EXECUTIVE OFFICE OF THE PRESIDENT

COUNCIL OF ECONOMIC ADVISERS

STRENGTHENING THE RURAL ECONOMY

APRIL 2010 

 
STRENGTHENING THE RURAL ECONOMY

EXECUTIVE SUMMARY

Rural areas are home to about 50 million Americans and are an essential part of the overall 

economy. This report surveys the current state of rural America and describes the Obama 

Administration’s policies for strengthening the rural economy. Many of these policies are 

already being implemented through the American Recovery and Reinvestment Act of 2009. But 

further work remains to ensure the prosperity and vitality of rural America. 

The Current State of Rural America

Our survey of the current state of rural America identifies both important strengths and 

significant challenges facing the rural economy. 

 The rural economy is more economically diverse than it once was. Agriculture directly 

employs only a small fraction of rural workers, though ancillary businesses are included 

in other sectors. Manufacturing, services, government, and wholesale and retail trade are 

important additional sources of rural employment. 

 The U.S. agricultural sector remains more productive than those of other high-income 

countries and is highly competitive in international markets. 

 The labor force of rural America is aging and its educational attainment lags behind that 

of urban areas for the working-age population. 

 Improvements in health status in rural areas have not kept pace with those in urban areas, 

and access to doctors and health services has been an important challenge in rural areas. 

Growing New Businesses in Rural Areas

One key category of Administration policies for strengthening rural America is focused on 

growing businesses and expanding employment opportunities. 

 The Recovery Act greatly increased support for small business lending through the Small 

Business Administration (SBA). The dollar value of SBA loans to rural areas was 2.5 

times higher in December 2009 than in January 2009. 

 Steps to promote clean energy are likely to have a particularly important impact on rural 

areas by increasing the demand for biofuels and encouraging renewable energy 

generation. 

 The Recovery Act is investing $2.3 billion to preserve and improve the quality and 

accessibility of Federal lands. By doing so, it is creating important new opportunities for 

rural tourism and recreation. 

Strengthening Rural Infrastructure

Another category of Administration policies is focused on continuing essential investments 

in rural infrastructure. Such investments create jobs today and improve the productivity of the 

rural economy in the future. 
 Through the Recovery Act and other initiatives, the Administration is investing heavily in 

accelerating the spread of broadband internet service to rural areas. 

 The Recovery Act provides funds to upgrade and improve the efficiency of existing water 

infrastructure. It also includes $3.7 billion in loans and grants for rural water and 

wastewater infrastructure aimed at addressing the lack of safe drinking water in some 

rural areas. 

Improving America’s Support of Agriculture

A third category of policies seeks to improve Federal support for agriculture. By doing so, 

these policies aim to strengthen this key sector of the rural economy. 

 As part of the Administration’s National Export Initiative, the President has called for 

further measures to open foreign markets to agricultural goods. 

 The President’s 2011 budget calls for a number of reforms to existing farm support 

programs, including tighter eligibility requirements to preclude the wealthiest farmers 

from receiving payments and changes to the crop insurance program to reduce windfall 

profits. 

 Initiatives such as the Know Your Farmer, Know Your Food program promote the 

development of local and regional food systems that deliver fresh food to consumers who 

live in close proximity to farms. 

Investing in the Education and Health of Rural Communities 

Through the Recovery Act and other legislation, the Federal government is making key 

investments in rural education and health care to reduce disparities between rural and urban 

areas. 

 The State Fiscal Stabilization Fund in the Recovery Act is providing $7 billion for 

education in rural communities as a down payment on the President’s broader goal of 

creating a more educated rural workforce. 

 The President’s American Graduation Initiative, together with infrastructure investments 

in rural broadband, will help make high-quality online courses available, especially 

benefiting rural areas. 

 The Recovery Act invests nearly $26 billion in health information technology, which is 

likely to be particularly valuable in dealing with the unique difficulties rural residents 

face in accessing doctors and hospitals. 

 In addition to the benefits provided to all Americans, health insurance reform through the 

Patient Protection and Affordable Care Act provides special support for the rural medical 

workforce by expanding graduate medical education positions in rural teaching hospitals 

and by supporting training for doctors and nurses in rural health care. 

 
CONTENTS

 PAGE

I. INTRODUCTION 1 

 

 

II. THE CURRENT STATE OF RURAL AMERICA 3 

 

III. GROWING NEW BUSINESSES IN RURAL AMERICA 15 

IV. STRENGTHENING RURAL INFRASTRUCTURE 26 

V. IMPROVING AMERICA’S SUPPORT OF AGRICULTURE 30 

VI. INVESTING IN THE EDUCATION AND HEALTH OF RURAL COMMUNITIES 33 

VII. CONCLUSION 39 

REFERENCES 40 

   
  
1 

I. INTRODUCTION

The United States is comprised of large cities and small towns, mountain ranges and rolling 

plains, skyscrapers and vast countryside. Underlying this variation, there is a diverse population 

– with equally wide-ranging needs and contributions – spread across our city centers and rural 

landscape. The Federal Government works to foster the commercial and cultural exchanges that 

tie America together. This report explores one segment contributing to our diverse culture and 

economy: rural America. 

The report begins with a survey of the current state of rural America. Roughly 50 million 

Americans live in rural areas. Agriculture, which has traditionally been a key base of the rural 

economy, continues to record strong productivity gains and significant growth. But rural 

America is a more diverse economy than it once was. Rural residents are employed in a wide 

range of industries, including manufacturing, services, government, and wholesale and retail 

trade. While rural America offers many opportunities, its income levels, poverty rates, 

educational levels, and mortality rates continue to lag behind the rest of the country. It is 

important to take steps to reduce these disparities. 

Federal support for rural America involves coordinated efforts across numerous agencies, 

including the Department of Agriculture, Department of the Interior, Department of Health and 

Human Services, and many others. This report outlines the Administration’s policies to lay a 

foundation for 21st-century growth that will continue to strengthen and diversify the rural 

economy, support rural workers and businesses, and put rural America on a path toward a more 

prosperous future. 

We organize the discussion of the Administration’s policies for strengthening the rural 

economy into four main categories. The first category includes policies to support the growth of 

new businesses in rural areas. These policies include programs to help strengthen small 

businesses in a wide range of rural industries. They also involve incentives to greatly expand 

clean energy opportunities, which are often centered in rural areas. There are also important new 

opportunities for rural tourism and recreation. 

A second category of policies is aimed at strengthening rural infrastructure. Infrastructure 

investment is central to rural prosperity. Without road, bridges, water projects, and 

telecommunications, rural America cannot get its products to market efficiently or be fully 

integrated with the rest of the economy. For this reason, the Federal government has 

traditionally supported rural infrastructure projects. The Obama Administration has continued 

that support in important and innovative ways, such as by supporting the expansion of broadband 

internet access to rural areas. 

A third category of policies focuses on strengthening the agricultural sector. American 

agriculture is among the most productive in the world. The Administration has proposed 

measures to further open international markets to U.S. agricultural products, proposed reforms to 

better target farm support programs, and urged a greater focus on local and regional food 

systems. 
2 

The fourth category of policies is aimed at strengthening the labor force and improving the 

quality of life in rural America by investing in education and health care. A new set of policies 

aims to close the gap in educational outcomes between rural and urban areas. The 

Administration is also investing in the health of rural America by taking actions to increase the 

affordability and quality of health care, while bolstering the medical workforce and infrastructure 

to address the specific challenges facing rural areas. 

Many of these investments in rural America were begun as a part of the American Recovery 

and Reinvestment Act of 2009 (see Box 1). This wide-ranging legislation sought to deal with the 

immediate economic crisis while also laying a foundation for future growth. As such, it 

represents one of the largest investments ever in the future prosperity of the country as a whole, 

and of rural areas in particular. The Administration is committed to continuing the reinvestment 

in rural America through its policies going forward.

Box 1: Recovery Act Funding for Rural Communities and Households 

The American Recovery and Reinvestment Act of 2009 was designed to cushion the fall in 

demand caused by the financial crisis and the subsequent decline in business and consumer 

confidence, household wealth, and access to credit. It is making new investments in people, 

businesses, and infrastructure that will help to ensure the economy returns to a path of robust 

growth. 

Through the first quarter of 2010, $373 billion of tax cuts and outlays had been made, out of 

an estimated total of $787 billion included in the Act. The Council of Economic Advisers 

(CEA) estimates that these outlays and tax relief raised employment by 2.2 million to 2.8 

million relative to what it otherwise would have been (Council of Economic Advisers 2010). 

About half of these jobs relate to spending and tax relief that went directly to families. Over the 

coming months, an increasing portion of the spending will take the form of government 

investment in everything from roads and bridges to a smarter electrical grid and 

telecommunications. 

The Recovery Act includes funding consistent with the Administration’s policies to foster 

economic growth and improve the quality of livelihoods in rural America. Throughout this 

report, we discuss how it helps to further priorities in education, clean energy, health care, 

infrastructure, small business, and recreational opportunities. The Recovery Act includes 

funding directed to rural communities, such as $7 billion for education, $3.7 billion for water 

infrastructure, and $650 million for job training; and funding for more general objectives from 

which rural areas are expected to benefit, such as $90 billion for Medicaid, $9.6 billion for 

renewable energy grants and loans, $4.7 billion for broadband, and $3 billion for small business 

loans. While the Recovery Act funding will have a significant impact in these specific areas, its 

overall contributions to the recovery and growth of the economy will also have a large impact 

on the health of the rural economy. 
3 

II. THE CURRENT STATE OF RURAL AMERICA

While rural America offers many opportunities, it also faces unique challenges in growing its 

economy and maintaining an educated and healthy labor force. In this section, we begin by 

describing how the U.S. population is distributed geographically and the sectors in which the 

rural population is employed. We then examine how rural communities have fared compared 

with their urban counterparts in labor force participation, educational attainment, poverty rates, 

and access to health care. 

A. The Diverse Rural Economy 

About 17 percent of the U.S. population lives in rural counties.1 Figure 1 shows that 

virtually every state contains rural areas, reflecting the country’s diversity of communities. That 

said, rural counties are not uniformly distributed. With the exception of the coast, the Western 

United States is dominated by low-density rural land where the distance between metropolitan 

areas is larger and population density is lower, while the Eastern United States is mainly a 

mixture of high-density rural and urban areas. 

Today’s rural economy has diversified substantially since 1970. Table 1 shows that 

manufacturing, government, services, and wholesale and retail trade are important sources of 

employment for rural America. In total, they represented 68 and 76 percent of total employment 

for the low and high-density rural population in 2007, respectively, up from 61 and 73 percent in 

                                                           

1

 The share of the U.S. population categorized as living in rural areas ranges from 17 to 49 percent, depending on the 

definition. Unless otherwise noted, analysis in this report defines urban counties as those containing metropolitan 

areas. Of the remaining counties, rural counties with greater than 25 persons per square mile are classified as highdensity rural; those with fewer are classified as low-density rural. Counties are identified by the Federal Information 

Processing Standard (FIPS) code for the 2000 Census. In a small number of cases, counties changed boundaries or 

FIPS codes between 1970 and 2000. These changes are particularly prevalent in Alaska and Virginia. Other states 

affected to a lesser extent are Arizona, Colorado, Florida, Hawaii, Maryland, Missouri, Montana, New Mexico, and 

South Dakota. In general, we drop counties that did not exist in the 2000 Census. 

Note: Counties classified based on Department of Agriculture urban influence continuum codes and CEA methodology.

Figure 1

Rural-Urban Classification by County, 2003

Urban

High-density rural

Low-density rural
4 

1970. Growth in services was particularly large over this time period in both rural and urban 

areas. Earnings show a similar pattern by industry over time. 

The agricultural sector is also an important but declining source of employment and earnings 

for rural America. In 2007, the agriculture, forestry, and fishing sector constituted about 6 

percent of employment in high-density rural areas and about 12 percent of employment in lowdensity rural areas, down from 13 percent and 23 percent in 1970, respectively. Note that these 

shares somewhat understate the importance of agriculture in rural America, since ancillary 

businesses are counted in other sector categories. For example, workers who truck or wholesale 

crops or livestock are generally not included in the agriculture sector classification, though 

livestock breeders and cotton ginners are. 

1970 2007 1970 2007 1970 2007

Agriculture, forestry, and fishing 3 1 13 6 23 12

Manufacturing 22 7 23 13 10 7

Government 18 13 17 15 19 18

Services 19 44 16 34 15 30

Wholesale and retail trade 20 14 17 14 17 13

Finance, insurance, and real estate 7 10 4 6 4 6

Mining 1 0 2 1 3 3

Other 10 10 9 10 8 11

Source: Special tabulation from Department of Commerce (Bureau of Economic Analysis), Regional Economic Accounts, CA25 and 

CA25N, and CEA methodology.

Table 1

Employment by Rural-Urban Classification

Percent of employment

Urban High-density rural Low-density rural

Note: Some industry definitions changed somewhat between 1970 and 2007. The analysis excludes 22 county equivalents, all but 

one in Alaska; independent cities in Virginia are combined with their associated counties.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Figure 2

Composition of U.S. Farm Household Average Income

Source: Department of Agriculture (Economic Research Service), Operator Household Income.

Off-farm income

On-farm income

2008 dollars
5 

Among individuals who identify themselves as farmers, agriculture has become a less 

important source of income.2

 Figure 2 shows that about half of farm household income came 

from the farm in 1960. Today, the vast majority (89 percent in 2008) comes from off the farm. 

Because agriculture is one of the key industries that distinguishes rural America from urban areas 

and because of its continued contribution to productivity and trade, we discuss it in greater detail 

below. 

1. The U.S. Agricultural Sector 

Perhaps the defining feature in the history of U.S. agriculture is its persistent gains in 

efficiency. Even relative to America’s surge in productivity over the past half century, American 

agricultural productivity has grown rapidly. Figure 3 shows that farm productivity nearly tripled 

in the second half of the twentieth century, while nonfarm productivity increased by about 75 

percent. Almost all of this divergence in productivity growth occurred after 1980. A 

consequence of this tremendous increase in productivity is that, despite increases in total 

agricultural output, employment has declined. In 1900, about 41 percent of the total U.S. 

workforce farmed. This share dropped to 16 percent in 1945, 4 percent in 1970, and only 2 

percent in 2000.3

 

                                                           

2

 The data provided by the Department of Agriculture are based on different surveys before and after 1988. The 

survey data from before 1988 over-estimated on-farm income because they assumed that farm operator households 

received all farm business income, including that earned by contractors. A farmer is counted in this survey if his or 

her farm surpasses a minimum sales threshold, which varies over time; additionally, early years in the series 

included farms over an acreage threshold. 3

 The statistics for 1970 and 2000 are as a share of the employed labor force, whereas the earlier figures are as a 

share of the total labor force (Dimitri, Effland, and Conklin 2005). 

0

2

4

6

8

10

12

0

40

80

120

160

200

240

280

320

1950 1960 1970 1980 1990 2000

Figure 3

Farm and Nonfarm Productivity and Farm Employment

Sources: Department of Labor (Bureau of Labor Statistics), Historical Multifactor Productivity 

Measures, Table XG4b, and Current Employment Survey; Department of Agriculture (Economic 

Research Service), Agricultural Productivity in the United States, Table 1; Department of Commerce 

(Bureau of Economic Analysis), National Income and Product Accounts, Table 6.4.

Nonfarm productivity 

(left axis)

Farm productivity

(left axis)

Farm employment

(right axis)

Productivity index, 1950 = 100 Employment (millions)
6 

Figure 4 shows how the productivity of the agricultural sector in the United States compares 

with that of other high-income countries. As measured by agriculture value added per worker, 

the United States has remained substantially more productive than other Organisation of 

Economic Co-operation and Development (OECD) high-income countries.4

 Specifically, value 

added per worker grew from $16,000 in 1970 to $59,300 in 2005 in the United States, compared 

with an increase from $8,000 in 1970 to $35,700 in 2005 in high-income OECD countries. 

2. International Trade Plays an Important Role in Rural America 

It should not be surprising that the U.S. agricultural sector is very competitive in the 

international market. Indeed, in 2008, U.S. agricultural exports were worth $70 billion according 

to Census definitions, and $115 billion using the Department of Agriculture’s broader definition. 

The share of American agricultural output exported in 2007 (using the Census definitions) was 

15 percent, having increased from 11 percent in 1999. Thus, access to foreign markets is very 

important for American agriculture. Likewise, although gross agricultural output only 

constituted about 2.5 percent of total GDP over this period, agriculture made up 2.8 percent of 

total exports in 1999, rising to 3.4 percent in 2007, according to Census definitions. Notably, 

this competitiveness is not primarily driven by farm support programs. Since 1991, high-value 

commodities (for instance, fruit and meat) have made up a larger fraction of exports than bulk 

commodities (for instance, wheat and rice), though they receive far less Federal support. 

In addition to productivity growth, removing trade barriers has played an important role in 

agriculture’s success. Analysis by the CEA of major free trade agreements (FTAs) between 

1985 and 2005 confirms that U.S. agricultural exports increased while import growth remained 

                                                           

4

 Agriculture value added per worker measures the output of the agricultural sector less the value of intermediate 

inputs. Agriculture includes value added from forestry, fishing, and cultivation of crops and livestock production. 

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1970 1975 1980 1985 1990 1995 2000 2005

Figure 4

Agriculture Value Added per Worker

Source: World Bank, World Development Indicators Online Database.

United States 

High-income OECD

2008 dollars
7 

largely unchanged following these FTAs.5 Table 2 shows the weighted-average growth rate in 

exports and imports before and after the implementation of these FTAs.6

 On average, in the five 

years following an FTA, agricultural exports to the FTA partner grew at a very rapid pace (14 

percent), up from a rate of 6 percent beforehand. 

Exports to the rest of the world also grew, but only at a rate of 3 percent, up from 1 percent 

growth beforehand. Prior to the FTAs’ implementation, exports to the partner country were 

growing 5 percentage points faster than exports to the rest of the world, but after, they were 

growing 11 percentage points faster.7 There is no evidence that import growth from FTA 

countries accelerated after the implementation of an FTA. Thus, on net, American agriculture 

appears to have benefited from recent trade liberalization agreements, and increased access to 

foreign markets has translated into increased opportunity for American agriculture.   

B. The Labor Force in Rural America 

While the rural economy has become increasingly diverse, it faces a number of unique 

challenges regarding its labor force. First, incomes are lower and poverty rates are higher in 

rural areas than they are in urban areas. Second, a lower proportion of the rural population is of 

working age (20-64), which presents challenges for future job creation, and the share of the U.S. 

population living in rural counties has steadily declined over time. Third, a higher portion of 

rural residents are on disability and therefore unable to participate in the rural workforce. 

Fourth, educational attainment lags behind that of urban areas for the working-age population. 

Recognizing these challenges, the Administration has made education a major pillar in its 

policies for rural America. Its focus on expanding opportunities for small businesses, tourism 

and recreation, and clean energy will also help to make rural households better off while 

attracting a new generation of young workers. 

                                                           

5

 The analysis covers FTAs with Australia, Canada, Chile, Israel, Jordan, Mexico, and Singapore. We exclude 10 

additional FTAs that the United States has implemented since 2005 because the window for evaluating the postimplementation effects is too short. 

6

 In the table, prior refers to the annualized growth rate between 6 years before FTA implementation and the 

calendar year before implementation. Post refers to the annualized growth rate between the calendar year before 

implementation and 5 years after that. Change represents the difference between post-period and prior-period 

growth rates. FTA consists of the weighted-average of the bilateral trade around the FTA agreements for the listed 

countries. Non FTA consists of the weighted average of trade with the set of countries that have never implemented 

an FTA with the United States. The CEA used the Department of Agriculture’s definition of agricultural products. 7

 Results are weighted by the amount of exports the year before FTA implementation. Unweighted results show the 

same pattern. 

FTA Non FTAs FTA Non FTAs

Prior 6 1 11 4

Post 14 3 8 5

Change 8 2 -2 1

Table 2

Growth Rate of U.S. Agricultural Exports and Imports 

Around Free Trade Agreement Implementation

Exports (percent) Imports (percent)

Note: See footnote for explanation. Totals may not add due to rounding.

Source: CEA analysis using data from Department of Agriculture (Foreign Agricultural Service).
8 

1. Income and Poverty Rates 

On average, rural residents have notably lower incomes than urban residents. Tables 3A and 

3B show that between 1979 and 1999, the average urban resident experienced greater increases 

in income, in both level changes and percent growth, compared with his or her rural counterpart. 

The poverty rate paints a similar picture. While the rural poverty rate decreased sizably between 

1979 and 1999, the average rural county posts poverty rates at least several percentage points 

above those observed in urban counties. Note that the cost of living is higher in urban areas and 

ideal measures of income and poverty would adjust for these differences. We have not done so 

here. 

2. Labor Force Participation 

The extent to which a population is comprised of able, working-age people is an important 

indicator of potential employment. The trajectory of the labor force, measured by the age and 

training composition of the rural population, helps predict its future economic health. To 

examine the current and future economic health of rural America, we compare the average age 

composition in urban, high-density rural, and low-density rural counties in 1970 and 2000. 

Table 4 reveals that the share of the population under age 20 has declined since 1970 but remains 

similar across urban and rural classifications. While the share of the population in the prime 

working ages (20-49) has increased in both urban and rural counties since the 1970s, it continues 

to be substantially lower in rural counties. Rural counties also tend to be relatively older, which 

holds among the elderly (65+) and near-retirement (50-64) age groups. 

Classification 1979 (2008 dollars) 1999 (2008 dollars) Percent change

Urban 21,148 29,189 38.0

High-density rural 16,283 22,008 35.2

Low-density rural 15,910 20,666 29.9

Classification Change (p.p.)

1979 1999

Urban 11.5 11.9 0.4

High-density rural 15.5 14.4 -1.1

Low-density rural 17.4 16.1 -1.3

Source: Department of Commerce (Census Bureau), Decennial Census (1980, 2000).

Note: Annual means of per capita income and poverty rate are weighted by the county total population and 

the county population reporting a poverty status, respectively.

Percent of population with a defined poverty status 

(percent)

Table 3A

Per Capita Income by Rural-Urban Classification

Table 3B

Poverty Rate by Rural-Urban Classification
9 

The overall share of the U.S. population living in rural counties also has been steadily 

declining over time, with high-density rural counties experiencing particularly sharp declines 

(see Figure 5).8 From 1900 to 1970, rural counties lost nearly 0.3 percentage point of the U.S. 

population per year. From 1970 to 2008, this trend has continued, albeit at a slower rate, costing 

rural counties almost 0.1 percent of the U.S. population annually. The net effect of these 

declines is a broad-scale population shift from rural to urban America. In 1900, about 40 percent 

of the population lived in a county that ultimately would be classified as rural in present-day 

America, whereas today that share has dwindled to half this amount. 

An additional measure of labor force depth is the share of the working-age population (25-64 

years old) healthy enough to be counted as an active member of the labor force.9 The Federal 

Social Security Disability Insurance (SSDI) program provides monthly cash benefits to people 

who are unable to work due to a disability. In 2008, disability insurance enrollment as a share of 

the working-age population was 6.5 percent in high-density rural areas and 5.7 percent in lowdensity rural areas, compared with 3.9 percent in urban areas.10 Thus, the average rural resident 

was much more likely to be enrolled in SSDI than his or her urban counterpart. Because 

individuals enrolled in SSDI are unlikely to exit from the program, these disparities are also 

                                                           

8

 Counties are classified as described above. Because this figure covers years before 1970, the calculations here 

involve more counties with changed borders or FIPS codes, though the number is still relatively small. 

9

 The definition of “working-age population” here is different from that above due to the age categories available in 

the Social Security Administration’s published data. 

10 So as not to overstate disability “intensity,” we first net out the fraction of SSDI recipients younger than 25 or 

older than 64 years, roughly 5.25 percent as of December 2008 (Social Security Administration 2009). 

Age category Change (p.p.)

1970 2000

Urban

<20 37.7 28.6 -9.1

20-49 38.6 44.8 6.3

50-64 14.4 14.7 0.3

65+ 9.3 11.9 2.6

High-density rural

<20 38.3 27.9 -10.5

20-49 34.7 41.1 6.4

50-64 15.4 16.3 0.9

65+ 11.6 14.7 3.2

Low-density rural

<20 38.6 29.1 -9.5

20-49 32.0 38.7 6.7

50-64 16.4 16.5 0.1

65+ 13.1 15.7 2.7

Table 4

Age Distribution within Urban-Rural Classifications

Distribution within classification 

(percent)

Source: Department of Commerce (Census Bureau), Decennial Census 

(1970, 2000).
10 

likely to impact future labor force capacity.11 

3. Educational Attainment 

Over time, the share of the population of ages 25–64 with more than a high school education 

in an average urban county has been persistently above the share in an average rural county (see 

Table 5). While rural counties have made great strides in ensuring that larger proportions of 

their populations pursue schooling beyond high school, they have been unable to close this gap. 

Additionally, the rate of progress in educational attainment has been slightly slower in rural 

areas, causing education levels in rural areas to slip further behind those in urban areas. In 2000, 

an urban resident was between 10 and 15 percentage points more likely to have attended college 

than a rural resident. Two decades earlier, this difference was between 9 and 13 percentage 

points. 

This growth differential is driven by the share of the working-age population that has 

completed only high school. In the average urban county, this share fell 11 percentage points 

over the two decades, compared with just 3 to 6 percentage points in the average rural county. 

Put another way, in 1980 rural residents were 1.1 times more likely to stop attending school after 

high school than urban residents. By 2000, this ratio was up to 1.3-1.4. 

                                                           

11 Less than one percent of claimants exit SSDI in a typical year because they are under 65 and no longer meet the 

standards for receiving disability benefits (Autor and Duggan 2006). 

0

5

10

15

20

25

30

1900 1920 1940 1960 1980 2000

Figure 5

U.S. Population Concentration over Time

Source: Department of Commerce (Census Bureau), Decennial Censuses and Intercensal Population 

Estimates.

High-density rural

Low-density rural

Percent of total U.S. population
11 

C. The Status of Health Care in Rural America 

Health care costs have continued to rise for individuals and families throughout the United 

States, while health insurance coverage has eroded for hundreds of thousands of Americans. 

Because health care costs account for a much larger share of rural residents’ average income, the 

relentless rise in health care costs in recent years has disproportionately impacted them. In this 

section we lay out the health care challenges faced by rural residents. In Section VI, we discuss 

how these challenges are being addressed through the Recovery Act and health care reform. 

While residents of non-metropolitan areas have comparable rates of health insurance 

coverage to metropolitan areas and the nation overall, they are more likely to be enrolled in 

public programs such as Medicaid for low-income families, the Children’s Health Insurance 

Program, and especially Medicare for the elderly (due to the relatively older rural population) 

rather than holding private insurance, as shown in the Table 6.12 Residents of rural areas have 

less access to doctors and other health care providers than their counterparts in urban areas. As a 

result, they are more likely to forego needed care. Finally, improvements in health status in rural 

areas have not kept pace with those in urban areas. See Box 2 for a description of health care 

                                                           

12 Due to data limitations, the health care analyses in this report do not classify counties into rural and urban 

categories. Instead, they use the Bureau of Labor Statistics Current Population Survey’s metropolitan and nonmetropolitan classifications. In this table, percentages are not directly comparable to published Census results due 

to CEA calculations assigning individuals to only one coverage category. For those covered by multiple types of 

insurance, individuals were assigned to categories in the following order of precedence: Medicare, Military, 

Children’s Health Insurance Program, Medicaid, Private Insurance. Individuals not assigned to one of these 

categories are considered uninsured. 

Highest level of educational attainment

Change 

(p.p.)

1980 2000

< High school 25.4 15.6 -9.8

High school only 37.1 26.1 -11.1

> High school 37.5 58.4 20.9

< High school 35.2 18.8 -16.4

High school only 40.1 37.3 -2.8

> High school 24.7 43.9 19.2

< High school 30.1 17.2 -12.9

High school only 41.0 34.6 -6.4

> High school 28.9 48.2 19.3

Note: Educational attainment for population aged 25 to 64.

Source: Department of Agriculture (Economic Research Service) county-level tabulation 

from Department of Commerce (Census Bureau), Decennial Census (1980, 2000).

Table 5

Educational Distribution within Urban-Rural Classifications

Distribution within classification 

(percent)

Urban

High-density rural

Low-density rural
12 

and other issues in rural American Indian and Alaska Native communities.13

1. The Burden of High Costs 

Families in non-metropolitan areas are more likely than families in metropolitan areas to 

have a high burden in affording health insurance coverage, defined as health expenses exceeding 

10 percent of after-tax family income. While total out-of-pocket health expenses are comparable 

in metropolitan and non-metropolitan areas ($3,265 versus $3,216 in 2005, the year with the 

most recent available data, in 2007 dollars), incomes in non-metropolitan areas tend to be lower. 

As a result, 24.2 percent of families in non-metropolitan areas spend more than 10 percent of 

their income on health insurance coverage, compared with 18.1 percent of families in 

metropolitan areas (Jones et al. 2009). 

2. Lack of Access to Doctors and Health Services 

In addition to the higher burdens from the cost of health insurance coverage, rural families 

have less access to health care services. For instance, rural areas tend to have fewer active 

doctors and specialists per person than metropolitan areas. As a result, rural residents face 

greater difficulties in accessing care. This complicates early detection and regular treatment of 

diseases such as cancer. 

Non-metropolitan counties had on average 1.2 active doctors for every 1,000 residents in 

2007, compared with 3.0 active doctors for the same number of residents in metropolitan areas. 

Metropolitan counties also had more than 3 times as many specialists, 1.1 for every 1,000 

residents compared with only 0.3 for every 1,000 residents in non-metropolitan counties.14

Finally, in addition to disparities in health care infrastructure and workforce capacity, rural 

residents face specific geographic challenges in accessing medical care. One report found longer 

travel times for emergency services in small and geographically isolated rural communities 

                                                           

13 An American Indian Area includes American Indian reservations, trust lands, tribal jurisdictions, and designated 

statistical areas (Ogunwole 2006). 14 These statistics are generated by weighting each county by its population. The results are similar if no population 

weights are used. 

Metropolitan Non-metropolitan Overall

Military health care 2.5 2.6 2.5

Children's Health Insurance Program 2.7 3.2 2.8

Medicaid 9.1 10.6 9.4

Medicare 13.5 18.3 14.2

Private insurance 56.9 50.3 55.8

Uninsured 15.2 15.1 15.2

Table 6

 Insurance Coverage by Metropolitan Status

Percent of total population

Note: See footnote. 

Source: Department of Commerce (Census Bureau), March 2009 Current Population Survey.
13 

(Chan, Hart, and Goodman 2006). This can be especially problematic for acute events such as 

heart attacks and strokes, where the time that elapses until the patient reaches the hospital can 

mean the difference between life and death. 

3. Diverging Mortality Rates 

While mortality rates in the United States overall have declined over the past few decades, 

mortality rates in metropolitan and non-metropolitan areas have diverged since the early 1990s. 

Figure 6 shows that, since 1990, non-metropolitan mortality has declined at an average annual 

rate of only 0.73 percent, significantly slower than the metropolitan rate of 1.27 percent. While 

the source of this divergence is unclear, it is likely that improvements in access to health care and 

in the affordability of that care in rural areas could help to narrow this gap in mortality rates. 

Box 2: The Rural American Indian and Alaska Native Population 

American Indian Areas (AIAs) are overwhelmingly located in rural areas and, as of 2000, 

were home to 34 percent of American Indians and Alaska Natives. Residents of AIAs lag the 

rest of the country in terms of poverty rates, educational attainment, and health status. 

In 1989, approximately 40 percent of American Indians or Alaska Natives living in AIAs or 

in Alaska Native Village Statistical Areas (ANVSAs) were living in poverty, versus just 13 

percent of the total U.S. population. Although the family poverty rate for American Indians and 

Alaska Natives in AIAs in the 48 contiguous states fell by at least 7 percentage points over the 

subsequent decade, in 2000 it remained three times the poverty rate for the entire U.S. 

population (Taylor and Kalt 2005). 

In the 2000 Census, approximately one-third of American Indians or Alaska Natives over 

the age of 25 who lived in AIAs or ANVSAs had less than a high school education (Ogunwole 

2006). While this represented a significant improvement over the percentage in 1989 (43 

percent), it remains substantially higher than the corresponding fraction for all American 

Indians and Alaska Natives (29 percent) or for the total U.S. population (20 percent). Also, 

only 8 percent of those over the age of 25 who lived in AIAs and 4 percent of those over the age 

of 25 who lived in ANVSAs had a bachelor’s degree or higher in 2000, compared with 12 

percent of all American Indians and Alaska Natives and 24 percent of the total U.S. population. 

American Indians and Alaska Natives also have lower average health status compared with 

the rest of the U.S. population. American Indians and Alaska Natives born in 2000 had a life 

expectancy that was approximately 2.4 years lower than that of the entire U.S. population, and 

the infant mortality rate among this group was substantially higher than the general U.S. 

population (Department of Health and Human Services 2006). American Indians and Alaska 

Natives also have the highest rates of type 2 diabetes in the United States. Finally, the 

uninsured rate was 28 percent among American Indians and Alaska Natives in 2008, compared 

with 17 percent for the total population (Department of Health and Human Services 2009). 
14 

D. Traditional Federal Support for Rural America 

A key aim of Federal policy is to increase economic opportunities and overall standards of 

living in rural areas. While the Department of Agriculture has a significant focus on rural 

development, other Federal agencies also play a role, including the Small Business 

Administration, the Department of Health and Human Services, the Department of the Interior, 

and the Environmental Protection Agency, among others. Long before the Administration’s 

recent efforts to strengthen rural America, Federal support for rural areas through these many 

agencies was extensive. 

To illustrate this traditional support, consider expenditures in 2007. About $390 billion in 

Federal funding was directed to rural areas through non-loan, non-insurance programs in that 

year. The left-hand pie chart in Figure 7 shows that approximately 84 percent of this funding 

went to health care, Social Security, military wages and procurement, and non-military wages 

and procurement (including the Postal Service). The remaining 16 percent – denoted as “other 

spending” – is further broken out in the right-hand pie chart. This “other” component of rural 

spending constituted about $62 billion in 2007. About one-quarter of this spending was directed 

toward transportation infrastructure. Spending on social services and food assistance (17 

percent), income security (16 percent), the agricultural sector (15 percent), and education (13 

percent) represent the next largest areas of spending. Spending on housing and other 

infrastructure, while smaller, was still a substantial portion of Federal funding. 

750

850

950

1,050

1,150

1,250

1,350

1968 1972 1976 1980 1984 1988 1992 1996 2000 2004

Figure 6

Metropolitan and Non-Metropolitan Mortality Rates

Sources: Cosby et al. (2008); Data for 2005-2006 from the Centers for Disease Control and Prevention, 

WONDER public data file.

Non-metropolitan

Metropolitan

Age-adjusted mortality rate, per 100,000
15 

III. GROWING NEW BUSINESSES IN RURAL AMERICA

The previous section highlighted both the strengths of rural America and the challenges it 

faces. The Obama Administration is committed to building on those strengths and addressing 

the challenges. One key set of the Administration’s policies for rural America are programs to 

help businesses grow and flourish in rural areas. These policies include supporting small 

businesses, jump-starting the transition to clean energy, and new opportunities for rural tourism 

and recreation. 

A. Strengthening Small Business 

1. Background 

In the second half of the twentieth century, a diversifying rural economy gave the Federal 

government reason to expand its rural business programs beyond the agricultural sector. The 

three main organizations that house these programs are the Small Business Administration 

(SBA), the Department of Commerce’s Economic Development Administration, and the 

Department of Agriculture’s Office of Rural Development. 

 

Health

31%

Social Security

31%

Defense and related

11%

Procurement and compensation 

- non-defense

11%

Transportation

25%

Social services and 

food assistance

17%

Income security

16%

Agriculture

15%

Education

13%

Housing

6%

Other

infrastructure

3%

Other

5%

Other spending

16%

Note: Excludes funds not assigned to a specific county, as well as loans and insurance programs, which generally do not report net

outlays. Social Security includes social insurance programs for railroad workers.

Source: Department of Commerce (Census Bureau), Consolidated Federal Funds Report.

Total Spending Breakdown of Other Spending

Figure 7

Federal Spending in Rural Areas, 2007

$390 billion $62 billion
16 

The Small Business Administration has supported loans to small businesses for over fifty 

years through numerous loan and financing programs, the biggest of which are the 7(a) and 504 

loan guarantee programs. The 7(a) program has historically offered guarantees of up to 85 

percent on loans to small businesses that would not otherwise be able to get funding. The 504 

program is designed to help businesses get long-term financing to acquire fixed assets for 

expansion or modernization. Both programs work through qualified lenders and generally 

require fees for participation. Over 2007 and 2008, an annual average of more than $2 billion in 

loan guarantees by the 7(a) and the 504 programs went to rural counties, representing 12 percent 

of their total loan volume. 

The Economic Development Administration provides a variety of services to stimulate 

economic development and to protect underserved businesses, including a revolving loan fund 

program to small business owners and entrepreneurs, a trade adjustment assistance program, and 

an economic adjustment assistance program for businesses affected by sudden economic 

changes. In fiscal year 2008, it reported investing almost 69 percent of its funds for 

infrastructure and revolving loan funds in rural areas. 

Programs in the Department of Agriculture’s Office of Rural Development are explicitly 

geared towards encouraging economic development in rural communities. In 2008, these 

programs supported more than $1.5 billion in loans and grants, $1.4 billion of which was in the 

Business and Industry (B&I) Guaranteed Loan program. The B&I Guaranteed Loan program 

provides loan guarantees on up to 80 percent of the loan amount for loans to rural businesses.15 

2. New Policies 

The Administration is committed to supporting rural businesses both by providing short-term 

relief and by promoting long-term economic growth. Small businesses were hit particularly hard 

in the recession. With limited access to capital markets, small businesses rely more heavily on 

bank lending than large businesses do, making them vulnerable to difficulties in the banking 

sector. Small businesses in rural areas are no exception, and the struggles that they have faced 

during this recession have required timely action. The Administration and Congress reacted 

swiftly to the needs of small businesses by passing the Recovery Act in February 2009. 

The Recovery Act included legislation that increased the resources of many of the programs 

that generally support small business and economic development in rural areas. The Small 

Business Administration’s 7(a) and 504 programs were expanded by temporarily eliminating or 

reducing fees and raising the guarantee rates. The Rural Development Administration’s B&I 

Guaranteed Loan Program was granted budget authority to support nearly $1.7 billion of new 

loans to rural businesses. The Economic Development Administration received $150 million to 

create jobs and boost development in parts of the country hit hard by the recession, and 

particularly those that would qualify for help under their economic adjustment assistance 

program. The Community Development Financial Institutions Fund also received funds to be 

                                                           

15 The maximum loan amount is $25 million in most cases. Rural is defined as all areas other than cities or towns of 

more than 50,000 people and the contiguous and adjacent urbanized areas. Loans can be made to businesses in nonrural areas when the business is a cooperative organization, practices value-added processing, and has all members 

of its cooperative located within 80 miles of the facility. 
17 

used for technical and financial assistance for American Indian and Alaska Native communities. 

The Recovery Act provided support at a critical time for many rural small businesses. Figure 

8 plots new monthly lending in the SBA’s 7(a) and 504 programs in rural counties from January 

2007 through December 2009.16 There are two principal findings. First, small business SBAbacked lending in the rural sector dropped substantially during the course of the financial crisis 

of 2008, as banks reined in their lending (an equivalent drop occurred in the urban sector). 

Second, the success of the Recovery Act program to expand credit to small business is evident. 

The fee elimination or reduction and the higher guarantee rates coincided with a substantially 

increased loan volume. By December 2009, the dollar amount of loans issued in rural counties 

was more than 2.5 times larger than the amount issued at the low point in January 2009. 

This substantial increase after the Recovery Act occurred in both rural and urban 

communities. However, recent SBA policies and general improvements in the lending 

environment appear to have especially benefited rural communities. Figure 9 shows that the 

percentage of SBA-backed loan dollars issued to rural counties jumped in 2009 after the 

Recovery Act was put into effect. The percentage of loans issued to rural counties increased to 

an average of 15 percent after the Recovery Act was enacted through the end of 2009, up from 

an average of 12 percent in 2008 and 11 percent in 2007. 

The Administration’s policies are not limited to the short-term response that was essential 

during the recession. Long-term investment in innovation and entrepreneurship is critical for the 

economic health of rural communities. In addition to continuing strong support of existing 

programs, the Administration has introduced new policies that will foster rural revitalization. In 

                                                           

16 Figures 8 and 9 exclude loans not assigned to a valid county in the Small Business Administration data. 

0

50

100

150

200

250

300

350

2007 2008 2009 2010

Figure 8

Combined SBA 7(a) and 504 Guaranteed Loans: Loan Volume in Rural Counties

Sources: Small Business Administration (as of April 4, 2010) and CEA calculations.

SBA Recovery Act Recession plans enacted

Pre-Recovery Act 

recession average = 

$151 million

Post-Recovery Act 

average = $200 

million

Millions of dollars
18 

particular, the Department of Agriculture will lead a strategy to promote economic opportunities 

through regional planning among Federal agencies and state and local governments through its 

Rural Innovation Initiative (see Box 5, in Section VI). Recognizing that rural areas often suffer 

from higher poverty and unemployment rates, the Department of Agriculture and the Small 

Business Administration recently announced their intent to work together to better coordinate 

development programs and increase the number of guaranteed small business loans (Small 

Business Administration and Department of Agriculture 2010). 

The fiscal year 2011 budget also includes almost $100 million for the promotion of regional 

innovation clusters through the Small Business Administration and the Economic Development 

Administration. The Economic Development Administration will use its budget allocation to 

distribute regional planning and matching grants to support the creation of regional innovation 

hubs. The Small Business Administration will promote small business participation in regional 

economic clusters by awarding grants on a competitive basis to facilitate the coordination of 

resources through business counseling, training, and mentorships. The proposed fiscal year 2011 

budget also expands the Emerging Leaders Initiative and the Minority Business Development 

Agency, both of which will play critical roles in supporting American Indian and Alaska Native 

businesses by providing technical assistance and connecting business leaders to regional 

networks. 

B. Jump-Starting the Clean Energy Transformation 

The rural economy will also benefit from policies aimed at moving the American economy 

toward cleaner domestic sources of energy. Existing Administration policies – the Renewable 

Fuel Standard recently enacted under the Energy Independence and Security Act of 2007 (EISA) 

and Recovery Act incentives for the development of bio-energy – will increase the amount of 

8

9

10

11

12

13

14

15

16

17

18

2007 2008 2009 2010

Figure 9

Combined SBA 7(a) and 504 Guaranteed Loans: Share of Total Loan Volume to 

Rural Counties

Sources: Small Business Administration (as of April 4, 2010) and CEA calculations.

SBA Recovery Act 

Recession plans enacted
19 

bio-based transportation fuels and renewable energy produced in rural areas. Further energy and 

climate legislation could greatly expand the use of energy sources located in rural areas such as 

bio-energy, solar, wind, biomass, and geothermal to produce electricity and transportation fuels. 

1. Increased Demand for Bio-Based Feedstocks 

The EISA requires that a minimum volume of renewable fuel be added to any gasoline sold 

in the United States. Renewable fuels are defined by statute as fuels derived from bio-based 

feedstocks such as corn, soy, sugar cane, or cellulose that have fewer lifecycle greenhouse gas 

emissions than the gasoline or diesel they replace. This provision will increase the volume of 

renewable fuel blended into gasoline from 9 billion gallons in 2008 to 36 billion gallons by 2022. 

While petroleum refiners will initially rely on conventional biofuels to meet the requirement, the 

EISA mandates that 58 percent of the total requirement be met by advanced biofuels in 2022.17 

Fuel sources that could be used to meet this mandate in future years include sugar cane, 

switchgrass, agricultural residues, algae, and waste. 

Greater use of biofuels is already leading to the location of bio-refineries in rural America, 

and this trend is expected to grow over time. The number of operating ethanol refineries in the 

United States more than doubled between 2005 and 2009, with capacity concentrated in the 

Midwest. The number of ethanol plants built each year and their average capacity also have 

increased over the past several years. In 2002, about six ethanol plants were built annually, each 

with an average capacity of 50 million gallons. In 2008, the number of ethanol plants built 

annually had increased to 26, each with an average capacity of 100 million gallons. Over the 

next decade, the Environmental Protection Agency (EPA) projects that between 10 and 15 

ethanol plants will be built annually (Environmental Protection Agency 2010). 

The increased demand for bio-based feedstocks is expected to increase net incomes in rural 

America. The EPA estimates that the increase in renewable fuel production due to the renewable 

fuel standard will result in a $13 billion increase in net U.S. farm income in 2022 (Environmental 

Protection Agency 2010). This represents a 36 percent increase in net income relative to what is 

projected to be without the renewable fuel standard. Biofuel production tends to occur relatively 

close to where the feedstock is grown. Thus, the employment associated with greater biofuel 

production from the feedstock will further increase earnings in rural areas.  

2. The Recovery Act Will Spur Investment in Renewable Energy 

Table 7 summarizes the Recovery Act’s substantial investments in America’s renewable 

energy future. In the short term, they will help achieve the President’s goal of doubling 

renewable energy production by 2012. Over the longer term, they will help ensure that 

renewable energy sources become a major part of our supply of energy. This increased 

production of renewable energy from geothermal, wind, solar, and biomass will generate 

increased income, particularly for residents of rural communities. (See Box 3 for a discussion of 

how the Recovery Act is helping rural households improve the energy efficiency of their homes.) 

                                                           

17 Advanced biofuels are defined by statute as having less than 50 percent the lifecycle greenhouse gas emissions of 

petroleum-based fuel. 
20 

The Energy Information Administration’s (EIA) revised Annual Energy Outlook for 2009 

projects that the fraction of electricity generated from renewable energy will grow due to the 

renewal of Federal tax credits and the funding of new loan guarantees through the Recovery Act 

(Department of Energy 2009b). Wind generation is expected to be more than double what it 

would have been without the Recovery Act by 2012. Geothermal and biomass capacity are also 

projected to grow significantly more due to the Recovery Act. 

States with largely rural populations have some of the highest technical potential for 

renewable development and therefore will likely be the principal recipients of renewable energy 

projects spurred by these Federal incentives. Table 8 shows that low-density rural counties have 

the highest technical potential for solar and wind-based energy, while high-density rural counties 

have the highest technical potential for crop and forestry biomass and for renewable energy from 

animal waste residues. In particular, North Dakota, Montana, and other portions of the Great 

Plains rank highest in terms of wind intensity, while the most certain wind resources are located 

in the southeastern plains. States in the West – Utah, Arizona, California, New Mexico, 

Colorado, and Nevada – have the highest solar energy potential. Western states also tend to have 

the highest proportion of geothermal potential (where magma has penetrated the Earth’s upper 

crust). 

Renewable Energy Incentive Description Subsidy Amount

Loan Guarantees Increase funding for the existing loan guarantee program for 

renewable energy and electric power transmission systems and cuttingedge biofuel projects (up to a limit of $500 million), each of which 

must begin construction no later than September 2011.

$4 billion to support approximately $32 

billion of loan guarantees.

Manufacturing Tax Credit Funds qualified investments in advanced energy manufacturing. Provides a tax credit for 30% of investment.

New Clean Renewable Energy Bonds Helps finance facilities that generate electricity from renewable 

energy.

Increased from $800 million to $2.4 billion.

Qualified Energy Conservation Bonds Helps finance government programs to reduce greenhouse gas 

emissions and for other conservation purposes.

Increased from $800 million to $3.2 billion.

Extension of Renewable Energy 

Production Tax Credit

Extends the eligibility dates for tax credit to facilities producing 

electricity from wind, biomass, geothermal energy, municipal solid 

waste, qualified hydropower, and marine and hydrokinetic renewable 

energy. 

2 cents per kWh (2008 dollars) for wind, 

geothermal, and hydroelectric generation and 

1 cent per kWh for biomass and landfill gas.

Investment Tax Credit in Lieu of 

Production Tax Credit

Post-2008 facilities that produce electricity from wind and other 

renewable resource can choose the energy investment tax credit or the 

production tax credit (but not both). 

Provides a 30% tax credit for investments in 

energy projects.

Repeal of Certain Limits on Business 

Credits for Renewable Energy 

Property

Repeals the $4,000 limit on the 30% tax credit for small wind energy 

property and the limitation on property financed by subsidized energy 

financing.

Coordination with Renewable Energy 

Grants

Allows for a grant instead of claiming the investment or production 

tax credit for facilities put in service in 2009 or 2010. If construction 

begins in 2009 or 2010, the grant can sometimes still be claimed.

The grant is 30% of the investment in the 

facility.

Wood-to-Energy Grants Provides grants to promote the use of biomass. $50 million.

Table 7

Renewable Energy Incentives Offered to Businesses through the Recovery Act

Sources: Department of Energy (Loan Guarantee Program; Recovery Act funding); Department of Treasury (Internal Revenue Service); Department of 

Agriculture (Forest Service).
21 

There is also some evidence that certain types of renewable generation may be more laborintensive than traditional power generation. For instance, CEA analysis suggests that a 100-

megawatt concentrated solar plant may require up to seven times the number of workers 

necessary to operate a 100-megawatt combined cycle natural gas plant.18 While the operation 

and maintenance of the power plant is similar to a conventional combined cycle plant, 

concentrated solar requires additional workers to maintain large solar fields. For instance, the 

mirrors must be washed frequently during summer months. Since these facilities will be 

disproportionately located in rural areas, this is expected to expand rural employment 

opportunities. 

In addition to incentives to spur investment, both the Recovery Act and the President’s 

proposed fiscal year 2011 budget increase funding for research and development for renewable 

energy, biofuels, and energy efficiency to help ensure that investments in these areas continue to 

contribute to future economic growth. For instance, of about $2.5 billion to support energy 

research and development in the Recovery Act, $400 million is allocated to the Advanced 

Research Projects Agency-Energy (ARPA-E). The President’s fiscal year 2011 budget proposes 

adding another $300 million in funding to this program. ARPA-E uses a highly entrepreneurial 

approach by funding potentially transformative technologies that “industry by itself is not likely 

to undertake because of technical and financial uncertainty” (U.S. Congress 2007). The 

proposed 2011 budget also includes $220 million for biofuels and biomass research and 

development.

3. A Market-Based Approach to Controlling Greenhouse Gas Emissions Will Spur Generation 

of Renewable Energy in Rural America 

The President has included an economy-wide cap-and-trade program in his fiscal year 2011 

proposed budget that reduces greenhouse gas emissions by more than 80 percent by 2050. The 

American Clean Energy and Security Act (ACES) that was passed by the House of 

Representatives last summer includes a cap on greenhouse gas emissions that is consistent with 

this goal, and the Senate is currently engaged in an effort to develop a bill. 

                                                           

18 The CEA based this estimate on a variety of National Renewable Energy Laboratory (NREL) studies of direct 

permanent jobs associated with different types of electric generating plants. Much of the NREL data uses a 

particular example of a plant to generate estimates rather than a full representation over all different plant types, 

which could lead to a somewhat different estimate of the ratio of solar to natural gas jobs. 

Low-Density Rural High-Density Rural Urban

Solar (kWh/m2

/day) 4.8 4.0 4.2

Wind (1,000s of MW) 7.7 1.4 1.5

Crop and Forestry Biomass (1,000s of dry tons/yr) 85.9 94.5 66.7

Urban Wood and Mill Residues (1,000s of dry tons/yr) 20.3 33.0 46.0

Animal Waste Residues (1,000s of dry tons/yr) 0.47 0.91 0.69

Landfill and Wastewater Gaseous Biomass (1,000s of tons/yr) 0.36 2.2 12.8

Table 8

Technical Potential of Renewable Energy by Rural-Urban Classification

Note: Wind estimates exclude Alaska and Hawaii. 

Source: Department of Energy (National Renewable Energy Laboratory).
22 

A cap-and-trade system limits total annual aggregate greenhouse gas emissions and requires 

that a firm hold an allowance for each ton it emits. Trading allows firms the flexibility to meet 

the cap at least cost. Based on two analyses, the CEA estimates that U.S. actions consistent with 

the President’s emission reduction goals would reduce greenhouse gas emissions by 

approximately 110-150 billion metric tons (in CO2 equivalents) cumulatively by 2050 

(Environmental Protection Agency 2009; Paltsev et al. 2009). 

A number of analyses find that renewables such as wind, solar, geothermal, and biomass 

will play an important role in meeting these long-term emission goals. For instance, in its 

analysis of the ACES legislation, the EIA projects that renewables will make up a substantial 

proportion of the new generation capacity added between 2012 and 2030, representing an almost 

50 percent increase over what occurs without the legislation (Department of Energy 2009a). 

Further, the EPA estimates that generation from biomass and municipal solid waste will increase 

by 44 percent and generation from wind and solar will increase by almost 70 percent in 2030 

relative to what occurs without the legislation (Environmental Protection Agency 2010). 

As previously discussed, technical capacity for wind and solar is highest in less-denselypopulated areas. Further, land is less expensive in rural areas. Consequently, increased reliance 

on these technologies will likely translate into a greater number of large-scale wind farms and 

concentrated solar plants in these communities. Furthermore, rural communities in particular 

will likely benefit from revenues from increased biomass production, since large quantities of 

fuel will require some conversion of existing land to growing feedstocks and the use of currently 

fallow lands for this purpose. 

A common feature of a cap on greenhouse gas emissions is the flexibility to purchase 

offsets. Offsets allow emissions sources in covered sectors of the economy to purchase a 

reduction in emissions from a source that is not covered. Since greenhouse gases cause the same 

damage no matter where they are emitted, offsets offer the appealing prospect of achieving 

emissions reductions specified by the cap at lower cost. For a variety of reasons, the agriculture 

and forestry sectors are unlikely to be covered by a cap on greenhouse gas emissions, making 

them eligible for offsets. Offsets represent a potential new source of income for these sectors. A 

recent study by Baker et al. (2010) finds that the overall impact on U.S. farmers’ net welfare of a 

market-based cap on greenhouse gas emissions consistent with the Administration’s emission 

reduction goals is positive. The gains in farm income from higher output prices, increased bioenergy use, and demand for domestic offsets outweigh any increases in input costs. 
23 

C. New Opportunities in Recreation and Tourism 

1. Background 

America’s Federal lands are precious national assets that are an important source of 

employment in rural areas through their support of the tourism industry. These lands – wildlife 

refuges, national parks, national forests, and Bureau of Land Management lands – are located 

disproportionately in rural areas. Recently, there have been more than 620 million annual visits 

to these lands, including over 310 million to national parks and wildlife refuges. The 

Department of the Interior estimates that its lands support over 320,000 jobs in tourism and 

recreation (Department of the Interior 2009). Recent studies estimate that the National Park 

Service alone annually contributes $6.3 billion in labor income and $9 billion in value added 

(Stynes 2009), the wildlife refuges provide an estimated $1.7 billion in sales and $542.8 million 

in employment income (Carver and Caudill 2007), and recreational visits to the National Forests 

contribute $11.2 billion to GDP (Department of Agriculture 2010a). 

America’s Federal lands support a wide variety of activities. Every year, about 7 million 

anglers visit national wildlife refuges, as do 2 million hunters and many millions of birders 

(Carver and Caudill 2007). Of those surveyed on their national forest recreation visits, the 

Percent

Population (2008) WAP funds (2008) WAP funds in ARRA (2009)

Urban 84 64 66

High-density rural 13 20 21

Low-density rural 4 16 13

Table 9

Distribution of Weatherization Assistance Program (WAP) Funds

Source: Department of Energy (Office of Energy Efficiency and Renewable Energy).

Box 3: Helping Households Cope with Energy Costs 

The Department of Energy’s Weatherization Assistance Program (WAP) sponsors energy 

efficiency upgrades for qualifying homeowners. The size of the program has increased in 

recent years – the total allocation for the 2009 fiscal year was $250 million, and another $5 

billion has been allocated to states as part of the Recovery Act. Through this state-administered 

program, low-income families receive home weatherization services that allow them to save 

money on their future energy bills: the cap on average per-home expenditure under the 

Recovery Act increased from $2,500 to $6,500, most of which is paid for by the Federal 

government. 

Table 9 demonstrates that, relative to their share of the overall population, rural residents 

receive a disproportionately high share of weatherization assistance. Though each state sets the 

criteria for the disbursement of weatherization services, the amount of Federal funding it 

receives depends on three factors: low-income population share, climatic conditions, and 

residential energy expenditures by low-income households. The Department of Energy (2009c) 

estimates that weatherization services reduce the average recipient household’s annual energy 

bills by about $350. Thus, it produces substantial savings that accrue directly to rural residents. 

Percent

Population (2008) WAP funds (2008) WAP funds in Recovery Act

Urban 84 64 66

High-density rural 13 20 22

Low-density rural 4 16 13

Table 9

Distribution of Weatherization Assistance Program (WAP) Funds

Sources: Department of Energy (Office of Energy Efficiency and Renewable Energy). Department of Commerce (Census Bureau).

Notes: Numbers may not sum to 100 due to rounding. For state subgrantees serving more than one county, the CEA assumes WAP 

funds are distributed equally to each county. The Recovery Act data go through April 2010.
24 

primary activities were hiking or walking, downhill skiing, viewing natural features, hunting, and 

fishing. Additionally, about 40 percent listed viewing wildlife as an activity in which they 

participated. Recreation and tourism on Federal lands is a growth industry, with the potential to 

increasingly benefit rural America. For example, the Department of Agriculture estimates that 

the number of visitors has increased at national forests from 134 million in 1964 to 206 million 

in 2007 (Department of Agriculture 2008, 2010b). Likewise, the number of recreation visits to 

the national parks has increased from 205 million in 1979 to 275 million in 2008. 

Unfortunately, two problems – deferred maintenance and damaged ecosystems – prevent 

America’s Federal lands from reaching their full economic potential. In 2009, the Fish and 

Wildlife Service, Bureau of Land Management, National Parks Service, and Forest Service had a 

combined deferred maintenance project backlog of between $16 and $22 billion. The Forest 

Service estimates that 37 percent of its administrative facilities need major repairs or renovations 

(Department of Agriculture 2009). The failure to do needed maintenance leads to eroded roads, 

closed-off trails, and hazardous dilapidated buildings, and reduces the safety and accessibility of 

America’s Federal lands. In turn, this makes them less attractive tourist destinations. 

Similarly, a legacy of damaged ecosystems has decreased the attractiveness of many Federal 

lands. Aside from the reduction in ecosystem services that these lands provide to the whole 

country, the harms to recreation and tourism take many forms. Whether through decreasing bird 

biodiversity that attracts birders, fish abundance that attracts recreational fishermen, the 

population of native species prized by amateur naturalists, or the quality and quantity of water 

available for water recreation, ecosystem degradation is harmful to tourism on Federal lands. 

For example, the Forest Service estimates that 25 million acres of its lands are at future risk from 

insects and diseases (Department of Agriculture 2009). Furthermore, a legacy of 

counterproductive fire suppression has led to an excessive build-up of combustible material on 

Federal lands, leading to more extreme wildfires which – aside from endangering surrounding 

communities – harm ecosystems and site facilities, keeping away visitors. 

2. New Policies 

Through the Recovery Act, the Administration has increased investment on Federal lands, 

reducing the problems of deferred maintenance and ecosystem degradation and creating a 

stronger foundation for the future of rural tourism. Table 10 shows that the Recovery Act invests 

over $2.3 billion to preserve and improve the accessibility and experience of America’s 

extraordinary Federal lands. Much of this spending goes disproportionately to rural areas; for 

example, the CEA estimates that 65 percent of Forest Service spending has been allocated to 

rural counties.19 The funding is roughly evenly split between the Department of the Interior 

(National Park Service, Fish and Wildlife Service, and the Bureau of Land Management) and the 

Department of Agriculture’s Forest Service. To make parks and forests safer and more 

accessible, these funds will repair eroded trails and roads, close hazardous abandoned mines near 

tourist sites, build visitor facilities, and invest in many other assets. For example, the Forest 

Service is replacing unsafe and unhealthful bathrooms in Pike-San Isabel National Forest, in 

                                                           

19 The CEA uses a dataset of Forest Service projects provided by the Department of Agriculture. For projects that 

covered multiple counties, the analysis allocates funding evenly across the counties. 
25 

rural Chaffee County, Colorado, responding to the number-one complaint received from forest 

visitors. To improve the natural capital that draws people to Federal lands, these funds will 

reforest, reduce hazardous fuel build-up, remove structures preventing fish from accessing 

spawning and feeding areas, and remove damaging invasive species. The Department of the 

Interior is funding the construction of water control infrastructure that will increase the wetlands 

available to migratory birds at Tule Lake, in rural Siskiyou County, California, which attracts 

one of the largest concentrations of migratory waterfowl in the world. 

The President’s proposed fiscal year 2011 budget continues to support these types of 

investments through a variety of targeted programs. For instance, it proposes the establishment 

of a Forest Service pilot program for long-term, landscape-scale forest restoration activities that 

emphasize resiliency, health, and sustainable economic development. Likewise, the 2011 budget 

proposes to fully fund the ten-year average cost of fire suppression and additional discretionary 

funding if the ten-year average funding is exhausted due to excess wildfire activity. Finally, the 

2011 budget includes funding for conservation on private and public lands. For instance, it 

proposes to fund the Wetlands Reserve Program at a level that will support the conservation of 

almost 200,000 additional acres of wetlands; a 67 percent increase in funding over 2010 to 

decrease nutrient loading in the Chesapeake Bay; funding for the installation of conservation 

practices on 1.5 million acres of priority landscapes, including the Bay-Delta region in California 

and the upper Mississippi River; and a 31 percent increase in funding for the Land and Water 

Conservation Fund to acquire and conserve landscapes and ecosystems that lack adequate 

protection and improve wildlife and public enjoyment on Federal lands. 

In the short run, these investments provide jobs in rural communities that will help them 

weather the recession. In the long run, they will expand the opportunities for tourism-related 

businesses in rural America. 

Type Spending (millions of dollars)

National Parks 750

Fish and Wildlife Service

Construction at Service Facilities 227

Habitat Restoration 50

Bureau of Land Management

Habitat Restoration 37

Abandoned Mine Land Remediation and Alaska Well Legacy 53

Roads, Bridges, and Trails 26

Construction and Deferred Maintenance 42

Forest Service

Capital Improvement and Maintenance 650

Wildland Fire Management 500

Total 2,335

Table 10

Recovery Act Spending Benefiting Tourism on Federal Lands

Sources: Recovery Act websites for Department of the Interior and Department of Agriculture (Forest 

Service).
26 

IV. STRENGTHENING RURAL INFRASTRUCTURE

Strong infrastructure is critical to economic opportunity, standards of living, and social 

cohesion. But, because there are fewer people across whom to spread the costs, large 

infrastructure projects in rural areas tend to have much higher costs per household than 

comparable projects in urban areas. For that reason, the Federal government has a long history 

of supporting rural infrastructure. The Obama Administration is committed to continuing that 

support. 

A. Background 

The Federal government’s traditional support of rural infrastructure has focused on 

transportation, telecommunications, and energy and water infrastructure. This support has 

played a crucial role in linking rural residents economically and socially with the rest of the 

country and the world and in providing them with important basic services. 

1. Transportation 

Of all the Federal efforts to tie Americans together, none is more tangible than the Federalaid highway system. The Department of Transportation supports the construction and 

maintenance of important highway projects in all 50 states and has invested billions of dollars in 

highway construction and maintenance since the 1950s. About 65 percent of all interstate 

highway miles – and 70 percent of all Federal-aid highway miles – run through rural areas.20 

These highways allow rural Americans to sell their products in key markets throughout the 

country and the world. Beyond highways, Federal programs also support the rail, barge, and 

ocean-going transportation infrastructures. 

 Without this key infrastructure, the crops grown in rural America could not as easily reach 

the domestic and international markets that sustain farm income. Since less than 1 percent of 

agricultural products are sold directly to consumers, farmers rely on Federal and state highways 

to access key processing and marketing/distribution networks. A recent study in Iowa indicated 

that meat and produce had to travel an average of more than 1,500 miles from production to 

consumption (Pirog et al. 2001). 

2. Telecommunications 

While the Postal Service has long been the primary vehicle for sending goods and written 

communications in the United States, the Federal government has also played a crucial role in 

ensuring access to telecommunications in rural areas, with the same goal of connecting 

Americans to one another. Today, all telecommunications carriers that provide interstate or 

international service contribute to the Universal Service Fund (USF), often through a service fee 

on their bills. Contributors paid about $7.3 billion into the Fund in 2009, and this revenue was 

used to support a range of programs designed to promote universal access to essential 

communications services at reasonable rates. For example, the USF’s Rural Health Care 

                                                           

20 The Department of Transportation’s definition of urban differs from that of the CEA, so this statistic could not be 

calculated using CEA’s definition of urban and rural. 
27 

program subsidizes telecom and internet services for rural health care providers. Additionally, 

the Department of Agriculture’s Rural Utilities Service (RUS) provides loans to fund traditional 

telecommunications infrastructure and voice telephone service. 

3. Energy and Water Infrastructure 

As part of the New Deal, the Roosevelt Administration sought to bridge the urban-rural 

divide in access to electricity. In the early 1930s, according to one estimate, 90 percent of 

Americans in urban areas had access to electric power, while only 10 percent of rural America 

had access (Deller et al. 2009). The establishment of the Rural Electrification Administration 

(REA) in 1935 sparked a series of Federal investments that brought power to rural American 

homes over the coming years. By 1939, the REA had helped to establish more than 400 rural 

electric cooperatives, which served nearly 300,000 households. Today, the RUS continues to 

provide credit and other assistance to help improve electric, water, and telecommunications 

services in rural areas. For example, between 2002 and 2009, the RUS invested $36 billion in 

electric systems and $14 billion in water and waste management systems throughout rural 

America.21

The Federal government also has a long history of helping to build key water infrastructure 

projects in rural areas. For example, the Clean Water and Drinking Water State Revolving 

Funds provide matching grants for community and regional water systems. The two funds each 

have provided about $70 billion dollars over the last twenty years for wastewater treatment 

plants, estuary improvement projects, and drinking water treatment, storage, transmission and 

distribution infrastructure, many of which benefit rural areas. The Department of the Interior’s 

Bureau of Reclamation also provides hydropower, and drinking water and irrigation services to 

rural America. Today, the Bureau is the nation’s largest wholesaler of water, serving 31 million 

people, and provides irrigation to one out of five western farmers. 

B. Continuing Infrastructure Investment 

The Administration is committed to continued support of rural community infrastructure 

needs. As laid out in the proposed fiscal year 2011 budget, the Administration is pursuing a 

comprehensive region-based approach that coordinates infrastructure investments across 

transportation, housing, and other critical areas. The Administration is also supporting the buildup of the country’s energy infrastructure – discussed in Section III – to facilitate the use of 

cleaner, bio-based fuels. In this section, we discuss two other areas of significant infrastructure 

investment: the expansion of broadband internet service to rural communities, and 

improvements in the efficiency and availability of water resources.

1. The Administration’s Rural Broadband Strategy 

Only about 70 percent of rural households with internet access had a high speed broadband 

connection in 2007, compared with 84 percent of urban households. This difference in 

broadband adoption is not just a consequence of income differences. Even when rural and urban 

                                                           

21 Estimate provided by the staff of the Department of Agriculture, April 2010. 
28 

households are matched by income, broadband connections are less prevalent among rural 

households. Much of the difference between rural and urban broadband subscribership reflects 

availability: residents of some rural areas have no terrestrial broadband internet service 

providers, and other areas are served by only a single provider and therefore have no 

competition. 

The Administration has made a priority of accelerating the rollout of broadband internet 

service to rural America. The most important vehicles for accomplishing this goal are monies 

authorized in the Recovery Act for providing loans, grants, and loan-grant combinations to 

expand access to broadband in rural and underserved areas of America. For instance, the 

Department of Agriculture’s Rural Utilities Service will use billions to support loans and grants 

that facilitate broadband deployment in rural areas, with the objective of funding projects that 

will support rural economic development and job creation beyond the immediate construction 

and operations of the broadband facilities. The Department of Commerce’s National 

Telecommunications and Information Administration was given $4.7 billion for its Broadband 

Technology Opportunities Program to deploy broadband infrastructure in unserved and 

underserved areas (many of which are rural), expand public computer center capacity, and 

encourage sustainable adoption of broadband service. And the Administration intends to support 

broadband expansion in rural America beyond the Recovery Act. For instance, the 

Administration has included $690 million for direct loans in telecommunications and $418 

million for loans and grants to help transition rural economies into the modern information 

economy in its proposed fiscal year 2011 budget. 

There are several reasons that expanded broadband service is important for employment and 

income growth in rural areas. Most employment growth in the United States over the last several 

decades has been in the service sector, where jobs are particularly likely to benefit from 

broadband access. Broadband service may allow rural areas to compete for a range of service 

jobs, from call centers to software development. And even in non-service industries, internet 

tools can help businesses connect more efficiently with customers and suppliers. For instance, 

American farmers can use the internet to track product prices, obtain weather forecasts, buy and 

sell commodity futures, track the progress of supplies ordered or products shipped, and find 

markets for specialty farm products. Broadband internet connections also are increasingly useful 

as a substitute for business travel. 

Broadband-enabled employment is valuable in rural areas not only for the income 

opportunities it provides, but also because it helps further diversify local economies. Broadband 

internet access enables employment that is both flexible and untethered to local economic 

conditions. One example of how broadband access can diversify income sources is through 

home businesses, which are substantially more common in rural areas than urban ones. 

Broadband service helps rural businesses find markets that otherwise might be unavailable to 

them, facilitates online ordering and billing, and integrates the rural economy with the rest of the 

country (and the world) more effectively than is possible over slow-speed internet connections. 

It also allows continued access to online training and education. 

Finally, broadband service expands opportunities for improving the provision of medical and 

health services for rural populations. More accessible health information, products, and services 
29 

confer real economic benefits to rural communities and their residents. One study of hospitals in 

24 rural communities found that the benefits of telemedicine include savings from outsourcing of 

procedures, transportation savings for patients who were able to obtain services electronically 

from their local hospital rather than traveling to a distant specialist, and income savings to 

patients from reductions in missed work (Whitacre 2008). 

2. Increasing Water Efficiency and Availability 

The Administration is committed to investing in infrastructure to improve the efficiency and 

availability of water in rural America. Rural areas suffer from multiple problems associated with 

their water infrastructure. First, aging infrastructure loses much of the water in transit, reducing 

availability and increasing cost. Second, water systems have been slow to adopt new 

technologies for the efficient allocation of water, such as tiered pricing or water trading 

mechanisms. Third, some rural areas lack access to clean, reliable drinking water. 

Water availability is important for many reasons. In the agriculture sector, for instance, 

roughly 15 percent of U.S. farm land – producing crops worth about $70 billion annually – is 

irrigated. Many other industries also rely on clean water for manufacturing products or cooling 

machinery, making access to usable water an economic imperative for businesses. Investments 

in water and wastewater facilities also yield returns to public health and the environment by 

treating billions of gallons of wastewater each day before it is released into rivers, lakes, and 

oceans, making water safe for use by humans, wildlife, and plant life. Economic assistance to 

rural communities for investments in water availability is especially valuable, given the 

borrowing constraints that small or poor communities may face. 

Recognizing these potential benefits, the Administration is making several efforts to upgrade 

and improve the efficiency of existing water infrastructure. Already, the Recovery Act has 

provided more than $130 million for high-priority infrastructure repair and replacement across 

Bureau of Reclamation sites. The WaterSMART Program, provided with $40 million by the 

Recovery Act and additional funding in the proposed fiscal year 2011 budget, invests in 

infrastructure that encourages a variety of market-based conservation measures, including water 

banks and the reuse of treated wastewater. Such initiatives ensure that those who most need the 

water receive it and can provide a source of revenue to farmers. Other projects will reduce 

leakage by, for example, lining canals with reinforced concrete. Furthermore, the Administration 

has invested in the reuse of wastewater and impaired waters with $135 million in the Recovery 

Act and additional funds in the proposed fiscal year 2011 budget. Finally, the Department of 

Agriculture’s Office of Environmental Markets, which will encourage private investment in 

activities from carbon sequestration to biodiversity conservation, will support emerging markets 

for water quality. 

In addition to regular appropriations, the Administration is addressing the unavailability of 

clean, safe drinking water in some rural areas through Recovery Act funding. The Recovery Act 

included approximately $3.7 billion in loans and grants for rural water and wastewater 

infrastructure through the Department of Agriculture’s Rural Development Water and Waste 

Disposal loan and grant program. It also includes $290 million in funding across various 

agencies for construction of rural water projects, emphasizing water supply and water treatment 
30 

plants; at least 30 percent of these funds are targeted to American Indian and Alaska Native 

communities. The result is that young children in rural areas in states such as Montana, North 

Dakota, and South Dakota will have increased access to safe water, improving their health and 

future life outcomes. 

V. IMPROVING AMERICA’S SUPPORT OF AGRICULTURE

Agriculture remains central to the lives and livelihoods of rural Americans, and the U.S. 

agricultural sector is one of the most productive in the world. The Administration’s policies for 

the rural economy seek to support American agriculture, further enhance its productivity, and 

continue to protect farmers from large fluctuations in yields and prices. This section discusses 

three types of policies the President has proposed to strengthen American agriculture: expanding 

overseas market access, better targeting of farm support programs, and promoting local and 

regional food systems. 

A. Opening Markets to U.S. Agricultural Exports 

As part of the Administration’s National Export Initiative, the President has called for further 

measures to open foreign markets to American products. A key beneficiary of such expanded 

opportunities will be American agriculture, which is extremely competitive in international 

markets. 

The President recently called for concluding the Doha round of trade negotiations, a large 

component of which is related to opening up agricultural markets around the world. This would 

require countries to reduce protective tariffs and distortive subsidies in their agricultural sectors. 

More open trade allows the highly productive U.S. agricultural sector to export its products more 

easily. Further, the United States tends to have lower barriers to trade than many other 

countries. As discussed previously, the change in access that has resulted from previous free 

trade agreements has often been bigger for U.S. exporters than importers into the United States.  

An agreement such as this would allow the United States to reform policies that have been in 

some cases ruled noncompliant with the World Trade Organization (such as the subsidies for 

cotton). Having subsidies that are ruled illegal can cause damage to the industry and other 

sectors as other countries are allowed to impose retaliatory tariffs on U.S. goods. 

Finally, as discussed in Box 4, the Administration is working to promote fair competition in 

agriculture not only internationally, but also at home.   

   
31 

B. Reforms to Existing Farm Support Programs

The Federal government initiated programs to support farm income in 1933 as part of the 

New Deal. This first incarnation of Federal support took the form of payments to farmers who 

let a portion of their fields lie fallow to reduce crop supply and raise the price of farmed goods. 

The initial program spawned an array of other programs specifically targeted to the agricultural 

sector, including commodity price supports and production controls, marketing orders to limit 

competition, import barriers, and crop insurance. 

Since that time, Federal support for agriculture has evolved away from programs that pay 

farmers not to farm toward less distorting fixed direct payments based on a farm’s historic 

production. In addition, current Federal support includes countercyclical payments to help 

protect farmers against changes in current prices, programs that subsidize loans or provide the 

financial benefits of a loan when commodity prices are low, crop insurance at subsidized rates, 

and disaster- and revenue-based programs. Finally, the government provides conservation 

payments to farmers who set aside environmentally-sensitive land or adopt conservation 

practices on land that they farm. Payments to farmers of specific crops or animal products 

constituted about 70 percent of all direct farm support in 2008.22 Of this amount, corn producers 

received about 29 percent, followed by upland cotton with 25 percent, 15 percent for tobacco, 14 

percent for wheat, 7 percent for soybeans, and 5 percent for rice. 

Figure 10 tracks trends in total agricultural employment and farm support payments since 

1948.23 The farm support series is smoothed across three years and includes both direct 

payments and subsidies for crop insurance. Although there has been substantial variation due to 

price and yield shocks, two patterns are evident: the number of people employed in the 

agricultural sector has consistently declined, while total farm support (in 2008 dollars) has 

tended to increase. That said, farm support has been generally declining since 2000: the total 

level of farm support has fallen from about $43 billion in 2000 to about $21 billion in 2009. This 

                                                           

22 The credit provided to blenders of renewable fuels is not included in this amount. 

23 Farm employment consists of self-employed and unpaid family workers, and full-time and part-time wage and 

salary workers. Thus, farm employment includes workers who do not statutorily receive payments (for example, 

wage workers), and some who receive payments are not included (for example, retired farmers who still receive 

direct payments). 

Box 4: Ensuring Competition in the Agricultural Sector 

The Administration is committed to protecting fair and open competition and enforcing 

antitrust laws in the agricultural sector. The Department of Justice and the Department of 

Agriculture are holding five public outreach workshops in 2010 to solicit public input on the 

state of competition, regulation, and consolidation in the agricultural industry. One aim of these 

workshops is to foster dialogue and ensure that a wide variety of viewpoints are heard on issues 

such as the impact of agriculture concentration on food costs, how patents and intellectual 

property affect agricultural marketing and production, and increasing retailer concentration. 

The first such event, held in Iowa in March, drew hundreds of farmers, ranchers, and industry 

leaders, who participated in a vigorous discussion about competition in markets ranging from 

seeds to livestock. Four more workshops have already been scheduled in 2010 to focus 

specifically on the poultry, livestock, and dairy markets.
32 

trend appears to be driven largely by high commodity prices due to high foreign demand for U.S. 

agricultural products and the growing biofuels market. Subsidy rates for most direct payment 

programs between the 2002 and 2008 Farm Bills remained largely unchanged. 

The Administration’s proposed fiscal year 2011 budget includes a number of reforms to 

existing Federal support for the agricultural sector. First, to better target payments, it proposes 

more stringent income eligibility requirements to preclude the wealthiest farmers from receiving 

payments.24 Currently, farms with $500,000 or more in sales receive 38 percent of subsidies, 

although they account for only 4 percent of farms.25 In the Administration’s budget, after being 

phased in over three years, farmers with a farm-adjusted gross income (AGI) over $500,000 or 

nonfarm AGI over $250,000 would no longer be eligible for direct payments. Second, it 

proposes reforming the crop insurance program to reduce windfall profits enjoyed by private 

companies that supply reinsurance. The crop insurance program has grown dramatically since it 

began in 1981, from $18 million to $7 billion in 2009 (all in 2008 dollars). This change to the 

crop insurance program is projected to save $8 billion over 10 years. Together, these reforms 

ensure that the Federal government will continue to provide a safety net to farmers while freeing 

up resources that can then be directed toward other priorities.

                                                           

24 As Secretary Vilsack testified, “Recognizing the need to reduce the deficit, the budget proposes to better target 

direct payments to those who need and can benefit from them most as well as cap total payments paid to larger 

operations.” The budget also “reflects savings expected to be achieved through reforms in the Federal crop 

insurance program. The changes we are proposing will help protect farmers from higher costs, rein in costs for 

taxpayers, improve access to crop insurance and provide greater protection from crop losses” (Vilsack 2010). 25 This is calculated from tabulations at www.ers.usda.gov/Briefing/FarmIncome/govtpaybyfarmtype.htm using data 

from the 2007 Department of Agriculture’s Agricultural Resource Management Survey. 

0

2

4

6

8

10

12

0

5

10

15

20

25

30

35

40

45

50

1948 1956 1965 1973 1981 1989 1998 2006

Figure 10

Farm Employment and Farm Support

Notes: 2009 employment is estimated by the CEA. Farm support is smoothed across three years.

Sources: Department of Commerce (Bureau of Economic Analysis), National Income and Product 

Accounts, Table 6.4; Department of Labor (Bureau of Labor Statistics), Current Employment Survey; 

Department of Agriculture (Risk Management Agency and Economic Research Service), Special 

tabulation and Budget Table 35.

Employment

Farm support

Farm employment (millions) Farm support (billions of 2008 dollars)
33 

C. Promoting Local and Regional Food Systems 

The Administration is promoting the development of local and regional food systems that 

deliver fresh food to consumers who live in close proximity to farms. Local food systems 

promote healthful living through increased availability of fresh food to underserved areas and the 

provision of better information on where food was grown. Locally grown food also may have 

greater nutrition value, since it does not have to be picked as early or treated to maintain 

freshness for transport to distant places. Finally, local food systems may reduce income 

variability and increase the share of the final product price that goes to farmers. 

Several programs support this goal. Department of Agriculture initiatives such as Know 

Your Farmer, Know Your Food support local food systems and help consumers make betterinformed decisions about their food. This particular initiative assists schools participating in 

school nutrition programs to purchase more locally grown foods where possible. The First Lady 

has also been involved in promoting healthy food initiatives, many of which emphasize the 

importance of local, healthy food production. For example, a key focus of her Let’s Move! 

campaign is to help ensure that all families have access to healthy, affordable food in their local 

communities. Meanwhile, the President’s proposed fiscal year 2011 budget includes the Healthy 

Food Financing Initiative, a new program designed to provide grants to bring farmers’ markets 

and fresh foods into underserved communities. Three separate departments – Treasury, 

Agriculture, and Health and Human Services – are collaborating on this initiative, which will 

invest up to $400 million annually. 

VI. INVESTING IN THE EDUCATION AND HEALTH OF RURAL COMMUNITIES

A centerpiece of the Administration’s policies for rural America is its effort to strengthen the 

rural workforce and improve the quality of life for rural Americans. As described in Section II, 

there are significant gaps in educational attainment and in the quality and availability of health 

care between rural and urban communities. These gaps arise in part because rural areas face 

several unique challenges in achieving high-quality education and health care. First, the 

recruitment of high-quality teachers and health care professionals may be more challenging; for 

example, rural professionals often face lower pay and difficult working conditions. Second, 

because of lower population densities, it is harder for rural areas to support specialized classes in 

their schools, such as vocational and advanced classes, and specialized health care providers, 

such as experts in the treatment of relatively unusual conditions. And third, the fact that rural 

students are often far from institutions of higher education makes it more costly for them to 

attend school beyond high school (Card 1995), and the fact that rural residents are often far from 

hospitals makes it more difficult for them to obtain timely, high-quality medical care. 

The Administration is working to help rural communities overcome these challenges, and in 

doing so, to close the gaps with urban areas. These efforts are being conducted through the 

Recovery Act, which is funding a range of programs strengthening rural education and health 

care; through health care reform, which may prove particularly beneficial to rural America; and 

other measures. 
34 

A. Education 

Much of the Administration’s support for rural education comes from the Recovery Act. 

Given the greater educational challenges of rural areas, the education funding in the Act is likely 

to be particularly important in these communities. The Recovery Act’s State Fiscal Stabilization 

Fund is already directly providing approximately $7 billion for education in rural communities as 

a down payment on the President’s broader goal of creating a more educated rural workforce.26 

This spending is likely to have short- and long-run benefits. For example, direct reporting to the 

Department of Education indicates that education spending from the Recovery Act has already 

helped save or create hundreds of thousands of teacher and other education positions, reducing 

the damage of this recession to the human capital of rural communities and the rest of the 

country. Economic research suggests that the increases in class size that would have resulted 

from laying off teachers would have harmed student achievement (Card and Krueger 1992; 

Angrist and Lavy 1999; Krueger 1999). 

Several other provisions of the Recovery Act hold the promise of improving educational 

quality in rural communities and around the country. The $9.45 billion provided by the 

Recovery Act to the whole country for the Race to the Top Fund, the Investing in Innovation 

Fund, Teacher Incentive Fund, State Educational Technology Grants, Statewide Longitudinal 

Data Systems, and Title I School Improvement Grants offer the promise of substantially 

improving the quality of education in both urban and rural areas. 

Another component of the Recovery Act is investing in workers’ skills. The CEA estimates 

that, because of the Recovery Act, the Department of Labor is spending an additional $650 

million in rural areas on Workforce Investment Act programs, which provide job training and 

related services.27 Additionally, the Bureau of Indian Affairs received $19 million for workforce 

training, including on-the-job training in construction in American Indian Areas. 

A final important component of the Recovery Act is its investment in education through the 

Bureau of Indian Affairs. The Recovery Act provides nearly $280 million in funds for school 

construction on Bureau of Indian Affairs lands. A recent study suggested that households in 

California value schools at 150 percent the cost of building them, offering suggestive evidence of 

a high benefit-cost ratio for this type of investment (Cellini, Ferreira, and Rothstein 2010). 

Rural communities will also benefit from the President’s proposed American Graduation 

Initiative. This initiative funds a new online skills laboratory, which will provide free highquality courses online, especially benefiting rural areas. Teams of experts in subject areas as 

well as in pedagogy and technology will develop courses, which can then be modified, adapted, 

and shared, and then made available for free online. Funding from the Recovery Act to develop 

rural broadband will be important in extending access to these courses to rural communities. 

                                                           

26 This figure is calculated by taking the 81.8 percent of the $53.6 billion State Fiscal Stabilization Fund that must be 

allocated toward education and assuming that the money is disbursed to counties in the same proportions as it is 

disbursed to states, on the basis of total population and school-age population. 

27 This internal CEA calculation assumes that rural areas receive an amount proportional to population of the $3.95 

billion in Recovery Act funding for Workforce Investment Act programs. 
35 

B. Health 

1. Funding for Health Care during the Recession 

The high unemployment during the recession has reinforced the importance of access to 

coverage for those who have lost their jobs, and thus cannot obtain employer-sponsored health 

insurance. Indeed, the fraction of Americans without health insurance climbed during the 

recession as individuals lost employer-sponsored health insurance coverage. Rural areas were no 

exception to this trend. While the overall rate of uninsurance in rural areas is similar to that in 

metropolitan areas, as described above, rural residents are more dependent on public coverage – 

through Medicare, Medicaid, and other programs such as the Indian Health Service – compared 

with urban areas. 

The Recovery Act contains measures that address the immediate needs of rural families 

affected by the recession and invests in its health care infrastructure and workforce to meet its 

longer term needs. Between 2009 and 2019, the Recovery Act will add nearly $90 billion in 

Federal support for Medicaid through higher matching rates for states. The Recovery Act has 

been critical to bolstering the Medicaid program as enrollment nationwide rose by nearly 6 

million during the recession and its aftermath. This support is especially important for rural 

areas, which have a higher fraction of their population enrolled in Medicaid. The Recovery Act 

also provided subsidized COBRA continuation coverage – paying for 65 percent of premium 

costs – to allow workers who lost jobs during the recession to extend health insurance coverage 

for themselves, their spouses, and their dependents. Through the Supplemental Nutrition 

Assistance Program (SNAP, previously known as the Food Stamp Program) administered by the 

Department of Agriculture, the Recovery Act provided about $20 billion in support for better 

nutrition and food security, benefiting both rural and urban regions. 

Beyond strengthening the safety net, the Recovery Act makes investments in the rural health 

care workforce and infrastructure to address difficulties in accessing primary care, doctors, and 

hospitals. The Recovery Act devotes funds to help nurses repay their loans, and encourages 

recent health profession graduates to enter primary care. The Act also makes an enormous 

investment – nearly $26 billion – to accelerate the adoption of health information technology that 

will, among other things, fund grant programs to help rural areas cope with the unique difficulty 

that their residents face in accessing doctors and hospitals. For example, this includes funding 

for telehealth and network infrastructure to help patients interact with providers without being 

subject to the constraints of geography and distance (see Box 5). 

The President’s budget proposal for fiscal year 2011 builds on the Recovery Act’s support 

for strengthening public coverage critical to rural areas by investing in programs that address the 

unique concerns of these regions. For instance, the budget continues the Recovery Act’s support 

for American Indians and Alaska Natives, with $4.4 billion to support the Indian Health Service. 

It also includes an initiative to improve the performance and financial stability of rural hospitals 

as well as to increase the number of health care providers in rural counties and strengthen 

regional and local partnerships among them. The budget provides $2.5 billion for health centers 

in underserved areas, which will help to improve primary and preventive care in rural regions. 

Finally, it expands support for physicians and other health care professionals entering primary 
36 

care by helping providers who work in a medically underserved community repay their student 

loans. 

2. Health Insurance Reform 

The Patient Protection and Affordable Care Act signed into law by the President in March 

builds on the Recovery Act by expanding coverage, containing health care costs, and regulating 

health insurance markets. The new law contains important specific provisions that address the 

challenges of affordability and difficulty accessing care in rural regions. 

As described earlier, a significantly higher percentage of rural families pay more than 10 

percent of their income on health insurance compared with urban families; these families will 

benefit from the expansion in coverage. In the bill signed by the President, families with 

incomes up to 400 percent of the Federal poverty level ($88,200 for a family of four in 2009 and 

2010) who are uninsured or without access to affordable employer-sponsored health insurance 

coverage will be eligible for subsidies to purchase coverage through an exchange that caps 

premiums and out-of-pocket spending at a fixed percentage of income. A Kaiser Family 

Foundation analysis found that a family of four with an annual income of $38,600 (175 percent 

of poverty) in 2009 would receive assistance in purchasing coverage totaling around $7,450 and 

pay a maximum of only about 5 percent of its income on health insurance premiums. These 

subsidies will substantially increase health insurance coverage among individuals and families in 

rural areas (Kaiser Family Foundation 2010). 

As private insurance coverage has eroded, many rural families have turned to the essential 

safety net of public coverage to guarantee access to needed medical care. Reform legislation 

also strengthens this critical safety net. The law will expand Medicaid coverage to all nonelderly individuals at or below 133 percent of the poverty line. Similarly, it will strengthen 

Medicare by enacting delivery system reforms that ensure quality and efficiency, and will 

eliminate unnecessary overpayments to private insurers. An additional benefit of this latter set of 

reforms is that it will lower the growth rate of Part B premiums for Medicare recipients, which 

more than doubled from 2000 to 2010. 

The new health insurance reform law also contains several specific provisions to meet critical 

health care workforce needs and improve the health care infrastructure of rural areas. 

Confronting the more than twofold difference in the concentration of doctors between rural and 

urban areas, the legislation contains loan repayment and other incentive programs to encourage 

medical providers to enter primary care and work in areas with professional health shortages or 

that are medically underserved. The law also builds on the Recovery Act’s support for the rural 

medical workforce by expanding graduate medical education positions in rural teaching hospitals 

and by supporting training for doctors and nurses in rural health care. It also requires the 

Medicare Payment Advisory Commission to review payment adequacy for rural health care 

providers serving the Medicare program. In the area of infrastructure support, the law contains 

specific protections for rural areas that maintain payments for hospitals that are the sole sources 

of coverage in their community, extends demonstration programs that analyze reimbursement 

practices at rural hospitals, and builds on the Recovery Act by directing the newly created Center 

for Medicare and Medicaid Innovation to consider rural telehealth expansions. 
37 

The escalation of health care costs threatens rural families by making health care even less 

affordable over time. Independent analysts and business groups agree on the potential of reform 

to rein in health care cost inflation over time. An analysis by the CEA found that health 

insurance reform has the potential to reduce the growth rate of health care costs by 1 percentage 

point across the private sector and in Medicare and Medicaid (Council of Economic Advisers 

2009).28 Reducing the annual growth rate of health care spending by this amount would yield 

large gains in affordability for American families. For a typical family of four, slowing premium 

growth by this rate implies that income in 2030 would be higher by several thousand dollars, 

relative to what it otherwise would have been. 

These gains in income would especially help families in rural areas, who currently face 

higher payments as a percentage of income for health insurance. Because employers substitute 

between wages and health benefits in compensating their employees, containing the growth rate 

of costs means that employers will pay a larger portion of overall compensation as wages rather 

than health insurance premiums. The benefits of cost-containment also extend to retirees in rural 

areas, who will be able to keep a larger portion of their Social Security payments as the growth 

rate of Medicare Part B premiums slows. 

By increasing affordability, strengthening the safety net, and tailoring provisions to meet the 

needs of rural areas by investing in primary care and critical community hospitals, health 

insurance reform will provide security and stability that reverses the growing challenges posed 

by the status quo for rural health care. These changes will produce a healthier population in rural 

America and allow its residents to devote their resources to other activities, including making 

investments in education, new businesses, and other areas. 

                                                           

28 The CEA analyzed the House and Senate health-insurance reform legislative proposals as of December 2009. The 

version signed into law was amended based on the Senate legislation. While the legislative changes affect short-run 

projections of savings resulting from reform, its long-run measures to control costs in the public and private sector 

are largely the same as the earlier version of the legislation analyzed by the CEA. 
38 

 

Box 5: Encouraging Innovation in Rural America 

A common theme in the Administration’s policies for growing a robust rural economy is 

innovation. The Administration is encouraging the creation of new online skills laboratories to 

increase access to education. Increased broadband availability will increase education and 

business opportunities in rural areas. In the area of clean energy, the renewable fuels standard is 

expected to bring nascent advanced biofuels into the marketplace, and ARPA-E is funding early 

stage energy research. The Administration is also investing in new technologies to improve 

water allocation. Here we highlight three specific programs at the forefront of the 

Administration’s rural strategy that promote innovation: telehealth, which will increase access 

to quality health care in rural communities; agriculture and food research, which will foster 

innovation in several priority areas; and regional innovation clusters, which will facilitate 

business and community development. 

Telehealth – using telecommunications technologies such as internet video and mobile 

phones to deliver health-related services remotely – can allow for the coordination of care 

between doctors and patients, and with other care providers such as nurses and pharmacists, 

without regard to distance. For example, telemedicine systems can allow remote monitoring of 

intensive care unit patients from a central location during after-hour shifts, and remote 

examination of children by primary care providers. Through the Recovery Act and other grant 

initiatives, the Administration is making substantial investments in programs that extend this 

healthy and potentially life-saving technology to rural areas. The Federal Communications 

Commission recently announced a commitment of $191 million to 22 broadband telehealth 

networks that will link hundreds of hospitals regionally in more than 15 states. Recently passed 

health reform legislation will build on these investments by directing the newly created Center 

for Medicare and Medicaid Innovation to consider rural telehealth expansions. 

 The proposed fiscal year 2011 budget increases funding for several research and extension 

programs by over $180 million. These programs are designed to spur new innovation and, in so 

doing, maintain the long-term prospects for American agriculture through improvements in 

productivity and food safety. For instance, the Agriculture and Food Research Initiative will 

achieve its highest level ever to support competitive, peer reviewed grants to researchers with 

an eye toward supporting research in several areas that are priorities for the Administration such 

as childhood obesity, food safety, climate change, and bioenergy. 

The Administration is also seeking to promote economic opportunities through regional 

innovation clusters. The Administration includes in its proposed fiscal year 2011 budget the 

Rural Innovation Initiative, for which the Department of Agriculture will set aside up to 5 

percent of its funding from approximately 20 different programs and then allocate this funding 

competitively to regional pilot projects geared toward local needs. This initiative will raise 

roughly $280 million in loans and grants to promote a coordination of projects and is designed 

to make the regions more attractive for business development. In March of this year, the 

Department of Agriculture requested proposals through its Rural Business Opportunity Grant 

program, which provides technical assistance to rural communities. This grant focuses on 

funding regional (or multi-jurisdictional) collaboration that incorporates some aspect of the 

Administration’s broader rural objectives, such as promoting local and regional food systems, 

producing biofuels or renewable energy, spreading broadband, or innovatively using natural 

resources to generate business opportunities. 
39 

VII. CONCLUSION

The history of rural America is one of proud accomplishment. American agricultural 

productivity is among the very highest in the world and agricultural products are important 

exports. Rural America also contributes to the production of U.S. goods and services in many 

other sectors including manufacturing, services, government, and wholesale and retail trade. The 

President is committed to ensuring that the future of rural America is as distinguished as its past. 

The Administration is actively taking steps to put rural Americans on a path toward greater 

prosperity through a wide range of policies. One set of policies seeks to promote rural 

businesses and further the diversification of the rural economy by helping rural small business, 

fostering rural areas’ role in leading the clean energy transformation, and encouraging rural 

recreation and tourism. Other policies are providing crucial investments in rural infrastructure in 

telecommunications, water distribution, and other areas. To promote the continued vitality of 

American agriculture, the Administration is working to open foreign markets, improve farm 

income support programs, and promote local and regional food systems. The Administration is 

also working to strengthen the rural labor force through initiatives in education and healthcare. 

Crucial steps to strengthening the rural economy are already being taken through the 

Recovery Act and other policies. These steps include investments in areas ranging from health 

information technology and education to infrastructure and small business loans; comprehensive 

health insurance reform that will have large benefits for rural communities; and much more. The 

Administration is committed to building on these unprecedented measures in the months and 

years to come. 
40 

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