[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
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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.]