[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
   HEARING TO IDENTIFY DUPLICATIVE FEDERAL RURAL DEVELOPMENT PROGRAMS

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




                                HEARING

                               BEFORE THE

    SUBCOMMITTEE ON RURAL DEVELOPMENT, RESEARCH, BIOTECHNOLOGY, AND
                          FOREIGN AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 21, 2012

                               __________

                           Serial No. 112-31


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



                  U.S. GOVERNMENT PRINTING OFFICE
73-660                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001




                        COMMITTEE ON AGRICULTURE

                   FRANK D. LUCAS, Oklahoma, Chairman

BOB GOODLATTE, Virginia,             COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
TIMOTHY V. JOHNSON, Illinois         TIM HOLDEN, Pennsylvania
STEVE KING, Iowa                     MIKE McINTYRE, North Carolina
RANDY NEUGEBAUER, Texas              LEONARD L. BOSWELL, Iowa
K. MICHAEL CONAWAY, Texas            JOE BACA, California
JEFF FORTENBERRY, Nebraska           DENNIS A. CARDOZA, California
JEAN SCHMIDT, Ohio                   DAVID SCOTT, Georgia
GLENN THOMPSON, Pennsylvania         HENRY CUELLAR, Texas
THOMAS J. ROONEY, Florida            JIM COSTA, California
MARLIN A. STUTZMAN, Indiana          TIMOTHY J. WALZ, Minnesota
BOB GIBBS, Ohio                      KURT SCHRADER, Oregon
AUSTIN SCOTT, Georgia                LARRY KISSELL, North Carolina
SCOTT R. TIPTON, Colorado            WILLIAM L. OWENS, New York
STEVE SOUTHERLAND II, Florida        CHELLIE PINGREE, Maine
ERIC A. ``RICK'' CRAWFORD, Arkansas  JOE COURTNEY, Connecticut
MARTHA ROBY, Alabama                 PETER WELCH, Vermont
TIM HUELSKAMP, Kansas                MARCIA L. FUDGE, Ohio
SCOTT DesJARLAIS, Tennessee          GREGORIO KILILI CAMACHO SABLAN, 
RENEE L. ELLMERS, North Carolina     Northern Mariana Islands
CHRISTOPHER P. GIBSON, New York      TERRI A. SEWELL, Alabama
RANDY HULTGREN, Illinois             JAMES P. McGOVERN, Massachusetts
VICKY HARTZLER, Missouri
ROBERT T. SCHILLING, Illinois
REID J. RIBBLE, Wisconsin
KRISTI L. NOEM, South Dakota

                                 ______

                           Professional Staff

                      Nicole Scott, Staff Director

                     Kevin J. Kramp, Chief Counsel

                 Tamara Hinton, Communications Director

                Robert L. Larew, Minority Staff Director

                                 ______

Subcommittee on Rural Development, Research, Biotechnology, and Foreign 
                              Agriculture

                 TIMOTHY V. JOHNSON, Illinois, Chairman

GLENN THOMPSON, Pennsylvania         JIM COSTA, California, Ranking 
MARLIN A. STUTZMAN, Indiana          Minority Member
AUSTIN SCOTT, Georgia                HENRY CUELLAR, Texas
RANDY HULTGREN, Illinois             PETER WELCH, Vermont
VICKY HARTZLER, Missouri             TERRI A. SEWELL, Alabama
ROBERT T. SCHILLING, Illinois        LARRY KISSELL, North Carolina

                Mike Dunlap, Subcommittee Staff Director

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Costa, Hon. Jim, a Representative in Congress from California, 
  opening statement..............................................     3
Johnson, Hon. Timothy V., a Representative in Congress from 
  Illinois, opening statement....................................     1
    Prepared statement...........................................     2
McIntyre, Hon. Mike, a Representative in Congress from North 
  Carolina, prepared statement...................................     5

                               Witnesses

Tonsager, Hon. Dallas P., Under Secretary for Rural Development, 
  U.S. Department of Agriculture, Washington, D.C................     6
    Prepared statement...........................................     8
    Submitted questions..........................................    35
    Supplementary information....................................    33
Shear, William B., Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office, Washington, 
  D.C............................................................    20
    Prepared statement...........................................    21


   HEARING TO IDENTIFY DUPLICATIVE FEDERAL RURAL DEVELOPMENT PROGRAMS

                              ----------                              


                       WEDNESDAY, MARCH 21, 2012

                  House of Representatives,
      Subcommittee on Rural Development, Research, 
            Biotechnology, and Foreign Agriculture,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:10 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Timothy 
V. Johnson [Chairman of the Subcommittee] presiding.
    Members present: Representatives Johnson, Scott, Hultgren, 
Hartzler, Costa, and McIntyre.
    Staff present: Mike Dunlap, Tamara Hinton, DaNita Murray, 
Lauren Sturgeon, Wyatt Swinford, Heather Vaughan, Suzanne 
Watson, Andy Baker, Liz Friedlander, John Konya, Jamie 
Mitchell, and Caleb Crosswhite.

OPENING STATEMENT OF HON. TIMOTHY V. JOHNSON, A REPRESENTATIVE 
                   IN CONGRESS FROM ILLINOIS

    The Chairman. The Subcommittee on Rural Development, 
Research, Biotechnology, and Foreign Agriculture hearing to 
identify duplicative Federal rural development programs, will 
come to order. Thank you all for being here today and welcome.
    Today, we are discussing government efficiency, which, 
because of our limited resources, is more important now than 
ever. We must find ways to deliver more effective programs 
using fewer resources. This is particularly important to our 
rural communities. Previously, this Subcommittee has called 
attention to the fragmentation of the government's efforts to 
address economic development in rural areas. With at least 16 
Federal agencies which operate over 88 programs designed to 
benefit small communities across the country, it is incumbent 
on Congress to ensure these efforts are implemented in a 
coordinated fashion.
    This Subcommittee has spent a great deal of time reviewing 
whether the purpose and goals of agriculture programs in our 
jurisdiction are being met. Those hearings served to inform the 
Committee about how scarce resources are being utilized and 
where opportunities exist to streamline and improve rural 
development programs. Previous efforts by the current 
Administration, such as the 2010 Memorandum of Understanding 
Between USDA and SBA are in acknowledgement of the unorganized 
approach to rural development we face today.
    The recently convened White House Rural Council is another 
indicator that the Administration recognized that our agencies 
need to coordinate better among themselves. However, none of 
these efforts by themselves have been a catalyst for permanent 
change. The efforts put forth so far have been insufficient to 
address the concerns about duplicative efforts and the lack of 
coordination among agencies, which have the authority to 
provide assistance to rural America. Stakeholders across the 
country have shared burdens about the confusing array of 
agencies and programs, as well as an overly burdensome 
application process, which puts assistance out of reach for 
small communities which might need it the most.
    Following Congressional direction, the GAO, Government 
Accountability Office, has taken an extensive look at some of 
these issues and will present their initial findings here 
today. So I hope that their reports and continuing work will 
serve to advance this discussion and provide additional insight 
on how our agencies are or aren't working.
    We also look forward to testimony by USDA to hear more 
about their efforts to administer their programs we are 
reviewing. In particular, I hope that additional insight will 
be provided into how the Administration is making tangible 
changes to the way scarce resources are made more accessible 
and how USDA is leveraging smaller budgets to benefit more 
communities in a tight fiscal environment.
    We appreciate the work our witnesses put in to preparing 
their testimony and look forward to an in-depth discussion.
    [The prepared statement of Mr. Johnson follows:]
  Prepared Statement of Hon. Timothy V. Johnson, a Representative in 
                         Congress from Illinois
    Thank you all for being here today, and welcome.
    Today we are discussing government efficiency, which--because of 
our limited resources--is more important now than ever. We must find 
ways to deliver more effective programs using fewer resources.
    This is particularly important to our rural communities. 
Previously, this Subcommittee has called attention to the fragmentation 
of the government's efforts to address economic development in rural 
areas. With at least 16 Federal agencies which operate over 88 programs 
designed to benefit small communities across the U.S., it is incumbent 
upon Congress to ensure these efforts are implemented in a coordinated 
fashion.
    This Subcommittee has spent a great deal of time reviewing whether 
the purpose and goals of agricultural programs under our jurisdiction 
are being met. Those hearings served to inform the Committee about how 
scarce resources are being utilized and where opportunities exist to 
streamline and improve rural development programs.
    Previous efforts by the current Administration, such the 2010 
Memorandum of Understanding between the USDA and the Small Business 
Administration, are an acknowledgement of the unorganized approach to 
rural development we face today. The recently convened White House 
Rural Council is another indicator that the Administration recognizes 
that our agencies need to coordinate better among themselves. However, 
none of these efforts in themselves have been a catalyst for lasting 
change.
    The efforts put forth so far have been insufficient to address the 
concerns about duplicative efforts and the lack of coordination among 
agencies which have the authority to provide assistance to rural 
America. Stakeholders across the country have shared concerns about the 
confusing array of agencies and programs, as well as an overly 
burdensome application process which puts assistance out of reach for 
small communities which might need it most.
    Following Congressional direction, the Government Accountability 
Office has taken an extensive look at some of these issues, and will 
present their initial findings here today. It is our hope that their 
reports and continuing work will serve to advance this discussion and 
provide additional insight on how our agencies are--and are not--
working together.
    We also look forward to testimony by USDA to hear more about their 
efforts to administer the programs we are reviewing. In particular I 
hope that additional insight will be provided into how the 
Administration is making tangible changes to the way scarce resources 
are made more accessible, and how USDA is leveraging smaller budgets to 
benefit more communities in a tight fiscal environment.
    We appreciate the work our witnesses put into preparing their 
testimony for this morning and look forward to an in-depth discussion.

    The Chairman. I would like to recognize my friend and 
Ranking Member, the gentleman from California, Mr. Costa.

   OPENING STATEMENT OF HON. JIM COSTA, A REPRESENTATIVE IN 
                    CONGRESS FROM CALIFORNIA

    Mr. Costa. Thank you very much, Mr. Chairman, for holding 
this hearing. I think it is important for the Subcommittee to 
always exercise its role in appropriate oversight, and we are 
pleased that we have today here the Government Accountability 
Office, the GAO, to provide us with information on 
recommendations that we can go further with as well as with the 
United States Department of Agriculture's Rural Development 
Programs. And their input, obviously, is always well taken.
    I look forward to hearing from the testimony.
    Rural America faces challenges. I am always a little bit 
hesitant to use the word unique because it is oftentimes an 
overused word. But they have challenges that we don't have in 
urban America. And because of the population disparities in our 
country today, oftentimes our rural elements in our country get 
overlooked. And that is one of the important efforts that this 
Subcommittee needs to deal with.
    The USDA Rural Development has--the United States 
Department of Agriculture--over 500 offices. Whether those 
offices all are necessary today is a valid question, but they 
do, I know because of my own personal experience, provide help 
to rural communities for businesses, as well as entrepreneurs, 
to deal with economic developments, especially as things 
change. For example, in many areas we don't have access to 
high-speed Internet, it is dial-up. And yet for these companies 
to compete effectively they have to have the same sort of 
access in a global economy to deal with their products that 
they are pursuing.
    So it is important for this Subcommittee to look at 
programs that may be duplicative. But we need to ensure that 
what may appear on paper as duplicative in practice is in fact 
not duplicative. And if it is, then we should address it.
    Take, for example, the United States Department of 
Agriculture's Value-Added Producer Grant Program, identified as 
potentially duplicative in the GAO's report. These grants I 
know from personal experiences help agricultural producers and 
cooperatives provide market value-added efforts to the products 
they produce on a host of efforts. In 2011, the Blue Diamond 
growers in California--you are probably familiar with the 
almonds that they produce, one of the largest cooperatives in 
California and maybe in the country--provided a grant to help 
them launch its first retail products in France. We know that 
it is not always a level playing field when we are talking 
about trade throughout the world. It was very helpful to 
helping Blue Diamond market their products in Europe.
    In my Congressional District as well, the Rosa Brothers 
have a milk company in Hanford, California. They received a 
grant to help them offer delivery of locally produced dairy 
products. Congress created these programs in 2000 on a 
bipartisan basis. They looked at it again in 2002 and in the 
2008 Farm Bills to address areas where other Federal agencies 
were not. I am not aware of other Federal economic development 
programs that focus in this area on agricultural efforts and 
products that we can compete with globally if we have a level 
playing field.
    So when we consider the rural development, economic 
development programs, I think we should also keep in mind and 
look at it closely as a Subcommittee. Mr. Chairman, the 
President's proposal in January to combine Federal Government's 
business and trade agencies. I think this has merit and we 
ought to look at it. This is a combination of agencies that is 
an area where we can get better bang for our buck.
    Among the departments and agencies targeted for 
consolidation are the Department of Commerce and the Small 
Business Administration. This proposal could go a long way 
towards address concerns of overlapping Federal economic 
development programs. That is not to say that there aren't 
other areas that we can look at streamlining on rural 
development programs, as we are going to look at today and as 
we will hear from the witnesses. One of the ways this 
Subcommittee can help minimize the overlap of USDA's economic 
development programs with those administered by other agencies 
is to ensure--and we have talked about this, Mr. Chairman--that 
the definitions of rural are flexible enough to meet the 
demands in rural America, because we know in many counties 
across the country--whether it is in Illinois or whether it is 
in Kansas or whether it is in California or any other state in 
the Union--that we may have an urban center within a very rural 
county and they fall off the definition of what is defined by 
rural.
    On February 15 in 2011 and September 13 in 2011, our 
Subcommittee held hearings in which the USDA witnesses were 
asked by Members on this Committee, in a bipartisan basis, 
about the status of the report on rural definitions that the 
USDA was required in the 2008 Farm Bill that was produced in 
June 2010. And obviously, we were frustrated that the report 
had not been submitted given that the report could be one of 
the most helpful tools in figuring out how we target our 
efforts for rural development. Although they have given us 
responses, I am not optimistic that the report will be provided 
before the time that we try to reauthorize the 2012 Farm Bill. 
I don't still to this day understand why it is so difficult to 
provide this report.
    Since we are examining the USDA's economic development 
programs, I want to take a minute just to talk about an effort 
in California that can and should serve as a model for the 
agencies across the country. We have heard from farmers and 
ranchers and businesses throughout rural communities that the 
challenges they face in accessing capital--probably more than 
any other single factor--is what has hit hardest in these past 
few years--access to capital during tough economic times.
    In California, the United States Department of 
Agriculture's Rural Development established the California 
Financial Opportunities Roundtable. The California 
Opportunities Roundtable participants include not only the 
Federal entities that include the Small Business 
Administration, the Federal Reserve Bank in San Francisco, and 
many other private businesses and state agencies. This 
innovative capital access project uses impact investing to 
drive growth in rural communities across California, while 
achieving financial returns for the investors at the same time. 
I want to say that we ought to look at reauthorizing in the 
farm bill the work that the USDA Rural Development has done in 
California, which serves, potentially, as a model for the rest 
of the country with limited Federal resources.
    Finally, I want to thank the Chairman again and our 
witnesses today for working with all of us on the Subcommittee 
to ensure that we get the most effective use of the Federal tax 
dollars in rural development programs to meet the needs of 
rural America.
    I yield back my time.
    The Chairman. Thank you, Mr. Costa.
    I would also like to note that Mr. McIntyre is not a Member 
of the Subcommittee. He has joined us and in consultation with 
Mr. Costa we have agreed and we are pleased to have you here 
joining us today. The chair would like to request that other 
Members submit their opening statements for the record so the 
witnesses may begin their testimony and to ensure that there is 
ample time for questions.
    [The prepared statement of Mr. McIntyre follows:]
Prepared Statement of Hon. Mike McIntyre, a Representative in Congress 
                          from North Carolina
    Thank you Chairman Johnson and Ranking Member Costa for allowing me 
to join this hearing today to discuss rural development and the 
government's modest role in promoting jobs and growth in rural America. 
Having grown up in Robeson County, a poor and rural county in 
southeastern North Carolina, I am keenly aware of the problems facing 
rural citizens and am particularly interested in the topics that we 
will discuss today.
    Citizens in rural places experience great difficulty in accessing 
the infrastructure and amenities that are available in our urban 
centers. The modern economy requires that businesses be able to access 
broadband services to connect to the global marketplace, three phase 
electric power to run industrial equipment, and clean water to support 
communities that supply the labor and skills needed for commerce. If we 
are to take seriously our obligation to serve all of the citizens of 
this great country, we must not solely cast our views at the problems 
facing the population centers in the cities and suburbs. Rural 
Americans deserve the attention of their government and need an agency 
that directly focuses on addressing rural problems.
    We are here today to discuss potential duplicative government 
programs in Rural Development. The Rural Development Mission Area at 
the United States Department of Agriculture is comprised of three 
agencies--the Rural Utilities Service, the Rural Housing Service, and 
the Rural Business-Cooperative Service. Each of these agencies is 
tasked with the challenge of addressing specific concerns in the rural 
economy. Those that work at USDA Rural Development live in the 
communities that they serve and are intimately aware of what rural 
means and what needs to be done to ensure that rural America remains a 
place that families choose to live and businesses are able to grow. 
While it is clear that these three agencies espouse similar goals as 
other government programs housed in different agencies throughout the 
government, the reality is that USDA is the only government agency with 
the reach to provide the service and expertise that is needed to serve 
rural America. To take any responsibility away from USDA in the areas 
of infrastructure investment, housing, or business development would be 
a great disservice to rural residents, not just in North Carolina but 
throughout the country.
    The costs associated with bringing needed services to rural America 
can be high. Utility companies and telecommunications providers must 
incur higher capital costs to make the investments necessary to provide 
services to rural Americans on par with those that we take for granted 
in urban centers, but rural communities and businesses have continually 
shown us that they can and will responsibly take on these investments 
when financing for such endeavors is available.
    The United States Department of Agriculture has been at the center 
of the effort in addressing rural economic challenges. This effort 
began in the last century with rural electrification. After the passage 
of Norris-Rayburn Act in 1936, the Rural Electric Administration was 
funded to provide loans to private companies, public agencies, and 
cooperatives for the construction of electrical supply infrastructure 
in rural parts of the country.\1\-\2\ Prior to the REA, only 
three percent of the 6.3 million farms in the United States received 
electricity.\3\ Within 2 years of the establishment of the Rural 
Electric Administration, 350 cooperative projects in 45 states were 
delivering electricity to 1.5 million farms.\4\ Today, all rural 
residents are able to access power and nearly 98 percent are connected 
to telephone services.\5\ The successes of our rural electric and 
telephone systems did not happen without leadership, vision and 
partnership between the public, nonprofit, and private sectors.
---------------------------------------------------------------------------
    \1\ Dow, E.F. ``Federal Administration of Rural Electrification.'' 
The American Political Science Review 31.6 (1937): 1107-112. Print.
    \2\ Malone, Laurence J. ``The Origins of the New Deal Rural 
Electrification Initiative: Market Failure in Delivering Electricity to 
Rural Areas Before 1930.'' Economic History Association. March 18, 
2012. http://eh.net/encyclopedia/article/
malone.electrification.administration.rural.
    \3\ Beall, Robert T. (1940). ``Rural Electrification.'' United 
States Yearbook of Agriculture. Washington, D.C.: United States 
Department of Agriculture. p. 790-809. Retrieved December 30, 2008. 
http://naldc.nal.usda.gov/download/IND43893747/PDF.
    \4\ Schurr, Sam H., Calvin C. Burwell, Warren D. Devine, and Sidney 
Sonenblum. Electricity in the American Economy: Agent of Technological 
Progress. Westport, CT: Contributions in Economics and Economic 
History, Number 117, Greenwood Press, 1990.
    \5\ Malone, Laurence J. ``The Origins of the New Deal Rural 
Electrification Initiative: Market Failure in Delivering Electricity to 
Rural Areas Before 1930.'' Economic History Association. March 18, 
2012. http://eh.net/encyclopedia/article/
malone.electrification.administration.rural.
---------------------------------------------------------------------------
    The challenges of investing in rural infrastructure are not a thing 
of the past. We face many of the same difficulties today. In my 
district in southeastern North Carolina, many communities in rural 
parts of Columbus, Bladen and Pender County are unable to access fast 
and reliable Internet and must instead rely upon expensive and 
inefficient satellite Internet connections to access the web. 
Telecommunication providers are not eager to invest in the rural market 
to provide broadband due to high network construction costs and the 
relatively few subscribers that the connection would provide. To help 
bridge this divide, the Rural Utilities Service offers grants, low 
interest loans and loan guarantees to companies that take the lead to 
make investments in rural broadband. This is exactly the type of high 
value, high return investment that the Federal Government should make 
to empower private sector growth and rural economic opportunity, and I 
will continue to work with USDA and stakeholders back home to do the 
work that needs to be done to ensure a vibrant and dynamic rural 
economy.
    I am looking forward to hearing testimony from the panel before 
this Subcommittee and thank the chair for holding today's hearing.

    The Chairman. So with those preliminary comments and my 
thanks to everybody for being here, the witnesses, let me 
introduce our first panel, who is actually one witness, Mr. 
Dallas Tonsager, Under Secretary for Rural Development, USDA, 
Washington, D.C. Just proceed when you are ready.

          STATEMENT OF HON. DALLAS P. TONSAGER, UNDER
      SECRETARY FOR RURAL DEVELOPMENT, U.S. DEPARTMENT OF 
                 AGRICULTURE, WASHINGTON, D.C.

    Mr. Tonsager. I am pleased to have this opportunity to 
discuss the important role USDA Rural Development plays in the 
economic development of our nation's rural communities.
    Through the Consolidated Farm and Rural Development Act of 
1972, Congress charged USDA with leading the Federal 
Government's effort to ensure a prosperous rural America and 
declared this task ``so essential to the peace, prosperity, and 
welfare of all our citizens that the highest priority must be 
given to the revitalization and development of rural areas.''
    Secretary Vilsack and I care deeply about rural America. 
Over the last 3 years, thanks to resources made available by 
Congress, we have made historic investments designed to form 
the foundation of a rural economy that is built to last. And 
under the Secretary's leadership through the White House Rural 
Council, USDA has worked closely with partners across the 
Federal family to leverage resources that maximize benefits for 
rural communities.
    As the only department with the primary responsibility of 
serving rural areas, the presence of USDA field offices in 
every state helps us serve that specific need of rural 
communities. Our direct personal contact with these communities 
creates efficiencies in our program delivery, and the employees 
who deliver our programs possess expert knowledge of the 
challenges and opportunities in these communities.
    Rural Development appreciates the ongoing efforts of the 
U.S. Government Accountability Office to identify potential 
overlap in Federal programs, and we take pride in our uniquely 
rural focus and our local program delivery model, which 
differentiates rural development from other Federal agencies.
    Rural Development's utility programs enable communities to 
maintain and upgrade critical rural infrastructure that often 
carries a high price tag. Our electric and telecommunication 
programs are the only Federal programs that finance the 
construction of electric and telecom networks from the 
beginning to end. Our Water and Environmental Program is the 
only Federal program that lends directly to communities, 
particularly very small communities. In order to obtain 
financing from us, water and sewer authorities must demonstrate 
they have been unsuccessful in obtaining financing elsewhere.
    Rural Development has been responsive to GAO 
recommendations to increase coordination of Federal programs, 
water funding systems in the Colonias along the U.S.-Mexican 
border. In addition, Rural Development recently proposed a 
modification to our Colonias regulation that would allow us to 
better target resources to the areas with the highest level of 
need.
    Rural Development business and cooperative programs provide 
invaluable assistance to rural, small, and mid-sized 
businesses. Our Business and Industry Program is the only 
Federal guarantee program that offers a maximum guarantee of up 
to $40 million and specifically targets agricultural 
cooperative businesses. In response to the GAO recommendations, 
Rural Development has significantly enhanced its collaboration 
with the Small Business Administration that began by signing an 
MOU with SBA in 2010.
    Our housing programs ensure low and very low-income 
families throughout rural America have access to safe, decent, 
and affordable housing. Our Direct Home Loan Program is the 
only means-tested loan program to directly finance the purchase 
of homes in rural areas. In addition, communities interested in 
approving any central community facilities like schools, 
libraries, hospitals, and public safety buildings can walk into 
a local Rural Development office to work directly with our 
knowledgeable employees to apply for funding.
    In order to continue to serve rural America, we recognize a 
need to reposition our agency for the 21st century. To that 
end, we have proposed continual process improvements to ensure 
that our agency operates in a responsible stewardship of the 
taxpayers' dollars. Since 2004, Rural Development's portfolio 
has doubled and now stands at $165 billion. I am pleased to 
report that the principal dollars delinquent more than 1 year 
remains at approximately two percent. Such results are the 
product of consistent and proactive servicing of the loan 
portfolio and working with trusted borrowers to restructure 
their loans and avoid foreclosures.
    Improvements to our IT infrastructure remain a central part 
of our strategy to manage a growing portfolio with reduced 
resources. Employees need to be able to complete their mission 
anytime and anywhere to support our customers. Rural 
Development's innovative work with multi-county regions is an 
important support mechanism for building an American economy 
that is built to last. USDA is collaborating with the 
departments across the Federal Government to support rural 
communities and are working in multi-county coalitions that 
foster economic development on a regional scale.
    I appreciate the opportunity to work with Members of the 
Subcommittee to build a foundation for American 
competitiveness. Thank you for your support of these programs, 
and at this time, I would be happy to take your questions.
    [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 Johnson, Ranking Member Costa, and Members of the 
Subcommittee, I am pleased to have this opportunity to discuss the 
important role USDA Rural Development plays in the economic development 
of our nation's rural communities.
    I am proud to represent agencies that are working tirelessly to 
realize the President's vision for America: ``a country that leads the 
world in educating its people; an America that attracts a new 
generation of high-tech manufacturing and high-paying jobs; a future 
where we're in control of our own energy; and our security and 
prosperity aren't tied to unstable parts of the world. An economy built 
to last, where hard work pays off and responsibility is rewarded.'' 
Undoubtedly, USDA Rural Development (RD) has a key role to play in this 
effort, for the continued revitalization of our American economy will 
depend upon a prosperous rural America.
    Through the Consolidated Farm and Rural Development Act of 1972 
(Con Act), Congress charged USDA with leading the Federal Government's 
efforts to ensure a prosperous rural America and declared this task 
``so essential to the peace, prosperity, and welfare of all our 
citizens that the highest priority must be given to the revitalization 
and development of rural areas.'' Today, Rural Development is 
responsible for implementing a suite of programs with the sole mission 
of improving the quality of life and economic condition of rural 
communities.
    Secretary Vilsack and I care deeply about rural communities. Over 
the last 3 years, thanks to resources made available in the 2008 Farm 
Bill and the 2009 American Recovery and Reinvestment Act, we've made 
historic investments in rural America designed to drive job growth and 
form the foundation of a rural economy that is built to last. We want 
to build a better future for the men and women who live, work and raise 
their families in rural communities--and to extend the promise of 
middle class jobs where hard work pays off and responsibility is 
rewarded.
    And as you know, rural America has unique challenges and assets. 
Rural communities are characterized by their isolation from population 
centers and product markets and benefit most from initiatives that 
integrate local institutions and businesses with state and Federal 
agencies that have intimate knowledge of their local needs. Delivering 
effective programs to rural America, which comprises over 75 percent of 
the total land mass of the United States, is a continual challenge.
    As the only Federal Department with the primary responsibility of 
serving rural areas, the presence of USDA field offices in every state 
helps us serve the specific needs of local rural communities. Our 
direct personal contact with these communities creates efficiencies in 
program delivery in that one phone call to USDA Rural Development 
allows local elected officials to identify resources for a wide range 
of community and economic development activities. Our partnerships with 
public and private institutions allow us to fund local and regional 
business development, expand infrastructure and provide access to 
affordable, long-term credit in rural areas. The employees who deliver 
Rural Development's suite of programs work alongside farmers, ranchers, 
homeowners, schools, businesses, nonprofits, cooperatives, tribes and 
local governments to strengthen local economies. They are members of 
the communities they serve and possess expert knowledge of the economic 
challenges and opportunities that exist in their particular regions.
    In 2011 alone, Rural Development allocated almost $29 billion 
nationwide to upgrade community facilities like schools and hospitals, 
boost the reliability of the electric grid, fund renewable energy 
projects, provide affordable and reliable Internet access and create 
homeownership opportunities for more than 140,000 families. Since 2009, 
Rural Development has provided homeownership opportunities to more than 
435,000 families. Sixty-three percent of 2011 funding supported loan 
guarantees that enabled private lenders to safely increase the pool of 
capital available in rural areas for credit-worthy businesses, 
communities, and homebuyers. About 34 percent of our investments were 
secure, affordable direct loans that will be paid back with interest.
    Rural Development appreciates the ongoing efforts of the U.S. 
Government Accountability Office (GAO) to identify potential overlap in 
Federal programs, and we take pride in our uniquely rural focus and our 
local program delivery model which serves to differentiate Rural 
Development from other Federal agencies. Our direct personal contact 
between agency personnel, lenders, borrowers, communities, families and 
individuals is invaluable and provides in-person technical assistance 
that would otherwise be unavailable.
    Rural Development's utility programs enable communities to maintain 
and upgrade critical rural infrastructure which often carries a very 
high price tag. Our Electric and Telecommunications programs are the 
only Federal programs that finance the construction of electric and 
telecom networks from beginning to end. Our Water and Environmental 
program is the only Federal program that directly lends and provides 
grants to communities, particularly very small communities. In order to 
obtain financing from us, water and sewer authorities must demonstrate 
they have been unsuccessful in obtaining financing elsewhere.
    In GAO-10-126, GAO examined numerous Federal programs, including 
USDA Rural Development, the Environmental Protection Agency (EPA), the 
Department of Housing and Urban Development (HUD), and the Economic 
Development Administration (EDA), that provide assistance to rural 
communities along the U.S.-Mexico border, or Colonias, for drinking 
water and wastewater projects. In that report, GAO suggested that 
``Congress consider requiring Federal agencies to develop a coordinated 
plan to improve the effectiveness of drinking water and wastewater 
programs in the border region and recommends that the agencies take 
steps to comply with statutory and regulatory requirements.''
    USDA Rural Development is committed to coordinating with other 
funding agencies at the Federal, state, and local level where possible 
to meet the needs of rural communities across the country, particularly 
the high-need Colonias areas along the U.S.-Mexico border. In addition, 
Rural Development disagreed with GAO's assertion that we did not comply 
with the existing statute related to Colonias water and wastewater 
funding. We are pleased to report that on Friday, March 9, 2012, Rural 
Development released a proposed modification to our Colonias regulation 
which allows for additional priority points to Colonias areas that are 
un-served and that are facing significant health risks. Rural 
Development will continue our work to improve our program delivery to 
ensure that our country's neediest areas receive funding.
    Rural Development's business and cooperative programs provide 
valuable assistance to rural small and mid-size businesses and 
cooperatives. No other Federal program provides funding for similar 
purposes to cooperatives and majority-controlled producer-based 
business ventures in rural communities. Our Business and Industry 
program is the only Federal guaranteed loan program that specifically 
targets agricultural cooperative businesses and is available to 
nonprofits as well as for-profit entities.
    In GAO-11-318SP, GAO examined overlap and fragmentation among 
Federal economic development programs, including USDA Rural 
Development's business programs, the Small Business Administration's 
8(a) program, and HUD's Hispanic Serving Institutions Assisting 
Communities program. In its assessment, GAO recommended that the 
Federal agencies need to pursue enhanced collaboration across the 
programs. Additionally, GAO requested that the agencies ``collect 
accurate and complete data on program outcomes and use the information 
to assess each program's effectiveness.''
    To enhance inter-agency collaboration on economic development, USDA 
Rural Development signed a Memorandum of Understanding (MOU) with the 
Small Business Administration (SBA) in April 2010 to improve service 
delivery to small businesses in under-served rural areas. Under the 
MOU, the agencies agreed to advise potential borrowers of the other 
agency's programs, to make each agency's programs more complementary, 
and to develop joint training seminars on each agency's programs. More 
recently, SBA and USDA are holding a series of joint roundtables across 
the country focused on increasing investment in rural communities. The 
meetings have presented opportunities to hear from stakeholders of both 
agencies about the challenges and benefits of investing in rural 
America. With regard to data collection, Rural Development's Rural 
Business Service has commenced a series of trainings to improve the 
collection and maintenance of data related to program performance 
measures and to improve data integrity. The agency evaluates program 
performance based on jobs created/saved; businesses assisted; and 
kilowatt hours of electricity generated/saved. Additionally, the agency 
uses Customer Service Scores to evaluate program effectiveness and 
satisfaction.
    Housing drives rural economies and supports healthy rural 
communities. Rural Development housing programs ensure low and very-low 
income families throughout rural America have access to safe, decent 
and affordable housing. Our direct home loan program is the only means 
tested mortgage loan program to directly finance the purchase of homes 
in rural areas. Rural communities interested in building or upgrading 
essential community facilities, like schools, libraries, hospitals and 
public safety buildings, can walk into a local RD office to work 
directly with our knowledgeable employees to apply for funding.
    We at Rural Development take our mission of serving rural America 
very seriously, and we have long recognized the responsibility we share 
with the rest of the Federal Government to reduce the burden on future 
generations created by recurring budget deficits. In order to continue 
to serve rural America, we recognize a need to reposition our agency 
for the 21st century. To that end, we have pursued continual process 
improvements to ensure that our agency operates as a responsible 
steward of taxpayer dollars. Since 2004, Rural Development's portfolio 
has doubled, and now stands at $165 billion. Today, I am pleased to 
report that the principal dollars delinquent more than 1 year remains 
at approximately two percent of the principal.
    Such results are the product of consistent and proactive servicing 
of the loan portfolio and working with trusted borrowers to restructure 
their loans and avoid foreclosure. Rural Development also has a 
longstanding record of streamlining its programs, which has 
consistently provided the mission area with the ability to successfully 
implement new programs and to meet increased demand for financing in 
multiple industry sectors with an unprecedented level of funding, even 
as staff levels steadily decreased.
Efficiencies
    Looking to the future, Rural Development is in step with the 
Department of Agriculture's broader efforts to improve the reliability 
and efficiency of the services we provide. In January, Secretary 
Vilsack unveiled USDA's ``Blueprint for Stronger Service''. Under this 
initiative, the Department identified 379 recommendations for improving 
USDA's office support and operations, which includes ways to streamline 
the provision of administrative services, such as civil rights, 
information technology, finance, human resources, homeland security, 
procurement, and property management. To realize further efficiencies, 
USDA has proposed closure of 259 domestic offices, facilities and labs 
across the country, as well as seven foreign offices, while ensuring 
that the vital services they provide are not diminished. Rural 
Development alone plans to close 43 offices. In some cases, offices are 
no longer staffed and many are within 20 miles of other USDA offices. 
In other cases, technology improvements, advanced service centers, and 
broadband service have reduced some need for brick and mortar 
facilities.
    Rural Development is currently focused on managing these 
reductions, streamlining our programs wherever possible, and servicing 
our existing portfolio to maintain its low delinquency rate.
Collaborative Efforts
    Rural Development's innovative work with multi-county regions is an 
important support mechanism for President Obama's ``Blueprint for 
America'' and building a prosperous American economy that is ``Built to 
Last.'' Through a number of efforts, USDA is collaborating with 
Departments across the Federal Government to support rural communities 
that are building durable, multi-county coalitions that foster economic 
development on a regional scale. In addition to providing direct 
economic benefits, regional collaboration allows rural communities to 
capitalize on economies of scale in infrastructure and public services, 
to encourage the development of specialization in industrial sectors 
that would make them more competitive, and to locate facilities and 
services where they provide the greatest benefit at the lowest cost. We 
will continue to partner with other Departments to leverage Federal 
resources to more effectively support regional economic development 
efforts.
Conclusion
    Rural Development is resolutely pursuing President Obama's vision 
of an America that leads the way in the development of renewable 
sources of energy, reinvigorates a sustainable manufacturing industry, 
and promotes the economic well-being of all Americans. Through our 
network of local economic development experts across rural America, we 
support innovators and entrepreneurs, individual families and entire 
communities. Our presence in the rural communities that we serve, 
combined with our local knowledge and uniquely rural focus, sets us 
apart from other Federal programs and helps us maintain our low 
delinquency rate.
    We know these investments will pay dividends for years to come.
    I appreciate the opportunity to work with Members of the 
Subcommittee to build a foundation for American competitiveness. Thank 
you for your support of Rural Development programs. At this time, I am 
happy to answer your questions.

    The Chairman. Thank you, Mr. Tonsager.
    Let me just start with what I think is probably a self-
apparent question, but obviously one of the charges of this 
Committee will be developing an assessment for how we know how 
programs succeed or fail or in between and how those 
evaluations that you make form future decisions. So my question 
is, right now, how do you evaluate the success of various 
programs? And how is that evaluation the basis for specifically 
how those evaluations form future decisions on regulatory 
changes, applications, and so forth? I think you get the gist 
of my question.
    Mr. Tonsager. I think the first thing in these kinds of 
evaluations to remember is this is primarily about individual 
people and groups of people who have identified within their 
community something that is needed. In the case of single-
family housing borrowers, of course, success is by somebody who 
has repaid their housing loan and successfully done their 
housing. For a community that needs a water and sewer system, 
it is having a successful project that has been well planned, 
thought out, and meets the needs of that community and they 
have been able to repay their loans successfully.
    So, we begin with that to remember that these are about 
these communities, thousands of leadership people who have come 
together to come up with a plan who need resources and want to 
accomplish a specific task, maybe a hospital. So if we build a 
hospital or finance a hospital in a community, the hospital is 
successfully serving that community.
    Another, of course, important major is job creation, and we 
have a couple of processes associated with the measurements of 
job creation. In some cases, we have a calculation for a 
formula that has been provided for us where they estimate, for 
example, the construction of a new home and how many jobs that 
might be creating.
    In our business programs, we have been using a process to 
estimate the number of jobs created, including local judgment 
by our staff, and then there are a couple of formulas that we 
look at the size of the loan. But we are transitioning in that 
process to getting actual results, and by 2013, we will have 
actual results on loan-making and the jobs created as the 
projects are implemented.
    The Chairman. Within your department, I am assuming in any 
department of the government there is always duplicative 
programs, which, as you look and see where you can make 
improvements, what programs do you think stand out as 
administered in a way and implemented in such a way that they 
do qualify as duplicative in areas that you would like to see 
addressed?
    Mr. Tonsager. Sure. We have approximately 42 tools right 
now that we use to work with rural communities and we like to 
have it as a one-stop center, of course. But we believe there 
are a couple areas that we would like to work closely with you. 
One we have four programs that provide revolving loan funds for 
businesses and local communities, and we think there would be a 
lot of sense in being flexible with the programs so we can 
still serve that broad audience, but we probably don't need 
four different programs for that purpose, as well as some of 
our grant programs we believe that could potentially be 
combined.
    So this year, we propose a budget, for example, not to fund 
the Rural Business Opportunity Grant Program but to put those 
funds into the Rural Business Enterprise Grant Program. We 
think that makes a lot of sense. We don't want to diminish 
anybody's access, but we would like to work with you regarding 
flexibility in the programs. There may be a reduction in the 
number of programs that are available for that.
    The Chairman. Last, we will hear in a few minutes GAO's 
assessments and they have raised a number of issues--do you 
feel that you have addressed those issues completely or do you 
think you have some work to do in terms of addressing some of 
the issues they raise?
    Mr. Tonsager. Oh, we know we have some work to do. I know 
they have scored us as partially addressing issues. We know we 
have some progress to make on some of the statements. In some 
cases, we will disagree with them regarding what is said, but 
yes, we recognize we need to make some progress.
    The Chairman. With that, then, I would recognize the 
Ranking Member, Mr. Costa, for questions.
    Mr. Costa. Thank you very much, Mr. Chairman.
    I raised the issue in my opening statement and I don't know 
if you can report to us, but again I find it baffling at this 
point. In 2008, we required as a part of the reauthorization of 
the farm bill to work on this rural definition issue, which has 
been problematic to some of us who represent very rural 
districts. And I mean for folks this information--I know my 
Subcommittee Members know this--but I represent the number one 
agricultural county in the nation, Fresno County, over $6 
billion. Kern County I share with another colleague is number 
three with over $4 billion in farm gate receipts. Yet Fresno is 
not defined as being rural because it has a large urban city in 
the center of the county. Why can't we get this report? It is 
2012. It is 4 years later.
    Mr. Tonsager. We have provided, as you mentioned, a number 
of elements to the report that included the information 
requested regarding the various definitions. And so previous 
testimonies have provided that. It is true that we have not 
provided our distinct what we would recommend for a definition. 
We are still working internally through that process. I would 
like to offer some thoughts, though, regarding that.
    We have the current authority, of course, applies very hard 
line numbers that if you cross the number it is no longer 
eligible. We have an immediate Census coming up October 1. We 
will be implementing new Census data regarding rural 
definitions from year 2010, and that means some communities 
that have grown will no longer be eligible for programs. Some 
communities may have shrunk and may become newly eligible.
    Mr. Costa. Well, just on that point there are a couple of 
other questions. For example, the Administration has a Strong 
Cities, Strong Communities Program that includes six cities 
across the country--and again, one of them happens to be the 
City of Fresno, which is the sixth largest city in the state 
now, but yet USDA is involved in this effort, this model 
program. You are supposed to be effectively coordinating with 
Federal agencies, but yet it doesn't follow under the 
definition of rural.
    Mr. Tonsager. We try to work with each of the efforts that 
are regionally based to have employees involved, and I 
believe----
    Mr. Costa. So the definition in this case isn't a hard 
line?
    Mr. Tonsager. For the technical discussion that is in 
fact--we don't approve all programs.
    Mr. Costa. Let me move on again because of time.
    Mr. Tonsager. Sure.
    Mr. Costa. USDA's Rural Utilities Service Programs aren't 
the focus of our hearing today, but I did mention that in my 
statement. Since you raised it in your statement, we are 
focusing on duplicative Federal programs, but I want to know 
USDA's perspective on claims that rural broadband is 
duplicating efforts of the Commerce Department's National 
Telecommunications efforts.
    Mr. Tonsager. The Department of Commerce had Recovery Act 
funds for that purpose but they no longer are engaged in those 
programs if I understand correctly.
    Mr. Costa. So then it wouldn't be overlapping----
    Mr. Tonsager. Right. That is correct.
    Mr. Costa.--with government-backed programs by private 
investment companies to expand broadband in our rural areas?
    Mr. Tonsager. We work with private companies in financing 
broadband projects.
    Mr. Costa. Finally, I learned from data that the USDA's 
Economic Research Service, ERS, that shows that Federal 
investment in rural areas is lagging behind investments in 
urban areas. It seems to suggest that the claims of 
geographical overlap in the Federal programs in this instance 
might be unfounded or at least overstated. Have you seen the 
data and are you prepared to provide an assessment that 
resonates with your experience?
    Mr. Tonsager. I recently saw the data, have not had time to 
study it. It is my belief that that is the case. We are most 
anxious to use our resources to try and draw other Federal 
program resources more to rural areas than it has been.
    Mr. Costa. It is your belief, then, that there is not an 
overlap?
    Mr. Tonsager. It is my belief that rural areas do not get 
as much Federal resources as urban areas do.
    Mr. Costa. On a percentage, per capita basis?
    Mr. Tonsager. Yes, sir.
    Mr. Costa. Okay.
    Well, Mr. Chairman, my time has expired but we will 
obviously follow up and I will submit some additional questions 
for the record that I would hope we would have a response for.
    Mr. Tonsager. Thank you, Congressman.
    The Chairman. Thank you, Mr. Costa.
    The chair would then recognize the gentleman, Mr. Stutzman, 
from--well, I guess he is not here.
    I recognize the gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Tonsager, one of the things you mentioned was 
flexibility in moving from four programs to one and reducing 
those administrative costs, and I quite honestly--if we can go 
from four to one and reduce those administrative costs and give 
you more flexibility, I think that is a great thing and helps 
the taxpayers. I guess my concern goes back to what my 
colleague from the other side of the aisle is bringing up, 
which is the accountability issue. If you want the flexibility 
and we want to give it to you, you have to understand that the 
accountability measures have to be there and when the 
departments ignore the timely filing of reports so that we can 
make sure the taxpayer funds are being spent wisely, then that 
certainly gives pause to us giving more flexibility. So I would 
like for you to speak to that issue.
    And then I would like for you to speak to two other issues; 
one is the coordination between the USDA and the SBA and how 
that has worked; and then two is the number of businesses who 
have received funding from the USDA that are still in business 
after 3 years, so those three things, sir.
    Mr. Tonsager. Sure. Yes, we need to be held accountable. We 
understand that. And we do work our best to file reports in a 
timely manner. I am not sure which specific reports you have 
concern about. We do believe in transparency and we know that 
if we provide you the information regarding our performance, it 
helps self-correct because you will bring discipline to that 
argument.
    If you would provide me with the particular reports that 
are lacking, I can give you more information about that.
    Mr. Scott. We will get that to you.
    Mr. Tonsager. Okay. Let us see. I am sorry. Please forgive 
me.
    Mr. Scott. The relationship between SBA and USDA and how 
that has worked with the----
    Mr. Tonsager. Sure.
    Mr. Scott.--consolidation if you will of the----
    Mr. Tonsager. We did establish the Memorandum. We are doing 
joint trainings between our people that are involved in 
business funding and trying to learn from each other regarding 
their abilities in business lending. Our program, of course, 
goes to very large loans where SBA is somewhat restricted in 
size. We advocate with clients regarding use of the SBA loans 
so we have our staff trained in how the SBA loans work. And if 
it is better suited for them in some cases, then we would 
advocate that they would pursue an SBA loan. And we also work 
more closely with lenders so we would have a group of business 
and industry loan lenders, some 1,800 banks that like to use 
our program. We try and coordinate--especially when both SBA 
and the B&I Program is in the same financial institution.
    Mr. Scott. Do you have the information on the number or the 
percentage of businesses that you are involved in the initial 
or the startup funding that are in business after 3 years?
    Mr. Tonsager. I am sorry. I don't have that with me today 
but we will certainly provide it to you.
    [The information referred to is located on p. 33.]
    Mr. Scott. All right. Thank you.
    Mr. Chairman, I don't have any further questions. I yield 
back my time.
    The Chairman. Thank you, Mr. Scott.
    The Chair would recognize the gentleman from North 
Carolina, Mr. McIntyre.
    Mr. McIntyre. Thank you, Mr. Chairman. Thank you for this 
opportunity. As former Chairman of this Subcommittee, I have a 
couple of questions for the Under Secretary, and it good to see 
you again, Mr. Under Secretary.
    I know USDA Rural Development has taken the lead in 
addressing one of the most pressing challenges facing rural 
America; that is the digital divide separating rural and urban 
areas. And I know you are familiar with that with the major 
success story that we had in North Carolina down in Columbus 
County, a very rural area that now has--with the help of ATMC, 
a local provider there--98 percent completed its mission to 
connect nearly 1,000 rural residents who otherwise had no 
access to high-speed Internet. And I still remember the lady 
last August who ran out of her house when she saw me out there 
with the crews say thank you, thank you. My son can now do his 
homework at home instead of having to go all the way back into 
town to try to go to a library or to the school. He could come 
home and the young boy can be at home to do his homework.
    How is USDA uniquely situated, do you believe, to take the 
lead for the Federal Government in investing in our rural 
telecommunications infrastructure as compared to other 
departments or agencies?
    Mr. Tonsager. Well, we of course have a 70 year old 
tradition in rural America. We financed the National Rural 
Electric System through decades that saw the very first light 
bulb and then went to virtually every corner of the United 
States. We have done the same with the National Rural Water 
System and we have not gotten everywhere with rural water. But 
we have been building that over a very long period of time.
    Mr. McIntyre. Yes.
    Mr. Tonsager. So we have unique skill sets in making very 
large credit available to very large organizations and have 
done so in a very positive manner. So our presence in rural 
America and our long-term history of making financial 
commitments that work quite well, is a major component of what 
we do.
    Mr. McIntyre. Can you speak about the effort to build on 
and build out with respect to broadband investments that are 
being made by the USDA?
    Mr. Tonsager. Sure. Along with our responsibility for 
building that system, we also have tools for building 
businesses. And so we have been conducting webinars, bringing 
in companies that do direct marketing and I think that is one 
of the great hopes that was brought by Congress to not only 
build this system but make sure economic opportunity happened 
for those people that live in those communities. So as we build 
out the system we are conducting these webinars with local 
organizations, businesses, and companies and bringing together 
those efforts so that people might begin to use this wonderful 
tool of broadband to build their economic lives.
    Mr. McIntyre. I know that a lot of folks are always 
concerned about duplicative services, but I would like for you, 
given your unique position and the experience you have had in 
doing these types of things, to explain to us how USDA Rural 
Development that gives significant assistance to much-needed 
infrastructure investments--water, wastewater, broadband, 
telephone, and electric infrastructure--we know that EDA, HUD, 
Department of Transportation, and EPA also do certain aspects 
of that but how do you believe that USDA with its extensive 
field staff makes a difference when it comes to rural America; 
so we can get a handle on what is the difference here and why 
is USDA Rural Development so critical in meeting these needs to 
keep rural America from being left behind?
    Mr. Tonsager. Sure. In my testimony I talked about the 
charge in the 1972 Con Act regarding taking the lead in rural 
areas. So we see ourselves as an aggressive organization in 
trying to bring resources. We know that our mission is rural. 
We know that other Federal agencies might not have as 
aggressive an approach. I mean generally they are a passive 
provider of resources. We see our job as taking our resources, 
trying to bring more to the table with private sector, with 
other Federal agencies and trying to make sure that rural 
citizens have access to as much Federal Government resources as 
we can possibly get. So we think our position, having a field 
structure, and our mandate to be assertive in our view in 
providing these resources makes us unique.
    Mr. McIntyre. Thank you. And I speak for all of us who have 
constituents and ourselves that live in rural areas that with 
this time of year and April 15 fast approaching that rural 
America are just as much taxpaying citizens as those in urban 
and suburban America and should not be left behind. And I want 
to thank you for the efforts you make on behalf of rural 
America and our citizens, the American taxpayers who do see a 
return on their investments that we are reminded of every year 
at April 15. The difference it makes in their lives when they 
see rural broadband, water, and wastewater projects and the 
infrastructure come to make their quality of lives inline with 
their fellow American citizens. God bless you and thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. McIntyre.
    Now, I would recognize the gentleman from Illinois, Mr. 
Hultgren.
    Mr. Hultgren. Thank you, Mr. Chairman.
    Thank you for being here today. A couple questions. I 
understand that Rural Housing Service has been trying to get 
some access to the same employment data that HUD uses to verify 
tenants' incomes. What benefit would this earned income 
verification data provide to RHS and I wonder what is 
preventing you from using it?
    Mr. Tonsager. I will have to ask my folks what the status 
of that proposal. I thought we were getting close if not had 
gotten to that point yet. It would help with the evaluation of 
loan applications and its time limits of getting the loan 
applications done. Having information available would help us 
make sure the portfolio performs well and that we are making 
loans to eligible applicants as well as making sure that they 
get repaid. And I am sorry. I don't know if any of my staff 
knows for sure. We will have to report back on the status of 
that.
    [The information referred to is located on p. 33.] *
---------------------------------------------------------------------------
    * Editor's note: The information request has been answered in three 
parts, labeled Insert 2-5.
---------------------------------------------------------------------------
    Mr. Hultgren. If you can get us the information, that would 
be great on that. That would be terrific.
    GAO and others have proposed consolidation of the Rural 
Housing Programs with HUD. I wonder, do you think the rural 
areas would see the same attention under HUD's management as 
they currently receive?
    Mr. Tonsager. I believe that we provide real opportunities 
to remote rural citizens. Forgive me for using the term unique 
for rural America, but the people in rural America don't make 
as much money. And our particular program, I think the 
guarantee program especially is well suited to rural 
communities in that we don't have a particular down payment 
requirement. We have been very successful in repayment to the 
point where for the program cost, it doesn't cost the taxpayers 
any money. There is cost, of course, with our system of 
delivery but not with the fee that we are assessing. We don't 
have a cost and the performance of the program has been very 
good.
    So, the uniqueness of the programs for housing addresses 
the needs of rural people and how to get that delivery in the 
far corners of rural America becomes the challenge for perhaps 
HUD and others if it were to be combined.
    Mr. Hultgren. If it were combined, I mean is there any 
expectation or what is the expectation of the amount of savings 
as you combine the programs as far as salaries being saved, 
expenses for the agency? And then I wondered if there is a 
savings, how USDA would seek to reallocate those resources if 
there was a consolidation or savings of administrative costs?
    Mr. Tonsager. I have not seen any particular identification 
of what those savings might be. I would say for the guarantee 
program particularly the amount of resources is pretty modest. 
We are working with private institutions. The financers are 
doing the great bulk of the work. Much of our work is 
monitoring of those loans in that case. The direct program 
costs more because it is more of a hands-on approach with 
individual people and helping them to get good credit. So I am 
sorry; I just don't have the information.
    Mr. Hultgren. Okay. There again, if you have that 
information, if you can get that to us or if your staff has 
that information, that would be helpful.
    Mr. Tonsager. Sure.
    Mr. Hultgren. Switching gears a little bit. Under the 
current requirements, a community must be outside of a 
metropolitan statistical area to qualify for Rural Housing 
Programs. MSAs are no longer the compact area they once were 
and communities located far from the urban core can still be 
considered part of the MSA. I wondered why do you have this 
blanket exemption and do you feel some communities are 
disadvantaged by this exemption?
    Mr. Tonsager. Of course, it is required by law. I mean we 
have a specific requirement regarding the geographic area that 
we can serve, so we have to follow that to the letter in doing 
that.
    We are anxious to look at flexibility and I know 
Congressman Costa's concern about the rural definition issue. 
When we find ourselves with multiple definitions running into 
is that we can't address the needs of a whole community. We are 
doing a bit here, a bit there, and we are struggling with that 
definitional issue and trying to come to grips with what would 
be the most useful discussion to have. But the Secretary is 
focused a good bit on flexibility in the existing programs and 
we are studying that closely.
    Mr. Hultgren. What are your recommendations for addressing 
those definitional issues? Are there proposals that are in 
place? Is there legislation that is introduced that would 
address that concern?
    Mr. Tonsager. Not at this time. We have not made proposals 
at this time.
    Mr. Hultgren. Do you expect that to be coming or what is 
your thought there?
    Mr. Tonsager. We expect after a review process to put 
forward some material on the subject.
    Mr. Hultgren. Okay. But it would take legislative change 
you believe----
    Mr. Tonsager. Yes.
    Mr. Hultgren.--to bring that definition?
    Mr. Tonsager. Yes, there are very concise definitions in 
the statute regarding each program area. And it would take 
definitely statutory change.
    Mr. Hultgren. Okay. My time has expired. I yield back. 
Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Hultgren. The gentlelady from 
Missouri, Mrs. Hartzler.
    Mrs. Hartzler. Thank you, Mr. Chairman.
    In your testimony, you discuss the coordination between 
USDA and the Small Business Administration in 2010 in an effort 
to improve service delivery to small businesses in rural areas. 
So what was the result of this coordination?
    Mr. Tonsager. There has been significant activity. We do 
training together with the SBA. We provide clients coming in 
the door information regarding potential use of SBA 
applications or SBA programs if they are better suited to their 
needs in that area. So we have ongoing efforts with SBA all the 
time. And I mentioned earlier that we see our field structure 
as an opportunity to draw more resources from other Federal 
agencies into rural areas. So we see our tools as an 
opportunity to leverage those agencies to bring their 
resources. And so we attempt to do that with as many of the 
other Federal agencies as we can, including the SBA.
    Mrs. Hartzler. That is very good. Does your interagency 
coordination include a conscious effort to determine which 
agency should be funding which type of investment even when 
both agencies might have clear authority to do so?
    Mr. Tonsager. We tend to look at the individual applicants 
and try to advocate with them regarding that. We haven't, I 
don't think, done a strategy where we looked at which agency 
would be best suited in an individual area, so I may not be 
quite understanding your question well enough and I will ask my 
colleagues if they have any thoughts.
    And my deputy points out that the lender is the applicant 
to us in the loan guarantee case. And so we work with them.
    Mrs. Hartzler. Yes. All right, that makes sense. Now, I 
missed the first part of the hearing due to being at another 
hearing at the same time--sorry--but we were talking about 
consolidating programs here. I came in where you were saying 
that you believe that four revolving loan funds could be 
consolidated, also some grant programs. Is that the only 
duplication or consolidation that you think could be done in 
the Department?
    Mr. Tonsager. Well, we should consider perhaps some of the 
guarantee programs. You know, we have a guarantee program for 
large energy projects, we have our Business and Industry Loan 
Guarantee Program, and we have a guarantee program and our REAP 
Program, which is also energy-related.
    We don't have a clearer saying do this, this, and this, 
but, if we can look at still having the same audiences that we 
are all trying to serve and limit or reduce the number of 
programs that are applicable that might be of value, less NOFAs 
we have to put out, less procedures we have to go through. So 
we don't have a defined kind of agenda on that. We are just 
suggesting if we combine some of the tool sets and broaden them 
out, get more flexibility as the Secretary has talked about, it 
would make some sense.
    Mrs. Hartzler. Sounds like some good ideas. Have you put 
that into a format that could be transferred over to a 
legislative initiative?
    Mr. Tonsager. We have not but we would be more than happy 
to work with some Members on any proposals you might want to 
consider.
    Mrs. Hartzler. I would be interested in seeing in writing 
some of your suggestions of specific programs you think could 
be consolidated to increase efficiencies that we can move 
forward with because I think that makes sense for the taxpayer 
and for the people that we are trying to serve.
    So thank you for what you are doing for rural America. It 
is very important, I appreciate it.
    Mr. Tonsager. Yes, thank you, ma'am.
    Mrs. Hartzler. I yield back my time.
    The Chairman. Thank you. With that, I believe there are no 
more questions. We thank you for your testimony and appreciate 
your being here and look forward to hearing from you again.
    Mr. Tonsager. Thank you, sir.
    The Chairman. We will now assemble the next panel, which is 
essentially one witness. Our witness now for the second panel 
is Mr. William Shear, Director, Financial Markets and Community 
Investment, Government Accountability Office.
    Please begin when you are ready, Mr. Shear.

STATEMENT OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND 
                   COMMUNITY INVESTMENT, U.S.
       GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, D.C.

    Mr. Shear. Thank you. Chairman Johnson, Ranking Member 
Costa, and Members of the Subcommittee, I am pleased to be here 
this morning to discuss our work on overlap, fragmentation, and 
potential duplication in economic development programs.
    As part of our series of reports on these programs, most 
recently in February 2012, we reported on the existence of 
overlap and fragmentation among those Federal economic 
development programs that support entrepreneurs. Specifically, 
we focused our analysis on 53 of the 80 economic development 
programs at Agriculture, Commerce, HUD, and SBA that fund 
entrepreneurial assistance because these programs appear to 
overlap the most among the 80 economic development programs.
    My testimony today is largely based on information on these 
53 programs that is discussed in our recent February 2012 
report. Specifically, this testimony discusses our work to date 
on, first, the extent of overlap and fragmentation among these 
programs; and second, the availability of meaningful 
performance information on these 53 programs. I will also 
provide an overview of the nature of our ongoing work.
    In summary, based on our work to date we have found that 
programs that support entrepreneurs overlap based not only on 
their shared purpose of serving entrepreneurs but also on the 
type of assistance they offer. The programs generally can be 
grouped according to at least one of three types of 
assistance--first, technical assistance; second, financial 
assistance; and third, government contracts. Much of the 
overlap and fragmentation among these 53 programs is 
concentrated among programs that support economically 
distressed and disadvantaged areas and programs that are 
disadvantaged in small businesses. In addition, many of these 
economic development programs also operate in both urban and 
rural areas.
    While most of the 53 economic development programs that 
support entrepreneurs have reasonable performance measures, 
intend to meet their annual performance goals, few evaluation 
studies have been completed and little evaluative information 
exists that assesses the programs' effectiveness at what they 
are intended to serve.
    In addition to the work discussed in our recent report, I 
will mention two other sources of information--first, progress 
made by the agencies in implementing collaborative practices we 
had recommended; and second, our continuing work to be 
discussed in a report on economic development programs we plan 
to issue this summer.
    With respect to collaborative practices, in April 2010, 
USDA and SBA signed a Memorandum of Understanding. The MOU 
defined and articulated a common outcome focused on improving 
service delivery to small businesses in under-served rural 
areas. USDA's April 2011 survey of state directors indicates 
progress under the MOU in several areas, including field 
offices advising borrowers of SBA's programs, referring 
borrowers to SBA and its resource partners, and explaining ways 
to make USDA and SBA programs more complementary. However, we 
have not received comparable information from SBA indicating 
progress in this area. In addition, HUD, USDA, and SBA have 
provided limited evidence that they have taken steps to develop 
compatible policies and procedures with either Federal agencies 
and this also goes to the issue of defining roles and 
responsibilities.
    With respect to our remaining audit work, a large part of 
it will focus on the extent to which the programs are 
duplicative, overlapping, or fragmented and we are especially 
focusing on the provision of economic development assistance by 
the various agencies and programs in rural America.
    Chairman Johnson and Ranking Member Costa, this concludes 
my prepared statement. I would be happy to answer any questions 
at this time.
    [The prepared statement of Mr. Shear follows:]

Prepared Statement of William B. Shear, Director, Financial Markets and 
      Community Investment, U.S. Government Accountability Office,
                            Washington, D.C.
Economic Development
Efficiency and Effectiveness of Fragmented Programs Are Unclear
    Chairman Johnson, Ranking Member Costa, and Members of the 
Subcommittee:

    I am pleased to be here today to discuss our work on overlap, 
fragmentation, and potential duplication in economic development 
programs. Over the past year, we have issued a series of reports on 
potential duplication among Federal economic development programs, 
including a number of rural development programs.\1\ Most recently in 
February 2012 we reported new information on the existence of overlap 
and fragmentation among those Federal economic development programs 
that support entrepreneurs.\2\ Specifically, we focused our analysis on 
53 of the 80 economic development programs at the Departments of 
Commerce (Commerce), Housing and Urban Development (HUD), Agriculture 
(USDA), and the Small Business Administration (SBA) that fund 
entrepreneurial assistance because these programs appear to overlap the 
most.\3\ According to agency officials, these programs, which typically 
fund a variety of activities in addition to supporting entrepreneurs, 
spent an estimated $2.6 billion in enacted appropriations on economic 
development efforts in Fiscal Year 2010.\4\
---------------------------------------------------------------------------
    \1\ GAO, Opportunities to Reduce Potential Duplication in 
Government Programs, Save Tax Dollars, and Enhance Revenue, GAO-11-
318SP (http://www.gao.gov/products/GAO-11-318SP) (Washington D.C.: Mar. 
1, 2011) and Efficiency and Effectiveness of Fragmented Economic 
Development Programs Are Unclear, GAO-11-477R (http://www.gao.gov/
products/GAO-11-477R) (Washington, D.C.: May 19, 2011).
    \2\ GAO, 2012 Annual Report: Opportunities to Reduce Duplication, 
Overlap and Fragmentation, Achieve Savings, and Enhance Revenue, GAO-
12-342SP (http://www.gao.gov/products/GAO-12-342SP) (Washington D.C.: 
Feb. 28, 2012).
    \3\ The number of programs administered by Commerce, HUD, SBA, and 
USDA that were identified in GAO-11-477R (http://www.gao.gov/products/
GAO-11-477R) as supporting entrepreneurial efforts decreased from 54 to 
53 because Commerce merged its Minority Business Opportunity Center 
program and Minority Business Enterprise Center program into one 
program that is now called Minority Business Center. In addition, two 
of the original Commerce programs identified in our March and May 2011 
reports--Community Trade Adjustment Assistance and Research and 
Evaluation--have been replaced with two other Commerce programs--Trade 
Adjustment Assistance for Firms and the Economic Development--Support 
for Planning Organizations--because one of the original programs had 
temporary funding and the other original program was misclassified as 
an economic development program. The two new Commerce programs that 
have been added should have been included in the March and May 2011 
reports, according to Commerce officials.
    \4\ We excluded the portion of the Community Development Block 
Grant funding that HUD reported is not used to support economic 
development. The total enacted appropriations for these 53 programs was 
about $5.6 billion for Fiscal Year 2010.
---------------------------------------------------------------------------
    Economic development programs, if effective, can develop and 
expand, and thus contribute to the nation's economic growth. However, 
the ways that these programs are administered could lead to inefficient 
delivery of services to entrepreneurs, such as requiring recipients to 
fill out applications to multiple agencies with varying program 
requirements, and could compromise the government's ability to 
effectively provide the needed service and meet the shared goals of the 
programs.
    My testimony today is based on information on these 53 programs 
that is discussed in our recent February 2012 report. Specifically, 
this testimony discusses our work to date on (1) the extent of overlap 
and fragmentation among these programs and (2) the availability of 
meaningful performance information on these 53 programs. Because we 
have ongoing work that will be issued later this year, we also provide 
an overview of the nature of our ongoing work.
    In summary, based on our work to date, we have found that:

   Programs that support entrepreneurs overlap based not only 
        on their shared purpose of serving entrepreneurs but also on 
        the type of assistance they offer. Much of the overlap and 
        fragmentation among these 53 programs is concentrated among 
        programs that support economically distressed and disadvantaged 
        areas and programs that assist disadvantaged and small 
        businesses. In addition, many of these economic development 
        programs also operate in both urban and rural areas.\5\
---------------------------------------------------------------------------
    \5\ While the definition of rural can vary among programs, USDA's 
typically defines it as covering areas with population limits ranging 
from less than 2,500 to 50,000.

   While most (45) of the 53 economic development programs that 
        support entrepreneurs have reasonable performance measures and 
        tend to meet their annual performance goals, few evaluation 
        studies have been completed and little evaluative information 
---------------------------------------------------------------------------
        exists that assesses the programs' effectiveness.

    As we continue our ongoing work, we are conducting additional 
analyses of these 53 programs to determine, among other things, (1) 
what support do Federal economic development programs provide to 
entrepreneurs and to what extent the programs are duplicative, 
overlapping, or fragmented; (2) the effects on entrepreneurs and the 
steps agencies have taken to address any duplication, overlap, or 
fragmentation; and (3) the extent to which these programs have 
established and met performance goals and been evaluated for 
effectiveness.
    For our February 2012 report, which this testimony is based on, we 
focused our analysis on the 53 economic development programs at 
Commerce, HUD, USDA, and SBA that fund entrepreneurial assistance 
because these programs appeared to overlap the most. We examined the 
extent to which the Federal Government's efforts to support 
entrepreneurs overlap among these numerous, fragmented programs by 
examining their missions, goals, services provided, and targeted 
beneficiaries and areas. We also collected information on performance 
measures that the agencies collect to track the performance of each of 
the 53 programs, and any evaluation studies conducted or commissioned 
by the agencies evaluating the effectiveness of these programs. This 
process included meeting with agency officials to corroborate the 
publicly available information. We also determined the reasonableness 
of the performance measures by assessing each measure against agency 
strategic goals and specific program missions to determine the extent 
to which they are aligned. The work on which this statement is based 
was performed from June 2011 through February 2012 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives.
Programs that Support Entrepreneurs Overlap and Are Fragmented
    Based on a review of the missions and other related program 
information for these 53 programs, we determined that these programs 
overlap based not only on their shared purpose of serving entrepreneurs 
but also on the type of assistance they offer. The programs generally 
can be grouped according to at least one of three types of assistance 
that address different entrepreneurial needs: help obtaining (1) 
technical assistance, (2) financial assistance, and (3) government 
contracts. Many of the programs can provide more than one type of 
assistance, and most focus on technical and/or financial assistance: 
\6\
---------------------------------------------------------------------------
    \6\ SBA administers the two programs that solely provide 
entrepreneurs with assistance in obtaining government contracts: the 
HUBZone program, which supports small businesses located in 
economically distressed areas, and the Procurement Assistance to Small 
Businesses program, which serves small businesses located in any area.

   Technical assistance: Thirty-six programs distributed across 
        the four agencies provide technical assistance, including 
        business training and counseling and research and development 
---------------------------------------------------------------------------
        support.

   Financial assistance: Thirty-three programs distributed 
        across the four agencies support entrepreneurs through 
        financial assistance in the form of grants and loans.

   Government contracting assistance: Seven programs 
        distributed between two of the four agencies support 
        entrepreneurs by helping them qualify for Federal procurement 
        opportunities.

    Table 1 illustrates overlap among programs that provide 
entrepreneurial assistance in terms of the type of assistance they 
provide. For example, USDA administers nine of the 36 programs 
distributed across the four agencies that provide technical assistance, 
including business training and counseling and research and development 
support. The agency also administers nine of the 33 programs 
distributed across the four agencies that support entrepreneurs through 
financial assistance in the form of grants and loans. Appendix I lists 
the programs GAO identified that may have similar or overlapping 
objectives, provide similar services or be fragmented across government 
missions. Overlap and fragmentation may not necessarily lead to actual 
duplication, and some degree of overlap and duplication may be 
justified.

 Table 1: 53 Programs That Support Entrepreneurs, by Type of Assistance,
                       as of September 30, 2011 a
------------------------------------------------------------------------
                 HUD        SBA        USDA       Commerce      Total b
------------------------------------------------------------------------
Technical             2          6          5               4         17
 assistance
 only
Financial             3          5          5                         13
 assistance
 only
Technical             7          3          4               2         16
 and
 financial
 assistance
 only
Government                       2                                     2
 contracting
 assistance
 only
Technical                        1                                     1
 and
 government
 contracting
 only
Financial                        2                                     2
 and
 government
 contracting
 only
Technical,                                                  2          2
 financial,
 and
 government
 contracting
 assistance
             -----------------------------------------------------------
  Total              12         19         14               8         53
------------------------------------------------------------------------
Source: GAO analysis of information provided by Commerce, HUD, USDA, and
  SBA.

Notes:

a Some of the programs may not have received funding in Fiscal Year
  2011.
b The 36 technical assistance programs include those in the following
  categories: technical assistance only; technical and financial
  assistance only; technical, financial, and government contracting
  assistance; and technical and government contracting assistance only.
  The 33 financial assistance programs include those in the following
  categories: financial assistance only; technical and financial
  assistance only; technical, financial, and government contracting
  assistance; and financial and government contracting assistance only.
  The seven government contracting assistance programs include those in
  the following categories: government contracting assistance only,
  technical and government contracting assistance only, financial and
  government contracting assistance only, and technical, financial, and
  government contracting assistance.

    Furthermore, we found that much of the overlap and fragmentation 
among these 53 programs is concentrated among those that support 
economically distressed and disadvantaged areas and programs that 
assist disadvantaged and small businesses, including those in rural 
areas (see Fig. 1 below). For example, 23 programs provide technical 
assistance to businesses operating in areas that are disadvantaged; 
USDA administers nine of these programs. In addition, USDA administers 
5 of the 26 programs that provide technical assistance to disadvantaged 
businesses.
Figure 1: Programs That Provide Technical and Financial Assistance, by 
        Type of Business and Community Served, as of September 30, 
        2011.
        
        
        Source: GAO analysis.

        Note: Some of the programs may not have received funding in 
        Fiscal Year 2011.

    The number of programs that support entrepreneurs--53--and the 
overlap among these programs raise questions about whether a fragmented 
system is the most effective way to support entrepreneurs. By exploring 
alternatives, agencies may be able to determine whether there are more 
efficient ways to continue to serve the unique needs of entrepreneurs, 
including consolidating various programs. In ongoing work, we plan to 
examine the extent of potential duplication among these programs as 
well as determine the effects of this fragmented system on the delivery 
of technical assistance to entrepreneurs.
    To address issues arising from potential overlap and fragmentation 
in economic development programs, we previously identified 
collaborative practices agencies should consider implementing in order 
to maximize performance and results of Federal programs that share 
common outcomes. Our work to date shows that Commerce, USDA, and SBA 
have taken initial steps to implement at least one of the collaborative 
practices--defining and articulating common outcomes for some of their 
related programs. For example, in April 2010 USDA and SBA signed a 
Memorandum of Understanding (MOU) in response to GAO's 2008 
recommendation that the agencies should establish a formal approach to 
encourage further collaboration. The MOU defined and articulated a 
common outcome focused on improving service delivery to small 
businesses in under-served rural areas. Under the MOU, USDA and SBA 
agreed that their field offices would advise potential borrowers of the 
other agency's programs that may meet their small business financing 
needs and coordinate the referral of small business applicants to one 
another where appropriate, work to make each agency's programs more 
complementary by minimizing differences in program fees and processing 
and closing procedures, and develop joint training seminars on each 
agency's programs. In addition, USDA and SBA agreed to measure progress 
under the MOU. USDA's April 2011 survey of state directors indicates 
progress under the MOU in several areas, including field offices 
advising borrowers of SBA's programs, referring borrowers to SBA and 
its resource partners, and exploring ways to make USDA and SBA programs 
more complementary. However, we have not received comparable 
information from SBA indicating progress in this area. In addition, 
HUD, USDA, and SBA have provided limited evidence that they have taken 
steps to develop compatible policies or procedures with other Federal 
agencies, or to search for opportunities to leverage physical and 
administrative resources with their Federal partners.
Agencies Lack Meaningful Information on the Effectiveness of Programs 
        that Support Entrepreneurs
    Based on our work to date, we found that 45 of the 53 economic 
development programs we identified that support entrepreneurs have 
reasonable performance measures and tend to meet their annual 
performance goals; however, the four agencies have either never 
conducted a performance evaluation or have conducted only one in the 
past decade for 39 of the 53 programs. In order to effectively evaluate 
and oversee the services being provided, Congress and the agencies need 
meaningful performance information such as performance measures and 
evaluation studies. This information is needed to help decision makers 
identify ways to make more informed decisions about allocating 
increasingly scarce resources among overlapping programs. Specifically, 
performance measures can provide information on an agency's progress 
toward meeting certain program and agency-wide strategic goals, 
expressed as measurable performance standards. In contrast, program 
evaluations are systematic ways to assess a broader range of 
information on program performance. As a result, evaluation studies can 
help identify which programs are effective or not, explain why goals 
were not met and identify strategies for meeting unmet goals, and 
estimate what would have occurred in the absence of the program.
    Without results from program evaluations and performance 
measurement data, agencies lack the ability to measure the overall 
impact of these programs, and decision makers lack information that 
could help them to identify programs that could be better structured 
and improve the efficiency with which the government provides these 
services. Moreover, the Federal Government has recently required the 
Office of Management and Budget (OMB) to coordinate with agencies to 
ensure that they better track the results of their programs. 
Specifically, the GPRA Modernization Act of 2010 (GPRAMA) requires OMB 
to work with agencies to, among other things, develop outcome-oriented 
goals for certain crosscutting policy areas and report annually on how 
these goals will be achieved.\7\
---------------------------------------------------------------------------
    \7\ Pub. L. No. 111-352 (2011).
---------------------------------------------------------------------------
    Other GPRAMA requirements could lead to improved coordination and 
collaboration among agencies. For instance, GPRAMA requires each agency 
to identify the various organizations and program activities--both 
within and external to the agency--that contribute to each agency's 
goal. In ongoing work, we plan to determine reasons why the agencies 
(1) do not conduct more routine evaluations of these programs and (2) 
have not established and do not track performance measures for 8 of the 
53 programs.
Framework for Ongoing Analysis
    As mentioned earlier, our ongoing work focuses on, among other 
things, (1) what support do Federal economic development programs 
provide to entrepreneurs and to what extent the programs are 
duplicative, overlapping, or fragmented; (2) the effects on 
entrepreneurs and the steps agencies have taken to address any 
duplication, overlap, or fragmentation; and (3) the extent to which 
these programs have established and met performance goals and been 
evaluated for effectiveness. To examine the support Federal economic 
development programs provide to entrepreneurs and to what extent the 
programs are duplicative, overlapping, or fragmented, we will review 
information on the activities and services that the agencies conduct to 
administer each of the 53 programs, as well as associated budget 
information for each program. We will also evaluate the agencies' 
methods for tracking the activities conducted, services provided, and 
associated costs against criteria that we have established related to 
internal control standards. To identify the effects on entrepreneurs 
and the steps agencies have taken to address any duplication, overlap, 
or fragmentation, we will, among other things, conduct interviews with 
select Federal agency and regional commission officials, entrepreneurs, 
and state and local partners in select areas across the U.S., including 
rural areas. During these interviews we will determine how the Federal 
agencies collaborate to support entrepreneurs, identify any reported 
lessons learned from these collaborative efforts, as well as challenges 
they face to collaboratively support entrepreneurs. We will also obtain 
their views on the negative effects that the overlapping, fragmented, 
or duplicative programs have on the efficient delivery of services to 
entrepreneurs. Finally, we will interview program officials to 
determine the reasons why the agencies do not conduct more evaluation 
studies.
    Chairman Johnson and Ranking Member Costa, this concludes my 
prepared statement. I would be happy to answer any questions at this 
time.
Contacts and Staff Acknowledgements
    For further information on this testimony, please contact me at 
[Redacted] or [Redacted]. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this statement. Key contributors to this testimony include 
Marshall Hamlett and Triana McNeil, Assistant Directors; Cindy Gilbert; 
John McGrail; Jennifer Schwartz; and Karen Villafana.

   Appendix I: List of Programs That Support Entrepreneurs and Related
                          Budgetary Information
------------------------------------------------------------------------
                    Program                        FY 2010 obligations
------------------------------------------------------------------------
                         Department of Commerce
------------------------------------------------------------------------
Grants for Public Works and Economic                        $158,930,000
 Development Facilities
Economic Development/Support for Planning                    $31,391,000
 Organizations
Economic Development/Technical Assistance                     $9,800,000
Economic Adjustment Assistance                               $45,270,000
Trade Adjustment Assistance                                  $18,987,000
Global Climate Change Mitigation Incentive Fund              $25,000,000
Minority Business Centers (merged the former                 $10,113,693
 Minority Business Enterprise Centers and
 Minority Business Opportunity Center programs)
Native American Business Enterprise Centers                   $1,351,500
------------------------------------------------------------------------
                     U.S. Department of Agriculture
------------------------------------------------------------------------
Empowerment Zones                                               $500,000
Woody Biomass Utilization Grant Program                       $5,000,000
1890 Land-Grant Institutions Rural                                    $0
 Entrepreneurial Outreach Program/Rural
 Business Entrepreneur Development Initiative/
 BISNET
Small Business Innovation Research                           $22,000,000
Biomass Research and Development Initiative                           $0
 Competitive Grants Program
Value-Added Producer Grants                                  $19,400,000
Agriculture Innovation Center                                         $0
Small Socially-Disadvantaged Producer Grants                  $3,500,000
Intermediary Re-lending                                       $8,500,000
Business and Industry Loans                                  $52,900,000
Rural Business Enterprise Grants                             $38,700,000
Rural Cooperative Development Grants                          $8,300,000
Rural Business Opportunity Grants                             $2,500,000
Rural Microentrepreneur Assistance Program                    $9,000,000
------------------------------------------------------------------------
               Department of Housing and Urban Development
------------------------------------------------------------------------
Community Development Block Grant (CDBG)/                 $2,760,223,970
 Entitlement Grants
CDBG/Special Purpose/Insular Areas                            $6,930,000
CDBG/States                                               $1,176,594,747
CDBG/Non-entitlement CDBG Grants in Hawaii                    $5,791,797
CDBG/Brownfields Economic Development                        $17,500,000
 Initiative
CDBG/Section 108 Loan Guarantees                              $6,000,000
Section 4 Capacity Building for Affordable                   $50,000,000
 Housing and Community Development
Rural Innovation Fund                                        $25,000,000
CDBG Disaster Recovery Grants                               $100,000,000
Indian CDBG                                                  $65,000,000
Hispanic Serving Institutions Assisting                       $6,250,000
 Communities
Alaska Native/Native Hawaiian Institutions                    $3,265,000
 Assisting Communities
------------------------------------------------------------------------
                      Small Business Administration
------------------------------------------------------------------------
8(a) Business Development Program                            $56,817,000
7(j) Technical Assistance                                     $3,275,000
Procurement Assistance to Small Businesses                    $3,164,000
Small Business Investment Companies                          $24,262,000
7(a) Loan Program                                           $518,869,000
Surety Bond Guarantee Program                                         $0
SCORE                                                         $7,000,000
Small Business Development Centers                          $112,624,000
504 Loan Program                                             $70,645,000
Women's Business Centers                                     $13,997,000
Veterans' Business Outreach Centers                           $2,500,000
Microloan Program                                            $42,901,000
PRIME                                                         $8,000,000
New Markets Venture Capital Program                                   $0
7(a) Export Loan Guarantees                                           $0
HUBZone                                                       $2,189,000
Small Business Technology Transfer Program                            $0
Small Business Innovation Research Program                            $0
Federal and State Technology Partnership                      $2,000,000
 Program
                                                ------------------------
  Total                                                   $5,561,941,707
------------------------------------------------------------------------
Source: Commerce, HUD, SBA, and USDA.

GAO's Mission
    The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the Federal Government for the American people. 
GAO examines the use of public funds; evaluates Federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
    The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's website (www.gao.gov). Each weekday afternoon, 
GAO posts on its website newly released reports, testimony, and 
correspondence. To have GAO e-mail you a list of newly posted products, 
go to www.gao.gov and select ``E-mail Updates.''
Order by Phone
    The price of each GAO publication reflects GAO's actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO's website, 
http://www.gao.gov/ordering.htm.
    Place orders by calling (202) 512-6000, toll free (866) 801-7077, 
or TDD (202) 512-2537.
    Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information.
Connect with GAO
    Connect with GAO on Facebook (http://www.facebook.com/usgao), 
Flickr 
(http://www.flickr.com/photos/usgao), Twitter (http://twitter.com/#!/
usgao), and YouTube (http://www.youtube.com/usgao). Subscribe to our 
RSS Feeds (http://www.gao.gov/feeds.html) or E-mail Updates (http://
www.gao.gov/subscribe/index.php). Listen to our Podcasts (http://
www.gao.gov/podcast/watchdog.html). Visit GAO on the web at 
www.gao.gov.
To Report Fraud, Waste, and Abuse in Federal Programs
    Contact:

    Website: www.gao.gov/fraudnet/fraudnet.htm
    E-mail: [email protected]
    Automated answering system: (800) 424-5454 or (202) 512-7470
Congressional Relations
    Katherine Siggerud, Managing Director, [email protected], (202) 
512-4400, U.S. Government Accountability Office, 441 G Street NW, Room 
7125, Washington, D.C. 20548
Public Affairs
    Chuck Young, Managing Director, [email protected], (202) 512-4800 
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548

    The Chairman. Thank you for your testimony.
    I have one question. Your testimony indicated most of the 
fragmentation found among these programs is concentrated in 
programs which have carve-outs for economic or other 
eligibility criteria. In your judgment, do those set-asides and 
carve-outs lead to a fragmentation of program delivery?
    Mr. Shear. You have asked a very good question. And to a 
large degree, for the carve-outs, the set-asides can create 
certain challenges in delivering programs; yet it involves a 
view by the Congress and others toward what types of targeting 
is appropriate in programs. So it is one of the challenges in 
terms of how programs are structured. So, for example, for 
counseling and training programs, some of the programs across 
the agencies are more focused on lower-income populations than 
some of the others. If you were going to try to combine the 
programs, it would be a challenge to have programs under common 
administration that would be able to provide those carve-outs. 
So yes, the carve-outs can create a challenge in terms of 
avoiding fragmentation; but nonetheless, we think there are 
opportunities to try to address the fragmentation issues.
    The Chairman. Thank you. That is all the questions I have.
    I recognize the gentleman from California, the Ranking 
Member, Mr. Costa.
    Mr. Costa. Thank you again, Mr. Chairman.
    Mr. Shear, it is my understanding that the GAO, when doing 
your evaluation on the potentially duplicative nature of the 
Federal economic development programs on the four agencies that 
you looked at statutory and regulatory population requirements. 
Is that correct?
    Mr. Shear. Yes. In our initial work which we reported on a 
little over a year ago, our first attempt there was to look at 
the design of these 80 programs and there we were focusing very 
much on what the programs could fund. So it was our first high-
level look at these programs.
    Mr. Costa. Is that a useful tool, do you think, in 
preventing overlap?
    Mr. Shear. Being here today, I can say that, yes, I think 
it was a very effective tool in a sense that we were able to 
capture information on how programs were designed to identify 
what should be part of the landscape to drill down on. So where 
the question was a year ago, how much could be made of what we 
found? We viewed it as more of a step to lead to what the 
agencies could focus on and what we could focus on going 
forward, and that is why we are drilling down in this area. So 
if I could take it one step further----
    Mr. Costa. I was going to say, so what is your follow-up 
going to be?
    Mr. Shear. Our follow-up here is that in one thing I am 
reporting on today, you notice we use the words overlap and 
fragmentation because in terms of the drill-down we have done 
among these programs and the information we have collected and 
continue to collect and examine is that we have a story that is 
largely of overlap rather than duplication. We certainly have a 
story of fragmentation where you have various parties and 
various agencies undertaking activity that should be 
coordinated in a better fashion.
    Mr. Costa. So in your final report--again because my time 
is limited here----
    Mr. Shear. Yes.
    Mr. Costa.--are you going to then make recommendations to 
the Subcommittee and the full Committee on how we can avoid the 
overlapping and duplication in these four agencies?
    Mr. Shear. Yes. The biggest part and the drill-down on 
rural America and in reaching out to stakeholders in the 
economic development process in rural America is to try to get 
an idea as far as to what degree there might be duplication in 
some of the, for example, loan guarantee programs, some of the 
technical assistance programs that Rural Development has versus 
SBA and EDA. And so----
    Mr. Costa. So you are also looking at----
    Mr. Shear.--we are also doing more of a drill-down. We are 
looking----
    Mr. Costa. Go ahead.
    Mr. Shear. I am sorry. We are doing more of a drill-down to 
see to what degree----
    Mr. Costa. In what timeline are you going to report to----
    Mr. Shear. We expect to report at the end of July on that.
    Mr. Costa. Of this year?
    Mr. Shear. Of this year. What we expect to recommend in 
terms of what our expectation of recommendations I will just 
list one of them. Under the GPRA Modernization Act, the 
agencies are actively involved in crosscutting issues, 
including serving small businesses. And so what we are looking 
for is informing decisions on strategically how overlap and 
fragmentation and how service delivery can be improved by 
looking for opportunities for those to--so we are going to be 
recommending actions that will better able the Congress and the 
agencies to better serve the economic development needs of its 
communities.
    Mr. Costa. A couple quick questions on your report to us. 
Are you going to look at significant differences in the cost of 
delivery?
    Mr. Shear. Yes. We have collected extensive information 
from all four agencies on the cost of delivery. The data 
quality varies among the agencies. We continue to ask them for 
more refined cost data, so we are really trying to push as far 
as we can based on what data the agencies have.
    Mr. Costa. You will be able, you think, to make 
recommendations on which models work best?
    Mr. Shear. We think we will be able to inform decisions. We 
are not in the business of picking which programs should be the 
winners or losers of what agencies but to provide information 
that will inform decisions about how government programs and 
economic development programs can be structured to be more 
effective.
    Among the things we might find is that the data itself that 
agencies collect and more importantly how the agencies use that 
data to evaluate the effectiveness of their programs, their 
mechanisms, and other ways they go about doing their business, 
we might make recommendations in the area about how better data 
collection and evaluation could lead to better decisions in 
program delivery.
    Mr. Costa. Well, we will look forward to that report in 
July.
    And Mr. Chairman, I have no further questions. Thank you 
very much.
    The Chairman. Thank you, Mr. Costa.
    Mr. Scott?
    Mr. Scott. Thank you, Mr. Chairman.
    And I would like to follow along that same thought process 
if you would, Mr. Chairman. Basically what you are telling us 
is that the agencies are not collecting enough data to 
determine whether or not the programs that are being funded or 
the loans are inefficient or appropriate use of tax dollars, is 
that correct?
    Mr. Shear. Yes, let me answer in two steps. And we make a 
distinction between program metrics that are collected under an 
annual basis in what we call evaluations of effectiveness. So I 
will use an analogy to counseling and training programs by SBA 
where SBA has three major counseling and training programs. 
They do have certain metrics on businesses served and certain 
metrics about just how many people and how many businesses are 
being trained and receive counseling. And that can be useful 
within itself. But then what they do is that they conduct 
periodic evaluations where they reach out to those who received 
counseling and training and they receive information from those 
businesses as far as how they valued that counseling and 
training, how it has helped them grow their businesses. And 
then it collects data on how well the businesses do because 
after all, one of the measures of success of how well the 
programs do is how well the businesses do after receiving the 
counseling and training. So we are looking for more of an 
evaluative approach by the agencies as part of managing their 
programs.
    Mr. Scott. Wouldn't it make sense--I mean every employer 
out there that receives and SBA loan or SBA assistance, 
certainly the tax ID number of that employer is on the 
application with the SBA. Why couldn't you simply look at the 
number of jobs created and based on the payroll tax number that 
is already being provided?
    Mr. Shear. With jobs created, you have brought up a very 
important point. Jobs created is one of the metrics that tends 
to be used for GPRA purposes. We haven't examined that avenue 
to collect data on jobs created. We certainly have looked at a 
number of Inspector General reports over time on how agencies 
do collect data on jobs created. Part of our issue with jobs 
created is it is hard to create a benchmark of what jobs would 
have been available by both that particular employer and other 
employers in the absence of the SBA assistance. So we are 
looking for an approach that looks a little bit more how well 
do the businesses do that get the loans?
    So, for example, in 2007 we recommended SBA for its 7(a) 
Program. It was already collecting a lot of data on its 
businesses that get what are called 7(a) loan guarantees, that 
they should use that information to try to provide some 
evaluative information as far as that, the businesses that 
loans are being made to by lenders in the program of whether 
those businesses are actually succeeding. So you bring up a 
very important point we haven't quite looked at, but we do look 
at job metrics as being important to collect, but we are also 
looking for something that is more general in terms of what is 
the purpose of the program.
    Mr. Scott. And Mr. Shear, I appreciate your comments. I 
think maybe that is where the breakdown if you will in an 
entrepreneur and small business owner who has only been in 
Congress for 12 to 13 months like myself is and where maybe 
people who have been in the Beltway a lot longer are in that 
the number one issue is jobs. Americans want to get back to 
work. And if the SBA is going to be there--and I do believe 
that the SBA has been a successful government program if you 
want to refer to it as that--but if the loan does not create 
additional payroll and additional jobs, then the funds probably 
should have gone somewhere else where they did create 
additional payroll and jobs.
    And so I don't understand why it is so hard to get that 
metric of the payroll associated with the tax ID number that 
got the loan with the SBA backing, because the payroll is going 
to be reported according to the tax ID number and the loan is 
going to be reported according to the tax ID number. I don't 
understand why it is so difficult to look at this tax ID number 
there was a million dollars worth of payroll generated before 
the loan; 3 years after the loan, total annual payroll now is 
$2 million. That seems to me like it would be pretty simple and 
help us as the Members evaluate what the most efficient 
programs are with putting Americans back to work because that 
is our goal is to put them back to work.
    Mr. Shear. I think you raise a very important point and 
even though we haven't looked at that specific question, I will 
certainly bring it up with SBA, have they ever explored this? 
but I know from another SBA program that is not included in 
this work, we have done a lot of work on their Disaster Loan 
Program, and we know that we have been involved a lot in 
recommending ways that SBA and IRS can work together in terms 
of verifying income and other information by sharing 
information for those who apply for disaster loans. So perhaps 
that might provide some type of a model for what you are 
suggesting.
    Mr. Scott. Well, and you are not requiring the entrepreneur 
or the business owner to provide any additional documentation? 
You are not breaking it down to individual taxpayers, so you 
are still protecting their personal identity? You are taking a 
tax ID number that the SBA has and looking at the total growth 
in wages once the loan was delivered.
    Mr. Chairman, I know I have gone over my time. Thank you, 
sir.
    And thank you, sir, for your testimony.
    And I yield back.
    Mr. Shear. Thank you.
    The Chairman. I have no further questions. I don't believe 
Mr. Scott does and nobody else is here so we just want to thank 
you for your testimony.
    Mr. Shear. Thank you very much.
    The Chairman. I have no closing statement to make. Mr. 
Costa has already had to go to another committee, and so again 
I thank the Members of the Committee and the witnesses for your 
testimony. I thank our excellent Republican and Democratic 
staffs for their good work that they always do and appreciate 
your putting this together.
    Under the rules of the Committee, the record of today's 
hearing will remain open for 10 days to receive additional 
material and supplementary written responses from the witnesses 
to any question posed by a Member.
    This hearing of the Subcommittee on Rural Development, 
Research, Biotechnology, and Foreign Agriculture is adjourned.
    [Whereupon, at 11:15 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
      
  Supplementary Material Submitted by Hon. Dallas P. Tonsager, Under 
    Secretary for Rural Development, U.S. Department of Agriculture
    During the March 21, 2012 hearing entitled, Hearing To Identify 
Duplicative Federal Rural Development Programs, requests for 
information were made to Hon. Dallas P. Tonsager. The following are 
their information submissions for the record.
Insert 1
          Mr. Tonsager. We did establish the Memorandum. We are doing 
        joint trainings between our people that are involved in 
        business funding and trying to learn from each other regarding 
        their abilities in business lending. Our program, of course, 
        goes to very large loans where SBA is somewhat restricted in 
        size. We advocate with clients regarding use of the SBA loans 
        so we have our staff trained in how the SBA loans work. And if 
        it is better suited for them in some cases, then we would 
        advocate that they would pursue an SBA loan. And we also work 
        more closely with lenders so we would have a group of business 
        and industry loan lenders, some 1,800 banks that like to use 
        our program. We try and coordinate--especially when both SBA 
        and the B&I Program is in the same financial institution.
          Mr. Scott. Do you have the information on the number or the 
        percentage of businesses that you are involved in the initial 
        or the startup funding that are in business after 3 years?
          Mr. Tonsager. I am sorry. I don't have that with me today but 
        we will certainly provide it to you.

    Between 2002 and 2008, based on readily available data, RBS 
identified a total of 3,731 loan guarantees to businesses. Of these 
3,731 loan guarantees, almost 99 percent of the businesses receiving 
the guaranteed loans were still in operation 3 years after the date of 
loan obligation.
    RBS identified 203 startup businesses receiving a loan guarantee 
under either the B&I Guaranteed loan program or REAP. Of these 203 
start-up businesses, 97percent were still in operation 3 years after 
the date of loan obligation. (Note: Not all of the guaranteed loan data 
identified the date a business was established. Thus, the result on 
startups represents a subset of all loan guarantees made to startups.)
    RBS does not track date of establishment for its grant programs.
Insert 2
          Mr. Hultgren. Thank you, Mr. Chairman.
          Thank you for being here today. A couple questions. I 
        understand that Rural Housing Service has been trying to get 
        some access to the same employment data that HUD uses to verify 
        tenants' incomes. What benefit would this earned income 
        verification data provide to RHS and I wonder what is 
        preventing you from using it?
          Mr. Tonsager. I will have to ask my folks what the status of 
        that proposal. I thought we were getting close if not had 
        gotten to that point yet. It would help with the evaluation of 
        loan applications and its time limits of getting the loan 
        applications done. Having information available would help us 
        make sure the portfolio performs well and that we are making 
        loans to eligible applicants as well as making sure that they 
        get repaid. And I am sorry. I don't know if any of my staff 
        knows for sure. We will have to report back on the status of 
        that.

    RHS is requesting in the 2013 Budget the authority to be added to 
the list of agencies permitted to utilize the Department of Health and 
Human Services' National Directory of New Hires Database. In order to 
have access to this data, specific authority in law must be granted. 
HUD has had this authority for over 10 years. It is the primary income 
verification system used by HUD, its public housing authorities, and 
multi-family property owners and management agents. Utilization of this 
system has substantially reduced instances of improper subsidy payment 
errors. This access would provide RHS with the ability to obtain 
accurate income and employment information, helping it to better manage 
RHS housing programs by ensuring the agency is providing the 
appropriate amount of housing subsidy based on the applicant's income. 
RHS would use the income matching information to determine multi-family 
tenants' eligibility for rental assistance as well as the eligibility 
of single family direct loan borrowers' for payment assistance.
    In 2010, the White House's Domestic Policy Council created the 
interagency Rental Policy Working Group with the Departments of 
Treasury, Agriculture, and Housing and Urban Development. As part of 
its coordinating efforts, the Rental Policy Working Group has engaged 
state, local, individual and private stakeholders to identify 
administrative changes that could increase overall programmatic 
efficiency and further enhance the ability of communities to create and 
preserve affordable housing.
Insert 3
          Mr. Hultgren. . . .
          GAO and others have proposed consolidation of the Rural 
        Housing Programs with HUD. I wonder, do you think the rural 
        areas would see the same attention under HUD's management as 
        they currently receive?
          Mr. Tonsager. I believe that we provide real opportunities to 
        remote rural citizens. Forgive me for using the term unique for 
        rural America, but the people in rural America don't make as 
        much money. And our particular program, I think the guarantee 
        program especially is well suited to rural communities in that 
        we don't have a particular down payment requirement. We have 
        been very successful in repayment to the point where for the 
        program cost, it doesn't cost the taxpayers any money. There is 
        cost, of course, with our system of delivery but not with the 
        fee that we are assessing. We don't have a cost and the 
        performance of the program has been very good.
          So, the uniqueness of the programs for housing addresses the 
        needs of rural people and how to get that delivery in the far 
        corners of rural America becomes the challenge for perhaps HUD 
        and others if it were to be combined.

    The President's budget does not support consolidation of RHS 
programs with HUD. The Rural Housing Service is the only Federal 
program mandated to serve exclusively the housing needs of Americans in 
rural areas. Since the 1950s, RHS has recognized the unique economics--
and poverty--of rural America and the need for programs to fill the 
housing gap. Over the past 62 years, RHS programs have assisted nearly 
3.5 million families with direct loans, guarantees of bank loans, and 
grants for home purchase and repair. Yet the need still exists to 
improve housing quality and affordability in rural areas.
    It is noted that the delivery methods of HUD and RHS programs are 
vastly different. RHS programs are provided to recipients (either 
individuals or approved lenders) through a network of more than 400 
offices where RD staff with local knowledge and expertise work one-on-
one with the borrower to learn and meet their individual housing needs, 
whether it be purchase, repair or rental.
    HUD programs are generally provided through third parties--
nonprofits or contractors. These third party providers may not have the 
same investment or expertise in these rural communities, are generally 
not as attuned to local needs, and could prove more expensive in 
delivering our housing programs to low income families who still need 
our assistance.
Insert 4
          Mr. Hultgren. If it were combined, I mean is there any 
        expectation or what is the expectation of the amount of savings 
        as you combine the programs as far as salaries being saved, 
        expenses for the agency? . . .

    We have not completed any in-depth study comparing the HUD and USDA 
housing programs or the advantages and disadvantages, financial and 
otherwise, of any plan to consolidate these programs. It is unlikely 
that there would be big savings, given that USDA has a large field 
office presence to offer the direct loans, which HUD doesn't have and 
would presumably need to add. In addition, the Rural Development 
mission area has three services: RHS, RBS and RUS. Taking away some 
programs from one of the services does not remove the need for the 
infrastructure expenses for the remainder of RD that stays within USDA.
Insert 5
          Mr. Hultgren. . . . And then I wondered if there is a 
        savings, how USDA would seek to reallocate those resources if 
        there was a consolidation or savings of administrative costs?
          Mr. Tonsager. I have not seen any particular identification 
        of what those savings might be. I would say for the guarantee 
        program particularly the amount of resources is pretty modest. 
        We are working with private institutions. The financers are 
        doing the great bulk of the work. Much of our work is 
        monitoring of those loans in that case. The direct program 
        costs more because it is more of a hands-on approach with 
        individual people and helping them to get good credit. So I am 
        sorry; I just don't have the information.

    We have not completed any in-depth study comparing the HUD and USDA 
housing programs nor the advantages and disadvantages, financial and 
otherwise, of any plan to consolidate these programs. But our initial 
thoughts on the issue are that the savings would be minimal at best.
                                 ______
                                 
                          Submitted Questions
Response from Hon. Dallas P. Tonsager, Under Secretary for Rural 
        Development, U.S. Department of Agriculture
Questions Submitted By Hon. Henry Cuellar, a Representative in Congress 
        from Texas
    Question 1. What effect have recent budget cuts had on Rural 
Development agency operations nationwide?
    Answer. The recent budget reductions pose challenges, both in terms 
of delivering programs and managing our portfolio. Staff reductions, to 
a certain extent, challenge RD's ability to deliver some programs in a 
timely manner and the agency will have higher training costs as 
remaining staff take on new and different responsibilities. Rural 
Development's administrative resources are contracting, while its 
program portfolio is expanding, putting tremendous strain on the 
resources available to manage the portfolio. RD's administrative budget 
has decreased by $61 million since Fiscal Year (FY) 2010. Staff levels 
have fallen by 1,000 since 2007, with 500 of that total occurring this 
FY 2012. RD's portfolio exceeds $165 billion and continues to grow, and 
the appropriated program level for FY 2012 is $38.9 billion. Meanwhile, 
we make portfolio and risk management top priorities as we strive to 
ensure the integrity of RD programs.
    To address these challenges, RD agencies are making adjustments and 
developing systematic approaches in their business management. For 
example, the Rural Business Service (RBS) is reorganizing its staff to 
best meet the demands of each program. At the state level, RBS is 
providing training across programs to the field support staff, 
including continued training of 17 new or acting Business Program 
Directors. RBS continues to work with our network of 47 State Offices 
and their Business Program Directors and field staff to ensure 
successful delivery of all our programs. RBS just recently completed 
training on the energy programs across the country. In addition, RD 
continues to work with all of our partners, including our network of 
over 1,700 community banks participating in the Business and Industry 
guaranteed loan program and the cooperative organizations associated 
with our cooperative programs, leveraging our available resources to 
deliver RD business programs successfully.
    The Rural Housing Service (RHS) is exploring a number of ways to 
achieve savings and still meet the housing needs in rural America. RHS 
has developed a new business model for delivery of the Section 502 
Single Family Housing Guaranteed Loan Program (SFHGLP). The centralized 
structure model allows states to successfully and consistently deliver 
the program with a core group of specialists, technicians, and 
assistants. States are able to focus their time and knowledge 
specifically on the SFHGLP and offer more efficient and timely loan 
review and approval, consistent loan decisions, and increased customer 
satisfaction.
    Similarly, the Single Family Housing (SFH) Direct Loan Program is 
promulgating a rule to create a formal process for designating 
qualified loan application packagers as agency-certified. The proposed 
rule will streamline application processing of SFH direct loan 
applications, reduce the burden placed on the smaller RHS staff and 
ensure that the program is successfully delivered to eligible 
participants through certified packagers.
    The Rural Utilities Service (RUS) has also expanded coordination of 
the broadband buildout under the Recovery Act to our State Offices in 
order to assist with program delivery. Rural Utilities Service is also 
working more closely with other Federal agencies to better coordinate 
delivery of similar programs and, where possible, use a regional 
approach to leverage economies of scale in infrastructure funding.
    RD is also engaged in a number of strategies to ensure that 
taxpayer dollars are used in the most strategic way to make the biggest 
difference. For example, several RD programs are supporting regional 
and community economic strategies that leverage resources and broaden 
the scope of project activity. These efforts are often inclusive of 
communities hardest hit by economic downturns or persistent poverty 
conditions. RD has also been active in supporting the Stronger 
Economies Together (SET) initiative which supports the development of 
regional economic solutions. These initiatives encourage and engage 
direct community involvement as well as multi-county and multi-state 
collaboration. Promoting a more regional or collaborative deployment of 
resources allows RD to target or concentrate resources in a particular 
area, which can in turn bring economic relief to all communities within 
the project area.

    Question 1a. What about specifically in Texas?
    Answer. While the reduction in staff throughout Texas has resulted 
in some temporary delays in program delivery, RD has been working there 
to implement many of the initiatives described above as part of its 
national strategy for tackling the challenges associated with the 
recent budget cuts.
    Allocations of RD program funds to states are based on formulas 
using decennial Census data (see answer to Question 2. below); 
therefore, the reduction impact in program levels on Texas is same, in 
terms of percentage of change, as the national changes noted above.
    The following table shows the program dollar investments in Texas 
between FY 2009 and FY 2011:

------------------------------------------------------------------------
          Program                 2009           2010           2011
------------------------------------------------------------------------
    Single Family Housing     $34,100,489    $75,123,994    $59,942,101
                    Direct
    Single Family Housing    $731,761,082   $892,012,446   $826,636,595
                Guaranteed
     Rural Rental Housing        $749,799             $0       $287,128
        Rental Assistance     $38,670,524    $40,038,544    $47,267,993
Community Facilities Direct    $8,529,137    $40,311,837    $58,928,708
     Community Facilities     $10,802,500    $17,400,000     $5,605,000
                Guaranteed
Community Facilities Grants    $6,117,682     $6,493,968     $1,047,990
 Water and Waste Disposal     $56,068,030   $103,326,500    $44,382,000
                    Direct
 Water and Waste Disposal     $35,563,168    $23,389,623    $28,372,415
                    Grants
    Business and Industry     $50,599,965   $134,259,920    $43,000,281
                Guaranteed
Rural Business Enterprise      $3,042,310     $1,739,000     $1,402,000
                    Grants
   Intermediary Relending      $1,500,000       $750,000       $998,000
                   Program
     Multi-family Housing      $8,636,900     $4,960,000     $1,500,000
                Guaranteed
             Home Repair Loans $3,364,569     $3,857,483     $3,554,827
                    Grants
                    Farm Labor $5,222,085ogram$3,000,000    $10,781,390
                 Electric    $262,066,000   $545,395,000   $376,602,000
                  Telecom     $11,185,641   $241,517,260    $26,285,759
Value-Added Program Grants             $0       $662,500             $0
        Renewable Energy Loans an$413,243     $1,767,149    $19,460,104
                    Grants
        Self Help Program        $293,000       $607,945       $619,445
                            --------------------------------------------
  Totals...................  $1,268,686,12  $2,136,613,16  $1,556,673,73
                                        4              8              7
------------------------------------------------------------------------

    We anticipate that the FY 2012 budget and requested amounts for FY 
2013 will be sufficient to fund qualified applications consistent with 
other states. Electric and Telecommunications funds are not allocated 
by state, so we cannot currently determine the impact program spending 
might have on Texas projects.

    Question 1b. Has a shortage of operational or administrative costs 
limited the effectiveness and availability of programs to those wishing 
to apply?
    Answer. For most RD programs, the shortage of operational and 
administrative costs has challenged delivery, but RD has worked to 
ensure the effectiveness and availability of our programs to 
applicants. There are three programs, however, that have been affected:

   The Rural Microentreprenuer Assistance Program (RMAP). 
        Section 726 of the Consolidated and Further Continuing 
        Appropriations Act of 2012 limited RD salaries and expenses 
        from utilizing salary and expense appropriations to carry out 
        the RMAP program. This has resulted in RBS being unable to 
        accept any applications in FY 2012 for this program.

   Rural Energy for America Program (REAP). Section 726 of The 
        Consolidated and Further Continuing Appropriations Act of 2012 
        limited RD salaries and expenses for delivering REAP such that 
        RBS can only fund projects totaling $22 million out of the 
        mandatory $70 million provided in the 2008 Farm Bill for the 
        program. This reduction in available administrative funds will 
        limit the number of projects funded.

   Bioenergy Program for Advanced Biofuels (9005). Section 726 
        of the Consolidated and Further Continuing Appropriations Act 
        of 2012 limited RD salaries and expenses for delivering the 
        9005 program such that RBS can only can only make payments 
        totaling $65 million out of the mandatory $105 million funding 
        provided in the 2008 Farm Bill. This reduction will limit the 
        support to advanced biofuel producers.

    Question 2. How are state allocations of rural development 
determined?
    Answer. Rural Business Service

    State allocations are made on an annual basis and calculated as 
program level amounts, not by budget authority. State allocations are 
made for the following programs:

   Business and Industry Guaranteed Loans

   Rural Energy for America

   Rural Business Enterprise Grants

   Intermediary Relending Program

    The same basic formula criteria, data source, and weight are used 
for each of these four programs in determining state allocations. For 
FY 2012, the 2000 Census data was used.
    The basic formula takes a number of criteria that reflect the 
funding needs for a particular program and through a normalization and 
weighting process for each of the criteria calculates the basic state 
factor (SF). The criteria used in the basic formula are:

   State's percentage of national rural population

   State's percentage of national rural population with incomes 
        below the poverty level

   State's percentage of national nonmetropolitan unemployment

    Each of the three criteria is assigned a specific weight according 
to its relevance in determining need. The percentage representing each 
criterion is multiplied by the weight factor and summed to arrive at a 
state factor (SF). The SF cannot exceed 0.05.

SF = (State's percentage of national rural population  0.5) + (State's 
            percentage of national rural population with incomes below 
            the poverty level  0.25) + (State's percentage of national 
            nonmetropolitan unemployment  0.25)

   State's percentage of national nonmetropolitan unemployment

    The amount allocated to a state for a program is calculated by 
multiplying the state's State Factor by the amount available for 
allocation for that program less the sum of the amount held in reserve 
by the National Office plus the total base and administrative 
allocation for that program:

SF  (Amount available for allocation ^ (National Office Reserve + 
            total base and administrative allocations))

    Each program identifies a ``base allocation.'' The ``base 
allocation'' is the minimum amount that will be allocated to the state. 
If the allocation formula results in an amount less than a program's 
base allocation, RBS will allocate that state the base allocation. For 
example, in FY 2012, the base allocation for the Business and Industry 
Guaranteed Loan program is $5 million. If the formula calculated an 
allocation of $3.5 million for State A, the Agency would allocate $5 
million to State A. For FY 2012, the base allocations for the four 
programs are:

   Business and Industry Guaranteed Loans--$5 million

   Rural Energy for America--$50,000 for loan and grant 
        allocations; $20,000 for grant allocations of in the amount of 
        $20,000 or less

   Rural Business Enterprise Grants--$72,000

   Intermediary Relending Program--$150,000

    Rural Housing Service

    The allocations are need based per state. For instance, the 
criteria for the Section 502 Direct loan program include: State's 
percentage of the national number of rural occupied substandard units 
(25% weight); state's percentage of national rural population (10%); 
State's percentage of the national rural population in places of less 
than 2,500 population (15%); State's percentage of the national rural 
households between 50 and 80 percent of median income (30%); and, 
State's percentage of the national number of rural households below 50 
percent of area median income (20%).
    We use the decennial Census for our allocation formulas. The 
allocation formulas for Fiscal Year 2012 were based on the 2000 Census 
data. While the allocation formulas for the other SFH programs vary, 
all are based on the size and need and the decennial Census.
    Multi-Family Housing loan and grant funds are not usually allocated 
by state. Multi-Family Housing publishes annual notices soliciting 
applications from the national office, for loans in its Section 515 
direct and Section 538 guaranteed loan programs, and grants and loans 
in its Section 514/516 Farm Labor Housing and Preservation and 
Revitalization programs. Funding awards are made on a case-by-case 
basis, based on the applications' scores and feasibility of the 
transactions involving the loans or grants (as determined by Rural 
Housing's underwriting of the loan). Housing Preservation Grants are 
allocated to states based on a formula factor published by RHS.
    Community Facilities (CF) Direct and Guaranteed loan funds are 
allocated to states based on a formula that contains the following 
three criteria and weights: (1) State's percentage of national rural 
population (50%), (2) State's percentage of national rural population 
with incomes below the poverty level (25%), and (3) State's percentage 
of national nonmetropolitan unemployment (25%). CF Grant funds are 
allocated to states based on a formula that contains the following two 
criteria and weights: (1) State's percentage of national rural 
population (50%), and (2) State's percentage of national rural 
population with incomes below the poverty level (50%). The National 
Office generally retains a reserve of 10 percent of the appropriated 
amounts for CF to fund high priority projects when a state has 
insufficient funds.

    Rural Utilities Service

    In RUS Water and Waste Programs, funds are allocated to states 
based on a formula derived by guidance in the statute and codified in 
our regulations. The formula is based upon the latest decennial Census 
data for rural population, rural poverty and rural unemployment. The 
weighting of the criteria is established in RUS 1780 regulation, which 
is 50 percent for rural population and 25 percent each for rural 
poverty and rural unemployment.
    Electric and Telecommunications funds are not allocated by state.

    Question 2a. Do these allocations take into account operational 
costs?
    Answer. RD does not take into account operational costs when making 
state allocations.

    Question 2b. Or are allocations need based, or based on population 
or land area?
    Answer. Allocations are generally based on the basic parameters: 
rural population, poverty and unemployment. Thus, rural population is 
directly accounted for in the allocation process. To the extent 
``need'' is reflected by a state's poverty and unemployment rates, then 
the allocation takes into account ``need.''
    Land area is not included in the allocation process.

    Question 3. Are agencies, such as yours, communicating with other 
agencies doing similar work in similar areas?
    Answer. USDA works closely with other agencies such as SBA and HUD 
to better coordinate overall policy and leverage opportunities for our 
customers. In particular, the White House Rural Council builds on other 
interagency relationships to increase coordination and leveraging. 
Through collaboration, USDA Rural Development is able to utilize its 
unique field office structure, which allows the Federal Government to 
maintain a local presence in the rural communities we serve. Other 
Federal partners do not have a local presence in these communities that 
can assist in the development and growth of the community, and thus 
USDA can facilitate those agencies' ability to reach local communities 
directly.

    Question 3a. If not, is there a reason for a lack of information 
sharing?
    Answer. Not applicable.

    Question 3b. If so, can you provide examples of these partnerships?
    Answer. Examples are provided below.

   USDA and the Small Business Administration (SBA) are working 
        together to bring private equity and venture capital investors 
        together with start-up rural businesses, especially at the 
        state and local level where they frequently collaborate to 
        conduct outreach and training events. Through the White House 
        Rural Council, SBA and RBS partnered to host a series of six 
        roundtable discussions on increasing private investment capital 
        for rural small businesses in FYs 2011-2012. This effort 
        includes partners from the financial industry, Farm Credit 
        Administration, and state agencies. The two agencies also 
        established a working group to create consistent and 
        streamlined application processes.

    USDA and SBA also meet regularly to discuss new partnership 
        opportunities, including joint lending for projects. Each 
        agency's unique lending parameters create leverage 
        opportunities and the impact of this leveraging increases 
        access to capital for rural businesses. For example, a rural 
        business can use a Business and Industry (B&I) loan guarantee 
        for the purchase of real estate and also use an SBA guarantee 
        for working capital or equipment. The impact of this leveraging 
        for rural businesses is increased access to capital.

   A formal Memorandum of Understanding (MOU) with the Housing 
        and Urban Development (HUD) describes the cooperation between 
        RHS and HUD on cross-checking disaster assistance recipients.

   The Federal Interagency Partnership for Colonias, farm 
        workers and rural communities connects Federal, state, and 
        local government agencies and community organizations, such as 
        legal aid groups, to discuss and solve legal problems that 
        impact Colonias and migrant farmworker communities. On June 12, 
        2012, USDA, the U.S. Department of Housing and Urban 
        Development (HUD), and the U.S. Department of the Treasury's 
        Community Development Financial Institutions Fund (CDFI Fund) 
        announced a joint ``Border Community Capital Initiative'' 
        (Border Initiative), a collaboration designed to increase 
        access to capital in the U.S./Mexico border region which 
        includes some of the poorest communities in the country. The 
        three agencies signed a Memorandum of Understanding that will 
        offer up to $200,000 to nonprofit and/or tribal financial 
        institutions serving colonias for direct investment and 
        technical assistance focusing on affordable housing, small 
        businesses, and community facilities.

   Single Family Housing Guaranteed Loan Program (SFHGLP) 
        partners with the Department of Housing and Urban Development 
        (HUD) in evaluating applications via an automated underwriting 
        system. Automated underwriting systems are an efficient, 
        consistent, objective and accurate method of mortgage 
        underwriting compared with traditional manual methods. RHS's 
        automated underwriting system is known as the Guaranteed 
        Underwriting System (GUS) and uses a modified version of HUD's 
        scorecard to measure an applicant's ability to repay the 
        mortgage debt as agreed. Collaboration between Rural 
        Development and HUD has led to recent changes in the mortgage 
        scoring utilized by the Agency.

   RD collaboration with the Department of Homeland Security/
        Federal Emergency Management Agency and the Federal 
        Communications Commission to improve access to emergency 
        communication systems and disseminate critical information to 
        rural communities. The Community Facilities Direct and 
        Guaranteed Loan and Grant programs can support public safety 
        licensees by funding necessary equipment and upgrades. These 
        improvements will help these licensees in meeting the Federal 
        Communications Commission's mandatory narrow banding deadline 
        of January 1, 2013.

   MOU between USDA and Environmental Protection Agency (EPA) 
        on improving sustainability of rural water and waste systems. 
        Since the MOU has been in effect, both agencies have worked 
        together and with rural stakeholders to: encourage partnering 
        of funding across the agencies; develop sustainability 
        assessment tools, promote the hiring of Veterans by rural water 
        and waste systems (in partnership with the Veterans 
        Association), conduct webinars to promote system partnerships 
        in rural areas (two so far--Ohio and Kentucky), and conduct 
        rural water and waste sustainability workshops. (March 13 in 
        Michigan; May 9 in California, one other by the end of the FY 
        2012).

   USDA is a key member of the Interagency Infrastructure Task 
        Force (ITF), chaired by EPA and including USDA, HUD, Indian 
        Health Service and Department of Interior, that is working to 
        improve access and sustainability in Native American and 
        Alaskan Native Communities. The current focus of the task force 
        is on sustainable tribal utilities. Recent activities include 
        hosting a series of calls featuring presentation from Tribal 
        Utilities on successful efforts and the unique challenges of 
        providing and sustaining water and waste utilities in tribal 
        communities.

   RD executed a MOU with the Department of Health and Human 
        Services (HHS) to improve collaboration and to strengthen 
        healthcare infrastructure in rural America. To help meet the 
        health care needs of rural America, USDA RD and HHS's Office of 
        the National Coordinator for Health Information Technology and 
        Health Resources and Services Administration are partnering to 
        leverage resources to increase the availability of capital for 
        healthcare facilities and health information technology, with 
        the goal of improving the accessibility and quality of medical 
        services in rural communities.

   RD coordinates with the Department of Energy on a variety of 
        smart grid, energy efficiency and renewable energy initiatives, 
        and with the EPA on emissions regulations. RD has also been 
        active in interagency policy development related to broadband 
        deployment, public safety communications and critical 
        infrastructure with the Commerce Department's National 
        Telecommunications Information Administration.

   USDA is coordinating with other Federal and state agencies 
        to improve the water and waste disposal infrastructure 
        application process across funding agencies. To that end, USDA 
        is chairing a working group that is seeking to standardize a 
        key component of the application process (the Preliminary 
        Engineering Report) with the goal of adoption by Federal and 
        state funders. USDA is also leading a similar effort through 
        the ITF that would be implemented by all Federal funders of 
        tribal water and waste infrastructure.

    Interaction continuously occurs at our 47 State Offices with groups 
such as state housing finance agencies, state regulators and support 
groups. Our most effective interaction with outside groups occurs at 
the local office level. Staff in each of 400+ offices is embedded in 
rural communities and are aware of the assistance available locally. 
They work closely with local governments, community action agencies, 
church and business groups, lenders and others to achieve the mission 
of our programs.

    Question 4. Have you reviewed the GAO report how agencies working 
in rural water areas on the border are doing duplicative work (Rural 
Water Infrastructure--Improved Coordination and Funding Processes Could 
Enhance Federal Efforts to Meet Needs in the U.S.-Mexico Border Region) 
and are you implementing any of the recommendations the report 
recommends, or would need congressional authorization to move forward?
    Answer. RD is proud of the assistance we have provided to the 
Colonias regions for development of water and waste disposal 
infrastructure projects. Since 2007, more than $130.4 million has been 
invested by Rural Development in water and waste infrastructure 
projects to serve Colonias areas, benefiting approximately 143,000 
individuals.
    On March 9, 2012, we proposed modifications to RUS regulations that 
would improve targeting of funds provided by Congress for the Colonias 
to those areas with the least access to water and waste infrastructure. 
The comment period closed on May 8, 2012, and a final regulation will 
follow later this summer.
    We coordinate at the state and Federal levels with other funding 
agencies on Colonias projects and continue to strengthen our 
relationships to ensure that we are working together to better serve 
the Colonias. As part of our plan for improving delivery to the 
Colonias, we had planned to initiate and lead a comprehensive outreach 
effort which would include USDA's Federal, state and local partners and 
stakeholders.
Questions Submitted By Hon. Peter Welch, a Representative in Congress 
        from Vermont
    Question 1. The Value-Added Producer Grant Program, or VAPG, 
provides competitive grants to our nation's agricultural producers to 
establish value-added, and producer-owned, enterprises. Grant funds can 
be used for one of two purposes. First, grants are awarded for 
developing business plans and feasibility studies. In other words, the 
program works to ensure that the businesses our producers are creating 
will be viable and sustainable in the long-term, which is smart. 
Second, grants are awarded for working capital to operate these value-
added businesses. In these cases, applicants must show they've done 
their homework and that they have the business plan and feasibility 
study in place.
    Answer. Correct. That is how the Value-Added Grant Program is 
delivered.

    Question 2. VAPG is a popular and unique program, because it helps 
farmers increase their share of the food dollar and improve farm 
incomes, and because it helps create jobs in farming communities. 
What's more, there's nothing else like it. It's the only competitive 
grants program for agricultural producers to add value to their 
products and thus to add value to our economy. Many of my colleagues on 
the committee have constituents that received grants earlier this year.
    Answer. Yes. That is how the program works

    Question 3. Can you speak to the uniqueness and success of VAPG in 
contributing to rural economic development and job creation?
    Answer. The Value-Added Producer Grant (VAPG) program is unique in 
that it provides the funding that allows independent agricultural 
commodity producers, agricultural producer groups, farmer and rancher 
cooperatives, and majority controlled producer-based business ventures 
to participate in the economic returns found in the value-added 
markets. Grants assist awardees in conducting feasibility studies to 
develop business plans and strategies for creating marketing 
opportunities and to provide capital to establish alliances or business 
ventures that enable producers to better compete in domestic and 
international markets. In addition to promoting creative, innovative 
and resourceful businesses, VAPG funds facilitate greater participation 
in emerging and new markets for value-added products and allow 
producers to capture a larger share of the marketing margin--
essentially converting them from commodity producers to value-added 
business entrepreneurs.
    The VAPG program has had positive impacts for both rural economic 
development and agricultural producers in that it has provided for the 
resources needed to expand market share and encourage producers to 
invest in ideas that would lead to value-added enterprises. This 
investment has resulted in more of the marketing margin accruing to 
producers in both existing and new value-added businesses. Examples of 
projects to illustrate the success of VAPG are:

   MOO-ville Creamery. In 2005, MOO-Ville creamery in 
        Nashville, MI, was in the process of installing a dairy 
        processing plant, but needed help with funding the operations. 
        It received a VAPG that provided critical working capital to 
        allow it to purchase inventory, pay personnel expenses, provide 
        training to employees and buy a lighted sign. The VAPG award 
        allowed the operation to continue, and they now operate a 
        retail store on property where they sell milk, ice cream and 
        cheese made from milk from their dairy operation. It also sells 
        to restaurants, coffee shops and retail stores.

   San Miguel Produce. Located in Oxnard, California, San 
        Miguel Produce is an independent producer of organic and 
        conventional cooking greens. In 2009, it received a $299,874 
        VAPG working capital grant for socially disadvantaged farmers 
        and ranchers. With this grant, San Miguel Produce has been able 
        to expand markets for their ``Cut 'n Clean Green'' products and 
        increase revenues over 500 percent.

   The Country Pumpkin. The owner of the Country Pumpkin in 
        Sutton, Nebraska, started raising pumpkins at the age of 13 as 
        part of his SAE (Supervised Agricultural Experience) project 
        for FFA. The pumpkins were sold off a trailer that was parked 
        at the end of their driveway. Today the Country Pumpkin has 
        grown to offer more than 50 varieties of pumpkins, squash, 
        gourds, and ornamental corn including many heirloom varieties. 
        A few years ago, the owner recognized the need to extend the 
        September and October pumpkin market to something that could be 
        sold year round. In 2009, the owner applied for an $86,150 VAPG 
        planning grant to look into products that could be made from 
        pumpkins. The feasibility study was completed by the Food 
        Processing Center at the University of Nebraska and showed that 
        there was a market for the pumpkin puree and identified several 
        businesses that were interested in buying the fresh, locally 
        grown pumpkin puree.

   Champlain Orchards. In 2009, Champlain Orchards in Shoreham, 
        Vermont received a $146,959 VAPG working capital grant to 
        expand value-added processing and marketing of apples, peaches, 
        small fruit and vegetables grown on the farm. The young owners, 
        who now operate the 100 year old family-owned farm, strive to 
        preserve the best traditions of Vermont apple farming, while 
        tapping the best of new farming advances. Expanding their 
        processing and marketing will help increase sales of value-
        added products by $1 million over a three year period. In the 
        early months after receiving the award, there was an increase 
        in gross income of 19 percent and an increase in cider sales of 
        8 percent as a result of this VAPG.

    Question 3a. Can you also speak the demand for this program to help 
inform strengthened funding for the program in the new farm bill?
    Answer. Since the program was established in 2001, we have been 
able to make awards to about 33 percent of the producers applying to 
the program and to fund about 30 percent of the funds being sought. 
Specifically, since 2001, RD has received 5,256 applications seeking 
approximately $809 million and has been able to make 1,730 awards for 
over $241 million. Since 2009, Rural Development has received 1,063 
applications requesting approximately $136.5 million. For this 3 year 
time period, RD has funded 495 projects totaling $62.7 million.
    Since 2001, the VAPG program has assisted over 1,700 individual 
producers, cooperatives, and other rural entrepreneurs establish value-
added agriculture businesses and increase their economic well being 
across rural America. While the demand for funding has historically 
exceeded supply, awards from this nationally competitive program have 
reached each of the 50 states and Puerto Rico during this same time 
period.

                                  
