[Senate Hearing 114-633]
[From the U.S. Government Publishing Office]



 
   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION AND 
          RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2016

                              ----------                              


                      WEDNESDAY, OCTOBER 21, 2015

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:01 a.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Jerry Moran (chairman) presiding.
    Present: Senators Moran, Blunt, Cochran, Daines, Merkley, 
Tester, and Udall.

         A Review of Rural Development in 21st Century America

STATEMENT OF HON. LISA MENSAH, UNDER SECRETARY FOR 
            RURAL DEVELOPMENT
ACCOMPANIED BY:
        TONY HERNANDEZ, ADMINISTRATOR, RURAL HOUSING SERVICE
        BRANDON MCBRIDE, ADMINISTRATOR, RURAL UTILITIES SERVICE
        SAMUEL RIKKERS, ACTING ADMINISTRATOR, RURAL BUSINESS-
            COOPERATIVE SERVICE


                opening statement of senator jerry moran


    Senator Moran. The subcommittee hearing will come to order. 
Good morning to those in front of us and to my colleague here 
at the dais.
    Today, our hearing is one in a series in which we are 
focusing on the appropriations process and how it affects 
agencies under our jurisdiction. This one is attentive to Rural 
Development (RD) at the U.S. Department of Agriculture (USDA), 
and we are interested in the strategic investments that are 
being made and can be made on behalf of rural America and the 
people who live there.
    Thank you, Under Secretary Mensah, for being here, and your 
three administrators. It is a pleasure to have you here, and we 
look forward to having a conversation with you about the nature 
of things that you are undertaking for the benefit of our 
country, but particularly the rural part of our country.
    I particularly, again, would tell you in this public forum 
thank you very much for your visit to Kansas, and I am glad to 
hear you say that we treated you well. I would say that you are 
just being kind and polite, but I know that we did. I know my 
State.
    Agriculture has been a bright spot and continues to be in 
our Nation's economy, 16 million jobs nationwide. I would say, 
Madam Secretary, that one of the primary interests in my 
running for public office was a belief in rural America and 
desire to see that it prospers so that we have a chance to have 
our children and grandchildren raise their families in the 
places that we in rural America call home. It is something that 
we cherish, and it is something that we want to make certain is 
preserved and future generations have that option in their 
lives.
    Rural Development is largely tasked with maintaining and 
improving that quality of life, and it can be providing loans 
for low-income families to own their first home, spurring 
economic development with grants to a small business, providing 
communities with financing to allow customers affordable 
utility rates.
    Rural Development continues to serve a significant role, 
and we want to make certain that you have the necessary tools. 
I always indicate that a constituency of mine is taxpayers. We 
want to make certain that the money the taxpayers provide you 
is well-spent, and we are anxious to hear about that today.


                           prepared statement


    Often, where I come from, economic development can be 
whether or not there is a grocery store in town. Many people in 
Washington, DC, do not have that experience, do not know how 
that could ever be an issue. But in many ways, they are some 
things that are very basic.
    Many rural communities today are facing unique and ever-
increasing issues related to urbanization and technology. 
Again, we want to hear what you have to say and work with you 
to see that good things happen.
               Prepared Statement of Senator Jerry Moran
    This hearing will come to order. Good morning. Today's hearing will 
focus on Rural Development at the Department of Agriculture and its 
strategic investments in rural America. Thank you Under Secretary 
Mensah, Administrator Hernandez, Administrator Rikkers, and 
Administrator McBride for being here today. Under Secretary Mensah, I 
enjoyed visiting with you recently in Kansas and hope you will return 
soon and often.
    Agriculture remains one of the bright spots in our nation's 
economy, supporting more than 16 million jobs nationwide and forming 
the backbone of our rural communities. For those of us who grew up in 
rural areas, it is a lifestyle we cherish and hope to preserve for our 
children and future generations to come. Rural Development is largely 
tasked with maintaining and improving that quality of life. Whether 
it's providing loans for low-income families to own their first home, 
spurring economic development with grants to small businesses, or 
providing communities with financing to allow customers affordable 
utility rates,
    Rural Development continues to serve a significant role in the 
nexus between need and opportunity.
    In my home state of Kansas, we determine economic development by 
whether or not your town has a grocery store. Many issues facing rural 
communities are unique to those areas in an ever-increasing urbanized 
and technologically-advanced world. I look forward to discussing the 
Rural Development mission and other relevant topics with our witnesses 
today. We have a lot to cover this morning, so I will turn it over to 
Senator Merkley for any remarks he may wish to give.

    Senator Moran. We have a lot to cover, and I will turn to 
my ranking member, Senator Merkley.

                   STATEMENT OF SENATOR JEFF MERKLEY

    Senator Merkley. Thank you very much, Mr. Chair. Thank you 
for putting together this hearing. It is a pleasure to have all 
of our witnesses here today.
    USDA Rural Development provides a remarkable set of 
opportunities to improve the quality of life in rural America. 
Very low and low-income families can receive the assistance 
they need to become first-time homeowners. Affordable 
multifamily housing and rental assistance is provided, 
particularly for very low-income and elderly and disabled rural 
residents.
    Remote rural communities can receive the help needed to 
construct hospitals, schools, child and elderly daycare 
facilities, and obtain health and safety vehicles and equipment 
and other essential community facilities.
    Other Rural Development programs include support for clean 
water and sanitary waste disposal projects and the expansion of 
high-speed rural broadband, which is critical for our rural 
communities.
    Rural Development is sustaining America's longstanding 
commitment to ensure adequate and affordable electric service. 
In addition, Rural Development supports opportunities for the 
creation and expansion of rural businesses, increasing job 
growth and income generation.
    Here in the Senate, we see these functions of USDA Rural 
Development as vital. There is strong support on this 
subcommittee for the work that you do. Of course, not 
everything always goes perfectly, and this hearing is an 
occasion for us to make inquiries but also to have you let us 
know of the difficulties that you are facing and the ways that 
program delivery could be improved to serve rural America.
    We are also pleased that we will be having a second panel, 
which will provide perspectives on these issues from users, 
advocates, and interest groups. I want to particularly thank 
Mr. Tony Chrisman, who came here from Oregon to offer insights 
from his extensive experience developing and rehabilitating 
affordable housing for low-income families in Oregon.
    So, again, Mr. Chairman, thank you for holding this 
hearing. I look forward to the testimony.
    Senator Moran. Senator Merkley, thank you very much.
    Under Secretary Mensah, we are delighted to have you with 
us, and we look forward to your testimony now.

                 SUMMARY STATEMENT OF HON. LISA MENSAH

    Ms. Mensah. Thank you so much, Chairman Moran, Ranking 
Member Merkley, and members of the subcommittee. Thank you for 
the opportunity to discuss the program successes and challenges 
of the Department of Agriculture's Rural Development mission 
area.
    I am accompanied this morning by Mr. Brandon McBride, Mr. 
Sam Rikkers, and Mr. Tony Hernandez. They are the 
administrators for Rural Development's Utilities, Business, and 
Housing programs, respectively.
    USDA Rural Development has a loan portfolio of more than 
$210 billion. Thanks to your support, in fiscal year 2015, our 
staff provided funding of more than $27.7 billion in rural 
areas throughout the United States and its territories.
    Rural Development is the catalyst for rural renewal. The 
projects we support create jobs, attract private investment, 
stimulate entrepreneurship, offer new economic opportunities, 
and connect rural areas to the world. They ensure that our 
rural main streets and our rural small businesses matter.
    Let me give you a few examples of what Rural Development 
funding does in a few States.
    On my first trip to Kansas, you, Mr. Chairman, and I had 
the chance to meet USDA Rural Development business development 
grant recipients like Kansas Main Street. Our grants support 
locally grown business development in the downtown area of 
communities, which are so important to rural economies. In 
Kansas, I was also impressed to hear about the Kansas Fiber 
Network, a network of rural telephone companies, all rural 
utilities borrowers, that provide advanced broadband services 
essential to business growth and stronger rural economies.
    This telephone company's network is dedicated to community 
outreach and business development, but it may not have been 
possible but for the low-interest loans we provide to rural 
telecommunications service providers. These affordable loan 
terms make financing possible for much-needed community 
investments.
    In Montana, we have a very close partnership with private 
sector entities like community economic development 
organizations. In my visit to Big Sandy, Montana, which happens 
to be the hometown of Senator Tester, I had the chance to visit 
Big Sandy Activities, a center we financed there that helps 
developmentally disabled people build skills and allows them to 
live and work in the community. I also saw firsthand how our 
business and industry guaranteed loan program was used to 
purchase and restore the Grand Union Hotel, strengthening the 
tax base and bringing jobs to Fort Benton, Montana.
    Rural Development support has enormous impact in small, 
rural towns. In my home State of Oregon, Imperial Stock Ranch 
in Wasco County is a family-owned and -operated business that 
supplied wool for Ralph Lauren designed sweaters. Supported by 
value-added producer grants, the Carver family has used these 
funds since 2008 to plan and for capital assistance.
    When I asked Jeanne Carver what this program is doing, she 
explained that it is bringing life back to the textile industry 
and creating jobs in rural communities.
    Our fundamental mission is to support thriving and self-
sustaining and prosperous rural communities. The President's 
2016 budget, which requests $38.9 billion for Rural 
Development, proposes to continue this good work.
    Every day, nearly 5,000 Rural Development professionals 
work to help rural businesses provide affordable rental housing 
and maintain and upgrade infrastructure investments. This work 
is important to the modernization of rural America and makes 
rural communities places where young people will want to stay, 
start families, build businesses, and create futures.
    Let me say just a little bit more about our three areas. I 
want to begin with housing. This is a special point of pride, 
our housing programs.
    Our 2016 rural housing budget of $28.6 billion will 
continue to help people in rural America, particularly those in 
greatest need, put a roof over their head. The bulk of this 
budget, $24 billion, supports private sector lenders in rural 
America and turns moderate-income rural Americans into 
homeowners.
    Let me say another bit about Rural Utilities Service. Here 
for over 80 years, USDA has funded basic infrastructure 
services, which make a significant difference in the quality of 
life in rural America. These investments keep electricity 
reliable and affordable, deliver faster Internet service to 
rural families, and provide clean and safe water for rural 
communities.
    Overcoming geographic and demographic challenges to offer 
access to robust broadband service is among the reasons that 
just 50 percent of those living in rural communities have high-
speed Internet service. In our fiscal year 2016 budget, the new 
farm bill Broadband Program proposes $44 million to fund 
broadband infrastructure, and the 2016 budget for the Electric 
Program requests $6 billion to continue to provide reliable 
electric service to rural consumers while making improvements 
to increase efficiencies.
    Let me say another word about our business and cooperative 
programs. These continue to bring investments and jobs to rural 
areas. The 2016 budget of just over $1 billion will help 
continue rural renewal, benefiting not just our rural 
communities, but growing a stronger economy for the entire 
country through investment in rural businesses, energy, and 
entrepreneurial support.
    Our 2016 budget requests $75.7 million to provide loans and 
$5 million in grants to rural small businesses, farmers, and 
ranchers to purchase renewable energy systems under our Rural 
Energy for America Program. Expanding investment in renewable 
energy projects improves the environment and helps create jobs.
    This 2016 budget also offers funding to spur development 
with opportunities through the Value-Added Producer Grant 
Program, the Business and Industry loan program, and the Rural 
Business Development Grant Program.
    Undergirding all these three programs is the investment we 
make in our people and our systems. The President's 2016 budget 
requests $686 million for the salaries and expenses of USDA 
Rural Development. This is particularly important since Rural 
Development's loan portfolio has grown to over $210 billion. It 
continues to grow each month, while staffing levels to manage 
this growth have not recovered from the declines of the past 
year.
    Congress has provided significant resources to make a real 
impact in rural places. There is something extraordinary about 
rural America's ability to survive and thrive. Investments in 
rural America are investments in our country's future. With 
your continued support, we can leverage our resources to turn 
Rural Development's transactional work into transformational 
work.
    I appreciate this opportunity to testify, and at this time, 
I am happy to answer your questions.
    [The statement follows:]
                 Prepared Statement of Hon. Lisa Mensah
    Chairman Moran, Ranking Member Merkley and members of the 
committee, thank you for the opportunity to discuss the programs, 
successes and challenges of the Department of Agriculture's Rural 
Development mission area. I am accompanied this morning by Mr. Brandon 
McBride, Mr. Sam Rikkers, and Mr. Tony Hernandez, Administrators for 
the Rural Utilities Service (RUS), Rural Business-Cooperative Service 
(RBS) and the Rural Housing Service, respectively.
    I am pleased to represent agency mission area with the primary 
responsibility of creating opportunities and improving the quality of 
life in rural areas. The investments we make in rural America 
contribute to rural growth, which is essential to national economic 
growth. Approximately 15 percent of the population of the United States 
is considered rural, while nearly 72 percent of our land mass is rural. 
Rural Development works on a daily basis to support the needs of that 
15 percent--the 46 million American citizens that provide the food, 
fiber and fuel that the rest of the nation--and the world--depend upon.
    USDA Rural Development has a loan portfolio of more than $210 
billion. In fiscal year 2015 our staff made loans, loan guarantees and 
grants of more than $27.7 billion in rural areas throughout the United 
States and its territories. Because Congress has supported our field 
based delivery structure, Rural Development has staff in every state to 
make the loans and grants that help our rural communities become 
stronger and more vibrant.
    Rural Development assistance includes direct and guaranteed loans, 
grants, and technical assistance. Rural Development's work is designed 
to maximize taxpayer dollars. Often our support is leveraged with 
private sector financing or is provided as a guarantee to private 
banks. Recipients contribute their own resources or obtain third-party 
financing, expanding the level of support we provide to rural 
communities. During this past year, the total Rural Development 
leverage--our use of non-Federal funds--was $7.67 billion, or 118 
percent of our $6.5 billion goal.
    Rural Development is the catalyst for rural renewal: the projects 
we support create jobs, attract private investment and stimulate 
entrepreneurship. Our investments build communities, offer new economic 
opportunities, and connect rural areas to the world. They ensure that 
our rural Main Streets matter and our rural small businesses matter.
    On my first trip to Kansas, I had the opportunity to visit Emporia, 
and along with Senator Jerry Moran, recognize USDA Rural Business 
Development Grant recipients. These grants will help recipients like 
Kansas Main Street Inc. with small business development in the downtown 
area of communities. The work of Rural Development supports a shared 
American conviction that locally-grown businesses are important to 
rural economies and enhance the quality-of-life for rural residents.
    In Kansas I was also impressed to hear about the Kansas Fiber 
Network, a network of rural telephone companies--all borrowers from our 
Rural Utilities Service Telecommunications program--which provides 
advanced broadband and telecommunications services--essential to 
business growth and stronger rural economies. This telephone company's 
network, which is dedicated to community outreach and business 
development, might not have been possible but for the types of low-
interest loans USDA provides to rural telecommunications service 
providers. Rural Development's affordable loan terms make financing 
possible for much-needed community investments.
    Every day, 4,600 Rural Development professionals work to help rural 
business, provide affordable rural housing, and maintain and upgrade 
infrastructure investments. This work is so important to the 
modernization of rural America; it connects citizens to broadband; it 
builds a cleaner future through renewable power and energy efficiency; 
it reduces child poverty by investing in businesses; it helps manage 
the growing healthcare needs of an aging population; and makes rural 
communities places where young people will want to stay, start 
families, build businesses and create futures.
    When I was in North Dakota, Sen. Hoeven and I discussed how 
critical affordable, reliable infrastructure is to rural America. 
Economic development investments in infrastructure, business and 
housing are an important part of building strong, sustainable 
communities. Oftenthese investments are simply not affordable. Loans 
and loan guarantees from Rural Development make these projects--which 
are so vital to rural growth--affordable to these communities.
    Recovery Act funding delivered an unprecedented investment in rural 
areas. Broadband and water and waste infrastructure will continue to 
improve the quality of life in rural areas for generations to come. Our 
successful Recovery Act broadband projects mean that Reservation 
Telephone Cooperative in North Dakota can improve efficiency and 
security of oil production and pumping through electronic monitoring. 
Baca Valley Telephone Company in New Mexico can now provide broadband 
across its 2,600 square mile service territory, serving some of the 
most remote farms and ranches in the U.S.
    As a result of $3 billion water and wastewater Recovery Act 
investments, 820 projects are providing cleaner, safer water to 
2,883,673 rural residents. This funding provided awardees like Grady 
County Rural Water in Oklahoma, a new source of water to serve their 
community. Previously, the water used to serve the district was sourced 
through Ft. Cobb Lake and often suffered from high iron and manganese 
content. In addition, several of the district's customers did not have 
access to a public source of water, hauling water to their homes or 
businesses or relying on private wells. As a result of Recovery Act 
funding and RUS' water and wastewater programs, Grady County now has a 
new water supply to provide clean, affordable water to their customers.
    Access to safe, clean drinking water is essential at any time, but 
especially during drought. Rural Development (RD) is actively working 
to assist eligible communities facing severe drought conditions. In the 
past 2 years, RUS has awarded 48 Emergency Community Water Assistance 
Grants (ECWAG) totaling $18.6 million in California to assist rural 
communities suffering drought impacts. In fiscal year 14, RUS awarded 
25 ECWAG grants totaling $9,730,570 million to rural California 
communities. The Agency also provided assistance to the City of San 
Joaquin to upgrade their systems in response to the drought. In fiscal 
year 15, RUS awarded 23 ECWAG grants totaling $8,870,944 for projects 
in the state. In addition the Agency awarded four Household Water Well 
Grants totaling $730,461 to three California non-profits to provide low 
interest loans to rural residents for individual water wells, 
particularly in drought- impacted areas.
    Rural Development also finances large, long-term loans to develop 
communities and grow businesses. We invest in smaller, specific 
projects targeted at the smallest producers. Weprovide financial 
support for underlying utility, housing and community facility needs of 
rural communities. These investments are the building blocks for 
economic development that is so critical to the future of rural areas.
    Our Rural Business and Cooperatives Service (RBS), in partnership 
with other public and private sector stakeholders, promotes rural 
business and employment opportunities and supports key energy 
investments that grow rural Americans' ability to compete in the global 
economy.
    One of the foundations of our work here in Rural Development is the 
close partnership we've developed with private sector entities like 
community and economic development organizations. Senator Tester and I 
visited several Rural Development projects, including Big Sandy 
Activities--a center that helps developmentally disabled people build 
skills to allow them to live and work in the community. I saw firsthand 
how our Business and Industry Guaranteed Loan program was used to 
purchase and restore the Grand Union Hotel in Fort Benton. This loan 
helped restore the Hotel, built in 1882, strengthening the tax base and 
bringing jobs to Fort Benton. Rural Development support has an enormous 
impact in this rural town.
    The same B&I program provided DeVilbiss Healthcare, LLC with a loan 
to purchase equipment and machinery and to transfer manufacturing 
operations from China back to the United States. DeVilbiss manufactures 
and distributes respiratory medical devices and products such as 
nebulizers, oxygen concentrators, and continuous positive airway 
pressure equipment. The financial assistance preserves 92 jobs and 
creates 20 new jobs in rural Pennsylvania. These projects not only help 
rural businesses grow, but help reverse recent rural outmigration 
trends.
    Loans and grants from our Rural Housing Service and Community 
Facilities Programs (RHS and CF) support rural residents and the 
communities in which they live. Congress has defined for us a powerful 
set of housing and community development programs to ensure that rural 
families can live in safe, affordable homes and thriving communities.
    Rural housing programs anchor communities and play a key role in 
creating and sustaining wealth through home ownership. When a mobile 
home park in Shelburne, Vermont went up for sale, community leaders 
came together to ensure affordable housing would still exist downtown. 
Thanks to a $1 million RHS loan, the Shelburne Vermont community now 
has the Wright House --one of five apartment buildings in Harrington 
Village, an affordable housing community that is home to over 36 senior 
citizens and persons with disabilities.
    Our tribal investments support a wide range of needs in Native 
American areas. At the beginning of October, I was in North Dakota on 
the Spirit Lake Reservation to announce Rural Business Development 
Grants to create a business incubator in a renovated mall that would 
provide jobs and entrepreneurial opportunities. Rural Alaskan Village 
Grants are building water and waste systems, making communities safer 
and increasing the quality of life in remote Alaskan communities. High 
Energy Cost Grants deliver cleaner and more cost effective energy 
sources across the country. Projects announced in September will 
benefit a number of Alaskan Natives and Native American areas, such as 
the project to install wind turbines in the St. Francis community of 
the Rosebud Sioux in South Dakota.
    These are just a few of the many projects in which Rural 
Development is proud to invest. Our fundamental mission is to support 
thriving, self-sustaining and prosperous rural communities. Without RD 
funding, many rural communities could not make the investments to help 
them grow and prosper in the years ahead. Without these programs, rural 
communities would lack access to basic housing, safe water, broadband, 
and support for rural small business. Yet we know we have more to do.
    We are committed to working with partners to best serve rural 
areas. We understand that solid public-private partnerships and well-
placed intentional investments can--quite literally--mean life or death 
for some communities.Because of the funding you provide to us--$38.3 
billion in 2015--people who live in rural places today see historic 
opportunities in sectors such as local and regional food systems, 
emerging markets, the bio-economy, and manufacturing.
    The President's 2016 budget, which requests $38.9 billion for Rural 
Development--proposes to continue that work by giving priority to 
investment in rural businesses that want to take advantage of emerging 
markets as well as focus resources in areas of greatest need. Rural 
Business- Cooperative Service--A Force for Rural Jobs and 
Revitalization.
    USDA's Rural Business-Cooperative Service (RBS) continues to bring 
investments and jobs to rural areas. The 2016 budget requests over $1 
billion to help continue this rural renewal--benefitting not just our 
rural communities, but growing a stronger economy for the entire 
country through investment in rural business, energy, and 
entrepreneurial support.
    The 2016 budget requests $75.7 million to provide loans and $5 
million in grants to rural small businesses, farmers and ranchers to 
purchase renewable energy systems and increase energy efficiency 
through the Rural Energy for America program. Expanding investment in 
renewable energy projects improves the environment and helps create 
jobs, ultimately offering opportunities to enhance prosperity in rural 
areas.
    Today, we are using lessons learned from our lengthy experience in 
rural America to help communities capitalize on emerging opportunities 
in the 21st Century economy. Consider our work in the rapidly expanding 
area of local and regional food systems. USDA's ``Know Your Farmer, 
Know Your Food'' initiative provides tools and resources to farm and 
food businesses, including those run by women, people of color, and 
veterans as they tap into the growing market for local food. Rural 
Development is helping connect these rural businesses to new market 
opportunities with business planning assistance, infrastructure 
development and our boots on the ground to leverage resources and get 
the deals done for these businesses. In the last 3 years alone, we have 
supported over 600 local food businesses as they diversify and reach 
new markets.
    For example, a Poplarville, Mississippi resident and veteran of the 
wars in Iraq and Afghanistan, launched a hydroponic agriculture 
operation. Funded in part by RBS, an ``Armed to Farm'' workshop helped 
this new farmer better manage the business side of his operation. After 
shadowing other agribusinesses, he says he now feels more confident 
about the future of his company, SmithPonics.
    This 2016 budget offers funding to spur development of products and 
opportunities for rural business innovation with the Value Added 
Producer Grant Program, the Business and Industry loan program and the 
Rural Business Development Grant Program.
    Throughout my travels to rural communities, it was clear that 
addressing the challenge of outmigration and giving our rural children 
opportunities to stay and use their skills to earn a living in their 
communities was extremely important to local community leaders, family 
members and businesses. I know this can be done. Imperial Stock Ranch 
in Wasco County, Oregon is a family-owned and operated business that 
supplied wool for Ralph Lauren-designed sweaters worn by United States 
athletes at the Sochi Winter Olympics. They also launched a ``ranch-to-
runway'' line of clothing with award-winning fashion designer Anna 
Cohen. They did all of this nearly three thousand miles removed from 
the frenetic pace of New York City's fashion district. The Carvers have 
benefitted from USDA's Value-Added Producer Grant (VAPG) program since 
2008, using funds for planning and capital assistance. Our VAPG 
program--one of nearly 50 programs and services administered by Rural 
Development--is breathing life back into the textile industry and 
creating jobs here in the United States.
rural housing services--anchoring communities with homes and essential 
                               facilities
    A special point of pride for Rural Development is our housing 
programs. Since 2009, Rural Development has helped more than 900,000 
rural families buy, repair or refinance a home and provided funding for 
3,000 multi-family housing developments. Access to safe, modest, 
affordable housing is vitally important to the health and growth of 
rural areas. Helping to make the American Dream a reality is a 
tremendous responsibility. I am delighted that through our housing 
programs are often stepping stones on the journey to homeownership 
which will help build wealth and security for rural families. We offer 
one of the best home mortgages in the United States and boast a low 
default rate.
    The 2016 Rural Housing budget of $28.6 billion will continue to 
help people in rural America, particularly those in greatest need, put 
a roof over their heads. The bulk of this budget--$24 billion--supports 
private sector lenders in rural America by guaranteeing the mortgages 
they make to help moderate income rural Americans become homeowners. 
Another vital part of our housing program provides rental assistance to 
low-income people who live in USDA-financed multi-family housing. In 
fiscal year 2016, Rental Assistance of nearly $1.2 billion will help 
create a sustainable program to offer rural residents--most of whom are 
seniors with fixed incomes--the security and peace of mind of a safe 
and affordable place to live. We have worked hard to address challenges 
of providing sustainable rental assistance to those who rely on this 
program, and I am optimistic that continued efforts and investment will 
lead to a stronger program to better serve rural residents.
    In this, the 50th year of Rural Development's Mutual Self-Help 
Housing Program, we also completed 50,000 homes through partnerships 
and sweat equity. In fact, several Members of Congress and 
congressional staff participated in self-help builds this year to help 
us mark this important milestone.
    Rural Development is committed to continually testing new ways to 
address housing needs in rural America. The USDA Energy Efficiency 
Manufactured Home Pilot Program was introduced this summer in New 
Hampshire and Vermont. A low-income home buyer interested in purchasing 
a high-performance modular home and placing it in a mobile home park 
would be eligible for a 30-year mortgage at a 3.25 percent interest 
rate. Very low-income home buyers may be eligible for an interest 
subsidy down to 1 percent. The mortgage is the first of its kind for 
residents of mobile home parks, where home buyers face high interest 
rates, short loan terms and high energy costs.
    The Rural Housing Service (RHS) continues to make tremendous gains 
to its systems and processes--and recently took on a decade of needed 
upgrades. As of this spring, our guaranteed Single Family Housing loan 
program is now paperless. Not only are we saving 37,500 reams of paper 
every year, we've lowered postage costs, saved printer ink, and are 
moving loan guarantees out the door much more quickly and making our 
programs easier for our customers to use.
    We are also in the process of modernizing the delivery of the 
Single Family Housing direct loan program through automation. Beginning 
fiscal year 2016, RHS will implement an automated underwriting system 
nationwide, permit third parties to submit applications electronically, 
and move from paper-based to electronic customer files. These 
improvements will provide underwriting consistency nationwide, 
additional security features, and the ability to seamlessly transfer 
work when states experience increases in applications.
    The men and women of USDA take seriously the responsibility of 
supporting those who live and work in small towns and rural 
communities. They have worked hard to reduce backlogs, increase 
efficiencies and reduce program costs. These successes include the 
Single Family Housing Guaranteed Loan Program, which significantly 
decreased the amount of time staff spends processing a guaranteed loan 
request and save millions of dollars in cumulative operational and 
administrative cost each year. These time and cost-saving processes 
make it possible for government programs to continue manage a growing 
portfolio and meet mission goals with smaller operating budgets and 
reduced workforce.
    From fiscal year 2012 to fiscal year 2014, Rural Development 
invested in 335 Public Private Partnership community infrastructure 
projects across rural America in 49 states. RHS leveraged over $3.5 
billion in community facilities direct loan funds from 2012 to 2014, 
with $1.2 billion from institutional investors and the capital credit 
markets to strengthen investment in critical infrastructure projects, 
spurring economic growth and job creation, and increasing access to 
healthcare, education and other critical services. The 2016 budget 
request of $2.3 billion for the Community Facilities (CF) program would 
enable 13.7 million residents to benefit from improved health, safety 
and educational facilities. Services such as those provided by 
Pikeville Medical Center in Kentucky, which offers healthcare to 
patients from persistently poor areas, can grow. Pikeville Medical 
Center used the CF program to construct a new medical office building 
containing research facilities, outpatient surgery suites, endoscopy 
facilities, physical exam space, labs and lecture halls.
    Building on this success, and working with others to understanding 
the needs of the region, Rural Development partnered with the 
University of Pikeville, the Appalachian Regional Commission, and the 
U.S. Economic Development Administration by providing a $40 million 
Community Facilities loan for the construction of a health professions 
education building to provide instruction and demonstration for the new 
College of Optometry, School of Nursing, and other student support 
services. This funding enabled USDA to establish a Public-Private 
partnership for the new facility.This partnership resulted in a 
facility that added 75 jobs to the local economy and created a 
distributed community-based clinic model that added an additional 25 to 
30 jobs in local clinics. In addition, the facility brought new 
services to the region, as previously there was no College of Optometry 
serving that state or many of its neighbors.
    In communities like Pikeville, public private partnerships have 
bought together critical resources, innovative capacity, financial 
expertise, project development skills and technical assistance, to 
large complex community infrastructure projects at a time when RHS 
staff resources have been reduced. They have strengthened underwriting 
with another set of eyes, reducing RHS credit risk and providing a 
long-term partnership for servicing loans and communication with the 
borrower. Most importantly, these partnerships allow USDA to assist 
more rural communities, invest in vital community facilities, and help 
more rural residents.
    In other rural areas, we are supporting organizations that are 
addressing more basic needs and on the front lines of the fight to 
alleviate poverty. Second Harvest of South Georgia is a non-profit that 
feeds hungry people in 30 Georgia counties and is the largest in 
Georgia outside of the Atlanta metro area. USDA provided funding 
through a $5.2 million Community Facilities loan to build a 
distribution facility in Thomasville that produce up to 10,000 meals a 
day for South Georgia residents in need.
 the rural utilities service--investing in infrastructure for a modern 
                             rural america
    For over 80 years USDA has funded basic infrastructure services, 
which make a significant difference in the quality of life in rural 
America. Rural Utilities Service (RUS) investments keep electricity 
reliable and affordable and deliver faster Internet service to rural 
families and to businesses, allowing them to compete in the global 
economy. Our water and wastewater programs provide clean, safe water to 
help healthy rural communities grow and prosper.
    We are proud of the work of RUS to deliver much needed broadband 
infrastructure in the past 5 years. Because of the Recovery Act 
Broadband Improvement Program, RUS was able to successfully invest 
nearly $3 billion in 254 projects in 45 states and territories to 
deliver high speed Internet to rural areas unable to draw competitive 
for private service. As companies build out these services 260,000 
rural households, 17,500 businesses and 1,900 schools, libraries and 
healthcare facilities have new service with potential for exponential 
growth in the future. Loans under this program have been extremely 
successful.
    We know we still have work to do. Overcoming geographic and 
demographic challenges to offer access to robust broadband service is 
difficult and among the reasons that just 50 percent of those living in 
rural communities have high speed Internet service. The fiscal year 
2016 budget request for the Farm Bill broadband program seeks $44 
million to fund broadband infrastructure in rural areas. RUS received 
15 requests for $118 million in funding for a $55 million program, 
demonstrating the need to bring high-speed Internet to rural areas.
    The White House in September released a report on ways to continue 
to bring broadband to unserved areas. We are beginning work on those 
important next steps of getting robust broadband service available to 
all who live in rural areas, not just the 50 percent who currently 
benefit from access to high-speed Internet.
    We believe that all RUS programs that fund broadband will be an 
important resource in this effort, which is why the 2016 budget is 
requesting $65 million, an increase of $30.2 million over fiscal year 
2015, for broadband access in rural communities that are least likely 
to have broadband infrastructure needed for economic development.
    The 2016 budget request for the RUS electric programs is requesting 
$6 billion to continue to provide reliable electric service to rural 
consumers.
 investing in the people and core services that make rural development 
                          investments possible
    All of the good work of Rural Development is only possible because 
of the people who do this work. After years of retrenchment we are 
carefully rebuilding or staff and making sure they have the right tools 
to be strong partners in rural America. The President's 2016 budget 
requests $686 million for the salaries and expenses of USDA Rural 
Development to support the delivery of the direct and guaranteed loans 
and grants, technical assistance and economic development strategies 
outlined above. In addition, this investment in our people will help us 
continue to provide quality service not just in our national office, 
but in the field, where staff know rural communities because they are 
part of those communities. New employee hires will fill mission-
critical skill shortages resulting from a two-year hiring freeze. This 
is particularly important since Rural Development's loan portfolio has 
grown to more than $210 billion, while staffing levels to manage this 
growth have not recovered from declines of the past few years. This 
level of funding also includes information technology investments to 
the Comprehensive Loan Program, which safeguards the portfolio from 
cyber threats and improves management capabilities.
    Over the course of the last several years, we have chosen to be 
proactive in identifying and assisting areas of greatest need in rural 
America, rather than waiting for those places to find us. StrikeForce, 
Promise Zones, Stronger Economies Together and other initiatives are 
just a few of the many reasons that I am so fiercely proud of the 4,600 
Rural Development professionals nationwide. Our Agency and its partners 
are willing to help us move assistance to the places that need it most.
    Congress has provided significant resources to make a real impact 
in rural places. Yet the opportunities and the challenges of rural 
America make it clear to all of us that more needs to be done. I am 
deeply moved by seeing taxpayer dollars at work in rural communities. 
There is something extraordinary about rural America's ability to 
survive and thrive. It is a place where values count and where 
stewardship is a meaningful obligation. Working to address rural 
challenges is an amazing privilege.
    In the time that I've been with USDA, I've witnessed rural 
resiliency on a very personal level. I watched the town of Floresville, 
Texas turn out in force to launch their improved water treatment 
system. I visited the Peoples Rural Telephone Cooperative in Jackson 
County, Kentucky which built a state-of-the-art, fiber-to-the-premise 
network that offers isolated rural residents the same economic, 
educational and social opportunities available to residents in urban 
areas. I toured a condiment manufacturer in Brundidge, Alabama that is 
expanding its business and market share with support from Rural 
Development. Each of these investments made in rural communities is an 
investment in our country's future.
    I appreciate your continued interest and support of Rural 
Development programs. When countries cannot make rural infrastructure 
work, it impedes not only their rural places and people; it holds back 
the growth of the entire Nation. USDA Rural Development and our 
partners address the unique needs of communities often lacking large 
populations or other support mechanisms. Together, we can coordinate 
and leverage our resources to turn Rural Development's transactional 
work into transformational work.
    I appreciate the opportunity to testify before the Senate 
Agriculture Appropriations Committee. At this time, I am happy to 
answer your questions.

    Senator Moran. Under Secretary, thank you very much.
    We will turn to the gentleman from Montana and recognize 
him.

                      RURAL DEVELPMENT VISIBILITY

    Senator Tester. Thank you, Mr. Chairman. Thank you for 
having this hearing, and thank you for your generosity in 
giving me a first crack at this, because I have another 
meeting.
    Thank you all for being here. I appreciate it very, very 
much.
    I am going to go a couple different directions here. I am 
also a product of rural America. You saw my hometown, Lisa, and 
it was good to have you there. You guys do a lot of good work.
    You talked about the Rural Utilities Service (RUS). Quite 
frankly, I do not think we would have power to this day if it 
was not for RUS. The same thing could be said for telephone, 
and we will get to broadband in a minute.
    But the question is now. I mean, that was in the days of my 
grandfather and father and mother and grandmother. So they knew 
it. They knew they would not have power unless we had the 
cooperative movement and government support. We would not have 
been able to cut the ribbon on that water processing plant in 
Big Sandy without Federal Government support.
    Yet, when I go talk to my neighbors, I am not sure that 
they think the Federal Government had anything to do with any 
of these projects. What can be done about that? Quite frankly, 
we have to do something with the budget. We have to do things 
that are smart to move forward. I think pulling investment from 
rural America would be a mistake, but there are some who want 
to do that, and some of them are my neighbors who get full 
advantage of these programs.
    So the question is, what can we do to educate people about 
these projects that would not be done, whether it is a water 
project in Big Sandy, whether it is Big Sandy activities, the 
second biggest employer in the town--by the way, the first 
biggest employer is the public schools, both government 
agencies, both government entities, in a sense--or whether it 
is revamping the private sector like the Grand Union Hotel that 
you talked about, which is a jewel and brings in a lot of 
business to that area. What can we do to inform people? What 
can you do to inform people?
    Ms. Mensah. Senator, I appreciate your passion about our 
almost invisibility in some ways, and I think there are a 
couple things we can do.
    In part, we need our private partners to also explain our 
role in supporting them. So this is a partnership. When we come 
in and we do a renovation, we do it in partnership with our 
private partners. So we need some help from the people whose 
loans we guarantee to also say this message.
    Senator Tester. Okay.
    Ms. Mensah. And the other thing is the way we ourselves get 
out the word. One of the best things that I think you have done 
in this budget is to allow us to be a field-based agency. We 
are not invisible. We have staff in all of our 50 States that 
are the neighbors of these people. The more we can be the 
neighbors, I think we have a special advantage in a way other 
Federal agencies do not.
    So I would say those two things.
    Senator Tester. Thank you. It is maybe not this way all 
over the country, but we have probably come off the best 6 
years in agriculture we have ever had where I live. We have had 
incredibly good crops and high prices. That does not happen 
very often. Yet starting at about the mid-1980s, it has 
happened progressively along since the homestead days, but 
starting about the mid-1980s, we have seen a mass exodus off 
the land, an incredible mass exodus.
    My farm, for example, we are 1,800 acres. People go, wow, 
that is big. No, that is about a third the size of the average 
farm in Montana. And, quite frankly, because of that 
consolidation both in the marketplace on inputs and the 
marketplace on where we sell our products because it is very 
limited, we have seen a lot of consolidation on the ground, a 
lot fewer farms, a lot less people, a lot bigger farms.
    The chairman could probably say it in Kansas. I mean, rural 
America is de-populating in a big, big, big way. The rural 
population is declining across-the-board.
    So when we talk about economic recovery, and we talk about 
your programs that are very important, we talk about the farm 
bill, we have to look and say, are we really doing economic 
development in rural America the best we can do? It could be 
argued, and it is argued by some with some merit, that these 
programs have all failed because the population is getting 
less, it is not getting more.
    We are not seeing economic growth in rural America like we 
are in urban areas. We are not seeing people staying in rural 
America like they once did. As that swirl keeps happening, it 
gets worse. It does not get better, until we turn it around.
    Now I will tell you that I appreciate the work you do, and 
I support your programs. And I think we need to be doing all we 
can do to empower you because I think you are the key, more 
than any other thing we do in rural America, whether it is in 
housing, broadband, whatever it might be, to bring it back.

                            BROADBAND ACCESS

    But in Montana, and I would bet it is the same in eastern 
Oregon, and I would bet it is the same in Kansas, our broadband 
is not where it needs to be. I was going to say another word, 
but I am not. It is not where it needs to be. We have a lot of 
folks here being left out of the 21st century economy.
    By the way, when you live in rural America, there are not a 
lot of customers, so broadband gives you that ability to get to 
those customers.
    We just had Wheeler out, Chairman of the Federal 
Communications Commission (FCC), last week. Great guy, by the 
way.
    Do you talk to him, Mr. McBride?
    Mr. McBride. I have, yes.
    Senator Tester. Do you talk about what can be done in rural 
America, as far as utilizing your dollars, public-private 
partnerships, or however you want to do it, to maximize those 
dollars to get broadband to houses and businesses in rural 
America?
    Mr. McBride. Yes, sir. Thank you for the question.
    The President appointed a Broadband Opportunity Council 
earlier this year. What that council encouraged us to do more 
than anything else was to communicate more amongst agencies, 
know what other folks were working on in terms of expanding 
broadband access and how we can do that. That has helped us at 
RUS in terms of having regular weekly meetings with other 
agencies, including the FCC, and talking about what we can do 
to support the expansion of broadband access.
    Senator Tester. So what does that really mean? I mean, I 
got you. You are talking. And by the way, communication is 
important, and we need to break down the silos, and we need to 
go down that whole line. But what does that really mean as far 
as getting projects on the ground to get Montana wired up?
    I would bet you a dollar to a doughnut, Chairman Moran can 
say the same thing about Kansas, and Heidi Heitkamp can say the 
same thing about North Dakota. So this isn't just Montana.
    What are we doing? What are we actually doing to be more 
effective with the programs that we have, so that we know, when 
we fight like hell to get you extra dollars, that that money is 
actually getting to the ground and it is not getting ate up in 
administration, and it is actually doing what it needs to do to 
get these folks connected up?
    Mr. McBride. Yes, sir. At the President's direction, what 
we have done is we have looked at each of our existing 
authorities and each of our programs.
    Senator Tester. How do you to determine need?
    Mr. McBride. I am sorry?
    Senator Tester. How do you determine need?
    Mr. McBride. Determine need?
    Senator Tester. How do you make that call, whether that 
money goes to north-central Montana, whether it goes to a place 
that is a little bit more populated, or whether it goes to an 
urban area?
    Mr. McBride. Well, for our programs at RUS, there are loan 
applications. So we try to get the word out, go to conferences 
and visit with potential borrowers and the groups that are 
interested in expanding broadband. But then we work with them 
to see whether a loan application is possible and what would 
make sense for their business case.
    Senator Tester. I am not making a judgment here--and I am 
sorry for going way over time. I will wrap this up.
    Do you feel that you are getting that information out so 
that your partners on the ground in remote frontier areas know 
their options?
    Mr. McBride. Yes, sir. We can always do better, but we are 
doing the best that we can.
    As the Under Secretary mentioned, we have a great field 
operation, and they do a lot of work in terms of letting people 
know about our programs. So we are doing the best that we can 
to spread that message.
    But you are correct. Less than 50 percent of rural America 
has access to the same high-speed Internet.
    Senator Tester. And I will tell you, just in closing, it 
breaks my heart to see what is going on in rural America. It 
really does. I mean, in my hometown, we have lost both hardware 
stores. We have lost two of the three grocery stores.
    We have even lost three of the five bars. That's how bad 
it's getting. I mean, now we have a crisis situation.
    We have to be more effective. I am not going to be here for 
the second panel, but I really hope that the folks who are 
going to be on these panels address the kind of communication 
that you need to make sure we are doing it right from the top 
end, and, quite frankly, talk about the need that is out there, 
actually, if we met the need of your partners, if it would 
actually do any good at keeping people around or if this is 
just the trend and it is going to happen and we cannot do a 
damn thing about it.
    I personally do not believe that. I do not think it is just 
on your shoulders, by the way. I think there are a lot of other 
things that we need to be doing about developing capitalism and 
the marketplace for the inputs and for our sales and all that 
kind of stuff, because it is a highly noncompetitive market in 
my opinion.
    So thank you, Mr. Chairman. I appreciate the courtesy, and 
I apologize for taking too much time.
    Senator Moran. Thank you for joining us, Senator.
    Senator Merkley.

                          PROGRAM DUPLICATION

    Senator Merkley. Thank you very much, Mr. Chairman.
    Thank you for your testimony.
    Under Rural Development, there are approximately 50 
programs. So if you were to identify two or three that need to 
be looked at very closely, as perhaps ones that are weakest or 
duplicates, what would you point to and say we should take a 
close look at this for potential consolidation? Or perhaps 
there is a more cost-effective way to achieve the same mission?
    Ms. Mensah. That is a hard question, making us choose 
between our children.
    Senator Merkley. Yes, I know, choosing between your 50 
children.
    Ms. Mensah. What I can say without--speaking impromptu 
here--is that there are 50 programs. Some are in statute that 
are very close to each other, so there are many specifics that 
tell us to work in particular areas, Alaska villages, colonias. 
I think there is a reason why we were asked to look 
specifically at those, even though it is broadly in the same 
area.
    What I really think is that our three core areas, each have 
dominant players. There is no question that the Single-Family 
Housing Guarantee program dominates in our housing program. 
There is no question that the Business and Industry Guaranteed 
Loan Program dominates in our business program. There is no 
question in our Rural Utilities program, the size and scale of 
our electric programs and our new farm bill broadband.
    What I have seen is that our administrators know how to get 
the most out of these programs. I don't feel that there is 
waste and costly duplication. What I feel is that every grant 
program that we have, and some of those are grant programs, 
there is a group of people who take so seriously how we get 
these dollars in rural America. So I would ask you not to look 
at the number of those programs, but look at their impact.
    Some of our programs, even modest, like the self-help 
housing program of $17 million, that is just such a critical 
program in the way it builds self-help housing. We have done 
our 50,000th house this year.

                              PARTNERSHIPS

    Senator Merkley. Okay, so let's take that for a moment. 
Thank you very much for coming out to Oregon to visit a self-
help housing program. Of course, it is wonderful that you come 
from Oregon. I was hearing the stories about Kansas and Montana 
and getting a little jealous, but I knew you would come to 
Oregon, and we are delighted you did.
    But let's take that for example. That model of sweat 
equity, build your own house, low-cost loan, is very similar to 
the Habitat for Humanity model. Have we looked at whether that 
model makes sense to do independently or to do through 
subsidies to groups like Habitat for Humanity? Is there a more 
cost-effective way to undertake it?
    Ms. Mensah. Well, I will ask Tony Hernandez. I know I will 
say that, actually, we have partnered with Habitat. I, in fact, 
saw a property this spring where we were direct partners with 
Habitat.
    But, Mr. Hernandez, would you speak to our partnership with 
others?
    Mr. Hernandez. Thank you very much.
    Senator, we are very excited to partner with lots of 
organizations. What we do best is that we are a mortgage 
company. We also provide technical assistance grants to help 
those nonprofits.
    What we are doing with Habitat is trying to get them to use 
our product, which is the 502 direct loan, to help them build 
more homes. They are trying to become a mortgage company as 
well. We are a larger mortgage company. We can actually help 
them acquire more lots and use our product so they can build 
more homes.
    So we are in the homeownership business, not just building 
and financing. What we are trying to do is partner with other 
groups, just like Habitat, across the country. We have met with 
the national Habitat organization and smaller groups to say, 
how can we help you do more if you use our product?
    Senator Merkley. Thank you. I am going to cut you off 
there, because you are talking about the partnerships, which 
are wonderful.
    I want to turn to another question, but I appreciate that.

                      RURAL ENERGY SAVING PROGRAM

    The Rural Energy Savings Program is one that was authorized 
in the farm bill. Secretary Vilsack pledged to implement it. We 
understand that Rural Development, there is an existing 
program, energy efficiency and conservation loan program, which 
is similar to Rural Energy Savings Program in that it is 
basically low-cost loans to do energy-saving retrofits to 
buildings. However, it has not been taken up because interest 
rates are higher.
    Has there been any progress that can be reported at this 
point in actually implementing the Rural Energy Savings 
Program?
    Ms. Mensah. Thank you, Senator.
    I will say that you are correct that there is a similar 
program, but let me ask, since the Rural Energy Savings does 
work closely with our Rural Economic Development Loans and 
Grants (REDLG) program. Let me ask Acting Administrator Rikkers 
to tell you where we are in the process of implementing this.
    Senator Merkley. Great.
    Mr. Rikkers. Senator Merkley, the RESPA (Rural Energy 
Savings Program Act) program, as it is referred to, we stand 
with you. You have been an advocate for cost-savings through 
energy efficiency both for small businesses and consumers that 
RESPA is targeted toward.
    We are encouraged that the Senate mark on this year's 
appropriation bill provides funding for that RESPA program. 
With that funding, we believe that that will help clear a path 
and really help us continue to work with your staff to make and 
implement that program.
    [The information follows:]

    Rural Energy Savings Program Act (RESPA) is a voluntary program 
that will create jobs and lower energy bills for families, farms, and 
small businesses by promoting energy-saving improvements to homes and 
buildings in rural communities. The program will assist rural electric 
co-operatives in offering low-interest loans to their consumer-members 
for efficiency improvements, allowing repayment of the loan through 
savings on monthly electric bills. Individual co-ops or State-based 
groups of co-ops will apply to the Rural Utilities Service (RUS) within 
the USDA for loans to fund local energy efficiency programs. RUS loans 
to the co-op for efficiency programs will bear a zero percent interest 
rate. The co-op can re-lend to consumer-members for efficiency 
improvements at low-interest to defray the cost of administrating the 
program.
    Rural Development has developed a work plan and is currently 
assessing how to best implement the program in the loan portfolio of 
the Rural Economic Development Loan and Grant program.

    Senator Merkley. Okay, I will look forward to future 
reports. Please keep me apprised.
    My time is up. Thank you so much.
    Senator Moran. Senator Merkley, thank you.

                       RENTAL ASSISTANCE PROGRAM

    Let me ask about housing, Mr. Hernandez or Madam Secretary. 
Over the last 3 years, appropriations for rural rental 
assistance have grown by $336 million. Yet we have indications 
that the amount requested for rental assistance renewals for 
fiscal year 2016 will not be adequate.
    We have worried about that. In fact, our appropriation bill 
language criticizes the administration, the program, and the 
ability of Rural Housing Services to provide accurate 
information on the amount needed to renew those existing rental 
assistance agreements.
    Can you provide detailed information on the amount 
necessary to renew all the expiring rental assistance 
agreements for fiscal year 2016?
    Ms. Mensah. Thank you, Senator, for the question about 
rental assistance. As you know, this drives our ability to be 
in the affordable housing business in rural America, 14,000 
properties, and rental assistance is crucial to it.
    There is no question financing this program is a challenge 
for us. We continue to be in conversation with you because it 
is a challenge. Our estimates are made 2 years in advance. And 
yes, they are often off.
    So we acknowledge this challenge. We acknowledge that, yes, 
we will likely need more than we had estimated. I do not have a 
precise number for you today.
    Senator Moran. We, certainly, would like that information. 
Obviously, the appropriation bill requires that information be 
provided. You need it to manage the program. We need it to make 
certain that we do our job in a fiscally responsible way, so 
there are no surprises.
    With a fixed amount of money that we have to spend within 
this budget, that number helps determine what other programs 
within USDA, including Rural Development, might receive. That 
requires us to have the best information possible to make those 
decisions.
    So I reiterate that request, and we look forward to having 
a conversation with you to get those numbers.
    Ms. Mensah. Thank you. I look forward to that as well. We 
take it seriously.
    [The information follows:]

    When formulating its budget request, RHS uses the best estimates of 
local tax, utilities, and other operating expenses. However, these 
items may change and cause fluctuations above the estimate. To help 
moderate the impact of cost fluctuations that the agency can account 
for, RHS implemented an updated method for obligating rental assistance 
(RA) in October 2015. This tool provides more accurate estimates of 
future property-level funding needs. It also processes rental 
assistance contract renewals more quickly and efficiently. The updated 
RA obligation tool estimates RA needs on a per property basis, with the 
objective of improving accuracy by using more timely data and reducing 
the incidence of second renewals. The obligation tool provides as near-
real time data as possible, and the built-in inflation factor adjusts 
for the time lag between budget development and receipt of the 
appropriation. The revised estimate for fiscal year 2016 is 
$1,389,695,000, which is $217,795,000 above the fiscal year 2016 
President's budget request. The revised estimate assumes that the re-
renewal prohibition carried in the fiscal year 2015 law will not be in 
the fiscal year 2016 law, including for the units with contracts 
renewed during the current continuing resolution which carries the 
fiscal year 2015 prohibition.

                         UNIVERSAL SERVICE FUND

    Senator Moran. Let me ask, this could be for you Secretary 
Mensah or Administrator McBride, the issues related to RUS and 
the FCC, it was raised a bit by the Senator from Montana. But 
it seems to me that we have set the stage in which the FCC has 
made decisions related to revenues that are going to be 
received that then affect the ability to repay loans.
    So I have been worried for a long time, going back to the 
original order of the FCC particularly related to the Universal 
Service Fund, whether or not companies across Kansas and around 
the country will have the necessary revenues, first of all, to 
provide the service, but secondly, in the absence of adequate 
compensation for the Universal Service Fund, the ability to 
repay RUS.
    You indicated conversations have taken place. I have tried 
to get Rural Development and the FCC chairman in the same room 
to have these conversations. It seems to me that there was an 
unwillingness to have that occur.
    So what I am looking for is I guess the degree of 
coordination that is taking place. I heard you indicate to 
Senator Tester that meetings occur, but can you assure me in 
pretty definite terms about the assistance that RUS is making 
known, the problems and challenges that will arise to your 
borrowers should orders affecting the Universal Service Fund 
continue down the path that they have been on.
    Mr. McBride or Secretary.
    Ms. Mensah. I think I will ask Administrator McBride to 
speak to this issue of coordination.
    And you have asked for an assurance? I can tell you we will 
assure you that we will be in dialogue with our Federal 
partners on this.
    Senator Moran. In that regard, how serious is the issue? Am 
I raising something that is relevant?
    Mr. McBride. Any time that you are talking about something 
that will impact one of our borrowers, I have concerns, because 
we want to make sure that our portfolio is strong, and we 
believe that it is.
    In terms of what is happening with FCC, we do communicate 
with them regularly. As they develop their proposals, we 
provide some feedback. But they are a regulatory agency, so 
there is a little bit of separation there. But we do try to 
discuss the potential impacts of their rulemaking.
    Senator Moran. They are a regulatory agency, and they are 
an independent agency, but you are part of an administration. 
What I am looking for is that there is an assurance that at a 
higher level within the administration that the position that 
Rural Utility Services is in and will be in as a result of 
decisions at the FCC related to Universal Service Fund is being 
communicated to the FCC.
    I guess I am also interested in--you tell me that you 
communicate with them, what do they say? Have you seen any 
evidence that they are doing anything different, as a result of 
you raising these issues?
    Mr. McBride. Yes, sir. They have heard our concerns, and I 
know that they have tried to take that into consideration. We 
have communicated that at a high level with them.
    Senator Moran. Let me go at this one more time. 
Fortunately, as the chair, I get to have as many rounds as I 
like, so I will see if I can ask this question perhaps for the 
last time on this topic. But tell me what your concerns are. 
How dramatic of a consequence could changing the Universal 
Service Fund be to the ability of your borrowers to pay back 
their loans they have borrowed? And what is the contingent or 
possible liabilities that will accrue to your agency as a 
result of FCC orders?
    Mr. McBride. I do not have the answer to your second 
question, because I do not know exactly how they will make 
final changes to the Universal Service Fund (USF). I know that 
they are aware that we are concerned about their modeling and 
how that might impact our program. We have shared that 
information with them and had those conversations with them.
    Senator Moran. In another round, I would like to explore 
further why perhaps rural telephone companies and others, 
potential borrowers, are not seeking loans from RUS. My guess 
is that there is a causal relationship because we do not know 
what the FCC is going to do in regard to the Universal Service 
Fund, so there is not only the fear of, ``Can I repay my 
loan?'' but there is also the fear that I should not take out a 
loan. The consequence there is that fewer Americans in rural 
America will be served by broadband.
    Mr. McBride. You are correct that there were some concerns 
in recent years. Actually, this year, we did see a slight 
increase in terms of the loan dollars that we were able to put 
out from our traditional infrastructure program. We also saw an 
increase in applications for our farm bill broadband loan 
program. So there is an increase in interest in our programs.
    Senator Moran. I look forward to exploring that. Thank you, 
Mr. McBride.
    The Senator from Montana, Senator Daines.
    Senator Daines. Thank you, Mr. Chairman.

                 BROADBAND AND UNDERSERVED COMMUNITIES

    I spent decades in the private sector before coming to 
Washington, DC. I was, for 12 years, part of a cloud computing 
company we started up in Boozman, Montana. We took the company 
public. Oracle acquired us a couple years ago.
    In fact, if I were to ask you where Oracle was going to put 
their North America cloud command operation center for the 
entire Oracle cloud, if I said, is it going to be in Silicon 
Valley, Boston, New York, perhaps even Tel Aviv or Singapore, 
if I told you it was the Boozman, Montana, it wouldn't have 
been your first guess, anyway.
    I think this is showing what is going on in technology 
today, where technology has removed geography as a constraint 
and this nexus of a quality of life of rural America that we 
have, where the millennials say, ``I want to have my cake and 
eat it, too. I don't want to have to sit in traffic for 2 
hours. I want to be able to get to a trout fishing stream, get 
to the mountains, and so forth. But I want a world-class 
career, best in class, that relates to my business experience, 
too.'' We have that now, thanks to technology.
    So I've lived it. I've breathed it. I'm passionate about 
ensuring that we provide connectivity here for all of America, 
including rural America.
    That also translates to our ag communities, where our 
farmers and ranchers are now high-tech operators, in terms of 
what they do. It is amazing what is going on there. Certainly, 
in agriculture, we improve productivity and we not only feed 
our country, we feed the world.
    So a question for Under Secretary Mensah. In your 
testimony, you highlight the need for more work to be done in 
expanding rural access to broadband and that just 50 percent of 
those living in rural communities have high-speed Internet 
service.
    Despite this fact, the administration's Broadband 
Opportunity Council recently released a report on increasing 
broadband employment and directed RUS to make funding available 
in areas that already have a broadband provider.
    Many communities in Montana, and I know I can speak--
Senator Tester was just here earlier and made his comments from 
a Montanan's perspective.
    By the way, we had Chairman Wheeler, Senator Tester and I 
did, last week in Montana. It was great to have him there to 
see what is going on in rural America.
    But many Montanans do not have access to broadband, not 
even one provider, let alone thinking about having two. We 
should be focusing dollars, I think, on unserved communities, 
not just improving speeds for those who already have 
connectivity.
    So the question is, how is RUS going to avoid duplicative 
investment and make sure that funding is given to those who 
need it, who virtually have no connectivity at the moment?
    Ms. Mensah. Thank you, Senator, for raising this issue. 
Thank you. It is, certainly, our intention to serve rural 
America with broadband services and to reach those areas which 
are beyond the last mile. So I want to share your seriousness 
about this.
    Let me ask, though, Administrator McBride to explain what 
it is like within the Rural Broadband program and RUS, and 
explain how we look at applications in our already-
oversubscribed farm bill Broadband Program, so that we do not 
have a duplicative situation.
    Mr. McBride. Thank you for the question, Senator.
    What the Broadband Opportunity Council overall was trying 
to look at was that there are some differences between 
broadband availability in rural America versus urban, in terms 
of high-speed Internet. So that was one of the issues that the 
council looked at.
    In terms of how we administer our programs at RUS, in the 
2014 farm bill, Congress included language directing us to 
require at least 15 percent of a potential application area be 
unserved. So we have direction from Congress to include that 
percentage of unserved residents.
    And also the farm bill sets the standard in terms of how 
many incumbent providers can already be there. So if there are 
already three providers in a proposed service territory, that 
application would be ineligible.

                   BROADBAND SERVICE IN TRIBAL AREAS

    Senator Daines. Let me ask a follow-up on that, pivoting 
over to our tribal lands. Montana is home to 12 federally 
recognized tribes, plus one State-recognized tribe, the Little 
Shell. Thanks to the dedication of Montana companies, like 
Triangle Communications, residents of the Rocky Boy and the 
Fort Belknap Indian reservations have access to broadband for 
the very first time.
    However, the broadband access on tribal lands continues to 
be an issue. In fact, high-speed broadband on most tribal lands 
in Montana is virtually nonexistent.
    Since 2009, USDA has awarded nearly $20 million in funding 
to provide broadband service in tribal areas. So the question 
is, what does RUS plan to do going forward to connect tribal 
communities?
    Mr. McBride. Thank you for the question, Senator.
    We are trying to expand our outreach to tribal areas and 
help them understand the programs that are available to them 
and potential applications.
    Earlier this year, we funded our first substantially 
underserved tribal area telecom application in New Mexico. That 
was a great project there that brought fiber to the homes in 
that area. So we are, certainly, open to this and would be 
happy to work with your constituents on this.
    Senator Daines. I am out of time, but the last comment, I 
think these investments in broadband infrastructure are really 
investments in innovation. This is really an opportunity what 
we are seeing around our country that we can lead globally 
here.
    When I was running businesses there in Boozman, Montana, I 
had an office in Tokyo and one in Sydney, but I could do it 
right there from Montana. This is really the wave of the future 
for our country. Thank you.
    Senator Moran. Senator Daines, thank you very much.
    The Senator from Mississippi, Mr. Chairman, welcome.

                   STATEMENT BY SENATOR THAD COCHRAN

    Senator Cochran. Mr. Chairman, thank you. I am pleased to 
join you in reviewing what the status of these programs are 
that are administered by this panel of witnesses.
    Thank you for the good work that you do and the outreach 
that you undertake to help acquaint organizations out there in 
the small towns and communities of rural America that there are 
Federal programs that are designed to make available 
fundamental ways of enjoying living out in the country, as they 
say, and yet having some of the modern conveniences that so 
many of us take for granted. So thank you for being here today 
and helping us review and implement ways that this subcommittee 
can be helpful through either legislative language suggested 
for adoption by Congress or regulatory action that you would 
like to modify.
    We want to work with you and be helpful to you.
    We are from the government. We are here to help you.
    Senator Moran. Mr. Chairman, thank you. Thanks for joining 
us.
    The Senator from Missouri, Senator Blunt.

                            BROADBAND ACCESS

    Senator Blunt. One other topic on the connectedness issue, 
which I think we all understand is really important that we get 
this done so that everybody does have capacity to compete and 
to offer products and to communicate.
    Mr. McBride, you mentioned a couple times unserved and 
underserved, and I wondered what programs you have that address 
both of those things. Frankly, several of us are on the 
Commerce Committee as well, and I am much more interested in 
assisting unserved areas than I am assisting a second 
competitor where there is already somebody there that might 
meet some definition of underserved.
    So do you want to talk about that a little bit, the 
difference in unserved and underserved, and what programs you 
might have, what areas, in both those categories?
    Mr. McBride. Yes, sir. Thank you for the question.
    We have four primary programs were we fund the expansion of 
broadband access. The first is our traditional infrastructure 
loan program, which is targeted to communities of under 5,000. 
We have a farm bill broadband loan program, which the 
population goes up to 20,000.
    Then we have two grant programs. One is the distance-
learning and telemedicine program, which helps improve health 
care access and educational opportunities. That is a grant 
program.
    The program that we have that actually targets unserved 
areas is called Community Connect. The subcommittee gives us 
around $10 million to $15 million a year, I believe, to make 
small grant awards to communities that do not have existing 
broadband service. That is our primary tool in terms of getting 
to communities that do not have access.
    Senator Blunt. Are the other three available to both 
underserved as well as unserved communities?
    Mr. McBride. Yes, sir.
    Senator Blunt. Then you look at those applications and 
decide where you are gaining the most new service?
    Mr. McBride. Yes, sir.
    In terms of the distance-learning and telemedicine, and the 
farm bill loan program, both of those programs are 
oversubscribed, so the competition is quite difficult for both. 
So certainly for the loan program, we are looking at areas 
where there is not much service or it needs to be improved.
    Senator Blunt. Thank you, Mr. Chairman.
    Senator Moran. Thank you, Senator Blunt.
    We are going to do another round of questioning. I am going 
to try to limit mine to perhaps one area, and it is back to 
you, Mr. McBride.
    Mr. Rikkers, do you feel left out? Or pleased?
    Mr. Rikkers. Happy to be here, sir.
    Senator Moran. All right.

             BROADBAND OPPORTUNITY COUNCIL RECOMMENDATIONS

    Senator Daines talked about this, Senator Blunt talked 
about this, underserved and no service. We have seen examples 
of that in our State. I noticed that in the development of your 
rules, you are headed toward the direction of not making loans 
when there is a loan to another company who already has and is 
providing service in the area, another RUS loan recipient.
    Mr. McBride. Yes, sir.
    Senator Moran. I did not say that very well.
    Mr. McBride. I understood.
    Senator Moran. Thank you for understanding. You have made 
the decision that you are not going to make loans to companies 
who want to provide service to a place that there is already a 
company providing service with an RUS loan. Is that accurate?
    Mr. McBride. Yes, sir.
    Senator Moran. And the part that caught my attention was 
the Broadband Opportunity Council's recent report. It seems to 
go the other direction. It is an August report that says, 
broadband loan eligibility should be expanded to different 
providers ``even though an incumbent exists.''
    How do you square what RUS's policy is versus what the 
broader group of people is saying is the goal?
    Mr. McBride. Certainly, with the Broadband Opportunity 
Council, the good thing about the council and its 
recommendations is that we were looking at all of our suite of 
programs to see what we could do to support broadband access. 
The council's actions would not require additional funding or 
additional legislation. It was just simply to look at our 
programs to see what we could possibly do.
    In terms of the issue that you raised, of course, we will 
have to follow what is in statute and what Congress has 
directed us to do, in terms of looking at potential applicants 
where there are already service providers. So that will be our 
lead focus.
    Senator Moran. Tell me once again what you understand 
Congress' direction to be in that regard.
    Mr. McBride. Well, in terms of the farm bill loan program, 
if there are three existing service providers, then an 
application to serve that service territory would be 
ineligible.
    Senator Moran. Okay. When you make a determination about an 
RUS loan to provide broadband services, the subsidy that is 
provided by RUS, is it what is designed to be the sufficient 
amount of additional revenue to make the service available to 
make it work? The question I have is, do you bring in other 
territories that already have incumbent providers, a larger 
community, for example, and allow a loan recipient--duplicate 
service is not the right phrase, but add additional service 
when there is already service being provided as part of the 
revenue source, so that areas that have no service get that 
additional revenue?
    I will try one more time. My question is this, is the 
subsidy sufficient to make this work, or do you need to have 
larger population areas within that territory to further 
subsidize the ability for that carrier to provide broadband?
    Mr. McBride. The three basic things that we would look at 
for new application are: Is the population of the area that 
they want to serve under 20,000? Did they include at least 15 
percent of an unserved area in their application? And then, how 
will their finances work?
    So we want to look at all those things to see what they do. 
Some of the applications that we received in the most recent 
round, they were proposing to serve up to 50 percent unserved. 
So we want to make sure that there are fewer than three 
existing service providers, and that they meet that target in 
terms of unserved population.
    Senator Moran. Fifteen percent of the proposed area of 
service is the requirement for the loan? Your application is 
based upon an area that has no service, that has to equal at 
least 15 percent of what they are applying to serve? Is that 
what you are telling me?
    Mr. McBride. Yes.
    Senator Moran. The other 85 percent could have an 
additional provider already providing the service.
    Mr. McBride. Yes.
    Senator Moran. Okay.
    Mr. McBride. As long as they do not have more than three.
    Senator Moran. And the revenue that is generated from that 
85 percent may be taken into account to determine your final 
criteria of whether or not this is fiscally, financially 
possible.
    Mr. McBride. Yes. We have to make sure that any loan that 
we make, that they will be able to repay us and be successful.
    Senator Moran. Okay. Thank you.
    Senator Merkley.
    Senator Merkley. Thank you, Mr. Chairman.

                    RENTAL ASSISTANCE 2015 SHORTFALL

    I want to go to rental assistance in more detail. The 
chairman asked about the shortfall, and the numbers that we 
have been provided for the shortfall for fiscal year 2015 was, 
very precisely, we're talking basically $101.5 million, 
precisely, is the number provided by your department.
    In the second panel, Tony Chrisman is going to present his 
story, which is typical of what has happened with that fiscal 
year 2015 shortfall, which is that the individuals who are 
operating multifamily projects, who own these projects, they 
are paid for each unit. Each unit, the family pays 30 percent 
of their income and then the balance is paid through this 
rental assistance program.
    But in August, mid-August, the money ran out. So the folks 
who have these multifamily projects stopped receiving payments.
    For example, for Mr. Chrisman, the total amount of rental 
assistance not paid to date is $365,000. That is that share of 
that $101.5 million shortfall.
    We provided authority for those shortfalls in fiscal year 
2015 to be filled back in, but the owners have not received any 
notice that they are going to be compensated for that 
shortfall. Are you planning to fill in the shortfall in 2015? 
Or are we going to leave these owners across America just 
hanging out there suffering this loss?
    Ms. Mensah. Thank you, Senator Merkley. That is, certainly, 
not our intention to leave owners hanging.
    I am going to ask Administrator Hernandez to speak to your 
specific question about how we want to catch up the shortfall 
that we had in fiscal year 2015 as we head into fiscal year 
2016.
    We are thankful that we were able to limp across the line 
into September, into our new fiscal year, and we do want to 
bring that whole again.
    Mr. Hernandez. Great. Thank you very much.
    Senator, our goal is to try to help as many of those 
property owners as we can. First of all, we are going to use 
the allocation that you have given us for appropriation this 
year for the continuing resolution (CR). We will fund those 
property owners who have run out of money and they are into the 
new fiscal year.
    Senator Merkley. So be specific. Are we going to backfill 
the missing payments from fiscal year 2015, the August and 
September payments that we failed to pay?
    Mr. Hernandez. We are trying to figure out how we can do 
that, sir. Right now, we cannot use the CR money to do that by 
statute, so we are trying to figure out----
    Senator Merkley. My understanding is that we did enable 
that to be done, but that there is reticence to do so. Is there 
a legal question? This has not come back to my attention. This 
is an issue we have been raising continuously. Can you please 
get us exact details on how that is the case? That was fully 
the intention that this was to be able to be backfilled.
    Mr. Hernandez. I will find out how we can do that.
    [The information follows:]

    The USDA is committed to delivering a sustainable rental assistance 
program and has made significant progress in addressing the challenges 
in managing the statutory and funding cycles of this important program. 
The fiscal year 2015 appropriations law prohibited a property from 
receiving a second renewal of fiscal year 2015 Rental Assistance (RA) 
agreement funding within a 12-month period. Because of this, the agency 
was prohibited from providing a second renewal in fiscal year 2015 to 
44 properties. Rural Development (RD) advised borrowers about steps 
that could be taken in order to leave operating funds in project 
accounts to pay project expenses, to the extent possible. The 
prohibition on second renewals was lifted by the Agriculture, Rural 
Development, Food and Drug Administration, and Related Agencies 
Appropriations Act, 2016 (Continuing Resolution) for properties that 
were renewed in fiscal year 2015. However, there is no additional 
language in the Continuing Resolution that allows USDA to reimburse the 
properties that did not receive the needed RA funding in fiscal year 
2015. Funding made available during the Continuing Resolution (CR) 
period allowed USDA to renew all the RA Agreements that needed a 
renewal as of October 1, 2015, under the same terms and conditions as 
previously authorized in fiscal year 2015 and it also included being 
able to renew the contracts for those properties that were prohibited 
from a second renewal in 2015. However, that prohibition remains in 
place for the 2016 contracts written under the CR authority per the 
same terms and conditions requirement.

    Senator Merkley. Okay. Because otherwise, you have all 
these owners who we made a contract with, we left them hanging. 
That can bankrupt a company very, very, very quickly.
    Furthermore, it sets up a real dilemma, because when 
someone leaves one of these units, the owner is required to 
take the family on the list who has the greatest need, which 
means their 30 percent of their personal income is going to be 
very little. If they're facing a situation where they are 
supposed to take a family who can pay very little rent, but 
then the U.S. Government is going to fail at the end of the 
year to complete their contracts, that is unacceptable, isn't 
it?
    Mr. Hernandez. Sir, we are working with your team to try to 
make sure we have more predictability, increased accuracy in 
the way we do the funding, to try to understand the costs of 
the buildings. That is why we have implemented new tools to 
have better accuracy in forecasting what it will cost.
    Senator Merkley. This is what I want to know. I want you to 
come back to us, and we will work together. This is rural 
affordable housing across America. We are talking about 260,000 
units, 14,000 projects, which got shortchanged.
    I don't think it is the intention of any of us that we 
should not fulfill the vision that we laid out.
    This is going to have huge repercussions for future 
willingness for developers and owners to participate in this 
program. Let's get this fixed.
    Madam Secretary, you didn't have a number for fiscal year 
2016, but the numbers that we have been provided is that we are 
$120 million short by best estimates on top of the $101.5 
million for fiscal year 2015. That is a huge issue.
    So if we are going to be running out again this coming 
August, we have to fix this. We need you all to come to us with 
a proposal so we can have this subcommittee really chew on it 
and say, okay, well, my understanding is it was fixed in the 
continuing resolution so it could be backfilled, and then for 
the start of fiscal year 2016, the authority was to be able to 
kind of forward load the funds. So we still had a problem, but 
at least we had fixed it for our owners for fiscal year 2015.
    I am hearing it has not been fixed. When I hear that there 
isn't a precise number for fiscal year 2016, I am afraid we are 
going to have this crisis again at the end of this year.
    Now that I have eaten up all my time, I just want to say, 
let's get to the bottom of this. Propose to us plans A, B, and 
C, and let's figure out how to resolve this.
    Mr. Hernandez. I look forward to the partnership, sir.
    Senator Merkley. Thank you.
    Senator Moran. Senator Merkley describes my understanding 
of the situation as well, that this was fixed, the backfill 
should occur. If there is a problem within the agency, we need 
to know that. My understanding is that your general counsel is 
trying to figure out how to do it. We believe we gave you the 
authority to do it.
    That does not solve the problem at the end of the next 
fiscal year, but it solves the problem at the moment. And it 
reduces exacerbating the circumstances we face in the future.
    Senator Blunt.
    Senator Blunt. Secretary Mensah, several questions on what 
the FCC might do that impacts what your agency is trying to do.

                               EPA RULES

    On other rules and regulations, the Environmental 
Protection Agency (EPA) has a couple rules now that have real 
impact in rural America, the power rule, I think about 75 
percent of the landmass of the country is served by rural 
electric co-ops. They are more heavily coal than the rest of 
the utility providers in the country. For the water rule, lots 
of concern in rural America about how that jurisdiction, if 
expanded as the EPA suggested, will impact what happens in 
agriculture and other areas.
    Some sense of your level of engagement, not necessarily the 
FCC rule that we already talked about quite a bit, but are 
these agencies reaching out to you in a way that you feel is 
adequate to get your engagement in these important discussions 
that impact rural America?
    Ms. Mensah. Senator Blunt, thank you for your question.
    Yes, I do feel that we are in a dialogue with our sister 
agencies. You mentioned both clean power and the water rule. We 
have a strong dialogue. We argue for rural communities. And we 
feel that when new rules are proposed, we are going to be there 
for our borrowers to help make any adjustments. So I am happy 
to answer more specific questions on power or water.
    Senator Blunt. Well, on power, I will ask one. On power, 
they have now come up with what is the proposed final rule. Has 
either USDA or your part of USDA taken a position on that final 
rule?
    Ms. Mensah. Let me ask Administrator McBride to describe to 
you how we have been working since the final rule has been 
proposed.
    Senator Blunt. So back to you, Mr. McBride.
    Mr. McBride. Thank you for the question, Senator.
    As EPA was developing its rule, we did have conversations 
with them and let them know our thoughts and how it might 
impact our programs. In terms of what the final result was from 
EPA, we do believe that they gave cooperatives additional time 
and additional flexibility to respond to the rule, so we do 
feel like they were responsive to the issues that we raised 
with them. Of course, we do not know the final result until the 
States developed their own plans. But we do believe that the 
EPA provided additional time and additional flexibility that 
will help our borrowers meet the new rule.
    Senator Blunt. At the Secretary level, at Secretary 
Vilsack's level, are he and the department supportive both of 
that rule and the other rule I mentioned, the water rule?
    Mr. McBride. The Secretary has been in contact with 
Administrator McCarthy and others, and believes that we will be 
able to help our borrowers meet the rules. So the Secretary has 
been very engaged, and we are working to help our borrowers 
meet the new requirements.
    Senator Blunt. You do not know whether he has personally 
endorsed the two new rules or not?
    Mr. McBride. I have not spoken to him directly about that.
    Senator Blunt. All right. I have not either, and I will.
    Thank you.
    Senator Moran. Senator Cochran, anything further?
    Senator Cochran. No, but I want to thank the panel for 
helping bring life and energy and imagination and hard work to 
the challenge of improving opportunities for happy and healthy 
lives in rural America. That is what the Rural Development Act 
sought to do when Congress adopted it. You are on the 
frontlines now in carrying out those ideas and suggestions when 
that act was first approved by Congress.
    Thank you for your good efforts.
    Senator Moran. Senator Udall.
    Senator Udall. Thank you, Mr. Chairman.

                         SEQUESTRATIONS IMPACT

    Last week, I had the opportunity to travel New Mexico and 
do some rural economic development meetings. Our State USDA 
Rural Development State director named Terry Brunner was there 
and announced some of the grants that go out. I cannot tell you 
how important those grants are in terms of supporting rural 
communities, supporting economic development, and really 
pushing the envelope in terms of helping people be more 
connected in rural communities with the rest of the State. So 
we really appreciate what you are doing.
    We know that the folks in rural New Mexico need support, 
need budget certainty, and need adequate resources to fund 
basic things like water infrastructure, housing, and high-speed 
Internet, which is not a luxury nowadays. It is actually a 
necessity.
    So let me ask you, Madam Secretary, the USDA Rural 
Development program is essential for addressing these unique 
needs, and I am worried that sequestration and the proposed 
cuts will further obstruct recovery and development. The 
Committee-passed bill provides $83 million less for Rural 
Development compared to the administration's request, and over 
$300 million less than was provided in 2010 due to unequal 
sequestration limits on domestic programs.
    What impact will these lower numbers have on your programs 
and, more importantly, on the families that rely on them?
    Ms. Mensah. Thank you, Senator Udall.
    Senator Udall. You bet.
    Ms. Mensah. I, too, share the concern. Any reduction in our 
programs hurts rural America. I see these programs. I am out 
almost every week somewhere with State directors, like you have 
seen. Every grant dollar that we are able to have the privilege 
to spend in rural America, I feel we can do it well.
    Similarly, the program levels, the loan levels, are being 
spent very, very carefully. It is a strong portfolio.
    So we appreciate anything you can do for our budget 
request. This is just essential funding for the development of 
our rural communities.
    And I would also say for the kind of State operation we 
have, you mentioned our State directors, you are supporting a 
field-based organization in Rural Development. We are not just 
a Washington organization. That layer of support in every State 
makes us so unique, and it is just essential dollars for us. So 
I thank you for your concern. I share it.
    Senator Udall. Thank you. And you are absolutely right. One 
of the things that I think really works is, with these State 
directors, they work creatively with rural communities in order 
to do the things that they need done, to become better 
communities, to get people more hooked up, whatever it is. It 
is a good program, and it is a dramatic example of why we 
should be out of the sequester.
    I mean, sequester hurts these rural communities, and we 
need to get back to adequate funding for these important 
programs.

             SUSTANTIALLY UNDERSERVED TRIBAL AREAS PROGRAM

    Now, Administrator McBride, I applaud your efforts in 
moving forward with the Substantially Underserved Tribal Areas 
(SUTA) loan program provisions in the farm bill. Thanks to this 
program, the Mescalero Apache Telecom company was a recipient 
of a $5.4 million loan to make telecommunication improvements 
for thousands of rural customers.
    This type of investment is critical to ending the digital 
divide in tribal communities.
    I will never forget, on this digital divide in tribal 
communities, when President Clinton tried to show the digital 
divide, he started out one day in Silicon Valley and ended up 
the day in Shiprock, New Mexico. In Silicon, they are obviously 
wired. In Shiprock, he was introduced by a young lady who was a 
top student in the school in Shiprock, and she had won a 
computer, but she was unable to even have access with that 
computer to the Internet. So that highlighted the digital 
divide in this country.
    So that is why this program is so important, the 
Substantially Underserved Tribal Areas program. I think we need 
to keep that strong.
    Can you describe for us the importance of loan programs 
such as SUTA and provide suggestions on ways we can expand on 
efforts to bring modern broadband infrastructure to tribal 
communities?
    Mr. McBride. Thank you for the question. I was in Mescalero 
in August. Terry Brunner, your State director, took me around. 
It was a great project, and they are doing great work there.
    We are trying to increase our outreach efforts. It is, 
certainly, a priority for us to make sure that the tribal areas 
know about our programs and their availability. It is, 
certainly, a challenge, expanding broadband into the most 
rural, most remote areas, but we believe that our partnership 
with the groups that we worked with before is strong, and there 
may be ways that we can share some lessons learned that might 
help other tribal areas expand their access.
    Senator Udall. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Moran. Thank you, Senator Udall.
    Secretary Mensah, thank you very much for joining us.
    Mr. Hernandez, Mr. McBride, Mr. Rikkers, thank you very 
much.
    We will turn to our second panel.
    Madam Secretary, there are a couple things we want to 
follow up with you.
    Ms. Mensah. Yes, I look forward to that.
    Senator Moran. I would invite Mr. Simpson, Mr. Lowry, Mr. 
Boisvert, Mr. Chrisman, to the table.
    We have four experts from across the country with us today. 
We are delighted to have you here. I will defer in a moment to 
the Senator from Mississippi, Senator Cochran, to introduce one 
of our panelists. But I would welcome them all, including Mr. 
Simpson.
    But, Mr. Lowry, thank you very much for joining us. Mr. 
Lowry is the president and chief executive officer of Sunflower 
Electric Power Association in Hays, Kansas.
    Brian Boisvert is the president and general manager of 
Wilson Communications in Wilson, Kansas.
    And Mr. Tony Chrisman is the vice president and owner of 
Chrisman Development, Inc., Enterprise, Oregon.
    The Senator from Mississippi.
    Senator Cochran. Mr. Chairman, I am pleased to join you in 
welcoming our panelists, particularly Bill Simpson, who is a 
friend of longstanding. His father was legendary for getting 
things done in Washington as a member of the staff for Senator 
Jim Eastland, who I replaced in the U.S. Senate when he 
retired.
    So this is a chain of command operation here. And if it 
looks like we are double-teaming you, we are, because in our 
State of Mississippi, I do not know of any piece of legislation 
or Federal program that has been more helpful and enriched the 
lives of so many as the Rural Development Act. I mentioned it 
in my questions and observations to the previous panel, when 
they were here.
    But this is also an indication of Congress' response and 
willingness to help in a positive way enrich the lives of 
people and create opportunities for economic growth and 
development, and generally the well-being of those who live in 
the small towns and rural communities of our great country.
    So thank you for helping carry on this great tradition, and 
we appreciate your good efforts. Thanks.
    Senator Moran. Thank you, Senator Cochran.
    We will work our way across the table, and we will begin 
with the testimony of Mr. Simpson. Thank you.
STATEMENT OF WILLIAM SIMPSON, DIRECTOR OF LEGISLATIVE 
            AND REGULATORY AFFAIRS, NATIONAL RURAL 
            WATER ASSOCIATION
    Mr. Simpson. Thank you, Chairman Cochran, Chairman Moran, 
Ranking Member Merkley. I am delighted to be here. Good 
morning. It is an honor to testify before the Subcommittee on 
Agriculture, water and waste programs, and the associated 
technical assistance that benefit the small rural communities 
that chairman Cochran referred to.
    As a native Mississippian, I am also extremely proud that 
this Rural Development title has helped my home State. From the 
top of the State to the bottom, you can see the tangible 
effects. Thank you for that.
    Before I get started, I wanted to offer a personal note 
about the subcommittee. One of the great honors in my life was 
to serve on this subcommittee. I was trained by a former clerk 
named Galen Fountain, a brilliant, kind, and decent man. He 
told me in the very beginning working on this subcommittee, you 
will work in a bipartisan fashion. You will sit at the table 
with the entire staff. Every word, every policy, every dollar 
will be jointly agreed upon. It made the Senate bill stronger, 
in my humble opinion, and it really made a difference.
    In a time when people criticize Congress for not adhering 
to their duties, I think that this subcommittee, in particular, 
needs to get the recognition they deserve in taking that stance 
and, throughout the leadership changes of this subcommittee, 
continuing on that path. I think this subcommittee should be 
recognized, commended, and duplicated for that activity.
    We have witnessed the reduction and restructuring of Rural 
Development, and its predecessor Farmers Home, field structure. 
Under Secretary Mensah mentioned it. I want to reinforce her 
comments. I know this budget climate is extraordinary 
difficult, but that is what I saw always as one of the 
strengths of Rural Development over Federal agencies is that 
they are out there in the communities. They live and work there 
to carry out the programs that you appropriate here, and the 
policies, including the farm bill. I know that really makes a 
difference.
    We share a mission with our Rural Development partner. It 
is a shared mission that every rural community, regardless of 
income and location, deserves to be served. And no one in Rural 
Development should be left behind.
    Our seasoned employees at the Rural Water Association have 
23 years of experience working in water and wastewater 
industry. Many of these folks could get other jobs that do not 
require extensive travel away from their home, but their 
passion and their love for this industry, and the work, and 
they get great satisfaction out of helping these rural 
communities. And the communities we help, quite frankly, do not 
have a lot of the capacity or expertise to do this activity 
without this experienced personnel.
    We accomplish this mission under three titles under the 
Rural Development title program with three programs.
    First is the Circuit Rider program. I hope you have all 
heard about that. Since 1980, this on-the-ground assistance to 
rural communities for water, wastewater infrastructure, it is 
across the myriad of issues they have, complying with State and 
Federal regulations, disaster response, rate studies, 
operations and management. We have 117 circuit riders 
throughout the country. As you all know, they also do emergency 
response.
    We believe there is a direct correlation with the work that 
our folks do and the extraordinarily low default and 
delinquency rate of the water and waste program that you 
appropriate.
    The second is the Wastewater Technical Assistance Program, 
similar to the Circuit Rider, but it is concentrated on 
wastewater treatment facilities. We help with design, upgrades, 
daily operation, maintenance. We have 70 technicians around the 
country in that area.
    Third, we have to commend the Rural Utilities Service for 
this. They started up a new energy efficiency program. The cost 
of electricity for a rural utility is the second highest cost 
behind labor. We started that as a demonstration. We are up to 
nine States now. We have had really good results in the 
beginning. We are returning $4.36 for every $1 of Federal 
investment to pay for our expertise, our person out there in 
the field doing this.
    I close with a suggestion for the subcommittee, and it is 
the current underlying statutory authority for 10,000 
population for eligibility for this program. In the past, this 
subcommittee could put these communities, if they had slightly 
grown or exceeded the limit, in a general provision. So now we 
are looking at the demographic change in rural America, people 
moving out, going into suburbanized areas that are ineligible, 
but these communities are still rural in characteristic. We 
would suggest that this subcommittee take a serious look at 
that.
    In summary, rural America has been strengthened by the work 
and the vision of this subcommittee. No community can grow 
without sustainable resources, water and wastewater services. 
We stand with our Rural Development partner to work in this 
arena and do anything that you ask us to do.
    Thank you, Chairman Moran, Ranking Member Merkley, Chairman 
Cochran. I will answer any questions that you may have.
    [The statement follows:]
                 Prepared Statement of William Simpson
    Good Morning Chairman Moran, ranking Member Merkley and members of 
the Subcommittee. It is an honor to testify before you on the 
Department of Agriculture's Water and Wastewater programs and the 
associated technical assistance programs that directly benefit small 
rural communities. As a native Mississippian, I am proud of the work of 
this Committee and specifically the impact of the Rural Development 
programs that have lifted-up the quality of life for so many of the 
residents in my home State from the Gulf of Mexico to our northern 
border with Tennessee. Thank you.
    Before I get started I would like to offer a personal note. One of 
the great honors in my life was to serve on this Subcommittee. I was 
trained by a former clerk named Galen Fountain who is a brilliant, kind 
and decent man. I learned early on that this Subcommittee, regardless 
if you are in the majority or minority, is tasked to work as a team in 
a true bipartisan manner to draft and establish the policy and funding 
levels within your annual allocation--with everyone at the table 
throughout the entire process, every word, every policy, every dollar 
would be mutually agreed upon.
    In a time where it is popular to criticize Congress on their lack 
of progress or inability to perform their duties, this Subcommittee is 
a shining example of how Congress meets those challenges and 
responsibilities even through difficult times. The entire staff, 
majority and minority, are recognized as capable, approachable, 
intelligent and true professionals. The fact that this tradition 
continues throughout the changes in the leadership of this Subcommittee 
over the years should be recognized, commended and duplicated.
    The Rural Development mission area has a wide and holistic approach 
necessary to enhance and protect the health and vitality of rural 
America. We look at these USDA investments, especially in water and 
wastewater infrastructure, and witness their tangible impact on the 
quality of life in these rural communities. People take it for granted 
that their water is always safe and uninterrupted. This is not just 
about digging trenches and putting pipes in the ground. These 
investments are the catalyst for economic and community growth. They 
provide direct benefits like employment opportunities for residents. 
They also provide indirect benefits like increasing the tax base to 
attract new businesses and housing developments. Without the advantage 
of water and wastewater services these foundations of a community would 
never be put in a position to succeed.
    The current water and waste disposal grant and loan programs 
operated by the Department of Agriculture's Rural Utilities Service 
have a long and successful history of providing critical infrastructure 
assistance to meet one of the most basic needs in rural America--
providing safe and affordable water and wastewater assistance to low 
and moderate-income communities. This is one of the highest rated 
government programs in history, and one with a default rate that is 
almost non-existent with a greater than 30 day delinquency rate of .42 
percent and greater than 1 year delinquency rate of .17 percent. The 
portfolio consists of over 16,000 loans that are valued at 
approximately $12.5 billion dollars. We believe the technical 
assistance provided by this Subcommittee to organizations like the 
National Rural Water Association and others has a direct correlation 
with the stability and health of this portfolio and protects the 
government and community's investment.
    All communities have elected and/or non-elected leaders that want 
to improve the quality of life where they work and live so their family 
and friends can benefit. The Rural Development staff lives and works in 
many of these same communities. They are part of the fabric of that 
community and also a vital Federal partner. This partnership has 
tremendous benefits, whether it's by providing critical infrastructure, 
securing affordable rental housing, providing broadband, telemedicine, 
constructing a heath care or child care facility or attracting and 
creating new businesses, it has and continues to impact lives.
    We have witnessed the restructuring and reduction of employees and 
offices in Rural Development and its predecessor, the Farmers Home 
Administration. I know it is difficult in this budget climate, however 
any efforts to preserve or enhance this field structure will make a 
difference in serving remote rural areas especially ones that 
experience pervasive poverty. You can see diminishing Rural Development 
housing, water infrastructure and other loan and grant activities in 
areas where staff and offices have been reduced, relocated or 
eliminated.
    The National Rural Water Association also shares a mission with our 
Rural Development partner. A shared mission to serve every rural 
community in need regardless of income or location. Like Rural 
Development, we want to ensure no community in rural America is left 
behind. Our seasoned field employees have an average of 23 years of 
experience working in the water and Wastewater industry. Many could 
find higher paying jobs and positions that did not require extensive 
travel, but they are on a mission and receive great personal 
satisfaction from their work. Many of the communities we serve simply 
can't afford the individual expertise necessary to operate and maintain 
their utility systems.
    We accomplish this mission by using three existing programs under 
the Rural Development Title.
  --First, the Circuit Rider program. Since 1980, Circuit Riders have 
        provided on-site technical assistance to small rural 
        communities for water infrastructure development, compliance, 
        training, certification, operations, management, rate studies, 
        disaster response, public health protection--all necessary to 
        encourage local responsibility and local solutions for 
        protecting and enhancing water resources. This mission is 
        simple. At the grassroots level we deliver on-the- ground 
        assistance to communities in need by providing safe, affordable 
        and sustainable water service. We currently have 117 Circuit 
        Riders throughout the country. From Dec 1, 2014 to September 
        30, 2015, Circuit Riders directly assisted 22,143 rural water 
        systems through 40,788 direct contacts totaling 207,607 hours 
        of work. This work performed by NRWA far exceeds our contract 
        requirements. Rural communities also rely on our circuit riders 
        in emergency situations. When flooding, extreme freezing, 
        tornados or hurricanes hit, the circuit riders reach out to 
        rural systems with generators, and technical help and 
        assistance to get systems back online and safe water flowing to 
        their customers.
  --Second, is the Wastewater Technical Assistance program. This 
        initiative provides on-the ground technical assistance directly 
        to communities for wastewater treatment facilities. Assistance 
        includes design and upgrade recommendations, daily operation 
        and maintenance advice, assisting with permit renewals and 
        helping these systems meet compliance requirements from state 
        and Federal regulations. We currently have 70 wastewater 
        Technicians throughout the nation. The wastewater Technicians, 
        from July 1, 2014 to June 30, 2015, provided 147,571 hours of 
        work directly contacting systems 35,969 times to assist 7,746 
        wastewater systems.
  --Third, we are in our 2nd year with a new energy efficiency program 
        created by the Rural Utilities Service (RUS). With electricity 
        as the second leading operational cost after labor for a 
        utility, reducing this expense provides increased stability and 
        frees up revenue to address upgrades or deferred maintenance 
        and at the same time reduces the burden to shift ever 
        increasing operational costs to the moderate or low-income 
        customers. We started this initiative last year with seven 
        states and expanded to nine states this fiscal year. From July 
        1, 2014 to June 30 2015, 240 assessments were completed with a 
        combined energy savings of $2,615,809. This initiative returns 
        $4.36 in savings to the utility for every $1 of Federal 
        investment.
    I will close with a suggestion for the Subcommittee- The current 
underlying statutory authority for the Rural Development Water and 
Wastewater programs is set at a 10,000 population limit. The Secretary 
has little flexibility or waiver authority to address communities that 
have grown or slightly exceed that limit. In the past, this Committee 
was able to list these communities in general provisions in order to 
continue to be eligible for the RUS Water and Wastewater programs.
    With the changing demographics of rural America, we believe that 
increasing the population limit to 20,000, with a priority given to 
smaller communities, would provide a benefit to rural America. We also 
believe this will increase the utilization rate for the Water and 
Wastewater Guaranteed program especially for communities with more 
resources and capacity necessary to debt service a commercial market 
rate loan.
    In summary, rural America has been strengthened from the work and 
vision of this Subcommittee. No community can grow and improve without 
the sustaining resources of water and wastewater services. Rural Water 
stands willing and able to work with you and our partners at Rural 
Development to accomplish this goal.
    Thank you Chairman Moran and Ranking Member Merkley for allowing me 
to testify and I would be happy to answers any questions that you may 
have at this time.

    Senator Moran. Mr. Simpson, thank you.
    Mr. Lowry, before you testify, on behalf of my colleagues, 
I want express my care and concern for the president and CEO of 
the National Rural Electric Cooperative, Jo Ann Emerson. Her 
health is a very challenging circumstance. I served in the 
House of Representatives where classmates and many of my 
colleagues are great friends of Jo Ann. And we express, on 
behalf of all of us, to her and her family and the folks at the 
Rural Electric Cooperative Association, our love and compassion 
for Jo Ann.
    Mr. Lowry. We will be certain to pass that on to her. I 
know that it will be welcomed and well-received. Thank you very 
much.
    Senator Moran. Thank you.
STATEMENT OF STUART LOWRY, PRESIDENT AND CHIEF 
            EXECUTIVE OFFICER, SUNFLOWER ELECTRIC POWER 
            ASSOCIATION
    Mr. Lowry. Mr. Chairman, thank you for allowing me to be 
here today. Ranking Member Merkley, Senator Cochran, I 
appreciate the opportunity to be here to talk about 21st 
century rural development.
    As Chairman Moran mentioned, my name is Stuart Lowry. I am 
the president and CEO of Sunflower Electric Power Corporation 
in Hays, Kansas. We are a generation and transmission 
cooperative, much like PNGC would be in the State of Oregon, or 
South Mississippi would be in the State of Mississippi. We 
provide wholesale services to over 350,000 Kansans.
    I am also here representing the National Rural Electric 
Cooperative Association, the organization that Jo Ann Emerson 
heads up. That is the service organization for over 900 not-
for-profit electric cooperatives in over 47 States that provide 
electricity to roughly 11 percent of the Nation's population. 
The development of the electric co-ops is really a perfect 
example of fostering rural economic development.
    The story of the Rural Electrification Administration (REA) 
effort to electrify rural America via electric cooperatives is 
well-known to everybody by now. The agency is now known as the 
Rural Utilities Service, and this agency and its programs have 
allowed electric cooperatives to become champions for 
strengthening rural America beyond just providing electric 
service.
    The Rural Economic Development Loan and Grant program, 
commonly referred to as REDLG, is an excellent example of a 
tool used by cooperatives to promote rural development.
    The loan program provides zero-interest loans to local 
utilities that they then pass through to small businesses for 
projects that generate local revenue and jobs. The grant 
program allows local cooperatives to establish revolving loan 
programs for other community projects.
    In 2015, the loan program directed loans to 29 cooperatives 
for energy efficiency projects, rail offloading equipment, 
ambulances, and renovations for retirement communities. In 
addition, 27 grants went to 18 cooperatives, which renovated 
schools, hospitals, financed fire equipment, purchased medical 
equipment, and updated 911 communications equipment.
    Kansas has many examples of REDLG success stories, but 
recently, two Kansas cooperatives well-known to Chairman Moran, 
Prairie Land Electric and Western Cooperative Electric, both 
used their revolving loan funds to purchase a CT scanner for 
the Sheridan County Health Complex. This adds a tremendous 
health benefit to a community of roughly 1,200 people. Similar 
examples exist in many other States, as well as the State of 
Kansas.
    REDLG's successes have generated a greater demand for 
funding. We greatly appreciate the chairman and subcommittee 
for recognizing this challenge.
    One critical source of funding for the REDLG program are 
the fees paid by cooperative lenders under the guaranteed 
underwriter program. The fees currently deliver $13 million 
annually. Two very important lenders to electric cooperatives, 
the National Rural Utilities Cooperative Finance Corporation, 
or CFC, and CoBank, have accessed funding through the 
Guaranteed Underwriter Program and have used these funds to 
help finance electric cooperatives investment in rural utility 
infrastructure projects. Fees from these transactions help fund 
the REDLG program.
    Additionally, rural America is increasingly capitalizing on 
programs for energy efficiency. Over 96 percent of cooperatives 
already provide these programs to their consumer members. Both 
the 2008 and 2014 farm bills included programs for RUS to help 
cooperatives increase energy efficiency for the benefit of 
their customers.
    Much credit is owed to this subcommittee, particularly 
Ranking Member Merkley, for his leadership to enact the Rural 
Energy Savings Program Act.
    A robust regulatory agenda in recent years, and increased 
bureaucracy, have admittedly been burdensome and challenging. 
In the Great Plains region Sunflower serves, we are concerned 
about recent regulatory initiatives, including those under the 
Endangered Species Act and the lesser prairie chicken.
    While the courts are considering various appeals, we 
continue to study the cost implications of listing the bird as 
threatened or endangered. Costs imposed on utilities via 
regulation are passed on to ratepayers, thus increasing the 
affordability of the service that we provide.
    This is just one more example of how rural cooperatives 
must pass costs on to our members in the face of 
overregulation.
    RUS finances future and improved distribution, 
transmission, and generating systems. We are particularly 
concerned that as a result of overregulation we will be 
required to spend more of these dollars on regulatory 
compliance costs. As such, it is vital that utilities spend 
their time providing safe, affordable, reliable electricity and 
using REDLG programs to contribute to a better rural America.
    Sunflower, NRECA, and the cooperatives across the country 
greatly appreciate this subcommittee and the full committee 
support for funding the RUS electric loan program at the $6 
billion level for fiscal year 2016.
    Thank you also for recognizing the value that these 
programs provide the rural communities we serve.
    Thank you for inviting me here to testify. I look forward 
to any questions you may have.
    [The statement follows:]
                   Prepared Statement of Stuart Lowry
                              introduction
    Thank you, Chairman Moran, Ranking Member Merkley, and members of 
this subcommittee for inviting me to testify today at your hearing on 
the Importance of Rural Development and, more specifically, on USDA's 
Rural Economic Development Loan and Grant (REDLG) program.
    I am Stuart Lowry, president and CEO of Sunflower Electric 
Corporation in Hays, Kansas. Sunflower is a not-for-profit, wholesale 
electric generation and transmission utility, commonly known as a G&T. 
Based on the cooperative business model, Sunflower is owned and 
democratically governed by its member-owners, six distribution 
cooperatives serving more than 350,000 members in central and western 
Kansas. Sunflower and its Distribution Cooperative Members provide more 
than 800 jobs in communities located in the western half of Kansas.
    I am also here today representing the National Rural Electric 
Cooperative Association (NRECA). NRECA is the service organization for 
more than 900 not-for-profit electric utilities serving over 42 million 
people in 47 states. NRECA's members include 67 G&T cooperatives that 
generate and transmit power to 66 of the 838 distribution cooperatives 
across the nation. Electric cooperative service territory makes up 75 
percent of the nation's land mass. Kilowatt-hour sales by rural 
electric cooperatives account for approximately 11 percent of all 
electric energy sold in the United States. NRECA member cooperatives 
serve over 42 million Americans, including more than 8 million member 
owners and 11,839 jobs in the 12 states represented on this 
subcommittee.
    I would like to thank the Chairman, Ranking Member, and the entire 
subcommittee on behalf of Sunflower and NRECA for their long-standing 
support of rural electric co-ops and their consumer-members. We are 
also grateful for Administrator McBride's leadership and service to 
cooperatives.
              electric co-operatives and rural development
    The development of electric co-ops is a perfect example of rural 
development. As many of you know, well into the 1900s, a lack of 
economic incentives left much of rural America literally ``in the 
dark''--unserved by private power companies. This led to President 
Roosevelt's forming the Rural Electrification Administration, then 
known as the REA, in 1935 to establish programs that would lead to the 
electrification of rural America via electric cooperatives. Now 
restructured as the Rural Utilities Service to include other rural 
utilities--such as those represented on this panel--RUS continues to 
operate programs that benefit rural America under the umbrella of Rural 
Development at USDA. Combined, these programs have allowed electric co-
ops to play a major role in strengthening small communities that are 
essential not only to the nation's economy, but also to the way of life 
valued by many.
    Electric co-ops continue to take seriously the seventh cooperative 
principle: Concern for community. The economic development work in 
Rural America is not done and we appreciate the Subcommittee focusing 
its attention on this important topic.
    In June, NRECA convened a Rural Summit here in Washington. The 
event gathered rural experts from the Administration in various Federal 
departments, non-profit groups, academia, and other rural leaders to 
hold a positive conversation about how to tackle the toughest issues 
facing rural communities and main street economies. The next steps are 
to take the Summit on Rural America into regional discussions around 
the country and to populate a guidance group that can collect and share 
best practices and ideas and explore a number of themes.
    One theme is harnessing the value of the multiple profiles and 
changing demographics of rural America. Another is growing interest in 
the assets in rural America and investing in the infrastructure and 
technology to connect rural America with the world. Participants also 
highlighted the need for new ways of doing business and developing 
educational opportunities and a workforce to conduct that business. 
Other panelists highlighted the quality of rural life and the need to 
address the public's perception of ``rural.'' These regional gatherings 
are expected to focus on growth and diversification of the local 
economies, the expanded role for technology in the rural economy, and 
the need to focus on collaboration and communication.
    Twenty-five years ago, NRECA was instrumental in forming the 
National Rural Economic Developers Association, an organization that 
provides education and networking for professionals who work to grow 
our rural communities. NREDA has been very active promoting and 
providing education for USDA programs, especially the Rural Economic 
Development Loan and Grant Program.
    REDLG is one of the programs that co-ops have utilized to help 
enhance small-town America, and Kansas is just one of the many success 
stories. REDLG is a $33 million loan and $10 million grant program 
available to co-ops for economic development activities. The loan 
program provides zero interest loans to local utilities that serve as a 
pass through to small businesses for projects that create and generate 
new jobs and revenue. The grant program provides funds to local 
cooperatives that use the dollars to establish revolving loan programs 
for specific projects. Once the loan is repaid to the revolving loan 
fund, the cooperative continues to deploy the funds for additional 
rural development projects.
    In 2015, the loan program directed $32.5 million in loans to 29 
coops that created 288 jobs and saved 436 more. These dollars enabled 
energy efficiency projects, purchased rail offloading equipment, 
ambulances, a library expansion and retirement communities. In 
addition, 27 grants went to 18 co-ops for $7.1 million, which renovated 
schools and hospitals, financed fire equipment, built fire halls, 
purchased medical equipment, and updated 911 communications equipment. 
The grant program saved 151 jobs and added 112 more.
    A specific example of the ways Kansas cooperatives have used this 
program includes
    Prairie Land Electric, headquartered in Norton, Kansas, and Western 
CooperativeElectric, headquartered in WaKeeney, Kansas, using funds 
from their revolving loan funds for the Sheridan County Health Complex, 
located in Hoxie, Kansas (population 11,201). The funds are being used 
for hospital upgrades, including the addition of a CT scanner, so this 
small community can enjoy improved access to healthcare. Together the 
cooperatives loaned $575,000 to the health complex for this project.
    Recently, Twin Valley Electric Cooperative from Altamont, Kansas, 
was awarded a $200,000 REDLG loan for RBK Manufacturing LLC in 
Coffeyville, Kansas (population 10,295). This successful manufacturer 
of aftermarket auto parts and equipment will purchase additional 
tooling equipment for expansion. The four additional jobs provided by 
this expansion are important in small communities like Coffeyville.
    These are excellent examples of how the REDLG program continues to 
provide benefit to rural America. Kansas cooperatives are in good 
company with the many other electric cooperatives that have used this 
program to improve their community.
    In Iowa, Corn Belt Power Cooperative and Butler County REC each 
loaned $60,000 from their respective Revolving Loan Funds to assist 
Allison Family Dental. Dr. Travis Harbaugh had just graduated dental 
school and purchased the existing dental practice in Allison, Iowa 
(population 1,025) from a retiring dentist. The purchase allowed a 
dental practice to remain open in a rural community, retain three jobs, 
and create four more.
    Sioux Valley Energy in South Dakota provided funding for the Lake 
Area Improvement Corporation to construct the Heartland Technology 
Center in the Hueners Technology Park. The technology park is in 
Madison, South Dakota,--(population 6,474). The Center has office space 
designed to meet the needs of businesses needing a high-tech setting 
and is located adjacent to nationally recognized Dakota State 
University to provide immediate access to some of the best qualified 
baccalaureate and masters graduates in computer science and information 
systems.
    An expansion for Brownmed Inc., headquartered in Spirit Lake, Iowa, 
(population 14,952), allowed the company to more than double its 
existing manufacturing facility of 30,000 square feet by constructing 
an additional 51,000 square feet. The company manufactures more than 85 
products for medical purposes, including the Seal Tight Cast, 
Plastalume finger splint and IMAK arthritis compression products. Total 
expansion costs were over $3.6 million. Iowa Lakes Electric Cooperative 
received a $1,000,000 Rural Economic Development Loan through USDA for 
the project, while loaning an additional $250,000 from their REDLG 
revolving loan fund. Corn Belt Power loaned $150,000 from their 
Intermediary Relending Program (IRP) Revolving Loan Fund toward the 
project as well. Brownmed employs 66 people, 50 of whom are in the 
Spirit Lake location. This is an excellent example of cooperatives 
using multiple USDA programs to create jobs in their communities.
    Recently, the list of entities eligible for the program has 
expanded, which has placed more demand on the funds. The Administration 
requested a budget of $60 million, and we would like to see the REDLG 
program funded as close to this recommendation as possible. We support 
reducing the maximum loan level to $1 million as this approach will 
allow more projects to be funded in rural areas-- where a little 
funding can go a long way.
    In recent years past, the REDLG program benefited from millions of 
dollars in unused funds carried over from previous years, dwindling 
dramatically from $57.9 million in fiscal year 15 to only $8.2 million 
in fiscal year 14. We appreciate the Subcommittee's efforts to make 
these funds available after the year in which they were appropriated. 
Unfortunately, given the high demand on the program, all funds have 
been used during the fiscal year. If in the future, any funds remain 
unused at the end of the year, we hope the Subcommittee will provide 
the opportunity to carry-over funds to the following year in support of 
the REDLG program.
                     guaranteed underwriter program
    One critical source of funding for the REDLG program is the fees 
paid by cooperative lenders under the Guaranteed Underwriter Program. 
The level of fees is currently at $13 million.
    We appreciate this subcommittee's work to increase the Guaranteed 
Underwriter Program to $750 million in the fiscal year 16 bill. This 
increase supports electric cooperatives by helping cooperative lenders 
maintain a balanced portfolio to provide loans at attractive rates as 
well as increasing the level of fees paid to support the REDLG program.
    Since 2005, the National Rural Utilities Cooperative Finance 
Corporation (Cooperative Finance Corporation) has accessed funding 
through the Guaranteed Underwriter Program and used the funds to help 
finance electric cooperatives' investment in rural utility 
infrastructure projects such as poles, wires and substations. As part 
of its long term commitment to the Guaranteed Underwriter Program, CFC 
also pays fees to help fund the REDLG program. Recently, another 
lender, CoBank has also utilized this program.
                           energy efficiency
    RUS has recognized energy efficiency as an integral component of 
electric cooperatives' energy resources. Co-ops have long been leaders 
among utilities in the area of energy efficiency with 96 percent of co-
ops already providing some energy efficiency program to its consumer-
members.
    Both the 2008 and 2014 Farm Bills included ways that RUS could help 
co-ops increase energy efficiency for the benefit of their consumers. 
The Energy Efficiency and Conservation Loan Program (EECLP) and the 
Rural Energy Savings Program (RESP) are designed to help co-ops promote 
energy efficiency and renewable energy to their consumers, saving 
energy while also saving consumers money on their energy bills. One 
such example is Midwest Energy Cooperative, located in Hays, Kansas, 
which was among the first co-ops in the country to provide on-bill 
financing for energy efficiency improvements for their consumer-
members.
    These energy efficiency programs have a positive financial impact 
on communities because they create jobs in rural areas and increase 
economic activity due to savings resulting from energy efficiency 
improvements.
    Much credit is owed to Ranking Member Merkley for his leadership on 
the Rural Energy Savings Program Act (RESPA), and we look forward to 
working with him and other members of this subcommittee on ways to make 
these programs most successful.
                         concerns going forward
    A robust regulatory agenda in recent years and subsequent increased 
bureaucracy have admittedly been burdensome. Electric co-ops are 
concerned about having to spend more time figuring out how to comply 
with new costly regulations and how to avoid passing those costs onto 
our consumer-owners, all of which leave less time and resources 
available for innovation and strengthening our existing services.
    For example, in the Great Plains region where Sunflower serves, we 
are concerned about recent developments with the Endangered Species Act 
and the Lesser Prairie Chicken. While the courts are considering 
various appeals, we continue to study the cost implications of listing 
the bird as threatened or endangered. This is just one more example of 
how rural cooperatives--averaging 7.4 consumers per mile of line and 
collecting annual revenue of approximately $15,000 per mile of line 
versus investor-owned utilities averaging 34 customers per mile of line 
and collecting $75,500 per mile--must pass costs to our members. Rural 
cooperative members are older, less financially stable, and fewer in 
number and thus have limited ability to pay higher electric rates 
created by the increased regulatory burdens.
    The RUS allows co-ops to finance future and improved electric 
distribution, transmission and generating systems. We are concerned 
that, as the result of overregulation, we will be required to spend 
more of these dollars on compliance costs. As such, it is important 
that RUS is adequately funded so that utilities can spend less time 
crunching numbers related to compliance costs for providing electricity 
and more time engaging in other activities and programs, such as REDLG, 
that contribute to an improved economy and a better quality of life for 
our members.
    Sunflower, NRECA, and co-ops across the country greatly appreciate 
this subcommittee and the full committee's support for funding the RUS 
electric loan program at the $6 billion level for fiscal year 16. Thank 
you for recognizing the value that the electric program and co-ops 
provide to approximately 42 million people every day.
    We look forward to providing any information that would be helpful 
to the committee and improving the opportunities or addressing the 
challenges that face rural America. I thank you for inviting me to 
testify and look forward to any questions you may have.

    Senator Moran. Mr. Lowry, thank you very much.
    We now turn to Mr. Brian Boisvert. Welcome.
STATEMENT OF BRIAN BOISVERT, CHIEF EXECUTIVE OFFICER 
            AND GENERAL MANAGER, WILSON COMMUNICATIONS
    Mr. Boisvert. Good morning. Thank you, Chairman Moran, 
Ranking Member Merkley, and Senator Cochran. Thank you for this 
opportunity to testify before you about rural 
telecommunications and its impact on rural development.
    I am Brian Boisvert, CEO and general manager at Wilson 
communications in Wilson, Kansas. I have been part of the rural 
telecom industry for 37 years and with Wilson for the past 15.
    Wilson communications is a local telecommunications 
provider serving 1,500 rural Kansans over a 1,000-square-mile 
area. We have 17 employees. We provide wireline voice, high-
speed broadband, and video services over a fiber-optic-based 
network. We have been an REA, RUS borrower since 1956, and we 
have a current loan for our fiber to the home build.
    Broadband is an integral element in the 21st century and 
beyond for rural development. Well-built and maintained 
broadband networks make it possible to live anywhere and obtain 
a college degree, be economically successful, receive 
specialized medical care, and have access to entertainment and 
shopping not generally available in rural communities.
    So-called smart devices are appearing every day. In the 
home, they monitor and help manage energy consumption, and they 
can also alert the homeowners that the kids have arrived safely 
home from school. Rural farming can be more efficient and safe 
with bin monitors, heat sensors, and fuel tank level alerts.
    Regardless of whether it is consumer-based for business or 
emergency services, it all relies on a well-built broadband 
network.
    As an illustration of the scale of rural broadband build 
networks, the Kansas rural telecommunication companies serve 
approximately 10 percent of the population, but our service 
areas cover 50 percent of the State's land mass. This is 
typical of rural telecommunication providers all across the 
Nation.
    A business model does not exist for these low-population 
density areas. This is why a predictable, sufficient, and 
sustainable Universal Service Fund is critical for rural 
development. Updated for broadband-capable networks, USF could 
have the same successful impact it had when bringing telephone 
service to every American.
    The FCC issued its transformation order in 2011 with the 
goal to modernize the Universal Service Fund. However, the 
order created uncertainty throughout the rural 
telecommunications industry, adversely impacting investments in 
broadband-capable infrastructure throughout areas served by 
rate-of-return carriers.
    Even as I sit before you today, the rural 
telecommunications providers still lack certainty for a 
sufficient, predictable, and sustainable Universal Service 
Fund. A USF that includes support for standalone broadband 
service will be a cornerstone in bringing economic benefit for 
rural development in small communities across the Nation.
    We see an ever-increasing connection, an interdependence 
between rural and urban areas. This relationship can be seen by 
considering the Nation's farms. The bulk of the Nation's food 
supply is produced in rural America, but their products supply 
the entire Nation.
    Agriculture, Kansas's dominant economic activity, can 
benefit greatly from broadband-enabled services. Ag operations 
can monitor grain prices online to optimize their revenues. And 
if they are in the cattle business, they can bring their herd 
to a local sale barn that is now utilizing online auctions. 
This expands their market to beyond buyers who could only drive 
to the sale.
    The rural telecom industry contributes both to rural and 
urban economies. Even at the height of the recent recession in 
2009, the rural telecom industry contributed $14.5 billion to 
the economies in States where they operated. The majority of 
this economic activity, 66 percent, went to the benefit of 
urban areas. Jobs supported exceeded 70,000, with 54.3 percent 
in rural areas and 45.7 percent of these jobs in urban areas.
    Building and maintaining these networks is clearly 
important, but so too is broadband adoption. Combined, I 
believe it will not only enhance rural development, but is 
critical to rural community survival.
    How do we achieve this? One important factor is the 
continued availability of RUS loans. Making capital available 
to small companies at competitive rates is critical for the 
continued investment in modern infrastructure. The ability to 
keep rural consumer rates reasonably comparable to urban rates 
is a key goal of universal service.
    Taken together, the availability to capital and ongoing USF 
support will help ensure rural development in a stronger and 
connected Nation.
    Thank you, Mr. Chairman, Ranking Member Merkley. I am happy 
to answer your questions.
    [The statement follows:]
                  Prepared Statement of Brian Boisvert
                              introduction
The Rural Telecommunications Industry
    Chairman Moran, Ranking member Merkley, and members of the 
subcommittee, thank you for this opportunity to testify before you 
about rural telecommunications and its impact on rural development. I 
am Brian Boisvert, CEO/General Manager at Wilson Communications. My 
remarks today are on behalf of Wilson Communications, as well as NTCA--
The Rural Broadband Association and their several hundred small 
community-based members that provide a variety of communications 
services throughout the rural far reaches of the nation.
    I have been part of the rural telecommunications industry for 37 
years and with Wilson for the past 15 years. Wilson Communications is a 
local telecommunications provider serving 1,500 rural Kansans over a 
11,000 square-mile area. Wilson has 17 employees. We provide wireline 
voice, high-speed broadband and video services over a fiber optic-based 
network. We have been REA/RUS borrowers since 1956 and have a current 
loan for our FTTH build.
    Small, rural telecom providers connect rural Americans to the 
world. Moreover, these rural network operators have been at the 
forefront of the broadband and Internet Protocol (``IP'') evolution for 
years, making every innovative effort to deploy advanced networks that 
respond to consumer and business demands for cutting-edge services. In 
rural America, that translates into economic development that produces 
jobs, not only in agriculture, energy and other industries with a 
strong rural presence, but in the healthcare sector, and just about any 
other retail industry that requires broadband to operate in this day 
and age. Broadband has become essential to delivering healthcare and 
securing the public safety. And much of the business world is already 
demanding higher broadband speeds to help it interact with and sell to 
customers near and far. Broadband and other services provided by the 
rural telecom industry serve as an incubator for small business ideas 
in rural America to be implemented and to flourish.
    Fixed and mobile broadband, video and voice are among the numerous 
telecom services that rural Americans can access thanks to the rural 
industry's commitment to serving sparsely populated areas--and the 
rural development and other essential governmental programs that make 
it possible to carry out this commitment. Broadband-capable networks 
facilitate greater interconnection of the community's resources and can 
enable citizens' participation in the global economy, blue-ribbon 
education, first-rate healthcare, cutting-edge government services, 
robust security and more efficient energy distribution and use.
    The rural telecom industry has always been at the forefront of 
technological innovation, being the first segment of the industry to 
completely convert to digital switched systems, provide wireless 
options to their hardest to reach customers, offer distance learning 
and tele-health applications, provide cable-based video, then satellite 
video, and now IP video to their markets, and it was a member of the 
RLEC community that first deployed an all-fiber system. The rural 
industry continues to lead in the deployment of broadband capable 
infrastructure.
            rural broadband benefits the entire u.s. economy
    A series of studies confirms that significant benefits flow from 
rural broadband investment to broader urban and statewide populations. 
For example, the Hudson Institute has found that investment in rural 
telecommunications delivers real payback for the entire nation, 
generating $14.4 billion annually in economic activity as of 2011--$9.6 
billion of which accrued to the benefit of urban areas, and more than 
70,000 jobs, 45 percent of which were placed in urban areas.\1\ In 
Colorado, rural telecom helped create 428 jobs, adding over $21 million 
per year to state payrolls.\2\ North Dakota saw an additional $18 
million in Federal tax revenue and $31 million in state tax revenue 
arising out 1,100 direct jobs and 800 secondary jobs generated by rural 
telecommunications activity.\3\
---------------------------------------------------------------------------
    \1\ Kuttner, Hanns, The Economic Impact of Rural 
Telecommunications: The Greater Gains, Hudson Institute, at 6, 8 
(2011).
    \2\ Shields, Martin, Cutler, Harvey, and Marturana, Michael, The 
Impacts of Colorado Telecommunications Association Members on the 
Colorado Economy, Regional Economics Institute, Colorado State 
University, at 9 (Oct. 26, 2011).
    \3\ McKee, Gregory, The Effect of Changes in Universal Service 
Funding on the Economic Contribution of Rural Local Exchange Carriers 
to the North Dakota State Economy, Department of Agribusiness and 
Applied Economics, Agricultural Experiment Station, North Dakota State 
University, at 16-19 (Dec. 2011) (``Like other RLECs, North Dakota 
RLECs buy many specialized products and services not available in state 
economies. National and international markets typically provide these 
products and services.'').
---------------------------------------------------------------------------
    The converse holds true, however, from adverse changes--``reforms'' 
that depress or cut investment in rural broadband hurt state economies. 
In Kansas, for example, potential cuts in Federal rural telecom 
programs were projected to result in $1.4 million in personal income 
tax losses and $1.3 million in retail sales tax losses.\4\ A personal 
income loss of $14.1 million was projected for 2012 alone in New Mexico 
from the same proposed cuts.\5\ Studies examining the impact of rural 
communications activity--including purchasing, employment figures, and 
projected tax revenues--confirm rural communications to be a powerful 
generator of urban economic growth and Federal and state tax revenue. 
In short, rural broadband is an investment with real benefit and 
returns for the nation as a whole.
---------------------------------------------------------------------------
    \4\ Kansas Rural Local Exchange Carriers: Assessing the Impact of 
the National Broadband Plan, W. Frank Barton School of Business, Center 
for Economic Development and Business Research, Wichita State 
University, at 11, 12 (2011).
    \5\ Peach, James, Popp, Anthony V., and Delgado, Leo, The Potential 
Economic Impact of the National Broadband Plan on the New Mexico 
Exchange Carriers Group, Office of Policy Analysis, Arrowhead Center, 
New Mexico State University, at 18 (2011)).
---------------------------------------------------------------------------
    To not have access to high-speed Internet in this day and age is 
unimaginable to most people, yet millions of Americans live in areas--
mostly in rural territory served by carriers other than small, rate-of-
return providers similar to Wilson--where there is no robust broadband 
that enables meaningful access to the countless economic and 
educational opportunities available through the Internet. These people 
have small business ideas that need broadband to succeed and they need 
jobs that small businesses can provide. Yet, as important as it is to 
deliver broadband to the unserved, it's equally vital that those 
already receiving broadband remain served--the benefits that flow from 
broadband are ongoing. If a network is built in a rural area but then 
becomes unsustainable or the services over it unaffordable or of poor 
quality, such developments deny the benefits of broadband for small 
businesses and all consumers. Thus, the mission of universal service--
and the economic benefits it delivers locally and to the nation as a 
whole--require ongoing operations, effort, and support to be realized.
                   rural utilities service financing
RUS Role in Rural Telecom Deployment
    USDA's Rural Utilities Service (RUS) plays a crucial role in rural 
broadband deployment through its telecommunications programs that 
finance network upgrades and deployment in rural areas. RUS has been 
lending for broadband capable plant since the early 1990s. RUS lending 
and Universal Service Fund (USF) support are inextricably linked as 
more than 99 percent of RUS Telecommunications Infrastructure borrowers 
receive high cost USF support. The presence of high cost recovery 
through USF support is therefore crucial to the RUS telecom and 
broadband loan calculus. RUS programs have helped rural providers 
deploy modern networks in many rural areas where the market would 
otherwise not support investment. Reliable access to capital helps 
rural carriers meet the broadband needs of rural consumers at 
affordable rates.
    Unfortunately, the success, momentum, and economic development 
achieved from the RUS's telecommunication programs were put at risk as 
a result of the regulatory uncertainty arising out of USF reforms--some 
enacted, some revoked, and some still pending consideration--which are 
discussed in greater detail below. It will be all the more important to 
continue providing RUS with the resources it needs to lend to the rural 
telecom industry as demand for financing should increase when reforms 
are improved and small carriers are given certainty, hopefully through 
targeted updates to the existing USF programs designed to re-establish 
clarity and promote broadband investment. As Congress continues to 
grapple with where to best direct scarce resources, it's important to 
note that the RUS Broadband Loan Program and the traditional 
Telecommunication Infrastructure Loan Program make loans that must be 
paid back with interest--creating a win/win situation for rural 
broadband consumers and taxpayers. Rural providers look forward to 
building on an already successful partnership with RUS.
Appropriations
    We appreciate the Appropriations Committee's efforts to ensure the 
FCC continues to receive direction with respect to USF cost recovery 
support and making sure that the RUS Telecommunications Program is 
adequately funded. The committee agreed as well with NTCA's request to 
extend the prohibition on the FCC from subjecting USF to the Federal 
Anti-Deficiency Act through December 31, 2017, and to extend the long-
running prohibition on any sort of primary-line restriction on USF 
support through the end of fiscal year 2016. The committee further 
agreed to reject the Administration's budget request to divert $25 
million in USF funds for additional unnecessary reviews and 
investigations in the wake of a series of earlier costly audits that 
identified no noteworthy program issues to begin with. This 
subcommittee also favorably responded to NTCA's request for report 
language directing the FCC to complete the development of a fully 
functional, broadband-oriented USF program for rural rate-of-return 
carriers. Mirroring language was also included in both the FCC bill and 
the RUS appropriations bills directing the two agencies to work 
together to ensure that the USF and RUS programs operate in a 
coordinated fashion rather than to the possible detriment of one 
another. Clearly this subcommittee played an integral role in 
developing each of these initiatives and ensuring they were a part of 
the package agreed to by the full committee, and we applaud your 
leadership.
                           universal service
The FCC's Universal Service Fund Reforms
    RUS programs represent one important side of the coin--governmental 
programs intended to provide capital to enable investment in 
infrastructure in rural areas. As mentioned earlier, however, there is 
another, equally important side of that coin--governmental programs 
intended to ensure that networks, once deployed, can be maintained and 
upgraded, and that services offered atop those networks will remain 
affordable and of high-quality for consumer adoption and use.
    No issue is perhaps more important to the fundamental capability of 
small telcos to deliver services in high-cost, sparsely populated rural 
markets than the availability of sufficient and predictable universal 
service support. The ongoing availability of USF support is essential 
to ensure that rural telcos can make the business case to invest in 
robust advanced networks, to enable the operation of those networks 
over many years, and to facilitate consumer use of services at 
affordable rates. (USF support is, in this regard, an essential 
complement to RUS programs that only serve to finance network 
construction in the first instance.) NTCA has made substantial efforts 
to restore regulatory certainty to the USF program, and has sought 
thoughtful upgrades to the USF mechanism consistent with a broadband-
oriented world.
    For rural areas like those served by Wilson Communications and 
other NTCA members, FCC rules still require customers to purchase 
landline voice telephone service in order for their connection to 
receive USF support. The customer is thus effectively denied the option 
of cutting the landline-voice cord and purchasing only broadband. Such 
outdated rules that undermine consumer freedom and inhibit 
technological evolution present an obstacle to the technology 
transition that consumers and industry are making and the FCC is 
working to expedite and facilitate in other contexts. While Universal 
Service programs should certainly support and require the offering of 
voice services, it should not compel consumers to buy voice to obtain 
affordable broadband. The FCC should move forward immediately to adopt 
and implement a carefully tailored update of USF that will provide 
sufficient and predictable support for broadband-capable networks in 
areas served by smaller rural carriers. Earlier this year, over 175 
members of Congress (including 61 senators) wrote to FCC Chairman 
Wheeler, urging him to make targeted fixes to the existing USF 
mechanism to solve ``the standalone broadband problem.'' \6\
---------------------------------------------------------------------------
    \6\ See US Senate letter led by Senators Thune and Klobuchar dated 
May 11, 2015 and US House letter led by Representative Kevin Cramer 
dated May 12, 2015, both sent to FCC Chairman Wheeler.
---------------------------------------------------------------------------
    The FCC is in the midst of considering such reforms now, and has 
made commitments to many in Congress to take action on ``the standalone 
broadband problem'' by year's end. We have been working closely as an 
industry with the FCC and other stakeholders to make this a reality. It 
is key, however, to ensure at the same time that these reforms are 
undertaken thoughtfully, with an understanding of the consequences of 
specific changes on investment incentives, access to capital, and 
ultimately consumers. As an industry that lived through a series of 
reforms in 2011 that created confusion and uncertainty and ultimately 
only depressed investment--until Congress helped to push the FCC to 
roll back some of the worst parts of that reform--it is essential to 
rural telcos that reform both gets done quickly and gets done right. We 
hope that the FCC will find a way to deliver on the requests of 
Congress to fix the standalone broadband problem, and we are committed 
to staying at the table to come up with a solution that responds to 
that call, fulfills shared principles for reform, and ultimately 
comports with the statutory mandates for a sufficient and predictable 
support mechanism that enables the offering of reasonably comparable 
services at reasonably comparable rates in rural and urban America 
both.
    The broadband revolution presents major opportunities for small 
businesses to innovate and grow, but the business (or entrepreneur with 
an idea) must have broadband access to take full advantage. Markets 
will ensure many consumers realize the full benefits of innovation at 
the lowest possible prices, but in rural areas there are often no such 
markets to speak of. Though small, rural providers have been leaders in 
broadband investment under the current statutory and regulatory regime, 
further law and policy changes will be necessary to ensure high cost 
rural areas remain served. A faithful and disciplined approach to the 
core Communications Act principle of universal service must therefore 
ensure that, even in the event of any statutory or regulatory update, 
those areas served through support from Federal and state USF 
mechanisms not only ``become'' served in the first instance, but that 
they ``remain'' served, and that consumers and businesses everywhere 
can make full use of sustainable advanced communications services at 
affordable rates.
    Finally, Congress should consider an express directive to the FCC 
to ensure that all who use our nation's networks--by whatever service 
or technology--are responsible to contribute to the universal well-
being and availability of those networks on an equitable basis. USF is 
still funded by assessing interstate and international long distance 
telephone service. The pool of assessable telecommunications service 
revenues is shrinking even as overall communications-related revenues 
grow. As a result, the USF program effectively has an artificial 
funding ceiling that lowers a bit each day due to the failure to 
broaden the contribution base. This de facto cap on the USF program 
will handicap severely our nation's ability to fulfill the statutory 
core principles unless changes are made. Indeed, broadening the 
contribution base to include the services that USF already supports has 
previously received bipartisan backing in the US House.\7\
---------------------------------------------------------------------------
    \7\ See H.R. 5828 Sec. 102(a), 111th Cong., 2d Sess. (2010).
---------------------------------------------------------------------------
                               conclusion
    Entrepreneurial small rural carriers have leveraged public and 
private capital, universal service support, and public-private 
partnerships to lead the ongoing IP Evolution. These small businesses 
play an essential role in deploying broadband to rural areas, and the 
services enabled by broadband are essential to the startup, operation, 
and growth of other rural small businesses. Rural America has a bright 
future powered by smart technologies that promote affordability, 
sustainability, and efficiency in the operation of rural industry and 
the delivery of essential services such as healthcare, education, and 
public safety--all key to rural population growth. The benefits that 
some rural communities are already experiencing will only be possible 
for all if robust broadband is available, affordable and sustainable. 
Rural telecom providers and lenders such as RUS must have regulatory 
certainty before they can make greater investments in the networks of 
the future. One important key to regulatory certainty is a broadband- 
oriented support mechanism for small, rate-of-return carriers that 
gives rural consumers options in selecting the services that best fit 
their needs on the networks that the mechanism helps to enable and 
sustain.

    Senator Moran. Thank you very much.
    Mr. Chrisman, before you testify, let me recognize the 
Senator from Oregon, Senator Merkley.
    Senator Merkley. I am delighted that Mr. Chrisman has been 
able to come and share his experience, and to be accompanied by 
his wife, Julie.
    Mr. Chrisman is from Enterprise, Oregon. Along with his 
brother, Doug, he has been working to provide affordable 
housing to Oregonians for 25 years. They have developed over 50 
affordable housing projects and manage an additional 50, 
serving more than 3,000 households across rural Oregon and 
Washington. Their business employs about 200 people.
    Mr. Chrisman is a valuable and successful user of Rural 
Development programs, specifically multifamily housing programs 
and USDA's rental assistance program. His insight and 
experience from the frontline will point to a substantial 
challenge that we have right now that needs to be addressed 
urgently.
    I am so delighted you could come and share your testimony.
    Senator Moran. Mr. Chrisman.
STATEMENT OF TONY CHRISMAN, VICE PRESIDENT AND OWNER, 
            CHRISMAN DEVELOPMENT INC.
    Mr. Chrisman. Thank you. Good morning, Chairman Moran, 
Ranking Member Merkley. My name is Tony Chrisman. I am a rural 
housing developer and property manager from Enterprise, Oregon.
    It is pretty interesting to hear all the stories about 
rural America. The town I live in does not even have a 
stoplight. But we have been able to develop a business even in 
that small community.
    It is an honor to appear before you today to discuss the 
urgent situation involving the USDA Rural Development 
Multifamily Housing Rental Assistance Program. My company has 
developed, owned, and managed affordable housing complexes for 
26 years. We developed over 50 affordable housing projects and 
manage an additional 50 projects, representing over 3,000 
households across Oregon and Washington. We have 200 employees.
    Seventy-five percent of the projects that we own and manage 
have been funded through the USDA Rural Development Multifamily 
Housing Program and receive project-based rental assistance 
directly from USDA Rural Development. That is the payment that 
is made on behalf of the low-income tenants, which pays part or 
all of their monthly rent and utilities.
    I am here to bring your attention to the current crisis 
that has occurred. This summer, we were alerted to the fact 
that the rental assistance program faced a shortfall of funding 
due to language that was included in the Consolidated and 
Further Continuing Appropriations Act of 2015. We received one 
notice in the mail from Rural Development that one of the 
projects we manage would no longer be receiving rental 
assistance for the next 5 months.
    We were very concerned about that. We began doing 
additional research and realized the balance of our Rural 
Development properties were also going to be affected.
    What we discovered was alarming. Due to a change apparently 
requested by USDA Rural Development, rental assistance 
contracts could no longer be renewed as they had been in 
previous years. In addition, due to the fact that USDA RD 
budgeted each project's rental assistance based on a statewide 
average and not their actual use, any project with a higher 
than statewide average of rental assistance faced a shortfall.
    In August of this year, Rural Development failed to provide 
rental assistance to many of our properties. As of last Friday, 
17 projects representing 770 low-income households have not 
received rental assistance for at least 1 month. The amount of 
rental assistance not paid to date is $365,000.
    For a small company such as ours, the consequences of this 
situation could bring an end to our business. We received no 
official notice or any indication from Rural Development that 
payments would not be made with one exception. These payments 
generally represent about 80 percent of the monthly revenue for 
each affected property.
    We have no idea when payments may resume. Unfortunately, 
just listening to Administrator Hernandez, it appears that they 
still have not decided whether they are going to pay the back 
payments or not, even after the continuing resolution.
    We are left in a no-win situation with low-income tenants 
who are unable to afford their rent and Rural Development 
unwilling or unable to pay rental assistance on their behalf.
    What is happening with our company and tenants is playing 
out across the country. There are 272,000 units of affordable 
housing and 14,900 properties across the United States that 
receive Rural Development rental assistance.
    We have talked to other affordable housing owners and 
managers across the country and discovered they are 
experiencing the same thing, and payments of rental assistance 
are not being made. Many owners and managers of these 
properties were giving the low-income tenants notice that they 
need to pay much higher rents as a result of rental assistance 
not being paid on their behalf.
    If this situation is not remedied, significant impacts will 
occur. First, without regular rental assistance payments, most 
tenants cannot afford the full rent on their own. As a result, 
they face displacement and possibly homelessness. The average 
income of our portfolio of the tenants who receive rental 
assistance is approximately $10,000. The average household 
income of the families who live in the USDA Rural Development 
properties is extremely low, and these tenants represent some 
of the most vulnerable members of our society.
    The way USDA Rural Development has dealt with this matter 
will result in tenants with the lowest incomes and greatest 
needs being displaced from housing that many of them have lived 
in for years.
    Second, the 14,900 existing USDA-funded properties across 
the country will face foreclosure, bankruptcy, and possibly 
default on their financial obligations.
    The third consequence of the situation is that many jobs 
across rural America will be in jeopardy as these projects fail 
and managers, contractors, and support staff are terminated.
    I am here today to ask for your help to resolve this 
situation. Thank you.
    [The statement follows:]
                  Prepared Statement of Tony Chrisman
    Good morning, Chairman Moran, Ranking Member Merkley, and 
distinguished Members of the Subcommittee. My name is Tony Chrisman and 
I am a Rural Housing Developer and Property Manager from Enterprise, 
Oregon. It is an honor to appear before you today to discuss an urgent 
situation involving the USDA Rural Development Multifamily Housing 
Rental Assistance Program.
    My companies have developed, owned, and managed affordable housing 
complexes for 26 years. We have developed over 50 affordable housing 
projects and manage an additional 50 projects representing over 3000 
households across rural Oregon and Washington. We currently employ 
approximately 200 people.
    75 percent of our housing projects have been funded through USDA 
Rural Development multifamily housing programs and receive Project 
Based Rental Assistance directly from USDA Rural Development. Rental 
Assistance is a payment made on behalf of low income tenants which pays 
part or all of their monthly rent and utilities based upon the tenants' 
income.
    I am here to bring your attention to the current crisis that has 
occurred in the USDA Rental Assistance program. This summer, we were 
alerted to the fact that the Rental Assistance Program faced a 
shortfall in funding due to new language that was included in the 
``Consolidated and Further Continuing Appropriations Act, 2015.'' We 
received a single notice from USDA Rural Development that one project 
we managed was going to run out of Rental Assistance in 30 days and 
would not be eligible for further payments for 5 months. We were very 
concerned. We began doing additional research on the balance of our 
USDA Rural Development properties to determine if other projects would 
be affected. What we discovered was alarming. Due to a change, 
apparently requested by USDA Rural Development, in the language of the 
``Consolidated and Further Continuing Appropriations Act, 2015'' Rental 
Assistance contracts could no longer be renewed as they had been in 
previous years. In addition, due to the fact that USDA RD budgeted each 
project's Rental Assistance based upon a state-wide average and not 
their actual budgets, any projects which had higher than the state-wide 
average of Rental Assistance faced a shortage.
    In August of this year, USDA Rural Development failed to provide 
Rental Assistance to many of our properties. As of October 15, our 
companies have 17 projects representing 770 low income households that 
have not received Rental Assistance for at least 1 month. The amount of 
the Rental Assistance not paid to date is $365,000. For a small 
companies such as ours, the consequences of this situation could bring 
an end to our business. We received no official notice or any 
indication from USDA Rural Development that payments would not be made 
with one exception. These payments generally represent about 80 percent 
of the total monthly revenue for each affected property.
    We have no idea when payments may resume and if payments will be 
made in arrears. Virtually no communication has been forthcoming from 
USDA Rural Development. We are left in a no win situation with tenants 
who are unable to afford their rent and USDA Rural Development 
unwilling or unable to pay rental assistance on their behalf.
    What is happening with our companies and tenants is playing out in 
other parts of the country right now. USDA RD Rental Assistance 
supports 272,322 units of affordable housing in 14,900 properties 
across the United States. We have talked to other affordable housing 
owners and managers across the country and have discovered that they 
are experiencing the same thing and payments of Rental Assistance are 
not being made. Many owners and managers of these properties have given 
the low income tenants notice that they need to pay the much higher 
rents that result from the USDA Rental Assistance not being paid on 
their behalf. Several newspapers across rural America have documented 
that low income tenants are now being asked that their portion of the 
rent increase dramatically.
    If this situation is not remedied significant impacts will occur. 
First, without regular Rental Assistance payments, most tenants cannot 
afford the full rent on their own and as a result, they face being 
displaced and possibly homeless. The average household income in our 
portfolio is less than $10,000 per year. The average household incomes 
of the families that live in USDA Rural Development properties is 
extremely low and these tenants represent some of the most vulnerable 
members of our society. The way USDA Rural Development has dealt with 
this matter will result in tenants with the lowest incomes and the 
greatest needs being displaced from housing that many of them have 
lived in for years.
    Second, the 14,900 existing USDA funded properties across the 
country will face foreclosure, bankruptcy, and will default on their 
financial obligations. In our case, since many of our projects have 
been funded with Federal Low Income Housing Tax Credits and additional 
funding sources such as State low income housing loans and commercial 
loans, serious financial outcomes will result.
    Our companies' business has primarily been to preserve older 
affordable housing projects by acquiring the properties and using a 
multitude of State and Federal funding mechanisms to recapitalize, 
rehabilitate, and preserve the properties in order to keep the valuable 
federally funded rental assistance. The state of Oregon and Washington 
have funded and invested in numerous projects specifically to preserve 
projects like these across rural areas. The shortage of Rental 
Assistance puts all of this work at risk. State and Commercial 
financing will dry up if the availability of the Rental Assistance is 
lost. Banks and Investors will stop investing in the low income housing 
tax credits that have been used to fund these properties. Losses will 
be large.
    Finally, the third consequence of this situation is that many jobs 
across rural America will be in jeopardy as these projects fail and the 
managers, contractors, and support staff will be terminated.
    It is our understanding that several things need to happen to in 
order to remedy this current situation.
    First, language limiting the ability of USDA Rural Development to 
renew contracts only once a year must be removed from next year's 
budget. The recently passed Continuing Resolution addresses this issue 
until December, but unfortunately it does not deal with the longer term 
issue. We need this language removed from future budgets.
    Second, according to industry groups, it appears that the USDA RD 
Rental Assistance Budget is not sufficient to meet the requirements of 
the program. Although the USDA has repeatedly insisted that their 
budget was sufficient, it clearly was not sufficient and USDA ran out 
of rental assistance funds this past summer for many projects. Industry 
groups believe the budget is short by approximately $220 million. USDA 
Rural Development has not been forthcoming about the exact amount of 
the shortfall.
    There are numerous other proposals that could make this program 
more effective and return the focus to managing the properties and 
supplying housing for low income rural families. However, if the 
current Rental Assistance Crisis is not fixed none of these proposals 
will matter.
    Thank you for allowing me to testify and I look forward to 
answering any questions you might have.

    Senator Moran. Mr. Chrisman, thank you very much.
    I thank all of our panel. We are going to take some time 
now and have a conversation and ask you questions and solicit 
your answers.
    I would start with you, Mr. Chrisman. You heard the 
conversation earlier between Senator Merkley and Rural 
Development, between me and Rural Development. I would indicate 
that today's hearing is the first indication that we have had 
from Rural Development that the language that was included in 
the omnibus bill, the legislation that you described, was 
insufficient to backfill the rental assistance.
    We will continue to press Rural Development for more 
clarity, because we believe they have the authority to do what 
needs to be done. It does not solve the problem permanently, 
but it certainly solves the immediate problem. We will continue 
our efforts, and I look forward to working with your Senator, 
Senator Merkley, in that regard.
    What is the authority by which tenants can be required to 
pay additional rent in this circumstance? Is that carte 
blanche? Are there restrictions? One, I understand the 
financial circumstances that most if not all of those tenants 
are in, so it is not a practical solution. But what is the 
legal ability to raise rents in the absence of the rental 
assistance?
    Mr. Chrisman. In our portfolio, our lease agreement 
specifically lays out, if Rural Development does not pay the 
tenant's portion of the rent, it is not really a rent increase. 
The rents are set by Rural Development, and then they pay a 
certain percentage of the rent. So we would just go to our 
lease agreement. When the rental assistance payments stop, we 
are allowed to raise the rent to the level that the rent is set 
at with the difference.
    Senator Moran. So you have the legal ability under your 
rental agreement to raise the rents. You do not have an ability 
to actually accomplish those increased rents being paid.
    Mr. Chrisman. The reality is most of the tenants could not 
pay them even if you raised the rent on them. So what do you 
do? We have been in the business of serving this population for 
25 years. Now we are in a situation where, no matter what 
happens, we are going to make the wrong decision. Tenant 
advocates will sue us if we start charging them the additional 
rent. The tenants, if we do evict them, because that is really 
where you are going with this, they have no other place to 
turn.
    Senator Moran. Are your rental agreements approved in 
advance by USDA?
    Mr. Chrisman. They are.
    Senator Moran. So the authority that you described, the 
legal authority that you described, an ability to raise the 
rent in the absence of rental assistance, is something that 
USDA has approved in your rental agreement?
    Mr. Chrisman. That is right.
    Senator Moran. Okay. I would tell you, Mr. Chrisman, in 
Kansas, the most common conversation I have with a Chamber of 
Commerce executive, an economic developer, a mayor, a city 
councilmember, when you are visiting a community and you want 
to talk about what is going on in the community, almost without 
exception the conversation turns to lack of housing.
    Do you avail yourself, does your company avail yourself to 
programs outside Rural Development, outside USDA? Are you 
involved in the Department of Housing and Urban Development 
(HUD) programs or others? And can you tell me, the Rural 
Development programs, why they are useful to you? What the 
problems are? Is there someplace else you could go that would 
be a better source of assistance to accomplish the goal of 
housing for low-income people across the country, in particular 
rural America?
    Mr. Chrisman. We use the HUD programs, low-income housing 
tax credit programs. But the unique characteristic of the Rural 
Development program is the portfolio of properties that were 
built in the 1970s and 1980s that have the rental assistance, 
there is just no substitute for that. These serve the lowest 
income families and the most needy people in our whole 
communities.
    I would say most of our properties are probably 25 percent 
chronically mentally ill tenants who have no alternative. They 
get a disability payment and that is their only option. So 
there is no substitute for these programs because rental 
assistance does not exist in any other format except the Rural 
Development program.
    Senator Moran. Thank you.
    My time has expired. We will have another round.
    Senator Merkley.
    Senator Merkley. I want to continue this conversation, 
because this is so important.
    During the more than 2.5 decades that you have been 
involved, has there been another situation, another year, when 
suddenly you were at the end of the fiscal year and payments 
were going to stop?
    Mr. Chrisman. This has never happened in the Rural 
Development program. There was a short period during the 
sequestration when there was a question. But in that situation, 
Rural Development was notifying us, telling us what was going 
on. We have never had a situation where we did not receive any 
notice.
    I mean, you can imagine running a business, you have lawn 
mowers and people working at the project, and you get no notice 
and you have no rent. Eighty percent of the revenue for that 
month does not come in.
    Senator Merkley. So even though there is a clause in the 
contract that says, if Rural Development stops paying, the 
tenant is responsible for the full amount of the rent, no one 
anticipated that clause would ever have to be used. In fact, no 
one would think that it could be used because these tenants 
could not possibly pay the full rent.
    Mr. Chrisman. That is right.
    Senator Merkley. So now you are in this difficult 
situation. Different owners have probably taken different 
approaches. At this point, have you notified tenants that they 
are responsible for the full rent? Are you holding out for us 
to get a successful response from Rural Development to backfill 
the hole?
    Mr. Chrisman. We have not notified the tenants. We spent a 
lot of time talking about it. But these are the people who we 
have been serving for 25 years. These are mothers of people I 
went to high school with, friends I went to high school with. I 
know a lot of the tenants. I just cannot see us doing it, 
unless it is the very darkest end.
    We thought the continuing resolution had temporarily 
resolved it, but the testimony I just heard sounds like that 
may not be the case. So some of these projects that have 
shortages, it looks like, according to Administrator Hernandez, 
may not be getting paid.
    So I am a little frustrated to hear that.
    Senator Merkley. I am so glad you are here. Because of this 
hearing, we learned for the first time today that the language 
that we worked out with bipartisan staff involved, with Rural 
Development involved, signing off on the language, that they 
have some legal concern, a legal concern that we have not heard 
the details of. We did not know until today that they had run 
into an obstacle here.
    We are going to push very hard to get to the bottom of it.
    If you were to follow the contract and ask for the full 
rent and your tenants would not then would not be able to pay 
it, then there is just no good answer. An eviction results in 
homelessness. As you put it, there is no option. We would be 
putting people into the street across rural America, because 
there are thousands of projects involved here. That is just 
unacceptable.
    You are nodding your head. I will just record that for the 
record.
    Mr. Chrisman. Yes.
    You are telling me things I have been thinking about all 
summer. It is a very frustrating situation to be in.
    Senator Merkley. There are clearly changes in the way that 
this program was administered internally that led to this as 
well. And when I say that, you refer in your testimony to the 
fact that the projects were assigned an average. Any project, 
any multifamily housing complex that has very low-income 
tenants who are below the average, then that average is going 
to result in a shortfall at the end of the year.
    Then we have the bigger issue of the missed estimate for 
what the program would cost across America. That is the $110 
million or so shortfall or $100 million shortfall that we 
referred to earlier.
    So we are going to push very, very hard to get this program 
backfilled and to resolve the issue for this coming year, so 
that we are not in this situation come August or July of next 
year. The estimates that we have show an even larger deficit.
    So I think there are mechanics that have to be fixed in the 
way that funds are assigned to individual projects, and an 
overall deficit that has to be addressed. My hope is that 
common sense will quickly prevail and that we will get to the 
bottom of this. We have been trying to. We thought we had.
    Let me just say, this is a 100-percent absolutely 
unacceptable way to treat the owners of these complexes who are 
administering these in partnership with the U.S. Government. 
But it is absolutely unacceptable that the tenants be on the 
receiving end of these missteps.
    So thank you so much for shedding a personal spotlight on 
the problem. I think it will have helped a great deal that we 
have had this conversation in public today.
    Mr. Chrisman. Yes. It is my pleasure to be here.
    Can I respond?
    Senator Moran. You may.
    Mr. Chrisman. It is hard for me to believe that the agency 
cannot calculate the amount of rental assistance. This program 
is a very stable program. I mean, I am terrible at math, but I 
think I could do it.
    The fact that they could be off by hundreds of millions of 
dollars, listening to that was just unbelievable to me.
    Senator Moran. Thank you for responding. I share the same 
sentiments. We have never been officially notified of a 
shortfall to begin with. We have never been notified that the 
language in the continuing resolution designed to temporarily 
resolve this issue is insufficient. And only, again, today did 
I learn that there is no capability of telling us what that 
number is.
    So thank you for your testimony. We are glad we had this 
hearing so that we now know this. Although I would assume we 
would begin hearing from you and others in your circumstance as 
your representatives. This would not have been something that 
would go on much longer.
    My impression is from your testimony is you were expecting 
this problem to be resolved. You have not taken the effort to 
try to collect money from tenants. You apparently had not 
notified Washington, DC, us, of a problem because you assumed 
that was being taken care of.
    Mr. Chrisman. Well, we have actually been contacting 
Washington, DC, all summer because once we found out there was 
a shortage, we were so shocked, because for all these years, 
the budgets that you get may be inaccurate, but the rental 
assistance has always been paid. So we did not really believe 
it until the first payments just stopped.
    Like I said, 17 properties, only one of them received any 
written notice or anyone at RD telling us that there is no 
rental assistance.
    Senator Moran. Tell me again, those payments stopped when?
    Mr. Chrisman. In August.
    Senator Moran. August.
    Mr. Chrisman. We have a whole bunch more properties, and 
it's our calculation they are just going to keep on stacking up 
until about 75 percent of our Rural Development portfolio will 
not be getting payments.
    Senator Moran. Thank you very much.
    Mr. Boisvert, does Wilson, Kansas, have a stoplight?
    Mr. Boisvert. No, we do not.
    Senator Moran. I just want to make sure that we were not 
out-Kansaned the gentleman from Oregon.
    Senator Moran. There has always been an excess, Mr. 
Boisvert, in the demand for RUS telecommunication loan 
programs. There has always been more demand than dollars 
available. But that is not so true anymore.
    Recently, I would say in the last 3 years, the demand for 
RUS loans no longer exceeds the supply. I wonder if you could 
explain why that is.
    My impression would be the uncertainty that your company or 
others in similar circumstances face, not knowing what the 
Universal Service Fund requirements are going to be, what 
revenue is going to be generated from that fund for your 
company and others, means that there is less demand for the 
loan program at RUS.
    Does that assumption have any validity?
    Mr. Boisvert. Mr. Chairman, yes, it does. I think we would 
see that demand correlate to the 2011 FCC order on the 
Universal Service Fund.
    As you know, when we take out RUS loans, those are long-
term loans. Those are done with a certain understanding of what 
is in place for universal service, consumer rates, all the 
things that a company would use to operate and repay its debt.
    So when the order came out, a great amount of uncertainty 
did occur with the changes that were there. As I mentioned in 
my comments, the new mechanism known as Connect America Fund, 
or CAF, there is still not one for the rate-of-return part of 
the industry, which Wilson is part of.
    So clearly, I think the demand is still there. If you look 
at rural companies, we are in probably one of three phases of 
building out our networks to bring broadband to rural Kansans 
and others across the country. They are built with debt to 
repay and costs operate. They are partially built, which is our 
case. But I have not felt comfortable completing the build. And 
there are those who have yet make that next step in the 
investment but want to and plan to, as soon as certainty does 
resume with universal service.
    Senator Moran. Maybe a way of saying what I was attempting 
to ask is not that there is less demand, but there are less 
applications for that money, waiting for certainty to arrive, 
similar to Mr. Chrisman waiting for certainty to occur.
    The point I would make, and ask you to agree or disagree, 
is I often think of this issue of the order of 2011 as an 
impediment toward a telephone company's ability to repay loans 
that already are in existence to RUS. So less revenue means 
that our ability to repay the loan is diminished. What you just 
said reminds me of another aspect of this. With that 
uncertainty or the belief that there is going to be less 
revenue coming following the order of 2011, there are areas of 
the country in which the desire to serve still exists. But the 
ability, the uncertainty of whether or not there is going to be 
the revenue, diminishes the chances.
    So initially, I thought the topic of this hearing in part 
would be about whether or not a phone company has the ability 
to repay an existing loan. There is another damaging aspect of 
FCC decisions, which is that we may not even ask for the loan 
because of either the uncertainty or the revenue stream is 
insufficient, which means a significant number--I do not know 
what it is--hundreds, thousands of people across Kansas and 
across the country will have less ability to access broadband.
    Does that make sense to you?
    Mr. Boisvert. Yes, it does, Mr. Chairman. I would agree 
with your assessment.
    Without that predictable and sufficient and sustainable 
universal service, that demand may not materialize in the form 
of taking our infrastructure loans to bring broadband to rural 
Kansans.
    Senator Moran. You indicated, in your company's 
circumstance, that has occurred on two or three exchanges in 
which you were prepared to borrow money to expand broadband but 
as a result of that order have not made that loan application?
    Mr. Boisvert. I actually have the loan but I have not drawn 
the funds, resulting in the same thing. That is correct.
    Senator Moran. Okay. Now, the order was modified, the FCC 
modified their original 2011 order. Did that make a difference 
in the types of issues that we are discussing today?
    Mr. Boisvert. Well, there have been seven orders on 
reconsideration since the original order. There was a good step 
forward in removing one of the formulas that was very 
troublesome. But as we speak, we still do not have resolution 
to that. So the work is not done.
    I know the industry and the National Telecommunications 
Cooperative Association (NTCA), which we are part of, are 
working very hard with FCC to come to a truly workable, 
sustainable Universal Service Fund that will allow this work to 
continue.
    Senator Moran. The topic of today's hearing is Rural 
Development. The concerns that you and I are talking about may 
be more directed at the FCC than Rural Development, but the 
consequences exist to Rural Development's ability to either 
have their loans repaid or the demand necessary to provide more 
money to expand broadband in rural America.
    Mr. Boisvert. There is clearly a connection, yes.
    Senator Moran. Let me turn to others. Now that we are down 
to just me, we may have a series of rounds of questions.
    I will go back to you, Brian. Is there any indication of 
when that certainty may become known? When does this problem go 
away? Or is it just with us for the foreseeable future?
    Mr. Boisvert. We hope there is an end.
    And we do thank this subcommittee and others for reaching 
out to the FCC to talk about the standalone broadband. All five 
commissioners I believe have made the commitment to resolve 
this by the end of the year. That is rapidly approaching. So I 
am still hopeful that a resolution can be made.
    But as part of the industry and the association, as we work 
toward this, it is really important that, essentially, we get 
it right. This is a long-term solution that we are seeking, not 
just trying to hit a deadline. So it really is important to us 
to stay at the table to work to make sure that all things are 
tried.
    So if there is a potential recommendation to go to a 
certain method, we want to make sure there is an opportunity 
for everybody to work that method to make sure it is 
sustainable and provides the resources that are needed for 
rural Kansans.
    Senator Moran. Do you have any sense that Rural Development 
is advocating for a position beneficial to the repayment of 
their loans and to the continued expansion of broadband 
availability with the FCC?
    Mr. Boisvert. I am not personally aware of conversations. I 
do believe they are very supportive. They have a large 
portfolio out there that could be at risk. They are a great 
organization to work with, the RUS. So I believe they, 
certainly, would like to see a successful resolution to this as 
well.
    Senator Moran. Thank you.
    Mr. Lowry, your testimony focused significantly on REDLG. I 
just want to ask you the broad question, is there any proposal, 
any suggestions of needed changes to the program? Or are you 
satisfied with the way it works and the way it is administered?
    Mr. Lowry. Overall, I think that there is satisfaction with 
the way the program is working. There is a proposal for a $1 
million limit on individual loans, which would make more loan 
funds available to more people. We think that is a positive 
change. But overall, we are satisfied with the program.
    Senator Moran. Do you know what the average loan amount is?
    Mr. Lowry. I do not, but we can get that information and 
pass it on to you.
    Senator Moran. We talked a bit and you talked about 
environmental or endangered species issues that impact the 
bottom line of a utility company. You might highlight, and I am 
reluctant to raise this topic because for a few days here I was 
known as the lesser prairie chicken Senator, but you might 
highlight for me, for my benefit and for the record, the 
consequences of the listing as a threatened species to your 
company or to utilities in Kansas or the region. That is five 
States, generally.
    Mr. Lowry. Within the context of this hearing, what it 
essentially does is undermine the good work that RUS Rural 
Development is doing. Those programs are all about making 
services to rural residents affordable. When you have a 
regulatory initiative, the lesser prairie chicken being a good 
example, that layers additional costs on the service providers, 
say an electric service provider, that impacts affordability.
    So the needle moves in one direction with RUS program; it 
moves in the other direction in a negative way with initiatives 
such as the lesser prairie chicken initiative.
    To that initiative specifically, there are proposals that 
line construction be completed underground. Underground 
construction adds, in some cases, a tenfold cost to the 
construction of electric facilities. Those costs can only be 
recovered from ratepayers.
    So again, you are taking what would otherwise be an 
affordable service and you are impacting that affordability by 
requiring compliance with regulations that have, in most cases, 
dubious benefits.
    Senator Moran. This issue of the lesser prairie chicken or 
endangered species, and now the more recent clean power plan, 
what is wrong with those whose suggestion is just have the 
utility companies raise the rates?
    Mr. Lowry. Well, we see all the time that the two primary 
drivers for an electric customer will be reliability and price. 
We know, as was said earlier in this hearing, that the cost of 
electricity is a key driver in determining where people locate 
their business. So yes, you can have the price of electricity 
go up. There will be some people, a household, who won't not 
find that objectionable. But business and industry will find it 
as a driving factor in their decision about where they locate. 
It affects their overall profitability.
    Senator Moran. I suppose, in a broad sense, today's hearing 
is about rural development. I would suggest that our ability to 
attract and retain business, manufacturing and others, to rural 
America is in part determined by utility rates. Is that fair?
    Mr. Lowry. That is a fair statement. You know, the customer 
density in rural America is much, much lower than it is in 
urban America, meaning we have fewer consumers per mile of line 
from which we can recover our costs than do our city brethren. 
So additional costs recovered from a much, much smaller pool of 
ratepayers means higher rates for those ratepayers. That is a 
big concern of ours.
    Senator Moran. A point I would make is that while you 
testify about the value of the REDLG program, which would be 
assistance to an individual, generally small business and its 
location or expansion in your consumers' territory, if your 
rates are significantly higher than other utilities, businesses 
will make decisions about where to locate.
    So your REDLG is important in the micro sense, but what 
your rates are is important in the macro sense to rural 
America.
    Mr. Lowry. You are undermining the benefit of the REDLG 
program with other policies that would increase electric costs.
    Senator Moran. Let me ask specifically the consequences to 
Rural Development and their loan portfolio. Does that loan just 
get paid? Regardless of the regulatory environment in which you 
operate, you are required to pay the loan to RUS, right?
    Mr. Lowry. Are you talking about on the electric side?
    Senator Moran. Yes, on the electric side.
    Mr. Lowry. Yes. RUS borrowers borrow money to complete 
projects and construction work plans. The clean power plan is a 
good example where you are making investments that are decades 
long investments, and they are enormously expensive. When you 
have a regulatory initiative that essentially says, for 
example, we will generate less if at all from a coal resource 
and instead we will generate more from some other resource.
    Well, at the start, you have a power plan. And if EPA, 
through the clean power plan, essentially says you cannot 
utilize that power plan, then you have to have a second power 
plan to provide service. So the ratepayer, instead of paying 
for one plant, is now paying for two.
    The loans do not go away. They are still going to be due 
and owing.
    So when you hear the term ``stranded investment'' used in 
the context of clean power plan, that is one element of 
stranded investment. You have an asset that you cannot utilize.
    Senator Moran. So RUS made a loan to a utility company 
expecting the life--they loaned the money to build a power 
plant or to improve a power plant. They expected the life of 
that plant or its improvements to be a certain amount of time. 
And potential changes that are now on the horizon would mean 
that the value of that plant is diminished. So the asset for 
which they have made the loan is diminished in its value, and 
the revenue that it will generate to repay the loan is less.
    Mr. Lowry. That is true.
    Senator Moran. Okay. And that does not affect necessarily 
the portfolio of RUS until there are defaults. Is that true?
    Mr. Lowry. Yes, that would be true. They are going to 
expect repayment, as they should. But the ability to repay is 
going to be hampered.
    Senator Moran. A utility company cannot renegotiate their 
loan with RUS based upon changing circumstances of a new clean 
power plan. Is that right?
    Mr. Lowry. Well, that probably remains to be seen. There is 
no requirement that RUS renegotiate loans. So it would be 
another example of a regulatory uncertainty.
    Senator Moran. Just for the same reason that there is 
assistance to utility companies serving rural America, that is 
because the ability to get a return necessary to build the 
plant and provide the service is less, that would mean that any 
changes in the economic circumstances surrounding that plant is 
all the more important because it already is so fragile, so 
marginal to begin with.
    We would not be making loans to rural America if it was 
easy to get a sufficient return on investment in utilities. We 
make those loans because it is difficult. And the change, 
therefore, would be the most damaging or dramatic in a rural 
setting. Does that make sense?
    Mr. Lowry. Yes, that does make sense. Again, it goes back 
to customer density. It is all about the taxpayer or, in our 
case, the ratepayer. We have fewer of those in rural America 
than our city brethren. So it is a more fragile environment.
    Senator Moran. I co-chair a caucus in the Senate with one 
of my Democrat colleagues. It is about competitiveness. It is 
about reintroducing additional manufacturing opportunities to 
the country, not just in rural America. But I would tell you, 
in so many circumstances in which you look at a reason a 
company has brought their employees home, bringing more 
manufacturing jobs back to the United States, has had a 
significant amount to with the cost of utilities. If you can 
provide the utility structure, including water, at a rate that 
is more affordable, the chances of manufacturing returning to 
the U.S. from someplace abroad is enhanced.
    Then you add that to we can never afford to have a 
competitive disadvantage in the territory that you serve.
    Mr. Lowry. Yes.
    Senator Moran. Mr. Simpson, the way I look at this, kind of 
related to this environmental issue, is that there are lots of 
rules and regulations involving the quality of water, 
rightfully so. We want clean water. I represent lots of 
communities in which there are not enough ratepayers. You 
cannot raise the water rates sufficient to raise the money 
necessary to comply with regulations.
    One comes to mind. There are 99 ratepayers in the 
community, but they have these standards they have to meet. 
They cannot raise the rates on 99 people to get the money 
necessary to accomplish the requirements, to accomplish the 
goal of that standard for clean water.
    Therefore, the programs that help a community become even 
more important, again, in rural America because you cannot 
finance it with the people who are paying their water bills 
each month.
    I assume that that is, in a sense, your mission, how we 
help people who cannot afford to do all the things that need to 
be done to provide clean water in a sufficient quantity.
    What works? What is the most important thing to you?
    Mr. Simpson. I think the Rural Utilities Service with right 
now the historically low interest rates, even with the 40-year 
term, when it is coupled with the grant portion, it can make it 
affordable.
    You are right, Mr. Chairman, a lot of these small 
communities, you are looking at a little trailer park. In my 
home State, they do not meet the capacity. Or the unpaid mayor 
you have to go find at his real job in the casino----
    Senator Moran. We have no casinos in Kansas. That is almost 
true. Not exactly.
    Mr. Simpson. They do not have the capacity and the 
resources to hire someone to operate the system. A lot of 
times, you will have a part-time person that does several 
systems.
    That is where our folks that have this vast amount of 
experience being former water operators and training with all 
the certifications can come in and fill that void for these 
communities that simply do not have the expertise and cannot 
afford it.
    But we think that Rural Development program with that grant 
component is very unique and can make it so these low-income 
communities can have affordable, clean water.
    Senator Moran. I know the National Rural Water Association 
well enough to know that I assume that your request would be 
additional dollars put into those programs. That is a standard 
reply that we would get in this subcommittee or to me as a 
member of the Senate.
    But I would ask you, are there program efficiencies, 
program management, in addition to more money, are there ways 
that we can formulate the programs to work better?
    Mr. Simpson. Yes, sir, Mr. Chairman.
    First of all, we are very appreciative to the Senate mark 
for our programs. It was very gracious.
    Senator Moran. I was fishing for a compliment. Thank you.
    Mr. Simpson. You are right. I think I have to give former 
Under Secretary and Administrator McBride credit. They have 
done something pretty smart called RD Apply, which is really 
bring in Rural Utilities Service into the modern century as far 
as IT and technology is concerned, where, literally, you can 
take a smart phone, your iPhone, a laptop, and you can access 
their application process.
    They trained our folks a couple weeks ago in Oklahoma City. 
It was honestly very easy.
    And another thing, why this is so good, you heard about 
delays from RUS and the inconsistency with some of the 
programs, the staff that got reduced during the last 5 years. 
It is transparent and accountable, too. So you know your water 
specialists, the program director, the State director, 
everybody can see this process. I think that that is a smart 
way that they are going ahead to use easy, off-the-shelf 
technology to do the program more efficiently.
    Senator Moran. Thank you.
    There is at least talk about the existing water and waste 
disposal loan program involved in a portfolio sale.
    Mr. Simpson. Yes, sir.
    Senator Moran. Anything that I should know about that? I 
would guess we will have some specific questions to address to 
you in writing.
    Mr. Simpson. Yes, sir. Let me be clear. A lot of what I am 
basing my response on, I do not have anything in writing from 
the Department. I have had some conversations. We would be 
delighted to review or comment or add our suggestions.
    Yes, there have been several ideas about how you bring the 
private sector in to complement the Rural Development mission 
with their limited loan and grant dollars. We are for that. We 
think that the guarantee program that is not very utilized, 
only made a handful of guarantees last year, the private sector 
can play an important role there, especially for communities 
that have more capacity and resources to debt service a 
private-sector loan.
    That said, we do have some concerns. There are discussions 
about doing a partial prepayment or participating loan to where 
a utility in Kansas that has this 40-year loan, they are in 
year 20 and the private sector can come in and pre-pay 50 
percent of that outstanding balance to the Treasury. I would 
imagine the private sector is going to look at that value, what 
they think it is worth, and how the Treasury is going to look 
at it, because you are cutting off that stream of payment for 
the remaining 20 years, with the interest. And then the utility 
in Kansas, for example, would still make their standard 
payment. Nothing would change. They are making a $10,000 or 
whatever it is monthly payment. But half of that would be 
diverted to the private entity, the investor.
    I cannot understand the public policy of that. It does not 
benefit the utility. It does not impact the end-user. I do not 
understand that thought process.
    We have some concerns with that. Also, we would want our 
utility bar common with rural folks and how they operate 
business to have knowledge about their loans being modified, to 
have the right to say we have to check off on it or the right 
for first refusal. If there is a concern about some of the 
loans that are 20 years old or longer, that they are paying a 
higher interest rate, you might want to look what this 
subcommittee did before as an option, the 502 guarantee 
program, when you established a separate refinancing category 
for the 502 guarantee program, which was at a cheaper subsidy 
rate to give these existing rural utility bars the opportunity 
to refinance if the direct loan rate was lower. It was a 
benefit for the business model.
    That I think would be a better policy because it would 
lower the rate for the utility so you free up some money to do 
some deferred maintenance and not pass on the cost to the user.
    So, yes, sir. We do have some concerns about the public 
policy benefit of an action like a partial prepaid loan.
    Senator Moran. Water utilities have access to funds besides 
Rural Development in what ways? The public financing of water 
infrastructure, going to the bond market and the utility 
issuing revenue bonds to be repaid from the revenue of sale of 
water and treatment of wastewater?
    Mr. Simpson. Yes, sir. A lot of them are municipalities, 
quasigovernmental entities. They have a wide variety. A lot of 
them will use the SRF, the EPA revolving loan fund. That varies 
from State to State how they administer it.
    A lot of them will use bond money. Our Kentucky entity has 
their own bank, basically. There is a wide variety of different 
programs they could use. The guarantee program, in my opinion, 
has not been utilized very often.
    Senator Moran. So the two options that a water utility in 
Kansas would have would be Rural Development and the EPA, as 
far as public sources of support?
    Mr. Simpson. Yes, sir.
    Senator Moran. Okay.
    I appreciate your comments in regard to the nature of 
Congress working in a bipartisan effort. I would use this as an 
opportunity to highlight that the Agriculture Appropriations 
Subcommittee report was passed by the full committee 28-2, the 
best of any appropriation bill that worked its way through 
subcommittee and into the full committee.
    We welcome you back to the subcommittee. I suppose it is 
significantly unusual for the circumstance to have come full 
circle and you are on that side of the table.
    Mr. Simpson. Yes, sir.
    Senator Moran. We are glad to have you, and we appreciate 
your expertise.
    I think we are about ready to conclude. I would just ask 
any of the witnesses if they have a point, an issue, that they 
wanted to make certain that they clarify, raise, something they 
want us to know before we close the hearing?
    Mr. Boisvert. Mr. Chairman, I want to thank you for this 
opportunity. I never want to lose sight, and we don't, that, in 
the end, we want to keep consumer rates reasonable and provide 
this opportunity for every rural Kansan and every rural 
American. So that is why we work as hard as we do to do the 
things we do. It is for that benefit, to keep our country 
connected. There is so much benefit to be gained from the 
rural-urban connection and very much a focus of that are 
consumer rates. Thank you.
    Senator Moran. Never wanting to have somebody have the last 
word but me, I would say, I intended to ask you this earlier, 
in the absence of Wilson Telephone Company, what difference 
does it make to the people who you serve?
    Mr. Boisvert. Well, I would like to believe we make a lot 
of difference. We are very much a part of the community. Not 
only do we provide state-of-the-art communication services, but 
we also are members of the community. We live where we work. We 
support our youth. We do scholarships.
    Getting those millennials to come back to rural Kansas is 
very much a priority. We think with some of the modern networks 
and the services that they offer and the opportunities that 
they offer, we hope this will be appealing, and once the 
younger generation goes off to college, that they will return 
back home to help on the family farms, to start new businesses, 
to create new opportunities. We think that is part of it. That 
is part of what we try to do as well.
    Senator Moran. Mr. Boisvert, is it safe to say that, in the 
absence of a company like yours and those telephone companies 
similar to yours across the country, that the services that you 
provide would not be provided or would not be provided at a 
rate that was affordable?
    Mr. Boisvert. I would agree with that. That is really how 
these companies came to be in the first place. The market is 
not there that the large companies are going to enter into. We 
are very rural, very low population density. So I do fear that 
if these companies were not there, that void would not be 
filled.
    Senator Moran. Thank you.
    Anyone else?
    I appreciate your testimony. Thank you for joining us 
today. I consider it an informative hearing, and it is because 
of your willingness to come and talk to us today.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Moran. For my colleagues on the subcommittee, any 
question that they would like to submit for the hearing record 
should be turned into our subcommittee staff within 1 week, 
which is Wednesday, October 28.
    If a question is directed to you or to Rural Development, 
we would appreciate if we could have a response back within 4 
weeks.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
                Questions Submitted to Hon. Lisa Mensah
               Questions Submitted by Senator Jerry Moran
                    section 515 rural rental housing
    Question. A 2004 USDA report (Rural Rental Housing Comprehensive 
Property Assessment and Portfolio Analysis) indicated a 20 year $2.6 
billion cost to maintain the section 515 rural rental housing 
portfolio.
    We are 10 years into that timeframe, how much progress has been 
made?
    Answer. Rural Development has been actively engaged in the 
preservation of its Section 515 portfolio, but more work needs to be 
done. As a result of the 2004 Comprehensive Property Assessment, 
Congress authorized a demonstration program through annual 
appropriations language providing RD with more flexible tools to 
encourage the revitalization of its Section 515 and Farm Labor Housing 
properties. The demonstration program is known as the Multi-Family 
Preservation and Revitalization program (MPR). Through the end of 
fiscal year 2015, RD has obligated $1.051 billion for the 
rehabilitation of 982 properties and more than 33,000 units of 
affordable housing. MPR has also facilitated a high level of 
cooperation with state housing finance authorities by leveraging 
billions of dollars in tax credits to stretch our limited appropriation 
dollars.
    In order to continue making progress in our revitalization efforts, 
RD has requested that Congress authorize the MPR program permanently. 
If the program was permanently authorized, the Agency could create 
regulations to institutionalize the program's benefits and signal to 
potential program participants that both the Executive and Legislative 
branches of the Federal government are committed to the revitalization 
of our affordable housing.
    Question. What improvements have you made in procedures or 
regulations to ensure that these housing developments are in adequate 
condition?
    Answer. MFH has made significant changes in its oversight and 
monitoring of borrower compliance with program regulations.
    Information technology advances have assisted the MFH field staff 
in conducting more focused and comprehensive physical inspections at 
properties, including the ability to obtain immediate feedback from 
borrowers and management agents on corrective action timetables. The 
use of a hand-held device to record, capture, and deliver results of 
both physical and management oversight reviews have improved turn-
around time for follow-up to ensure that corrections are made.
    MFH also uses an automated budget analysis tool that flags high 
project expenses and high rent increases; such flags cause field staff 
to analyze more closely repair and maintenance activities, and proposal 
capital improvements to be paid for through higher rents. The 
availability of field staff to be within reach of the properties 
financed by the Direct Loan programs expands the agency's capability to 
ensure the improvements planned are properly executed.
    MFH participates in the White House Physical Inspection Alignment 
Initiative, which encourages Federal housing assistance programs to 
work cooperatively in areas of overlap. Physical inspections are one 
such area, where properties financed by MFH may also have Low Income 
Housing Tax Credits or Section 8 rent assistance support. In these 
instances, the Alignment Initiative targets these joint properties to 
share physical inspection information among the affected agencies--
which serves to reduce duplication while also focusing oversight on 
properties with higher Federal investment dollars.
                    rural housing maturing mortgages
    Question. Over the next several years most of the section 515 loans 
outstanding will mature. By 2020, close to 75 percent of section 515 
loans, totaling over 400,000 units, will have reached the end of the 
loan term. Rental assistance is limited to tenants living in projects 
financed with section 514 and 515 loans. As property owners pay off the 
loans for the projects, the tenants lose eligibility for rental 
assistance. Most of these rural rental housing projects are in small 
communities and their only market is affordable housing.
    What steps has USDA taken thus far to address this issue and is 
there a long term plan to ensure that this housing continues to be 
available for the low income and elderly households?
    Answer. Rural Development is very concerned with the potential loss 
of affordable housing as our Section 515 direct loans mature, because 
that housing could be lost in the community and the rental assistance 
support would no longer be available to the families in that property. 
If that RD housing is lost, the very low income families living there 
may have no other affordable housing in which to live.
    In response, RD has provided a number of options for owners to keep 
their RD loan and protect the families living there.
  --The borrower can apply through RD's Preservation NOFA for a 
        deferral of their maturing mortgage for up to 20 years;
  --The borrower can receive priority points if they choose to apply 
        for both the deferral and additional RD funding for 
        rehabilitation of property;
  --The borrower can request a re-amortization and modification of the 
        maturing loan to extend the loan term up to 20 years;
  --If owners go through the prepayment process to allow their tenants 
        may be eligible to receive housing vouchers.
    In addition to these steps, the Department has also offered Letters 
of Priority Entitlement to tenants in maturing mortgages. Holding this 
Letter will allow the tenant to be placed at the top of the waiting 
list for any RD property in order to continue living in affordable 
housing. The Agency may be authorized to transfer the unused rental 
assistance to a new RD property in limited circumstances. The 
Department has also included in the fiscal year 2016 President's Budget 
a legislative proposal to allow Rural Development housing vouchers to 
be used by tenants in these maturing mortgage properties.
    Current voucher program appropriations language limits use to 
tenants in situations where the owner is prepaying the RD mortgage.
                     rural housing 502 direct loans
    Question. In fiscal year 2014, approximately $100 million in the 
502 direct home ownership loan program was unspent. In fiscal year 2015 
USDA obligated all the funds available.
    Please explain the steps you have taken to improve processing of 
direct homeownership loans.
    Answer. In fiscal year 2015, delivery of the 502 direct home 
ownership loan program was a high priority for USDA. That priority 
continues in fiscal year 2016, and will be reinforced with automated 
underwriting, streamlining of the credit report process, and additional 
program training. A certified packager program final rule will be 
implemented provided that prohibitory ``pilot'' language is removed 
from the final USDA fiscal year 2016 appropriations bill. This 
regulation will enhance our partnership with certified loan packagers 
and further enhance program delivery.
                  rural housing section 502 guaranteed
    Question. The President's Budget requests authority to allow RHS to 
allow direct endorsement for lenders rather than processing all 
guaranteed loans in-house.
    Please provide additional information on how this authority would 
work.
    Answer. The agency will reserve delegated underwriting authority 
for select lenders meeting established criteria. Lenders will not 
qualify for consideration unless they have strong loan performance 
characteristics as an approved program lender for a period of 2 years 
or more. Additional prerequisites will be established by the Secretary 
to further determine a lender's eligibility for delegated authority. 
For example, the lender would need to demonstrate a proven history of 
delinquency rates below the national average for all approved lenders. 
Lenders granted this authority will be required to maintain certain 
credentials and training requirements to retain such status.
    To implement delegated underwriting authority the Agency will need 
to enhance its lender monitoring and reporting capabilities in its 
Guaranteed Underwriting System. Once the agency secures funding, the 
necessary IT development will take approximately 2 years.
    Question. In fiscal year 15 RHS obligated roughly 78 percent of 
Section 502 Guaranteed, yet managed to obligate 99 percent of 502 
direct.
    Please provide background on this discrepancy.
    Answer. The observed discrepancy is more reflective of operational 
differences than performance disparity between the Direct and 
Guaranteed programs. The $24 billion program level Congress has 
established for the Single Family Housing Guaranteed Loan Program 
(SFHG) provides the program the capacity needed to accommodate 
fluctuating market demand, which can be significantly affected by the 
macro-economic environment, as in 2007. Should program funding be 
exhausted, thousands of lenders and potentially tens of thousands of 
prospective borrowers could be negatively affected. This would have a 
tremendously detrimental effect on program credibility. The lending 
capacity of this negative-subsidy program ensures that USDA can meet 
the mortgage credit needs of low and moderate income borrowers during 
periods of unexpected market volatility. It thereby provides a very 
valuable safeguard, preserving the viability of the program for future 
generations of rural Americans.
    The successful obligation of all Section 502 Direct funding, 
reflects the strong demand for the program's affordable financing 
terms, which enable low and very-low income borrowers without access to 
alternative sources of mortgage credit an opportunity for 
homeownership. This program, whose funding totals approximately 3.8 
percent of the guaranteed program, is vitally important to rural 
America.
     rural housing section 538 eligibility for housing cooperatives
    Question. USDA Rural Development has a long history of supporting 
agricultural cooperatives and cooperative businesses. Yet, there has 
been some confusion on why Rural Development does not provide financing 
for housing cooperatives. For many consumers in rural communities, 
especially seniors, a housing cooperative can be an affordable option 
to owning a home.
    It is the Committee's understanding that housing cooperatives are 
eligible for the 515 multi housing program, but not the 538 program, 
which is the more ideal program for financing.
    Can you explain why the 538 program is not accessible to the 
financing of cooperatives? Can you provide to this Committee a solution 
to this issue?
    Answer. RD has determined that under Section 538 of the Housing Act 
of 1949 (42 USC 1490p-2), loan guarantees under the Guaranteed Rural 
Rental Housing Program are not permitted for cooperative housing. An 
amendment to that section of the Act by Congress could permit an 
extension of guarantees to cooperative housing.
                           rural in character
    Question. We understand your agency is working on guidance 
regarding the definition of ``rural in character''--can you tell us 
where you are in that process, and what it means for homebuyers in 
rural communities?
    Answer. RHS is continuing to refine the agency's guidance with 
respect to the definition of ``rural in character'' in order to clarify 
the rural in character requirement in a manner that is sufficiently 
practical for application in diverse towns and counties throughout 
rural America. The agency has reviewed the matter extensively and is 
currently evaluating the data and potential eligibility criteria 
necessary to achieve this purpose.
    In response to public concern Rural in Character determinations 
were suspended. The suspension is allowing USDA Rural Development (RD) 
to review the public engagement and decisionmaking processes for `rural 
in character' determinations. We are communicating with stakeholders 
and policy-makers about how best to ensure USDA rural housing programs 
serve communities with limited access to credit and few housing 
options. The temporary suspension of new RIC-related designations will 
remain in effect until this evaluation process is completed.
rural utility service--existing water and waste disposal loan portfolio
    Question. There are reports that the Department is considering a 
possible portfolio sale, similar to the one that took place in 1987. 
Given that the Department has not requested this authority, before 
considering such an action, the Subcommittee would request the 
following information:
    Does the Department plan to discount any portion of an existing 
Water or Waste Water loan to the private sector and charge the 
difference to the mandatory account?
    Answer. USDA is considering a participation transaction that would 
offer private entities a participation interest and would not discount 
any portion of existing RUS loans. The Department is working with the 
Office of Management and Budget (OMB) and the Department of the 
Treasury (Treasury) on how to bring such a transaction to market that 
will have no impact on the program's borrowers and protects the 
taxpayers' investment in USDA's program.
    Question. Will the current borrower be allowed the same treatment 
to have their remaining balance discounted at the same level of the 
private investor?
    Answer. USDA would not discount any portion of its existing loans.
    Question. Will this impact the subsidy rate on the discretionary 
Water and Waste Water Direct loan?
    Answer. We do not anticipate any impact on the future subsidy rate.
    Question. Will the current RUS borrowers have to sign off on any 
modification or participating loan sale or prepayment?
    Answer. A participation transaction would not require sign-off from 
the program's current borrowers.
    Question. Will utility borrowers have a right for first refusal?
    Answer. The transaction would have no impact on the program's 
borrowers, who would retain all the rights and protections that they 
currently have under the terms of their loan agreements.
    Question. Is this is considered a modification; the current 
appropriation bill language does not include ``modification'' authority 
for this portfolio?
    Answer. While the transaction would constitute a Government action, 
USDA is working with OMB on determining the cost of the transaction 
under the Federal Credit Reform Act of 1990.
    Question. If this is considered a modification where the government 
takes an action to change the loan terms or conditions, wouldn't this 
be paid for by the discretionary account and require approval from 
Congress and most likely additional budget authority?
    Answer. While the transaction would constitute a Government action, 
USDA is working with OMB on determining the cost of the transaction 
under the Federal Credit Reform Act of 1990.
    Question. Why is the Department considering such a change without 
input of organizations that represent current borrowers or though 
consultations with Congress?
    Answer. USDA has reached out to the National Rural Water 
Association (NRWA) and looks forward to briefing Congressional staff at 
the appropriate time once a proposal is completed. Secretary Vilsack 
met with NRWA leadership in November 2015; NRWA supports these efforts 
to bring infrastructure funding to rural America and is committed to 
working with USDA as the transaction moves forward.
    Question. The Department has the authority to currently leverage 
loans, for example, couple a direct loan with a guarantee or private 
loan. Are you pursuing this activity?
    Answer. Through existing business practices, USDA is leveraging 
private sector investment in this portfolio through bridge loans and 
interim financing as well as with guaranteed loan authority.
    The proposed transaction discussed in previous answers incentivizes 
a forward commitment from the private sector to invest in rural water 
and waste infrastructure in rural communities with populations of more 
than 10,000, which are beyond the statutory reach of USDA's current 
water program, but are served by other USDA rural loan and grant 
programs. The target communities would also include those that became 
ineligible for USDA's water loans when their population level exceeded 
the 10,000 limit in the 2010 census.
    Question. What happens in a disaster situation like with a 
hurricane where a community might lose half of their customer base and 
couldn't pay their full note? The Federal portion has some tools 
including deferring payments that provided relief to this borrower. Can 
the payment portion to the private investors be altered or deferred at 
the time of a disaster?
    Answer. USDA would retain all of its current tools in providing 
relief to borrowers under duress. The investor would be made aware of 
these tools and would be subject to the same repayment risks as the 
Government in the transaction. Any losses would be shared by the 
investor and the Government.
       strategic economic and community development interim rule
    Question. In May, the USDA--RD published the ``Strategic Economic 
and Community Development'' Interim Rule for public comment. The 
Interim Rule implements the ``Strategic Economic and Community 
Development'' provision (Section 6025) of the Agricultural Act of 2014. 
To implement Section 6025, RD will reserve 10 percent of the funds 
appropriated to select RD programs each fiscal year to fund projects 
that support the implementation of strategic economic and community 
development plans across multi-jurisdictional areas.
    Please provide an update on the implementation process for Section 
6025, with emphasis on how RD has implemented the Community Economic 
Development team and what the next steps are.
    Answer. In fiscal year 15, CF, WEP, B&I, and RBDG did not have set 
aside funds for 6025 due to time constraints. Instead, RD developed a 
Regional Development Priority (RDP) policy that offered an opportunity 
for project proposals submitted under the aforementioned underlying 
programs which are supportive of multi-jurisdictional plan to receive 
additional points. These project proposals were reviewed first and 
foremost based on the underlying program's regulation and policies. If 
a project was deemed eligible for the underlying program, it was then 
reviewed for 6025 requirements if the applicant submitted the required 
documentation for requesting RDP points.
    RD received 47 total applications requesting RDP points broken down 
as follows:
  --By program
      --28 from CF
      --6 from WEP
      --13 from RBDG
      --0 from B&I
  --By State
      --CF: 18 from AR, 1 from IA, 2 from MN, 1 from NH, 1 from NJ, 1 
        from NJ, 2 from SC, 2 from VT
      --WEP: 2 from MN, 2 from NH, 1 from SC, 1 from VT
      --RBDG: 2 from AR, 1 from AZ, 1 from HI, 1 from MA, 1 from MD, 1 
        from MO, 1 from NC, 2 from NH, 1 from VA, 2 from VT
    RD is in the process of making final awards for fiscal year 15. 
Among those awards from the CF, WEP, and RBDG, 26 awards will be to 
projects that received RDP points as follows:
  --By program
      --16 from CF
      --3 from WEP
      --7 from RBDG
  --By State
      --CF: 15 from AR, 1 from VT
      --WEP: 1 from MN, 1 from NH, 1 from SC
      --RBDG: 1 from AR, 1 from AZ, 1 from MA, 1 from MO, 1 from NH, 1 
        from VA, 1 from VT
    During fiscal year 16, RD is working to implement Section 6025 as a 
set aside. RD's Community Economic Development (CED) Team will help 
build capacity to ensure areas of high needs have multi-jurisdictional 
plans in place. This would enable these areas to identify needs, 
economic development priorities, partners, and projects needing 
assistance which are potential pipelines for CF, WEP, B&I, and RBDG. 
Once these areas have the plans in place, they can access the 6025 set 
asides from these programs in fiscal year 16. Furthermore, the CED Team 
is reaching out to communities that have developed multijurisdictional 
plans in place to raise awareness about 6025 set asides.
    Question. The Interim Rule defines `Plan' as, ``a comprehensive 
economic development or community development strategy that outlines a 
region's vision for shaping its economy.'' Do HUD's Sustainable 
Communities Plan, USDA's Stronger Economies Together Plans, and other 
Regional Comprehensive Plans fit into that definition? More 
specifically, what is covered under the Interim Rule's definition of 
``plan''?
    Answer. RD intends the definition of ``plan'' be inclusive rather 
than exclusive, but at the same time require the plan to address 
certain minimum elements in order to be effective in improving the 
economies of the region addressed by the plan.
    The Rule defines Plan as follows: For the purposes of this subpart, 
a plan is a comprehensive economic development or community development 
strategy that outlines a region's vision for shaping its economy. This 
strategy would cover, as appropriate and necessary, a wide range of 
aspects such as natural resources, land use, transportation, and 
housing. Such plans bring together key community stakeholders to create 
a roadmap to diversify and strengthen their communities and to build a 
foundation to create the environment for regional economic prosperity.
    To be an acceptable plan for the purposes of the subpart, the plan 
must be supported by the jurisdictions affected by the plan and must 
address each of the following elements:
  --The economic conditions of the region;
  --the economic and community strengths, weaknesses, opportunities, 
        and threats for the region, to include consideration of such 
        aspects as the environmental and social conditions;
  --strategies and implementation plan that build upon the region's 
        strengths and opportunities and resolve the weaknesses and 
        threats facing the region;
  --performance measures to evaluate the successful implementation of 
        the plan; and
  --support of key community stakeholders.
    RD notes that inclusion of each of the five elements does not speak 
to the quality of the plan or to whether the plan has been adopted.
    Generally, HUD's Sustainable Communities Plans, USDA's Stronger 
Economies Together Plans, and other Regional Comprehensive Plans fit 
into that definition. Additionally, EDA's Community Economic 
Development Strategy plans generally fit into the definition of a plan 
as well. RD is actively reaching out to agencies and organizations 
which administer these plans to communicate the Section 6025 
opportunity to their stakeholders with plans in place.
    Question. In the scoring section of the Interim Rule, RD proposed 
to award two points for projects that utilize contributions from other 
Federal agencies. Are points awarded when state and local agencies 
provide similar investments? If not, why are they not calculated as 
part of the score for applications under the interim rule?
    Answer. Points are not awarded for state and local agencies because 
of the language in the authorizing statute only refers to Federal 
agencies in 6025(c)(1)(C).
    Question. Please explain how the implementation of Section 6025 
will make it easier for rural communities to access targeted resources 
to invest in long-term economic and community development efforts?
    Answer. Recognizing that rural communities have limited resources 
and myriad unique challenges to creating sustainable communities, 
Section 6025 of the 2014 Farm Bill is an opportunity to prioritize 
projects that support the implementation of a regional economic 
development plan. Rural communities who engage in regional 
collaboration plan and build strategically already increase their 
efficiencies and outcomes. As such, these communities who have a 
regional plan will further be able to utilize Section 6025 to access 
set aside funding that rewards regionalism and leverage CF, WEP, RBDG, 
and B&I programs--programs which provide resources which are 
fundamental to creating strong and sustainable communities--for the 
benefit of multiple jurisdictions.
                                 ______
                                 
               Questions Submitted by Senator John Hoeven
             rural utilities administrator brandon mcbride
    Question. The newly-created Broadband Opportunity Council which has 
been tasked with producing specific recommendations and guidance to 
increase broadband deployment recently released its report with 
recommendations that address regulatory barriers and encourage 
investment and training.
    To what extent are you following the Council's recommendations?
    Answer. The main recommendation to RUS in the report asks RUS to 
evaluate the long-standing Telecommunications Program to see if it 
could be expanded to include companies that traditionally have not 
qualified for the program.Today, the program is primarily structured 
for an Independent Local Exchange Carrier, so RUS will explore whether 
others, including cable companies, Competitive Local Exchange Carriers, 
and wireless providers could qualify under the statutory requirements.
    Question. I believe that investment in broadband connectivity is 
vital to the development of our rural communities, and that 
streamlining and eliminating duplicative programs is a step in the 
right direction towards increased access. That being said, what 
specific actions are you pursuing to break down regulatory barriers and 
increase rural broadband investment?
    Answer. In addition to the items mentioned above, RUS is working 
with sister Rural Development Agencies to explore any synergies between 
programs and make applying for broadband funding to be a one-stop-shop 
for all RD programs. In addition, we are in discussions with the FCC to 
be better prepared for the changes that they are making to the telecom 
industry and will make modifications to our financing programs that are 
in line with these changes.
    Question. As well, I think it is especially important that the 
regulatory processes initiated by the Council's recommendations are 
transparent, fair, and open. To this extent, what steps are you taking 
to improve your collaboration with the private sector and State, Local, 
and Tribal governments in the rulemaking process?
    Answer. Prior to new regulations being published, RUS conducts 
Tribal consultations to get their input and make sure that their 
concerns are addressed in any new regulation.
    In addition, RUS is holding regional workshops with the focus not 
only on the RUS financing program but also on how to use broadband 
services for rural economic development. Attendees to these events in 
Tribal representatives, local and state government, private companies 
and others.
    Question. How do you plan on leveraging public private partnerships 
to maximize the Federal government's investment in rural broadband 
services?
    Answer. RUS will work with private investors to leverage the 
amounts that are available for funding.Strong local support is required 
for a broadband service provider to succeed.
    The Broadband Opportunity Council included a proposal from the 
Rural Utility Service that would provide the Secretary of the 
Department of Agriculture with greater flexibility to approve financing 
under the Rural Utility Service's Telecommunications Infrastructure 
Loan Program for entities in areas that are determined to be 
underserved or unserved.
    Question. What steps will be taken with regard to this 
recommendation to prevent duplication or other forms of unnecessary 
overbuilding?
    Answer. The Broadband Program statute and regulations already 
address overbuilding within the eligibility requirements, and the 
Infrastructure Program statute and regulations already require a 
finding of non-duplication of facilities before a loan can be made.
                                 ______
                                 
              Questions Submitted by Senator Jeff Merkley
                  rural energy savings program (resp)
    Question. At the fiscal year 16 USDA budget hearing, Secretary 
Vilsack pledged to implement the Rural Energy Savings Program (RESP) 
that was authorized in the Farm Bill.We understand that Rural 
Development already offers an Energy Efficiency and Conservation Loan 
Program, which is similar to RESP in several respects. However, there 
are key advantages to the RESP program that we believe will cause it to 
be much more effective.
    What progress has Rural Development made to fulfill the Secretary's 
commitment to establish this program?
    Answer. The Energy Efficiency and Conservation Loan Program (EECLP) 
was inspired by efforts to enact the Rural Energy Savings Program 
(RESP). RUS has worked to identify how we might implement RESP. The key 
difference between EECLP and RESP is that EECLP offers very low 
interest rates to utilities while RESP provides for a zero interest 
rate. A zero interest rate would require budget authority to cover the 
costs of the program. EECLP loans do not require budget authority for 
the cost of the loan because of the electric program's negative subsidy 
rate. RD will continue to work with the Committee to further advance 
energy efficiency.
    Question. When do you expect regulations to be published?
    Answer. We do not have a set timeline, but we will continue to keep 
the Subcommittee informed as we move forward. We will continue to work 
with USDA staff and the Committee to determine how to best implement 
energy efficiency programs.
    Question. Please let us know if there is anything this Subcommittee 
can do to help you expedite this process.
    Answer. We will continue to keep the Subcommittee informed as we 
work to advance energy efficiency programs for rural areas.
               private investment in rural infrastructure
    Question. Secretary Vilsack has long expressed an interest in 
promoting private sector investment in rural infrastructure. It is 
believed that private sector markets neglect rural investment 
opportunities due to unfamiliarity and the relatively smaller project 
sizes. He has viewed the Water and Waste Disposal direct loan portfolio 
as a vehicle to educate the private sector on the excellent prospects 
that can be available.
    Please describe, in very specific terms, the current initiative 
that is under consideration.
    Answer. The United States faces costly upgrades to aging and 
deteriorating drinking and wastewater infrastructure.Given the stress 
on public budgets, governments are unlikely to have the capacity to 
fill this funding gap. The gap is particularly problematic for rural 
communities that often depend on Federal and state grant and loan 
programs to finance their water infrastructure projects. While larger, 
urban areas can issue public bonds to pay for major improvements, rural 
communities have limited access to these financial markets, restricting 
their ability to independently finance projects.
    USDA recognizes the need for additional investment in rural water 
infrastructure and is exploring how institutional investors (e.g. 
pension funds) could play a role in filling some of the gap. The 
challenge we face is that loan amounts needed to support rural water 
projects are often too small for institutional investors to consider 
making on a one-off basis, especially for those without prior 
experience in rural water lending.
    To incentivize institutional investors to enter the lending market 
for rural water projects, USDA is considering offering an investor a 
participation interest in a small portion of the Department's water 
loan portfolio. In exchange, the investor would make a forward 
commitment to a certain amount of new loans in support of rural water 
projects. The policy goal of such a transaction is to create an initial 
investment of scale suitable for institutional investors to consider 
entering the market.
    In fulfilling its forward commitment, the investor would target 
rural communities with populations of more than 10,000, but less than 
20,000 which are beyond the statutory reach of USDA's current water 
program, but are served by other USDA rural loan and grant programs. 
The target communities would also include those that became ineligible 
for USDA's water loans when their population level exceeded the 10,000 
limit in the 2010 decennial census.
    Question. What are the administrative burdens, and how much will 
they cost, to implement this initiative?
    Answer. There will be no material administrative burdens as a 
result of the transaction.
    Question. Will Rural Development continue to be responsible for 
servicing the loans?
    Answer. Yes.
    Question. Will Rural Development be responsible for outreach and 
promotion of the initiative, and finding new projects that might be 
funded?
    Answer. No.
    Question. What are the current and future Credit Reform costs of 
this initiative? That is, what will be required in terms of current 
budget authority and what will be the future effects on the program 
subsidy rate?
    Answer. While the transaction would constitute a Government action, 
USDA is working with OMB on determining the cost of the transaction 
under the Federal Credit Reform Act of 1990 (FCRA). USDA is planning to 
structure this transaction to have no cost under FCRA. We do not 
anticipate any impact on future subsidy rates for the water and waste 
disposal loan program.
    Question. Will private sector participants receive a discount on 
the loans involved?
    Answer. USDA would not discount any portion of its existing loans.
    Question. Will current borrowers be offered the right of first 
refusal, if their loan is being sold or participated out? If not, why 
not?
    Answer. No. At this time USDA does not anticipate offering 
borrowers the right of first refusal. The transaction would have no 
impact on the program's borrowers, who would retain all the rights and 
protections that they currently have under the terms of their loan 
agreements.
    Question. Will current borrowers retain servicing options they 
currently are entitled to?
    Answer. Yes.
    Question. Will this initiative reduce the debt burden on borrowers?
    Answer. No, borrowers will continue to be responsible for their 
current obligations.
    Question. How many water and waste projects go to poverty areas or 
areas in dire need of these services?
    Answer. In fiscal year 2015 RUS funded 340 water and waste 
projects, totaling $676 million, in persistent poverty counties and 
rural areas where twenty percent or more of its residents are living in 
poverty. These investments are part of a continuing USDA focus on 
addressing the needs of market poverty communities in rural America.
                           rental assistance
    Question. We understand that funding to renew Rental Assistance 
agreements in fiscal year 15 was exhausted in August. For those 
projects that did not get renewed, what protection did you provide to 
the tenants against unaffordable rent increases?
    Answer. Approximately 44 properties out of RD's 14,600 Multi-Family 
Housing portfolio (about 0.3 percent) were affected by the prohibition 
against a second renewal of Rental Assistance in fiscal year 15. RD's 
field staff worked with the property owners to develop ``relief plans'' 
intended to keep as much money in the property's operating account as 
possible, so that no change in tenant contribution would be necessary. 
In our discussions with borrowers, we urged them to use all the relief 
tools available, to mitigate the need for an increase in tenants' 
contribution towards rent. Forty-one owners of MFH properties elected 
to utilize the tools we offered (defer RD mortgage payment; suspend 
deposits to reserve account; use the reserve account for operating 
expenses; allow over income tenants to fill vacant units; allow for a 
borrower loan to the property).
    Question. Did any tenants suffer substantial rent increases?
    Answer. RD did not approve any rent increases as a result of the 
inability to renew these RA agreements. A few owners did notify their 
tenants that their portion of the rent payment would increase. At this 
time, we do not have quantified figures as properties report on a 
monthly basis; however, we can get that information for you.
    Question. What assistance are you providing to project owners until 
Rental Assistance agreements are renewed under the Continuing 
Resolution?
    Answer. RA funds were received under the Continuing Resolution and 
an Exception Apportionment. These funds were immediately made available 
to renew Rental Assistance agreements. As of November 4, more than $478 
million has been used to renew RA agreements. For properties that ran 
out of funding in October or earlier, their RA agreements will provide 
funds effective October 1.
    Question. When a Rental Assistance unit becomes vacant, regulations 
require that the unit be offered to the lowest income applicant on the 
waiting list. With this requirement, how do you accurately estimate 
future Rental Assistance needs?
    Answer. We believe very strongly that our mission is to serve the 
needs of the most vulnerable residents in rural communities. In doing 
so we acknowledge the difficulty in accurately estimating future rental 
assistance needs, in an effort to address the issue Rural Development 
has taken the initiative to improve the accuracy of its estimation 
process by updating the methodology RD has been using to calculate the 
dollar amounts needed on an RA Agreement.
    Question. What is the magnitude of the fiscal year 15 Rental 
Assistance shortfall?
    Answer. As indicated during the hearing, RD did not have sufficient 
funding for the RA Agreements due for renewal in September of 2015. 
There were 905 properties that requested RA that had less than a full 
month's RA payment remaining in their agreement. Consequently, the RA 
shortfall in September was $3,873,518. The shortfall was due to: more 
RA units than expected needing renewal; and an increase in per unit 
costs. The higher than expected number of renewals occurred in part due 
to the need to fund a second renewal for properties that were not 
subject to the re-renewal prohibition. The higher than expected per 
unit costs reflected inflationary increases not anticipated in 2013 
when the fiscal year 2015 budget was prepared. Harvard's Joint Center 
for Housing Studies' analysis of the consumer price index (CPI) for 
contract rents (a broad and therefore conservative measure) indicates 
that rents are climbing at an accelerating rate. Nominal rents were up 
3.5 percent during the 12 months ending September 2015, which is 
considerably higher than the 1.6 percent provided by budget guidance in 
2013.
    Question. What is the amount that is needed in fiscal year 16 to 
fund all expiring Rental Assistance contracts?
    Answer. The current appropriation of $1,389,695,000 is sufficient 
to fund all expiring Rental Assistance contracts in fiscal year 16.
    Question. What internal changes are you making to your estimation 
process to ensure more accurate budget requests in the future?
    Answer. The development of the ``Rental Assistance Obligation 
Tool'' in 2015 represents a huge step forward in the RA estimation 
process. The Obligation Tool will calculate properties' estimated needs 
based on each individual property's RA history rather than the former 
method of using a state-wide estimation process. The Tool includes an 
updated calculation methodology for forecasting that is based on:
  --The average amount of RA the property used during the most recent 
        12 months;
  --Higher weighting of the more recent months' RA use to reflect the 
        most current tenant characteristics;
  --Adjustments for any implemented and planned rent increases;
  --An inflation factor to adjust for any time lag between the estimate 
        and when funds will be needed.
    The Tool became effective October 1. We are confident that this new 
methodology will significantly increase the accuracy of our estimation 
process.
    Question. Can you assure this Subcommittee that the fiscal year 17 
budget request will not understate the need to renew expiring Rental 
Assistance agreements?
    Answer. We are confident that the new RA Obligation Tool will 
substantially reflect the most current needs of the property.
                           maturing mortgages
    Question. The number of Rural Development-financed multi-family 
housing loans maturing each year is increasing and will reach 1,100 
projects per year in 2019. When these loans are paid off, the projects 
will no longer be in USDA's affordable housing program, and will not 
have access to Rental Assistance or loan servicing options that Rural 
Development can offer.
    What is Rural Development doing to keep these projects in the 
affordable housing program?
    Answer. RD is very concerned with the potential loss of affordable 
housing as our Section 515 direct loans mature, because that housing 
may be lost in the community and the rental assistance support would no 
longer be available to the families in that property. If that RD 
housing is lost, the very low income families living there may have no 
other affordable housing in which to live.
    In response, RD has provided a number of options for owners to keep 
their RD loan and protect the families living there.
  --The borrower can apply through RD's Preservation NOFA for a 
        deferral of their maturing mortgage for up to 20 years;
  --The borrower can receive priority points if they choose to apply 
        for both the deferral and additional RD funding for 
        rehabilitation of property;
  --The borrower can request a re-amortization and modification of the 
        maturing loan to extend the loan term up to 20 years;
  --If owners go through the prepayment process, their tenants may be 
        eligible to receive housing vouchers.
  --RD has also proposed legislation in the 2016 budget to extend 
        housing voucher protection to tenants in properties with a 
        mortgage that matures and the owner is not willing to extend 
        the affordable housing feature of that property.
    Question. Do current project owners generally want to remain in the 
program or graduate out?
    Answer. We believe that most owners wish to remain in the program, 
because of the stability that the rental assistance benefit provides 
and the favorable financing available through our 515 and Preservation 
and Revitalization programs. Many of these owners also share our 
commitment to provide affordable housing to the low income residents 
that we both serve. We thank them for their continued commitment.
    Question. Have you surveyed project owners to determine what number 
would like to remain in the program and where those projects are 
located?
    Answer. RD has not performed a survey of all of the owners of 
approximately 11,500 properties with mortgages maturing through 2024. 
However, RD field staff do contact individual owners of properties with 
mortgages maturing in the next few years to learn those owners' plans 
for the property, and to explain the options the owners may have to 
keep the affordable housing in the program. RD has also had numerous 
discussions with organizations active in this issue to get a general 
sense about the industry's interest in opportunities to retain this 
critically needed affordable housing.
    Question. How are you working with owners and housing advocates to 
develop new options to retain properties in the affordable housing 
program?
    Answer. RD recognizes the importance of our non-profit partners in 
retaining our affordable housing. We have looked for ways to encourage 
non-profits to take over this housing; one option that we have used is 
to promote the use of Section 515 loans to finance the acquisition of a 
maturing mortgage property from the existing owner. The new 515 loan 
extends the availability of that housing by another 30 years.
                multi-family housing preservation pilot
    Question. Over 14,000 affordable multi-family housing projects in 
rural America have been financed using USDA loans.These projects 
include over 475,000 housing units for low and very low income rural 
households. However, the average age of these projects exceeds 25 
years.
    With projects this old, what is Rural Development doing under the 
Rural Housing Preservation Pilot to improve their physical condition 
and to mitigate issues of deferred maintenance?
    Answer. Since its authorization as a demonstration program in 2006, 
RD has been actively engaged in the preservation of its Section 515 
portfolio through its Multi-Family Preservation and Revitalization 
(MPR) program. Through the end of fiscal year 2015, RD has obligated 
$1.051 billion for the rehabilitation of 982 properties and more than 
33,000 units of affordable housing. MPR has also facilitated a high 
level of cooperation with state housing finance authorities by 
leveraging billions of dollars in tax credits to stretch our limited 
appropriation dollars.As part of the application process for MPR 
funding, RD requires the property owner to address any immediate or 
near term property physical condition issues, including deferred 
maintenance. In addition, RD underwrites the loan application to ensure 
sufficient funds will be available to long-term physical issues as they 
arise.
    In order to continue making progress in our revitalization efforts, 
RD has requested that Congress authorize the MPR program permanently. 
If the program was permanently authorized, the Agency could create 
regulations to institutionalize the program's benefits and signal to 
potential program participants that both the Executive and Legislative 
branches of the Federal government are committed to the revitalization 
of our affordable housing.
    Question. How is Rural Development working with housing advocates, 
owners, and other interested parties to develop new options to preserve 
this valuable affordable housing stock.
    Answer. RD recognizes the importance of our non-profit partners in 
retaining our affordable housing. We have looked for ways to encourage 
non-profits to take over this housing; one option that we have used is 
to promote the use of Section 515 loans to finance the acquisition of a 
maturing mortgage property from the existing owner. The new 515 loan 
extends the availability of that housing by another 30 years.
    Question. One concern we frequently hear is that Rural Development 
is unable to expedite the transfer of a property from the current owner 
to a non-profit purchaser. These transactions typically take 18 months 
or more, which places incredible burdens on the buyers in terms of 
holding together financial packages. What are you doing to streamline 
and accelerate this process?
    Answer. Stakeholders have expressed concerns about property 
transfer processing times. Based on those concerns, RD undertook a 
business process improvement to streamline the transfer process, reduce 
processing times, and increase consistency and transparency in the 
transfer process. In the spring of 2015, RD rolled out a transfer 
assessment tool. This tool was provided to stakeholders, including 
property owners, and training was provided to ease the use of the tool. 
The tool created consistency in underwriting transfer applications and 
increased transparency by ensuring all parties in the transfer have 
access to the same review tool. In addition, RD adopted several 
industry standards into its transfer policies, to ensure more 
consistent approval standards that are used by all funders in the 
transfer financial package.
    Question. What is the average time required now to execute a 
property transfer?
    Answer. Based on preliminary data, the average time to process, 
approve, and close a transfer from the date of receipt of a complete 
application package in fiscal year 2015 was 126 days. This is a 
reduction of 31 days, or nearly 20 percent, from prior years. As we 
continue to make improvements to the process, we expect transfer 
processing to continue to improve.
               single family housing direct loan program
    Question. The single family housing direct loan program is Rural 
Development's flagship program providing homeownership opportunities to 
low and very low income rural households. For years this program has 
offered the chance for successful homeownership to thousands of rural 
households who otherwise would be denied this opportunity. This has 
always been one of the most popular programs of this Subcommittee and 
ample funding is provided each year.
    Were you able to obligate all of the funds available in fiscal year 
15?
    Answer. Yes, fiscal year 2015 funds were fully utilized on 
September 21, 2015.
    Question. What changes are you putting in place for fiscal year 
2016 to ensure that the funding provided will be entirely utilized, and 
not require the extraordinary efforts that were necessary in fiscal 
year 2015?
    Answer. In fiscal year 2015, delivery of the 502 direct home 
ownership loan program was a high priority for USDA. That priority 
continues in fiscal year 2016, and will be reinforced with automated 
underwriting, streamlining of the credit report process, and additional 
program training. A certified packager program final rule will be 
implemented provided that prohibitory ``pilot'' language is removed 
from the final USDA fiscal year 2016 appropriations bill. This 
regulation will enhance our partnership with certified loan packagers 
and further enhance program delivery.
                       new poverty pilot program
    Question. Recently the Administration announced a new multi-agency 
anti-poverty initiative, the ``Rural IMPACT'' demonstration project. 
Ten rural communities were selected to receive special technical 
assistance for 6 months, to develop plans to address the problems of 
poverty in their communities.
    Please describe the Rural IMPACT initiative and what is expected to 
be accomplished.
    Answer. Recognizing that every child, no matter where she is born, 
should have an opportunity to succeed, the White House Rural Council 
launched ``Rural Impact'', a cross-agency effort to combat poverty and 
improve upward mobility in rural and tribal places. And in August, HHS 
announced a new demonstration project, Rural Integration Models for 
Parents and Children to Thrive (IMPACT), to help communities adopt a 
two-generation approach to addressing the needs of both vulnerable 
children and their parents, with the goal of increasing parents' 
employment and education and improving the health and well-being of 
their children and families. Often, programs are structured to serve 
either adults or children, rather than focusing on the entire family to 
improve outcomes. The Rural IMPACT Demonstration helps communities 
adopt a comprehensive, whole-family framework for addressing child 
poverty, such as through facilitating physical colocation of services, 
universal ``no wrong door'' intake, referral networks, shared 
measurement systems, and use of technology to deliver services.
    Question. How were the ten rural communities selected?
    Answer. A process was led by HHS that included communities 
submitting letters of interest in participation in the 
demonstration.The Demonstration is administered by HHS with support 
from the Community Action Partnership and the American Academy of 
Pediatrics, and implemented in collaboration with the U.S. Departments 
of Agriculture, Education, and Labor, Appalachian Regional Commission, 
Delta Regional Authority, and the Corporation for National and 
Community Service (CNCS).
    Question. Why do you think 6 months to develop local plans and then 
6 months to implement those plans is adequate to produce visible 
results?
    Answer. We believe that with intensive technical assistance, 
including individualized expert coaching, site visits, and peer 
learning, as well as increased capacity in the form of AmeriCorps VISTA 
volunteers, rural communities can make important program and system 
adjustments to intentionally align intensive, high-quality, adult-
focused services with intensive, high-quality, child-focused programs.
    Question. How will success be measured?
    Answer. Over the long term, key outcomes would include: increased 
enrollment in quality early childhood programs; increased high school/
GED and post-secondary credentials for parents; increased parental 
employment; and increased child and family well-being. Recognizing that 
we are limited in the outcomes we can expect within just 1 year, a 
process evaluation will empirically describe the Rural IMPACT 
intervention, its processes, the site- level activities that resulted, 
and the experiences of key individuals and teams involved.
    Question. What will this demonstration project cost and from where 
are the funds coming?
    Answer. USDA Rural Development has contributed $250,000 for 
AmeriCorps VISTA volunteers to better coordinate rural development 
programs of Federal, state and local governments in the designated 
rural areas. The remaining resources are contributions from other 
participating agencies.
                     loan portfolio credit quality
    Question. Rural Development has the difficult task of providing 
loans to rural individuals, organizations, and communities that have 
limited means and often cannot obtain commercial credit. The 
outstanding loan portfolio now exceeds $210 billion.
    Please discuss the credit quality of the portfolio, and whether or 
not delinquencies and loan losses are remaining steady or declining.
    Answer. In looking at Rural Development's portfolio in its 
entirety, one measure that is tracked is the percentage of delinquent 
principal greater than 1 year. For fiscal year-end 2012, 2013, 2014, 
and 2015, those figures were 2.19 percent, 1.91 percent, 1.96 percent 
and 2.00 percent respectively. Therefore the portfolio as a whole has 
been fairly consistent at the 2 percent range.
    Rural Development does, however, have a vast array of programs as 
represented in the portfolio reports that follow. Four years have been 
provided for comparison purposes of each program.
    Loan loss data has also remained consistent during the last 4 
years. For 2012, 2013, 2014, and through June of 2015, percentages have 
been .51 percent, .61 percent, .53 percent, and .46 percent 
respectively.
    The information is submitted for the record.
    [The information follows:]

                                                                    RURAL DEVELOPMENT LOAN PORTFOLIO AS OF SEPTEMBER 30, 2012
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Delinquent Loans > 30 days                                Delinquent Loans > 1 Year
                                                                Amount of     ------------------------------------------------------------------------------------------------------------------
               Loan Portfolio                  # of Loans       Principal                         % Loan        Delinquent       % Delq.      # Loan      % Loan       Delinquent       % Delq.
                                                               Outstanding     # Loan Delinq.    Delinq.     Principal balance    Prin.      Delinq.     Delinq.    Principal balance    Prin.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Portfolio
Housing and Community Facilities
  Single Family Housing.....................      307,883     $15,776,794,078          70,151        22.78      $3,860,545,020      24.47       20,612       6.69      $1,075,339,610       6.82
  Multi-Family Housing......................       25,488     $11,161,277,000            *321       **2.11        $206,782,018       1.85         *184     **1.21        $126,938,039       1.14
  Community Facility........................        6,164      $4,165,281,000             144         2.34        $180,241,446       4.33           66       1.07         $85,471,316       2.05
    Total Housing & Community Fac...........      339,535     $31,103,352,078       ***70,295     ***22.38      $4,247,568,484      13.66    ***20,678    ***6.58      $1,287,748,965       4.14
Utilities
  Water & Waste.............................       17,836     $12,004,297,000              93         0.52        $125,725,161       1.05           57       0.32         $80,159,255       0.67
  Electric..................................        3,203     $43,087,376,196               1         0.03          $1,447,861       0.00            1       0.03          $1,447,861       0.00
  Telecommunications........................        1,975      $4,656,650,125              31         1.57        $267,219,531       5.74           26       1.32        $233,892,463       5.02
    Total Utilities.........................       23,014     $59,748,323,321             125         0.54        $394,392,553       0.66           84       0.36        $315,499,579       0.53
Business and Cooperative
  Business and Industry.....................           55          29,854,000              23        41.82         $22,212,832      74.40           17      30.91         $20,987,391      70.30
  RMAP......................................          142          14,914,045              10         0.00                  $0       0.00            0       0.00                  $0       0.00
  Intermediary Relending Prog/HHS...........        1,028        $453,693,800              12         1.17          $5,253,101       1.16            5       0.49          $3,575,574       0.79
  Rural Economic Development................          352        $112,564,484               2         0.57            $400,371       0.36            0       0.00                  $0       0.00
    Total Business & Cooperative............        1,577        $611,026,329              37         2.35         $27,866,304       4.56           22       1.40         $24,562,965       4.02
Total Direct Portfolio......................      364,126     $91,462,701,728       ***70,457     ***20.81       4,669,827,341       5.11    ***20,784    ***6.14       1,627,811,509       1.78
Guaranteed Portfolio
Housing and Community Facilities
  Single Family Housing.....................      671,274     $75,683,366,487          88,532        13.19      $9,628,542,279      12.72       16,930       2.52      $1,883,300,769       2.49
  Multi-Family Housing......................          550        $668,204,431               3         0.55          $6,006,470       0.90            2       0.36          $4,278,232       0.64
  Community Facility........................          713      $1,173,174,000              21         2.95         $49,050,168       4.18            9       1.26         $22,274,686       1.90
    Total Housing & Community Fac...........      672,537     $77,524,744,918          88,556        13.17      $9,683,598,917      12.49       16,941       2.52      $1,909,853,687       2.46
Utilities
  Water & Waste.............................           69         $90,699,867               0         0.00                  $0       0.00            0       0.00                  $0       0.00
  Electric/Other............................           17        $289,496,096               0         0.00                  $0       0.00            0       0.00                  $0       0.00
    Total Utilities.........................           86        $380,195,963               0         0.00                  $0       0.00            0       0.00                  $0       0.00
Business and Cooperative
  Business and Industry.....................        3,752      $7,089,217,252             263         7.01        $549,965,422       7.76          175       4.66        $329,952,765       4.65
    Total Business & Cooperative............        3,752      $7,089,217,252             263         7.01        $549,965,422       7.76          175       4.66        $329,952,765       4.65
Total Guaranteed Portfolio..................      676,375     $84,994,158,133          88,819        13.13      10,233,564,339      12.04       17,116       2.53       2,239,806,452       2.64
Total Loan Portfolio........................    1,040,501    $176,456,859,861      ***159,276     ***15.69     $14,903,391,680       8.45    ***37,900    ***3.73      $3,867,617,961       2.19
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                    RURAL DEVELOPMENT LOAN PORTFOLIO AS OF SEPTEMBER 30, 2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Delinquent Loans > 30 days                                Delinquent Loans > 1 Year
                                                                Amount of     ------------------------------------------------------------------------------------------------------------------
               Loan Portfolio                  # of Loans       Principal                         % Loan        Delinquent       % Delq.      # Loan      % Loan       Delinquent       % Delq.
                                                               Outstanding     # Loan Delinq.    Delinq.     Principal balance    Prin.      Delinq.     Delinq.    Principal balance    Prin.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Portfolio
Housing and Community Facilities
  Single Family Housing.....................      299,935     $15,593,598,443          72,565        24.19      $4,044,744,331      25.94       24,517       8.17      $1,276,738,913       8.19
  Multi-Family Housing......................       24,973     $11,060,153,000            *279       **1.87        $182,852,919       1.65         *194     **1.30        $139,950,212       1.27
  Community Facility........................        6,121      $4,708,785,000             130         2.12        $141,414,500       3.00           75       1.23         $83,623,935       1.78
    Total Housing & Community Fac...........      331,029     $31,362,536,443       ***72,695     ***23.75      $4,369,011,750      13.93    ***24,592    ***8.04      $1,500,313,060       4.78
Utilities
  Water & Waste.............................       17,005     $12,080,703,000              66         0.39         $86,502,160       0.72           15       0.09         $27,727,916       0.23
  Electric..................................        3,086     $45,790,844,797              12         0.06         $19,663,035       0.04            1       0.03          $1,403,971       0.00
  Telecommunications........................        1,822      $4,576,769,673              30         1.65        $292,421,343       6.39           21       1.15        $146,904,096       3.21
    Total Utilities.........................       21,913     $62,448,317,470              98         0.45        $398,586,538       0.64           37       0.17        $176,035,983       0.28
Business and Cooperative
  Business and Industry.....................           46         $24,954,000              18        39.13         $18,933,059      75.87           12      26.09         $18,017,166      72.20
  RMAP......................................           85         $20,331,259               3         3.53            $119,478       0.59            0       0.00                  $0       0.00
  Intermediary Relending Prog/HHS...........        1,048        $440,390,800              15         1.43          $6,535,033       1.48            5       0.48          $2,716,201       0.62
  Rural Economic Development................          361        $123,615,495               1         0.28            $175,000       0.14            0       0.00                  $0       0.00
    Total Business & Cooperative............        1,540        $609,291,554              37         2.40         $25,762,570       4.23           17       1.10         $20,733,367       3.40
Total Direct Portfolio......................      354,482     $94,420,145,467       ***72,830     ***22.10      $4,793,360,858       5.08    ***24,646    ***7.48      $1,697,082,410       1.80
Guaranteed Portfolio
Housing and Community Facilities
  Single Family Housing.....................      775,355     $89,742,912,407          91,808        11.84     $10,210,728,503      11.38       14,048       1.81      $1,674,113,500       1.87
  Multi-Family Housing......................          615        $750,593,362               1         0.16            $294,890       0.04            0       0.00                  $0       0.00
  Community Facility........................          701      $1,242,806,021              17         2.43         $27,568,610       2.22           12       1.71         $24,730,405       1.99
    Total Housing & Community Fac...........      776,671     $91,736,311,790          91,826        11.82     $10,238,592,003      11.16       14,060       1.81      $1,698,843,905       1.85
Utilities
  Water & Waste.............................           68         $78,665,770               0         0.00                  $0       0.00            0       0.00                  $0       0.00
  Electric/Other............................           17        $273,519,135               0         0.00                  $0       0.00            0       0.00                  $0       0.00
    Total Utilities.........................           85        $352,184,905               0         0.00                  $0       0.00            0       0.00                  $0       0.00
Business and Cooperative
  Business and Industry.....................        3,516      $6,706,971,282             219         6.23        $476,680,469       7.11          143       4.07        $299,493,509       4.47
    Total Business & Cooperative............        3,516      $6,706,971,282             219         6.23        $476,680,469       7.11          143       4.07        $299,493,509       4.47
  Total Guaranteed Portfolio................      780,272     $98,795,467,977          92,045        11.80     $10,715,272,472      10.85       14,203       1.82      $1,998,337,414       2.02
Total Loan Portfolio                            1,134,754    $193,215,613,444      ***164,875     ***14.86     $15,508,633,330       8.03    ***38,849    ***3.50      $3,695,419,824       1.91
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                    RURAL DEVELOPMENT LOAN PORTFOLIO AS OF SEPTEMBER 30, 2014
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Delinquent Loans > 30 days                                Delinquent Loans > 1 Year
                                                                Amount of     ------------------------------------------------------------------------------------------------------------------
               Loan Portfolio                  # of Loans       Principal                         % Loan        Delinquent       % Delq.      # Loan      % Loan       Delinquent       % Delq.
                                                               Outstanding     # Loan Delinq.    Delinq.     Principal balance    Prin.      Delinq.     Delinq.    Principal balance    Prin.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Portfolio
Housing and Community Facilities
  Single Family Housing.....................      291,968     $15,415,802,962          75,432        25.84      $4,239,911,528      27.50       28,851       9.88      $1,507,234,605       9.78
  Multi-Family Housing......................       24,716     $10,914,281,000            *287       **1.94        $197,524,047       1.81          *65     **1.12        $123,347,225       1.13
  Community Facility........................        5,970      $5,049,715,000             118         1.98        $145,378,338       2.88           67       1.12         $75,895,343       1.50
    Total Housing & Community Fac...........      322,654     $31,379,798,962       ***75,550     ***25.36      $4,582,813,913      14.60    ***28,918    ***9.71      $1,706,477,173       5.44
Utilities
  Water & Waste.............................       16,676     $12,425,766,000              64         0.38         $82,595,959       0.66           20       0.12         $30,337,162       0.24
  Electric..................................        2,978     $46,431,536,087               3         0.10         $21,547,566       0.05            3       0.10         $21,547,566       0.05
  Telecommunications........................        1,525      $4,411,669,475              51         3.34        $369,748,850       8.38           30       1.97        $243,883,830       5.53
    Total Utilities.........................       21,179     $63,268,971,562             118         0.56        $473,892,375       0.75           53       0.25        $295,768,558       0.47
Business and Cooperative
  Business and Industry.....................           40         $23,569,000              17        42.50         $18,952,098      80.41           14      35.00         $18,064,832      76.65
  RMAP......................................           84         $23,914,016               4         4.76            $131,710       0.55            0       0.00                  $0       0.00
  Intermediary Relending Program............        1,061        $422,227,000              11         1.04          $3,959,006       0.94            4       0.38          $2,160,790       0.51
  Rural Economic Development................          379        $158,214,456               6         1.58          $2,745,655       1.74            0       0.00                  $0       0.00
    Total Business & Cooperative............        1,564        $627,924,472              38         2.43         $25,788,469       4.11           18       1.15         $20,225,622       3.22
Total Direct Portfolio......................      345,397     $95,276,694,996       ***75,706     ***23.61      $5,082,494,757       5.33    ***28,989    ***9.04      $2,022,471,353       2.12
Guaranteed Portfolio
Housing and Community Facilities
  Single Family Housing.....................      873,186    $102,281,768,559          97,688        11.19     $10,985,775,598      10.74       14,573       1.67      $1,736,154,464       1.70
  Multi-Family..............................          648        $785,939,681               1         0.15            $294,890       0.04            1       0.15            $294,890       0.04
  Housing Community Facility................          684      $1,247,462,398              15         2.19         $51,969,241       4.17            8       1.17         $18,610,338       1.49
    Total Housing & Community Fac...........      874,518    $104,315,170,638          97,704        11.17     $11,038,039,729      10.58       14,582       1.67      $1,755,059,692       1.68
Utilities
  Water & Waste.............................           74         $96,223,011               0         0.00                  $0       0.00            0       0.00                  $0       0.00
  Electric/Other............................           17        $247,912,430               0         0.00                  $0       0.00            0       0.00                  $0       0.00
    Total Utilities.........................           91        $344,135,441               0         0.00                  $0       0.00            0       0.00                  $0       0.00
Business and Cooperative
  Business and Industry.....................        3,331      $6,298,413,586             194         5.82        $416,411,396       6.61          117       3.51        $264,421,512       4.20
    Total Business & Cooperative............        3,331      $6,298,413,586             194         5.82        $416,411,396       6.61          117       3.51        $264,421,512       4.20
Total Guaranteed Portfolio..................      877,940    $110,957,719,665          97,898        11.15     $11,454,451,125      10.32       14,699       1.67      $2,019,481,204       1.82
Total Loan Portfolio........................    1,223,337    $206,234,414,661      ***173,604     ***14.48     $16,536,945,882       8.02    ***43,688    ***3.64      $4,041,952,557       1.96
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
*  Number of projects delinquent.
**  The percent of projects delinquent: Number of projects delinquent divided by number of projects outstanding. There are 14,771 projects outstanding as of September 30, 2014.
***  Exclude Multi-Family Housing Projects (Direct)

                               broadband
    Question. Rural Development has had the responsibility for some 
years of expanding access to high speed broadband services across rural 
America.
    How successful has Rural Development been in expanding rural access 
to high speed broadband?
    Answer. RUS has been very successful in expanding broadband service 
in rural areas.
    Over 1.9 million Rural Subscribers since 2009. Based on projections 
from the project applicants in all RUS programs, 1.9 million rural 
households, businesses, farms, factories, schools, libraries, and 
healthcare facilities are anticipated to receive new or improved 
broadband services as a result of RUS funding.
    Over $6.7 Billion since 2009. RUS has provided over $6.7 billion in 
loans and grants for wireline, wireless, and satellite broadband 
deployment through the Infrastructure Loan program, the ARRA Broadband 
Initiatives Program, and the Farm Bill Broadband Program.
    Unserved Rural Communities Receive Broadband through RUS's 
Community Connect Program. Since 2009, RUS has awarded over $77 million 
in grants to 74 unserved communities to provide broadband service at 
residences, businesses, and community centers.
    Question. The fiscal year 14 Farm Bill required changes to the USDA 
loan program. Please describe the significant program changes.
    Answer. The Farm Bill required the following changes to be 
incorporated into 7 CFR part 1738 which governs the Broadband Loan 
Program.
  --Evaluation Periods--establishes at least 2 evaluation periods each 
        year.
  --Priority--requires the Agency to prioritize applications that offer 
        service to the greatest proportion of unserved households.
  --Minimum acceptable level of broadband service--establishes a 
        minimum level for which Broadband Service is defined (4 Mbps 
        down and 1 Mbps up) and requires the Secretary to review that 
        definition at least once every 2 years.
  --Eligible Service Area--changes the current 25 percent underserved 
        requirement and replaces it with a 15 percent unserved 
        requirement. Availability of service in an applicant's service 
        territory is to be validated by the National Broadband Map and 
        any other sources the Secretary may obtain. Determining 
        Priority of Applications--existing service in an applicant's 
        service territory is to be validated by one of three resources: 
        (1) information certified by the affected community, city or 
        county, or (2) demonstrated by the state broadband map or (3) 
        as shown on the National Broadband Map.
  --Public Notice Regarding Applications--requires the Agency to 
        establish a fully searchable database that includes a notice 
        regarding each application for funding which includes the 
        applicant identity, description of proposed service area, the 
        amount and type of support requested, the status of the 
        application, the estimated number of households without 
        broadband service, and a listing of the census blocks that will 
        be served or service area map.
  --Public Notice Regarding Awardees--requires the Agency to establish 
        a fully searchable database that includes a notice of each 
        entity receiving funding, including the name of the entity, the 
        type of assistance received, the purpose of the funding, and a 
        copy of the awardees semiannual report (redacting any 
        proprietary info).
  --Semiannual Awardee Reporting--borrowers are to submit a semiannual 
        report for 3 years after the completion of the project which 
        describes the use of the assistance, the estimated number of 
        end users using or forecasted to use the new or upgraded 
        system, and the borrowers progress towards fulfilling the 
        objectives for which the assistance was provided (the number 
        and location of residents and businesses receiving new and 
        improved service, the speed of the broadband service, the 
        average price of service along with any changes to the adoption 
        rates).
  --Term--if the project is serving an unserved area, the Agency may 
        establish a limited initial deferral period or other term 
        necessary to achieve financial feasibility and long-term 
        sustainability of the project.
    Question. Have any loans been made under the new program?
    Answer. At the end of July 2015, RUS published the new regulation 
and opened up the first application window that is now required.The 
application window closed on September 30, 2015 and 15 applications 
were submitted for approximately $118 million.RUS is currently 
reviewing the applications.
    Question. What does the demand look like for the new program?
    Answer. Based on the number of applications received for only a 2-
month application window, demand for the program appears to be strong. 
RUS is also hearing from many potential applicants that they are 
working on submitting applications during the next application window.
    Question. Do you consider the BIP program a success? Why?
    Answer. We consider the BIP program very successful. BIP funded 254 
projects that are now providing broadband service to some of the 
hardest to reach rural areas. Over $2.9 billion was expended to bring 
broadband service to rural America.
    Question. Rural Development has funded a lot of ``smart grid'' 
projects.What is smart grid technology?
    Answer. Smart grid technology facilitates communications and remote 
control of electric utility systems and business and residential 
consumers. Smart grid technology allows utilities to better manage 
loads and locate outages. Smart grid technology offers consumers the 
ability to remotely control heating and air conditioning systems. For 
instance, a consumer could have their AC unit connected to a smart grid 
service provider and could remotely lower the temperature in the house 
before they get home.
                rural energy for america program (reap)
    Question. The REAP program can and is used by individual farmers 
and ranchers, and certain agricultural cooperatives, to increase the 
efficiency of their operations or generate renewable energy on farm. 
Irrigation districts apparently are not eligible to apply. However, at 
least in Oregon, when irrigation districts pipe canals they are often 
interested in doing renewable in-pipe hydropower generation and other 
types of energy efficiency improvements for their members.
    Does USDA have the ability to adjust the REAP program to allow 
irrigation districts to apply, and is this something you have 
considered doing? This could be an additional way to assist drought 
affected communities, which is something we should all be working on.
    Answer. Most irrigation districts are quasi-public districts that 
were formed under State statute and would not qualify for funding under 
REAP. A regulatory change would be required to make these entities 
eligible recipients under REAP. There are a handful of districts, 
however, that have formed irrigation cooperatives as an operating 
entity. These cooperatives could be considered eligible for REAP.
    To be eligible for REAP, the applicant must be a small business or 
an agriculture producer, and non-profits and other public entities are 
not eligible to participate in REAP.
    Question. The fiscal year 14 Farm Bill provided the REAP Program 
with $50 million in mandatory funding yearly. Please provide an update 
on how REAP is doing.
    Answer. Fiscal year 2015 Program level included $83 million of 
grant funding and $208 million of guaranteed loan funding, which came 
from two fiscal years of 2014 Farm Bill Funding and fiscal year 2014 
Appropriations.The program utilized all of the grant funding and 75 
percent of the guaranteed loan funds. The guaranteed loan funds was 
twice the amount of the previous historical record which was quite a 
feat as almost half the year was gone before guaranteed loans could be 
obligated. Unused guaranteed loan funds will be carried over into 
fiscal year 2016 and made available for lenders to access project 
financing shortly after October 1st, which will continue to make the 
program more accessible to applicants needing the funding.
    On December 29, 2014 RD published a final rule that took into 
account the 2014 Farm Bill provisions as well as comments received on 
the REAP interim rule published in 2011 and the proposed rule published 
in 2013.
    RD has developed a new suite of outreach materials and is currently 
engaged in an extensive outreach effort to potential applicants and 
lenders.
                   rural business-cooperative service
    Question. What is the status of the Biorefinery Assistance Program 
(Sec. 9003)?
    Answer. RD published an Interim Final Rule on June 24, 2015 
implementing the 2014 Farm Bill provisions. The new rule makes the 
program more accessible to facilities producing renewable chemicals and 
to facilities manufacturing renewable chemicals and other biobased 
outputs of biorefineries into end-user products. It also requires the 
Agency to ensure diversity in the types of projects approved. A cap on 
the amount of funding is provided for promoting biobased product 
manufacturing (no more than 15 percent of fiscal year 2014 and fiscal 
year 2015 mandatory funds). In addition to addressing the Farm Bill 
provisions, the Interim Final Rule makes other programmatic changes 
including an improved application process, enabling the flexibility to 
assess an application on a commercial lending framework or a project 
finance-based framework, simplifying the application scoring process, 
and improving a number of loan guarantee terms and conditions.
    RD published a Notice of Solicitation for Applications on July 6, 
2015 announcing the first application cycle with a deadline of October 
1, 2015. The NOSA requires all persons who intend to file an 
application by October 1, 2015 to submit a Letter of Intent no later 
than September 1, 2015. Application cycles are every 6 months with 
applications deadlines of October 1 and April 1, which are preceded by 
Letters of Intent by September 1 and March 1.
    RD received letters from 23 potential applicants expressing their 
intent to file an application for the application cycle ending October 
1, 2015, requesting loan totaling $900 million and project costs 
totaling $1 billion. Of these 23, six submitted applications by the 
October 1 deadline while 11 potential applicants notified RD that they 
will submit their application for the April 1, 2016 application cycle 
because their lender was unable to complete the application by the 
October 1, 2015 deadline.

10/01/2015 Application Cycle:
  --Six applications--six Biorefineries and no Biobased Product 
        Manufacturing facilities.
  --Loans requested range from $9 million to $250 million and total 
        $588 million
  --Projects costs range from $12 million to $340 million and total 
        $895 million
  --Three biorefineries will primarily produce advanced biofuels and 
        three will primarily produce biobased products including 
        renewable chemicals.
    Between fiscal years 2009 and 2014, 42 applications were received. 
Of these 142 applications, 30 applications were either withdrawn by the 
applicant/borrower, determined by RD to be ineligible, or have had 
funds deobligated. Of the remaining 12 applications, RD has issued 11 
conditional commitments,--of which two loans have gone into default and 
one loan was repaid in full--and one application is pending for which 
RD is preparing to enter into a conditional commitment in fiscal year 
2016.
    Question. How do RBS programs leverage private-public partnerships 
and outside funding?
    Answer. While the Federal budget has increasingly been strained by 
competing funding priorities, demand for RBS programs continues to 
grow. Leveraging of program funds with outside (non-Federal funds) is 
an important tool that RBS uses to stretch Federal funds in improving 
conditions in the rural American communities that RBS serves.
    RBS' success in this leveraging is enhanced by promoting 
partnerships between the public and private sectors. RBS efforts to 
leverage program funding includes Rural Development State and National 
Office outreach efforts to discuss the equity or matching requirements 
of RBS programs to stakeholders, and participation in regional and 
local listening sessions, one on one meetings with stakeholders and 
eligible entities, and interagency meetings or forums with other 
Federal and state agencies, community development organizations, and 
private foundations or investors.
    In addition, at the individual project level, leveraging additional 
funding sources demonstrates that others believe in the project, and it 
contributes to the sustainability of a project, because those who sign 
on as partners at the beginning have an incentive to continue 
supporting the project after the RBS loan or grant is fully dispersed.
    The following table summarizes RBS' success in leveraging from 
fiscal year 2009 through fiscal year 2015.

----------------------------------------------------------------------------------------------------------------
                                                       Fiscal year 2009-2014                   2015
                    Programs                     ---------------------------------------------------------------
                                                   Total Funding     Leverage       Obligations      Leverage
----------------------------------------------------------------------------------------------------------------
B&I Guaranteed Loans............................       $8,712.99       $5,743.90       $1,044.52         $460.00
REAP............................................          568.36        1,498.23          244.26          680.38
Biorefinery Assistance Program (9003)...........        1,037.68        1,198.96           80.00           70.48
RBOG............................................           23.69           18.31              (see RBDG)
VAPG............................................          108.49           47.88           44.48           50.24
RCDG............................................           42.09           15.28            6.05            2.32
IRP.............................................          140.80          873.81           18.89            9.42
REDLoans........................................          268.62        1,560.34           38.65          196.89
REDGrants.......................................           54.24          431.54            9.21           57.63
RBDG............................................          223.65          283.32           27.84           29.61
RMAP............................................           74.86           49.66            5.02         1143.71
Total RBS.......................................       11,255.46       11,721.25        1,518.92        1,600.68
----------------------------------------------------------------------------------------------------------------
NOTE: All figures are in $ millions.

    Question. What is the status of the REDLG program? Why have you not 
awarded funds since March?
    Answer. We obligated all of the available RED loan funds by the end 
of March 2015.The program is oversubscribed, and experienced a dramatic 
funding cut from 2014 to 2015. In 2014, $85.6 million in loans and $9.2 
million in grants were available and awarded.In 2015, less than half, 
or $38.6 million in loans and $9.2 million in grants were available.
    Question. How do RBS programs support local food initiatives?
    Answer. Local and regional food is the strongest food trend in 
decades and USDA and Rural Development are looking to build on this 
trend and facilitate consumer interest in reconnecting with all 
American agriculture and bridge the rural-urban divide. While limited 
by geographic borders, RD has sought to identify projects that while 
located in rural areas, can be used to support needs in urban and 
suburban areas. For example, working to link a rural produce marketing 
cooperative with an urban food retailer or market where there is a lack 
of affordable fresh produce. RD has also been active in the Know Your 
Farmer, Know Your Food initiative which emphasizes the need for a 
fundamental and critical reconnection between producers and consumers. 
RD continues to work to align existing programs with the needs of local 
and regional food systems; conducting outreach activities so that the 
linkages are understood; helping communities build local food systems 
by providing new initiatives; and engaging the American public in 
conversation about local and regional agriculture. RD has been engaged 
with other Mission Areas within USDA as well as other Federal agencies 
to collaborate and leverage resources and overcome these geographic and 
administrative issues.
    While Rural Development does not have a specific emphasis for local 
food initiatives historically, the authorities governing many programs 
within RD have supported local food activities. Examples of existing 
programs and authorities within Rural Development currently support the 
objectives of local food initiatives include: Community Facilities 
Program (CF), Rural Business Development Grant (RBDG), Value Added 
Producer Grant (VAPG), Rural Cooperative Development Grant (RCDG), 
Small Socially Disadvantage Group Grant (SDGG), Rural Cooperative 
Development Grant (RCDG), Renewable Energy for America Program (REAP), 
and the Business and Industry Loan Guarantee (B&I) program.
    These programs have funded a wide array of community and local food 
projects. Examples include the development and implementation of food 
hubs, mobile slaughter units, farm-to-school programs, farmers markets, 
food banks, food cooperatives, food innovation centers, and value added 
agricultural products. RD promotes a range of interventions that expand 
the supply of and demand for nutritious foods, including increasing the 
distribution of agricultural products, developing and equipping grocery 
stores and strengthening the producer-to-consumer relationship.
    Rural Development has actively promoted local and regionally 
produced agricultural food products. National Office staff regularly 
provide Field Office staff with information and guidance on how to 
apply programs to support this effort. Rural Development has worked to 
create an awareness of programs that can be used to support local and 
regional food projects. Further, RD has collaborated with both 
Agricultural Marketing Service and Food Safety Inspection Service to 
host webinars, produce articles and reports, and make presentations 
highlighting how programs can support local and regional food system 
efforts across Mission Areas. Staff has participated in numerous 
partner, stakeholder, and customer meetings whereprogram information is 
shared and local and regional food success stories and replicable 
models are discussed. RD's Rural Cooperatives magazine has also been 
used to highlight multiple examples of local and regional food projects 
and how RD programs were used to support them.
    Question. How do RBS programs provide opportunities for socially-
disadvantaged farmers and groups?
    Answer. RBS works to ensure that all eligible, rural residents are 
afforded access to the business, cooperative and energy program 
opportunities available through the agency.
    RBS seeks to work with and assist socially disadvantaged farmers 
and groups. The Socially Disadvantaged Groups Grant (SDGG) program 
provides funding for cooperatives, groups of cooperatives and 
cooperative development centers whose governing board is comprised of 
at least 51 percent socially-disadvantaged members and whose primary 
focus is to provide technical assistance to socially-disadvantage 
farmers and groups. Program funds are used for developing business 
plans, conducting feasibility studies, developing marketing plans and 
training. For example, World Farmers Inc. (WFI) located in Lancaster, 
Massachusetts, received a SDGG award to help a group of African 
immigrant farmers form a food cooperative for food production, 
marketing, and distribution. WFI is a nonprofit organization that 
provides technical assistance to small, socially disadvantaged and 
immigrant farmers. Client farmers are taught sustainable farming 
production, fair marketing principles, and are mentored in the creation 
and operation of independent farming enterprises. WFI partners with the 
Flats Mentor Farm, also located in Lancaster, which acts as a farming 
incubator and who provides individual farm plots for the farmers to 
work on. At the farm, hands-on training is given in the technical 
aspects of farming, including farm safety and pest, weed and irrigation 
management among other farming issues.
    The Value Added Producer Grant (VAPG) program also provides 
priority for beginning and socially-disadvantaged agricultural 
producers. The VAPG program provides planning and working capital 
grants to eligible producers for marketing value-added agricultural 
products. For example, Verdant Resources, Inc. in Duluth, Georgia used 
VAPG funds assist producers in the processing of ginger into various 
products. This VAPG project was designed to expand on an un-tapped 
locally grown market. Verdant Kitchen is processing and marketing 
products made from ginger and used VAPG funds to expand their base with 
a mass market retail campaign. They have a commercial processing 
facility in place and are working to expand the U.S. retail base for 
ginger products that currently are about 95 percent imported.
    While not having specific focus or priority for socially-
disadvantaged farmers and groups, RBS programs like the Rural 
Cooperative Development Grant, Rural Business Development Grant, 
Renewable Energy for America Program, and Delta Health Care Services 
have all been used to support and assist socially-disadvantaged 
producers and groups create or expand economic opportunities.
    Question. How does RBS support start-up businesses, and small and 
mid-sized businesses?
    Answer. As we know, entrepreneurs and small businesses are the 
engines of American innovation and our economic success. To maximize 
our competitive advantage as a nation, we must ensure that, with hard 
work, American entrepreneurs have the opportunity to find the capital, 
training, and market access they need to start and grow their 
businesses.
    The Rural Business-Cooperative Service (RBS) supports startup, 
small, and mid-sized businesses through a number of programs. For 
example, the Value Added Producer Grant (VAPG) program provides 
priority for operators of small or medium sized farms or ranches 
structured as family farms and the Rural Microentrepreneur Assistance 
Program provides assistance to businesses with 110 or fewer employees. 
These and other RBS programs assisting start-ups and small to mid-sized 
businesses include:
  --Intermediary Relending Program
  --Rural Microentrepreneur Assistance Program
  --Small Disadvantaged Groups Grant program
  --Rural Business Development Grant program
  --Rural Economic Development Loan and Grant program
  --Rural Energy for America Program
  --Value-Added Producer Grant program
  --Business and Industry Guaranteed Loan program
    Through such programs as these, RBS provides increased access to 
capital, job training, business development opportunities, strategic 
community planning, and other resources. In addition to the direct 
assistance we provide these businesses, our financial support is 
creating lasting economic development opportunities in the rural 
communities where the projects are located. Our programs, in other 
words, have made, and continue to make, a significant impact on rural 
communities. For example, since 2009, through over $10.9 billion in 
investments, RBS programs are estimated to have helped over 103,000 
rural businesses (over 60 percent of which are small businesses) start 
or expand their operations with over 440,000 jobs created or saved. In 
Fiscal Year 2015 alone, RBS programs are estimated to have helped over 
12,500 rural businesses through $1.5 billion in loans, loan guarantees, 
and grants.
    Question. How does RBS support cooperatives?
    Answer. Rural Development's Cooperative Programs has over 80 years 
of experience successfully working with the cooperative sector and 
remains the only Federal agency charged with that responsibility. 
Cooperative Programs currently works to support the 2,238 U.S. farmer, 
rancher, and fishery cooperatives who reported gross sales of $235 
billion in 2012.
    When possible, RBS staff works to deliver direct cooperative 
development assistance. RBS has been also been effective in leveraging 
investments through the Rural Cooperative Development Grant (RCDG) 
program to build cooperative development capacity throughout the 
nation. For example, the Foundation for Agriculture, Innovation and 
Rural Sustainability (FAIRS) in Richmond, Virginia provides support to 
cooperatives and producers in developing and advancing their 
agricultural, economic and social interests to enhance their quality of 
life. Virginia FAIRS has received funding from the Rural Cooperative 
Development Grant program to assist individuals, cooperatives, small 
businesses and other similar entities in rural areas to enable and 
assist cooperative and business development. For example, the Kohala 
Center, Inc. in Hawaii received a grant of $200,000 to provide 
cooperative and business development technical assistance to rural 
areas throughout Hawaii to combat the physical isolation and dependence 
on imported food and energy. Funds will be used to provide technical 
assistance to agricultural producers, emerging food hubs, and local 
food distributors and linking them to local institutional buyers.
    RBS continues to support Rural Cooperatives magazine, a bi-monthly 
USDA publication that continues to be an important communication tool 
with the cooperative community. The magazine regularly highlights 
successful cooperative operations and -examples of cooperatives using 
Rural Development in addition to discussing current issues and 
opportunities for cooperatives.
    RBS maintains a library of approximately 200 information, education 
and research publications on the cooperative business model. In 
addition, RBS remains the sole provider of statistics on U.S. 
agricultural cooperatives. An annual survey of cooperatives allows RBS 
to maintain historic data and information and supports the production 
of the Directory of Cooperatives, Annual Cooperative Statistics Report 
and The Top 100 Agricultural Cooperatives. Additionally, RBS staff will 
regularly meet with international visitors to provide information and 
discuss cooperatives in the U.S.
    In October 2015, Rural Development launched the Interagency Working 
Group on Cooperative Development (IWGCD). The IWGCD is comprised of 
representatives from Federal departments and agencies that support 
programs and services focusing on or, working with, cooperatives. The 
IWGCD will address programs affecting cooperatives and their 
development. The IWGCD will identify and engage key government, 
private, and non-profit organizations that play a role in improving the 
coordination and effectiveness of programs serving cooperative sectors. 
These partnerships and collaborations provide mechanisms to obtain 
feedback on how Federal initiatives are understood at the local level; 
keep organizations informed about Federal funding opportunities; and 
provide the IWGCD with communication channels to regional, state, and 
local programs.
                                 ______
                                 
                Questions Submitted by Senator Tom Udall
    Question. Describe the role of your department Chief Information 
Officer (CIO) in the development and oversight of the IT budget for 
your department. How is the CIO involved in the decision to make an IT 
investment, determine its scope, oversee its contract, and oversee 
continued operation and maintenance?
    Answer. The USDA CIO works closely with senior leadership both at 
the Department level and within the Bureaus and Staff Offices to 
consistently align USDA's budget, finance, acquisitions, human 
resources, and IT communities.
    In addition, the USDA CIO ensures IT budget requests are approved 
by all agencies CFOs and CIOs.
    The budget formulation process is focused on resource allocation 
decisions which may affect current and future acquisition programs. In 
order to be effective with this process, the CIO and Budget Officer 
will continue to work with senior policy officials, including the 
Secretary's Office, to identify resource needs in support of existing 
policy priorities and the Department's strategic goals and objectives. 
In addition, early engagement with the USDA Mission Areas, 
understanding their lines of business (LOBs) in order to have a 
cohesive synergy with the information technology communities and 
incorporating the CIO into the pre-planning process along with the CFO, 
and Budget Officer will ensure clear visibility into the prioritization 
of programs before any final decisions are submitted to start the 
approval of any budget formulation requests.
    Question. Describe the existing authorities, organizational 
structure, and reporting relationship of the Chief Information Officer. 
Note and explain any variance from that prescribed in the newly-enacted 
Federal Information Technology and Acquisition Reform Act of 2014 
(FITARA, PL 113-291) for the above.
    Answer. Currently the Office of the Chief Information Officer 
(OCIO) is located within USDA's Departmental Management organization 
under the Assistant Secretary for Administration. The Department's CIO 
also reports to the Deputy Secretary in the management and oversight of 
USDA's Enterprise Information Technology Investment Review Board (E-
Board) and also provides regular updates to the Secretary concerning 
USDA's IT portfolio.
    Question. What formal or informal mechanisms exist in your 
department/agency to ensure coordination and alignment within the CXO 
community (i.e., the Chief Information Officer, the Chief Acquisition 
Officer, the Chief Finance Officer, the Chief Human Capital Officer, 
and so on)?
    Answer. USDA has developed a FITARA Common Baseline Plan that 
identifies CXO roles and responsibilities, process, procedures and 
policies focused on coordination and alignment within the CXO 
community. USDA has diagramed these procedures and processes, 
identified touch points between the CIO and existing CXO processes and 
procedures and worked with the CXOs to ensure CIO involvement. The 
revised processes and procedures are being captured and placed in 
existing departmental regulations, departmental notices, policies 
memorandums, etc.
    Question. According to the Office of Personnel Management, 46 
percent of the more than 80,000 Federal IT workers are 50 years of age 
or older, and more than 10 percent are 60 or older. Just 4 percent of 
the Federal IT workforce is under 30 years of age. Does your department 
have such demographic imbalances? How is it addressing them?
    Answer. Yes. The CIO, in consultation with USDA's Chief Human 
Capital Officer (CHCO), is developing competency requirements and is 
enhancing its workforce planning framework for the recruitment and 
retention of all IT professionals.
    Question. How much of the department's budget goes to 
Demonstration, Modernization, and Enhancement of IT systems as opposed 
to supporting existing and ongoing programs and infrastructure? How has 
this changed in the last 5 years?
    Answer. Over the past 5 years USDA's IT budget has not 
significantly changed and as such the distribution of the IT budget 
between Development, Modernization, and Enhancements (DME) to 
Operations and Maintenance (O&M) has not seen a significant change. 
Based upon USDA's report to OMB via the IT Portfolio Summary DME is at 
14 percent and O&M is at 86 percent.
    Question. What are the 10 highest priority IT investment projects 
that are under development in your department? Of these, which ones are 
being developed using an ``agile'' or incremental approach, such as 
delivering working functionality in smaller increments and completing 
initial deployment to end-users in short, six-month timeframes?
    Answer. USDA considers an IT investment as high priority if it has 
one or more of the following attributes: (1) Mandated by legislation or 
Executive Order; (2) Requires a common infrastructure investment; (3) 
Considered strategic or mandatory-use investments; (4) Differ from or 
greatly impact the Department's infrastructure, enterprise architecture 
or standards guidance; and (5) Involves multiple-agency funding. 
However as priorities evolve and other factors enter the equation or 
become mission-critical, additional attributes could become important 
in our definition.

------------------------------------------------------------------------
                                                           Agile or
         Investment Name           Short Description      Incremental
                                                         Development?
------------------------------------------------------------------------
APHIS-Certification,              To ensure that the  Yes, an agile
 Accreditation, Registration,      certification,      methodology is
 Permitting, and Other Licensing   accreditation,      being leveraged.
 (CARPOL).                         registration,
                                   permitting, and
                                   other licensing
                                   strategies and
                                   operations of
                                   APHIS to make the
                                   best use of
                                   existing and
                                   emerging
                                   technologies,
                                   technology
                                   support, and end-
                                   user education.
DM-OCIO-Optimized Computing       OCE revitalizes     No, as it is not a
 Environment (OCE).                the Service         system
                                   Center Agency       development
                                   (SCA) IT            program but
                                   infrastructure.     replaces
                                   This multi-year     hardware.
                                   initiative
                                   focuses on
                                   technological
                                   enhancements on
                                   all levels of the
                                   IT architecture
                                   (e.g., network
                                   and servers) with
                                   the purpose of
                                   supporting SCA
                                   modernization
                                   projects. The
                                   successful
                                   implementation of
                                   the projects
                                   within the
                                   investment will
                                   provide a more
                                   highly secure
                                   computing
                                   environment and
                                   platform allowing
                                   USDA to monitor
                                   events and
                                   protect against
                                   potential cyber
                                   threats.
DM-OCIO-USDA Security Operations  Investment to       No agile
 Center (SOC).                     maintain USDA IT    methodology is
                                   Security            being leveraged
                                   Operations Center   at this time.
                                   (SOC) focused on
                                   achieving USDA
                                   Security
                                   Strategy: Achieve
                                   proactive
                                   security through
                                   actionable
                                   insight. A
                                   successful SOC
                                   relies upon
                                   continuous
                                   investment to
                                   ensure that its
                                   capabilities
                                   evolve in
                                   responseto the
                                   evolving cyber
                                   threat
                                   environment. A
                                   SOC is a major
                                   cornerstone of a
                                   cybersecurity
                                   program. This
                                   investment is in
                                   place to upgrade,
                                   modernize the
                                   capabilities of
                                   the USDA SOC.
FSA-0111 Common Farm Programs     The purpose of      Yes, an iterative
 Systems.                          this investment     methodology is
                                   is to support the   beingleveraged.
                                   development and
                                   maintenance of a
                                   portfolio of core
                                   Farm Program
                                   applications and
                                   services used by
                                   Farm Programs,
                                   Farm Loans and
                                   Commodity
                                   Operations as
                                   well as other
                                   USDA Agencies.
                                   These systems
                                   include Acreage
                                   Reporting &
                                   Compliance
                                   Systems, Farms
                                   Programs
                                   Management
                                   Systems, Customer
                                   Name/Address
                                   Systems
                                   (including
                                   SCIMS),
                                   Representative
                                   Link Manager
                                   System,
                                   Subsidiary
                                   Systems and
                                   Common Payment
                                   Program.
FSA-103.........................  Consolidated Farm   Yes, an iterative
                                   Loan Program        methodology is
                                   Information &       beingleveraged.
                                   Delivery Systems
                                   This investment
                                   supports FSA's
                                   Farm Loan Program
                                   (FLP) and its
                                   goal of providing
                                   capital to
                                   American farmers
                                   and ranchers by
                                   providing them
                                   with ownership,
                                   operating, and
                                   emergency loans
                                   through
                                   streamlined and
                                   modernized
                                   processes and
                                   systems.
FSIS-Public Health Information    PHIS established    Yes, an iterative
 System (PHIS).                    to develop an       methodology is
                                   effective food      beingleveraged.
                                   safety system
                                   that can collect,
                                   assess and
                                   provide
                                   information
                                   enabling a
                                   response to food
                                   safety hazards.
                                   FSIS adopted the
                                   public health-
                                   based approach
                                   that is in line
                                   with the core
                                   food safety
                                   principles of the
                                   President's Food
                                   Safety Working
                                   Group. PHIS is a
                                   modern,
                                   coordinated food
                                   safety system
                                   which helps
                                   prevents harm to
                                   consumers and
                                   uses good data
                                   and analysis for
                                   effective food
                                   safety
                                   inspections and
                                   enforcements.
NRCS-Conservation Delivery        NRCS has initiated  Yes, an agile
 Streamline Initiative (CDSI).     CDSI with the       methodology is
                                   purpose of          beingleveraged.
                                   implementing a
                                   more effective,
                                   efficient and
                                   sustainable
                                   business model
                                   for delivering
                                   conservation
                                   assistance across
                                   the Nation. This
                                   initiative has
                                   three objectives:
                                   1) Simplify
                                   Conservation
                                   Delivery for
                                   customers and
                                   employees; 2)
                                   Streamline
                                   Business
                                   Processes to
                                   increase
                                   efficiency and
                                   integration
                                   across business
                                   lines; and 3)
                                   Ensure Science-
                                   based Assistance
                                   to reinforce the
                                   delivery of
                                   technically sound
                                   products and
                                   services.
RD-Comprehensive Loan Program...  The CLP initiative  Yes, an
                                   was launched to     incremental
                                   modernize and       methodology is
                                   streamline the      beingleveraged.
                                   application
                                   delivery
                                   portfolio in
                                   order to better
                                   serve RD's
                                   citizen
                                   beneficiaries,
                                   and to provide RD
                                   employees with
                                   the technology
                                   and tools they
                                   need to pursue
                                   RD's mission. RD
                                   offers a variety
                                   of direct and
                                   guaranteed loan
                                   programs for
                                   Single Family
                                   (SF) and Multi-
                                   Family (MF)
                                   Housing,
                                   Business,
                                   Community
                                   Facilities, and
                                   Utilities
                                   programs.
RMA-13 Emerging Information       This investment     Yes, an agile
 Technology Architecture (EITA).   houses RMA's        methodology is
                                   financial,          being leveraged.
                                   insurance, risk
                                   management, and
                                   actuarial
                                   applications.
                                   This investment
                                   is essential to
                                   mission critical
                                   to the Federal
                                   Crop Insurance
                                   Corporation and
                                   the Risk
                                   Management
                                   Program.This
                                   investment
                                   supports the
                                   reengineering of
                                   all business &
                                   financial systems
                                   associated with
                                   delivery of the
                                   crop insurance
                                   program.
FNS-Supplemental Nutrition        This investment     Yes, an agile
 Assistance Program (SNAP)         consists of         methodology is
 Support.                          following systems/  being leveraged.
                                   applications: (a)
                                   Systems SNAP
                                   Quality Control
                                   System (SNAPQCS)
                                   supports FNS
                                   efforts to
                                   determine the
                                   error rate by
                                   each State, to
                                   monitor and
                                   reduce State
                                   error rates for
                                   SNAP, and
                                   minimize
                                   erroneous
                                   payments. Error
                                   rate
                                   determination is
                                   required by
                                   legislative
                                   requirements. (b)
                                   Electronic
                                   Disqualified
                                   Recipient
                                   Subsystem (e-DRS)
                                   is used to store
                                   information on
                                   disqualified
                                   recipients of
                                   SNAP benefits.
                                   The function of e-
                                   DRS is mandated
                                   by legislative
                                   requirements.
                                   Every state must
                                   ensure that
                                   disqualified
                                   recipients are
                                   not let back into
                                   the program. (c)
                                   SNAP Workflow and
                                   Information
                                   Management
                                   (SWIM)--SWIM is a
                                   new system that
                                   is currently
                                   under
                                   development. It
                                   will automate the
                                   SNAP key business
                                   functions of
                                   waiver processing
                                   and policy
                                   clarifications.
                                   The ability to
                                   submit SNAP
                                   related waiver
                                   requests, policy
                                   clarifications,
                                   manage work
                                   related to
                                   submitted
                                   requests/
                                   clarification,
                                   search for
                                   information, and
                                   report on
                                   information in a
                                   user-friendly and
                                   intuitive
                                   interface. (d)
                                   Treasury Offset
                                   Program (TOP)--is
                                   a centralized
                                   offset program,
                                   administered by
                                   the Bureau of the
                                   Fiscal Service's
                                   (Fiscal Service)
                                   Debt Management
                                   Services (DMS),
                                   to collect
                                   delinquent debts
                                   owed to Federal
                                   agencies and
                                   states. (e)
                                   Retailer File
                                   Solution (RFS)
                                   (f) SNAP Retailer
                                   Locator (g)
                                   Healthy Access
                                   Locator (h) SNAP
                                   Policy WIKI.
------------------------------------------------------------------------

    Question. To ensure that steady state investments continue to meet 
agency needs, OMB has a longstanding policy for agencies to annually 
review, evaluate, and report on their legacy IT infrastructure through 
Operational Assessments. What Operational Assessments have you 
conducted and what were the results?
    Answer. The USDA Capital Planning and Investment Control (CPIC) 
process assesses each investment's impact on mission performance, to 
identify any needed investment changes or modifications, and to revise 
the investment management process based on lessons learned. An 
Operational Analysis (OA) is performed by the Program/Project Manager 
after a year of the investment being in operations, and updated on an 
annual basis. The results from these activities determine the 
investment's efficiency and effectiveness in meeting performance and 
financial objectives. Additionally, OCIO conducts annual portfolio 
reviews on the agencies and staff offices to evaluate their portfolio 
to provide further insight into legacy IT infrastructure and IT 
systems.
    Question. What are the 10 oldest IT systems or infrastructures in 
your department? How old are they? Would it be cost-effective to 
replace them with newer IT investments?
    Answer.

------------------------------------------------------------------------
                      Investment Title                           Year
------------------------------------------------------------------------
Initiated FS-Automated Timber Sale Accounting..............         1980
FSA-107 Consolidated General Sales Manager (CGSM)..........         1982
FS-Forest Service Computer Base............................         1983
FSA-105 Conservation Systems...............................         1985
FSIS-USDA Meat & Poultry Hotline (Hotline).................         1985
FSA-0100 Commodity Management Systems......................         1987
FSA-0101 Price Support Systems.............................         1987
FSA-106 Consolidated Financial Management Information               1987
 Systems (CFMIS)...........................................
FSA-009 Cotton Management System (CMS).....................         1988
DM-OC-Ongoing IT Support...................................         1993
------------------------------------------------------------------------

    USDA manages multiple systems in program investments and tracks 
which systems are scheduled to be decommissioned as new capability 
becomes available. When USDA makes modernization decisions, we look for 
opportunities to create investments that will modernize or consolidate 
a number of related systems. The Animal and Plant Health Inspection 
Service (APHIS) CARPOL (Certificates, Accreditations, Registrations, 
Permits, and Other Licenses) system, for example, will consolidate more 
than eight separate systems that support the safe introduction and 
movement of regulated agricultural products.
    Question. How does your department's IT governance process allow 
for your department to terminate or ``off ramp'' IT investments that 
are critically over budget, over schedule, or failing to meet 
performance goals? Similarly, how does your department's IT governance 
process allow for your department to replace or ``on-ramp'' new 
solutions after terminating a failing IT investment?
    Answer. The USDA's Integrated Information Technology Governance 
Framework (IITGF) is a holistic set of processes, procedures, and 
guidelines that assist the Office of the Chief Information Officer's 
(OCIO's) customers to improve mission delivery. Through this framework 
the CIO actively engages with all key stakeholders involved in the 
governance structure consisting of an Integrated Advisory Board that 
makes recommendations on IT investments to the executive-level E-Board, 
chaired by the USDA's Deputy Secretary. Composed of the Department's 
senior leaders, the E-Board ensures that existing and proposed IT 
investments contribute to the Secretary's strategic vision and mission 
requirements, employ sound IT investment methodologies, comply with 
Departmental enterprise architecture, employ sound security measures, 
and provide the highest return on the investment or acceptable project 
risk. The E-Board provides the Secretary with recommendations for 
review and decision authority. These recommendations, based on whether 
an investment is meeting value (cost), schedule, strategic alignment, 
risk management, and performance goals, may well precipitate that an 
investment is ``off ramped'', paused, or terminated. Similarly, this 
governance structure provides the flexibility to ``on ramp'' new, 
innovative solutions that are replacing investments that have been 
paused or terminated.
    Question. What IT projects has your department decommissioned in 
the last year? What are your department's plans to decommission IT 
projects this year?
    Answer. The Department does not conduct decommissioning plans on IT 
projects. We conduct decommissioning plans at the IT system level and 
investment level. USDA has decommissioned twenty-three (23) 
investments. During USDA annual portfolio reviews, it is discussed what 
investments/projects will be decommissioned for the next OMB budget 
year submission. All investments that will be decommissioned, complete 
a Decommission Plan and get approval from the Associate Chief 
Information Officer of Information Resource Management. This process is 
built within our Integrated IT Governance Framework.
    Question. The newly-enacted Federal Information Technology and 
Acquisition Reform Act of 2014 (FITARA, PL 113-291) directs CIOs to 
conduct annual reviews of their department's IT portfolio. Please 
describe your department's efforts to identify and reduce wasteful, 
low-value or duplicative information technology (IT) investments as 
part of these portfolio reviews.
    Answer. USDA currently has been annually reviewing the USDA 
portfolio and all of the component portfolios for the past 3 years. The 
Department's enterprise information technology governance program, 
portfolio reviews, and Enterprise Architect programidentify and reduce 
wasteful, low value, or duplicate information technology investments.
    Question. In 2011, the Office of Management and Budget (OMB) issued 
a ``Cloud First'' policy that required agency Chief Information 
Officers to implement a cloud-based service whenever there was a 
secure, reliable, and cost-effective option. How many of the 
department's IT investments are cloud-based services (Infrastructure as 
a Service, Platform as a Service, Software as a Service, etc.)? What 
percentage of the department's overall IT investments are cloud-based 
services? How has this changed since 2011?
    Answer. The Department has an investment process to support 
assessment of Cloud capability. In the recent months the USDA CIO has 
promoted more adoption of Cloud solutions and movement towards a more 
innovative approach leveraging the capabilities of Cloud technologies. 
Of the current 202 investments, approximately 23 or 11 percent are 
currently leveraging a cloud-based service and an additional 26 
investments evaluated a cloud-based solution an alternative. USDA did 
not track this information in 2011, but during infiscal year 2012, 
USDA's percentage of investments that leverage a cloud-based solution 
was 13 percent of the 308 investments.
    Question. Provide short summaries of three recent IT program 
successes--projects that were delivered on time, within budget, and 
delivered the promised functionality and benefits to the end user. How 
does your department define ``success'' in IT program management? What 
``best practices'' have emerged and been adopted from these recent IT 
program successes? What have proven to be the most significant barriers 
encountered to more common or frequent IT program successes?
    Answer. The USDA OCIO defines ``successful'' IT projects or 
investments as those that 1) meet business requirements, 2) are 
delivered and maintained on schedule, 3) are delivered and maintained 
within budget, and 4) deliver the expected business value and return on 
investment. The USDA OCIO notes that many factors contribute to a 
successful project or investment, but the USDA has found that effective 
project management and governance practices are particularly crucial. 
The USDA differentiates between ``project management success'' (i.e. 
delivering in accordance with the agreed project objectives) and 
``product success'' (i.e. the amount of value the project's 
deliverables bring once the project is over). USDA believes that some 
key factors or barriers to success often contribute to the failure of a 
project, such as:
  --Lack of stakeholder/user input
  --Incomplete and/or vaguely defined requirements or specifications
  --Changing requirements or specifications
  --Lack of executive support
  --Insufficient planning
  --Underestimated time and/or resources allocated for design, 
        development, quality assurance, and/or quality control
  --Technological incompetence
  --Insufficient resources
  --Unrealistic expectations
  --Unclear objectives
  --Unrealistic timeframes
  --New or untested technology
    However, the USDA notes several factors that are crucial to the 
success of any IT project or investment, such as:
  --Clear and clearly articulated goals
  --Comprehensive, long-term, and detailed planning
  --Early definition of deliverable quality criteria
  --Active executive support with a shared vision throughout the 
        project's life
  --Carefully planned implementation
  --Concise, consistent, complete, and unambiguous business and 
        technical requirements
  --Realistic estimates and schedules
  --Early risk analysis and ongoing risk management
  --Planning for business process change management
  --Adherence to a formalized IT governance approach and framework
  --Proactive issue resolution
  --Stakeholder involvement throughout the life cycle
  --Defined and consistently executed change management to minimize 
        scope increases
  --A skilled, certified Project Manager experienced in the execution 
        of project management best practices
  --Execution of a formal system development methodology (such as the 
        Agriculture's System Development Life Cycle, AgSDLC)
  --A commitment to success
    These three successful investments are still continuing with their 
implementations and have released incremental functionality to their 
customers:
    1. Animal, Plant and Health Inspection Service (APHIS) 
Certification, Accreditation, Registration, Permitting and Other 
Licenses (CARPOL)
    a. APHIS CARPOL successfully delivered a single system, cloud-based 
platform to support permitting live dog imports that is required by a 
Congressional amendment to the Animal Welfare Act. The tool reduces the 
processing time from days to hours and will allow anyone to apply for a 
permit to bring a live dog(s) into the continental U.S. or Hawaii, for 
the purpose(s) of research, resale, or veterinary treatment.
    2. Natural Resource and Conservation Service (NRCS) Conversation 
Delivery Streamlining Initiative (CDSI)
    a. NRCS CDSI successfully released one of three modules using the 
agile methodology called Conservation Client Gateway (CCG). 
Conservation Client Gateway is a new NRCS public website that provides 
individual landowners and land users the option to request conservation 
technical and financial assistance from NRCS.
    3. OCIO Identity Credential Access Management (ICAM).
    a. OCIO ICAM successfully implemented the personal identification 
verification (PIV) initiative by securing our applications behind the 
identity access tool to enable customers to access multiple 
applications with a single credential. The implementation of the PIV 
provides for the use of multi-factor authentication, a key tool in our 
cybersecurity program.
    Question. A June 2015 Government Accountability Office (GAO) report 
found that USDA spent about $423 million since 2004 to modernize IT 
systems through Modernize and Innovate the Delivery of Agricultural 
Systems (MIDAS) before halting the program due to poor performance and 
uncertainty regarding future plans. GAO made five recommendations to 
the USDA Farm Service Agency (FSA), including establishing and 
implementing a plan for adopting recognized best practices for program 
management. Has FSA fully implemented these five recommendations? 
Please explain how USDA implemented each GAO recommendation.
    Answer. GAO provided five interrelated recommendations to improve 
the selection, planning, and control of IT projects results. FSA has 
taken immediate steps to improve IT internal controls in the areas of 
integrated capital planning, IT governance, risk management, project 
management, Cybersecurity and other IT oversight initiatives. FSA 
created an Investment Review Board, an executive level governance board 
that meets regularly to assess and prioritize IT investments. In 
addition, an external contractor has been engaged to perform an 
independent third-party assessment to determine if the current 
enterprise solution provides the necessary functionality and is the 
most cost effective modernization solution.
    Question. The Federal IT Dashboard is a website that allows the 
general public to view details of Federal information technology 
investments. This transparency tool shows that the USDA ``NFC Shared 
Services--IT Systems'' investment as rated ``red'' or high risk. Since 
August 2014, various Chief Information Officer comments published on 
the Dashboard have indicated that USDA is conducting a baseline review 
to improve this investment's cost and schedule performance. What 
actions has USDA taken to remediate the NFC Shared Services--IT Systems 
investment's troubled performance? Have these steps improved this 
investment's cost and schedule performance to a point where it can be 
rated ``green?''
    Answer. Since June 2015, the NFC Shared Service Investments has 
been rated RED due to numerous issues based on the criteria established 
by OMB which is used to rate all Major Investments. The issues include 
lack of program management artifacts, lack of EVM reporting, and DM&E 
reporting.
    On June 24, 2015, the USDA CIO and Senior Executives held a 
Portfolio Review with OCFO-NFC, which included in depth analysis of the 
NFC Shared Service Investments. In the portfolio review it was 
determined that the USDA CIO designees would travel to New Orleans to 
discuss the requirements of Earned Value Management (EVM), Capital 
Planning and Investment Control (CPIC) requirements and Information 
Technology Governance process. OCIO worked with the NFC Investment team 
to capture performance data regarding their projects and activities 
that are a part of the NFC Shared Service Investments. From 16 through 
18 September 2015, the Capital Planning & IT Governance Division 
(CPIGD) Director and CPIGD Analyst met with all NFC Senior Executives 
and the NFC Program/Project Managers (PPMs). During the meetings the 
USDA OCIO team identified the abovestated issues and developed a 
corrective action plan (CAP), which was provided to the OCFO-NFC 
Investment team. Once the OCFO-NFC Investment team accomplishes the 
corrective actions, USDA OCIO will reevaluate the NFC Shared Service 
Investments.
    Since the three days of meetings, OCFO-NFC Investment team started 
the following actions to improve their score to yellow for the November 
2015 monthly on the Federal IT Dashboard:
    1. Reporting all projects, activities, and risks within their 
business case.
    2. Updated the business case contract table.
    3. Identified and is now reporting the line of funding for all 
shared services agencies and staff offices.
    4. Provided an updated Risk Management Plan and is in the process 
of updating investment Acquisition Plan and Investment Charter.
    On October 27, 2015 the USDA OCIO EVM Manager and CPIGD Analyst 
have met with NFC Investment team to discuss how they can conduct EVM 
and rebaseline the investment. USDA OCIO scheduled a series of follow-
up meetings with OCFO-NFC team to finalize and have NFC complete this 
process, which include monthly major investments to discuss IT 
Dashboard scores and outstanding issues in order to improve the 
performance of the NFC investments and eventually achieve a green 
status.
    NFC will be undergoing a reorganization within their office to 
better serve the mission and support of their functions. A new CIO has 
now been assigned to NFC that will ensure the investment will be better 
managed. NFC will be executing a Request For Proposal (RFP) thatwill 
include an EVM clause for support and assist with them reporting EVM to 
the USDA OCIO Department. Once EVM is being reported and they have 
finalized the updates to the investment artifacts as well as continuing 
to manage, monitor, track and update their projects, activities, risks 
and performance metric they should be able to move to a green status.
                                 ______
                                 
              Questions Submitted by Senator Patrick Leahy
    Question. In many ways, Vermont highlights both the successes and 
challenges of ensuring that rural America has access to affordable and 
quality broadband service. Burlington has a vibrant start-up community 
and is home to successful online businesses like Dealer.com. 
Traditional small businesses like the Vermont Country Store have 
augmented their reach and built meaningful 21st Century brands by 
operating popular online stores. Unfortunately, I still hear too often 
from Vermonters who lack access to broadband service and the 
transformative opportunities that it brings. I worry that without 
aggressive action to spur investment in rural areas, we will leave 
these Americans even further behind as the next generation of broadband 
service is deployed.
    Do you agree that access to quality and affordable broadband is no 
longer a luxury but a necessity in rural America?
    Answer. Yes, we agree that broadband is now a necessity. Children 
in rural America as well as children everywhere must have broadband 
access to do homework and their lessons. Without easy access rural 
children will fall way behind their counterparts in urban and suburban 
areas as well as the rest of the world.
    In addition, rural America is doing more and more ecommerce and 
broadband service is necessary to facilitate this.
    Farmers now use the Internet to sell their crops and auction their 
cattle worldwide. They also use broadband to control how their trackers 
plow and when and how much to water their fields.
    The Federal Communications Commission's (FCC) 2015 broadband 
progress report found that rural America is underserved at every 
broadband speed, with 20 percent lacking access even to the minimum 
acceptable level of broadband service Congress set for the Farm Bill 
Loan Program in 2014.In contrast, the FCC's report found that 92 
percent of urban Americans have access to speeds that are more than 6 
times higher than that minimum standard.
    Question. What more can we do to close this rural/urban broadband 
divide?
    Answer. Utilizing programs like the RUS Community Connect Grant 
Program is one way to get broadband service to the neediest areas. The 
areas with no service today are some of the most rural, low density 
areas in the country. It is difficult to support a business plan in 
these areas a grant funding could be a key component. We must also work 
with existing service providers and help them understand that there are 
ways to serve these rural areas and still make a profit.
    As we have done in the past to support universal service for voice 
services, we must now refocus our efforts and support mechanisms to 
fully support the deployment of broadband service to every person in 
the country.
                                 ______
                                 
          Questions Submitted to Administrator Tony Hernandez
              Questions Submitted by Senator Patrick Leahy
                  section 515 multifamily loan program
    Question. Throughout the country, thousands of properties 
participating in the Section 515 Multifamily Loan Program are 
approaching their 40-year terms, resulting in maturing mortgages that 
will no longer guarantee rent subsidies, threatening many low-income 
tenant households with drastic rent increases. This year, the 
affordability of 60 properties across the country, totaling more than 
700 units, are threatened.
    In my home state of Vermont, there are 79 active Section 515 
properties containing 1,842 units that will expire within the next 10 
years. Meanwhile, the statewide vacancy rate rests at one percent, 
making every unit assuring affordability even more critical to our 
housing stock.
    This year, Lebanon, New Hampshire, is faced with losing 50 units of 
local affordable housing due to mortgage expiration at the end of the 
year. Twin Pines Housing Trust, a local affordable housing nonprofit 
organization serving Vermont and New Hampshire, was committed to 
continuing to serve the need for affordable housing in that area. 
Thankfully, with the help of the VT-NH State Rural Development Office, 
Twin Pines was able to successfully negotiate a purchase of the 50 
units from the property owner, ensuring perpetual affordability to its 
residents.
    I commend our Vermont-based partners for their commitment to this 
mission, but recognize that not all states and communities have 
motivated local housing providers with the necessary tools to preserve 
this critical housing stock. Looking ahead to the remaining contracts, 
there is an urgent need to address the potential loss of thousands of 
affordable housing units and provide necessary protections for low-
income populations at risk of homelessness.
    What plan does the Department currently have in place to address 
maturing mortgages in the immediate future, and over the next several 
years?
    Answer. RD is very concerned with the potential loss of affordable 
housing as our Section 515 direct loans mature, because that housing 
may be lost in the community and the rental assistance support will no 
longer be available to the families in that property. If that RD 
housing is lost, the very low income families living there may have no 
other affordable housing in which to live.
    In response, RD has provided a number of options for owners to keep 
their RD loan and protect the families living there.
  --The borrower can apply through RD's Preservation NOFA for a 
        deferral of their maturing mortgage for up to 20 years;
  --The borrower can receive priority points if they choose to apply 
        for both the deferral and additional RD funding for 
        rehabilitation of property;
  --The borrower can request a re-amortization and modification of the 
        maturing loan to extend the loan term up to 20 years;
  --If owners go through the prepayment process, their tenants may be 
        eligible to receive housing vouchers.
  --RD has also proposed legislation in the 2016 budget to extend 
        housing voucher protection to tenants in properties with a 
        mortgage that matures and the owner is not willing to extend 
        the affordable housing feature of that property.
    Question. When should housing providers and nonprofit partners 
expect to receive a plan from the Department so that they may properly 
plan for necessary purchase and sales agreements?
    Answer. Throughout 2015, RD has participated in a series of public 
meetings with all stakeholders, including housing providers and 
nonprofit partners, to inform them of our efforts to retain our 
affordable housing. These sessions have included information regarding 
the use of Section 515 funds to finance the nonprofit acquisition of 
Section 515 properties in danger of being lost through mortgage 
maturity or prepayment. Our communications with stakeholders have begun 
to generate results--for example, late in fiscal year 2015, RD provided 
a $6.7 million Section 515 loan to a nonprofit in New Hampshire to 
retain 100 units of affordable housing.
    Question. What additional resources is the Department currently 
dedicating to address the immediate needs? And, will the Department be 
including funding requests in future budgets to address this issue?
    Answer. In fiscal year 2015, RD made the decision to prioritize the 
use of Section 515 funds to finance the acquisition of Section 515 
properties at risk of leaving the program through either prepayment or 
maturity of the existing mortgage.In fiscal year 2015, RD received an 
appropriation of $28 million. Of this amount, RD used more than $11 
million to assist nonprofits in the acquisition of Section 515 
properties in California, New Hampshire, and Pennsylvania. The 
remainder was used for the Multi-family Preservation and Revitalization 
program. RD's fiscal year 2016 proposed budget includes a request for 
an additional $15 million in Section 515 funding for the preservation 
or construction of affordable housing; one of the purposes of the 
additional funding would be to retain existing affordable housing 
through the nonprofit acquisition process.
    Question. In instances when mortgages expire and properties no 
longer guarantee rentals subsidies, is the Department considering 
options that would allow residents to remain in their homes and 
maintain the affordability, similar to the enhanced vouchers utilized 
by the Department of Housing and Urban Development? If not, why?
    Answer. In addition to the steps the Department has taken to 
encourage property owners to remain in the RD portfolio through loan 
re-amortization and modification, and use of the MPR tools, the 
Department has also offered Letters of Priority Entitlement to tenants 
in maturing mortgages. Holding this Letter will allow the tenant to be 
placed at the top of the waiting list for any RD property in order to 
continue living in affordable housing. The Agency may be authorized to 
transfer the unused rental assistance to a new RDproperty in limited 
circumstances. The Department has also included in the fiscal year2016 
President's Budget a legislative proposal to allow Rural Development 
housing vouchers to be used by tenants in these maturing mortgage 
properties. Current voucher program appropriations language limits use 
to tenants in situations where the owner is prepaying the RD mortgage.

                         CONCLUSION OF HEARINGS

    Senator Moran. With that, I thank, again, everyone for 
their attendance, and bring this hearing to a conclusion.
    We are adjourned.
    [Whereupon, at 12:15 p.m., Wednesday, October 21, the 
hearings were concluded, and the subcommittee was recessed, to 
reconvene subject to the call of the Chair.]