1 in 
        IRP funds loaned to a business.

    PathStone has been an IRP lender since 1995. We have found the IRP 
to be critically important to our efforts to reach businesses that are 
not being served by traditional lending institutions. As an example, we 
recently made a loan to a new small farm winery in New York's Finger 
Lakes region. Ravine's Vineyards, like many of the region's wineries, 
lacked access to many forms of traditional credit and capital. Not 
withstanding the fact that Ravine's already was garnering a solid 
reputation as a successful producer of fine wines for 3 years, and the 
owner had a proven track record as a wine maker with another of the 
local award winning wineries in the region. Ravine's had a difficult 
time attracting capital to complete a major expansion to their 
facility. This project would have had a difficult time moving ahead 
without resources from the IRP program. Ravine's has since won many 
awards for their wines and continues to be a shining star in the winery 
industry.
    The IRP had been and will continue to be an important tool in 
providing financing to businesses within PathStone's ``Sector 
Intervention'' strategy. In 2005, we launched an effort to support 
entrepreneurs within certain sectors of New York's rural economy that 
were having difficulty gaining access to conventional financing. Small 
``farm wineries'' in New York's Finger Lakes region of the state, while 
being one of the greatest economic engines in the regional economy, 
were not getting the attention from commercial banks that they needed 
in order to thrive. PathStone set in motion a regional initiative that 
involve training for both bankers and winery operator/owners, technical 
assistance and the establishment of special pools of financing directed 
at supporting the growth of this particular sector. Our efforts led 
directly to the development of the first ``benchmarking'' study for 
small wineries in New York State.
    PathStone recently launched its latest sector intervention effort 
targeted at small scale food and energy producers in western and 
central New York State. Again, small and micro-scale producers in this 
sector are having difficulty gaining access to credit and capital they 
need to sustain and expand their businesses.
    The only obstacle to greater use of the IRP in rural America is the 
limited funding available for the program. Over the last several years, 
appropriations for the program have dropped from over $40 million to 
less than $35 million.
    The previous Administration took steps to depress the demand for 
IRP funds. First the maximum for loans to intermediaries was decreased 
from $2 million to less than $400,000. Second, applications were taken 
on a quarterly basis confusing applicants about time lines.
    Despite this, demand remains strong. Every year, USDA receives 
requests for at least twice the dollar amount available. At the start 
of the fiscal year, USDA already had on hand over $26 million in 
requests for $33 million in loan authority.
    An increase in IRP to $75 million would create 10,000 jobs and 
leverage some $500 million in additional lending in rural America. 
Those funds will be revolved three times over the life of the loan to 
the intermediary and we would use those funds to leverage bank 
financing that would not otherwise be available to our rural business 
owners. Delete period
The Rural Business Enterprise Grant Program (RBEG)
    The Rural Business Enterprise Grant (RBEG) program has been 
extremely helpful to PathStone in its efforts to help businesses that 
are having difficulty accessing credit and capital, business management 
training and expanding their markets. The RBEG program is very flexible 
and lends itself to addressing problems which are specific to different 
localities. In Puerto Rico, PathStone is currently utilizing the RBEG 
program to conduct business management training and technical 
assistance to micro-entrepreneurs in the more remote rural communities 
on the Island. In New York, the RBEG program has supported efforts to 
introduce Internet marketing strategies to micro-businesses in the 
Adirondack region of the state. Limited local retail opportunities, 
caused primarily by low population densities, remote locations as well 
as by bad weather for a good part of the year, are being replaced by a 
global marketplace. The RBEG helped launch a partnership between 
PathStone, eBay and several area educational institutions that has 
resulted in material economic improvement for many micro-businesses in 
the region.
    PathStone has entered into four RBEG contracts since 2004 and has, 
utilizing RBEG resources, provided assistance to 676 entrepreneurs.
The Rural Microentrepreneur Assistance Program (RMAP)
    The financing situation facing micro-businesses is particularly 
difficult because these ventures had difficulty securing financing even 
before conventional banks started pulling back on small business 
lending. We generally define a microbusiness as a business with fewer 
than five employees and many of the microentrepreneurs we finance have 
fewer than three employees. These businesses are often start-ups and 
few have the collateral that a conventional bank would require 
especially in these difficult economic times.
    That said, these microentrepreneurs are a critical source of 
employment in Upstate New York as in most rural areas and during 
economic downturns we see many individuals turning to self employment. 
In fact during our last recession, from year 2000 to 2003, employment 
grew in microenterprise while falling for larger employers. Nationwide 
employment grew in microenterprise nine percent while employment fell 
by almost two percent in larger firms.
    And yet USDA rural development programs have not traditionally 
addressed the needs of microbusinesses.

   B&I Loan guarantees that can provide multi-million dollar 
        guarantees;

   Intermediary Relending Program (IRP) that provides capital 
        to nonprofit entities that, in turn make loans to private 
        businesses in rural areas. The average size loan is $100,000, 
        with a maximum of $250,000; and

   There are no resources at USDA exclusively targeted to 
        provide technical assistance or financial assistance to very 
        small businesses.

    PathStone supported the creation of USDA's Rural Microentrepreneur 
Assistance Program (RMAP) as part of the 2008 Farm Bill. We believe it 
is important that USDA have a program dedicated to supporting rural 
microbusinesses and ensuring that both financial and technical 
assistance are available to rural entrepreneurs and particularly those 
unable to access credit from conventional lenders.
    Under the Rural Microentrepreneur Assistance Program the Secretary 
is authorized to make one percent loans for a term of not more than 20 
years to established Microenterprise Development Organizations (MDO). 
These MDOs will use the USDA funds to capitalize revolving funds making 
fixed rate loans of up to $50,000 to start up and expanding rural 
microenterprises. The terms and conditions of loans made by an MDO to a 
microenterprise are established by the MDO.
    Every MDO that secures a loan under the program is eligible to 
receive an annual technical assistance (TA) grant from USDA in an 
amount that is equal to but not more than 25 percent of the outstanding 
balance of the loans made by the MDO to microenterprises. The TA grants 
can be used by the MDO to provide pre-loan as well as post-loan 
assistance to businesses as needed and may include assistance in 
developing or refining a business plan, marketing assistance, and 
management assistance.
    Microenterprise Development Organizations that receive a loan under 
the program are required to establish and sustain a loan loss reserve 
equal to at least 5% of the outstanding loan balance. In addition, MDOs 
are required to provide a 15 percent match for any grant dollars 
secured. USDA can defer principal and interest due on a loan to a 
Microenterprise Development Organization for a period of 2 years in 
order to permit the MDO to make microloans to microentrepreneurs.
    While we believe the RMAP as authorized in the 2008 Farm Bill holds 
great promise we are disappointed that for 25 months after the farm 
bill was signed into law we are still waiting for USDA to implement the 
program. When USDA issued an Interim Rule on the program in May of 
2010, the field has some serious concerns about the rule and how it has 
strayed from what we believe was intended by the law.
    In short, USDA's Interim Rule on the RMAP still gives short shrift 
to the technical assistance and training component of the program, does 
not provide the maximum interest subsidy or grant amount authorized in 
the statute and provides new requirements that are not authorized by 
statute. Congress enacted the RMAP to improve prospects for job 
creation in rural areas through microenterprise. However through the 
rule, USDA has made it unnecessarily difficult and expensive for local 
organizations like PathStone to carry out a program of technical and 
financial assistance to benefit micro-entrepreneurs. The result of this 
rule will be a program that is not widely available as relatively few 
rural organizations have the financial capacity to absorb the costs 
required to implement the program.
    I would like to submit for the record a letter that we are 
submitting to USDA with comments on the RMAP rule and application.
Community Development Finance Institutions and the Business and 
        Industry Program (B&I)
    We are pleased that USDA has retracted the rule that is had 
established in 2008 making CDFIs ineligible to participate in the 
Business and Industry Program (B&I). This program provides guarantees 
of up to 90% for participating lenders that make loans to eligible 
businesses. For the same reasons that CDFIs have excelled at 
administering IRP contracts, CDFIs will safely and effectively deploy 
their own loan capital into underserved rural communities and benefit 
greatly from this type of guarantee instrument. Rural communities 
desperately need the additional credit and capital that ``non-
traditional lenders'' like PathStone will deploy into traditionally 
underserved areas of the economy.
    In closing, I would like to encourage the Committee to support 
programs, like the IRP, RBEG, and the B&I programs, that have proven 
track records of success but could use more resources, And second, I 
would encourage the Committee to work with USDA to see that RMAP 
program funds are made available soon, as intended by this Committee, 
so PathStone and others can work to sustain and grow healthy small and 
micro-businesses in rural communities across the country.
                               Attachment
    Submitted by Robert A. Rapoza Associates

July 27, 2010

Branch Chief,
Regulations and Paperwork Management Branch,
U.S. Department of Agriculture,
Washington, D.C.

    We are writing in response to the Interim Final Rule on the Rural 
Micro-Enterprise Assistance Program (RMAP) published in the Federal 
Register on May 28, 2010. In general, while the Interim Rule has 
changed a number of provisions from the proposed rule, published in 
October of 2009, it does not substantially improve the regulatory 
structure of the program. The rule still gives short shrift to 
technical assistance and training, does not provide the maximum 
interest subsidy or grant amount authorized in the statute and puts in 
place new requirements that are not authorized. Congress enacted RMAP 
to improve prospects for a job creation engine in rural areas: 
microenterprise. Through this rule, USDA has made it unnecessarily 
difficult and expensive for local Microenterprise Development 
Organizations (MDOs) to carryout a program of technical and financial 
assistance to micro-entrepreneurs. The result of this rule will be a 
program that is not widely available, as relatively few rural MDOs have 
the financial capacity to absorb the costs required in order to 
implement the program.
    In detail our comments:
4280.311  Loans provisions for Agency Loans to Microlenders
    Under the Interim Rule a micro-lender must not only come up with a 
15% match for grant funds, it must also come up with 25% of the loan 
capital borrowed from USDA, or limit loans to 75% of the total. The 
rule does not permit the use of interest income to defray technical 
assistance or other related costs, yet the Interim Rule does not permit 
maximum grant authorized under the law.
    The Interim Rule includes a new requirement that limits the Federal 
share of an `eligible project' which USDA defines as the loan, to 75% 
of the total. Our understanding is that this requirement is based on an 
interpretation of section 379(c) of the RMAP statute, which applies a 
75% project cost to the loan made by the MDO. Section 379(c) 
establishes a cost share for Section 379(B) which authorizes technical 
assistance grants. It does not reference nor relate to loan.
    Beyond including a fundamental misinterpretation of the law, the 
Interim Rule establishes a framework that will be, in many cases, 
unworkable. In order to meet this matching requirement, a micro-lender 
may commit 25% of its capital to the revolving fund, thereby tying up 
its funds for the term of the loan and forgoing the use of interest 
income from that capital. Given the restrictions on use of interest 
income ( 4280.311) few will do that.
    Alternatively, a microlender may require a borrower to come up with 
the 25% non-federal share. This, of course, flies in the face of the 
credit elsewhere test ( 4280.322(d)). If a borrower can secure 
financing for 25% of its project cost, the borrower is able to secure 
credit from other sources. This requirement is rendered even more 
unworkable by the provision in the rule that states ``Agency has a 
first lien position'' on all microloans ( 4280.311(e)(15)). This first 
lien requirement is without statutory basis and flies in the face of 
widespread practice by microlenders in the field who frequently take 
subordinate position to gain the participation of private lenders in 
microloans. We strongly recommend removal of the ``first lien'' 
requirement from the final rule.
    Section 4280.311(f)(1) limits the total amount that a MDO can owe 
at any one time to the Federal Government to an amount not to exceed 
$2.5 million. The basis for the $2.5 million limit is unclear as it is 
not in the law and may limit instances in which there is substantial 
additional demand for microloans that cannot be met because of an 
artificial and unauthorized limitation put on MDOs.
    The law establishes a minimum interest rate of 1% for USDA loans ( 
379E(b)(3)(B)(ii)). Yet, the Interim Rule ( 4280.311(12)) establishes 
a 2% rate for the first five years and a 1% rate for those MDOs with 
satisfactory performance. Again, this raises the cost of the program 
and is just more government rigmarole. It continues to be our 
recommendation that USDA ( 4280.311(d)(13)) simply implement the 1% 
interest rate as set in the law.
    There are other loan provisions that remain unchanged and therefore 
are impediments to successful implementation:
    The Interim Rule ( 4280.311(g)) requires MDOs to capitalize the 
loan loss reserve. The intention of Congress on this provision was to 
allow 5% of the USDA loan to be used for the loss reserve and yet the 
rule states that ``no agency loan funds may be used to capitalize the 
LLR''. MDOs are already required to match 25% of the grant funds. 
Requiring another 5% match on loan funds would limit the participation 
of smaller organizations and this would be counteractive to 
Congressional intent.
    The training and technical assistance is authorized under section 
379E(b)(4) of the Act and specifically authorizes training as an 
eligible activity. However, the Interim Rule does not reflect the 
importance of this training activity. Through ranking criteria the rule 
penalizes organizations with training programs that focus on providing 
assistance to businesses and entrepreneurs for whom credit is not the 
issue, but need assistance in writing or refining a business plan, 
marketing, developing a website or managing cash flow.
Grant Provisions   4280.313
    Under Subsection B--Grants to Assistance Microentrepreneurs, a MDO 
is eligible to receive an amount equal to 25% of the outstanding 
balance. The Interim Rule provides for 25% of the outstanding loan 
balance on the first $400,000 loaned, followed by an additional 5% on 
the amount borrowed between $400,000 and the maximum $2.5 million. This 
is far less than contemplated by the statute. The limitation, when 
coupled with restrictions on use of interest income, will impede the 
ability of MDOs to provide adequate technical assistance because the 
resources will not be available.
    In section 4280.02 ``technical assistance and training'' are 
defined as the same thing, and throughout the Final Interim Rule the 
two terms are used interchangeably. The Final Interim Rule fails to 
recognize the unique aspects of the two activities. Technical 
assistance and training are two totally different items. Technical 
assistance or business counseling is simply working with a client in a 
one-on-one fashion. Training, whether classroom, web-based, or through 
another medium, is more about teaching business principles to a group 
versus intensive one-on-one technical assistance. Group training is 
broad-based compared to intensive one-on-one core counseling. Tying the 
two items together creates a funding incentive for programs that in the 
end will leave some entrepreneurs coming up short. We suggest that the 
Final Rule provide separate definitions for the two activities, and 
scoring that reflects the importance of technical assistance.
    Strong business skills are the key to the success of a 
microenterprise. Training on how to prepare strong business plans, 
market goods and services and manage finances is critical to the 
success of microenterprises. While it is certainly not the only need of 
struggling microentrepreneurs, in many instances training is the first, 
most critical and greatest need.
    The Interim Final Rule reflects neither the reality of how a 
successful microenterprise assistance program works nor Congressional 
intent. The RMAP statute is clear--the program should fund programs to 
train microentrepreneurs in addition to providing loans and related 
technical assistance.
    We recommend that USDA amend the interim rule to lower the cost of 
the program to MDOs as well as rural businesses, to remove unauthorized 
barriers to effective and efficient operations and encourage necessary 
training and technical assistance for rural entrepreneurs.
            Sincerely,




Stan Keasling, RCAC, West Sacramento, CA;
Ceyl Prinster, Colorado Enterprise Fund, Denver, CO;
Mark Cousineau, Connecticut Community Investment Corporation, Hamden,
 CT;
Bob Rapoza, Rapoza Associates, Washington, D.C.;
Grace Fricks, Appalachian Community Enterprises, Cleveland, GA;
Jerry Rickett, Kentucky Highlands Development Corporation, London, KY;
Chris Sikes, Western Massachusetts Enterprise Fund, Inc., Holyoke, MA;
Ron Phillips, Coastal Enterprises, Inc., Portland, ME;
Dennis West, Northern Initiatives, Marquette, MI;
Berny Berger, Southwest Initiative Fund, Hutchison, MN;
Mary Mathews, Northeast Entrepreneur Fund, Virginia, MN;
Chuck Hassebrook, Center for Rural Affairs, Lyons, NE;
Lee Beaulac, PathStone, Rochester, NY;
Hope Cupit, Southeast RCAP, Roanoke, VA;
Bill Bay, Impact Seven, Almena, WI;
Wendy Baumann, Wisconsin Women's Business Initiative, Milwaukee, WI;
Karl Pnzaek, CAP Services, Stevens Point, WI.

    The Chairman. Thank you, sir.
    Mr. Bahnson.

   STATEMENT OF MARK BAHNSON, GENERAL MANAGER, BLOOMINGDALE 
    COMMUNICATIONS, BLOOMINGDALE, MI; ON BEHALF OF NATIONAL 
                       TELECOMMUNICATIONS
                    COOPERATIVE ASSOCIATION

    Mr. Bahnson. Chairman McIntyre, Ranking Member Conaway, and 
Members of the Subcommittee, I would like to thank you for the 
opportunity to be here today to review Rural Development 
programs in advance of the 2012 Farm Bill. I am here on behalf 
of Bloomingdale Communications and NTCA, the National 
Telecommunications Cooperative Association, which represents 
more than 580 small rural community-based communications 
service providers throughout the nation.
    Bloomingdale Communications where I serve as the General 
Manager provides broadband, video, voice and other 
telecommunications services to about 3,000 customers in 
southwest Michigan. Along with 1,100 of my fellow rural rate-
of-return regulated community-based providers around the 
nation, we cover more than \1/3\ of the nation's land mass, yet 
our total subscriber base accounts for only about five percent 
of the nation's total.
    Thanks in large part to private-public partnerships between 
rural independent telecommunication providers, RUS programs and 
cost-recovery programs, such as Universal Service and inter-
carrier compensation, Americans who reside in the most rural 
parts of Michigan and elsewhere throughout America are today 
enjoying communications services that are comparable in price 
and scope and quality to those available in urban areas.
    Over the course of its history, our U.S. telecommunications 
lending has stimulated billions of dollars in private capital 
investment and rural communications infrastructure. That is a 
remarkable record and a testament to the vision and dedication 
of this Subcommittee, the leadership and staff of RUS, and the 
rural sector of the telecommunications industry. It is a model 
that should be continued, or, at the very least, emulated.
    Through the years, NTCA and its members have had a good 
working relationship with RUS and its financing programs. After 
all, it was this relationship that was conceived and built 
around the mutual recognition that, without adequate financing, 
rural America was unlikely to ever be served in a fashion 
comparable in price and scope to that which is provided in 
suburban and urban America. Yet that is not to say that this 
relationship has not been without problems, and in my written 
testimony I described several issues that we hope to be 
addressed. One would be the need to clarify Davis-Bacon Act 
wage compliance rules and also the often burdensome auditing 
process.
    Serving our nation's rural citizens with telephone service 
has always been challenging, and bringing broadband to these 
sparsely populated areas will be even more challenging. 
However, with a national commitment to ensure all Americans 
receive comparable, robust communications services, we have 
been able to overcome the many barriers that otherwise would 
have left rural America behind.
    Unfortunately, it appears, based on provisions in the 
national broadband plan, we may now be abandoning the 
approaches that have led to the successes we see today. Even 
more alarming, it looks as if we may soon abandon the basic 
principles of Universal Service That Have Ensured Rural America 
Is Not Left Behind.
    While on the surface, the plan's goal of providing 
broadband to all Americans seems commendable, it unfortunately 
also sets our country on a path of a digital divide between 
rural and non-rural. The plan sets a universal goal of 4 
megabytes per second, while promoting 100 megabytes per second 
for 100 million households. By setting these goals, we ensure 
speeds 25 times slower in high-cost rural areas.
    The plan abandons our country's longstanding commitment to 
providing comparable telecommunications services to all 
Americans. As you know, without comparable broadband speeds, 
rural communities, which are becoming increasingly dependent on 
broadband, will fall further behind and be unable to compete 
and receive jobs comparable with health care, educational 
opportunities and services as urban Americans.
    While the Agriculture Committee does not have jurisdiction 
over telecom policy, we bring our concerns about the plan to 
your attention because we believe the ripple effect of the plan 
is already being felt by RUS programs in rural communities 
throughout the country. The plan may quickly lead to the 
inability of rural providers like myself to repay billions of 
dollars in loans extended by RUS as well as the rural primary 
financiers, CoBank and RTFC.
    To avoid putting our RUS telecom programs at risk, NTCA, 
along with more than 40 concurring national, state and tribal 
associations, recommends several changes to the national 
broadband plan that can be found in my written testimony.
    We believe that the RUS telecom programs, along with other 
programs I outlined earlier in my statement, will continue to 
enable America's rural community-based telecommunications 
system providers to meet the broadband needs of our nation's 
rural citizens. As part of this effort, we look forward to 
continuing to work with this Subcommittee and RUS to provide 
rural America with affordable and robust communications 
services.
    Thank you again for inviting me to testify. I look forward 
to answering any questions you may have.
    [The prepared statement of Mr. Bahnson follows:]

   Prepared Statement of Mark Bahnson, General Manager, Bloomingdale 
        Communications, Bloomingdale, MI; on Behalf of National
               Telecommunications Cooperative Association
Introduction
    Chairman McIntyre, Ranking Member Conaway, Members of the 
Subcommittee, I would like to thank you for the opportunity to be here 
today to review rural development programs in advance of the 2012 Farm 
Bill. I am here on behalf of Bloomingdale Communications and the 
National Telecommunications Cooperative Association (NTCA), which 
represents more than 580 small, rural, community-based communications 
service providers throughout the nation.
    Bloomingdale Communications, where I serve as the General Manager, 
provides broadband, video, voice, mobile and other telecommunication 
services to about 3,000 customers in southwest Michigan. Along with 
about 1,100 of my fellow rural rate-of-return regulated community-based 
providers around the nation, we cover more than \1/3\ (37%) of the 
nation's land mass yet our total subscriber base accounts for about 5% 
of the national total. And therein lies the genesis of the challenges 
we confront. Throughout our history, we have responded to policies that 
were developed for the larger segment of the population, but do not 
work for us. But, I am happy to say that is absolutely not the case 
with regard to the Rural Utilities Service (RUS) and its tremendous 
Telecommunications Financing Program.
Brief History of Rural Telecommunications
    Like most other rural telecommunications systems, Bloomingdale 
Communications got its start in 1904 when regular citizens living in 
rural areas, who were left without telephone service, banded together 
and created a telephone system to serve their homes and the homes of 
their neighbors. While their own can-do spirit got them started, it 
wasn't until after the 1949 passage of the Telephone Amendment to the 
Rural Electrification Act (REA), which made Rural Utilities Service 
(RUS) financing available to fund rural telecommunications systems, 
that communication services in rural American truly began to improve 
and expand.
    Thanks in large part to these private-public partnerships between 
rural, independent telecom providers, RUS programs, and cost recovery 
programs such as Universal Service and intercarrier compensation, 
Americans residing in the most rural parts of Michigan and elsewhere 
throughout rural America are today able to enjoy communication services 
that are comparable in price, scope, and quality to those available in 
urban areas.
RUS Telecommunications Financing Program
    Through the years, Congress has stepped in on many occasions to 
modify and otherwise redirect the RUS Telecommunications Financing 
program to ensure it is appropriately fulfilling its mission and 
effectively responding to the communications financing needs of the 
current era.
    Today, the program consists of many elements including its primary 
units--the Hardship Account, the Cost of Money Account, and the 
Guaranteed Account; the Distance Learning, Telemedicine, and Broadband 
Account; and the short term stimulus related Broadband Initiatives 
Program. In addition, the rural sector also relies heavily upon two 
private sector financiers, the Rural Telephone Finance Cooperative, and 
CoBank, which both closely coordinate with RUS in their financing 
activities.
    There are also two programs available to the industry that are 
under the Rural Business Cooperative Service--the Rural Economic 
Development Grants Program and Rural Economic Development Loans Program 
that are both authorized under Section 313 of the REA for use by RUS 
borrowers. Nevertheless, today we would like to emphasize the RUS and 
the programs that are directly under its purview.
    Over the course of its history, RUS telecommunications lending has 
stimulated billions of dollars in private capital investment in rural 
communications infrastructure. In recent years, on average, less than a 
few million dollars in Federal subsidy has effectively generated $690 
million in Federal loans, grants, and guarantees. For every $1 in 
Federal funds invested in rural communications infrastructure, $4.50 in 
private funding has been invested. That is a remarkable record and a 
testament to the vision and dedication of this Subcommittee, the 
leadership and staff of the RUS, and the rural sector of the 
telecommunications industry. It is a model that should be continued or 
at the very least emulated.
    It would not be possible to bring the sorts of advanced 
telecommunications services to the communities mentioned in this 
testimony without the assistance of the RUS Telecommunications 
Financing Program. Funding is often just not available from other 
sources for many of the project purposes we utilize through the RUS 
program. As a result of the service provided through RUS financing, 
rural economies have been stabilized in many of these communities. 
Small businesses are relocating to our areas once again and young 
families are moving back to raise their families in the relatively safe 
and secure environment they dreamed of while having many of the 
conveniences found only in the cities. This certainly makes the risk of 
providing service worthwhile.
    Considering the dynamic nature of the communications industry, the 
rapid pace of technological advances, and the fact that legislative and 
regulatory policymakers alike continue to uniformly advocate the 
necessity of making advanced broadband services available to every 
American--including those in the most remote and insular regions of our 
vast nation, there is no doubt as to the current and ongoing importance 
of each one of the above named financing elements.
    Through the years, NTCA and its members have had a very good 
working relationship with the RUS and its financing programs. After-
all, it was a relationship that was conceived and built around the 
mutual recognition that without adequate financing, rural America was 
unlikely to ever be served in a fashion comparable in price and scope 
to that which is provided in suburban and urban America.
    Yet, that is not to say this relationship has never been without 
problems. Though it is often viewed almost as a lender of last resort, 
the RUS still has many strong controls in place to ensure taxpayer 
dollars are not squandered. It may come as a surprise to many that, as 
a result, we have to jump through significant hoops to secure the 
various forms of RUS financing. Generally, this so-called red tape is 
understandable, but the agency does have a rather long history of being 
perceived as being overly cautious and too slow in its overall approval 
process.
    In 2008, my company spent tens of thousands of dollars with legal 
and industry consultants to prepare an application for a traditional 
broadband program loan. Yet the application was not submitted due to 
unclear rule changes in the program under the new farm bill. Why the 
rule changes were necessary was unclear to me as the program that 
funded our 2005 project seemed to be working fine.
    We routinely hear from colleagues of instances where long-time 
borrowers are required to submit significant documentation, including 
dissected financial statements rather than the consolidated ones they 
may already have on hand, while first-time applicants are able to 
obtain approvals under less restrictive project feasibility 
requirements. Another common complaint revolves around how 
documentation will bounce between a borrower and the agency numerous 
times with the applicant, on each occasion, believing they have 
provided all that has been asked for only to find out later that the 
list of required information has changed along the way. Likewise, we 
often hear how announcements of loans and grants are made to the public 
with great fanfare, yet it will often be weeks or even months before 
dollars are ever allowed to flow to the project. We have also heard for 
years that a good part of the problem in finalizing agreements and 
covenants lies directly at the feet of the USDA's office of general 
counsel, which I believe was the case with our 2008 project. My point 
in raising this is to show that it is not necessarily a problem 
associated with the RUS, but may be one that is coming from elsewhere 
within the agency or even the Administration, and as such, may be 
impacting programs beyond just those under the jurisdiction of the RUS.
    Again, we understand that Federal programs of this nature require a 
solid business plan and more due diligence than might be encountered in 
the private sector. Having been involved with the traditional RUS Loan 
Program, its broadband program, and now its stimulus related broadband 
program, we know what to expect and generally feel we are prepared to 
satisfy their requirements. But it bears repeating, and particularly 
with regard to the stimulus related program, that there are hurdles 
standing in the way of the most efficient application, approval, and 
fund distribution process.
    At any rate, to help with the approval process, rural LECs have 
typically gone to great lengths, even before making an application with 
the agency, to ensure they are able to show feasibility for their 
respective projects. Many have gone so far as to go door to door ahead 
of submitting their financing application to obtain commitments from a 
majority of the community they propose to service in order to show the 
initiative will be financially feasible.
    Other independent telecommunications providers have used the 
broadband loan program to build or compete in communities outside their 
traditional ILEC territories where broadband deployment may not be as 
advanced. However, there are also stories in many parts of the country 
where broadband loans have been approved where broadband services 
existed through two or three competitors. In the case of a loan in 
Oregon, a loan was made in communities where broadband deployment was 
at 99% or greater. This loan was also made over the objections of the 
RUS Field Representative. While overbuilding and competition is allowed 
under the regulations, I do not believe this is what Congress intended 
for the program. Similarly, we have encountered a little of this with 
regard to the stimulus program, as well, which is not a good use of 
limited resources. Recently we saw that Congress has given 
consideration to rescinding a portion of these funds to help pay for 
the latest supplemental. We truly believe there is a need for these 
dollars for rural broadband projects. However, if these dollars are 
going to be used for extreme and unwise overbuilds and duplication, we 
would almost rather see them rescinded.
    As a telco provider, I am well aware of the challenges faced by a 
Federal agency trying to determine where broadband currently exists. 
Under the FCC's Form 477, broadband deployment is reported only by a 
ZIP CODE and does not paint an accurate picture of what is available in 
rural America. We are hopeful that the congressionally mandated mapping 
that is underway will help better determine the level of broadband that 
is deployed and where RUS financing should and should not be utilized, 
going forward.
    Ultimately, we recognize that the painstaking process of an RUS 
application is designed to protect the American taxpayers. This 
principle should be reinforced as Congress looks to reauthorize any of 
the agency's programs.
    With regard to the Broadband Initiatives Program (BIP) program, we, 
as well as many of our industry colleagues, who have received awards, 
have encountered several issues that leave room for improvement. First, 
while Davis-Bacon reportedly applies for wages paid on certain jobs, as 
of today, RUS still has not provided the details on how to apply Davis-
Bacon and to what jobs the law needs to be applied. This is critical, 
since it impacts costs for any stimulus project. And after many months, 
one would think RUS or the USDA would be reaching out to the Labor 
Department or elsewhere within the Administration to resolve this 
question. As a result, we are hearing that cost analyses are likely 
being inflated in order to avoid violating the law. This results in 
uncertainty and the extremely high likelihood that our overall project 
costs are going to be higher on our end without an adjustment on the 
BIP support side. And, in addition, although we are ``shovel ready'' 
with our project we cannot, as of today, send out our bid requests 
without a clear and RUS approved definition.
    We have also encountered extreme problems with the legal forms 
which are very extensive and in many cases have contained errors--
including lien provision errors. Also, many award recipients have 
encountered situations where their private sector financiers have 
issues with provisions of the loan documentation and again, 
particularly with the language surrounding leins.
    I would like to draw your attention to the collateral structure, or 
lien on assets and revenues, that is required by NTIA and RUS under 
their respective loan and grant programs. Traditionally, RUS has agreed 
to share this lien on an equal and rateable (pari passu) basis with 
private lenders that have an outstanding loan to a rural 
telecommunications provider. This is a prudent underwriting standard 
and serves to ensure that both the government and the lender are 
adequately protected in the case of a default.
    Under this shared security arrangement, RUS has a very successful 
track record of partnering with private lenders and leveraging billions 
of dollars in private capital for rural telecommunications providers to 
invest in the rural infrastructure. However, it is unclear if RUS will 
modify its lien sharing requirements. The NTIA has been unwilling to 
share any collateral on a pari passu basis under BTOP. We are hopeful 
that RUS will not follow NTIA down this path, and will continue its 
longstanding tradition of working with private lenders to deploy a 
state-of-the-art communications infrastructure in rural America.
    Unfortunately, RUS has not been particularly prompt in their 
responses to these issues. These sorts of issues combined with the 
looming uncertainly that continues to surround the FCC's National 
Broadband Plan and its related proceedings has led many of our industry 
colleagues to seriously question whether or not to move forward with 
stimulus funding and other investment proposals.
Audits
    As a traditional broadband borrower from RUS, my company is 
required to supply an independent audit each year. I believe that this 
is a very good policy even though the process is very burdensome to a 
company that has an accounting staff of only three members. The process 
for our company lasts about a month preparing all the documents needed 
by the auditors. Then staff spends an additional week with the auditors 
on site. And finally, about a week of follow-up as the auditors 
complete their process. This 6 week period completely dominates the 
time of our Accounting Supervisor and some of the time of the other two 
staff members. During that time we will have three payrolls, accounts 
payable, accounts receivable and all the other duties usually performed 
by three staff members now being carried out by one or two.
    Last year, after our independent audit, the IRS did an audit of our 
company--neither audit found any mistakes by our accounting staff. RUS 
then conducted a third audit for my company with an RUS staff auditor 
of the Fiber-to-the-Home project in Paw Paw, Michigan. This was a $5 
million project, so you can imagine the number of invoices, checks, 
equipment lists and many other documents that the auditor requested. So 
once again the accounting staff needed to spend several weeks 
collecting all the information needed for the auditor. The auditor was 
in our office for a couple weeks reviewing all the information. He was 
very professional, very nice to work with and many times complemented 
my accounting staff and the job they had done both collecting the 
information he needed and the day-to-day work that they had performed 
documenting the project. At the end of the day, what he found was that 
the bank account opened specifically for the project was funded with 
twenty-five dollars ($25) instead of the one hundred dollars ($100) 
that was requested in the rules. Should we have funded the account with 
$100? Yes. At the end of the day did affect the project in any way? No. 
Did we add an additional $75 to the account? Yes. With all that said, 
it seems like my company and RUS spent a great deal of time and money 
to find a $75 error. I would suggest that since we are already having 
an independent audit, could some additional items be added to the 
independent auditing firm's list of things to check or could we 
possibly conduct a combined audit? It bears mentioning that we have 
encountered these very same issues with a rash of industry audits 
associated with the universal service program, and again, to date, they 
have found no waste, fraud, or abuse, yet have spent millions of 
program dollars and company dollars in arriving at that conclusion. 
These are dollars that could have gone toward bring broadband to rural 
America.
Broadband in Rural America
    Today, telecom providers and policy makers alike have shifted their 
primary focus from voice services to broadband, which offers the 
promise of being the great equalizer between rural and non-rural areas 
of our nation. With the help of the RUS's broadband loan and grant 
programs, stimulus funding, and the aforementioned cost recovery 
mechanisms, rural communications service providers are working to 
replicate the success of their telephone service build-out by steadily 
deploying broadband infrastructure and related services to an 
increasing percentage of their subscribers.
    Listening to the needs of our customers and understanding the ever-
growing importance of broadband in everyday life, Bloomingdale 
Communications is working to provide state-of-the-art communications in 
our service areas. In addition to being a traditional RUS borrower, 
Bloomingdale Communications recently applied and was awarded $8.3 
million through the American Recovery and Reinvestment Act (Recovery 
Act) BIP. This award will allow our company to build out our fiber 
network to over 1,451 homes in our service area, which will enable 
farmers, students, home-based business, and many others to take 
advantage of high-speed broadband services. This is a part of our 
continuous effort to provide the broadband infrastructure that is 
necessary to support the growing bandwidth needs of our customers.
    A typical business plan that would sustain itself simply cannot be 
constructed for the rural segment of the market. It is in these high-
cost areas that support from the RUS will continue to be critical in 
enabling our systems to overcome the economic challenges of providing 
broadband to our customers.
    While not perfect, the RUS BIP program has yielded tremendous 
opportunity to expand broadband access to unserved and underserved 
communities throughout the United States. We wish to thank and 
congratulate those on this Committee that worked so hard during the 
crafting of the Recovery Act to ensure the RUS administered at least a 
portion of the broadband stimulus funding. The RUS' knowledge of rural 
America and experience with broadband loan programs has proved to be of 
great value in both the decision making and administering aspects of 
this important program.
    Thanks to the funding made available by RUS telecom programs, many 
rural communities are now, or will soon be, able to take advantage of 
all the services and capabilities broadband has to offer. Broadband is 
the fuel that will power growth in the heath care, education, homeland 
security, and energy sectors throughout rural America. It has the 
potential to be the great equalizer between rural and urban regions. In 
fact, we believe it has the potential to ``save'' rural America, which 
continues to shrink in many parts of the country.
    According to the Foundation for Rural Service's (a partnership of 
NTCA) ``2009 Rural Youth Telecommunications Survey,'' 60% of 
respondents indicated that would consider living in a rural area after 
graduation, while only 13% ruled out the possibility altogether. Of the 
survey respondents, 45% said that the availability of a variety of 
telecommunications services would be an important factor in determining 
where they will eventually live. Asked what they considered 
``essential'' telecommunications services, 66% of respondents chose 
broadband Internet. In addition to keeping the best and brightest rural 
students from leaving for non-rural areas, robust broadband services 
are also critical to economic development in these areas. According to 
a January 2010 Public Policy Institute of California report, during the 
years 1999 to 2006, an area moving from no broadband providers to one 
to three providers would achieve overall employment growth of 6.4%. 
Last year, the United States Department of Agriculture released a study 
entitled ``Broadband Internet's Value for Rural America'' that 
confirmed these findings. That study found that ``employment growth was 
higher and nonfarm private earnings greater in countries with a longer 
history of broadband availability.''
Concerns About the National Broadband Plan
    Serving our nation's rural citizens with telephone service has 
always been challenging and bringing broadband to these sparsely 
populated areas will be even more challenging. However, with a national 
commitment to ensure all Americans receive comparable, robust 
communication services, we have been able to overcome the many barriers 
that otherwise would have left rural American behind. Unfortunately, it 
appears, based on provisions of the National Broadband Plan (NBP), we 
may are now abandoning the approaches that led to the successes we see 
today. Even more alarming, it looks as if we may soon abandon the basic 
principles of universal service that have ensured rural America is not 
left behind.
    While on the surface the NBP's goal of providing broadband to all 
Americans seems like a commendable goal, it unfortunately also sets our 
country on the path of a digital divide between rural and non-rural. 
The plan sets a universal goal of 4 Mbps, while promoting 100 Mbps for 
100 million households. By setting these goals, which will ensure 
speeds 25 times slower for high-cost, rural areas, the plan abandons 
our country's long-standing commitment to providing comparable 
telecommunication services to all Americans. As you know, without 
comparable broadband speeds, rural communities, which are becoming 
increasingly dependent on broadband, will fall further behind and will 
be unable to compete and receive comparable job, health care, or 
educational opportunities and services as urban Americans.
    We all agree comprehensive reform of telecommunications policy is 
needed to modernize support for communication services of the future. 
However, we are asking Congress to address the disruptions the NBP's 
modernization proposals would have on carriers that have invested and 
been successful in providing modern telecommunication services in rural 
areas based on predicable support mechanisms. As you may know, this 
particular issue has already caused a great deal of concern among 
legislators, and has led to at least 22 Senators and 45 Members of the 
House of Representatives signing letters to FCC Chairman Genachowski 
expressing their disapproval with the NBP's low standards that will 
cause a digital divide between rural and urban Americans.
    We believe the economic future of rural America is at stake. 
Therefore, we urge you to help modify the NBP's recommendations so 
businesses and workers can embrace rural areas and to ensure all 
Americans can benefit from this plan equally.
Impact on RUS Programs
    While the Agriculture Committee does not have jurisdiction over 
most telecom policy, we bring our concerns about the NBP to your 
attention because we believe the ripple effect of the NBP is already 
being felt by RUS programs and rural communities throughout the 
country. The NBP may quickly lead to the inability of rural providers 
to repay billions of dollars in loans extended by RUS as well as the 
rural sector's primary financiers CoBank and RTFC. In recent comments 
submitted to the FCC, regarding the matter of the NBP, CoBank said, 
``unless there is a sufficient and sustainable cost recovery mechanism, 
no financing method (e.g., loan, loan guarantee, revolving loan, or 
one-time grant) will sustain a rural broadband network in the long 
term.''
    We would also like to make Committee Members aware that in a 
December 22, 2008 filing with the FCC, the RUS outlined just how 
important Universal Service support is to the agency's massive 
telecommunications lending portfolio. In that filing, the RUS explained 
how its nearly $4 billion tax-payer financed loan portfolio could be 
put at risk by proposals that would curtail Universal Service flows. 
Then RUS Administrator Jim Andrew stated that an analysis of borrowers 
at the time showed that 35% of loans outstanding would not be feasible 
were Universal Service funding to be frozen. He went on to say that if 
toll revenues (interstate and intrastate access revenue, interstate and 
intrastate Universal Service funding, and end-user subscriber line 
charges) were frozen; \2/3\ of the loans would not be feasible. 
Specific to my company, last year, about 40% of our revenue came from 
Universal Service support and access charges. Last year we saw a 14% 
decrease in access billing. As these revenues continue to diminish, my 
company will be more than challenged to fulfill its commitments to 
private and Federal lenders--not to mention to provide adequate service 
to our customers.
    As I noted earlier, the uncertainty created by the NBP and other 
proposed policy changes have already impacted the rural 
telecommunications market and RUS programs. Several rural telcos are 
considering not accepting the stimulus awards in which they have 
applied or been accepted for. In fact, one rural telco in Indiana has 
already decided to reject the stimulus award they received from RUS in 
round one based on the uncertainty created by proposed policy changes.
    To avoid putting RUS telecom programs at risk, NTCA, along with the 
National Exchange Carrier Association (NECA), the Organization for the 
Promotion and Advancement of Small Telecommunications Companies 
(OPASTCO), the Western Telecommunications Alliance (WTA), the Rural 
Alliance, and 38 concurring state associations and other groups 
recommend the following changes to the NBP:

   Not impose an overall cap or freeze on the existing High 
        Cost program for incumbent carriers, or new caps or freezes on 
        rural local exchange carrier (RLEC)-specific mechanisms such as 
        interstate common line support.

   Not require RLEC's to shift to incentive regulation, as it 
        has been demonstrably ineffective in encouraging carriers to 
        provide an evolving level of service to consumers in high-cost 
        areas. In contrast, rate-of-return regulation has a proven 
        track record of success in this regard, and remains fully 
        viable in today's competitive broadband environment.

   Focus on developing simple, reliable and workable methods 
        based on actual costs for supporting broadband in RLEC 
        territories and not pursue efforts to develop complex models or 
        ``market based'' mechanisms such as reverse or procurement 
        auctions.

   Immediately reform the USF contribution system and, most 
        importantly, expand the contribution base to include, at a 
        minimum, all broadband Internet access providers.

   Move quickly to address certain discrete intercarrier 
        compensation reform issues such as strengthening the call 
        signaling rules to mitigate phantom traffic as well as 
        confirming that interconnected Voice-over-Internet Protocol 
        (VoIP) providers are required to pay access charges.
Conclusion
    As applications evolve over broadband, all Americans connected will 
experience untold opportunities for employment, health care, education, 
as well as entertainment. As the world is getting increasingly 
competitive, it is essential that the United States have a ubiquitous 
national broadband network where all Americans, whether urban, 
suburban, or rural have access to quality communication services. 
Although our rural areas are sparse in population, these people are 
critical in our nation's economy and security.
    We believe that RUS telecom programs, along with the other programs 
I outlined earlier in my statement, will continue to help enable 
America's rural, community-based telecommunication system providers 
meet the broadband needs of our nation's rural citizens.
    We emerged in these markets where no one else was willing to go. We 
understand these markets and what their needs are. We are committed to 
these markets because our systems are locally owned and operated. As 
part of this effort, we look forward to continuing to work with this 
Subcommittee and the RUS to provide rural America with affordable and 
robust communications services.
    Thank you again for inviting me to testify. I look forward to 
answering any questions you may have.

    The Chairman. Thank you, sir.
    I want to particularly welcome Eddie Miller, who is from my 
home State of North Carolina and Director of Community 
Development with the North Carolina Association of Electric Co-
ops. We have worked together often.
    Eddie, thank you for coming today. You may proceed.

 STATEMENT OF RALPH E. ``EDDIE'' MILLER, DIRECTOR OF COMMUNITY 
                  DEVELOPMENT, NORTH CAROLINA
       ASSOCIATION OF ELECTRIC COOPERATIVES, RALEIGH, NC

    Mr. Ralph Miller. Chairman McIntyre and esteemed Committee 
Members, I would like to thank you for the opportunity to speak 
today about a subject that has been the focus of my 
professional life for the past 40 years. I would also like to 
thank Congressman McIntyre and Congressman Kissell for their 
continued support of USDA Rural Development programs as well as 
the 26 rural electric cooperatives in our state.
    Having worked for USDA Rural Development for 34 years and 
now the North Carolina Association of Electrical Cooperatives, 
I have experienced firsthand the positive impact that the 
Federal commitment has had on our rural areas.
    I cannot imagine what conditions would be like without the 
technical and financial assistance provided by USDA that has 
enabled rural communities to build essential services to 
support their populations. For many communities and rural 
people, USDA Rural Development has been the only reliable 
source of financing and has been a true partner in their 
development.
    USDA Rural Development State Director Randy Gore and his 
staff are doing an excellent job serving the people of North 
Carolina. We at the cooperatives consider him our most 
important economic partner.
    I know that all governmental budgets are under extreme 
stress, but I hope that the programs that mean so much to our 
rural communities will be competitive in the decision-making 
process. I am looking forward to the 2012 Farm Bill and next 
year's appropriations. I see a continued need for financial and 
technical assistance in our rural communities.
    Most if not all of the programs that are offered by USDA 
Rural Development were originated to provide affordable capital 
to our rural communities. Low-wealth communities depend on the 
funding provided by USDA Rural Development to support essential 
community services.
    I have provided detailed comments on most of the USDA 
programs in my written statement. Due to time, I will only 
comment on a few programs.
    The Community Facilities Program has supported more 
critical needs for our rural communities than any other 
program, with the exception possibly of the Electric Service 
Program. It has the flexibility to fund first responders, 
schools, medical and other services that support the quality of 
life for rural citizens.
    The Guaranteed Business and Industry Loans and the 
Intermediary Relending Programs are critically needed to 
support the job creation in our rural communities. Funding 
needs to continue at the current level and increase, if 
possible.
    The program known as the REDLG, Rural Economic Development 
Loans and Grants, which is made to co-ops, provides an 
essential economic development tool that they use to help 
recruit businesses.
    Agriculture is the mainstay in most of rural America, and 
the Value-Added Producer Grant Program helps develop programs 
to keep more or develop more income for the farmers off of the 
agriculture. The Rural Utility Service Water and Waste Disposal 
Program is the main funding source for much of rural America. 
It allows communities to provide health improvements for its 
residents and provide support for fire departments.
    Very little economic development can be accomplished 
without proper infrastructure. In the Electrical and 
Telecommunications Loans and Guarantees, the Federal Government 
created the partnership between electric cooperatives and the 
REA to meet the power needs of underserved rural areas. That 
partnership has been very successful and must continue if 
electric cooperatives are to meet their goal of providing 
dependable service at an affordable price.
    It is important to maintain the guaranteed FFB Generation 
Loan Program and its funding, since it is an essential tool 
used by cooperatives in providing affordable service to rural 
America and North Carolina.
    Without the access to RUS programs, electric generation 
cooperatives, such as NCMC, will be forced to access more 
expensive sources of capital for its members' future power 
supply needs, resulting in an increased cost for its members. 
Affordable electric power is a key consideration in the 
location of businesses and job creation. With the assistance of 
RUS programs, electric cooperatives can continue to support our 
rural communities' economic development efforts by providing 
dependable and affordable power.
    I have made a lot of comments about the various programs in 
USDA from my experience with it in my written statement, but 
that concludes my presentation at this time.
    [The prepared statement of Mr. Ralph Miller follows:]

 Prepared Statement of Ralph E. ``Eddie'' Miller, Director of Community
   Development, North Carolina Association of Electric Cooperatives,
                              Raleigh, NC
    Chairman McIntyre and esteemed Committee Members, I would like to 
thank you for the opportunity to speak today about a subject that has 
been the focus of my professional life for the past forty years. I 
would also like to thank Congressman McIntyre and Congressman Kissell 
for their continued support of the USDA Rural Development programs as 
well as the 26 rural electric cooperatives in our state.
    While preparing for this testimony, I came to realize that my life 
story has been one totally wrapped up in the field of rural 
development. I was born in Perquimans County, one of many low wealth 
areas of eastern North Carolina where the greatest export is the 
children who have to leave home to find good employment opportunities. 
While I did not know it at the time, the work I performed for my 
father's building company during summer school breaks was the 
construction of low income housing financed by the Farmers Home 
Administration, the predecessor agency to USDA Rural Development.
    Upon graduation from NC State University in 1970, I was employed as 
an Assistant County Supervisor with Farmers Home Administration in 
Chatham and Randolph Counties. In that role I provided technical and 
financial assistance to farmers, local governments, businesses, 
developers, builders, potential home owners, nonprofits organizations 
and a host of others that achieved the mission of the agency. I left 
FmHA and returned home in 1976 to become an owner of a Chevrolet 
Dealership and a small general construction company. While it was great 
to return home and to contribute to the community, it became apparent 
to me that there was no future for small businesses due to the crisis 
in the farm economy and historically high interest rates.
    In 1982, I returned to Farmers Home Administration and had the 
honor of serving as the Assistant to the State Director during five 
Administrations and four State Directors. In that role, I gained 
experience in the delivery of all USDA Rural Development programs as 
well as programs provided by other Federal and state agencies.
    With the support of our Congressional delegation, North Carolina 
continues as a national leader in the delivery of services to our rural 
communities in all program areas. The USDA Rural Development programs 
and finance opportunities have evolved over the years to meet the 
changing needs of rural communities and their residents.
    On many occasions, I've used the analogy of a builder who has a 
large tool box of tools or programs with an annual supply of materials 
or funding that can be used to build a community. A successful USDA 
Rural Development employee is one who has knowledge of all agency 
programs plus those of other resource providers in his toolbox then 
uses that information to select the best tools/programs to meet the 
needs of the community.
    In April 2009, I retired from USDA Rural Development. I currently 
serve as the Vice President of Member Services and Community 
Development for the North Carolina Electric Member Corporation. My 
responsibilities include the management of community development 
programs offered by our statewide organization plus I serve as an 
interface with USDA Rural Development and other organizations that 
provide economic development programs to North Carolina.
    The North Carolina Association of Electric Cooperatives has 26 
member cooperatives that provide electric service to nearly a million 
members over 93 counties in our state. Each of those 26 cooperatives 
has an economic development program that offers a variety of services 
including funding and technical assistance in the economic development 
areas.
    In April of this year, NCEMC hosted an Economic Development 
Resource Conference. USDA Rural Development State Director Randy Gore 
and his staff worked closely with the electric cooperatives and we have 
worked together to spread information about the benefits of these 
programs throughout the state. My goal is to provide information, 
education, and guidance to the cooperative staffs and their directors 
regarding the opportunities and resources available from the USDA Rural 
Development.
    Looking forward to the 2012 Farm Bill and next year's 
appropriations, I see a continued need for financial and technical 
assistance in our rural communities. Most, if not all, of the programs 
that are offered by USDA Rural Development have originated to provide 
affordable capital to our rural communities. Low wealth communities 
depend on the funding provided by USDA Rural Development to support 
essential community services such as water, sewer, and first response 
services. If Electric Cooperatives are to continue to provide 
affordable and dependable power to members, they require access to 
affordable financing for its generation, transmission and distribution 
systems. For this to happen, USDA Rural Development must continue to 
support our rural communities in the areas of housing, energy, 
businesses, utilities, and communications.
    I will give my comments by Agency
Rural Housing Service:
    The Direct Single Family Housing Program (502). This program has 
allowed thousands of low and very low income people to become home 
owners. But due to budget restraints, program funding has not met the 
demand. For a number of reasons, it appears that the need for housing 
is being met through the purchase of mobile homes and manufacture 
housing. While the housing units may meet the needs of the families, 
the location of the homes has created problems in many communities. 
Development for manufactured housing sites has not keep up with the 
demand. There is a great need for a program that would encourage 
developers to build subdivisions or mobile home parks with quality 
management and good living environments for low income residents.
    The Guaranteed Single Family Housing Program (502). Due to the 
large expansion of this program and the elimination of the energy 
standards requirements, the financing of some older housing stock could 
result in higher energy bills for the borrowers. I would recommend 
increased review and oversight.
    Single Family Housing Grants and Direct Housing Loan (504). This 
cost effective government program assist very low income home owners. 
It allows elderly homeowners to improve the health and safety 
conditions of their home in turn making them more suitable for elder 
living. This assistance allows the homeowners the option to reside in 
their homes longer instead of more expensive housing provided by care 
facilities.
    Rural Rental Housing Loans (515). New construction funding has been 
limited for many years. In North Carolina there are 628 properties 
containing 22,662 rental units. Of those properties, 395 properties are 
over 20 years old and 246 properties are no longer bound by restrictive 
use provisions and could be sold off the program. There continues to be 
a need for these properties. I suggest that the demonstration program 
for Multi-Family preservation and revitalization be continued. This 
will assist in improving the properties and keeping them available for 
low income housing.
    Guaranteed Rural Rental Housing, Housing Preservations Grants, Farm 
Labor Housing--I have no recommendations.
    Community Facilities--North Carolina is the national leader for 
this program. In my opinion, this program has supported more critical 
needs for our rural communities than any other program with the 
exception of the electric service program. It has the flexibility to 
fund first responders, schools, medical, and other services that 
support the quality of life for our citizens.
Rural Business and Cooperative Service:
    Guaranteed Business and Industry Loans--This is a very important 
rural jobs program. I suggest continued high levels of funding and 
reduced fees in high unemployment areas.
    Intermediary Relending Program--This is the gift that keeps on 
giving. The funds are loans that are collected then relent to create 
more jobs. Jobs are a top priority for all; therefore, I suggest higher 
funding levels.
    Rural Business Enterprise Grants and Rural Business Opportunity 
Grants--Both of these grants are good programs that could utilize 
additional funding.
    Rural Economic Development Loans and Grants--These are loans and 
grants made to cooperatives for economic development projects. This is 
a good program and provides a great tool for the cooperatives. I am 
working with the North Carolina Electric Cooperatives to expand use of 
the program along with the NCEMC Development Loan programs.
    Value-Added Agricultural Product Market Development Grants--
Agriculture is a major industry in our rural areas, it is important 
that we find ways to expand the income potential. There needs to be 
increased marketing efforts for the program with emphasis to the 
limited resource farmers.
    Renewable Energy Systems and Energy Efficiency Improvements Loans 
and Grants--A very good program that has assisted a number of farmers, 
however, it needs to be adequately funded with more non-farm business 
outreach.
Rural Utilities Service:
    Water and Waste Disposal Loans and Grants--This program is the main 
funding source for much of rural America. It allows communities to 
provide health improvements for its residents and provides support for 
fire departments. Very little economic development can be accomplished 
without the proper infrastructure providing adequate water and waste 
disposal service. To support health and job creation, I recommend 
increased levels of funding.
    Rural Broadband Loans and Loan Guarantees--Traditional loan 
programs will not work in most of the underserved areas of rural 
America. The programs offered under the Stimulus funding which provide 
grants up to 75% will be effective. I would like to thank USDA Rural 
Development for the award to French Broad Electric Membership 
Corporation. Lumbee River Electric Membership Corporation has recently 
filed for funding as well.
    Electric and Telecommunications Loans and Guarantees--The Federal 
Government created the partnership between electric cooperatives and 
REA to meet the power needs of underserved rural areas. That 
partnership has been very successful and must continue if electric 
cooperatives are to meet their goals of providing dependable service at 
an affordable price. It is important to maintain the guaranteed FFB 
generation loan program and its' funding since it is an essential tool 
used by Cooperatives in providing affordable service to rural America 
and North Carolina. Without access to the RUS program, electric 
generation cooperatives such as NCEMC will be forced to access more 
expensive sources of capital for its members' future power supply needs 
resulting in an increased cost for its' members. Affordable electric 
power is a key consideration in the location of businesses and the 
creation of jobs. With the assistance of the RUS programs, electric 
cooperatives can continue to support our rural communities' economic 
development efforts by providing dependable and affordable power.
    This concludes my presentation. Thank you again for the opportunity 
to address the Committee.

    The Chairman. Thank you, Mr. Miller.
    Dr. Ayers.

STATEMENT OF VAN H. AYERS, Ed.D., BOARD MEMBER, DELTA LAND AND 
                COMMUNITY; AGRICULTURE AND RURAL
         DEVELOPMENT SPECIALIST, UNIVERSITY OF MISSOURI
                   EXTENSION, BLOOMFIELD, MO

    Dr. Ayers. Thank you, Mr. Chairman.
    I am Van Ayers. I am a cofounder and board member of a not-
for-profit organization called Delta Land and Community, and 
also am an Agricultural and Rural Development specialist with 
the University of Missouri Extension Service.
    Delta Land and Community is active in rural development 
projects, focusing on the Mississippi River Delta region, in 
which Missouri is a part. My office is located in Bloomfield, 
Missouri, which is in Stoddard County. I serve the Boot Hill 
region of the state, which is the extreme southeast corner of 
Missouri.
    The prevalent agriculture is southern, with corn, cotton, 
soybeans and rice produced in the county. Also my brother and I 
are partners in a beef farm located in Bedford County, 
Tennessee.
    Over the past 25 years, I have been actively involved in 
rural development issues in southeast Missouri. I have worked 
with farmers and farmer groups and applied and obtained for 
producers several of the grants administered by USDA Rural 
Development. I have experience with the VAPG, REAP, RBOG and 
Community Facilities Grants at the grassroots, working with 
farmer and farmer groups. The nonprofit I helped start is HELP, 
where farmers receive nearly all the VAPG grants awarded in the 
State of Arkansas.
    Based on 25 years of working with USDA in Rural Development 
programs, I have seven specific recommendations to improve 
Rural Development programs.
    First of all, focus more of the VAPG on the planning 
grants. I am a strong advocate of these type of grants. I 
prefer that the majority of VAPG funds be made available to 
this effort in lieu of working capital grants. It is my opinion 
that in most cases if an enterprise is viable, funding is 
obtainable from an assortment of other sources.
    Second, allow the farmer time to be included as a match for 
VAPG. There is a 50 percent match requirement for funds with 
VAPG. Securing the match has been problematic. However, I 
prefer that the match requirement, specifically for the 
planning grant portion, but not for working capital grants, be 
altogether eliminated. If it cannot be eliminated altogether, 
then at the very least there should be a liberal provision for 
counting the time and expertise of the farmer entrepreneur.
    Third, past VAPG grant reports should be assembled in an 
online reference library. Information obtained through the VAPG 
grants at this time is now proprietary. If the information from 
the planning grants is not to be used, which has happened to be 
the case several times, especially if the project is not 
feasible, then at least this information should be placed in 
the public domain.
    Fourth, allow REAP to cover 50 percent of the cost and move 
the VAPG energy feasibility proposals to REAP. Within REAP 
there is a feasibility grant program. As with all of REAP, the 
grant will cover 25 percent of the project cost. This will help 
rationalize limited government resources, allowing VAPG to 
concentrate on food, fiber, and forestry projects with energy 
projects supported through REAP.
    Fifth, carve out a part of Community Facilities Grants for 
farmers markets. I suggest that these funds be allocated to 
Community Facilities Grants specifically for farmers markets. I 
am here this week in Washington to review the Farmers Market 
Promotion Program grants. There were over 500 applicants from 
all corners of the United States, and as I began to review 
these proposals, it became clear that there is a great need for 
this program throughout the U.S.
    However, those proposals that were written from urban areas 
with the better grant writers had a greater chance of being 
funded, or seemed to have a greater chance of being funded. 
This is not uncommon. This raises the issue of fund 
distribution inequity for all of USDA grant programs.
    Six, a less complex grant application process is needed for 
both VAPG and REAP. A three-page proposal for REAP and VAPG 
grants less than $25,000 actually would be ideal.
    My final and most important recommendation is to establish 
a national program to train enterprise facilitators to help 
farmers in underserved areas develop proposals for these 
programs. This is what I do within my job position at the 
University of Missouri Extension.
    There is an inequity of grant funds distribution with both 
VAPG and REAP programs. Local rural development offices are not 
necessarily versed in these, and other grants offered through 
USDA through their own agency. The context for these grants is 
usually at the state office. Neither the Ag Innovation Centers 
nor the Rural Cooperative Development Centers have had a major 
influence on my activities.
    To develop a good grant application, at the end of the day 
someone must write it, and the ability and the desire to do so 
sometimes is often lacking, especially in some rural areas.
    USDA should do what it can now to develop a nationally 
coordinated initiative for enterprise facilitators, and if the 
Department finds a new authority or dedicated funding is 
required, Congress should take this up in the next farm bill.
    In conclusion, the development of rural enterprises by 
utilizing commodities and resources at the local level is a 
sure-fire way to improve the local economy.
    With this, I conclude my comments.
    [The prepared statement of Dr. Ayers follows:]

Prepared Statement of Van H. Ayers, Ed.D., Board Member, Delta Land and 
Community; Agriculture and Rural Development Specialist, University of 
                   Missouri Extension, Bloomfield, MO
    I am Van H. Ayers, a co-founder and board member of a not for 
profit organization called Delta Land and Community, and an Agriculture 
and Rural Development Specialist with the University of Missouri 
Extension Service. Delta Land and Community is active in rural 
development projects focusing on the Mississippi River Delta Region, in 
which Missouri is a part. My office is located in Bloomfield, MO, which 
is in Stoddard County, MO. I serve the Bootheel region of the state, 
which is in the extreme southeast corner of Missouri. The prevalent 
agriculture is Southern, with corn, cotton, soybeans and rice produced 
in the county. Also, my brother and I are partners in a beef farm 
located in Bedford County, Tennessee.
    Over the past 25 years I have been actively involved in rural 
development issues in Southeast Missouri. I have worked with farmers 
and farmer groups and applied and obtained for producers several of the 
grants administered by USDA-Rural Development. I have experience with 
the USDA, Value-Added Producers Grants (VAPG), Rural Energy for America 
Program (REAP) or 9007 grants, Rural Business Opportunity Grants (RBOG) 
and Community Facilities Grants at the grassroots, working with farmers 
and farmer groups. I have also worked with other USDA grant and loan 
opportunities. The nonprofit I helped start has helped farmers receive 
nearly all the VAPG grants received in Arkansas.
    Based on 25 years working with USDA rural development programs, I 
have seven specific recommendations to improve rural development 
programs. First, focus more of VAPG on planning grants. The Value-Added 
Producers Grants, of which I have written five separate proposals, with 
three funded, is one of the more progressive and effective programs 
offered by USDA. This program offers to farmers and farmer groups the 
opportunity to develop an idea, create an enterprise and help the local 
rural community. Within VAPG there are two types of grants, the 
planning grant--which is used to plan the enterprise by funding 
feasibility studies, business plans, attorney fees etc., and working 
capital grants. I have only worked with planning grants. I am a strong 
advocate of these type grants. I prefer that the majority of VAPG funds 
be made available to this effort in lieu of working capital grants. 
There may be specific legitimate reasons why a VAPG working capital 
grant makes sense in a given instance, but generally speaking I would 
lean the program more in the direction of planning grants. It is my 
opinion that in most cases if an enterprise is viable, funding is 
obtainable from an assortment of other sources.
    Second, allow farmer time to be included as match for VAPG. There 
is a 50% match requirement for funds with VAPG. Securing match is 
problematic. We have been able to do so, for the projects in which I 
have assisted, by utilizing my time, with the University of Missouri as 
match. At the least, farmers' and participants' time should be 
allowable to be used as match. The farmer/entrepreneur who develops a 
new enterprise usually knows more about that industry than anyone else. 
His/her time and expertise are crucial to success of each VAPG. 
However, I would prefer that the match requirement for the planning 
grant (but not for working capital grants) be altogether eliminated. If 
it cannot be eliminated altogether, then at the very least there should 
be liberal provision for counting the time and expertise of the farmer/
entrepreneur.
    Third, past VAPG grant reports should be assembled in an on-line 
reference library. Information obtained through the VAPG grants is now 
proprietary. However, if the information from planning grants is not to 
be used, especially if the project is not feasible, then at least this 
information should be placed in the public domain. But I suspect there 
would be relevant information from other grant programs useful to the 
public and to academicians that could be in a reference library without 
compromising any confidential proprietary information.
    Fourth, allow REAP to cover 50% of costs and move VAPG energy 
feasibility proposals to REAP. Within REAP there is a feasibility study 
grant program. As with all of REAP, the grant will cover 25% of the 
project costs. An applicant can use the VAPG also for an energy project 
feasibility study, but VAPG will fund 50% of the project cost. The 
feasibility study grant program of REAP should be raised to cover 50% 
of project cost, similar to VAPG, instead of 25%. Energy feasibility 
grants could then be moved to REAP. This would help rationalize the 
limited government resources, allowing VAPG to concentrate on food, 
fiber, and forestry projects with energy projects supported through 
REAP.
    Fifth, carve out a part of Community Facilities Grants for farmers 
markets. I suggest that funds be allocated in the Community Facilities 
Grant specifically for farmers markets. Farmers markets are popping up 
around the United States; they are a local economic activity with low 
capital investment but with both positive health and economic effect. 
The Community Facilities grants applications are filed at the local 
USDA-RD field office. I am here this week in Washington to review 
Farmers Market Promotion Program grants. There were over 500 applicants 
from all corners of the United States. Clearly, this is a popular 
program. As I began to review these proposals, it became clear that 
there is a great need for this program throughout the U.S.; however, 
those proposals were written from urban areas, with the better grant 
writers, had a greater chance of being funded. There were proposals 
that expressed a great need, but will not be funded because they did 
not hit all the evaluation components in the writing. This seems unfair 
and reflects the basic problem of the lack of adequate personnel 
resources in rural areas. This raises the issue of fund distribution 
inequity for all USDA grant programs.
    Sixth, a less complex grant application process is needed for both 
VAPG and REAP. A three page proposal for REAP and VAPG grants less than 
$25,000 would be ideal. For a VAPG grant, it typically takes a full 
week of work to complete an application.
    My final and most important recommendation is to establish a 
national program to train enterprise facilitators to help farmers in 
underserved areas develop proposals for these programs. This program 
could do the greatest to help rural America. There is also an inequity 
of grant funds distribution with both the VAPG and REAP programs. 
Missouri did well with VAPG until this year, when the evaluation 
criteria were changed. Nebraska does very well with the REAP grants. 
Tennessee does not receive many of either of the grants. Local Rural 
Development offices are not necessarily versed in these and other 
grants offered through their agency. The contact for these grants is 
usually at state office. As part of my Extension duties I have promoted 
these and other USDA-RD programs, and facilitated grant applications. 
Neither the Ag Innovation Centers nor the Rural Cooperative Development 
Centers have had a major influence on my activities. The need for good 
enterprise facilitators is greater than either of these programs can 
deliver. To develop a good grant application, someone must write it, 
the ability and desire is oftentimes lacking. USDA should do what it 
can now to develop a nationally coordinated initiative for enterprise 
facilitators, and if the Department finds new authority or dedicated 
funding is required, Congress should take this up in the next farm 
bill.
    In conclusion, the development of rural enterprise, by utilizing 
the commodities and resources at hand in a rural community, is a direct 
and sure fire way to improve the local economy. As we move into a green 
economy, one needs to remember that green grows in rural America, and 
not in urban centers or suburbia. Wealth generated by these efforts 
should stay local. To develop value in rural America, and ensure equity 
of distribution of USDA grant and loan funds into the poorer rural 
areas of the United States, there is a need for enterprise facilitators 
to facilitate locally owned value-added agriculture enterprises. Within 
Extension, there are some of us doing this. I suggest there be a 
national effort to fully fund enterprise facilitators, and place these 
people in rural America charged with working with the local populace to 
develop enterprises. These facilitators would write and assist in 
writing VAPG, REAP and other grants. This is what I do, and I believe 
it will work and reduce the inequity of grant distribution, while 
increasing the economic viability of rural America.

    The Chairman. Thank you, sir.
    Thank you for your timely presentation, and thanks to all 
of you.
    Most of you, if not all of you, have touched on some 
difficulty for applying for a Rural Development loan or grant. 
I know that, in particular, Mr. Higginbotham, Mr. Miller, you 
all talked about your concerns, and one of you actually 
mentioned about the process of having to fill out information 
for the loan and then the grant and not combining it. I 
believe, Mr. Miller, you referred to that.
    Is there an element of the process that you would change if 
you had the power to do so, and if so, what is it? What would 
help streamline the process for those applying? I welcome any 
of you to comment on that.
    Mr. Higginbotham. One thing I would change, especially for 
intermediaries that have a proven track record, if we could 
even streamline the process for them, maybe an abbreviated 
application. They have a proven track record, they have the 
reports on time, they can keep the money deployed. Streamline a 
process for that.
    Also other possible changes could be whether that could be 
considered a zero percent loan on the IRP, or maybe half of it 
grant, half of it one percent. But just some kind of process, 
or even maybe a set-aside program, so the individual states 
could say we have these intermediaries that are successful, 
they have been doing this for 10 years. Let's set aside some 
money for them on an annual basis, semiannual, whatever the 
time-frame may be, to shorten up that time-frame. To say okay, 
we need an injection of capital now, we have all of our money 
out. Then the time line to get these next dollars would be 
quicker. So just basic streamlining.
    Thank you.
    The Chairman. Thank you. Anybody else with specific 
suggestions on ways to make the process easier?
    Mr. Beaulac. I just want to agree with what my colleague 
said. We have been actually asking USDA to institute what is 
referred to as a Preferred Lender Program for those 
intermediaries who have been in the program for a number of 
years, who don't have to go back through the rigors of being a 
new applicant each and every time they go back to the program 
for additional resources. So I absolutely agree with his 
suggestion.
    The Chairman. Anyone else?
    Dr. Ayers. I just want to add once again, a shorter grant 
process would be desirable. I will state definitely on the REAP 
proposals, the ones I dealt with in southeast Missouri, 
essentially the producers hired a grant writer on their behalf 
to actually submit the proposal. The REAP is somewhat of a 
difficult proposal to write. It takes several days to do so. 
The applications I have seen, at least one I know specifically, 
is about an inch thick and it takes a lot of work to get this 
thing submitted. So anything they can do to shorten the grant 
process would be definitely beneficial, and I would also say so 
for the VAPG. Both of them.
    The Chairman. All right. Would any of the other panelists 
would like to comment on simplifying the process?
    I would encourage the suggestions you have made, for them 
to be submitted to Rural Development at USDA. I want to ask in 
the audience, is there anyone still here from USDA Rural 
Development, or did they all depart with the Under Secretary?
    We want to make sure, and I will ask the Clerk if we will 
make sure the record of this panel is forwarded to the Under 
Secretary. I am happy to sign a cover letter if staff will 
prepare that to point out specifically some of the complaints, 
concerns, and suggestions you have made.
    But I would also encourage you on the panel to not just 
think, ``Oh, by my saying it here today, somebody out there 
somewhere ought to hear this.'' I would ask if each of you 
would be willing to make that suggestion directly to the Under 
Secretary.
    Are you willing to do that, Mr. Miller?
    Mr. Ed Miller. Yes.
    The Chairman. Mr. Higginbotham?
    Mr. Higginbotham. Yes, sir.
    The Chairman. Mr. Beaulac?
    Mr. Beaulac. Yes.
    The Chairman. Mr. Bahnson?
    Mr. Bahnson. Yes.
    The Chairman. Mr. Miller?
    Mr. Ralph Miller. Yes.
    The Chairman. Dr. Ayers.
    Dr. Ayers. Absolutely.
    The Chairman. I would encourage you to do that and to do it 
right away within the 10 day time period that we stated earlier 
at the beginning of the hearing.
    Mr. Conaway, do you have questions?
    Mr. Conaway. I do. Thank you very much.
    Gentlemen, thank you very much for being here today. I 
appreciate your making the trip to D.C. to visit with us. Just 
a couple of quick questions.
    Mr. Beaulac, you said that there has not been a single 
default in the program. At what level is that? The intermediary 
level has not defaulted on any of their applications, or the 
underlying loans to the intermediary have not defaulted?
    Mr. Beaulac. Oh, no. The USDA that has had this 
Intermediary Relending Program for a number of years has never 
experienced a default in terms of the borrowers it has had from 
its own program. In other words, I have been an intermediary 
since 1975----
    Mr. Conaway. So you get funds from USDA and then you turn 
around and lend them to anyone else. You make enough on the 
spread to cover your losses and still pay back?
    Mr. Beaulac. That is exactly right.
    The Chairman. Mr. Miller and Dr. Ayers, you both mentioned 
community facilities. First off, Dr. Ayers, did I understand 
you correctly, that you are promoting the idea that we take 
taxpayer money to train taxpayers to write grants to get access 
to taxpayers' money?
    Dr. Ayers. Repeat that again, will you?
    Mr. Conaway. What I heard you say is that you are pitching 
this idea that we need to have a nationwide program to teach 
taxpayers--we take taxpayer money to teach taxpayers to write 
grants to get access to taxpayer money.
    Dr. Ayers. It already happens. Essentially, when you write 
a VAPG grant, most of the grant writers, for example, cut 
themselves in for some type of income, if you will, possibly 
for facilitating the grant, possibly working a proposal. I work 
with RC&D and their facilities and grants and so forth. So it 
is out there.
    Mr. Conaway. Yes, but--okay. The tension between 
technical--well, Community Facilities Grants, Mr. Miller, you 
have said that--well, the issue is should they use--should 
farmers markets be included at the same level of importance and 
priority with hospitals and doctors, or first responders and 
all the other things the Community Facilities Grants are used 
for? Are farmers markets as important as first responders? Dr. 
Ayers or Mr. Miller?
    Dr. Ayers. I can't answer that.
    Mr. Conaway. But you asked us to answer that, because you 
just pitched specifically setting aside, carving out monies 
under Community Facilities for farmers markets. And in order to 
set a priority, we have to decide which is more important. Is 
it more important to take really scarce--and it is going to get 
much more scarce--taxpayer dollars and fund help for first 
responders, or a weekly farmers market. Which is better?
    Dr. Ayers. Once again, I mean, it is impossible to answer 
that because you have to go through a process at the local 
community to determine which one of those they would 
prioritize. So I am not here to state which one is better.
    Mr. Conaway. But didn't you testify, Dr. Ayers, that you 
want a separate set-aside specifically for farmers markets?
    Dr. Ayers. Absolutely.
    Mr. Conaway. Isn't that a tactic decision that they are at 
least as important? If you are going to carve out a specific 
money that would otherwise go to first responders, as an 
example, and do farmers markets? Aren't you telling me that you 
believe farmers markets are equally important as----
    Dr. Ayers. I think farmers markets are important.
    Mr. Conaway. Everything is important. I don't want to 
discount that. Okay.
    Mr. Miller, did you want to comment on that?
    Mr. Ralph Miller. When I was with USDA, we put higher 
priorities on first responder projects. Demonstrations have 
pretty much done that in the past. But we also financed some 
farmers markets using the Rural Business Enterprise Grant 
program.
    Mr. Conaway. Mr. Bahnson, you mentioned in your written 
testimony an overbuilding issue in Oregon. Could you flush that 
out a little bit for us, what happened there?
    Mr. Bahnson. I am sorry, can you ask me that again?
    Mr. Conaway. In your written testimony you made reference 
to an overbuilding issue with respect to one of the broadband 
grants in Oregon. Could you just flush that out a little bit 
for us?
    Mr. Bahnson. I am from Michigan, so this is as best as I 
understand it. But I understand there were two providers 
already in that area, and yet it was funded. Even though the 
field rep recommended it not be funded, it still was funded.
    Mr. Conaway. Okay. How did that happen? What mechanically 
went on there? And maybe you have to get back to us for the 
record. But it seems to me like one of the issues we talked 
about a year ago in here, we wanted to make sure that we didn't 
duplicate service or that we didn't advantage someone to step 
into a market that already had existing coverage, that that was 
not really the intent of these programs. What I am hearing you 
say, at least one time across the United States, it looked like 
that happened.
    So if you could get back to us in more detail on how that 
decision was made and why the decision-maker thought that was 
appropriate.
    Mr. Bahnson. I would be happy to do that.
    Mr. Conaway. I thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman, and thank you 
everyone for being here today. A special thanks to Mr. Eddie 
Miller from North Carolina and the years of dedication and work 
he has done for our state.
    Dr. Ayers, in following up just a little bit with what Mr. 
Conaway asked, and in your testimony, would you agree with the 
statement that there is an inequity of resources made available 
to communities based upon their ability to write grants. 
Therefore, those that have more resources to write better 
grants, get more resources in the end game maybe, irregardless 
of whether there is a balance of that money based upon needs or 
not.
    Mr. Ralph Miller. Absolutely. Yes.
    Mr. Kissell. I think that is something we need to take into 
consideration as we look forward, that that ability to write 
grants doesn't reflect the needs within the communities in 
balancing that out.
    Mr. Miller, you talked about in your written testimony a 
lot about housing. Are there any additional thoughts you would 
like to give us there in terms of where we need to go there in 
the rural areas?
    Mr. Ralph Miller. Well, basically there were three areas.
    One, the direct Single-Family Housing 502 Program when I 
first started with the agency was a growth program. It was a 
lot of money, subsidized interest rates, and we were able to 
finance a lot of rural homes. Because of the cost to the budget 
and the subsidy factor, that program has been cut 
substantially.
    I think we don't like to identify it, but if you ride 
through rural North Carolina, low-income people will be in 
manufactured housing and mobile homes. And I have suggested 
over the years that some program be developed, either by state 
or Federal Government, similar to the Multi-Family Housing 
Program where you would have a developer go in and build a 
quality site where they could put their own mobile homes or 
whatever on there, and manage it and maintain it with the 
management company keeping it into a good living environment.
    The other thing on the 504 Program, where you are financing 
health and safety things for the elderly, a lot of times you 
can make a small grant to improve the health conditions of the 
home so people can live there longer, not go into expensive 
rest homes that the government ends up paying for. So it can be 
a cost saver for the government versus a cost expense.
    The final thing on the Multi-Family Housing Program, there 
is a lot of--there has not been a lot of funding for new 
construction, and there are a lot of older homes that are 
manufactured, not manufactured, older apartment complexes that 
are 20 years old or older. A lot of them are off the required 
list that they stay on the program. And there is a preservation 
program. There has been a demonstration pilot for the last 4 
years that helps rewrite their loans, to get the reserves up, 
to do the repairs and to keep those apartments available for 
low-income rural people. So I would encourage that to be made 
permanent since we are not putting more money into the program 
to any extent.
    Mr. Kissell. And Mr. Miller, also in your written testimony 
you addressed a lot of different individual specific areas. 
With your experience through the years in many aspects of Rural 
Development and many programs, and with your affiliation with 
rural co-ops which means so much in so many areas, especially 
in North Carolina, especially in districts like mine, in your 
oral testimony you also talked about a lot of programs that are 
working well.
    Are there some programs you would like to draw our 
attention to that you just feel like are not working as well 
and that we should take a little extra time looking at and say, 
``Hey, how can we make these programs work?''
    Mr. Ralph Miller. The Guaranteed Multi-Family Housing 
Program, if you are looking at numbers of loans made, it has 
grown tremendously over the last 2 or 3 years, and it is 
probably the only 100 percent financing out there. It is a good 
program. But with that much growth that quickly, plus the 
elimination of the energy requirements which results in 
financing a lot of older homes with higher energy costs for the 
moderate-income homeowner, that might be something that can 
cause you some problems down the road.
    Mr. Kissell. Thank you, sir. Once again, thanks to 
everybody for coming.
    Thank you, Mr. Chairman.
    The Chairman. I would like to recognize that the Chairman 
of the full Committee, Mr. Peterson, has joined us. We welcome 
him to sit in on our Subcommittee. We will proceed with 
questions from the panelists, but we welcome the Chairman's 
questions or comments at this time.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    Mr. Peterson. Well, thank you, Mr. Chairman. Thank you and 
the Members for doing this.
    You know, as long as they brought up this 504 Program, it 
is hard to keep these numbers straight, but I have been getting 
a bunch of complaints in my district about this program. I 
actually, back before I got in Congress, I actually was part 
owner of one of these deals and did the books for it, so I know 
enough about it to be dangerous.
    But they are having problems in my area, apparently, 
finding enough people that qualified to get into these deals. 
They have apartments sitting empty and they can't do anything 
about it. They would like to convert the thing because the 
demographics of the community have changed and they don't have 
enough low-income people to fill the apartment, but they can't 
get out of the deal and they are stuck.
    They might be in this preservation thing, I don't know; but 
they are stuck, and the people that own it are 80 years old and 
nobody wants it. And I have gotten three or four different 
folks that have been in these things that are saying it is not 
working the way it should.
    Have you got something similar going on in North Carolina 
or not?
    Mr. Ralph Miller. In North Carolina, I guess because of 
oversight of the staff, they have been pretty consistent. They 
have worked with pretty well-respected developers and they do 
not have the problems with the program that a lot of other 
states have. Most of our developments in North Carolina were 24 
or more units. I think in some of the states they have 
something like quad-plexes and this type of thing.
    Mr. Peterson. These are eight-plexes that are owned by just 
ordinary people that maybe have one or two of these in a small 
community, that when they first built them the community was 
pretty rural and fairly low income. They were close enough to a 
growth area where the demographics of the community have 
changed, and now they are having problems and they can't, 
because of the rules, they can't make the thing work. They 
don't know what to do with them.
    Mr. Ralph Miller. There is a processing agency you can go 
through and determine whether or not it is needed in the 
community. If it is not needed in the community, they can allow 
the developer to take it off the program and to pay it off and 
take it to other housing. In a lot of cases, like you say, 
elderly owners that have it and they want to get rid of it, 
there are a lot of management companies and all that are buying 
up projects and getting Federal and state tax credits to go 
rehab them----
    Mr. Peterson. Low-income housing tax credits, you mean?
    Mr. Ralph Miller. Yes. There is a process, they can take 
them off that program if the agency deems they are not needed 
for the community.
    Mr. Peterson. Who makes the decision? Is it made at the 
state rural development level, or is it made in Washington?
    Mr. Ralph Miller. It would be made at the state level.
    Mr. Peterson. The State Director has the authority----
    Mr. Ralph Miller. To the best of my knowledge, yes, sir.
    Mr. Peterson.--to deal with this? All right.
    Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Chairman, for joining us.
    Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman.
    Mr. Beaulac, your testimony cited some reasons, cited some 
of the reasons credit is not available through traditional 
banks. Since the banks set guidelines based on sound lending 
practices, do you see any dangers in the government offering 
credit where best practices in the private sector would 
otherwise prevent loan applications from moving forward?
    Mr. Beaulac. I am trying to understand the question. I am 
sorry. Could you repeat it?
    Mr. Thompson. Sure. Businesses applying for loans in the 
private sector, and, unfortunately, they go to a bank, they go 
to the bank and based on best practices, they are denied that 
credit, and yet they would qualify in the public sector. I 
guess the question is: are there any times that this is 
actually putting those businesses in kind of a precarious or 
dangerous situation fiscally?
    Mr. Beaulac. I think just the opposite is true. I think if 
you talk to a number of commercial bankers where we work, they 
actually welcome the collaboration between their private 
capital and what we could bring. For example, in an IRP program 
or an RBEG program or SBA program, where we might be able to 
take a second position behind their first-position loan.
    So lending has really been constricted lately, and the 
underlying standards, or the underwriting standards have really 
become so incredibly strict that banks just don't want to do as 
much of the deal as they did before. So they welcome some other 
sort of leveraged participation in the loan.
    So the number one source of the growth in our lending 
portfolio is actually collaboration with banks, and many of 
those are just referrals from banks, and oftentimes the bank 
stays in as part of the deal. I think what you are seeing is 
really a very strong growth in that tradition, where 
intermediaries, noncommercial lenders, nontraditional lenders, 
work in collaboration with financial institutions and it is a 
great model.
    Mr. Thompson. Thank you.
    Mr. Higginbotham, in your testimony you stated support for 
USDA's Regional Innovation Initiative. What are the specific 
elements of this initiative that you support?
    Mr. Higginbotham. I think what I support about this 
initiative is, first of all, it is going to bring communities 
together, to work together, to find a way to promote their 
assets on a regional basis, to better be competitive in the 
region, in the state, globally. It is just going to force rural 
areas to come together, work together, manage their assets to 
be competitive.
    Mr. Thompson. You also mentioned that the flexibility going 
into the Rural Business Program helps you expand in dynamic 
economic conditions. Can you describe in greater detail what 
provisions help you respond to changing economic needs and how 
those flexibilities are utilized in practices?
    Mr. Higginbotham. The USDA funding is flexible enough that, 
depending on the type of business that needs a business loan, 
whether it is retail, commercial, the ever-changing economy, 
those funds are flexible enough that we can go into a lot of 
different industries and businesses----
    Mr. Thompson. Thanks.
    Mr. Higginbotham.--and create jobs.
    Mr. Thompson. Mr. Ed Miller, Eddie Miller, being specific 
here, you highlighted--actually, I was kind of interested in 
the rest of the story. In your testimony you highlighted a 
grant that you received for Rural Business Enterprise to 
conduct a market study. What was the result of that study and 
has the water bottling project been able to move forward?
    Mr. Ed Miller. Good news on both counts. The result of the 
study was very favorable. And, of course, they hired a 
professional to do this study. It came back very positive. And 
they are now going through the studies, the water studies 
themselves, to make sure that those are okay, because the 
Tribal Council is very, very strict about anything being taken 
from their wells, their property. So they themselves now are 
making sure that the water quality and availability is there.
    But that is what they are doing right now, and they are 
actually paying for that study themselves. They will get the 
money themselves to pay for that. And if that comes back 
positive, then they intend on moving forward.
    Mr. Thompson. Very good. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Mr. Cassidy.
    Mr. Cassidy. Dr. Ayers, you are the man when it comes to 
getting grants; yes?
    Dr. Ayers. The VAPG we applied for this year was turned 
down.
    Mr. Cassidy. Well, on the other hand, I am going to 
disagree with Mr. Conaway's kind of thrust a little bit, 
because I can actually see that an impoverished, poorly 
educated rural community versus one which is almost a bedroom 
community for something further away, but of higher-income 
people, would be at a relative disadvantage. And in fact, when 
you say that some states, for example Tennessee, didn't get any 
of these grants, and others, like Mr. Higginbotham's state, do 
extremely well when it comes to REAP, it is either an 
indictment or endorsement of the local agents who are the 
facilitators of these grants. Is that a fair statement?
    Dr. Ayers. My opinion is there are not enough people in the 
rural communities facilitating these grant proposals, and 
working with groups of farmers and groups of producers to 
produce good proposals.
    Mr. Cassidy. But on the other hand--and I have looked at 
your grants--they all seem valid, I am not criticizing that, 
you seem capable. Not every community has someone so capable, 
that is obvious; and Nebraska has done a bang-up job. So 
clearly I accept what you are saying. Not every community has 
such.
    The question is: How do we replicate those who successfully 
do so? Fair statement?
    Dr. Ayers. I think there needs to be some type of national 
initiative of facilitators.
    Mr. Cassidy. Now, why do we need to focus upon state 
agents? Because it still seems like I was in Louisiana and I 
was going to develop more REAP funding, I would go to Nebraska 
and hire somebody away, offer them a package of some sort, 
better football games, et cetera, et cetera.
    To what potential could we just make this online? Why do we 
have to invest in local officials when that is always going to 
be subject to who is there, as opposed to something online 
where folks can do--and we can have some sort of quality 
control, et cetera?
    Dr. Ayers. When you are working on proposals, especially if 
you are working with farmer groups, you engage those people in 
a process to get a good proposal together. One of the inherent 
problems, especially in a rural community or a rural area, is 
that even though we have people with like interests maybe 
pursuing the same idea or the same concept, they don't 
necessarily know each other. And online, yes, there is a 
possibility some of that, some of the new technology or 
whatever is out there possibly has the potential of helping 
out.
    But at the end of the day, you have to sit down with that 
group of producers and group of farmers, and work together and 
go through a process, engage them in their ideas and their 
concepts before you start writing the proposal.
    Mr. Cassidy. Does that require the person to be local, with 
an organic understanding of what potential lies within the 
community; or does it just require somebody that has experience 
at facilitating, to identify resources and to say come 
together, let's figure out how to do these together?
    Dr. Ayers. I would say both. There needs to be some 
technical ability of the people in the field working with these 
proposals, and also some skills with those people as 
facilitators in their roles. However, you can obtain the 
technical side. That is obtainable. Typically there is 
expertise all over the United States that you can tap into that 
exists with that process.
    One of the other drawbacks is, especially my experience 
with VAPG grants--and I worked with the University of 
Missouri--the University of Missouri doesn't have all the 
answers. In fact, the majority of our grant funds I wouldn't 
say were farmed out, but were contracted by the producer groups 
with outside entities that were private. These people have the 
expertise, if you will, at times to come up with the type of 
information that is needed.
    So in reality, I have utilized the University of Missouri 
resources really very little. Most of it has been on the 
private side of the fence, which actually for a lot of things 
is better because they themselves have the expertise.
    Mr. Cassidy. Okay.
    Now, Mr. Conaway, again, was wondering about the economic 
potential of farmers markets, and your kind of endorsement of 
such, I don't know. What is the economic potential of farmers 
markets? Is it a cottage industry which, yes, it is nice, it 
makes people feel good, reconnects them, know their farmer, 
that sort of thing; or is it no, this is a potential booming 
business where we can bring significant dollars into the rural 
area locally?
    Dr. Ayers. I would say it is more of the latter. Whether it 
would be significant dollars, I don't know. It depends upon the 
community. And I am not fixed on farmers markets. It is just I 
happen to be here reviewing the proposals. But the point is----
    Mr. Cassidy. Can I interrupt you just for a second? 
Because, again, I am going back to this thing I saw in 
Birmingham where, again, next to a housing project, they set up 
something on a vacant lot and now they are providing organic 
vegetables, home grown, to all the high-end restaurants in 
town. I don't know what their book of business is.
    Has anybody done a study on that so that we can know, is 
that a valid business model that we want to encourage because 
it brings--you see where I am going with that?
    Dr. Ayers. You are asking me?
    Mr. Cassidy. Yes, sir.
    Dr. Ayers. When it comes down to the farmers markets 
studies, I do not have that knowledge and I do not know the 
literature on that, if you will.
    Mr. Cassidy. Can anybody else deal with that? Off the top 
of your head, if somebody has got something to offer on that, I 
would be interested.
    Mr. Ralph Miller. In part of our state, a gentleman or 
company came up with a website where farmers hook up with 
restaurants in the Charlotte area. That seems to be pretty 
successful. It is like a farmers markets online.
    Dr. Ayers. I will reiterate a couple of things. In 
Missouri, we are having a movement in the state. I am working 
with farm-to-schools. Actually right now there is a program 
going on, there are some problems with that, but we are having 
some people, especially in the metro areas, working to move 
some of the produce from the local producers into the urban 
areas, both with restaurants, also with a farmer-owned facility 
up in St. Louis. There are also some groups out of Kansas City. 
So some of this is going on.
    One of the problems is that we aren't replicating this in 
some of the rural areas where, in my opinion, it needs to be 
done. And, quite frankly, I lived in Boot Hill, Missouri, for 9 
years, and the quality of produce in Portageville, Missouri, 
was quite below that of even a place like Cape Girardeau, which 
is where I am living now. So the inherent question to ask is 
why, when even when we have some of this production locally.
    So there are some problems out there of really moving some 
of the local produce into both the local schools, and then also 
for the local consumers. The farmers market is just really one 
of the ways to do that. It can be extremely simple, or it can 
be very complex. I think there are some extremely good 
facilities, for example, in North Carolina, which their state, 
I know as a fact, have taken up initiatives to promote the 
farmers markets throughout their state.
    Mr. Cassidy. Okay. Thank you.
    The Chairman. Thank you, Mr. Cassidy.
    Mr. Conaway, do you have an additional question?
    Mr. Conaway. I just have one quick one. Ed Miller, it seems 
to me like your community is a prototype for the broadband, 
roll-out stimulus money, whatever it was. Can you give us a 
couple of seconds on why your community still doesn't have 
broadband access, even with all the billions of dollars that we 
provided for rural broadband?
    Mr. Ed Miller. That is a very good question. To give you 
another idea, our county is 70 miles long. It is a very long 
county for Virginia. It is long and narrow. And in order to 
actually do the application for the first round of funding, I 
actually had to go outside of the county to somewhere that had 
high-speed Internet in order to input the application. I had to 
spend a week doing it.
    So that is a good question. We are trying as hard as we 
can. We are working with a major national partner, Cox 
Communications. And, like I say, we were very surprised when we 
got the letter from the first round saying that we didn't 
demonstrate that we were rural. We don't know how else to 
demonstrate it.
    Mr. Conaway. Was it because of the fixed distance between 
major communities?
    Mr. Ed Miller. I am assuming so. We weren't told that 
specifically. I am assuming so. When I asked someone in the 
state office that was very high up in the state office, ``What 
does this mean,'' I was basically told to attend a meeting of 
the higher-up folks at USDA that was going to be in Blacksburg, 
Virginia, and they unfortunately had to cancel that meeting 
because of the weather. So I have really never been able to get 
the letter in front of anybody at a very high level to explain 
that to me. I don't know.
    Mr. Conaway. But you are in the second round.
    Mr. Ed Miller. Yes, sir. We submitted for the second round.
    Mr. Conaway. And you will know here soon if you qualified 
under that?
    Mr. Ed Miller. I am hoping so, yes.
    Mr. Conaway. Thank you, Mr. Chairman.
    The Chairman. Mr. Kissell.
    Mr. Kissell. Mr. Bahnson, you indicated in your talking 
points that with certain changes in procedures and policy, that 
in rural areas we would see high-speed Internet that is very 
slow in rural areas versus really high speed in more urban 
areas. Can you elaborate on that a little bit? Are there 
specific policies there you would like to identify that we 
really need to be careful of?
    Mr. Bahnson. I think you are talking about the broadband 
plan that has been put forward by the FCC. They identify 4 
megabytes per second as what they want to provide throughout 
the country. Then they go on to talk about providing 100 
megabytes to 100 million households, and the households they 
are talking about are in urban areas. So you are starting to 
set up a digital divide between rural and non-rural areas in 
the country.
    So I mean, the difference between 4 megabytes and 100 
megabytes is huge. They are telling us by 2015 people are going 
to want 100 megabytes in their home as far as how much 
broadband they want. The applications that are coming in today 
are going to require that.
    So in rural areas if you can only get 4 megabytes, if that 
is the threshold that is set, you are going to be at a severe 
disadvantage if you are in a rural area versus a suburban or 
urban area.
    Mr. Kissell. Not having a whole lot of knowledge about the 
services provided, what would have to be done in the rural 
areas to make sure that doesn't happen, so that we can have 
equal access throughout the nation, which is my understanding 
of what we wanted to do to begin with?
    Mr. Bahnson. I think it is very simple. You just don't 
create that definition in that plan. You don't say that 4 
megabytes is enough. You treat the whole country the same. Just 
because you are in a rural area--going back to the fifties, 
when they said everybody ought to be able to have a telephone, 
so they put together ways to make that happen. I think what we 
are saying is, ``You know what? Everybody ought to have 
broadband and everybody ought to be able to have the same 
affordable broadband.''
    But in this particular document, there is a very clear 
definition of what is acceptable in rural areas and what is 
acceptable in suburban areas.
    Mr. Kissell. Thank you, sir.
    Thank you, Mr. Chairman.
    The Chairman. Anything else, Mr. Cassidy?
    Mr. Cassidy. Following up on that, I don't understand this, 
so I am asking this not to challenge but for elucidation. It is 
my understanding that if you are at prime time in the urban 
area and you have, however many people accessing it, that 
really that increased capacity is more because there is an 
increased population. And if everybody accesses simultaneously, 
it slows down. It is a pipeline, if you will. And presumably in 
the rural, almost by definition, in fact by definition, there 
are fewer people so therefore per capita access would be about 
constant. Is that an incorrect understanding?
    Mr. Bahnson. I think it depends on the backbone that is 
serving that particular area. If what you are saying is true in 
an urban area, it is only because the provider there doesn't 
have enough backbone to haul back to the Internet.
    I can tell you that 4 megabits in a school, or 4 megabits 
in a library, or 4 megabits in a business is not enough to 
conduct the kind of quality experience you want on the 
Internet.
    Mr. Cassidy. Okay. Mr. Eddie Miller, again, this is 
something I don't know, so I'm asking hoping you do.
    I thought in the stimulus package funding there were 
certain provisions that if you accepted money for energy 
projects that you are required to have a certain energy 
efficiency inherent in the housing stock. Now that is about the 
level of my understanding. Because I am struck by that. That 
comes to mind, that little tidbit tucked way back there, 
because you mentioned how the energy requirements have been 
stripped from the issues you spoke of. Can you connect those to 
me?
    Mr. Ralph Miller. The 502 guaranteed Housing Program is an 
ongoing program that has been with USDA for a number of years. 
There used to be a requirement that they have certain 
insulation and so forth in the houses if USDA was going to 
finance it. Approximately 2 or 3 years ago, because of 
pressures from realtors and so forth, they did away with that 
requirement. So that means that a home that is 30 years old 
that doesn't have insulation can be financed with a Federal 
Government loan. Which means that 115 percent of median income 
is the maximum income for the applicant. So they will move into 
that home and have high energy bills.
    Mr. Cassidy. Presumably, though, a lower mortgage as well, 
correct?
    Mr. Ralph Miller. Lower mortgage maybe. There is not a 
maximum on the mortgage itself. It is the maximum on what they 
can pay for based on their income and their ratios.
    Mr. Cassidy. But that is connected into the mortgage 
amount.
    Mr. Ralph Miller. Right. In other words, their income 
ability to pay determines how much mortgage they can carry.
    Mr. Cassidy. So if the home is cheaper because someone does 
not have to retrofit it, then in a sense there might be a 
balance, right? You have a little bit higher utility, but you 
have a lower mortgage, so the aggregate between the two is a 
constant.
    Mr. Ralph Miller. Well, if they get a 100 percent loan and 
they don't have much money in the bank and they get a $500 or 
$600 electric bill, it gets out of balance pretty quick.
    Mr. Cassidy. Thank you. I yield back.
    The Chairman. Thank you very much.
    I would like to thank all the panelists and the audience 
who has been with us and the staff for their good work. Thank 
you all for your attendance today at this important hearing.
    Under the rules of the Committee, the record of today's 
hearing will remain open for 10 calendar days to receive 
additional material and supplementary written responses as 
indicated previously from any witness to any question posed by 
a Member. Members likewise have the same amount of time to 
submit any additional comments.
    The hearing of this Subcommittee is about to conclude, but 
let me remind each of the panelists that you did make a 
commitment to make known your concerns to the Under Secretary 
of Rural Development. Please copy us so that we will see for 
the record that you did do that within the next 10 days.
    And, again, I remind the Committee staff to please prepare 
the request I made earlier for my signature as well to go to 
the Under Secretary.
    With that, travel safely. God speed. May God bless all of 
you.
    This hearing of the Subcommittee on Rural Development, 
Biotechnology, Specialty Crops, and Foreign Agriculture is now 
adjourned.
    [Whereupon, at 12:08 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
      
 Submitted Letter by Hon. Mike McIntyre, a Representative in Congress 
                          from North Carolina
October 7, 2010

Hon. Dallas P. Tonsager,
Under Secretary for Rural Development,
U.S. Department of Agriculture,
Washington, D.C.

    Dear Under Secretary Tonsager:

    On July 20, 2010 the Subcommittee on Rural Development, 
Biotechnology, Specialty Crops, and Foreign Agriculture convened a 
hearing on rural development programs in advance of the 2012 Farm Bill. 
You appeared before the Subcommittee on the first witness panel to 
discuss the administration of rural development programs. The second 
witness panel was comprised of rural development stakeholders who 
discussed the current farm bill and provided suggestions for 
reauthorization of that legislation.
    During the second witness panel, I encouraged those witnesses to 
communicate their suggestions on farm bill reauthorization as it 
relates to rural development directly to you and stated my intention to 
send a transcript of the second witness panel to you, as well, upon 
completion.
    In the meantime, I have included copies of each witness's opening 
statement for the July 20 hearing * and encourage you to consider their 
views on the application process and agency response for various rural 
development programs. I am ready to work with you during the upcoming 
farm bill to ensure that the concerns of these and other rural 
stakeholders are addressed.
---------------------------------------------------------------------------
    * Note: dues to printing constraints the witness's statements will 
not be reprinted here as an attachment.
---------------------------------------------------------------------------
    Thank you for your consideration. I look forward to working with 
you on these issues in the future.
            Sincerely,


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Hon. Mike McIntyre,
Chairman.
                                 ______
                                 
 Submitted Letter by Hon. Glenn Thompson, a Representative in Congress 
                           from Pennsylvania
November 17, 2009

Hon. Lawrence E. Strickling,
Assistant Secretary for Communications and Information,
National Telecommunications and Information Administration (NTIA),
U.S. Department of Commerce,
Washington, D.C.;

Hon. Jonathan Adelstein,
Administrator,
Rural Utilities Service (RUS),
U.S. Department of Agriculture,
Washington, D.C.

    Dear Assistant Secretary Strickling and Administrator Adelstein:

    The Small Business Committee appreciated the testimony provided 
during the October 28, 2009 hearing on ``The Recovery Act and 
Broadband: Evaluation of Broadband Investments on Small Businesses and 
Job Creation.'' Your remarks offered critical insight into the 
importance of broadband for small businesses. The testimony also 
allowed the Committee to more clearly understand the role of broadband 
in stimulating the economy and creating jobs.
    The strong applicant interest in both the Broadband Initiatives 
Program (BIP) and the Broadband Technology Opportunities Program (BTOP) 
suggests that these American Recovery and Reinvestment Act programs 
offer significant opportunities for expanding broadband throughout the 
country. However, despite the interest expressed in these programs, 
many concerns have been raised by small businesses with respect to 
their implementation. As NTIA and RUS complete the first round of 
funding and seek comment on the second round rules, we ask that the 
following recommendations be considered.
Advancing the Recovery Act Objectives and Goals
    To ensure that new infrastructure projects reach communities with 
the greatest need, prioritization should be given to areas without 
access to broadband. It is the Committee's recommendation that funds 
should be targeted to areas which are first ``unserved'' and only then 
to ``underserved'' areas, if funding remains.
    Second, the Committee urges improvements to the website used to 
display applications and receive comments from the public, including 
existing service providers. It is our understanding that the procedures 
for using this website are confusing and time/resource consuming, 
particularly for small businesses. Without such changes, the Committee 
is concerned that awards will be issued with an inaccurate or 
incomplete picture of existing service.
    Additionally, as was raised during the Committee's hearing, Members 
are concerned by the process that existing service providers must 
undergo to demonstrate where broadband service is already provided. A 
formal process should be implemented to reconcile conflicting data 
received from an applicant and from existing service providers. This 
will ensure fairness and accuracy for all parties involved.
Challenges Associated with Program Requirements
    The nature of the BTOP/BIP application process has created many 
barriers to small business participation. Among the greatest challenges 
include the following: the complex application process, a 10 year 
limitation on the sale of award funded facilities, a matching 
contribution requirement, and a first lien rule. Before a second round 
Notice of Funds Availability or NOFA is issued, the Committee suggests 
that revisions be made to maximize participation among small firms.
    It is the Committee's recommendation that NTIA and RUS should 
examine the challenges associated with the current application process. 
The significant paperwork and data collection requirements have made 
the application process very expensive for many small firms. As James 
Gleason, President and CEO of NewWave Communications testified, the up-
front costs included $50,000 to support the data requested in the 
application and $30,000 to defend his company's existing service 
territory. These investments come without any guarantee of receiving a 
grant or loan award.
    In addition, the 10 year limitation on the sale or lease of award 
funded facilities creates a significant barrier for small firms. To 
ensure that firms can continue to grow and innovate, the Committee 
believes this provision should be modified. Applicants should also have 
greater flexibility to use revenue generated through a BTOP/BIP award. 
The rules currently limit an award recipient from using subscriber 
revenues to cover expenses such as technician installation costs, 
marketing costs, advertising costs, and other expenses associated with 
running a business during the initial 3 years. This serves as a 
disincentive for many small firms to apply. We hope the agencies will 
modify this provision to, at the very least, clarify that program 
income refers to profits and not gross income.
    A high matching contribution requirement also seems to serve as a 
barrier for participation among small firms. Applicants to BTOP are 
required to provide a matching contribution of at least 20 percent 
towards the total project cost. The Committee urges NTIA to consider a 
formal waiver process for small firms, so that the matching 
requirements could be lowered or eliminated.
    Furthermore, the requirement that RUS hold an exclusive first lien 
on applicant's assets may present a conflict for some firms. The 
Committee recommends revising this requirement to ensure that an 
applicant can participate without violating the terms of already 
existing loan agreements. During the first round of funding, this 
requirement prevented many companies from participating.
Definition of a Remote Area
    The high cost associated with providing service in the most remote 
parts of the United States is a significant roadblock to many small 
telecommunications firms. Such costs may be difficult for these 
companies to justify given the limited return. To address this concern, 
Congress appropriated funding to support the expansion of 
telecommunications service into rural America. Under the first round of 
funding, ``remote'' is defined as ``an unserved, rural area 50 miles 
from the limits of a non-rural area.'' Any rural area not meeting the 
definition of ``remote'' is eligible for at best, a 50 percent grant 
and 50 percent loan combination.
    As written, the definition of ``remote'' and the BIP loan-grant 
cost structure limits the amount of grant funding available to rural 
providers. The Committee recommends that the rules established in a 
subsequent round of funding modify or remove the definition of 
``remote.''
    The Committee appreciates the willingness of both agencies to 
address the concerns of small businesses. As NTIA and RUS move forward 
with the process, we ask that these recommendations be considered as a 
way to strengthen the program and support the needs of small 
businesses. Furthermore, the Committee requests that your agencies 
provide updated statistics on small business participation and once 
available, data on how much funding is awarded to small businesses.
            Sincerely,

          [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            
 Hon. Nydia M. Velazquez (D-NY),      Hon. Sam Graves (R-MO),
Chairwoman,                          Ranking Minority Member,
House Committee on Small Business;   House Committee on Small Business;

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 Hon. Dennis Moore (D-KS),            Hon. Roscoe G. Bartlett (R-MD),
Member of Congress;                  Member of Congress;

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 Hon. Heath Shuler (D-NC),            Hon. W. Todd Akin (R-MO),
Member of Congress;                  Member of Congress;

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 Hon. Kathleen A. Dahlkemper (D-PA),  Hon. Steve King (R-IA),
Member of Congress;                  Member of Congress;

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 Hon. Ann Kirkpatrick (D-AZ),         Hon. Mary Fallin (R-OK),
Member of Congress;                  Member of Congress;

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 Hon. Bobby Bright (D-AL),            Hon. Blaine Luetkemeyer (R-MO),
Member of Congress;                  Member of Congress;

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 Hon. Deborah L. Halvorson (D-IL),    Hon. Aaron Schock (R-IL),
Member of Congress;                  Member of Congress;

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 Hon. Kurt Schrader (D-OR),           Hon. Glenn Thompson (R-PA),
Member of Congress;                  Member of Congress;

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 Hon. Yvette D. Clarke (D-NY),        Hon. Mike Coffman (R-CO),
Member of Congress;                  Member of Congress;

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 Hon. Joe Sestak (D-PA),              Hon. Jason Altmire (D-PA),
Member of Congress;                  Member of Congress;

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 Hon. Glenn C. Nye (D-VA),
Member of Congress.
                                 ______
                                 
   Submitted Letter by Hon. Jonathan Adelstein, Administrator, Rural 
                        Utilities Service, USDA
January 8, 2010

Hon. Nydia M. Velazquez (D-NY),
Chairwoman,
House Committee on Small Business,
Washington, D.C.

    Dear Chairwoman Velazquez:

    Thank you for your letter of November 17, 2009, cosigned by your 
colleagues, to the Rural Utilities Service (RUS) and the National 
Telecommunications and Information Administration (NTIA) regarding the 
Broadband Infrastructure Program (BIP) and the Broadband Opportunities 
Program (BTOP).
    On December 17, 2009, the Department of Agriculture's Rural 
Utilities Service (RUS) issued a portion of its first round of funding 
awards under the Broadband Infrastructure Program (BIP). Roughly $2 
billion will be made available on a rolling basis over the next 75 days 
to bring high-speed Internet to rural communities that currently have 
little or no access to advanced services.
    Along with NTIA, the RUS issued a Request for Information (RFI) on 
November 16, 2009, seeking public comment on the first NOFA. Comments 
received came from a wide cross section of industry, public interest, 
government, investment and not for profit entities expressing a wide 
variety of concerns and suggestions for how to construct the second 
NOFA.
    Many of the issues which you raised in your correspondence on 
November 17 were shared by other commenter's regarding the need to 
enhance eligibility among small businesses seeking funding. We have 
taken these concerns into account and they will be addressed in our 
second NOFA, which will likely be published by the end of January.
    We also take note of your concern regarding the need to prioritize 
those areas currently lacking in broadband service. Proposed broadband 
projects for unserved areas generally face obstacles in ensuring both 
financial viability and sustainability. While we work to award funds to 
unserved areas, we also work to ensure wise and prudent use of taxpayer 
dollars. We are looking at several funding methods to better address 
these challenges and welcome any future discussion on this objective.
    We also recognize your concerns regarding the eligibility 
requirements contained in the first NOFA and the potential challenges 
they may pose on small businesses. The RUS will streamline these 
requirements to encourage small business participation.
    Furthermore, we acknowledge your concerns regarding the limited 
definition of ``remote'' in the first NOFA. The primary objective in 
establishing the parameters of this definition was to maximize funding 
opportunities for the most rural unserved. However, we will be altering 
this definition in the second NOFA to reflect the concerns expressed by 
Congress and the public to ensure that remote populations of less than 
50 miles from an urbanized area are also eligible for 100 percent grant 
funding.
    Again, thank you very much for your comments and your interest in 
the RUS broadband initiatives program. We look forward to working with 
you as we continue to invest in rural communities.
    A copy of this letter will be sent to your colleagues.
            Sincerely,

          [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            
Hon. Jonathan Adelstein,
Administrator,
Rural Utilities Service.
                                 ______
                                 
 Supplemetary Information Submitted by Mark Bahnson, General Manager, 
 Bloomingdale Communications, Bloomingdale, MI; on behalf of National 
               Telecommunications Cooperative Association
March 9, 2007

Hon. Mike Johanns,
Secretary,
U.S. Department of Agriculture,
Washington, D.C.

    Dear Secretary Johanns:

    I write today with deep concerns about the Rural Utilities Service 
Broadband Access Loan and Loan Guarantee Program and the recent 
awarding of a loan to CTURN Corporation. Knowing of the substantial 
efforts put forth by NTCA members to deploy broadband throughout 
Oregon, I fail to see a legitimate public interest in awarding a loan 
to serve the communities of Philomath, Newport, Canby, Stayton and 
Sublimity. At a time when the program is under increased scrutiny in 
the Federal courts and Congress, this loan leads our members to 
question whether NTCA should continue its support of the program in the 
future despite almost half of the loans awarded going to NTCA members 
or subsidiaries.
    From its inception as a pilot program initiated by President 
Clinton, to the legislative effort by Rep. Lamar Smith (R-Texas) to 
formalize it, to its ultimate authorization through an amendment to the 
farm bill by Rep. Jerry Moran (R-Kan.), NTCA has been one of the 
foremost advocates of the broadband program. During debate of the farm 
bill, NTCA worked as part of a small coalition to ensure this provision 
stayed in the bill in spite of the jurisdictional objections of Rep. 
William J. ``Billy'' Tauzin, then Chairman of the House Commerce 
Committee. Soon after publication of the program's operational 
regulations, NTCA and the Rural Utilities Service (RUS) staff hosted a 
webcast to illustrate how the program would be advantageous to our 
membership.
    Likewise, NTCA has been an honest broker in trying to tighten the 
program's regulations where they were deficient. Upon publication of 
the regulations, we believed they were flawed such that unless an NTCA 
member responded to a competitive loan application with its own 
accurate broadband numbers, the numbers filed by a potential competitor 
would be considered accurate. While the respective RUS field 
representative is supposed to verify such numbers, NTCA believes it is 
in our members' best interest not to wait until a loan is filed against 
them, but for RUS to have broadband information already on file. As 
such, NTCA sent a memo to our members asking them to send all broadband 
deployment information to RUS on a preemptive basis. According to NTCA 
members that followed-up on information submitted, the then-director of 
the broadband program stated unless the company already had been filed 
against, its information would be discarded. While this person is no 
longer leading the broadband program, NTCA cannot help but wonder how 
much information was discarded that would have aided in RUS' effective 
management of the program.
    While field representatives are responsible for verifying such 
information, NTCA members that have been awarded loans or that have had 
loans filed against them, state this has rarely--if ever--occurred. In 
the case of the CTURN loan, neither Canby Telecom, Pioneer Telephone 
Cooperative, nor Stayton Cooperative Telephone Company were ever 
contacted by a field representative or U.S. Department of Agriculture 
(USDA) employee. This alone raises serious questions regarding the 
decision made by staff comprising RUS' loan review committee.
    Our main concern with the CTURN loan is the treatment of NTCA 
members' information submitted to RUS through the legal response 
notice. Submitted via e-mail and fax, the information provided by Canby 
Telephone stated more than 99% of the community of Canby had broadband 
available through Canby Telephone. Similar broadband numbers also were 
submitted by Stayton Telephone in the communities of Stayton and 
Sublimity. Like Stayton and Canby, Pioneer also has the ability to 
provide broadband to more than 99% of each of the communities it 
serves.
    I, along with other rural telecommunications leaders, testified on 
June 27, 2002, in a public hearing at USDA on the need for addressing 
the limitations of the RUS Infrastructure Program and how the new 
broadband program could assist NTCA members as they continue to provide 
advanced telecommunications services to the most remote areas of the 
country. I doubt that anyone in the public hearing could have foreseen 
RUS providing loans to serve communities where broadband already was 
available at reasonable prices to virtually 100% of the community 
through an incumbent local exchange carrier.
    NTCA is aware of the proposed change in regulations currently under 
review at the Office of Management and Budget, and that the program 
certainly would be subject to amendment when Congress begins discussion 
of a new farm bill. To this end, NTCA suggests that the notification 
process undergo significant changes. First and foremost, at a minimum, 
the general field representative (GFR) must meet with the manager of 
any communications provider impacted by a proposed loan application or 
the recipient of a competitive loan application. Once the GFR visits 
each entity, the GFR must submit a report to the Administrator and RUS 
senior staff stating the current level of broadband availability, 
speeds and pricing information for each of the impacted entities. RUS 
senior staff should be required to contact all entity managers to 
verify the GFR's report. While the program is supposed to be operating 
in a similar practice, the CTURN loan indicates otherwise.
    While the program's legal notice is the accepted government 
practice, the CTURN loan and others have shown the notification process 
to be less than ideal. According to one NTCA member, a notice to serve 
his community in southern Iowa never appeared in the hometown paper, 
but rather a paper in Nebraska. Only when contacted by a representative 
of an RBOC that also was impacted by the competitive loan, was our 
member aware of the competitive application. Referring again to the 
CTURN loan, our members in Oregon were not aware of any notice in their 
local newspapers. To obtain information on the competitive loan, 
members from Oregon contacted several US senior staff, as well as their 
Member of Congress regarding public notices issued by CTURN. Rather 
than answer questions, RUS staff treated every minimal inquiry as a 
request covered under the Freedom of Information Act.
    To end such past problems, NTCA suggests that any communications 
provider impacted by a proposed loan application or the recipient of a 
competitive loan application be notified through formal certified mail, 
as well as e-mail. In these communications, the competitor must include 
the current level of broadband deployment in the community as well as 
current speed and pricing information that will be included in its loan 
application. As this information is currently required in the 
application through Schedule E, this should not be a difficult task. It 
also should end the current practice which requires NTCA members to 
file a FOIA request to obtain such information.
    Once every entity has been contacted, receipts or copies of 
receipts from certified mail should be kept on file at RUS and 
available for public or electronic viewing upon request. NTCA believes 
this will put more responsibility on a competitor to provide accurate 
information, as opposed to the current system requiring NTCA members to 
respond to an application with faulty or inaccurate information.
    On behalf of NTCA's members in Oregon, I ask you to review the 
CTURN loan application and the information submitted to RUS by CTURN, 
and compare it to the information submitted by Canby Telephone 
Association, Stayton Cooperative Telephone Company and Pioneer 
Telephone Cooperative. Should the information submitted by CTURN state 
the communities of Philomath, Canby, Stayton and Sublimity had 
broadband availability to less than 99% of their served communities, 
then the loan was made on inaccurate and faulty information. I further 
ask you to provide an explanation as to how the approval of this 
broadband loan is in accordance with 7 CFR  1738.11(a) and (b)(1), 
(2), and (3) in each of the communities of Philomath, Newport, Canby, 
Stayton and Sublimity.
    I hope that our suggested changes will be incorporated into the 
regulations currently under revision. As Congress begins debate on 
reauthorization of the 2007 farm bill and the broadband program, NTCA 
looks forward to working with USDA and RUS to identify any additional 
issues of concern in the RUS Telecommunications and Broadband Programs. 
As always, we look forward to working with USDA in our commitment to 
providing advanced telecommunications services to rural America.
            Sincerely,

          [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            
Michael E. Brunner,
Chief Executive Officer,
National Telecommunications Cooperative Association.
                                 ______
                                 
                          Submitted Questions
Questions Submitted by Hon. Collin C. Peterson, a Representative in 
        Congress from Minnesota
Response from Hon. Dallas P. Tonsager, Under Secretary for Rural 
        Development, U.S. Department of Agriculture
    Question 1. Definitions of Rural: When do you expect the report on 
the various definitions of rural to be submitted to Congress?
    Answer. It is our expectation that the report will be provided to 
Congress in the late Summer to early Fall. The report is currently 
under development, and will incorporate the outcomes of ``rural area'' 
considerations in rulemaking for other farm bill provisions.

    Question 2. Outdoor Recreation: In the Strategic Plan referenced in 
the Under Secretary's testimony, there is an outdoor recreation element 
whereby the Secretary seeks to promote hunting, fishing and other 
outdoor activities. Does the Secretary intend for Rural Development to 
play a role in fulfilling these goals? If so, have specific Rural 
Development program(s) been identified that would play a part in this 
element of the Strategic Plan?
    Answer. Secretary Vilsack expects all agencies within USDA to 
support the President's America's Great Outdoors initiative to build a 
21st century conservation agenda while creating economic opportunities. 
While the Rural Development Mission Area doesn't offer a solely 
tourism-focused program, there are several programs within RD that can 
be used to enhance outdoor tourism and recreation facilities in rural 
areas. The Business & Industry Loan Guarantee Program (B&I), the 
Intermediary Relending Program (IRP), and the Rural Micro-
entrepreneurship Assistance Program (RMAP) could potentially offer 
opportunities to finance outdoor tourism businesses. Which is the most 
appropriate becomes a matter of scale and capacity of the business 
owner. A small entrepreneur wanting to start a trail-riding, river-
guiding, or outfitting business might turn to an intermediary offering 
financing under RMAP or IRP. A more established venue seeking expansion 
funding, such as a marina operator at a rural lake or the owner of a 
hotel or hunting lodge might ask his or her lender to seek out the B&I 
program.
    Rural Development also has financed state and county fairgrounds in 
some 20 states through the Community Facilities program, available to 
municipalities, tribes, and nonprofit organizations. For many rural 
counties, the fair is the largest tourism event of the year, offering 
millions of visitors who no longer have a first-hand understanding of 
agriculture--particularly children--a chance to get close to farm 
animals and learn about where their food comes from.

    Question 3. Recovery Act and Broadband Awards: How many of the 
first round Broadband Incentives Program awards under the American 
Reinvestment and Recovery Act were made to entities who were already 
participating in the Rural Utilities Service broadband loan and grant 
programs, or who had participated in the past?
    Answer. Under our first Notice of Funding Availability (NOFA), the 
Rural Utilities Service (RUS) made 68 awards totaling $1.067 billion. 
The American Reinvestment and Recovery Act (ARRA) provided four 
statutory priorities for the RUS Broadband Initiatives Program (BIP); 
one of which was priority for current or former RUS Title II borrowers. 
Of the 68 awards, 40 were to current or former Title II borrowers. In 
many cases, these existing Telecommunication Cooperatives had build-out 
plans developed for the future. The grant portion of the BIP program 
provided them the opportunity to expedite broadband deployment to these 
underserved rural communities which would not be financially feasible 
with RUS or private sector loan financing.

    Question 4. National Broadband Plan: To what extent were the Rural 
Utilities Service and Rural Development consulted by the Federal 
Communications Commission regarding the National Broadband Plan? Did 
Rural Development register any objections regarding the urban/rural 
desired speed difference of 100 megabits per second versus 4 megabits 
per second? Is the Department concerned this difference may exacerbate, 
rather than close, bigger digital divide?
    Answer. The Federal Communications Commission is an independent 
Federal Agency. As such, neither RUS nor Rural Development consulted 
with the FCC in its development of the National Broadband Plan. Since 
its release, FCC and RUS have been in close communications regarding 
the potential impacts of the Plan for rural America. USDA continues to 
support the need for high-speed broadband in rural America at equal 
levels to those in urban areas.

    Question 5. B&I Loan Guarantees: What is the average response time 
from USDA on a request for a loan guarantee in the Business & Industry 
loan guarantee program?
    Answer. The average response time for a B&I loan is 30-60 days. We 
recently had a customer survey completed by an independent source, 
which indicated an excellent rating of 81/100 percent.

    Question 6. Economic Conditions: Has Rural Development seen an 
increase in late payments or delinquencies on loans across its programs 
in the past year? If so, what programs are seeing the largest increase 
in delinquencies?
    Answer. We are seeing increases in delinquencies of greater than 
one year in the single family housing programs; beginning in the fourth 
quarter of 2008 at approximately $700 million to just under $1.8 
billion in the third quarter of 2010. Delinquencies in the business 
programs began increasing in the third quarter of 2009 and are 
currently under $400 million; increasing from slightly over $200 
million. We are not seeing increases in the utility programs.
Questions Submitted by Hon. K. Michael Conaway, a Representative in 
        Congress from Texas
    Question 1. Mr. Tonsager, the stimulus bill (P.L. 111-5) places no 
obligation on agencies to specifically post signs and billboards 
touting where projects are located. Rather these requirements are 
agency driven, and even specify the size of a logo which recipients 
must include on a sign. Last year your Administrator of the Rural 
Utilities Service (RUS), Mr. Adelstein, was unable to provide any 
guidance as to how much taxpayer money would be spent on signs. Deputy 
Under Secretary Cook responded to similar questions by stating: ``USDA, 
under its existing farm bill program and now the Recovery Act program, 
must approve any and all proposed expenditures proposed by the 
applicant.'' Could you please tell this Subcommittee how much funding 
USDA has approved for signs under the stimulus bill? What is the 
maximum amount per project, and what is the grand total USDA will be 
approving for signs with the `Recovery Act' logo?
    Answer. It is customary that project signs identifying the Owner, 
Contractor, Engineer, and Funding Agencies be displayed during project 
construction on many federally funded projects. In Rural Development, 
we require project signs be displayed on our construction project. This 
requirement is not unique to Recovery Act projects. Construction signs 
are considered an eligible project cost under our regulations. Specific 
cost data related to signage is not tracked in our automated systems.

    Question 2. Mr. Tonsager, USDA's online reports show that only 2.9% 
of funds have actually been disbursed for USDA's community facilities, 
business programs, and infrastructure projects under the stimulus. When 
do you anticipate all funds made available to rural development 
programs under P.L. 111-5 will be disbursed (outlayed)?
    Answer. $310.9 million of the $4.36 billion in budget authority 
provided to Rural Development under the Recovery Act has been outlayed 
as of July 30, 2010. Rural Development programs outlay funds at 
different rates depending on the program. Funds obligated through the 
Single Family Housing Guaranteed Loan Program typically outlay in 2 to 
3 months after the date of obligation. Timelines for major construction 
projects tend to be longer. Budget authority associated with guaranteed 
programs other than Single Family Housing typically outlays in 2 to 3 
years. Direct programs that involve major capital expenditures will all 
be outlayed no later than September 30, 2015, pursuant to Recovery Act. 
Many of our construction projects use interim financing to begin 
construction activities, which typically take between 3 and 5 years. 
Outlays of funds from the Rural Development do not occur until the 
project is substantially complete. We are actively working to ensure 
that all projects move to construction and are completed in a timely 
manner.

    Question 3. Mr. Tonsager, Secretary Vilsack recently testified that 
USDA has obligated $17.2 billion, and spent $14.1 billion of the $28 
billion given to USDA through the stimulus bill (P.L. 111-5). However, 
only 3% of USDA stimulus funds spent have gone to infrastructure and 
other non-nutrition programs. Could you provide this Committee with a 
list of each infrastructure project that has broken ground, and which 
includes the amount of funding which has been outlayed to each of those 
projects through USDA?
    Answer. The requested list is attached, see p. 80.

    Question 4. Mr. Tonsager, how much do you anticipate any single 
organization might spend on audits required by RUS under the stimulus 
bill's broadband program?
    Answer. Audits are required to ensure that loan or grant funds, 
whether obligated through the Recovery Act or through regular 
appropriations are spent properly. Under our Broadband Initiatives 
Program (BIP), RUS will be funding applications from less that $1 
million to over $100 million. As such, it is difficult to determine an 
average that an organization may spend on audits. We believe that the 
costs of audits required by Recovery Act awardees will generally be 
comparable to that of non-Recovery Act RUS loans and grants.

    Question 5. Mr. Tonsager, many of our constituents have complained 
about the lack of transparency in how the stimulus bill is being 
administrated. In fact, your own testimony which cites data 
corresponding to the latest financial report on July 9, 2010 does not 
match what is publicly available. Could you please explain why, near 
the end of its authorization, reports on the stimulus bill still 
provide such conflicting information?
    Answer. Rural Development continues to work hard to ensure 
transparency in our Recovery Act implementation activities. In my 
testimony I provided the latest information on Rural Development 
projects that have been cleared for obligation. Of the projects 
cleared, not all have been announced or obligated, but will be soon. We 
produce weekly reports on our obligations and outlays to date that are 
posted on the Recovery.gov website. In addition, press releases for 
these cleared projects are forthcoming and will provide the public 
additional information regarding approved projects. However, until all 
cleared projects are obligated, there will be a difference between what 
is cleared and what is obligated and outlayed.

    Question 6. Mr. Tonsager, earlier this year Secretary Vilsack made 
it clear that USDA has no intention of implementing the rural broadband 
program included in the Farm Bill until USDA's Rural Development agency 
has finished implementing the stimulus bill. When do you intend to 
fulfill your obligation to implement the Farm Bill? Can you please 
explain to the Subcommittee why USDA has failed to implement the 
broadband loan program, even when Congress provided adequate resources 
to fulfill these obligations?
    Answer. USDA is fully committed to implementing the rural broadband 
program loan included in the Farm Bill. The ability to receive a 
substantial grant under the stimulus program refocused the attention of 
broadband applicants almost exclusively to the stimulus program. In 
addition, RUS has learned invaluable lessons in loan and grant 
origination through our two Notices of Funding Availability and from 
our colleagues at the Commerce Department. As such, we are re-drafting 
our Farm Bill regulations to take advantage of the successes learned 
through BIP and plan to publish the Farm Bill regulations as an interim 
rule, with a request for comments before the end of the year.

    Question 7. Mr. Tonsager, through your testimony and through other 
updates given to this Subcommittee, USDA has indicated that once the 
farm bill broadband loan program is implemented, priority will be given 
to applications received under the stimulus bill. Does this mean you 
intend to replicate the costly and burdensome rules you promulgated 
under the stimulus and apply them to the broadband loan program 
included in the 2008 Farm Bill?
    Answer. Through our Recovery Act broadband programs, RUS will award 
approximately $3.6 billion awards, by leveraging its budget aurhority 
of $2.5 billion with a loan component. This was accomplished in less 
than seventeen months. RUS has learned a tremendous amount about how to 
process loans and grants in a more expedient manner and RUS plans to 
implement some of these features into our regular loan and grants 
programs.
    RUS believes the application process to implement the Recovery Act 
programs was important to ensure that these invaluable taxpayer 
resources were used prudently and judiciously to bring the economic and 
social benefits of broadband to rural America. It should be noted that 
the Recovery Act programs were implemented under a competitive process 
during which RUS staff could not assist individual applicants with the 
application process. Our Farm Bill broadband program is not a 
competitive process, and therefore, RUS can provide one-on-one customer 
service to applicants therefore minimizing up-front application costs.

    Question 8. Mr. Tonsager, USDA's Rural Development Agency is 
pursuing the Healthy Foods Financing Initiative to provide incentives 
to build grocery stores in rural communities. Could you update this 
Subcommittee on exactly how USDA intends to spend scarce rural 
development funds, when specific program guidelines might be available 
for public comment, and what your timeline will be for implementing 
this initiative?
    Answer. USDA's proposed 2011 budget includes a funding level of $50 
million that will support more than $150 million in public and private 
investments in the form of loans, grants, promotion, and other programs 
designed to create healthy food options in food deserts across the 
country. Of that:

   If provided, $35 million in FY 2011 discretionary funding 
        would remain available until September 30, 2012, for financial 
        and technical assistance; and

   $15 million in existing funds shall be made available for 
        technical or financial assistance and shall come from a set 
        aside of up to 10 percent of the funds made available through 
        selected RD and AMS programs. These program funds will be 
        administered under existing program regulations and 
        requirements but will target strategies aimed at enhancing food 
        access in low income areas, or food deserts.

    The USDA programs outlined in the President's FY 2011 budget, which 
are central to the HFFI, can and do provide low interest loans and 
grants to support healthy food access initiatives.
    The Rural Development Mission Area offers several financing 
programs that can be brought to bear on the question of availability of 
food, depending on the applicant (for-profit, nonprofit or municipality 
or tribe), and the purpose of the funding. Within the Business & 
Industry Loan Guarantee Program of RBS, there is a statutory set-aside 
of 5% of Budget Authority for financing local and regional food 
systems. Within that, priority is given to projects that benefit urban, 
rural, or tribal underserved communities. RBS also operates the 
Intermediary Relending Program, which provides 30 year financing at 1% 
interest to qualified intermediaries, who relend those funds at their 
own rates and terms. RBS' Rural Business Enterprise Grant program has 
been used to assist in financing several food-related projects, 
including renovations to a grocery store. RBS programs are limited to 
rural areas, defined as anywhere except cities, towns, and 
unincorporated areas of greater than 50,000 population and adjacent 
urbanized areas.
    The statutory limit on the loans to intermediaries under the 
Intermediary Relending Program is $2 million, regardless of the number 
of ultimate recipients served, and the statutory limit on loans to 
rural microentrepreneurs under the new Rural Microentrepreneur 
Assistance Program (RMAP) is $50,000 (RMAP is a 2008 farm bill program 
that will roll out for the first time this year). RMAP also is limited 
to businesses with fewer than ten employees. While these limits may be 
adequate to serving projects in rural areas, they would preclude 
reaching out to urban areas that can best be served by larger projects, 
such as the recently constructed grocery store that is now serving the 
Anacostia area of Washington, D.C.
    The RHS Community Facilities programs are available in cities, 
towns, and unincorporated areas of 20,000 or less population. The suite 
of financing options includes direct loans, grants to leverage loans, 
and loan guarantees.
    The Marketing Services Division of AMS administers the Farmers 
Market Promotion Program (FMPP). The grants, authorized by the FMPP, 
are targeted to help improve and expand domestic farmers markets, 
roadside stands, community-supported agriculture programs, agri-tourism 
activities, and other direct producer-to-consumer market opportunities.
     Approximately $5 million is allocated for FMPP for Fiscal Years 
2009 and 2010 and $10 million for Fiscal Years 2011 and 2012. Entities 
eligible can reside in both urban or rural areas and include 
agricultural cooperatives, producer networks, producer associations, 
local governments, nonprofit corporations, public benefit corporations, 
economic development corporations, regional farmers market authorities 
and Tribal governments. Under the 2008 Farm Bill, FMPP is mandated to 
utilize 10 percent of total funding for new EBT projects at farmers 
markets.

    Question 9. Mr. Tonsager, Section 6018 of the 2008 Farm Bill 
requires that USDA submit a report to this Committee, which assesses 
how the various definitions of `rural' have impacted the implementation 
of programs. This report is now past the statutory date by which it was 
required. Do you intent to submit this report to the Committee before 
you write the rules on the broadband loan program?
    Answer. The report is under development.

    Question 10. Mr. Tonsager, your testimony highlights the ``Regional 
Innovation Initiative'' which would pull scarce funding from about 20 
existing programs, totaling $280 million. Under the 2008 Farm Bill, 
provisions were included with distinct authorizations to provide 
resources for rural communities to pursue regional strategies in 
development initiatives with leadership provided by USDA. Could you 
please update this Subcommittee on the status of USDA's implementation 
of the Rural Collaborative Investment Program? What is unique about the 
Regional Innovation Initiative that sets it apart from what Congress 
authorized in the farm bill?
    Answer. While the USDA has successfully supported different types 
of regional strategies in the past, our Regional Innovation Initiative 
provides a multi-agency approach with a clear and consistent focus. The 
Regional Innovation Initiative contained in the FY11 Budget proposal 
will focus on twenty programs that have the greatest potential to 
incentivize regional strategies and create a coordinating mechanism 
within USDA to ensure that the programs work together to support the 
best regional strategies. While USDA has the authority to support 
Regional Strategies within current program authority, we lack a 
formalized mechanism to support this effort throughout the Department 
for years to come.
    USDA recently solicited applications utilizing the Rural Business 
Opportunity Grant, receiving over 400 applications with limited funding 
available. There is a clear need for a more focused approach to 
addressing the needs of communities. USDA is particularly interested in 
applications that will establish ``best practice'' projects in the area 
of regional economic and community development. The concept here is to 
examine a variety of governance structures (e.g., industry led versus 
government led,), varying place-based assets (e.g., National Forests), 
geographic diversity and community driven approach. There is a 
diversity of project type. It includes exploring rural/urban 
connections versus purely rural, exploring local/regional food 
infrastructure and comparing with energy infrastructure, and other 
variables.
    USDA through its initial work recognizes the rural-urban linkages 
in a global economy and recognize that a greater policy focus and more 
attention should given to local variations which cannot be done in 
isolation of the wider dynamics of national and international economic 
activity. The USDA believes that the Regional Innovation Initiative in 
the proposed FY11 budget will complement USDA in implementing the Rural 
Business Investment Program (RBIP) so it's most effective for rural 
America.

    Question 11. Mr. Tonsager, in April of this year USDA and the Small 
Business Administration (SBA) signed a Memorandum of Understanding to 
coordinate projects in 17 states. Could you please explain what the 
specific goals will be? What was the rationale for choosing those 
specific states? Which specific programs are similar between USDA and 
SBA? What are the specific roles of the agencies involved? Will these 
efforts require rulemaking or other formal guidance? How will you 
measure success?
    Answer. The purpose of the Memorandum of Understanding (MOU) with 
SBA is to encourage and enhance access to business/entrepreneurial 
services by our clients in rural communities. SBA has many programs 
that can benefit rural areas and the goal of the MOU is to increase 
awareness on the part of both agency's staffs so that when a potential 
client is identified (by whichever agency), that client can have full 
access to the most appropriate program available to meet their need. 
None of the two agency's programs are identical, but our clients could 
benefit from closer coordination and understanding.
    The initial 17 states are a pilot working group (initially 
suggested by SBA) and modified based on the experience/interest of our 
respective staffs in those offices. The intent is to identify best 
practices and expand to all offices.
    The MOU's initial focus includes joint appearances before potential 
client groups, sharing of program information, and consideration of 
joint financing (if the needs of a specific client present an 
appropriate opportunity). The MOU provides the option for the agencies 
to more closely coordinate finance program activities should both 
agencies determine that it is mutually beneficial; however we are still 
in the initial phases of implementation. Success will be measured by 
increased awareness of our staff to the opportunities available for 
serving our clients, as well as increased outlets for information about 
our programs.

    Question 12. Mr. Tonsager, USDA is pursuing a Memorandum of 
Understand with the Small Business Administration, as well as a 
Regional Innovation Initiative. Are the two regional coordination 
efforts connected? Can you please provide precise examples of what each 
involved agency is doing to fulfill both initiatives? How are they 
similar and what unique activities are being pursued under each 
initiative?
    Answer. The Memorandum of Understanding (MOU) with SBA and the 
Regional Innovation Initiative (RII) are separate efforts. That does 
not mean that where commonalities and opportunities exist, we will not 
assemble endeavors. The MOU with SBA leverage programs in USDA that 
support small businesses to encourage and enhance access to business/
entrepreneurial services by our clients in rural communities. The RII 
implements rural development programs in a more regional approach based 
on locally developed, comprehensive strategic plans by identifying 
needs or issues, establish priorities, and determine what program 
linkages and sequences that need to take place to address those needs. 
Both initiatives use RD programs to provide service to improve everyday 
life in rural America and encourage economic development. We are in the 
initial phase of implementation of the MOU. Through RII, we are 
reviewing our programs and funding announcements for opportunities to 
emphasize regional strategies in the project proposal.

    Question 13. Mr. Tonsager, you outlined in your testimony how dire 
the economic situation is in many parts of rural America. You also 
support creating regional food systems that will ``keep wealth in rural 
communities.'' Can you please explain how poor communities will benefit 
from only focusing inward to re-circulate economic activity rather than 
securing new capital flows? Would it not be better for them to tap 
valuable national and international markets to infuse new capital into 
our rural communities?
    Answer. USDA recognizes that national and international markets are 
critical to rural development--whether it's for the export of food, 
fiber and fuel or for tapping into online markets via broadband--and 
assisting farmers, rural businesses and communities with accessing 
these markets is an absolute priority. In addition to this, our 
nation's farmers and ranchers have the ability to transform natural 
resources into economic wealth--what was once seed, soil, water and 
fertilizer can become a valuable commodity. It is for this reason that 
local and regional food systems offer communities the markets to grow 
and multiply the economic benefits of agriculture internally while 
interacting with national and global markets.

    Question 14. Mr. Tonsager, in September, USDA launched the ``Know 
Your Farmer--Know Your Food'' initiative. What is USDA hoping to 
achieve through this program? How will USDA measure results from this 
initiative?
    Answer. The overall mission of the ``Know Your Farmer, Know Your 
Food'' initiative is to create thriving rural communities and generate 
and maintain jobs, both on and off the farm. As we know, so many jobs 
are connected to agriculture, like processing, distribution and small 
businesses, and supporting local and regional food systems is an 
important way to achieve rural economic development.
    The initiative is also focused on connecting, or reconnecting in 
some cases, consumers with how their food is grown. Since so many 
Americans are not directly engaged in farming, there is a vital need 
for an education on American agriculture.

    Question 15. The performance measure for ``Know Your Farmer, Know 
Your Food'' is the Local Foods Index (LFI). USDA's Economic Research 
Service is developing the LFI as an addendum to the Food Environment 
Atlas. The LFI will be a measure of access to local foods in the food 
environment.Mr. Tonsager, USDA has included the Community Facilities 
(CF) program, a program created to provide funding for ``essential 
community facilities,'' in the ``Know Your Food, Know Your Farmer 
Initiative.'' Given how limited the funds available for this program 
are, how much do you intend to spend on local food efforts from CF 
accounts? What are your criteria for deciding to build a farmers market 
rather than a fire station in poor, rural communities?
    Answer. Improvements to community facilities such as school 
kitchens, farmers markets and food banks offer one avenue for ensuring 
that rural residents fulfill their basic needs, such as putting food on 
the table, while also enabling the development of new markets for 
producers in those communities. All CF applications, regardless of the 
type of community facility, are evaluated and scored according to 
existing criteria.

    Question 16. Mr. Tonsager, the USDA website for the ``Know Your 
Food, Know Your Farmer Initiative'' lists many rural development 
programs which have nothing to do with local food initiatives. Is it 
the intent of USDA to use funds from all the programs listed? Will 
farmers who want to form a cooperative be denied assistance if their 
intent is to market products nationally or to export commodities? Could 
you please provide details on exactly which programs will be drawn into 
the ``Know Your Food, Know Your Farmer Initiative,'' how much money 
will be set aside from each program, and what the specific, extra 
qualifying criteria will be for successful applicants?
    Answer. Secretary Vilsack launched the Know Your Farmer, Know Your 
Food initiative in order to better connect consumers to producers, and 
convened a task force of employees to examine how USDA supports 
producers in accessing local and regional markets. This initiative 
compliments USDA's efforts in helping producers access national or 
international export markets, by supporting producers in accessing yet 
another profitable market avenue. The Know Your Farmer website serves 
as a resource for these entrepreneurial producers and as an effective 
outreach tool for the Department. The website highlights USDA programs 
that, within their existing authorities, might be of use to rural 
constituents seeking to profit from these local and regional markets. 
All applications received by the Department are evaluated equally with 
respect to the authorities and goals of the appropriate program.
    Simply put, Know Your Farmer, Know Your Food website is a 
communications mechanism to raise the visibility of USDA programs that 
connect consumers with producers, as well as the programs that can 
generate economic growth in rural America by growing local and regional 
markets. USDA recognizes that local and regional markets are just one 
option available to producers and are committed to supporting all 
farmers and cooperatives, regardless of their size, location, product, 
or the markets to which they choose to sell.

    Question 17. Mr. Tonsager, what do you anticipate would be the 
effect of raising fees for the Business and Industry Loan Program? How 
does the cost of capital under this program compare to the cost of 
capital through commercial lending, on a national average?
    Answer. The regulations governing the Business and Industry 
Guaranteed Loan Program require that two types of fees be charged: an 
annual renewal fee to be paid by the lender based on the unpaid balance 
of the loan at the end of the year (which may be passed on to the 
borrower) and a one-time guarantee fee to be paid by the borrower at 
loan closing. The current annual renewal fee is set at \1/4\ of 1 
percent and the current guarantee fee is 2 percent. In the President's 
Fiscal Year (FY) 2010 Budget, the guarantee fee is scheduled to rise to 
2.88%. Due to the current state of the credit market, a small increase 
to either the annual renewal or guarantee fee should not drastically 
affect the program.
    With regard to cost of capital, commercial lenders and the Rural 
Business-Cooperative Service have two separate goals with regard to 
lending money that makes it impossible to compare the two. The goal of 
a commercial lender is to ultimately turn a profit by lending money at 
a rate, higher than the rate on which it obtains its funds. The 
government's goal is to guarantee quality loans to businesses in order 
to fund projects that create or preserve quality jobs and/or promote a 
clean rural environment with the expectation of payment in full.

    Question 18. Mr. Tonsager, what is the average length of time it 
takes for lenders to receive a response from USDA Rural Development 
when submitting applications for guaranteed loans? How much does it 
vary across programs, and what are the key determining factors for such 
variations?
    Answer. RD Instruction 3575-A requires that that all CF guaranteed 
loan applications must be approved or disapproved not later than 30 
days after receipt of a complete application. If National Office 
approval is required, the response must come within 30 days after 
receipt in Washington. The key problem here is receiving a ``complete 
application'' from the lender. Once the required documentation is 
received, CF makes it a practice to meet the required time-frames. In 
the National Office, the policy is to complete the review of direct and 
guaranteed loans within 2 weeks.
    When SFH Guaranteed Loan Program funding is available, requests for 
funding are frequently completed within 24-48 hours. Actual time frames 
vary from state to state depending on human capital resources and 
program volume.
    The average response time for a B&I loan is 30-60 days. We recently 
had a customer survey completed by an independent source, which 
indicated an excellent rating of 81/100 percent. As it relates to time-
frame differences, variations are due to problematic and technical 
complexity of applications.

    Question 19. Mr. Tonsager, USDA held several events this year to 
receive feedback from lenders who participate in guaranteed loan 
programs. What are some of the key issues raised by participating 
lenders, and how is USDA addressing these concerns?
    Answer. Response to key issues raised by lenders participating in 
the Business and Industry Guaranteed Loan Program are being addressed 
by the Agency in a short term and long term perspective.
    The Agency has implemented some immediate administrative changes in 
response to lender feedback and in an effort to ensure consistent 
program delivery on a national basis. The agency is planning to 
potentially revise regulations to improve the program operations..
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