Farm Programs: Efforts to Achieve Equitable Treatment of Minority Farmers
(Letter Report, 01/24/97, GAO/RCED-97-41).

Pursuant to a congressional request, GAO reviewed the Farm Service
Agency's (FSA) efforts to conduct farm programs in an equitable manner,
focusing on: (1) FSA efforts to treat minority farmers in the same way
as nonminority farmers in delivering program services; (2) minority
representation in county office staffing and on county committees in the
counties with the highest numbers of minority farmers; and (3) the
disposition of minority and nonminority farmers' applications for
participation in the Agricultural Conservation Program (ACP) and the
direct loan program at the national level and in five county and five
district loan offices.

GAO found that: (1) FSA's Civil Rights and Small Business Development
staff oversees the agency's efforts to achieve equitable treatment for
minority farmers; (2) in fiscal years 1995 and 1996, the staff closed 28
complaints of discrimination against farmers on the basis of race or
national origin, and found discriminatory practices in 2 of the 28
cases; (3) in addition, as part of its routine assessments of FSA's
overall operations in 13 states, the staff assessed the performance of
the agency's employees in treating all farmers equitably, but none of
the evaluations found that minority farmers were being treated unfairly;
(4) the staff has also trained about one-half of FSA'S employees in
equal employment opportunity and civil rights matters and expects to
finish training all of the employees by the end of 1997; (5) in July
1996, FSA created an outreach office to increase minority farmers'
participation in, and knowledge of, the Department's agricultural
programs; (6) at the time of GAO's review, 32 percent of FSA's employees
serving the 101 counties with the highest numbers of minority farmers
were members of a minority group; (7) about 90 percent of these
employees were county executive directors or program assistants involved
in conducting and managing FSA programs; (8) minority farmers make up
about 17 percent of the farmer population in these counties; (9) at the
national level, FSA data show that applications for the ACP in fiscal
year 1995 and for the direct loan program from October 1994 through
March 1996 were disapproved at a higher rate for minority farmers than
for nonminority farmers; (10) three of the five county offices GAO
visited had higher disapproval rates for minority farmers than for
nonminority farmers applying to the ACP, and three of the five district
loan offices GAO visited had higher disapproval rates for minority
farmers than for other farmers applying for the direct loan program; and
(11) GAO's review of the information in the application files in these
offices showed that decisions to approve or disapprove applications were
supported by information in the files and that decision-making criteria
appeared to be applied to minority and nonminority applicants in a
similar fashion.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-97-41
     TITLE:  Farm Programs: Efforts to Achieve Equitable Treatment of 
             Minority Farmers
      DATE:  01/24/97
   SUBJECT:  Minorities
             Racial discrimination
             Agricultural programs
             Direct loans
             Civil rights
             Farm credit
             Farm income stabilization programs
             Government guaranteed loans
             Human resources training
IDENTIFIER:  USDA Agricultural Conservation Program
             Russell (AL)
             FSA Small Farmer Outreach Training and Technical Assistance 
             Program
             Dooly (GA)
             Holmes (MS)
             Glacier (MT)
             Duval (TX)
             FmHA Direct Farm Loan Program
             FmHA Farm and Home Plan
             
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Cover
================================================================ COVER


Report to Congressional Requesters

January 1997

FARM PROGRAMS - EFFORTS TO ACHIEVE
EQUITABLE TREATMENT OF MINORITY
FARMERS

GAO/RCED-97-41

USDA's Treatment of Minority Farmers

(150422)


Abbreviations
=============================================================== ABBREV

  ACP -
  USDA -
  FSA -
  NAD -
  EEO -

Letter
=============================================================== LETTER


B-275744

January 24, 1997

The Honorable Bob Smith
Chairman
The Honorable Charles W.  Stenholm
Ranking Minority Member
Committee on Agriculture
House of Representatives

For a number of years, minority farmers have expressed concern that
U.  S.  Department of Agriculture (USDA) officials do not treat them
in the same way as nonminority farmers in the conduct of USDA's
programs, particularly in decisions made in the Department's county
offices and district loan offices.  Because of this concern, the
former Chairman and Ranking Minority Member requested in April 1996
that we review the efforts of the Department's Farm Service Agency
(FSA) to conduct farm programs in an equitable manner.  Specifically,
they asked us to (1) identify FSA's efforts to treat minority farmers
in the same way as nonminority farmers in delivering program
services; (2) examine the representation of minorities in county
office staffing and on county committees in the counties with the
highest numbers of minority farmers; and (3) examine data on the
disposition of minority and nonminority farmers' applications for
participation in the Agricultural Conservation Program (ACP) and the
direct loan program at the national level and in five county and five
district loan offices. 

The county and district offices we visited were chosen because they
had higher disapproval rates for minority farmers than for
nonminority farmers for the ACP and the direct loan program or
because they were located in counties with high numbers of minority
farmers.  Because the number of offices we visited was small, we
cannot generalize our findings to FSA's offices nationwide. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The Farm Service Agency's Civil Rights and Small Business Development
Staff oversees the agency's efforts to achieve equitable treatment
for minority farmers.  While we did not evaluate the quality and
thoroughness of the Staff's activities, we noted that a number of
efforts are ongoing in this area.  The Staff investigates and
resolves complaints of discrimination, conducts management
evaluations of compliance with civil rights laws, and trains Farm
Service Agency staff in equal employment opportunity and civil rights
issues.  In fiscal years 1995 and 1996, the Staff closed 28
complaints of discrimination against farmers on the basis of race or
national origin.  It found discriminatory practices in 2 of the 28
cases.  In addition, as part of its routine assessments of the Farm
Service Agency's overall operations in 13 states, the Staff assessed
the performance of the agency's employees in treating all farmers
equitably.  None of the evaluations found that minority farmers were
being treated unfairly.  The Staff has also trained about one-half of
the Farm Service Agency's employees in equal employment opportunity
and civil rights matters and expects to finish training all of the
employees by the end of 1997.  In addition to these Staff activities,
the Farm Service Agency, in July 1996, created an outreach office to
increase minority farmers' participation in, and knowledge of, the
Department's agricultural programs. 

At the time of our review, 32 percent of the Farm Service Agency's
employees serving the 101 counties with the highest numbers of
minority farmers were members of a minority group.  About 90 percent
of these employees were county executive directors or program
assistants involved in conducting and managing the Farm Service
Agency's programs.  Minority farmers make up about 17 percent of the
farmer population in these counties.  In 36 of the 101 counties, at
least one minority farmer was a member of the county committee. 

At the national level, the Farm Service Agency's data show that
applications for the Agricultural Conservation Program in fiscal year
1995 and for the direct loan program from October 1994 through March
1996 were disapproved at a higher rate for minority farmers than for
nonminority farmers.  For the Agricultural Conservation Program, the
rate of disapproval was 33 percent for minority applicants and 27
percent for nonminority applicants.  For the direct loan program, the
disapproval rate was 16 percent for minority applicants and 10
percent for nonminority applicants.  The average time for processing
loans was about the same:  88 days for minorities and 86 days for
nonminorities. 

Three of the five county offices we visited had higher disapproval
rates for minority farmers than for nonminority farmers applying to
the Agricultural Conservation Program, and three of the five district
loan offices we visited had higher disapproval rates for minority
farmers than for other farmers applying for the direct loan program. 
Our review of the information in the application files in these
offices showed that decisions to approve or disapprove applications
were supported by information in the files and that decision-making
criteria appeared to be applied to minority and nonminority
applicants in a similar fashion.  For example, applications for the
Agricultural Conservation Program were denied for lack of funds, and
applications for direct loans were turned down because of poor credit
ratings. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Within USDA, FSA has the overall administrative responsibility for
implementing agricultural programs.  FSA is responsible for, among
other things, stabilizing farm income, helping farmers conserve
environmental resources, and providing credit to new or disadvantaged
farmers.  FSA's management structure is highly decentralized; the
primary decision-making authority for approving loans and
applications for a number of agricultural programs rests in its
county and district loan offices.  In county offices, for example,
committees, made up of local farmers, are responsible for deciding
which farmers receive funding for the ACP.\1

Similarly, FSA officials in district loan offices decide which
farmers receive direct loans. 

At the time of our review, the ACP provided funds for conservation
projects that, among other things, controlled erosion resulting from
planting and harvesting crops and alleviated water quality problems
caused by farming, such as the pollution produced by animal waste. 
The federal government generally paid up to 75 percent of a project's
cost, up to a maximum of $3,500 annually.  FSA, in conjunction with
other departmental agencies, set national priorities for the program,
and FSA allocated funds annually to the states on the basis of these
priorities.  The states in turn distributed funds to the county
committees on the basis of the states' priorities.  Farmers could
propose projects at any time during the fiscal year, and the county
committees could approve the proposals at any time after the funds
became available.  Consequently, county committees often obligated
their full funding allocation before receiving all proposals for the
year. 

The district loan offices administer the direct loan program, which
provides farm ownership and operating loans to individuals who cannot
obtain credit elsewhere at reasonable rates and terms.  Each district
loan office is responsible for one or more counties.  The district
loan office's agricultural credit manager is responsible for
approving and servicing these loans.  FSA accepts a farmer's loan
application documents, reviews and verifies these documents,
determines the applicant's eligibility to participate in the loan
program, and evaluates the applicant's ability to repay the loan.  In
servicing these loans, FSA assists in developing farm financial
plans, collects loan payments, and restructures delinquent debt. 

For both the ACP and the direct loan program, as well as other
programs, farmers may appeal disapproval decisions to USDA's National
Appeals Division (NAD).  For the period of our review, about 7
percent of the direct loan appeals to the Division were from minority
farmers.  In April 1991,\2

we reported that NAD had reversed loan application decisions at
comparable rates for minorities and nonminorities.  NAD's database
does not separately identify appeals from ACP applicants; we
therefore could not obtain this type of data for the ACP. 

Recently, some minority farmers publicized their concerns that the
Department, among other things, takes longer to process the loan
applications of minority farmers than of other farmers and has denied
debt relief to minority farmers.  Subsequently, the Secretary of
Agriculture promised to (1) create a civil rights action team to look
at the Department's treatment of minority farmers, as well as other
related issues, and (2) hold national and statewide forums on the
issue early in 1997.  In addition, the Secretary suspended all farm
foreclosures and asked the Department's Office of Inspector General
to review the Department's system for handling discrimination
complaints, including the length of time taken to investigate and
resolve such complaints.\3


--------------------
\1 Section 336 of the Federal Agricultural Improvement and Reform Act
of 1996 (P.L.  104-127, Apr.  4, 1996), known as the 1996 farm bill,
repealed the ACP and replaced it with the Environmental Quality
Incentives Program.  However, during the time of our review, FSA
continued to operate the ACP as it had done previously because the
Department had not issued guidance for the new program.  For fiscal
year 1997, the new program will be administered jointly by FSA and
the Department's Natural Resources and Conservation Service. 

\2 Farmers Home Administration:  Information on Appeals of Farm and
Housing Loan Decisions (GAO/RCED-91-106, Apr.  9, 1991). 

\3 Five lawsuits alleging racial discrimination in the direct loan
program have been consolidated for trial in the Federal District
Court for the District of Columbia.  The court is considering whether
the plaintiffs can make the litigation a class action lawsuit, i.e.,
a lawsuit that would include all minority farmers. 


   ONGOING EFFORTS TO ENHANCE
   MINORITY FARMERS' PARTICIPATION
   IN FARM PROGRAMS
------------------------------------------------------------ Letter :3

FSA's efforts to achieve equitable treatment for minority farmers are
overseen by the agency's Civil Rights and Small Business Development
Staff.  To carry out its responsibilities, the Staff (1) investigates
farmers' complaints of discrimination in program decisions, (2)
conducts management evaluations of FSA's field offices to ensure that
procedures designed to protect civil rights are being followed, and
(3) provides equal employment opportunity (EEO) and civil rights
training to its employees.  In addition to these efforts, FSA
recently increased its outreach activities to minority farmers to
encourage their involvement in the Department's programs, including
their signing of 7-year production flexibility contracts.\4


--------------------
\4 Under the 1996 farm bill, farmers may enter into binding 7-year
production flexibility contracts with the federal government for
certain crops--wheat, feed grains, upland cotton, and rice.  The
government's payments to farmers for each crop are allocated each
fiscal year on the basis of budgetary levels and crop-specific
percentages established in the act. 


      CIVIL RIGHTS AND SMALL
      BUSINESS DEVELOPMENT STAFF
---------------------------------------------------------- Letter :3.1

FSA's Civil Rights and Small Business Development Staff is
responsible for evaluating the agency's compliance with civil rights
requirements.  While we did not evaluate the quality and thoroughness
of the Staff's activities, we noted that a number of efforts are
ongoing in this area.  The Staff has investigated a number of
discrimination complaints filed by farmers.  During fiscal years 1995
and 1996, the Staff closed 28 cases in which discrimination was
alleged on the basis of race or national origin.  In 26 of these
cases, the Staff found no discrimination.  In the other two cases,
the Staff found that FSA employees had discriminated on the basis of
race in one case and national origin in the other.  USDA has not
resolved how it will deal with the employees and compensate the
affected farmers.  As of January 7, 1997, the Staff had 110 cases of
discrimination alleged on the basis of race or national origin under
investigation.  Ninety-one percent of these cases were filed since
January 1, 1995. 

In addition to investigating individual complaints of discrimination,
the Staff periodically evaluates state and county offices' compliance
with EEO and civil rights requirements as part of its routine
assessments of these offices' overall operations.  During fiscal
years 1995 and 1996, the Staff evaluated management activities within
13 states.  None of the evaluations concluded that minority farmers
were being treated unfairly. 

Beginning in 1993, the Staff began to present revised EEO and civil
rights training to all FSA state and county employees.  About half of
the FSA employees have been trained, according to the Staff, and all
are scheduled to complete this training by the end of 1997.  The
training covers such areas as civil rights (program delivery) and EEO
counseling, mediation, and complaints. 


      OUTREACH TO MINORITY FARMERS
---------------------------------------------------------- Letter :3.2

FSA has efforts under way to inform all farmers about USDA's
programs, as well as special efforts to keep minority farmers
informed about and enrolled in these programs.  To reach all farmers,
county offices maintain updated mailing lists and, through periodic
newsletters and other announcements, keep all those who own or
operate farms in a county informed about new programs and program
requirements. 

In addition to its general outreach activities, FSA has specific
efforts to increase minority farmers' participation in agricultural
programs.  For example, since September 1993, the Small Farmer
Outreach Training and Technical Assistance Program has made grants
available to at least 28 entities for outreach and assistance to
minority farmers.  These entities include such institutions as
historically black and Native American colleges and universities. 
Among other things, grant recipients assist applicants in applying
for loans and in developing sound farm management practices.  Over
2,500 FSA borrowers have been served by these efforts.  FSA has also
assisted Native American farmers by establishing satellite offices on
reservations. 

More recently, in July 1996, FSA created an outreach office to
increase minority farmers' knowledge of, and participation in, the
Department's agricultural programs.  According to FSA officials, the
office is currently identifying the outreach services that FSA
already provides to minority farmers and is assessing the need for
additional efforts. 

FSA hired the Federation of Southern Cooperatives to increase the
number of minority farmers participating in the 1996 farm bill's
7-year production flexibility contracts.  It has also trained members
of the Rural Coalition in the process for electing county committee
members.  The Rural Coalition consists of several grass-roots groups
that provide outreach to minorities in order to increase the number
of minorities nominated and elected to county committees. 


   EMPLOYMENT OF MINORITY STAFF IN
   COUNTY OFFICES AND
   REPRESENTATION OF MINORITY
   FARMERS ON COUNTY COMMITTEES
------------------------------------------------------------ Letter :4

In the 101 counties with the highest numbers of minority farmers,
representing 34 percent of all minority farmers in the nation, FSA
employees and county committee members were often members of a
minority group.  About one-third of the employees were members of a
minority group, and slightly more than one-third of the county
committees had at least one minority farmer as a committee member. 


      MINORITY EMPLOYMENT IN
      COUNTY OFFICES
---------------------------------------------------------- Letter :4.1

Thirty-two percent of the FSA employees serving the 101 counties with
the highest numbers of minority farmers were members of a minority
group.  Eighty-nine percent of these employees were county executive
directors, who manage the operations of FSA's programs, or program
assistants, who, among other things, provide information on programs
to farmers.  In the offices serving 77 of these counties, at least
one staff member was from a minority group, and in 29 of these
offices, the executive director was a member of a minority group.  In
these 101 counties, minority farmers make up about 17 percent of the
farmer population. 

At the time of our visits, 7 of the 10 county and district loan
offices included in our review had at least one minority employee. 
The executive directors of two county offices, Holmes, Mississippi,
and Duval, Texas, were members of a minority group, as were the
managers of two district loan offices, Elmore, Alabama, and Jim
Wells, Texas, and the deputy managers of three district loan offices,
Holmes, Jim Wells, and Byron, Georgia. 

The number of minority employees could change as FSA continues its
current reorganization.  FSA plans to decrease its field structure
staff from 14,683 in fiscal year 1993 to 11,729 in fiscal year
1997--a change of about 20 percent.  We do not know how this
reduction will affect the number of minority employees in county and
district loan offices. 


      MINORITY REPRESENTATION ON
      COUNTY COMMITTEES
---------------------------------------------------------- Letter :4.2

Until recently, FSA required that in any county in which minority
owners and operators accounted for 5 percent or more of those
eligible to vote in committee elections,\5 a minority farmer must be
placed on the ballot.  FSA further required that if these counties
did not elect a minority farmer to the county committee, the
committee must appoint a minority adviser. 

As we reported in 1995,\6 minority farm owners and operators,
nationwide, accounted for about 5 percent of those eligible to vote
for committee members, and about 2 percent of the county committee
members came from a minority group.  In our current review, we found
that for the 101 counties with the highest numbers of minority
farmers, 36 had at least one minority farmer on the county committee. 
In the five county offices we visited, two committees had minority
members and the other three had minority advisers. 

In February 1996, the President issued a memorandum directing federal
agencies to apply revised standards to their affirmative action
programs to take into account changes that have occurred since the
programs were first instituted.\7 As a result, according to the
Department, FSA can no longer require that minorities be placed on
the county committee ballots in counties where 5 percent or more of
the eligible voters are members of a minority group.  However, FSA
officials informed us that their policy requires state committees to
ensure that county committees fairly represent all agricultural
producers in their jurisdiction and that, when needed, minority
advisers be used to ensure minority representation. 


--------------------
\5 Eligible voters include landowners, farm operators, sharecroppers,
or tenants farming in a county, regardless of where they live. 

\6 Minorities and Women on Farm Committees (GAO/RCED-95-113R, Mar. 
1, 1995). 

\7 This memorandum was issued to take into account the Supreme
Court's decision in Adarand Contractors, Inc.  v.  Pena 115 S.  Ct. 
2097 (1995).  This case held that federal affirmative action programs
using racial and ethnic criteria as a basis for decision-making are
subject to strict court scrutiny.  An affirmative action program will
be allowed only if it serves a compelling government interest and is
narrowly tailored to serve such an interest. 


   REASONS PROVIDED FOR
   DISAPPROVALS OF ACP AND DIRECT
   LOAN APPLICATIONS
------------------------------------------------------------ Letter :5

According to FSA's data, applications for the ACP for fiscal year
1995 and for the direct loan program from October 1994 through March
1996 were disapproved at a higher rate nationwide for minority
farmers than for nonminority farmers.  To develop an understanding of
the reasons for disapprovals, we examined the files for applications
submitted under both programs during fiscal years 1995 and 1996 in
five county and five district loan offices.  We chose these offices
because they had higher disapproval rates for minority farmers or
because they were located in areas with large concentrations of
farmers from minority groups. 


      REASONS FOR DISAPPROVAL OF
      ACP APPLICATIONS
---------------------------------------------------------- Letter :5.1

Nationally, during fiscal year 1995, the disapproval rates for
applications for ACP funds were 33 percent for minority farmers and
27 percent for nonminority farmers.  We found some differences in the
disapproval rates for different minority groups.  Specifically, 25
percent of the ACP applications from Native American and Asian
American farmers were disapproved, while 34 percent and 36 percent of
the applications from African American and Hispanic American farmers,
respectively, were disapproved. 

To develop an understanding of the reasons why disapprovals occurred,
we examined the ACP applications for fiscal years 1995 and 1996 at
five county offices.\8 Table 1 shows the number of ACP applications
during this period from minority and nonminority farmers in each of
the five counties, as well as the number and percent of applications
that were disapproved. 



                                     Table 1
                     
                       ACP Disapproval Rates in Five County
                                     Offices

                Minority applications              Nonminority applications
          ----------------------------------  ----------------------------------
                          Number     Percent                  Number     Percent
County         Total  disapprove  disapprove       Total  disapprove  disapprove
office        number           d           d      number           d           d
--------  ----------  ----------  ----------  ----------  ----------  ----------
Russell,          18          11          61          96          47          49
 Alabama
Dooly,             5           0           0          29           0           0
 Georgia
Holmes,           28          16          57          88          38          43
 Mississ
 ippi
Glacier,          74           9          12          47           6          13
 Montana
Duval,           146          62          42          45          15          33
 Texas
--------------------------------------------------------------------------------
When ACP applications were received in the county offices we visited,
they were reviewed first for compliance with technical requirements. 
These requirements included such considerations as whether the site
was suitable for the proposed project or practice, whether the
practice was still permitted, or whether the erosion rate at the
proposed site met the program's threshold requirements. 

Following this technical evaluation, if sufficient funds were
available, the county committees approved all projects that met the
technical evaluation criteria.  This occurred for all projects in
Dooly County and for a large majority of the projects in Glacier
County.  In Holmes County, the county committee ranked projects for
funding using a computed cost-per-ton of soil saved, usually
calculated by the Department's local office of the Natural Resources
Conservation Service.  The county committee then funded projects in
order of these savings until it had obligated all funds. 

In the remaining two counties, Russell and Duval, the county
committees, following the technical evaluations, did not use any
single criterion to decide which projects to fund.  For example,
according to the county executive director in Russell County, the
committee chose to fund several low-cost projects submitted by both
minority and nonminority farmers rather than one or two high-cost
projects.  It also considered, and gave higher priority to,
applicants who had been denied funds for eligible projects in
previous years.  In contrast, the Duval county committee decided to
support a variety of farm practices.  Therefore, it chose to allocate
about 20 percent of its funds to projects that it had ranked as
having a medium priority.  These projects were proposed by both
minority and nonminority farmers. 

In the aggregate, 98 of 271 applications from minority farmers were
disapproved in the five county offices we visited.  Thirty-three were
disapproved for technical reasons and 62 for lack of funds.  FSA
could not find the files for the remaining three minority applicants. 
We found that the applications of nonminority farmers were
disapproved for similar reasons.  Of the 305 applications for
nonminority farmers we reviewed, 106 were disapproved.  Fifty-three
were disapproved for technical reasons and 52 for lack of funds.  FSA
could not find the file for the remaining applicant.  Approval and
disapproval decisions were supported by material in the application
files, and the assessment criteria used in each location were applied
consistently to applications from minority and nonminority farmers. 


--------------------
\8 For one of these offices--Glacier, Montana--we reviewed all
applications through September 30, 1996.  For the other four offices,
we limited our review to the applications whose processing had been
completed at the time of our visit.  These visits occurred between
June and October 1996. 


      REASONS FOR DISAPPROVAL OF
      DIRECT LOAN APPLICATIONS
---------------------------------------------------------- Letter :5.2

Nationally, the vast majority of all applicants for direct loans have
their applications approved.  However, the disapproval rate for
minority farmers is higher than for nonminority farmers.  From
October 1994 through March 1996, the disapproval rate was 16 percent
for minority farmers and 10 percent for nonminority farmers.  We
found some differences in the disapproval rates for different
minority groups.  Specifically, 20 percent of the loan applications
from African American farmers, 16 percent from Hispanic American
farmers, 11 percent from Native American farmers, and 7 percent from
Asian American farmers, were disapproved. 

To assess the differences in disapproval rates, we examined the
direct loan applications for fiscal years 1995 and 1996 at five
district loan offices.\9

Table 2 shows the number of applications for direct loans during this
period for minority and nonminority farmers in each of the five
districts, as well as the number and percent of applications
disapproved. 



                                     Table 2
                     
                      Direct Loan Disapproval Rates in Five
                                 District Offices

            Minority applications reviewed    Nonminority applications reviewed
          ----------------------------------  ----------------------------------
                          Number     Percent                  Number     Percent
District       Total  disapprove  disapprove       Total  disapprove  disapprove
office        number           d           d      number           d           d
--------  ----------  ----------  ----------  ----------  ----------  ----------
Elmore,           30           7          23          22           3          14
 Alabama
Byron,            20           9          45          45           9          20
 Georgia
Holmes,           39           5          13          29           0           0
 Mississ
 ippi
Glacier,           4           0           0           7           1          14
 Montana
Jim               22           1           5          41           2           5
 Wells,
 Texas
--------------------------------------------------------------------------------
Our review of the direct loan program files in these locations showed
that FSA's decisions to approve and disapprove applications appeared
to follow USDA's established criteria.  These criteria were applied
to the applications of minority and nonminority farmers in a similar
fashion and were supported by materials in the files.  The process
for deciding on loan applications is more uniform for the direct loan
program than for the ACP.  The district loan office first reviews a
direct loan application to determine whether the applicant meets the
eligibility criteria, such as being a farmer in the district, having
a good credit rating, and demonstrating managerial ability.  Farmers
who do not demonstrate this ability may take a course, at their own
expense, to meet this standard.  If the applicant meets these
criteria, the loan officer determines whether the farmer meets the
requirements for collateral and has sufficient cash flow to repay the
loan.  These decisions are based on the Farm and Home Plan--the
business operations plan for the farmer--prepared by the loan officer
with information provided by the farmer.  If the collateral
requirements and the cash flow are sufficient, the farmer generally
receives the loan. 

In the five district loan offices we visited, 22 of the 115
applications from minority farmers were disapproved.  Twenty were
disapproved because the applicants had poor credit ratings or
inadequate cash flow.\10 One was disapproved because the applicant
was overqualified and was referred to a commercial lender.  In the
last case, the district loan office was unable to locate the loan
file because it was apparently misplaced in the departmental
reorganization.  However, correspondence dealing with this
applicant's appeal to NAD indicates that the application was
disapproved because the applicant did not meet the eligibility
criterion for recent farming experience.  NAD upheld the district
loan office's decision.  The Department allows all farmers to appeal
adverse program decisions made at the local level through NAD.  The
division conducts administrative hearings on program decisions made
by officers, employees, or committees of FSA and other USDA agencies. 

The applications of nonminority farmers that we reviewed were
disapproved for similar reasons.  Of the 144 applications from
nonminority farmers we reviewed, 15 were disapproved.  Nine were
disapproved because of poor credit ratings or inadequate cash flow;
five were disapproved because the applicants did not meet eligibility
criteria; and one was disapproved because of insufficient collateral. 

Additionally, in reviewing the 129 approved applications of
nonminority farmers, we did not find any that were approved with
evidence of poor credit ratings or insufficient cash flow. 

For the period of our review, we also wanted to obtain information on
whether FSA was more likely to foreclose on loans to minority farmers
while restructuring or writing down loans to nonminority farmers.  We
found only one foreclosed loan--for a nonminority farmer--in the five
district loan offices we reviewed.  We also found 62 cases in which
FSA restructured delinquent loans.\11 Twenty-two of these were for
minority farmers. 

Finally, the amount of time FSA takes to process applications from
minority and nonminority farmers is about the same.  Nationwide, from
October 1994 through March 1996, FSA took an average of 86 days to
process the applications of nonminority farmers and an average of 88
days to process those of minority farmers.  More specifically, for
African Americans, FSA took 82 days; for Hispanic Americans and
Native Americans, 94 days; and for Asian Americans, 97 days. 


--------------------
\9 For two of these offices--Glacier, Montana, and Jim Wells,
Texas--we reviewed all applications through September 30, 1996.  For
the other three offices, we limited our review to the applications
whose processing had been completed at the time of our visit.  These
visits occurred between June and August 1996. 

\10 One of these 20 applicants submitted an application on Mar.  30,
1995, to restructure a past-due loan and obtain a new loan.  At that
time, the state had already obligated all available 1995 direct loan
funds.  Because no funds were available, the applicant was given 35
days to obtain financing elsewhere to carry out his projected farm
and home plan.  The farmer did not obtain financing.  After the
35-day period, FSA calculated the farm and home plan's cash flow and
found that it was not positive.  Direct loan funds did not become
available in this state until late Aug.  1995.  (Only one other
application was submitted to this district office for 1995 funds
after Mar.  30, 1995.  That applicant was also told that funds were
unavailable.  The applicant withdrew her application.)

\11 Restructuring refers to either rescheduling the loan payments or
reducing the outstanding principal and accumulated interest. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We provided a draft of this report to USDA for its review and
comment.  Subsequently, we met with departmental officials--FSA's
Administrator of Farm Services; the Director, Civil Rights and Small
Business Development Staff; and the Special Assistant to the Director
of NAD--to discuss the information in this report.  These officials
generally agreed with the information discussed.  They provided some
clarifying comments that we have incorporated into the report where
appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To identify FSA's efforts to achieve equitable treatment of minority
farmers in the delivery of program services, we interviewed FSA
officials and examined documents concerning the efforts of the Civil
Rights and Small Business Development Staff.  We did not, however,
examine the processes used to investigate complaints of
discrimination or the time this office takes to investigate and
resolve farmers' complaints.  The Secretary of Agriculture has asked
the Department's Office of Inspector General to examine these issues. 

We also identified minority staffing and minority representation on
county committees in the 101 counties that had the highest numbers of
minority farmers.  The minority farmer population in these counties
represents 34 percent of all minority farmers in the nation,
according to the 1992 Census of Agriculture.  Finally, we visited
five county offices and five district loan offices to examine in
detail the treatment of minority farmers at the local level.  See
appendix I for a detailed discussion of our methodology. 

We conducted our work from April 1996 through January 10, 1997, in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 7 days after the date of this letter.  At that time, we will
send a copy of this report to the Secretary of Agriculture.  We will
also make copies available to others on request. 

Please call me at (202) 512-5138 if you or your staff have any
questions about this report.  Major contributors to this report are
listed in appendix II. 

Robert A.  Robinson
Director, Food and
 Agriculture Issues


DETAILED METHODOLOGY
=========================================================== Appendix I

From the Civil Rights and Small Business Development Staff, we
obtained information on the cases of alleged discrimination closed in
fiscal years 1995 and 1996 and obtained copies of and analyzed the
Staff's management evaluations for the same period.  Finally, we
obtained information on the equal employment opportunity and civil
rights training the Staff has provided to the Farm Service Agency's
(FSA) employees.  However, we did not evaluate the adequacy of this
training. 

To examine minority staffing in county offices and minority
representation on county committees, we first used the 1992 Census of
Agriculture to identify the 101 counties with the highest numbers of
minority farmers.\1 We then used the Department's databases to obtain
information on the number of minority staff serving the 101 counties
and the number of minority farmers on the county committees in each
of these counties.  We also used the Department's database to obtain
information on the number of minority county executive directors
serving the 101 counties. 

To examine the treatment of minority farmers at the local level, we
visited county offices and district loan offices that either had
higher disapproval rates for minority than nonminority farmers for
the Agricultural Conservation Program (ACP) in fiscal year 1995 and
for the direct loan program from October 1994 to March 1996 or had
high numbers of minority farmers.\2 Within the five county and five
district loan offices, we reviewed the applications for the ACP and
the direct loan program for fiscal years 1995 and 1996.\3 For the
Glacier, Montana, and Jim Wells, Texas, offices, we reviewed all
applications through September 30, 1996.  For the other offices, we
limited our review to the applications that had been completely
processed at the time of our visit.  These visits took place between
June and October 1996.  The offices we visited were located in
Alabama, Georgia, Mississippi, Montana, and Texas. 

At the county and district loan offices we visited, we reviewed 576
ACP and 259 direct loan files for information on the reasons for
disapproval and approval in fiscal years 1995 and 1996.  We
determined whether farmers' applications were acted upon in
accordance with established criteria and whether information to
support decisions was contained in the files.  We examined
nonminority farmers' applications to determine whether they were
approved when similar applications from minority farmers were
disapproved.  Our review focused exclusively on the documentation
contained in the files of the county and district loan offices we
visited.  We did not directly contact any farmers to discuss any of
the information contained in these files or independently verify the
information contained in these files. 

To determine the extent to which direct loan disapprovals are
appealed to the National Appeals Division (NAD), we obtained appeals
statistics from NAD.  NAD's database does not separately identify the
appeals from ACP applicants; we therefore could not obtain this type
of data for the ACP. 

To determine whether minority farmers received equitable treatment
nationally, we would have had to visit at least 30 county offices and
30 district loan offices to have statistically valid results.  To
provide valid estimates, we would have had to select the offices on a
statistical basis.  This effort would have significantly increased
the resources and time necessary to conduct the review. 
Additionally, whenever a sample from a universe is selected, the
estimates made are always subject to error introduced by the sampling
procedure.  When samples are small, as they would have been in this
case, the estimation error tends to be quite large.  The only way to
decrease the estimation error is to increase the sample size. 
Therefore, we determined that judgmentally selecting a limited number
of offices for case studies represented a more efficient use of our
resources. 


--------------------
\1 We reviewed 101 counties because we wanted to identify the 100
counties with the highest numbers of minority farmers, but 4 counties
were tied for the ninety-eighth place--each having 93 minority
farmers.  The highest number of minority farmers in one county was
1,953. 

\2 Except for Dooly County, Georgia, which we selected and visited
before obtaining national data. 

\3 District loan offices provide direct loan coverage to farmers in
one or more counties.  The five district loan offices we visited
covered a total of 48 counties. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

Robert C.  Summers, Assistant Director
Fredrick C.  Light, Evaluator-in-Charge
Jerry Hall
Natalie Herzog
Paul Pansini
Stuart Ryba
Carol Herrnstadt Shulman


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