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27–052 PDF 2006

RURAL DEVELOPMENT PROGRAMS

HEARING

BEFORE THE

SUBCOMMITTEE ON CONSERVATION, CREDIT,

RURAL DEVELOPMENT, AND RESEARCH

OF THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MARCH 30, 2006

Serial No. 109–29

(

Printed for the use of the Committee on Agriculture

agriculture.house.gov
COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

Vice Chairman

RICHARD W. POMBO, California

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

ROBIN HAYES, North Carolina

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

SAM GRAVES, Missouri

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

MARILYN N. MUSGRAVE, Colorado

RANDY NEUGEBAUER, Texas

CHARLES W. BOUSTANY, JR., Louisiana

JOHN J.H. ‘‘JOE’’ SCHWARZ, Michigan

JOHN R. ‘‘RANDY’’ KUHL, JR., New York

VIRGINIA FOXX, North Carolina

K. MICHAEL CONAWAY, Texas

JEFF FORTENBERRY, Nebraska

JEAN SCHMIDT, Ohio

MICHAEL E. SODREL, Indiana

COLLIN C. PETERSON, Minnesota,

Ranking Minority Member

TIM HOLDEN, Pennsylvania

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

JOE BACA, California

ED CASE, Hawaii

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

STEPHANIE HERSETH, South Dakota

G.K. BUTTERFIELD, North Carolina

HENRY CUELLAR, Texas

CHARLIE MELANCON, Louisiana

JIM COSTA, California

JOHN T. SALAZAR, Colorado

JOHN BARROW, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

PROFESSIONAL STAFF

WILLIAM E. O’CONNER, JR., Staff Director

KEVIN J. KRAMP, Chief Counsel

JOHN HAUGEN, Communications Director

ROBERT L. LAREW, Minority Staff Director

SUBCOMMITTEE ON CONSERVATION, CREDIT, RURAL DEVELOPMENT, AND RESEARCH

FRANK D. LUCAS, Oklahoma, Chairman

JERRY MORAN, Kansas

TOM OSBORNE, Nebraska,

Vice Chairman

SAM GRAVES, Missouri

MIKE ROGERS, Alabama

STEVE KING, Iowa

CHARLES W. BOUSTANY, JR., Louisiana

JOHN J.H. ‘‘JOE’’ SCHWARZ, Michigan

JEFF FORTENBERRY, Nebraska

TIM HOLDEN, Pennsylvania,

Ranking Minority Member

HENRY CUELLAR, Texas

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

ED CASE, Hawaii

LINCOLN DAVIS, Tennessee

STEPHANIE HERSETH, South Dakota

G.K. BUTTERFIELD, North Carolina

JOSHUA A. MAXWELL, Subcommittee Staff Director

(II)
(III)

C O N T E N T S

Page

Holden, Hon. Tim, a Representative in Congress from the Commonwealth

of Pennsylvania, opening statement ................................................................... 2

Lucas, Hon. Frank, a Representative in Congress from the State of Oklahoma, opening statement .................................................................................... 1

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 3

WITNESSES

Cook, Cheryl, deputy secretary, marketing and economic development, Harrisburg, PA ................................................................................................................ 37

Prepared statement .......................................................................................... 124

Dorr, Thomas C., Under Secretary, Rural Development, U.S. Department

of Agriculture ........................................................................................................ 5

Prepared statement .......................................................................................... 46

Drabenstott, Mark, vice president and director, Center for the Study of Rural

America, Federal Reserve Bank of Kansas City, Kansas City, MO ................ 24

Prepared statement .......................................................................................... 79

Fluharty, Chuck, director, Rural Policy Research Institute, Columbia, MO ...... 23

Prepared statement .......................................................................................... 61

Kangas, Arlen, president, Midwest Minnesota Community Development Corporation, Detroit Lakes, MN ............................................................................... 38

Prepared statement .......................................................................................... 105

Landkamer, Colleen, commissioner, Blue Earth County, MN, on behalf of

National Association of Counties and National Association of Development

Organizations, Washington, DC .......................................................................... 26

Prepared statement .......................................................................................... 134

Lechtenberg, Victor L., vice provost for engagement, Purdue University, West

Lafayette, IN ........................................................................................................ 40

Prepared statement .......................................................................................... 115

Woods, Mike D., professor and extension economist, Oklahoma State University, Stillwater, OK .............................................................................................. 35

Prepared statement .......................................................................................... 94

SUBMITTED MATERIAL

Farm Credit System, statement ............................................................................. 141

Hall, Billy Ray, North Carolina Rural Development Center, Inc., statement .... 148
(1)

RURAL DEVELOPMENT PROGRAMS

THURSDAY, MARCH 30, 2006

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CONSERVATION, CREDIT, RURAL DEVELOPMENT AND RESEARCH

COMMITTEE ON AGRICULTURE

Washington, DC.

The subcommittee met, pursuant to call, at 10:00 a.m., in room

1300 of the Longworth House Office Building, Hon. Frank D. Lucas

(chairman of the subcommittee) presiding.

Members present: Representatives Moran, Osborne, King,

Fortenberry, Goodlatte [ex officio], Holden, Cuellar, McIntyre,

Etheridge, Case, Davis, Herseth, Butterfield, and Peterson [ex officio].

Staff present: Pete Thomson, Josh Maxwell, Tyler Wegmeyer,

Jeremy Carter, Callista Gingrich, clerk; Lindsey Correa, Nona Darrell, Rob Larew, Russell Middleton, and Clark Ogilvie.

OPENING STATEMENT OF HON. FRANK D. LUCAS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OKLAHOMA

Mr. LUCAS. The subcommittee will come to order.

Good morning and welcome to the subcommittee hearing. We are

here to review the rural development programs, and more specifically to examine the rural development title of the 2002 farm bill

and its effects on rural America.

In 2001, we met in this very same room to discuss the issues facing rural America. Five years later I find that we are facing some

of the very same questions. For example, the committee must decide if it will continue to authorize mandatory spending for rural

development programs or whether the programs would be better

served through discretionary funding. That being said, I want to

make it clear that the Appropriations Committee will not be able

to increase funding for many of our programs and it will be up to

the constituency groups to work to maintain those current funding

levels.

We must also determine the best ways to implement programs

to reach the rural constituency. It will be incumbent upon local

leaders to work with their associations, in conjunction with the

Federal Government, to determine how best to serve their communities. Current programs must be fair in meeting the goals of rural

development while being flexible enough to meet the needs of a

changing rural society. In terms of competitive grants and loan pro-
2

grams, small towns must be able to compete on a level playing field

with growing cities.

There are also the challenges of mixed definitions as to what can

be considered rural. Many small towns and farm communities have

become incorporated with growing cities because of increasing

urban sprawl. Should these urban areas be excluded from funding

even though they have further development needs in their infrastructure to support that growing population? I believe we should

work to find a consistent definition of the term rural that would

apply to all programs across all agencies.

It is my not my intention to paint such a bleak picture because

there have been many successes. The development of renewable

fuels has brought increased entrepreneurship to our rural centers.

The construction of new ethanol and biodiesel plants, many funded

through USDA’s Rural Business Cooperative Service programs,

have helped to develop new markets for our producers, created

150,000 jobs and increasing economic activity in our rural communities.

The Value Added Program, which was reauthorized in the 2002

farm bill, has become a huge success with producers in finding new

niche markets, increasing the value of their products, and helping

to diversify income. We can use these programs as examples of success stories that help to close the economic growth gap that exists

between rural and urban areas. Today we are going to hear about

many new ideas and programs for the subcommittee’s consideration.

Before doing so, I put forth the following considerations. Should

we create new programs before securing adequate and consistent

funding for existing programs, can we combine any of our current

programs to broaden their constituency, and, finally, are these programs completing the mission of rural development by targeting

and enhancing those financial and technical communities with the

greatest needs? These are among the issues that will be under consideration, and I look forward with great enthusiasm to the testimony and the answers to the questions that we will hear.

With that, I would like to turn to my ranking member, Mr.

Holden, from Pennsylvania for any statement he might have.

OPENING STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

Mr. HOLDEN. Thank you, Mr. Chairman, for holding this important hearing. I hope it will provide a good review of the value of

USDA’s rural development programs. I look forward to hearing

from our witnesses, especially Under Secretary Dorr, and Pennsylvania Deputy Secretary for Marketing and Economic Development

Cheryl Cook, who is a former USDA Rural Development State Director.

As I am sure we all know, a vibrant rural community is a place

of opportunity. A strong rural community is made up of individuals

and businesses who are committed to their community, and who

are active and willing participants in community efforts to undertake positive change. Yet, small size and remoteness are major con-
3

straints in rural development efforts. So how do we overcome these

factors in generating positive change in rural areas?

My home State of Pennsylvania has one of the largest rural populations in the Nation, but only 18 percent of that population is

employed in farming or farming-related jobs, a figure that is even

lower across the country. Farming may have once been the mainstay of most rural economies, but that is no longer the case. Rural

development now means supporting services to communities that

are extremely diverse.

So while rural development programs become more important,

and there are so many needs across the country, I am concerned

that the administration’s budget proposal for fiscal year 2007 ask

rural development programs to take a disproportionate cut. We

have also witnessed a limitation of mandatory funds and a decrease in discretionary dollars for rural development programs during the past several appropriations cycles. One major question we

need to ask ourselves during the next farm bill is how do we protect crucial financial assistance to our rural communities?

USDA rural development importantly promotes economic development, supports essential public facilities and services, and helps

communities undertake community empowerment programs. One

thing I would like to mention, though, is that USDA rural development’s interest rates may seem low, but in Pennsylvania, and I am

sure in other States, they are not competitive with programs such

as the PENNVEST infrastructure investment that helps Pennsylvania municipalities and some private entities fund sewer, storm

water and drinking water projects that contribute to improving the

environment and human health. I am sure other States have similar programs, and I think USDA has the responsibility to become

more competitive.

I believe that when rural communities have adequate water

treatment facilities and services, and when they can provide their

citizens and businesses with electricity and telecommunication

services, and when they have sufficient protection from crime and

fire, when they can secure adequate health care and opportunities

for education and recreation, and when they are able to offer businesses access to technical and financial assistance, they can attract

industry to provide good jobs and ensure a high quality of life for

their residents.

I believe USDA rural development programs help to provide this,

and I look forward to hearing from our witnesses today, Mr. Chairman. Thank you.

Mr. LUCAS. The Chair thanks the gentleman from Pennsylvania,

and now we are very pleased to have the ranking member from the

full committee, Mr. Peterson, here.

OPENING STATEMENT OF HON. COLLIN PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman, and thank you and

Mr. Holden for your leadership. Mr. Holden was one of our leaders

in trying to get this process going back in the 2002 farm bill, and

I think this hearing will help us focus as we get ready for the next

farm bill. In my district since I have been elected, I have somebody
4

out there working full time on economic development. A lot of that

work has been through rural development, and we have done a lot

of successful things.

But things are changing out there, and one of my concerns is

that as we look at this that we focus in on some of the opportunities and what I think maybe are some of the challenges that are

being actually created by those opportunities. As all of you know,

the biofuels, ethanol, biodiesel thing is hotter than a pistol right

now. It is the new hot thing. People on Wall Street and Fortune

magazine and the Wall Street Journal that used to trash us a few

years ago all of a sudden now discovered ethanol and it is the big

hot investment thing out there in all of the business publications

and so forth, which I guess is a good thing but I am a little bit concerned that in Minnesota we have been able to develop an industry

because we have had a mandate and we have been a leader in this

area.

The farmers, by and large, have owned the plants, but I see that

changing. I see that all this money coming in and we are having

plants built now where the farmers are basically told they can’t

buy any equity. And I am very concerned about that as we move

ahead. I think we need to—I don’t know how exactly we do it, but

we need to try to make available at least some ability for farmers

to buy into the equity of these plants that are in their area if we

are going to make things work out into the future.

So that is one thing I think we need to focus on. But I think the

biggest issue we have in ethanol is not so much building plants. I

think that is going to happen, and some people are concerned we

might build too much capacity in the short term, but I think the

real issue there is the distribution system is where we really have

a problem. Steve King and I were in Brazil last week with Senator

Grassley. Of course, Brazil has an alcohol pump in every gas station in the country. We have 650 E–85 ethanol pumps out of

180,000 in the United States. That is a big problem. And that in

my opinion is the biggest bottle neck we have in really growing this

industry.

I don’t know if there is something that we can do through rural

development or through this committee to try to push that availability because every day I am being stopped by an urban Member

of suburban Member of Congress asking me about ethanol wanting

to know how they can get E–85 in Chicago or in New Jersey or

wherever. So I think that this is an issue that we got to try to figure out some way. Even though these pumps are in the urban area

they really in my opinion are going to benefit the rural areas. And

this is a whole new situation compared to where we have been in

looking at rural development.

So I think as we move ahead we need to explore some of these

issues and some of these ideas that are out there. I don’t know exactly, it is hard to change the whole system but I am working a

bill right now, and I don’t know if I can do this or not, to see if

we can somehow or another mandate that everybody that sells gas

in the United States has to have an E–85 pump. I know that is

kind of a drastic idea but, you know, and maybe going along with

that we will have to do some kind of financing but in my district

we have gone out and worked with the gas stations, and they have
5

converted their premium pumps to E–85, so it costs them hardly

any money.

What they found out was they sold more E–85 than they ever

sold premium so I mean the opportunities are out there, and, you

know, I hope this committee can provide some leadership in trying

to get this moved ahead and maybe rural development or that part

of what we do in the farm bill can help us move it in that direction.

So I appreciate your indulgence in letting me ramble around here.

I would also like to say we have a couple of leaders from Minnesota that are here today to testify, Colleen Landkamer from Blue

Earth County, who has been a leader in Minnesota, and I think

you are going to be the next president of NACO next year. She is

here with us. She is from Congressman Gutknecht’s district right

south of my district.

And from my hometown of Detroit Lakes, we have Arlen Kangas,

who is president of Midwest Community Development Corporation,

who has been very active in working on rural development issues

in my district along with my staff. He is here to tell you straight

up about how they make things work out on the ground there. He

is a Finlander and he is very direct so you will have to understand

that when he gets up there, but he is a good guy and he I think

can provide a lot of input in this hearing today. So thank you, Mr.

Chairman, and Mr. Holden for your leadership. I look forward to

the hearing.

Mr. LUCAS. Mr. Peterson, I cannot imagine anyone from your

area that would not be to the point, which is appreciated. Thank

you. The Chair would request that other Members submit their

opening statements for the record so that the witnesses can begin

their testimony and to ensure that we have ample time for questions.

And with that, we would like to welcome the first panel, the

Honorable Thomas Dorr, Under Secretary for Rural Development,

U.S. Department of Agriculture, accompanied by Mr. Russell Davis,

Administrator for Housing and Community Facilities Programs,

Rural Development, USDA; Mr. Jackie Gleason, Acting Administrator for Business and Cooperative Programs, Rural Development,

USDA; and Mr. James Andrew, Administrator for Utility Programs, Rural Development, USDA. And, Mr. Secretary, whenever

you are ready, please begin.

STATEMENT OF THOMAS C. DORR, UNDER SECRETARY, RURAL

DEVELOPMENT, U.S. DEPARTMENT OF AGRICULTURE

Mr. DORR. Mr. Chairman, thank you very much, and, yes, his

name really is Jackie Gleason. We aren’t going to shoot Helen to

the moon yet but we are delighted he is part of our team.

Mr. Chairman and members of the committee, thank you for the

invitation to testify today. As we approach the next farm bill, all

of us recognize that there are difficult choices to be made. For

USDA Rural Development, however, the bottom line is that technology and markets are creating extraordinary new opportunities

for economic growth and wealth creation in rural America.

Our job is to help provide the leadership, technical support, investment capital and business models that rural entrepreneurs and

rural communities need to realize this potential. In rural develop-
6

ment we administer more than 40 programs covering infrastructure, housing, community facilities and a lot of economic development. This year we will deliver approximately $17.4 billion in program level driven by a budget authority of just $1.96 billion.

That is a multiplier of almost 900 percent. By themselves, however, the individual programs are simply a tool kit. The important

thing is accomplishing the mission, and on that score let me very

briefly touch on some key points. First, we recognize that rural policy is much broader than just farm policy. Roughly 60 million people live in rural America. Most of them do not farm. Approximately

96 percent of all rural America’s income is non-farm.

In addition, the great majority of farm families rely heavily on

off farm income, and as the Farm Bureau puts it, farmers are more

dependent on rural communities than rural communities are dependent on farmers. That is a quote out of their recently released

MAAPP report. It used to be that surrounding farms kept the

small towns alive. Today the jobs in towns keep small family farms

viable, and that is a big difference. The viability of America’s small

towns and the strength of the rural economy off as well as on the

farm are therefore vital issues for the next farm bill.

Second, and very importantly, is that sustainable development

must be market driven. If we don’t leverage private investment, if

we sit back and rely on a program driven model then in my view

we are wasting a historic opportunity. And, third, to unleash entrepreneurial development we need to leverage the resources we already have. For example, according to the USDA farm balance

sheet, and these are February 2006 estimates, farm equity in the

United States exceeded $1.45 trillion. That dwarfs any amount of

money Government could conceivably provide for rural development.

We need business models that harness these resources to a strategy for sustainable development and wealth creation in rural communities as well as the entrepreneurs to make it work. The key for

us is to encourage partnerships and leveraging. We are shifting our

funding emphasis from grants and direct loans to loan guarantees

to leverage these investments. We are also focused on building

partnerships with State and local governments, tribal entities, and

private investors to bring non-Federal dollars to the table.

In terms of bang for the buck, therefore, in my view we punch

well above our weight. In the 2007 budget rural development is 1.5

percent of USDA’s budget authority but it equates to 111⁄2 percent

of USDA’s program level. That is just the leveraging from loans

and loan guarantees, not including the private investment dollars

our partners bring to the table.

Finally, we are working harder to do even better. We have a very

active program delivery task force which is working to standardize

the application process.

We are moving important functions on line and attempting to reduce costs. We are looking for ways to reduce stove piping and

cross train our field staffs to improve the efficiencies of our local

offices. This is a never ending process, and it is one that we take

very seriously. In closing, Mr. Chairman, let me express my appreciation for the very generous support that President Bush and the

Congress have given USDA rural development. Rural America en-
7

joys extraordinary opportunities from bio-based products to ethanol, biodiesel, wind, and other new energy sources to broadband

driven manufacturing and service businesses. These are all opportunities that we can ill afford to miss.

We are committed to helping realize that potential. I know that

you are as well, and we look forward to working with you. Thank

you very much. I will enjoy taking any of your questions.

[The prepared statement of Mr. Dorr appears at the conclusion

of the hearing.]

Mr. LUCAS. Thank you, Mr. Secretary. And we are also pleased

to have the chairman of the full committee to participate in the

hearing today.

I think now we turn to questions. One of the challenges, and you

and I have discussed this before, Secretary, one of the challenges

seems to be in our efforts in rural development is developing a consensus on the definition of what rural areas are and economic development and how best to achieve that. How does this some time

seemingly lack of consensus or consistency in the definition of rural

areas and economic development, how does that affect your role as

an under secretary, sir?

Mr. DORR. Well, clearly, rural definitions are at the core of how

we deliver our programs and to whom we deliver them. Most all

of our programs with the exception of electric and some of the B&I

programs are quantified around a rural definition of 20,000 or less.

These definitions tend to change periodically by statute changes as

well. I think it is important that we continue to gear our programs

to serve those entrepreneurial activities in rural areas that clearly

will be sustained by market opportunities.

Also, as I think I have indicated at other times that frequently

these population challenges that we see are a result also of some

success. I know that it is not always easy to accommodate but usually in many cases regional development evolves as a result of successful entrepreneurial activity and successful economic development in many of these communities so as a result people tend to

migrate to these areas and consequently not every small rural community is sustainable. We recognize that, but we also find that we

migrate toward regional areas which begin to challenge the 20,000

population definition.

I think that is a success, and I think we need to acknowledge it

in that respect but we will have to work through these on a regular

basis program by program and with Congress, and we will appreciate any input we can get from you as well.

Mr. LUCAS. One more question along that line with is the number of programs and initiatives is the continuality. Do you think

that affects our efficiency, our ability to improve and enhance these

programs we seem to over time start and stop? We refocus our attention. Is that an issue sometimes as you work through these

things? I mean there are some efforts like rural electrification has

gone on since the 1930’s. In other areas we seem to not always be

consistent in our initiatives. Is that frustrating? Do you have any

advice on that, Mr. Secretary?

Mr. DORR. I don’t know it is frustrating so much as it really relates to the evolving change of economic growth and development

in rural areas. For example, on the rural electric issue, and this
8

has been one that has come up on a very regular basis, our utility

program staff have gone back and done an in-depth analysis, and

we find that well in excess of 90 percent of our program loans go

to these areas of 2,500 population and less, and so we believe that

we comport very well with that statutory guideline.

On the other hand, when you look at new entrepreneurial developments that access producer capital and rural America capital

such as an ethanol plant or a biodiesel plant, if you may, frequently these will be located near a population center for purposes

of benefiting that business as it built itself out, and yet it may be

well funded by lots of local rural producer money. In fact, that is

what we hope because it does create wealth that is maintained in

those communities.

These are challenges that we are just simply going to have to

work through. I think what the intent of all of these programs are,

and what I would hope they are, is to foster the development of

wealth creation in these rural communities and maintain it in

those communities. And if we focus this in that way I think we will

do fine.

Mr. LUCAS. Thank you, Mr. Secretary. The Chair now turns to

the ranking member for any questions he might have.

Mr. HOLDEN. Thank you, Mr. Chairman. Mr. Secretary, we all

know since the last farm bill that the appropriators have limited

our dollars, and we also know that the recent reconciliation and

proposed budget have put forth what I think, as I mentioned in my

opening statement, disproportionate cuts in rural development. I

am just curious. Have these recent events limited your ability to

accomplish your mission? Is there a backlog across the country on

different projects being proposed and how are you dealing with

these reductions in funding?

Mr. DORR. Well, there are obviously some backlogs. One that is

a continual issue is the water and waste area. We know that. We

all know that. And I am pleased to at least indicate that we are

looking at some things. I am not at liberty really to go into a great

deal of detail but we are looking at some creative ways to extend

or leverage our resources in that area to help mitigate that. Interestingly enough, when you look at rural development program level

from the time that rural development was first reorganized or became what it is today back in 1995 or 1996, our program level from

1996, I believe, or 1995 or 1996, was about $6.8 billion.

Today, on an apples to apples basis, it is now approaching $17

billion. And that includes some supplemental funds for the Katrina

and related hurricane initiatives, but without supplemental funds,

I believe we would be right at that $15 billion, $15.5 billion program level. Yes, one of the things that has helped us is that we

migrated away from grants and direct loans to more guaranteed

loans. That has allowed us to leverage things.

But, interestingly enough, in tracking those we find that because

they are guaranteed loans, because they originated frequently with

the local level, they seem to be very, very successful. Our default

rates are considerably less than when they were direct loan programs. So we will work within these resource bases because frankly we are able to extend them, I think, farther than most people

anticipated.
9

Mr. HOLDEN. Following up on our meeting that we had yesterday, Mr. Secretary, what concerns me, as I mentioned to you, was

the decreasing amount of grant money that is available. In Pennsylvania, and I am sure across the country, we have so many municipalities that do not have public water or public sewer, and a lot

of them in my district are lower income. And without the availability of grant money, it is almost impossible to try to move forward

to get these plants up and running.

And just combining that because it would be a follow-up question

to that, as we had a chance to talk yesterday, what concerns me

about the loan program for USDA is the percentage is not competitive with the program that is available in Pennsylvania. And I am

sure many other States have it too where the commonwealth offers

1 percent loan program and the USDA with grant money included

but 41⁄2 percent. It just isn’t competitive to be able, I think, to accomplish your mission.

Mr. DORR. Well, let me take a stab at the last part of your question. We have made some modifications in our loan rates, as you

are perhaps well aware, that our interest rate for these water and

waste loan programs are predicated on a bond index. Up until this

year we had a poverty rate that was locked in at 41⁄2 percent because interest rates had typically been higher than that. When the

market flip flopped, we became aware of the fact that we were

going to have to modify how we handled that.

So I am not sure if that reg is done. I believe it is done, is it not?

Yes, that regulation has been put in place but what we have done

are using a bond index, the one that we have always used for the

market rates, and then our intermediate and our poverty rates are

I believe 50 and 100 basis points below that so the poverty rate will

continually be lower than the market rate.

On the issue of the amount of grant money available frankly we

are simply dealing with limited resources. We recognize that. We

try to manage the program so that grants are front loaded and

allow communities to work their way into these. We monitor very

closely debt loads and debt service loads. I still feel fairly comfortable that they are manageable debt service levels that have not

gotten substantially out of hand, and we will do the best we can

with the resources we have.

Mr. HOLDEN. And I know you will, and that is an OMB problem.

I know that. But unless we find more resources for grant money

for these lower income municipalities I am afraid your ability to be

successful is going to be limited. Thank you, Mr. Chairman.

Mr. LUCAS. Thank you. The Chair now turns to the chairman of

the full committee for any questions he might have.

The CHAIRMAN. Thank you, Mr. Chairman. I appreciate your

holding this hearing, and Secretary Dorr, welcome. We are delighted to have you with us. I appreciated very much the opportunity to meet with you the other day to talk about some of your

initiatives, and I very much appreciate some of the things you have

done. I especially appreciate the work that is done by rural development in the Commonwealth of Virginia. You work very well with

our State and local governments on a wide array of economic development initiatives that have helped a number of rural communities
10

in my congressional district and elsewhere in the State, and we

very much appreciate that.

There are tremendous opportunities in rural America but also

tremendous challenges. We are becoming increasingly the attention

of many in the country as a potential source for renewable resources. We have a very high quality of life, which if we can bring

high speed broadband services to rural communities means that

you now can live in Rockridge County, Virginia or Shenandoah

County, and do some of the things that you used to have to be on

Wall Street or inside the Beltway or in some other major urban

area. Now we can attract high paying jobs to rural areas if we

bring that technology there.

So building wealth is essential to the future of rural America,

and I wonder if you might tell us what types of investments from

both the private and public sector are best suited for that objective,

and in other words how do we enable citizens of rural America to

access the opportunities available from alternative energy and

broadband service.

Mr. DORR. Well, that is an excellent question, and it is an evolving one relative to the President’s commitment to energy security

in this country, and his recently announced very substantial commitment to bio-based energy development. What I like to say when

we are out talking about this is that there are significant opportunities in rural America and you have identified all of them. And

number 1 is place. It is a comparative advantage in many respects,

and we think that if we approach it properly we are going to create

the opportunities for families to actually stay there and raise their

families in rural areas. And it is going to be a result of the deployment and placement of broadband in these rural areas that allow

people to work and do the sorts of things that historically they

would never have been able to access, either markets or capital or

knowledge or a number of things.

And that, combined with now this new push toward energy security clearly levers rural America in ways that it hasn’t had the opportunity for in some time. Almost all of these new energy opportunities whether they be bio-mass or bio-based, solar, geo-thermal,

any one of a number of others that we are talking about, are largely agricultural in nature or at least rural in nature.

The interesting part about all of this is, we have had the chance

to discuss this briefly, is that most of these are going to be distributed in nature, and because they are distributed in nature it

means there are going to be different business models that are required, which means that there are going to be different tax structures and investment vehicles and ultimately regulatory structures

to enable them to successfully be built out in these rural areas.

A classic example in my views is wind energy. The traditional

and public utility regulatory regimens for electricity are designed

to regulate the 200 to 1000 megawatt generation facility that allows the electricity to be transmitted or transferred and priced in

a commercial residential regiment but doesn’t necessarily reflect

the ability to price distributed wind based on base pricing or avoided cost structures.

These are things that we are beginning to take a close look at

rural development and try to bring some of the necessary resources
11

and insight to bear on it, and, frankly, something we are going to

have to work with all of you and a number of folks throughout the

country to make sure that we identify these issues and address

them in a way that makes sense.

The CHAIRMAN. Thank you. Let me ask you about in some respects the converse of this, and that is about the term capacity

building, which we hear more and more here in the Congress. People come to us for funding for capacity building. It is a term frequently mentioned in rural development discussions. I would like

to know what it means to you, and, more importantly, how do we

insure that capacity building initiatives do not lead to dependence

on programs and reluctance to embrace market signals in the rural

economy. What mechanisms will enable rural communities to

translate capacity building into real life successful initiative? Mr.

Chairman, if I might have leave to allow the Secretary to answer

that question although my time has expired?

Mr. LUCAS. Of course. Mr. Secretary.

Mr. DORR. I am not sure that I have a good answer for the issue

of capacity building outside of the fact that I believe that markets

drive everything. I feel quite strongly that if the markets are allowed to function in these rural areas and these rural communities

utilizing these new technology tools and placing themselves in a position to exploit these new energy opportunities based on attaining

energy security that what we will find is that people will move

into. It will be attractive for people to want to live in these areas,

to want to work in these areas.

A classic example is a 45 or 50 million gallon ethanol plant historically generates about 35 jobs that pay substantially more than

the normal rural job does. That attracts people to return to these

communities. It attracts people who are better educated. It attracts

people who are more interested in their civic obligations, the cultural, the recreational opportunities in these areas, and that in

turn becomes self-stimulating.

I think it is important to recognize that it is important to make

sure that we don’t do things that impede that, and in the long run

I think that is what ultimately builds us our capacity. There are

a lot of sociological and academic regimens to accomplish this, and

I am not sure that I understand all of them or that I could pinpoint

one that would necessarily get us where we wanted to be.

Mr. LUCAS. Thank you. The Chair now turns to the ranking

member.

Mr. PETERSON. Thank you, Mr. Chairman. I will try to be brief.

Thank you, Mr. Secretary, for being with us, and I too appreciated

the chance to visit with you briefly. Sorry I had to run off but we

will have to spend some more time one of these days. As I mentioned in my opening statement, I have concern about in the ethanol area primarily about the issue that we talked about with the

farmers having the ability to be involved in the equity of these ethanol plants so I guess if you could just tell us what you thing is

going on in that other area.

The other thing is my concern about the whole distribution system. In Brazil they are starting to build pipelines now for ethanol.

We probably should be doing that here in the U.S. Is there a role

in rural development to help us try to get that process moving?
12

And is there any role for rural development in trying to make E–

85 fuel available across the country, primarily in urban areas

where you can’t get it now?

Mr. DORR. Well, clearly, I think good policy always has a role.

I am not sure that I am smart enough to tell you exactly what always makes good policy at every given moment. Clearly, the Value

Added development grant program, the 9006 Energy Program have

been significant in the context that they fostered the build out now

of ethanol in ways that I think 4 or 5 years ago we would never

have imagined. And yet I think it is particularly interesting to reflect on what actually has occurred in the dry milling ethanol industry over the last 25 years.

I was on the Iowa Corn Growers board of directors in the early

1970’s when we passed the first check-off in Iowa. And the interesting thing about that was that it was initially defined as a supply

management program. We were trying to sell ethanol but clearly

we wanted to get rid of corn. And yet by the same token by 1980

after we had gone through the original energy crisis people realized

that there was some significant value to this other energy source,

and yet most of the technology was with the wet millers, the technology driven by wet millers.

The dry milling industry was actually viewed as being almost

Neanderthal. These guys that were dry millers were through of as

guys that couldn’t get their hands off the ground and they are

walking around. And yet over the next 25 years a substantial number of farmers worked together and developed and put together in

place a dry milling industry that I think frankly is a marvel of anyone who has looked at where they have come from and where they

are today. They have gone from efficiency factors of a plant running 320 days a year to 360 or 365 nearly. The conversions have

gone up. Their labor costs have gone down. Their capital costs have

gone down, and they have been responsible for creating some of the

most fascinating disruptive technology implementations of anything I have seen in any industry.

So I am not sure how responsible we can be for those and how

we best go about it other than I do believe that these are distributed business models. This renewable energy is going to require

plants built close to the raw resource, and I don’t think we can

change that, and that means that that creates substantial opportunities for rural citizens to invest in these and to keep that wealth

in these communities.

As I believe I mentioned to you the other day, I attended a renewable energy finance forum in New York City last summer.

There were 570 registered participants, almost all of them from

around the country and financial centers. They represented $125

billion. They wanted to invest in what they call green energy. I

think the most important thing we can do is to create the kinds

of tax and regulatory regimens that make it easy for these distributed models to occur and then provide the education and provide

the technical assistance, if we can, for those who want to invest

and to build out and encourage local rural residents to be the ones

to do so.

Mr. PETERSON. If I could just say that I agree with most of what

you said but what I am concerned about and I just would like you
13

to take under consideration is we have had some situations where

we had one plant, for example, that was being put together as a

co-op with local producers, and all of a sudden some other money

came in and basically they took over the plant. The farmers were

told they didn’t have any ability to have any equity in it.

And that is just one example. We have got other examples of

plants being built where this all is being done with private money

from outside the area. And maybe there is not anything we can do

about that but I just think if we are ever going to get to the point

where we don’t have to have subsidies in corn and soybeans and

wheat and so forth this is one of the opportunities to get us off of

that system, and we need to have the ability of these producers to

have equity ownership. If they don’t own the whole plant, at least

they own some of it so that they can make some money out of the

value added, and so whatever you can do to work with us on that,

I would appreciate it.

Mr. DORR. I would be delighted to.

Mr. MORAN [presiding]. Mr. Secretary, I appreciate you being

here today. I appreciate the opportunity we had to visit yesterday,

and I commend you for your leadership and efforts at the Department of Agriculture. I think we are headed in the right direction

when it comes to rural development. Many challenges out there,

but I feel comfortable with you taking the role that you have assumed.

Yesterday when we visited we talked a bit about farm income,

and one of the complaints I have had with USDA is the way they

calculate what appears to be I guess a definitional issue, what is

farm income. And the last several years up until this year the indications by USDA economists and therefore USDA reports was increasing farm income. And this year USDA reports indicate that

farm income has declined, expected to be less.

I would like for you to have a bit of the discussion that we had

yesterday afternoon for the record about the role that non-farm income or off the farm income plays in those numbers generated by

USDA, and so maybe to start that is what percentage of farm income is what we would consider off the farm?

Mr. DORR. I am not sure that I can give you an exact number

on that, and I think it is something I should get back to you on

but we commonly suggest that in excess of 90 percent of all income

in rural America comes from on or off farm sources. Those numbers

perhaps are sometimes disconcerting, but when you realize that if

you go back to the Farm Bureau’s recent report and point out that

143,000 producers produce 75 percent of the food and fiber that is

consumed domestically and exported and put those numbers up

against GDB, they are not particularly astounding to me in the

sense that I think they reflect the proportionate share of GDB that

agriculture is involved in, and particularly those 140,000 some producers, but we can get the exact numbers for you.

Mr. MORAN. I do think that the economic reports issued by the

Department of Agriculture really disguise the difficulty, often disguise the difficulty that farmers are having in regard to earning a

living on the farm. And also I assume, and you may not have this

number with you this morning, but I assume that there is a significant portion of our farmers in this country who earn their living
14

not directly from farm income, and I raise these topics for a number of reasons but with you here this morning it to me highlights

the importance of rural development, of job creation, because most

of my farmers no longer earn their living solely from farming.

And so even if you care about farmers, you got to care about the

opportunity for those farmers, the husband or wife or both, to be

able to secure a job separate from the operations of their farm. Any

response to that?

Mr. DORR. Certainly. And I think you have pretty precisely hit

on the issue. I personally believe that we are on the cusp in a

broad sense of some very potentially strong economic times in rural

America because of the fact that broadband allows us to deploy

knowledge, markets, access to capital in ways that it never occurred before. But the interesting thing is that when you look at

these new wealth creation opportunities of rural America whether

they be value added food products that are occurring on a regular

basis by a number of producers or whether it be the bio-energy

issue or wind farms or whatever, these are typically million dollar

projects, and they require different kinds of financing.

They require different types of businesses, and as a result clearly

no individual farmer is probably going to step up and put up a $4

million or $5 million or $6 million for a single investment in a wind

farmer or whatever, so we have to re-evaluate how we identify

some of these. I don’t think there is any question——

Mr. MORAN. Mr. Secretary, before that light goes from amber to

red, let me raise two other points, and this one I don’t expect you

to answer but perhaps you can point me in the right direction, and

perhaps the next panel or two can point me in that direction or

provide me information, but I think ultimately as an agriculture

committee we got a decision to make. Do you put additional dollars

into farm program, a so-called commodity title, or do you put additional dollars into rural development. We got to prioritize based

upon resources available.

And I would be interested in knowing if—again, I doubt that the

Department of Agriculture wants to answer this question but perhaps the private sector, the research institutions out there have a

report that could tell us about the bang for a buck. Another dollar

into commodity dollar versus another dollar into rural development

and what we get for that dollar. And, second, as there are conversations at USDA about consolidation of programs, co-location as

well as elimination of county offices, again, this on the FSA side

of agriculture, but one of the missions of the Department of Agriculture is rural development.

And it has been troublesome to me as I have watched FSA develop plans to consolidate offices, it seems to me that someone over

at the Department of Agriculture ought to be reminding folks at

FSA about the importance of the county office and the four or five

employees that are in some of our smallest communities as compared to the trend of always locating every USDA job in the regional center where the population is larger. And it is just troublesome to me that that is not an automatic light that comes on at

the Department of Agriculture, a recognition that four or five jobs

in a community of 2,000 may be more significant than retaining

four or five jobs in a community of 25,000 or 50,000, and so if you
15

have a role to play in those discussions among your peers promote

the importance of how important a few jobs are in our smallest

communities as compared to our largest.

And I have difficulty talking about this topic although I don’t

represent any really large communities there is always a battle

about where those jobs go, but it seems to me where we get the

bang for the buck where they are the most important is in some

of our smaller communities as compared to always moving to where

the population centers, at least what we call population centers at

home are located. My time has expired. I recognize the gentleman

from North Carolina, Mr. Etheridge.

Mr. ETHERIDGE. Thank you, Mr. Chairman. Mr. Under Secretary,

thank you for being here. Recently, I toured the Gulf Coast for the

second time. And I know I don’t represent that area but I do represent an area that has been devastated by hurricanes in the past.

And it was my impression from the President’s remarks that the

area know as the Gulf Opportunity Zone would be an area that

would be eligible for many of the rural development programs we

are talking about this morning with the exemptions for the population requirements.

And I am thinking now specifically of water and sewer loans for

these communities that have lost their water infrastructure and

B&I loans to help kick start the economy, and I can tell you, Mr.

Under Secretary, having gone there and fallen off, there is no question. There is going to be a long-term need, and hurricane season

is just 2 months away. And my North Carolina constituents who

have been hit many times want to know that the Government will

be there to help rebuild when hurricanes and disaster strikes.

And we have fixed many problems that were exposed last year

by Hurricane Katrina. So here is my question. What is happening

now with opportunity zones, if anything, is it still a priority of the

administration’s agenda and do you need congressional authority to

waive populations and other restrictions of rural development programs in order to help these disaster-stricken areas?

Mr. DORR. Let me respond to your last question first. Yes, to extend waivers would require statutory authority.

Mr. ETHERIDGE. Then I assume we can request that you will

have that to us.

Mr. DORR. If you request that, I will——

Mr. ETHERIDGE. I am requesting that. Thank you.

Mr. DORR. Yes. Relative to the administration’s commitment to

rebuilding the Katrina disaster area, it gives me a great deal of

pleasure to say that we are extremely committed. To date we have

invested, I believe, nearly $145 million of rural development money

in those Katrina-impacted States.

Mr. ETHERIDGE. And what is now happening in the opportunity

zone that you answered previously?

Mr. DORR. I am not directly involved in the opportunity zone so

I would have to get back to you on that.

Mr. ETHERIDGE. Will you get back to me on that?

Mr. DORR. Yes.

Mr. ETHERIDGE. Thank you. Second, regarding the new energy

loan and grant program, as a representative of a major ag-producing district the use and development of biofuels as has been talked
16

about, soy, diesel, et cetera, is one of our top priorities, as you well

know, and it certainly is in our area. And I am pleased the USDA

is attempting to create some capital incentives in this industry, but

I am concerned, however, that despite a loan level for this program

in the 2005 budget of well over a $100 million only $10 million was

actually lent out to help.

It seems to me that with the cost of gasoline at the pump right

now there should be a demand for loans to build some of the ethanol infrastructure plants, biodiesel plants. Why are we seeing so

few of these dollars going out, and what is USDA doing to try to

get some of this money into the hands of some of the folks who

would like to build a plant really in the rural areas, the farmers

themselves? I know that is happening in our area.

Mr. DORR. Well, it is a good question, and I think the short answer is that the reason that the demand for some of these loans,

particularly in the ethanol and the biodiesel area, are down relative to the availability of funds that we have is the success of the

industry, quite frankly. The success to the extent that these are

very marketable loans. As a result, as producers and others who

desire to build out a plant in a regional location they are finding

that they can go to the private sector and obtain the funds.

The particular program you refer to, I will tell you in all honesty,

and I believe this occurred shortly before I was confirmed last July,

but I believe they just got the loan guarantee regs out in either late

June or early July. There was not a lot of time to deal with the

applications at that point. This year, we will have between that

program and our business industry loan program several hundred

million dollars available for energy applications, and if we get them

and if they are well designed, I am certain that we will be financing as many of them as is reasonable.

Mr. ETHERIDGE. And you will follow that up with a written explanation to make sure?

Mr. DORR. Sure.

Mr. ETHERIDGE. I would appreciate that. Thank you, sir. I yield

back. My time is up, Mr. Chairman.

Mr. LUCAS [presiding]. The Chair now turns to the gentleman

from Iowa. Mr. King.

Mr. KING. Thank you, Mr. Chairman. I would like to thank the

gentleman from Iowa, Secretary Dorr in our first testimony today,

and for his hard and diligent work to try to find some new avenues

for growth in economic development within the rural part of this

country. As I had the privilege to have a number of conversations

in looking at the insight you bring with you, and I particularly appreciate, Mr. Dorr, the perspective that sees this also from the free

market perspective and the private investment perspective, and

how the Government can cooperate and sometimes get out of the

way.

But in picking up from some of the remarks and questions that

were directed by Mr. Peterson with regard to the capital that is

going into these ethanol production plants and possibly all our energy, particularly the biodiesel and the ethanol industry. And I

would point out that from my perspective several years ago we saw

that we had two large companies in the United States that were

producing a little bit of ethanol and that was a side product for the
17

multitude of products that they were adding value to our grain

with.

And we determined that we wanted to put capital in in such a

way that we could have the ownership of these energy producing

plants, particularly ethanol and later on biodiesel, in the hands of

the local producers. And because we didn’t want to see the investors from outside the region be the ones that capitalized and that

a nickel or a dime a bushel wasn’t enough to really have a dramatic impact on the revenue stream of rural America but being a

shareholder in an ethanol plant that might take your $1.70 corn

and convert it into $3 corn if you happen to be the person that has

been the investor.

Well, you have made some powerful testimony here with regard to how much capital is available in America, $150 trillion in equity.

And listening to those questions about the grant program, I am one

of those believers that if you have a good business model it will attract the capital, but out of that $145 trillion in equity——

Mr. DORR. It is $1.45 trillion.

Mr. KING. Excuse me. That is right. That is what my note says

too, and I didn’t have my glasses on, so out of that $1.45 trillion

in equity——

Mr. DORR. A little bit lower in magnitude.

Mr. KING. Out of that $1.45 trillion in equity, Mr. Dorr, what is

the asset value there and what is the liability against that? What

is the percentage of its leverage?

Mr. DORR. I believe the latest numbers that I have seen from

USDA would suggest that we have about 13 percent debt against

the equity of rural America in the land and agricultural value for

rural America.

Mr. KING. And 87 percent equity position then on how many assets. And so what do you have for ideas on how we can leverage

this capital and return it back to the local producers in these regionalized energy production centers that you envision?

Mr. DORR. Well, that is a good question. It is one that we have

been obviously discussing here earlier today, and it gets a bit perhaps esoteric and complex. I am a little reluctant to get too heavily

involved in it, but it still boils down to the fact that these new business opportunities are distributed in nature. Distributed in nature

means that they are going to frequently be $50 million to maybe

$250 million dollar businesses which is a big business for most

farmers without any question.

But they are big in the context of what we frequently think of

as billion dollar businesses. In addition to that, because of that size

it easily could be owned by residents in rural America whether

they be farmland owners, operators, teachers, plumbers, people

who live in rural America. These are the sorts of things that they

legitimately could invest in if there were the kinds of vehicles and

opportunities to do so.

The other thing we need to recognize is that rural America frequently—not frequently. They have very limited ability to originate

loans of a magnitude of $50 million or $100 million, the capacity

to do that in the traditional small banks and the farm credit systems and the way in which they have operated. They are not familiar with that. And on top of all of that the distribution issues that
18

were raised earlier today, the lack of pipelines, the whole new approach to distribution, create in and of themselves also a magnitude of new business opportunities that frankly are, No. 1, not

usually dealt with in traditional regulatory regimens, that we typically don’t have investment vehicles in place to deal with and may

in fact have tax issues and tax structure issues that we have to

look at.

What we are trying to do in rural development is sit down and

begin effectively noodling through these to try to bring some basic

parameters to these to give ourselves some insight, and we will be

delighted to share them with anyone else that is interested. But it

is a significant new opportunity that has some significant challenges so that in the final analysis we can do exactly what you are

talking about and make it less cumbersome, more easy for rural

Americans to invest and to retain these wealth creation opportunities, and that new wealth that it creates in those communities.

Mr. KING. Mr. Chairman, I ask consent for a follow-up?

Mr. LUCAS. Request granted.

Mr. KING. Thank you, Mr. Chairman. I wanted to point out an

issue I wanted to set this up for, and that is Sarbanes-Oxley, and

under Sarbanes-Oxley an ethanol plant that is under planning

stage in the Midwest today has opted to go to qualified investors

in order to avoid a $100,000 year compliance costs for the administrative costs of compliance for the record keeping under SarbanesOxley. The pre-qualification for the investors requires them to have

$1 million, that the investors have $1 million of net worth or have

a revenue income of $200,000 a year for each of the last 2 years.

This effectively cuts out the smaller investors, the local producers, many of them, the people that we are trying to help, and puts

this investment into the hands of the millionaires. I am going to

ask you, can you help us identify some of those barriers so that we

can get this to work in the way it is envisioned?

Mr. DORR. If I say yes it will be part of the record and I will have

to bring you something, and I am not sure——

Mr. KING. That is the intent, Mr. Dorr.

Mr. DORR. We will certainly do what we can to begin identifying

some of these but we are clearly not in the tax code writing business, but we will do the best we can to identify some of these

issues.

Mr. KING. Thank you.

Mr. LUCAS. The gentleman’s time has expired. The Chair now

turns to the gentlelady from South Dakota for her questions.

Ms. HERSETH. Thank you, Mr. Chairman, and Ranking Member

Holden for the hearing. It has been very interesting. I certainly appreciate Mr. King and Mr. Peterson’s focus on an issue near and

dear to me in South Dakota, the same concern about retaining this

profitability in farmers, ranchers, small business owners, other investors in rural communities, and would appreciate continuing to

engage you in a discussion of how best we can utilize your knowledge base and others at USDA so that we can meet this challenge

because I do think it is a great new opportunity, but it is all moving at such a pace that we all have to be sharing ideas and information to make sure that we don’t leave rural America behind as

they have been left behind in the past.
19

And we do look at this as a rural reinvestment tool and how we

make sure that we have the authorities in place to achieve, I think,

the common objectives that we have particularly in those of us

where ethanol has developed over the last few years. I do want to

express my concern at the outset, Secretary Dorr, about the cuts

in the administration’s proposed budget in rural housing. Every

economic development meeting that I have with constituents in

South Dakota the issue that comes up either first or second is the

issue of affordable housing in our rural areas and our smaller communities, and so I am hoping that you will be able to address briefly how you see going forward the importance of the rural housing

service and the resources that you have to work with to continue

these partnerships as I know Lynn Jensen has developed with

many communities in South Dakota, including some of our tribal

governments that has been very helpful to meet some of the housing needs of rural citizens.

But if you could first address this question, and Chairman Lucas

sort of addressed it at the outset in his opening statement, about

a key question heading into the next farm bill about do we look to

authorize new programs before we look at those that already exist

that haven’t been fully funded, haven’t been funded at all. And you

had said in your statement about these opportunities that exist for

rural entrepreneurs rural development with technology and markets. Can you identify specifically for us either today or in a followup written submission which programs under your jurisdiction that

have been authorized but have only been partially funded or not

funded do you feel serve as effective tools in taking advantage of

those opportunities that technology and markets provide to rural

entrepreneurs?

Mr. DORR. I would in a general sense simply say that I think

that the programs that have been funded that we have dealt with

provide a considerable plate full of opportunities, and I am not sure

that we fully exploited all of those, and as a result I am not overly

concerned about those that at this point have not been funded simply because I think there are enough opportunities on our plate

right now that it is important.

I look back at our budget requests, and although I know what

we have sometimes received greater appropriations than we have

requested our budget requests have pretty consistently increased at

a similar pace over the last several years. Our housing programs,

I realize last year as a result of some Katrina supplementals in our

single family housing reflect a substantially higher level than we

are requesting in 2007 but our budget request in 2007 is very consistent with where we have been.

One of the things that we have tried to do is to increase the level

of guaranteed loans and automate the process to be more effective

to make certain that we have a funding stream available on a regular basis for those involved in the rural housing development area.

We have also worked very aggressively with a number of the folks

in the Mortgage Bankers Association, the national homebuilders, to

make them aware of the opportunities in rural America to begin to

increase other non-traditional funding sources in those areas, and

I think we have begun to do that. I think we have had some success at that.
20

So, you know, would it be nice to have more funds? Sure, it always is, but I think that we are doing a good job in meeting the

needs that are out there without missing a lot. I am sure that

there is more that we could address but I think that we are doing

a pretty good job.

Ms. HERSETH. Just one final comment before my time is up. I

think you are right. Our experience in South Dakota is that a lot

of the needs are being met but the needs are enormous in these

communities. And one of the issues that comes up frequently, and

perhaps we can follow up on this, is the loan programs are working

well but significant costs for smaller communities are the infrastructure.

If they could take care of some of the infrastructure then they

could have some lots with developers coming in that would actually

be in that range of $80,000 to $160,000 for a home that where a

significant shortage in the housing stock occurs. So I just wanted

to highlight that for you, commend you on the work that the agency is doing and the partnerships that have been formed but perhaps looking more at what we can do for some infrastructure development to help keep those costs a little bit lower for the type of

wage earners in South Dakota and rural communities. Thank you.

Mr. DORR. Certainly. And, Mr. Chairman, if I may, I would just

simply like to make one other add-on comment that the President’s

commitment to home ownership I think is unparalleled, and in fact

we have a higher percentage of home ownership in rural America,

I believe, than we actually do in urban areas. We are very cognizant and very sensitive to that, and we will do everything we can

to facilitate the build out and address some of these issues as you

are acknowledging.

Mr. LUCAS. Thank you. The Chair now turns to the gentleman

from Texas.

Mr. CUELLAR. Thank you, Mr. Chairman. Secretary Dorr, I also

want to thank you for the work that you have done and your staff

in rural development. The issue that I want to go to is the issue

that we talked about the other day, and that is the colonias. As you

know, colonias—and it would be interesting to note that they exist

in other parts of the United States, but in the south Texas border

area you have unincorporated areas that don’t have any water,

don’t have any sewage, don’t have any plumbing, don’t have any

paving. And basically what you have is you have people that have

to get those tanks or those barrels, fill them up with water from

the city of Laredo and bring them down to the area either to drink

or to bathe, and some of the basic necessities that we just take for

granted.

I know that your agency has been working towards this issue. Is

there anything else that we can help you here rather statutory

changes or anything else that we can help you to help address

some of those issues, that is, get some of the basic services, and of

course help them address any of the challenges?

I want to thank you also because I was looking at your rural

housing and community facilities programs, and I assume this

would be a very good starting point, but is there anything else we

can do to help you do your job better? And, again, I appreciate

what you all have done.
21

Mr. DORR. Well, let me assure you that what we will do is we

will check and see if there are some things that are impediments

that we are dealing with on a regular basis. On the surface right

now, I am not prepared to give you an answer, and I will certainly

check with our State director, Brian Daniels, in Texas. We also

deal with colonias in the New Mexico area as well so I will do some

checking there.

I do know that probably one of the biggest impediments is our

ability to deal or not deal with incorporated areas relative to statutory requirements we have as to how we secure these loans or to

whom we can make these grant programs available. So let me

check into that and see if there are some things that make some

sense that could be done relatively painlessly.

Mr. CUELLAR. OK. Mr. Secretary, could you ask Mr. Daniels if

he could prepare a list of the programs that you have here that

could specifically be addressed to colonias taking into account the

challenges that you are talking about incorporated areas that make

it a little bit more difficult but if you can get this list and then

maybe narrow it down to colonias, I really would appreciate that.

Mr. DORR. Certainly. We will see what we can do.

Mr. CUELLAR. Thank you. And I again appreciate the work that

you all do. Mr. Chairman, I yield back the remainder of my time.

Mr. LUCAS. Thank you. The Chair now turns to the gentleman

from Tennessee.

Mr. DAVIS. Mr. Chairman and ranking member, I appreciate the

opportunity to attend the hearing today. Occasionally, we have two

or three meetings at the same time. They don’t ask you about that

but I try to go to each one of them when we do have different committee meetings. In the audience today is the president of the Tennessee Farm Bureau, Lacy Upchurch, and with him is the CEO of

Farm Bureau, Julius Johnson. There are from a community called

Pall Mall. I also call that home. The fourth district of Tennessee

is one of the most rural districts in this country. It is the fourth

most rural according to the Congressional Quarterly.

In my life time I have worked with the Farmers Home Administration and the Soil Conservation Service as a soil scientist. So

when I look at the list of names that you have with you, Administrator for Housing and Community Facilities, the utility district

supplies water at my house on Duck Creek Road in Pall Mall. It

is named after my grandfather, Duck Creek Road was, great-grandfather. I am trying to relate to you how rural the district that I

have.

Acting Administrator for Business and Cooperative Programs. I

can’t imagine where we would be today without the electric co-ops

and the telephone cooperatives. The farm to market rural roads

that connected us with the rest of the world. Administrator for

Utilities, when I turn the water on, my wife, she is pleased that

someone is in that capacity. So I want to assure you that as I have

listened to your testimony, as I observe what your hopes are and

what your aspirations are and what you are willing to fight for for

rural America it makes a difference in my congressional district.

But I look at the 2002 bill, and I see several authorizations that

I believe could have a major impact on rural America and certainly

rural Fourth Congressional District in rural Tennessee. I am really
22

concerned about the lack of appropriations and perhaps even an interest on this administration and those of you who serve as secretary of the different departments or administrators in fighting for

funding in 2002 the farm bill to 2007, the rural strategic investment program. It is a really strong sounding name.

It could make tremendous differences in rural America authorized at the level of $106 million. Appropriators have blocked that

every year. I look at the value added product market development

grants. We would love to in the upper Cumberland area parts of

my district be able to have a value added market, maybe paragenic

processing for vegetables that could mean we could have a product

that would keep people in the farming business in the top of the

Cumberland Plateau, but yet we see funding was authorized at $40

million to either be blocked our or appropriated only about half the

amount and the recommendation for the administration that these

be cancelled in this new farm bill.

Rural investment programs, $100 million. Nothing has been ap- propriated. Rural access to broadband, $20 million authorized,

none appropriated. Mandatory funding has been blocked every

year. I don’t have DSL at my house so when I hook on it goes ding,

ding, ding, ding, and it does it for a while and then it says, sorry,

the line is busy. Now I am OK with that because I can drive over

in the pasture field and I get on my BlackBerry and I can zoom

out some place. It is my hope that this administration, it is also

my hope that those of you who are advocates for rural America will

realize the importance that the funding that we authorized at least

be fought for to be authorized to actually be appropriate by the appropriators.

Rural America has made a difference. Urban America, urban development has made a difference in those areas. I hope that there

are those of you who will continue to fight or feel the need to fight

for programs that we on this committee have authorized and you

will fight for the appropriation funds for those. Thank you. I yield

back the rest of my time.

Mr. LUCAS. Thank you, and the Chair now turns to the ranking

member for one follow-up question.

Mr. HOLDEN. Mr. Secretary, one follow-up question on what we

talked about yesterday. On the Business and Industry Guaranteed

Loan Program, what is the default rate and what was it when

USDA was in the direct lending business?

Mr. DORR. I believe the outstanding default rate on the—let me

pull that number up. Well, from memory the outstanding default

rate on the direct loan side of the portfolio is presently about 42

percent. The default rate on the guaranteed side of the B&I loan

portfolio is something under, I believe, 6 percent. There is a substantial difference when we allow these loans to be originated by

local lenders and people who understand what is best and what

works best, and we have found that it works very well that way.

Mr. HOLDEN. I just wanted to get that on the record, Mr. Chairman. Thank you.

Mr. LUCAS. Thank you, Mr. Ranking Member, and. Mr. Secretary, thank you for your insights today, and we appreciate your

time and effort. And you are certainly dismissed. We are in the

process for the procedure in the process of a series of two votes on
23

the Floor of the United States House, so I believe we will recess

until hopefully 11:45 at which time we will return and address our

second and third panels at that point, so we are in recess until

11:45.

[Recess]

Mr. LUCAS. The Subcommittee on Conservation, Credit, Rural

Development and Research is reconvened. And we call our second

panel to the table. Certainly we would like to invite for their comments Dr. Chuck Fluharty, director of the Rural Policy Research

Institute of Columbia, Missouri; Dr. Mark Drabenstott, vice president and director of the Center for the Study of Rural America,

Federal Reserve Bank of Kansas City, Kansas City, Missouri; and

the Honorable Colleen Landkamer, commissioner of Blue Earth

County, Minnesota, on behalf of National Association of Counties

and National Association of Development Organizations, Washington, DC. You may begin, Doctor.

STATEMENT OF CHUCK FLUHARTY, DIRECTOR, RURAL

POLICY RESEARCH INSTITUTE, COLUMBIA, MO

Mr. FLUHARTY. Thank you, Mr. Chairman, and Ranking Member

Holden and Congressman Moran. Just first of all, I would like to

thank you for the opportunity to work with you over the last years

and the leadership you are providing for rural development. It is

important to recognize, I think, that this hearing is occurring at a

historic moment in the history of rural policy in our Nation.

I think there are several converging factors that make this so,

and I would like to briefly highlight them this morning. First, the

USDA leadership vision which was articulated so clearly by Secretary Johanns and Under Secretary Dorr during this year’s Ag

Outlook Forum calling for a substantive reassessment of and recommitment to the longstanding USDA statutory responsibility for

rural development is unprecedented in my opinion.

This enables this subcommittee and committee along with your

colleagues on the Senate committee to develop an equally thoughtful, forward leaning legislative agenda regarding the most appropriate form and content for a 21st century rural development policy

for America. Fortunately, as you undertake this process you will

find growing consensus among key public decisionmakers, business

and community leaders, and policy analysts regarding the principles which should under gird this new framework, which in my

testimony as you know I have considered to be something like regional rural innovation systems.

This approach recognizes and addresses the current realities that

are going on in the dirt across the rural landscape that all of you

are well aware of. It creates a more systemic approach which enables new approaches sensitive to place dynamics, culture and local

economic circumstance which operates on an asset based development framework recognizing we must do our own lifting in our

economy with the indigenous economic opportunities that exist

there and is really centered on two key new platforms, rural governance and entrepreneurship not only in the public sector but also

in the private one.

However, for those politics and policies to be realized this Congress and this administration have to address a continuing sys-
24

temic challenge faced by these rural regions as public roles and responsibilities keep devolving to local decision makers. As long as

this Nation continues to spend two to five times more per capita

on urban community resources than rural, rural areas will continue to be challenged to build new economic engines to compete

in this global economy.

I believe we can do better than this. The question was raised

what is community capacity, and my dear friend, Secretary Dorr,

indicated he wasn’t sure that academics like myself maybe understand it. I hope in questions I can be very specific about what that

is. But I will mention three things it is. It is broadband understanding for your colleague so that he can work there. It is the capacity for business development to have risk management tools

from the land grant institutions to make wiser choice, and it is the

ability on my family farm in Ohio to finally get running water.

Those things are community capacity.

Now the forces that must be aligned to create these rural innovation system are already at work out in the dirt. They are reinventing rural regions right now. The beauty of this is we no longer need

to search for what to do. We need to figure out ways to enable it

and create flexible policies to support it. It is not necessarily about

new money. It is about wiser public choice in the allocation of the

existing resources.

Finally, scaling this opportunity is going to require a vibrant

rural entrepreneurship system. The system is the key which will

not occur unless attention and resources are given to community

capacity and regional supports for new functions to lift up these

intermediaries. I believe rural America has phenomenal assets,

some challenges, and new opportunities, and I would hope this

committee will think anew about how we advantage them.

In closing, Mr. Chairman, while many additional comments could

be offered, and I would ask that my comments be entered in the

record, I would simply say we are in a new rural context. We live

in a society that loves the quick fix. Rarely do we commit to anything for the long haul. If we are going to build a regional rural

innovation system for the future of rural America it must be longer

term in nature. Our rural challenges are evident but I would argue

rural renaissance is occurring wherever we look. I thank you for

the opportunity to be with you, Mr. Chairman, and I look forward

to your comments.

[The prepared statement of Mr. Fluharty appears at the conclusion of the hearing.]

Mr. LUCAS. Thank you. You may proceed when you are ready,

Doctor.

STATEMENT OF MARK DRABENSTOTT, VICE PRESIDENT AND

DIRECTOR, CENTER FOR THE STUDY OF RURAL AMERICA,

FEDERAL RESERVE BANK OF KANSAS CITY, KANSAS CITY,

MO

Mr. DRABENSTOTT. Thank you, Mr. Chairman, and good morning,

distinguished members of this committee. Over the past couple of

years the rural economy has outpaced the metro economy. Income

growth, for instance, was 2.8 percent a year versus 2.5 percent in

metro areas. Despite the recent gains, the rural economy still faces
25

big challenges. Historically, rural America has depended heavily on

commodity agricultural, natural resource extraction and labor intensive manufacturing.

Globalization tests all three creating big structural shifts and

widespread consolidation in the rural economy. Fewer and fewer

rural communities can tie their future to the economic engines of

the past. Today’s new contest is to innovate to become more competitive. Can rural development policy, which was crafted for a bygone area be reshaped to help them compete? In a global market,

the key to success is to find the next new product, not compete on

the old one.

Innovation creates new products and entrepreneurs bring them

to market and a growing body of research points to a strong link

between entrepreneurial activity and economic growth illustrated

in the chart contained in my written testimony. The challenge for

many rural regions, especially those tied to farming, is that entrepreneurial activity is weak. Economic data also reveal that the

fastest growing regions have critical mass. That is, they have significant human, financial and social capital. With those assets, important synergies develop such as technology transfer, entrepreneurial network, and the lifestyle amenities that knowledge

workers increasingly expect.

The critical mass poses a real dilemma for rural areas. By definition, as you well know, rural means small and remote. Fortunately,

experts now believe that rural communities can create critical mass

by partnering across city limits and county lines. Such partnering

can help ideas flourish and entrepreneurs grow. Building and

maintaining a competitive edge in rural America then involves

three steps. In almost all rural cases these will play out in a multicounty region. We must understand the region’s distinct economic

assets. We must identify the best available markets for the region,

and we must craft a strategy that exploits the assets to cease new

market nitches.

Each region will have its own unique strategy so yesterday’s one

size fits all rural development policy has become woefully obsolete.

Can Federal policy help rural places become more competitive? Let

me suggest three policy directions. First, we can help rural regions

craft new competitiveness strategies. Job one for every rural region

will be to craft an effective strategy that reflects the region’s own

best assessment of the economy nitch where it stands the best

chance of ongoing success.

In many respects this issue frames the future of 21st century extension service. Rural America’s competitive edge no longer lies

only in agriculture, the traditional focus of extension. Instead, success engages a wide range of economic nitches. Forging new competitiveness strategies will require adding new ingredients to public policy. Leadership capacity is perhaps the essential ingredient.

Many rural regions also need better economic information in preparing for the task ahead, a competitiveness dashboard, if you will.

Finally, every region will need new competitiveness tools, one to

sustain regional doalog or governance and one to identify the region’s new competitive edge. Such tools simply do not exist today.

Second, we can link Federal research investments to rural strategies. For more than a century the Federal Government has in-
26

vested in basic research aimed at making agriculture more competitive. Rural America’s need for innovation has grown much

broader.

Tourism, advance manufacturing, producer services and even

new specialized nitches in agriculture itself represent the future for

many rural regions. The Federal research effort must compliment

the economic strategies of individual regions which discoveries

most advantage which regions. This special link between research

and regions does not exist partly because most rural regions lack

a strategy and partly because Federal research lacks a focus on regions.

Experts on competitiveness believe there may be a huge pay off

from new mechanisms linking research to regions. And, third, we

can build a more effective support system for rural entrepreneurs.

Rural America has a strong entrepreneurial spirit but rural

startups struggle to become high growth businesses. Simply put,

the support system for rural entrepreneurs is limited. Philanthropies, universities, community colleges, State and local government could all be involved in building a support system. There may

be a role for Federal policy in providing the back bone for such a

system.

Equally important will be equity capital markets. Credit is readily available to creditworthy rural borrowers but equity capital

funds in rural areas are rare. Federal policy has undertaken several initiatives to close gaps in rural equity capital markets but

none has been very successful thus far. Thus, equity deserves more

attention going forward.

In closing, Mr. Chairman, the rural economy has turned up recently but long-term challenges persist. Most rural regions need to

reinvent their economy going beyond the commodity economic engines of the past. Critical mass, innovation, entrepreneurs all will

be keys to success. Federal policy that helps regions craft new

strategies spurs rural innovation and fosters a world class climate

for entrepreneurs will certainly help rural America meet the challenges of the 21st century. And while many of these issues extend

beyond the purview of this committee the next farm bill can make

significant contributions. Thank you very much.

[The prepared statement of Mr. Drabenstott appears at the conclusion of the hearing.]

Mr. LUCAS. Thank you, Doctor. Commissioner.

STATEMENT OF COLLEEN LANDKAMER, COMMISSIONER,

BLUE EARTH COUNTY, MINNESOTA, ON BEHALF OF NATIONAL ASSOCIATION OF COUNTIES AND NATIONAL ASSOCIATION OF DEVELOPMENT ORGANIZATIONS, WASHINGTON,

DC

Ms. LANDKAMER. Thank you, Chairman Lucas, and Ranking

Member Holden and Representative Moran for allowing me to appear this afternoon on behalf of the National Association of Counties and the National Association of Development Organizations,

and talk about the importance of a strong rural development title

in the next farm bill.

My name is Colleen Landkamer. I am a county commissioner

from Blue Earth County, Minnesota, and I serve as president elect
27

of the National Association of Counties. NACo is the only organization that represents county government, and NADO represents regional development organizations nationwide. As you know, rural

America is diverse in a constantly changing place.

So today I would like to make three key points on the state of

rural development programs and then some recommendations on

the upcoming farm bill reauthorization. First, rural communities

need Federal development assistance programs and policies that allows them to identify, address and meet local needs. Second, Federal rural development policies need to build on the genuine intent

but unfulfilled promise of the 2002 farm bill. Third, USDA rural

development programs should support the basic needs of local communities, such as water and wastewater systems, telecommunications and housing, while also tapping into the rural competitive

advantage for innovation, entrepreneurship and alternative solutions such as renewable energy.

When examining the different types of Federal assistance targeted to urban versus rural areas an alarming trend is discovered.

While urban communities receive a substantial amount of direct

Federal grant funding for infrastructure development such as HUD

community development block grant and DOT’s highway and transit programs the bulk of rural assistance is in the form of loan and

transfer payment such as Social Security and ag payment.

The Kellogg Foundation calculated this disparity in a July 2004

study and found that the Federal Government spent from two up

to five times as much on metropolitan versus rural community development. By funneling billions of dollars in grants each year into

urban areas the Federal Government has given our metropolitan

areas a distinct advantage over rural communities. While urban

areas are building the communities and industries of tomorrow

rural areas are forced to make do with economies and legacies of

yesterday.

Federal rural development policies need to build on the genuine

intent but unfulfilled promise of the 2002 farm bill. Passage of the

bill was a landmark event for rural development because it allocated $1 billion worth of mandatory funding to a variety of programs within the rural development title. However, several of the

most innovative programs were not implemented. For example, the

rural strategic investment program was an attempt to build local

capacity within region by bringing the public and private sectors

together.

The underlying goal was to place rural regions and communities

in the driver’s seat so they could chart their future. It represented

one of the few Federal incentives to promote regional collaboration

and public-private investment. But the program was never fully

implemented and the funding was later rescinded. Lastly, critical

public infrastructure such as water and wastewater and telecommunications are still sorely needed in numerous communities

throughout rural America.

I was fortunate enough to participate in an eForum conducted by

NADO in 2004. When the question was asked, what is the major

requirement to economic development in your region the highest

rated response was inadequate public infrastructure. Private sector

investors and businesses expect and may demand that local govern-
28

ments and communities have the public infrastructure in place before they were located in a community. For rural America to fully

compete in today’s global economy there must be a greater deployment of high speed broadband capacity.

A recent study found that rural America continues to lag behind

urban areas in broadband adoption. Specifically, the study found

that only 24 percent of rural Americans have high speed connections compared to 39 percent of urban Americans. We must do

more to close this digital divide. In conclusion, I would again like

to thank you, Mr. Chairman, and Mr. Holden for the opportunity

to appear today on behalf of NACo and NADO. We stand ready to

work with you in crafting a farm bill that helps develop our rural

communities, and I look forward to your comments. Thank you.

[The prepared statement of Ms. Landkamer appears at the conclusion of the hearing.]

Mr. LUCAS. Thank you, Commissioner. And being a fellow who

was at the time chairman of the subcommittee when we put the

202 formula together along with my colleagues here, thank you for

those compliments because we did work very hard in crafting those

programs trying to create opportunities. And we worked very hard,

I think my colleagues would agree, in going the unique route at the

time of trying to by designating that money to be mandatory to

lock it in. We attempted to do the right thing and to deliver those

resources for the life of the farm bill.

And we all slapped each other on the back and we were all very

gleeful at the time in 2002, and lo and behold something called the

annual appropriations process with a strike of the pen to extract

the word mandatory and an amendment to create the word discretionary in the reallocation process. We have, I promise you, found

it just as frustrating on this side of the table as you found it out

there. And that is part of what we have to work through in preparation for 2007.

How do we wall off, how do we make sure that the resources that

should be going to these programs to rural America actually get

there? I know that will be something that we will all discuss for

the next 18 months but if the mandatory route hasn’t worked then

will we back to discretionary or how do we do it? There has got to

be a way to enable our friends in this building to understand how

important these efforts are. And with that, I will step slightly off

my high horse and we will visit about a few other things too.

Mr. Drabenstott, in your written testimony you talk about eight

rural counties that were among the top 10 percent of the counties

in increasing their work force. Could you expand a little bit on

what was going on in those eight rural counties that gave them the

opportunity or made it possible for them to be such growth engines

and work force labor?

Mr. DRABENSTOTT. Mr. Chairman, I don’t have a list of all eight

in front of me, but we could provide a map to you that would show

where they are. In general, our experience is the fastest growing

portions of the rural economy tent to have one of three characteristics. Number 1, they tend to have scenic amenities. Number 2, they

tend to be next to a major metropolitan area and are in fact turning in to the next round of subdivisions and suburban development.
29

Or, No. 3, they tend to be a retail health care financial hub for a

widening market place in rural America.

In those cases those counties often grow at the expense of places

that may be 25, 50 miles away, but our experience is that those

typify the places that are growing the fastest.

Mr. LUCAS. The next question, I would like to throw just a general question out to the whole panel to touch on if you choose to

or not. We always talk about capacity building in these discussions.

A thumbnail sketch from each perspective of what you define as capacity building and how well we have been able to accomplish that

so far in rural development. Whoever would care to go first.

Mr. FLUHARTY. Mr. Chairman, let me start, and I will use an

issue near and dear to Congressman Moran’s congressional leadership and that is rural health. In rural health we have the Federal

Office of Rural Health Policy. We have State offices of rural health.

We have a national rural health research program. We have a critical access hospital program in health. We have training dimensions

to train doctors in rural health. We have ancillary rural health allied health commitments, and they are integrated around a set of

priorities for the Secretary’s advisory board.

My friend and colleague, Dr. Drabenstott, the reality is we currently have an extension system with phenomenal capacity to support wiser public choice. It is not configured at this point. We have

phenomenal opportunities in entrepreneurship going on in the dirt.

On your next panel you are going to hear Dean Lechtenberg talk

about a phenomenal intermediary development in Indiana. The

glue to begin to do those things in a broad ruralization framework

simply is not integrated right now across these prongs. One of my

greatest concerns is in other subcommittees your colleagues are

going to begin talking about an energy title and a conservation title

and a farm title. They are all the same thing. America is diverse.

Ruralization can occur in landscape, in new agriculture, in conservation.

The reality is we are building the capacity to more wisely integrate Federal resources to build this through put between Federal,

State and local government, the private sector and the NGO community. There are some examples taking place but right now the

Federal Government is AWOL on those. I think with vision we can

craft something there. Let me make one last point. The discussion

Mark just raised about those eight growth counties, if we look at

persistent poverty in the United States 90 percent of the counties

in persistent poverty are rural.

The counties that left persistent poverty in the last decade were

adjacent to rural areas. I include in my testimony the micropolitan

areas of the United States. Were we to think about—and those are

communities now that are recognized by the Federal Government.

They are the only communities in commerce that are not getting

consistent commitments from CDBG so they can do multi-year capital planning. Were we to think about a link in which those

micropolitan areas, which are very dispersed, were linked with that

adjacent counties around them and craft a conglomeration around

a regional sporadic any vehicle like RSIP, which has very, very

broad support, as you know, across the community, we begin to get

out a rural regional innovation anchor that I believe most of the
30

jurisdictions in government, much of the private sector and the

NGO community could rally around.

Community capacity is the glue that builds the future of rural

economy. It is very incrementally allocated right now in the rural

landscape.

Mr. DRABENSTOTT. If I might just add very briefly, Mr. Chairman, I would describe two skills that I would lump under the heading of innovation capacity. I believe that most rural regions have

to reinvent their economies. To do so they really need two sets of

skills, particularly the public leaders of those regions. Number 1,

they need to figure out to assess their competitive position and help

to diagnose a new potential source of competitive advantage. That

is no small feat and it requires certain kinds of skills.

Second, they are going to have to assemble a certain amount of

critical mass across a broader region, and that requires regional

visioning. It requires facilitation of doalog across a broad diverse

set of leadership so those diagnostic skills and the facilitation and

visiting skills both in my opinion will be crucial going forward.

Ms. LANDKAMER. And, very briefly, it is all about working together in rural communities. We have done it for years but we

have to have that infrastructure of leadership and jobs in order to

do that.

Mr. LUCAS. Thank you, commissioner. My time has expired. I

turn to the ranking member from Pennsylvania, Mr. Holden.

Mr. HOLDEN. Thank you, Mr. Chairman. And I promise not to

get on my high horse about the commissioner’s comment about the

appropriators either, but this is not a new problem. I remember

back in 1993 when I was seated way down there Chairman de la

Garza complaining about—it is something, commissioner, if your

organization can help us with that other committee, we would be

very, very appreciative of it. You have touched a lot of subjects already but as we prepare to write the next farm bill, is there any

program that you think is obsolete, has outlived its effectiveness

that maybe we should consider doing away with it and putting

more resources on the table for other things that we think are

more important?

Mr. FLUHARTY. I will take it on frontally because the academy

has already been recognized. It is an irrelevant and rather useless

sector in the economy but I want to suggest something. In my testimony I mention the programs we have and the vision that we lack.

If we are serious about three things being our future, regional acting, entrepreneurship in the private sector, and relationship between Government, that private sector and the NGO community,

we currently have no vehicle to advantage that in your portfolio.

You know the GAO study that just was released last month, 86

different programs addressing rural dynamics. This has been a

mantra for 40 years. I would just simply say in your regions, as

you know, your leaders and your economies are figuring new configurations. You are going to hear about three or four in the next

panel. Figuring out a way to better link, rationalize and provide

flexibility for local and regional development is to me the very key

thing.

I will simply say there was broad support for RSIP. I think it

was hierarchically and bureaucratically heavy. But the principle of
31

assisting regions in discovering their future in a global economy

forcing them to create earmarks and benchmarks to move toward

it, and linking Federal and State programs would be a tremendous

anchor institution where there aren’t existing ones already at work

in the dirt, Mr. Ranking Member.

Mr. DRABENSTOTT. I would offer three suggestions in answer to

your excellent question. The issue that you are contending with in

this committee is happening around the world and there is an

emerging global doalog on how public policy can help all regions,

rural regions in particular, adapt to this new competitive economy.

People who have studied this the longest generally believe that

there are two shifts that need to occur on public policy.

Number 1, that we need to move away from direct subsidies to

investments. Now subsidy is a lot like beauty. It often lies in the

eye of the beholder, but nonetheless I think there is a general consensus that if we move away from subsidies toward investments

and economic engines that is a useful shift to make.

Second, the consensus is that we need to move away from a focus

on individual sectors of the economy to a focus on place. Every region has to craft its own competitive strategy and that poses somewhat of a dilemma for rural America because agriculture has always been the sector at the heart of the discussion. How we go beyond that to a focus on geography is a very interesting dilemma.

The last suggestion I would have is that it is very easy for technology transfer and innovation to occur in our major metropolitan

areas. That is why they are all in that top 10 percent of the fastest

growing regions. It is much harder in rural America. How do we

build a bridge between federally funded investment in basic research and the emerging competitive strategies of regions. That

linking of our Federal investment and research on the one hand

and our desire to create more competitive regional economies in

rural America on the other, we need to invest serious thought into

how that bridge gets built. It doesn’t exist today, and I believe it

would pay big dividends going forward.

Ms. LANDKAMER. Mr. Ranking Member, just a quick comment. A

healthy infrastructure is still critical in rural communities. That is

usually the basis of anything that happens, and when you talk

about urban and rural areas or communities the issues are the

same. The solutions, as you know, are much different at times, so

allowing us flexibility to insure that we can make it work for us

in that place and also insuring that the equity as to what is going

to urban America also makes its way to rural America I think is

extremely important.

Mr. HOLDEN. I was going to ask a question about what you feel

are the biggest needs in rural America and what are the biggest

barriers, and if you want to elaborate on that. You pretty much answered that, and lack of regionalization is one of them. But I just

want to follow up on one last question that Ranking Member Peterson was going to ask if he was given the opportunity. Can you give

me some examples of successful regional development initiatives

and the difference between that and community-based rural development and why small rural communities shouldn’t be fearful of

being lost in a regional approach?
32

Mr. FLUHARTY. Thank you. Let me start, I want to follow on Dr.

Drabenstott’s comment that globally we are way behind the curve

on this. Dr. Drabenstott serves on the OECD’s territorial development committee. I just came back from work with the Scottish executive where they are going to take 25 percent of their common

agricultural policy and move it immediately into regional strategies. They wanted to think about solution tracks there.

Mark has worked all over the world in this dynamic. This is happening when someone says can you show me an example, it is hard

to show you a place where it isn’t occurring but I will mention

three. First of all, what is going on in Indiana is significant but it

is generative. Northeast Ohio right now has a 20 county area that

is working totally together between jurisdictions, the higher educational institutions and the private sector. Almost every community linked within the National Association of Development Organizations or our cogs frameworks in the United States to build regional strategies are doing this.

I will simply raise the rural community colleges in the United

States, and in my testimony I have raised them up, I believe they

are creating the extension service of the 21st century because they

are a human capital institution that is already thinking regionally.

They are linking to work force strategies and they are building

global competitive advantage capture.

I think the rural development directors in the States of this

country are the retail shop for your committee. You recently gave

them 25 percent discretionary authority. The RD director, Bob

White, in Indiana is a key driver in Dean Lechtenberg’s initiative.

The RD director in Mississippi has created a Mississippi entrepreneurial alliance with the community colleges of Mississippi to

build regional strategies through RD.

There are thousands of emergent examples going on. My concern

is we don’t have a joint anchor right now to advantage that replication across space. I think if it is created the people will come to

that dynamic because it is already going on out there in the heartland in many ways.

Mr. DRABENSTOTT. The real dilemma in much of rural America

is that the competition is viewed as the team you last played in

Friday night football when in fact the competition is China and Argentina and Eastern Europe and so on. There are good examples

of the very dilemma that you have raised, Congressman. I would

point to two, one from Congressman Peterson’s home State, the Arrowhead region of Minnesota is a great example of regional development spearheaded by a regionally thinking community college.

Clallam County, Washington, very remote in the thumb of the

Olympic peninsula of Washington similarly has taken a very dynamic regional approach to economic development. A question that

I think bears asking as we ponder this dilemma is will these partnerships be borne only out of necessity or can they be brought

about through incentives in public policy. And an interesting footnote to this discussion is that in many other countries around the

world they have created Federal incentives for small municipalities

and regional territories to partner, and I think that would be a direction that would be worth exploring.
33

Ms. LANDKAMER. I think there are a multitude of good practices

that you can see across this Nation, and one small one I will talk

about is Cambridge, Minnesota. They took EDA money, they took

USDA money, they cobbled together a lot of other cooperative ventures to redo their community. It has now got small shops. It has

got a large technology component. It is looking totally different

than it did before. but usually that comes from the leadership in

the community.

And so how do you encourage that long-term, sustainable good

leadership in communities, and how do you help incentivize that as

you move forward.

Mr. HOLDEN. Thank you, Mr. Chairman.

Mr. LUCAS. Thank you. The Chair turns to the gentleman from

Kansas, Mr. Moran.

Mr. MORAN. Mr. Chairman, thank you very much. Thank you

three for joining us this afternoon. Just a couple of short questions,

then maybe a broader one. And I say these things and believe

them, wonder if it is true that broadband and technological advances matter. The analogy I always give when I am talking at

home is that it is like you built your community and the railroad

didn’t come in the 1980’s so the technology is that today.

Do the communities that are exceeding in economic growth job

creation, is there a tie to access to technology? Is that a reality?

Mr. FLUHARTY. First of all, Congressman Moran, you know in

rural health the failures are in the middle on the ground in telemedicine. I would argue we must be careful to assume any one

issue is the reductionist solution to our challenge. The failures are

in the middle also with technology but it is absolutely essential for

entrepreneurship that that happened. And there is not strong research right now that I know of to fully differentiate that but I will

simply say that without processes, leadership and regional strategies in the dirt all the technology on earth will not assure that a

rural region competes in a global economy. They both are essential.

Mr. DRABENSTOTT. I would just confirm what Chuck said. Too

many people view broadband as a silver bullet and even with DSL

or high speed Internet to every home in every rural community in

America we still need innovation and entrepreneurs to take those

businesses to successful fruition in the market place, and I think

there probably is as big or bigger Federal pay off from developing

a more comprehensive entrepreneurial support system in rural

America than there may be to investing in broadband delivery to

every home.

Mr. MORAN. One of the keys, I assume, for success of an entrepreneur is access to credit, and at least one of you mentioned,

maybe more than one, mentioned credit. Is the difficulty in rural

America the availability of credit or in other words does every creditworthy project, is credit available to meet that need or is it the

lack of creditworthy projects?

Mr. DRABENSTOTT. I think the issue is not so much credit at it

is equity capital. We are blessed with a very robust credit market

in most of rural America and creditworthy borrowers do not have

difficulty obtaining credit. The real dilemma is if you are a start

up business and you need early stage equity capital that is a very

different proposition in rural America, and so I would encourage
34

this committee to have a hearty doalog about how Federal policy

can dovetail with private sector initiative to create a more robust

network of equity capital institutions across the fruited plane.

There are some very good examples of well-run, well-functioning

equity capital markets in rural America. Unfortunately, they tend

to be very few and far between.

Mr. MORAN. For that reminder, I recognize that to be the case.

I did not know the answer to my question but I do know that start

up capital that is just scarce as can be.

Mr. FLUHARTY. Congressman, could I answer that quickly with

an example for you to perhaps explore. If you look at what the Nebraska Community Foundation is doing with a project called Hometown Competitiveness, it is an effort in which we collaborate with

them and Harland Center for leadership development. The reality

is there is huge indigenous wealth in rural America. We are transferring it in this inner generational exchange. The question really

is does it stay home or does it go to Tampa and Phoenix and can

we figure out a way in linking CDBG for small cities with community foundations that pool existing wealth to create entrepreneurial

opportunities for the next generation of competitiveness. I urge you

to look at what Nebraska is doing. It is a phenomenal model.

Mr. MORAN. I appreciate that. I am intrigued by what you are

telling me they are doing. I see this as one of the significant issues

in rural America. As our population ages upon their death it is—

my example in a personal way is I always wanted to own a bank

but the size of town I could own a bank in their depositors were

in their 60’s, 70’s and 80’s and upon their death the money went

where the kids live. And, Dr. Drabenstott, that is often in my case

to your community.

And we created wealth in rural America in rural Kansas, for example, in land values, in oil and gas, but that wealth is held by

an aging and elderly population whose children unfortunately no

longer live any place close. And if community foundations, endowment associations, our universities, if they don’t figure out to capture that before the death of our elderly population we have lost

a tremendous asset that we will never—I don’t know how we would

ever recapture it.

These are the ones who care about rural America the most, and

once their wealth disappears—Mr. Chairman, you are fidgeting,

but let me just ask——

Mr. LUCAS. Your insight really is worth——

Mr. MORAN. I only wish you believe what you said. This will

sound like an odd question coming from me, and this is my broad,

more philosophical question. Particularly you, you are an economist, Dr. Drabenstott. To my urban colleagues what is the justification for why we should care about rural America? Why is it that

we on an economic, perhaps an academic justification, does not the

free market system, is it not supposed to determine where a population is distributed, where goods and services are sold?

Obviously, I have a different perspective than the answer being,

yeah, the free market system is the answer to this question but

that is it that we—how do we justify all this effort in preserving,

enhancing and continuing to see good things happen in rural America?
35

Mr. DRABENSTOTT. That is a great question, and I think it deserves considerable discussion in this committee and in the Congress. The answer in the past has been because agriculture matters. We need a different answer, I believe, in the 21st century.

From a competitiveness point of view there is an answer and that

answer increasingly being realized by many other countries who

have crafted specific policies about regional development. Their answer is that the national economy is most competitive when all regional segments of the economy are also competitive.

Put another way, our national competitiveness as an economy is

diminished if we have regions of our country that are not achieving

their full potential. I think this is an argument from an economic

point of view that makes some sense. The other issue, the other

tact that one can take in answering your question is to say that

there are a vast array of resources in rural America, land being the

principal one, but not the only one, landscape, heritage, culture,

and so on, but those are truly national resources that we as a society, as a civil society, have an interest in seeing them stewarded

well.

That is a separate tact but from an economic point of view, I

think more and more of the people who analyze this question are

saying it really relates to the fact that our national competitiveness

is the sum total of how all regions are doing individually.

Mr. MORAN. I appreciate your answer, and either of the other

witnesses that would like to answer in writing to me. I think probably the Chairman’s indulgence has surpassed his patience.

Mr. LUCAS. Thank you, Mr. Moran. And the subcommittee wishes to thank the panel for your insightful testimony and responses

to our questions, and you are dismissed.

We will invite our third panel to the table. Dr. Mike Woods, professor and extension economist, Oklahoma State University, Stillwater, Oklahoma; the Honorable Cheryl Cook, deputy secretary for

Marketing and Economic Development, Pennsylvania Department

of Agriculture, Harrisburg, Pennsylvania; Mr. Arlen Kangas, president, Midwest Minnesota Community Development Corporation,

Detroit Lakes, Minnesota; and Dr. Victor Lechtenberg, vice provost

for engagement, Purdue University of West Lafayette, Indiana. You

may proceed whenever you are ready, Dr. Woods.

STATEMENT OF MIKE D. WOODS, PROFESSOR AND EXTENSION

ECONOMIST, OKLAHOMA STATE UNIVERSITY, STILLWATER,

OK

Mr. WOODS. Thank you, Mr. Chairman, and distinguished committee. I am very pleased and honored to be here. Thank you for

inviting me. The rural development title of the farm bill does offer

assistance for rural regions and addresses resource needs in several areas. Infrastructure is fundamental for development and includes traditional concerns like water, sewer and housing.

Safe, reliable water is critical for both quality of life and for development potential. The rural development title has provided assistance for rural water systems. In Oklahoma, for example, the

USDA office indicates we have the seventh largest rural water

portfolio. Oklahoma has over 400 rural water districts and has a

backlog of requests for assistance.
36

More and more the responsibility for funding these water systems has shifted to local sources which can be challenging for economically depressed areas. A diversified rural economy also means

all farm jobs that are available for rural residents including farm

families. Efforts to enhance the rural economy through lending programs and loan guarantees can help.

Rural Enterprises of Oklahoma is the largest lender of rural development funds in the Nation. Their intermediate re-lending program in Oklahoma has revolved $11 million twice, offering much

needed financial assistance. Guidelines for these programs are well

intended but sometimes they make targeted assistance difficult.

For example, much of western Oklahoma may qualify for program

assistance but it scores low with the funding formula because of

something like high per capita income levels. Perhaps some other

factor like out migration might be considered.

USDA guarantees lending for businesses and has grown in Okla- homa from $8 million in the year 2000 to $55 million in 2006 according to the State office. Housing loans grew from $17 million to

$80 million during the same time period. Clearly, these lenders are

making loans that otherwise would not have been made. Entrepreneurship is something that has been mentioned several times this

morning. Entrepreneurship is clearly a key option if rural areas are

to provide enhanced economic opportunity for residents.

There is a growing interest in entrepreneurship in Oklahoma in

our region. Our Regional Rural Development Centers located at

Land Grant Universities have supported a national coalition for

rural entrepreneurship. These Regional Rural Development Centers offer a national network that links to every Land Grant University in the country, and they offer research based information.

Recent listening sessions held in seven States in my southern region, for example, involved over 300 participants and identified key

topics and possible actions to grow entrepreneurs and also to grow

entrepreneurial communities. If entrepreneurship is to grow in

rural American digital infrastructure will be important. That has

been said. Rural businesses, consumer, and communities not only

require infrastructure like broadband access but they also need the

capacity and training to effectively utilize the technology. The rural

electric commerce extension program or the e-commerce initiative

within the farm bill addresses this need and currently has land

grant faculty involved in curricular development related to community connectivity, rural business and farm business use of e-commerce.

In summary, I want to again express my appreciation for this opportunity to visit with you. There are three key points that I would

like to close with. One, the rural development title of the farm bill

has done much to benefit rural America. I observed real success

stories in my home State and in my region. There are some possible areas for adjustment. For example, the funding formula sometimes scores communities in dire need of help low because of

unique demographics.

Two, communities and regions should look at all available resources, natural, institutional, human resources and financial resources when considering the future. It truly is a place-based strategy that we must consider. The key is how these resources are
37

combined and utilized. What is the best feed ration for growth in

any unique place is perhaps one way to think of that. What is the

best ration of resources that you are going to put together for that

unique place? Perhaps communities and regions should be encouraged to develop holistic strategic plans and then public resources

could be allocated to support those regional efforts and those systemic efforts, and I believe I heard earlier comments that supported that.

Three, rural entrepreneurship does offer great hope for rural regions. Resources of all types, institutional, infrastructure resources

and financial resources can make a difference. Let us not forget

those human resources in rural America as well and be sure to

make investments in training, leadership, local capacity and knowledge so that rural entrepreneurs and potential entrepreneurs can

be competitive in our global economy. Thank you, sir, for this opportunity.

[The prepared statement of Mr. Woods appears at the conclusion

of the hearing.]

Mr. LUCAS. Thank you, Doctor. Secretary Cook.

STATEMENT OF CHERYL L. COOK, DEPUTY SECRETARY, MARKETING AND ECONOMIC DEVELOPMENT, PENNSYLVANIA

DEPARTMENT OF AGRICULTURE, HARRISBURG, PA

Ms. COOK. Thank you, Mr. Chairman. It is a pleasure for me to

be here today, and I found the process of putting my statement together very cathartic so I thank you very much for the opportunity

to be here today. Over my career I have had the opportunity to

challenge the old Farmers Home Administration and how it treated

its farm borrowers, kind of a put up or shut up challenge to me

to take on the position of State director of Farmers Home Administration in 1993. I was the last Farmers Home State director, and

the first and last rural economic and community development services director and the first State director of rural development. Mom

thought I couldn’t hold a job.

Mr. LUCAS. Actually you have been in the trenches.

Ms. COOK. I guess message number one is please don’t change

the name of the agency again. I finally got to the point where they

can print letterhead and business cards. But I also now has evolved

to a point where working with a stage agency have the opportunity

to partner with rural development and try to piece together limited

State dollars with limited Federal dollars, and if we take your example trying to bet the nutritionist who puts that dairy ration together for rural communities in Pennsylvania.

My statement goes into some depth but I am passionate about

the program of rural development and believe very much that they

need to continue that investment. Rural America is unique. Only

rural development can bring the infrastructure, the rural utility

service, the community development and rural housing service and

the job creation and retention of rural business service in a cohesive, coordinated way to rural community that in our State depends

largely on volunteer and part-time staff in 1,500 townships, 1,000

boroughs, and a few small cities that qualify as rural.

I want to take this opportunity to agree with you strongly, Mr.

Chairman. It is time to revisit the definition of rural. The 2002
38

farm bill in one section had eight different definitions of rural, and,

by golly, we can do better than that. In Pennsylvania sometimes

it is hard to tell where one small town stops and the next one

starts. It is kind of a fuzzy area. We have been wrestling with this

at the State level trying to identify how we make sure that State

resources in fact reach rural areas and come up with a common

definition of rural.

We are leaning toward a population density based test not unlike

what you had in the 2002 farm bill for the regional development

organizations, and I encourage you to take a look at that. Agriculture’s role in the rural economy is something that has come up

a couple of times today. I want to emphasize how often in my work

now in the Department of Agriculture I am having to explain to

economic development professionals that it is really not an either

or. Agriculture is part of the rural economy, and as has been stated

today many, many farmers rely on their off farm income.

In fact, here in Pennsylvania 58,000 farms according to the National Agricultural Statistic Service only 7,800 rely solely on their

farm income. The vast majority have one, if not both, spouses

working in town. I never once as a State director for rural development cut a ribbon on a new factory or new school or some new community structure in a rural community that I didn’t meet someone

who was going to go home from work and get on a tractor, and that

job was keeping that person on their family farm in their rural

community, and it is very much a part of the same policy.

I am very pleased to see the extent to which you worked on the

2002 farm bill to bring agriculture to rural development. I had to

have a few lectures with my staff, particularly in the rural business program that agriculture is a business and should be eligible

for those benefits as well.

Finally, in stretching those limited Federal dollars one of the

things I frequently wish as a State employee is that USDA rural

development would have the ability to guarantee tax exempt bond

financing issued by the State. It is one of the newer, more frequently used technique that we are using to invest in agricultural

economies especially but also other areas. And if RD could participate in that, it would be a good way to stretch those dollars. I

guess I will stop at that point and wait for questions.

[The prepared statement of Ms. Cook appears at the conclusion

of the hearing.]

Mr. LUCAS. Thank you. Mr. Kangas.

STATEMENT OF ARLEN KANGAS, PRESIDENT, MIDWEST MINNESOTA COMMUNITY DEVELOPMENT CORPORATION, DETROIT LAKES, MN

Mr. KANGAS. Good afternoon. Collin introduced me earlier. I

come from the tundra of northwest Minnesota. So it is good to be

out of the snow today. Collin also said I was a Finlander, and often

times get accused of Finlander figuring, which is kind of a way saying thinking backwardly, and also someone who is a bit direct.

But I am pleased to be here to offer my views on the role and

importance of USDA rural development. Our company was started

35 years ago as part of the original war on poverty. It dates back

to the Office of Economic Development, OED, an office within the
39

White House. And it was operated in the guidance and direction of

late Senator Robert Kennedy. So it has had quite a lineage.

We are a private, non-profit company. We do a number of things,

kind of almost an embarrassingly wide number of things, which includes business lending, we make equity investments, housing construction, subdivision development, and home ownership finance.

Together with our subsidiary companies last year we provided over

$50 million to businesses and individuals in Minnesota.

We have subsidiaries, one that is a training company for low income individuals and at risk youth. We own a bank, a very small

bank, but a growing bank that is located on an Indian reservation.

And we also started a Native American subsidiary that has a car

dealership which helps low income families get to and from work

and literally drive out of poverty.

In 2 days I will have completed my 20th year working for

MMCDC, and judging from the gray hairs that I have when I look

in the mirror, it is a difficult job certainly, but one of our most important and consistent allies throughout these 20 years has been

rural development. Our company’s goal is to create impact through

job creation, through lending and investing by developing communities and by providing housing. And USDA rural development like

no other agency in Washington has developed, refined and implemented programs that help us meet all of our targeted activities.

For example, we are a borrower under the IRP program, Intermediary Relending Program. We have made over 144 loans, creating more than 3,500 jobs, leveraging more than $17 million in

other capital. We have been a user of the Rural Business Enterprise Grant Program. In the mid–1990’s the city of Detroit Lakes

where our office is located lost its largest employer when Swift Butterball closed its turkey processing plant. Seeing the loss of 550

jobs in one community, rural development provided us a $450,000

Rural Business Enterprise grant to build a new manufacturing center.

That building was the first structure in a new industrial park.

They call it the North Industrial Park. Ten years later that park

is nearly full. Collectively, the businesses in that park pay more

than $450,000 per year in property taxes. One business alone pays

more than $400,000 in payroll taxes. So that investment has seen

a significant return for that community and for the Nation.

Rural development is investing in Indian reservations. Earlier

we talked about where there is discussion about community facilities and community infrastructure. For example, they are providing

a loan to the city of Logoma, a small rural community that needs

a new water supply system due to high levels of arsenic. We provide more than $25 million a year in advances for home ownership

including section 502 guaranteed and participation loans.

And rural development does much more. Presently we are working on financing two ethanol plants. One is in earlier stages than

the other, and there we are looking at the B&I loan program helping us do that financing as well as new markets tax credits. So

they have several programs all of which are extremely important

to those of us on the ground. The biggest challenge over the last

20 years has been the persistent erosion of asset values in rural

areas with the mechanization of agricultural and the loss of popu-
40

lation. The value of homes and businesses had gone into a longterm free fall.

The result was a flight of capital away from rural areas creating

significant challenges for commercial banks, and now we are coming to an end of that long-term trend and the future looks brighter

for lenders, for investors, for homeowners. Even yet the poorest of

our residents have seen little improvement in their quality of life.

The Midwest has a large number of Indian reservations for which

there has been little economic development activity, and the greatest future challenge for our company and others is to make a

meaningful impact and significant investments on reservations

throughout Minnesota.

The shootings that occurred on the Red Lake Indian Reservation

not so long ago could happen again elsewhere. Poverty and hopelessness may be the core problems which are further exacerbated

by drug and alcohol abuse, and we feel it is our responsibility to

step in and help. One potential positive step for these reservations

could be energy production, whether it is wind energy, ethanol production or the production of biodiesel, all could be accomplished on

reservations.

Investing significant resources on reservations and projects that

yield long-term streams of income could result in jobs and renewed

sense of hope in our poorest communities. And I will stop there and

answer questions. Thanks.

[The prepared statement of Mr. Kangas appears at the conclusion of the hearing.]

Mr. LUCAS. Thank you. Dr. Lechtenberg.

STATEMENT OF VICTOR L. LECHTENBERG, VICE PROVOST

FOR ENGAGEMENT, PURDUE UNIVERSITY, WEST LAFAYETTE, IN

Mr. LECHTENBERG. Good afternoon, Mr. Chairman and Mr.

Holden. Thank you for this opportunity. My tie to rural America

started on a farm in northeast Nebraska, and then I moved to Indiana to pursue a career in education in agricultural research and in

administration. Prior to becoming vice provost about 2 years ago,

I was dean of the College of Agriculture at Purdue for 11 years,

and I appreciate the opportunity to again appear before this committee.

Rural development is important to our Nation’s economic growth

and well being for a number of reasons, some of which we have already heard, but let me repeat. Nearly 60 million people live in

rural America, 80 percent of our Nation’s geography is rural, and

as has been pointed out these regions face some special economic

challenges in today’s high tech and global economy.

I believe Land Grant Universities can and should play a major

role in nurturing growth and development in these rural communities in helping to make these communities places of choice. And

I would like to tell you a little bit about some of the things that

Purdue University is doing in this regard. We are trying to reach

well beyond our immediate campus to link stakeholders of all economic sectors with all areas of expertise within the university.

Across our entire university we have made engagement a fundamental mission of our institution.
41

Our efforts are becoming much more inner disciplinary, both in

terms of our research and our discovery and our teaching missions

but also in our engagement with the people of Indiana. The cornerstone of our engagement mission is our ability to form creative

partnerships with State, with local, and with Federal agencies,

with the private sector, and with individuals and community organizations. One of the tools of these partnerships is a program we

call our technical assistance program which provides technical and

business assistance to manufacturing and other companies.

This program connects with about 400 firms each year. Its business has tripled in the last year. Discovery Park is a unique program in which we are developing creative inner disciplinary research teams from all across campus to address some of the grand

challenges that our State and Nation face. Discovery Park does its

work through a complement of 12 inner disciplinary centers, centers like nanotechnology, biosciences, e-commerce, advance manufacturing, healthcare engineering, and then layered across each of

these inner disciplinary centers we have an entrepreneurship center to spur the commercialization of new discoveries.

In our Office of Technology Commercialization license, university

patents and copyrights and technology, the Purdue Research Park

includes a business incubator where some of this technology is actually commercialized. This park is home to 134 companies that

today employs about 2,800 employees. Another very important took

is our Center for Regional Development. This center is built on the

premise that unbiased information is essential to drive wise local

policies and decisions, and that success comes from linkages across

the urban, suburban and rural sectors that economic development

does not respect geo-political boundaries.

The center encourages and provides a haven where public doalog

can occur, the kind of doalog that is essential for innovation and

community and economic development and in goverance. In 2005

our General Assembly created an Office of Community and Rural

Affairs. Importantly, this office is linked to the Indiana Department of Agriculture and they both report to our lieutenant governor, Becky Skillman. But they are in fact separate offices recognizing that rural and community issues are much broader than

agriculture.

Purdue Center for Regional Development has partnered with this

office to develop a report entitled Rural Indiana Strategy for Excellence. This project has been a year long and has involved 150

stakeholders. The interests of these stakeholders were far broader

than rural. The makeup was quite broad. The process was highly

interactive. The stakeholders have developed an ownership both in

the process and in the product that has emerged.

A top priority of this task force has been to create a rural constituency and advocacy for rural interest and one that goes far beyond the traditional agricultural and commodity organizations. In

building on this constituency the task force has identified several

top priorities; one, established regional frameworks to achieve competitive advantage across public, private, non-profit and academic

institutions; two, advance civic leadership and engagement to

broaden and deepen the local leadership capacity; three, invest in

rural Indiana’s unique, place-based assets like natural resources,
42

our heritage and history, and the arts and culture of the people

and the places; four, promote a rural innovation culture to help enhance public and private entrepreneurship; 5, engage youth and

young adults to build a rural countryside in which they and other

young people want to live.

I might add that educational systems are absolutely essential

and critical in this endeavor; six, ensure that wealth is created and

retained and harnessed to generate new wealth and capture emerging economic opportunities; and, seven, ensure diversity, access and

inclusiveness. This project is a work in progress. The heavy lifting

is just beginning but we are convinced that this effort will be successful because the key elements are aligned. State government,

U.S. Department of Agriculture’s Rural Development, the private

sector, community and economic development organizations, and,

lastly, Purdue University with its cooperative extension service in

every county and the significant commitment from the Office of Engagement is committed to doing everything that we possibly can to

partner with communities across Indiana to grow our State’s economic prosperity and to make Indiana a place of choice.

Thank you for this opportunity, and I will be happy to respond

to questions and comments.

[The prepared statement of Mr. Lechtenberg appears at the conclusion of the hearing.]

Mr. LUCAS. Thank you, Doctor. The Chair now turns to the ranking member for his questions.

Mr. HOLDEN. Thank you, Mr. Chairman, and we received a lot

of positive testimony today about what we need to do in the writing

of the next farm bill. And I would just like to apologize to our three

other panelists if I engage in some parochial problems that we are

facing in Pennsylvania on rural development. We have enough political problems too, Mr. Chairman, but we have a lot of serious

problems I would like to talk to Secretary Cook about.

Pennsylvania leads the country in the number of rural citizens

not served by public water and public sewer, and that is a real

problem with environmental clean up. It is a real problem with

public health, and it is a real problem, Secretary, as you know,

with economic development. Under your guidance in Schuylkill

County we were able to put in several sewage treatment plants

that helped not only with public health and helped with the environment but helped with economic development, the Rushrian

Township project which allowed Air Products to expand, but I am

very concerned that we are just not keeping up with the demand,

that there are still so many municipalities that are under a consent

decree from DEP to install wastewater treatment plants and sewage treatment plants.

And I am just curious in your expertise how big do you think the

problem is? How much do you think the recent reconciliation budget and the proposed budget for 2007 are going to be a deterrent to

allow us to get these plants up and running?

Ms. COOK. It remains a huge problem. No sooner in a State with

2,500 municipalities do we get them all served and it is time to go

back and fix at that point 30-year-old, 40-year-old systems and

start over again. Added to that in our State, as you have alluded

to a couple of times, is a State program that offers 1 percent fi-
43

nancing for 30 years, which is comparable to rural development’s

41⁄2 percent poverty rate for 40 years.

Communities, where they can, are opting to go with the State

program for the lower interest rate and the shorter term. Leaving

rural development with the most seriously economically challenged

communities who rely the most heavily on the grant portion of the

water and wastewater disposal program in order to move forward,

and when you couple that, as you said, with our Pennsylvania Department of Environmental Protection issuing stop orders that you

cannot build any more housing, you can’t bring in any more jobs

until you do something about your water and wastewater problem,

we are really stymied in a number of areas in rural Pennsylvania.

Mr. HOLDEN. I guess we shouldn’t care if the Commonwealth is

doing it or USDA is doing it, but it just seems to me that the

USDA program has not been competitive at the 41⁄4 percent even

though you said with no grant money when you put in the 1 percent it is comparable in the rates, but I have just seen too many

recent instances where USDA was not competitive and there was

no grant money available and even at the 1 percent you can’t convince the people who are on these sewer authorities that it is competitive not having any grant money.

Ms. COOK. And it is probably a good example where we may

want to look at the ability of the feds to put a guarantee on tax

exempt financing. Penn Vest, the State agency that you mentioned,

is about to benefit from what Governor Rendell has called the

Growing Greener 2 program, much of which is tax exempt bond financing. It will give Penn Vest the ability to put grants into local

water and sewer systems. And while that is great for those rural

communities absent better cooperation between the State agency

and the Federal agency, it is going to just make things worse as

far as rural development’s ability to serve their communities.

Mr. HOLDEN. And just for the other panelists, in your States are

you seeing the same backlog on water and sewer projects hindering

economic development, hindering environmental cleanup?

Mr. WOODS. I don’t have specific numbers for you, sir, but the

indication from our USDA office is that there is a significant backlog, significantly higher demand than they are able to respond to.

Mr. KANGAS. The same is true in Minnesota. There is competition each year for obtaining funds through the small cities grant

program, which many times USDA funds are leveraged with community development block grants, but the backlog is long and consistently long.

Mr. LECHTENBERG. I would agree, and I think one of the challenges that our colleagues in rural development in Indiana faced is

the challenge of bringing some of these smaller communities together to work jointly on some of these kind of projects to build a

critical mass of capacity.

Mr. HOLDEN. That is what we do at Rushrian.

Ms. COOK. We try to do that everywhere in Pennsylvania but I

will never forget Sandy Township, which is kind of a donut around

the Borough of Dubois, coming in for a rural water and sewer grant

because they needed to build two treatment plants since the Borough of Dubois wouldn’t allow them to run a pipe through from one

end to the other.
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Mr. HOLDEN. Just one follow up, Mr. Chairman, and I will turn

it over to you. We talked about regionalization. My home town in

Pennsylvania is 4,000 people and five volunteer fire companies.

And through rural facilities we were trying to build them a brand

new fire house with a substantial amount of grant money but they

didn’t want to give up belonging to the Hookies or belonging to the

Columbia or the Alert, so we still have four fire companies and

they are all 75 years old. Yield back, Mr. Chairman.

Mr. LUCAS. Yes, indeed, and you take me to the point that I was

going to go to to address for the whole crowd. When we talk about

regionalization and these approaches virtually every panel has discussed it, a number of my colleagues have discussed it, but yet as

Dr. Woods knows, I represent 32 counties in a 77-county State. I

have 15,000 Oklahoma City-ites. I have 10,000 Tulsa-ites, and

every community imaginable beyond that, and I have watched battling efforts between communities over economic development down

through the years.

How do we, my friends on the panel, you have worked with everyone at every level obviously for careers now, how do we in the

spirit of a regional approach create one that works and then persuade all of our—I would never refer to my constituents as children

but persuade all of my friends back home to play together in the

same box? And you don’t have to touch it if you don’t want to, but

it is addressed in question for you all.

Mr. WOODS. Well, yes, and I will take a stab and fellow panel

members can be thinking about it. Mr. Chairman, you do have a

rather large region, essentially Western Oklahoma plus a little bit

of Oklahoma City, and so encouraging everyone to play together

could be a real challenge in a geographic region of that size. It

strikes me that there is sort of two ways to come at it, and one is

incentives from whether it is the Federal Government or the State

government, some incentives for regional efforts.

If you are going to enjoy and benefit from various programs then

you are going to have to approach it from a regional perspective.

And then certainly I think the other perspective is letting the market work. There are some regions that simply make sense because

of economics and geography and demographics, and there are some

that don’t. It is another example of that whole place-based problem.

There are some regions that are simply artificial and they are

never going to work because they are in fact artificial so you got

to identify regions that have some economic and demographic tie

and build on those regions.

I am thinking back to some of the comments from the previous

panel. Let us work on the ground and see which regions are able

to rise up because they want to have the local capacity to work together and too because there are some economic and demographic

forces that are at work.

Mr. LECHTENBERG. Mr. Chairman, let me add a point or 2. One

of the things that I think an institution like Land Grant Universities can do is try to help provide some cover for these kinds of

discussions to occur. Several examples that come to mind immediately, in our technical assistance program we have been able to

work with a group of certified technology parks that were created
45

by State government a couple of years ago, and these are approved

very much on a regional basis.

Communities apply for them, but in our willingness to work with

them we have pretty much said to the local leaders bring your colleagues together from neighboring jurisdictions and let us craft a

program that cuts across geo-political boundaries and regions. And

that is working to a significant degree in my opinion. We have also

done this with some learning centers that are connected and tied

with our cooperative extension service.

But, again, as I said, we don’t have the resources to work with

92 counties so let us do some of these things on a regional basis,

and then through our regional center we have been able to leverage

that position and help bring some of these disparate groups together. And it is beginning to take root and to work.

Mr. KANGAS. If I could comment too. I think that we need to look

at specialization of entities. Our organization is good at some

things but not everything. I have been to Rural Enterprises of

Oklahoma, also Little Dixie in the southeast part of the State, and

they do wonderful work and they have reached scale. They have

got capacity. They have got talent. And so I think specialization

based upon capacity is an important thing.

Second, I think there needs to be consolidation within the industry, which I don’t think many people want to talk about but I think

there are too many organizations chasing too few resources, which

then market forces really aren’t at work so I think that there is a

reason and a rationale for consolidation.

Ms. COOK. It depends on the issue. We have had fairly good luck

in regionalization and tourism promotion, for example. Our Pennsylvania Dutch region has come together and the regions of the

northern tier have come together and the Pennsylvania Wilds Program, and they are promoting each other as a regional destination.

In other areas it just doesn’t work as well, economic development

financing being one of them.

Mr. LUCAS. Thank you for your honest and accurate assessment

and the insights you have provided in responses to the rest of the

questions. This is part of the ongoing challenge probably from the

perspective of this subcommittee as important an issue as we will

touch on between now and the ultimate crafting of the conference

committee report in the fall of 2007. So much is at stake back home

and we all have a responsibility and obligation to help make that

happen.

And I do appreciate your patience with regard to our votes and

recesses and the schedule we have worked under today. Without

objection, the record of today’s hearing will remain open for 10 days

to receive additional material and supplemental written responses

from witnesses to any question posed by a member of the panel.

This hearing of the Subcommittee on Conservation, Credit, Rural

Development and Research is adjourned.

[Whereupon, at 1:20 p.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]
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