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30–428 PDF 2006

S. HRG. 109–480

EXAMINING THE UNITED STATES DEPARTMENT

OF AGRICULTURE’S RURAL DEVELOPMENT

PROGRAMS

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 20, 2006

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

SAXBY CHAMBLISS, Georgia, Chairman 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

JAMES M. TALENT, Missouri 

CRAIG THOMAS, Wyoming 

RICK SANTORUM, Pennsylvania 

NORM COLEMAN, Minnesota 

MICHEAL D. CRAPO, Idaho 

CHARLES E. GRASSLEY, Iowa 

TOM HARKIN, Iowa 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

MARK DAYTON, Minnesota 

KEN SALAZAR, Colorado

MARTHA SCOTT POINDEXTER, Majority Staff Director 

DAVID L. JOHNSON, Majority Chief Counsel 

VERNIE HUBERT, Majority Deputy Chief Counsel 

ROBERT E. STURM, Chief Clerk 

MARK HALVERSON, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

Examining the United States Department of Agriculture’s Rural Development 

Programs ............................................................................................................... 1

Tuesday, June 20, 2006

STATEMENTS PRESENTED BY SENATORS 

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, Committee 

on Agriculture, Nutrition, and Forestry ............................................................. 1

Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, Committee 

on Agriculture, Nutrition, and Forestry ............................................................. 2

WITNESSES 

Panel I 

Dorr, Thomas, Undersecretary, United States Department of Agricultrure, 

Washington, DC ................................................................................................... 6

Panel II 

English, Hon. Glenn, Chief Executive Officer, National Rural Electric Cooperative Association, Arlington, Virginia ................................................................ 18

Halliburton, Jane, Supervisor, Story County Iowa, Navada, Iowa ..................... 20

McBride, Mary, Executive Vice President, Comunications and Energy Banking Group CoBand, Denver, Colorado ................................................................ 21

APPENDIX 

PREPARED STATEMENTS: 

Chambliss, Hon. Saxby .................................................................................... 30

Dorr, Thomas .................................................................................................... 32

English, Hon. Glenn ......................................................................................... 46

Halliburton, Jane .............................................................................................. 49

McBride, Mary .................................................................................................. 57

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Grassley, Hon. Charles .................................................................................... 70

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD: 

Crapo, Hon. Mike ............................................................................................. 74

Grassley, Hon. Charles .................................................................................... 78

Leahy, Hon. Patrick ......................................................................................... 81

Lincoln, Hon. Blanche ...................................................................................... 84

Thomas Hon. Craig .......................................................................................... 88

(1)

EXAMINING THE UNITED STATES

DEPARTMENT OF AGRICULTURE’S RURAL

DEVELOPMENT PROGRAMS 

Tuesday, June 20, 2006

U.S. SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY, 

Washington, DC. 

The Committee met at 10:36 a.m., in room SR–328A of the Russell Senate Office Building, the Honorable Saxby Chambliss, chairman of the committee, presiding. 

Senators present: Senator Chambliss, Senator Lugar, Senator 

Thomas, Senator Talent, Senator Harkin, Senator Lincoln, Senator 

Salazar. 

OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A U.S.

SENATOR FROM GEORGIA, CHAIRMAN, COMMITTEE ON

AGRICULTURE, NUTRITION, AND FORESTRY 

Chairman CHAMBLISS. Good morning. This is a full committee 

hearing to examine the rural development programs of the U.S. Department of Agriculture. We welcome all of you here this morning. 

I appreciate our witnesses and members of the public being here 

to review this very important topic as well as those who are listening through our website. 

From the beginning of Farm Programs in the 1930’s to the 

present day, Federal agriculture policy has been focused primarily 

on the well-being of rural areas across the country. Much like their 

urban counterparts, rural cities and counties have changed much 

over the last 80 years. The challenges faced in the last century 

have evolved and, in many cases, become more complex. 

Unlike the past, today rural households depend more on all-farm 

income. For example, in 1950 four out of every ten rural people 

lived on a farm and almost a third of the nation’s rural workforce 

was engaged directly in production agriculture. Today, less than 10 

percent of rural people live on a farm, and only 14 percent of the 

rural workforce is employed in farming. 

While the face of rural America may look different, the challenges confronting our small towns and communities haven’t 

changed fundamentally. Infrastructure and public services are 

often the core of every economic plan.Telecommunications, electricity, water and waste disposal systems, and transportation infrastructures are essential for a community’s well-being. 

2

Investment in rural infrastructure not only enhances the wellbeing of community residents, it also facilitates the expansion of 

existing business and the development of new ones. 

This hearing is the second in a series designed to review the 

Rural Development Programs at the Department of Agriculture. 

We hope to learn more about implementation of the Rural Development Title of the 2002 Farm Bill. We also hope to better understand the new challenges and makeup of rural America so we can 

buildupon our past success. 

We must be mindful that USDA is the only Federal agency with 

a mandate to provide comprehensive assistance to America’s rural 

areas. The Department has done a good job of performing this function with limited resources available to it and the large demand for 

its services. 

In addition, while the rural economy has shifted from a dependence on farm-based jobs, agriculture is still a major source of income. It will be impossible for us to divorce the two, and I am convinced that the future success of rural America will be integrally 

connected with the success of the U.S. agriculture sector. 

In my home state of Georgia, 23 counties are farm-dependent, 

the largest of any state outside of the Great Plains. While four out 

of five rural counties are dominated by non-farm activities, those 

areas that are farming dependent may require more attention, 

since they are limited by remoteness from major urban markets 

and by low population densities. 

Our overriding goal should be to ensure that rural areas share 

in the nation’s economic prosperity and we have the proper policy 

options for the future. Over the next few months, this Committee 

will be hearing firsthand from farmers and ranchers across the 

country as we begin preparation for the next farm bill. 

I expect to hear a great diversity of opinions as we travel from 

region to region. However, I also expect to hear a common sentiment throughout each and every comment regarding the desire to 

create new economic engines in both the farm and rural economies. 

Finally, we must be bold and creative in this task, for the next 

farm bill provides us with a unique opportunity to put together a 

more cohesive and coherent Federal effort to close the gap between 

rural and urban areas. 

Before we proceed, I will obviously turn to my Ranking Member, 

Senator Harkin, for any comments you might have to make. 

[The prepared statement of Hon. Saxby Chambliss can be found 

in the appendix on page XXX.] 

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM 

IOWA, RANKING MEMBER, COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

Mr. HARKIN. Mr. Chairman, thank you very much. I really appreciate you holding this hearing to allow us to examine the Rural Development Programs of the Department of Agriculture to understand better what is working as well as where there may be need 

for improvement. This hearing will also be valuable, as you say, as 

we move toward writing the Rural Development Title in the next 

farm bill. 

3

Rural America contributes tremendously to the greatness of our 

nation. It offers many advantages to those of us who live there. 

Yet, in an increasingly competitive global economy, rural communities face huge challenges. 

Incomes continue to trail those in urban America. Poverty is 

higher. Rural communities find it harder to grow existing businesses or attract new ones; and, as a result, jobs and wages lag. 

Too often a potential employer will simply strike a rural community off the list for lack of vital service or resource: broadband, for 

example; or it could be transportation, too; or it could be adequate 

water. While some costs may be lower in rural areas, others may 

be higher because of fewer paying customers per square mile. 

I am very concerned that USDA assistance falls far short of the 

needs of rural communities for basic, essential services such as 

electricity, telephones, water, wastewater treatment. Of course, 

broadband Internet access is no longer merely a desirable option, 

it is absolutely vital for businesses to operate productively and 

competitively as well as for the education of our children and a 

host of other activities in rural communities. 

Living in a small community myself, I have seen what happens 

when a business wants to maintain itself, but they can’t get 

broadband and then they have to move to a larger city. There goes 

a few jobs. It may be only six or seven jobs, but in a small community those can be vital jobs. 

Or, a small school in a country setting in Iowa where they can’t 

get AP courses, and they are denied advanced placement courses, 

but they can get them over broadband. We have AP online for kids. 

But if they don’t have it, they can’t get it. 

So there are a lot of things that we need to address. USDA ought 

to do more to support daycare centers to foster rural employment, 

proper childcare; it needs more to promote assisted living facilities. 

The fact of the matter is hundreds of millions of dollars that we 

dedicated to rural economic development in the farm bill have been 

taken away as a result of President Bush’s budgets and congressional action. It wasn’t just the president’s budget; it was congressional action, too. So if we expect USDA’s Rural Development Programs to work, we have to provide a reasonable level of resources. 

USDA has to do, I think, a better job of helping to get investment dollars, equity capital, to rural areas. USDA has a number 

of programs aimed at helping provide capital to businesses. 

In regard to venture capital, I have to be honest to say that there 

was a real failure to carry out the farm bill’s rural business investment program. The rules created excessive burdens and most of the 

funding, I understand will disappear by October 1st of this year. 

We also put in the farm bill a new mechanism that has generated a large amount of capital for investment in the Rural Economic Development Loan and Grant Program, REDL&G, but again 

much of that money sits idle. I will be interested to find out why. 

Funding for grants to producer-owned, value-added enterprises 

has also been cut well below the mandatory funds that we dedicated in the farm bill. Yet, it is the value-added enterprises many 

times of the small communities that provide those needed jobs. Yet, 

as I said, the funding has been cut below the mandatory funds that 

we put in the farm bill. 

4

Despite the concerns I have just expressed, I see a lot of opportunities. I see a better future in rural America. Poll after poll shows 

if people are given a choice they would rather live in a heavily, 

densely urban area or in a lesser populated rural area. All things 

being equal, they would rather live in a rural area. But if they 

don’t have healthcare and education and clean water and transportation and economic opportunity, they are forced to live somewhere 

else. 

Now, so I think we have tremendous potential for economic 

growth and new jobs, especially when we are getting into renewable energy and bio-based products. This could kind of usher in a 

whole new golden age of agriculture and rural development. 

I would say that obviously most of the funding will have to come 

from the private sector. But we need a creative vision for economic 

growth to make sure that while the private sector and the funds 

and the capital can come in, that they know that there is going to 

be an underpinning— as I always call it, the ‘‘veins and arteries’’—

of commerce that the government can provide in terms of transportation and water and communications and things like that. That is 

where this part of the USDA is going to be so vital in the years 

to come. 

Mr. Chairman, I just want to associate myself with your remarks 

also, that in rural America today fewer and fewer people are living 

on the farms. Fewer and fewer people in rural America are getting 

their income from farms, so we have to be looking at other areas, 

other ways, of providing that economic growth. Hopefully, through 

this hearing and through the next farm bill we can kind of come 

up with some of the creative vision. 

Thank you very much, Mr. Chairman. 

Chairman CHAMBLISS. I will turn to our members who are here 

for any opening comments. 

Senator, Lugar, do you have any? 

Mr. LUGAR. Mr. Chairman, I look forward to the testimony. I second the thoughts that Senator Harkin expressed about the energy 

title and how it may affect USDA and development, just very specifically: methane digesters, windmills, biofuel production facilities. 

It is a potential golden age for Rural America. All of this cannot 

be provided by the Federal Government, but the spurs of the development people we are to hear from today could be very helpful for 

private investment. 

Chairman CHAMBLISS. Senator Salazar. 

Mr. SALAZAR. Thank you very much, Mr. Chairman and Senator 

Harkin, for holding this hearing on this really important topic. I 

associate myself with both of your comments. 

I do believe that there is a lot of work that we have to do out 

there in rural America to make sure that this reality of two Americas is one that we can deal with and provide the kinds of opportunities to rural America that we see occurring for Americans who 

live in urban America. I very much look forward to this hearing 

and the testimony of the witnesses. 

Chairman CHAMBLISS. Senator Lincoln. 

Ms. LINCOLN. Thank you, Mr. Chairman. I just want to associate 

myself with all of my colleagues who have indicated to Secretary 

Dorr how important rural development is our state. It is critically 

5

important. We are certainly all aware that since the 2002 Farm 

Bill appropriators have limited rural development dollars. 

Although I wholeheartedly agree with Senator Lugar that private industry has got to be the real engine that moves the development of biofuels and other things in rural America, government is 

truly the seed dollars that attract that private capital in there. 

Without those seed dollars, we just won’t see anything happen. 

The recent reconciliation in the proposed budget, I think have 

seen very disproportionate cuts in rural development. It is of great 

concern to me. We look forward to your testimony and, hopefully, 

a visit from you in Arkansas. We have been trying to get you down 

there. We hope we can get you down there. 

Thank you, Mr. Secretary, and thanks, Mr. Chairman. 

Chairman CHAMBLISS. It’s a great place to visit, Mr. Secretary. 

[General laughter.] 

Chairman CHAMBLISS. Senator Talent. 

Mr. TALENT. We hope you will stop in Missouri on your way to 

Arkansas. 

[General laughter.] 

Mr. TALENT. I, too, am grateful for the hearing. Mr. Chairman, 

I am going to have to step out for a little bit, but I hope I am back 

to ask about a couple of issues, and if not, I will put the questions 

in the record. 

One of them is the Value-Added Development Grants, which I 

was the sponsor of when I was in the House, and I think have been 

very effective. But I know your priorities have been on-farm 

projects, and this has made it difficult to use those grants for ethanol, biodiesel, renewable type issues. I wanted to know what you 

thought of in terms of whether we should be more flexible? 

Also, I have so many communities complaining about median 

household income is figured for the purposes of the census and how 

that affects their eligibility for grants. I think that is something we 

need to look at, at some point. don’t know whether to do it administratively or legislatively or whatever. 

However we fund the grants—and I tend to agree that the appropriators have overlooked the important partnership role that the 

government can play, if this stuff is done appropriately. But if we 

are defining median household income in a way that excludes a lot 

of rural America, we are really defeating our own purposes. 

Also, it is good to get some of these communities and help them 

before they absolutely hit bottom. I mean, it is actually easier to 

keep them from falling all the way down than it is to restore them. 

But the way these regulations are interpreted now means they 

have to be absolutely so low before we help them that it just makes 

the problem more difficult. So these are the kinds of issues that I 

am hoping we can address today. I’m glad to have you here, Mr. 

Secretary. 

Thank you, Mr. Chairman. 

Chairman CHAMBLISS. Senator Thomas. 

Mr. THOMAS. Thank you, Mr. Chairman. I don’t have a statement. I am glad you are having this hearing. This is a very important program to us all. Certainly we are interested in looking at 

how we might, as we go through the next farm bill, if it’s possible, 

restructure. 

6

I know there are some 40 programs here. Maybe there are ways 

to make them more efficient. Maybe there are ways to do some 

things in their funding, getting the councils involved, so that there 

is local participation and so on. 

So thank you very much, sir. 

Chairman CHAMBLISS. OK. Our first panel today consists of Mr. 

Thomas Door, undersecretary, United States Department of Agriculture here in Washington. 

Tom, we are always pleased to have you come back to visit with 

us, and we look forward to your testimony and your response to 

questions today. 

So, welcome. 

STATEMENT OF THOMAS DORR, UNDERSECRETARY, UNITED 

STATES DEPARTMENT OF AGRICULTURE, WASHINGTON, DC 

Mr. DORR. Thank you, Mr. Chairman. 

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

opportunity to testify today concerning USDA Rural Development’s 

mission and its program. As we approach the next farm bill, all of 

us recognize that there are difficul 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, the technical support, 

the investment capital, and the business models that allow rural 

entrepreneurs in rural communities who need these to realize their 

potential. 

We administer over 40 programs covering: infrastructure, housing, community facilities, and economic development. This year we 

will, in fact, deliver approximately $17.4 billion in program level 

driven by a budget authority of just $1.96 billion. By themselves, 

however, the individual programs are just a toolkit. The important 

thing is accomplishing the mission. 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 don’t farm, as you’ve indicated this morning, and 96 percent of rural income is non-farm. 

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

off-farm income. As the Farm Bureau put in their ‘‘MAAPP Report’’ 

‘‘Farmers are more dependent on rural communities than rural 

communities are dependent on farmers.’’

It used to be that the 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-farm, are 

therefore vital issues for the next farm bill. 

Second, sustainable development must be—it must be—marketdriven. If we don’t leverage private investment, if we sit back and 

rely on a program-driven model, we are wasting in my view a historic opportunity. 

Third, to unleash entrepreneurial development, we need to leverage the resources that we already have. The nation’s Farm Balance 

Sheet, in my view, is illustrative. According to USDA’s February 

7

2006 estimates, farm equity, free and clear equity, in the United 

States today exceeds $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 and entrepreneurs to make it work. The key for us is to 

encourage partnerships and leveraging, and 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 11.5 percent of USDA’s program level. That 

is just the leveraging from loans and loan guarantees not including 

the private investment dollars that our private 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 online 

and reducing costs and we are looking for ways to reduce 

stovepiping and cross-train our field staff to improve the efficiency 

of our local offices. This is a never ending process, and it is one we 

take very seriously. 

So in closing, Mr. Chairman, let me express my appreciation for 

the very generous support President Bush and the Congress have 

given USDA Rural Development. Rural America enjoys extraordinary opportunities from biobased products to ethanol, biodiesel, 

wind, and other new energy sources to broadband-driven manufacturing and service businesses. These are opportunities we cannot 

afford to miss. We are committed to helping realize that potential, 

and I know that you are as well. We look forward to working with 

you. 

Thank you and I’ll be happy to take or answer any questions 

that you may have for me. 

[The prepared statement of Mr. Dorr can be found in the appendix on page XXX.] 

Chairman CHAMBLISS. Thank you very much for that positive 

statement. 

Last month, the Committee held a hearing on the Broadband 

Loan and Grant Program. One of the most controversial aspects of 

the program is the program’s ability to lend into service areas with 

one or more existing providers. The ability to lend into competitive 

markets is in contrast to the traditional telecommunications program. 

To what extent has the Department sought to ensure that priority for all loans already made and currently pending serve areas 

unserved or underserved. Do you believe that lending into markets 

where service already exists is the most appropriate use for Federal dollars in rural areas? 

Mr. DORR. That is a broad question and a very timely question 

that concerns everyone. First of all, we are in complete concurrence 

8

that broadband and deployment of broadband to rural America is 

key for rural America’s ability to survive and actually grow and 

grow aggressively. We think it can happen. 

The broadband program has been a complex and complicated 

program to deliver largely because we were provided the opportunity to deploy these assets into competitive environments and simultaneously understanding that the basic charge is to develop 

while deliver broadband to the unserved areas. 

The difficulty, though, unlike to when we electrified rural America, is that we do not have a monopoly environment in which we 

can string wire or broadband into an environment in which we are 

the only provider. 

Second, these technologies are evolving at a very rapid pace, so 

everything from fiber to the home, wireless to WiFi to WiMax to 

cellular technology is something that we need and have been considering. 

We are in the process of reworking a set of rules. They are in 

the administrative review process. I cannot at this point, according 

to general counsel’s advice, go into that information at this point. 

But we think in the long run with the help of a gentleman from 

your state, Mr. Jim Andrew, who is doing a terrific job for us over 

therein that program, trying to get his arms around it think that 

we will address a number of these issues. I am not sure that answers specifically everything that you want, but I’ll be glad to follow up. 

Chairman CHAMBLISS. Well, obviously this issue arose when we 

had Administrator Andrew up. I see Jim is with you today, and I 

think he is doing an excellent job over there. But I think that this 

is a complex issue, and I appreciate your response. It is often difficult to serve unserved areas without going through served areas. 

I think that is a lot of what the issue evolves around. 

Jim and I grew up in the rural electric co-op industry in our 

state. My home county first had electricity in 1934. I have talked 

to residents firsthand about their experience of electricity coming 

into unserved areas. I liken that a lot to where we are with 

broadband today, because everybody now has electricity. If we are 

going to continue to grow both economically and otherwise in rural 

America, it is important that we put broadband in place in 

unserved areas. 

So I do think it is a very complicated policy you have to deal 

with. I know it is in good hands with you and Jim, and we are 

going to continue to dialog with you about this as we work through 

this very sensitive area. 

The Rural Electric Utility Loan and Guarantee Program recently 

received an adequate rating from the Office of Management and 

Budget. It notes that RUS has developed new performance measures and baselines to show the impact the loan funding is having 

on rural electrification. 

Can you detail what improvements are being made to the program and how the focus of the program is shifting as rural areas 

confront aging infrastructure and new demands for improved service? 

Mr. DORR. Well, I’m not sure that I have a specific response for 

you, but let me simply put it this way. We have looked at the lack 

9

of growth that has occurred in both the development of generation 

and transmission after the peak growth period in the late seventies 

and the early eighties. It is a concern that the utilities organization 

at Rural Development, including Mr. Andrew and others,is evaluating very closely, and they are anticipating a great growth in demand for these programs. 

In my view, they are substantially above what we have historically been dealing with over the last several years along with 

growth in transmission. Rural Utilities is in the process of evaluating how best to deal with that now. 

I know that Jim, as well as myself, have been reaching out and 

discussing with interested parties, the NRECA and others, as to 

what is the most appropriate approach to take to this. The interesting thing that I think we are beginning to deal with is the fact 

that in these new energy models much of what is evolving in the 

technology is distributed in nature. 

Distributed energy production, whether it be wind or whether it 

be ethanol or biodiesel, required different kinds of regulations and 

different kinds of investment in models and tax structures in order 

that they be integrated into the legacy models. 

That is something that we are looking at closely. We are trying 

to figure out now how best to research so that we understand better how to do this, but that is an underlying theme that I think 

we have to be very attentive to. 

Chairman Chambliss. The U.S. Department of Agriculture and 

the Department of Energy collaborate through the Biomass Research and Development Initiative to coordinate and accelerate all 

Federal biobased product and bio-energy research and development. How does Rural Development coordinate with the initiative, 

and how does the initiative’s vision and efforts affect Rural Development’s work? 

Mr. DORR. It is a very interesting initiative and one that is very 

effective. Obviously, it was authored by Senator Lugar and Senator 

Harkin back, I believe, in 2000. At that time we were directed, or 

the administration then was directed, to collaborate between USDA 

and DoE. 

They have put together the Federal Advisory Committee. They 

have been involved in delivering or taking the research applications, defining the issues, and defining a road map as to how to get 

to a much more biobased energy model. 

One of the things that came out of that was, quite frankly, a realization that this collaboration between DoE and USDA was effective to the extent that when the energy title was passed in the 

2002 Farm Bill, specifically Section 9006, the energy efficiency and 

renewable energy package. 

At the time I was serving as undersecretary, I made a very direct 

effort to engage DoE to collaborate with us so that Rural Development uses DoE in the development of the kind of technical expertise to evaluate these grant and loan applications. It has worked 

very well. I think it has been a good partnership, and we anticipate 

continuing it. 

Chairman Chambliss, let me just conclude by saying that Senator Lugar makes an excellent point in that we need to continue 

to do our part from the Federal level relative to providing funds for 

10

service, particularly of unserved areas, on these critical issues like 

alternative energy as well as broadband. 

But by the same token, we need to incentivize the private sector 

to invest in not only unserved areas but underserved areas. As you 

think through the policies that we need to continue to modify 

USDA, I hope you will remember that I think all of us want to 

make sure, No. 1, that our constituents are well served with all of 

the quality of life issues that we have talked about, but at the 

same time that in a lot of instances it is better if the government 

gets out of the way and lets the private sector operate. 

So we look forward to continuing to work with you on this. 

Senator Harkin. 

Mr. DORR. Thank you. 

Mr. HARKIN. Thank you, Mr. Chairman. 

Mr. Secretary, I just want to follow up a little bit on the 

broadband issue. I will just make this statement. I think RUS 

made some fairly substantial errors when they set up the programs 

in terms of applications are expensive, waits are long, cash requirements are too onerous. We had a whole dearth of applications occur 

for a considerable time; some loan capacity was lost. 

I understand the USDA now may lose the ability to make up to 

$900 million in low-interest loans if the money is not obligated by 

September 30th. Is USDA going to be able to obligate those funds 

for good projects? 

Mr. DORR. There were a number of issues that you described that 

are being addressed in this new regulation that I talked about. 

Again, I am not at liberty to go into the details, but we are doing 

everything we possibly can to make that program a strong and viable program, very sensitive to the issues of not only making the 

loans, but of the opportunity that broadband does bring to rural 

areas—particularly vibrant, growing rural regions of the country. 

Mr. HARKIN. Mr. Secretary, the GAO indicates that considerable 

broadband loans went to clearly suburban areas. Have you put procedures in place so that this doesn’t happen in the future? 

Mr. DORR. We are addressing a number of these issues through 

the new regulation, and, hopefully, we will have that handled appropriately. 

Mr. HARKIN. Is that imminent? 

Mr. DORR. It is in administration review at this point. We are 

doing everything we can to move this along very quickly. 

Mr. HARKIN. Well, that’s good. Again, on this whole issue of 

broadband, I know that some of the players in the private sector 

who have been involved in taking broadband to some rural communities have been hard to deal with on this issue. 

But in many cases where they say they are serving a community, 

we looked into that. We found that they may be serving the downtown area, the small downtown, but they are not serving the people 

out and around the town. And so therefore they say, ‘‘Well, we’re 

providing that service.’’

Some time ago, I did a little study on the rural electrification 

program, Mr. Chairman. Literally, there were debates at that time 

on the floor of the Senate and in the news media of the fact that 

power companies were quite capable of getting electricity out to 

farms. 

11

If the farmers want to pay for it, they will string a line out there. 

The fact is they couldn’t pay for it. There was no way that it could 

be done. A lot of power companies were opposed to the Rural Electrification Program on that basis. The Congress went ahead and 

passed it, and I think the rest of history. 

I think we have to see the same thing here in broadband, that 

yes there are going to be people out there opposed to it, because 

if they just hold out long enough, maybe they can squeeze people 

to pay enough for it. 

Well, that is going to hinder economic development in rural 

areas. That is why I think we need to be more aggressive in reshaping the rules and regulations—I don’t think we ever intended 

for this to serve suburban areas—— but also to get out to rural 

areas and those small communities where they may have a service 

but not everybody gets it. 

We need to be more aggressive, I think, in getting the funds out 

to do that. So I hope that this new regulation you talked about will 

do that. I haven’t seen it, but I hope it will do that. 

Second, I just want to talk a little bit about REDL&G and again 

trying to get funds through the Rural Economic Development Loan 

and Grant Program, called ‘‘REDL&G.’’ I’m concerned that there is 

a lot of money in this account that is not being put to use. 

In fact, the administration, I understand they are asking it to be 

rescinded. If that isn’t so, correct me if I’m wrong on that. So I 

would ask: why isn’t Rural Development working to promote the 

use of these funds rather than seeking a rescission, if they are 

seeking rescission? I’m told they are. 

Mr. DORR. I think we have watched that program with interest. 

Quite honestly, I believe in the FY 07 budget that Rural Development presented we have increased our proposed usage of REDL&G 

monies of about $10 million. I believe we have increased the—well, 

let me check here. I had that number here someplace. I think we 

are going to end up with about $30, excuse me——

Mr. HARKIN. Mr. Dorr, can I interrupt? 

Mr. DORR. Sure. 

Mr. HARKIN. I have staff to tell me that the president’s budget recommended a rescission of, roughly, $80 million from the 

REDL&G Program. 

Mr. DORR. I believe that’s correct. I believe that’s correct, and we 

are proposing in our FY 07 budget approximately thirty-two million 

dollars in loans and about $10 million in grants. 

We have not been able to use all the grant money. We have not 

had an adequate number of applicants for the grants, and as a result we are considering a different way to do a better job of marketing that program so that we do acquire more applicants for 

those grants. 

Mr. HARKIN. Do you feel that you are putting out enough information that these funds are available? I just know that in Iowa 

these funds have been used for everything from medical and 

childcare facilities, manufacturing plants to industrial parks. I 

think it has been put to good use. 

Mr. DORR. They have been put to good use. Let me just back up 

a moment. When I first became the undersecretary during my recess appointment in 2002, it became fairly apparent that Rural DeVerDate 0ct 09 2002 08:11 Dec 20, 2006 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\DOCS\30428.TXT TOSHD PsN: LAVERN
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velopment was an amalgamation of program areas after the reorganization process in the mid-nineties when we had Farmers Home 

Administration, Rural Electrification Administration, and we had 

the Rural Business Co-op Service. 

It was a time of difficulty within the organization. The programs 

were trying to figure out who they were. There were the ‘‘brands’’. 

For example the Farmers Home Administration had been lost. 

Consequently, we spent a fair amount of time trying to develop 

a better branding or marketing or outreach initiative, if you may. 

It isn’t perfect, but we have made a lot of progress. We are aggressively devolving down to the state level and to the people within 

the organization in a way to give them more authority so that they 

are doing a better job of advocating for these programs that we 

have, getting the information out at the state level. 

Have we done everything perfectly? Perhaps not, but I think we 

have made a lot of progress in making people more aware of our 

programs. I think that is self-evident in the context that we have 

gone from approximately $9 billion in program delivery to this year 

nearly $17 billion. We haven’t gotten everything right, but we’re 

sure working on it, and we are going to continue. 

Mr. HARKIN. I appreciate your candor on that, and I just hope 

that they get more information, more word out on that. Just last, 

very briefly, the Value-Added Development Grant Program, the 

2002 Farm Bill expanded this and we provided mandatory funds 

every year for this. The administration has regularly requested 

that the program be cut off by 60 percent. Our appropriators follow 

that. 

Could you just address yourself to the Value-Added Development 

Grant Program and how you see this as a part of our Rural Development Program, the Value-Added Development Grant Program? 

Mr. DORR. I think the Value-Added Development Grant Program 

in conjunction with a program of similar ilk, Section 9006 Energy 

and Efficiency Program, are terrific programs. 

These sorts of things ebb and they flow in the context of utilization of financing and how they work, but the remarkable thing 

about this program is that it has provided some up-front cash on 

a matching basis to folks who are particularly interested in developing new value-added ventures within their farming and rural 

communities. We have seen a great deal of success in that program, and we think it is a strong program. We would anticipate it 

to continue that way. I think we are on the right track. 

I would make one other added comment. When I became the undersecretary again late last summer and looking at the program, 

it became evident that there were a number of small applicants 

that perhaps ought to be addressed. We this year set aside $1.5 

million to that program to be utilized for small grants, $25,000 and 

under, so that we would particularly make an effort to get small 

producers engaged in this process and make it an easy and applicable effort to get to. We announced that funding source, I think, last 

week and we would expect that to be a successful component of this 

program as well. 

Mr. HARKIN. OK. Mr. Secretary, I appreciate that. Just if you 

have any advice or suggestions on what we need to do in the next 

13

farm bill, because biobased products are going to be big, as we have 

all talked about, in rural economic development. 

It seems to me that we want to help promote that in terms of 

the value-added part of it. This could be a real key to providing 

that kind of economic growth for the biotech, biobased products and 

value-added products from agriculture, especially in the energy 

area. 

Thank you, Mr. Secretary. 

Thank you, Mr. Chairman. 

Chairman Chambliss. I am told that we are going to have a vote 

at 11:15 on the Dorgan Amendment, but we are going to go as long 

as we can here, and then we will come back after that vote. 

Senator Lugar. 

Mr. LUGAR. Well, thank you very much, Mr. Chairman. 

Mr. Dorr, already the investments in corn ethanol are coming 

along well, and we wish more production could occur sooner. 

But I took a look at a plant in Rensselaer, Indiana, a small county. Here, about 40 million gallons of ethanol are going to be produced each year. At current prices, that is a $100 million to $120 

million coming into that county quite apart from about 100,000 to 

110,000 bushels of corn that will be purchased locally from farmers 

there. 

The impact of that kind of money as something coming into that 

county is going to be dynamic. Now, how well either rural people 

or the small town people or whoever deals with this remains to be 

seen, I think. But, nevertheless, it is a happy prospect. This is not 

going to be a backwater. 

I was intrigued with, Senator Harkin, I heard a professor from 

Dartmouth College last week at an Aspen Institute breakfast discussing cellulosic ethanol. In addition to being a professor, he is 

also apparently a part of a startup of a cellulosic ethanol situation, 

an entrepreneur. 

We were querying him about this, because our president has 

talked about cellulosic ethanol due to the fact that it could probably 

be produced in all 50 of the states whereas corn ethanol probably 

is going to be restricted to 15 states or so in our part of the country. 

But he pointed out that it would require a different kind of grass 

to grow in the North, in the South, and the middle regions and the 

various, which is a new twist on this. We hear of switchgrass frequently, but there are all sorts of grasses in this country. 

As a matter of fact, there are about 34 million acres in set-aside. 

A lot of those acres have been growing grass for a long time. I mention all this because all sorts of things happen when people get big 

ideas. 

For example, the suggestion that our cornland is going to be 

overtaken by energy production, as if there were not a lot of acres 

out there somewhere that are not being utilized, that we have set 

aside really to protect or restore pricing in the past, for example. 

I am just curious, I’m not asking you how programs are working 

now in Rural Development, but what sort of capacity do you have 

in the Department to be thinking through this process? 

My guess in the corn ethanol area, here private enterprise, as 

the financial pages point out every day, is very active. Therefore, 

14

the loan guarantees are less required, and in some cases they are 

not going to be required at all. People will simply go into it. But 

in the cellulosic ethanol business, here things go very tediously. 

Now, in my conversation with Secretary Bodman, they are working through the loan guarantees so that a Canadian firm, Iogen, 

might conceivably start a plant in Idaho this August. That seems 

less and less likely because whatever the bureaucratic function is 

it seems to be taking quite a while, even though our last farm bill 

sort of set those guarantees up, and so I am not optimistic about 

this. 

I have called Al Hubbard at the White House and suggested they 

had better get moving on it. If this is something the president really wants, that bureaucrats don’t move that rapidly. But I’m just curious, you have mentioned a collaboration with Energy. 

The cellulosic thing, nothing seems to be happening very fast, 

and yet the urgency of this seems to be apparent for states, not just 

15. My guess is still the research, there is a legion of problems 

there that USDA has been working on for some time, but it’s not 

really clear where this is coming to the fore. I just want some assurance of somebody being in charge. 

Who has enough vision to understand what is occurring out there 

and begin to organize it in a way which all of us will not be in a 

frustration every time we have a hearing as to why nothing is happening when we all have a pretty good idea of what ought to be 

happening, and if we were administering it, we would make it happen? Can you offer us any assurance? 

Mr. DORR. Well, I would love to offer you lots of assurance. I 

think the thing about the entire new bioenergy arena, even though 

many of us like yourself, like Senator Harkin, and several others 

have been heavily involved in this industry since 1975—I was on 

the first Checkoff Board in Iowa, the board of directors of the corn 

growers, and we passed the first checkoff. 

But I think it’s important to remember, although this perhaps 

doesn’t give us any solace, but it is important to remember, that 

as this evolved it was actually three farmers that worked out the 

dry-milling process on the ethanol basis: the Broins out of Minnesota, the Fagans out of Minnesota, and the VanderGriends out 

of Sheldon, Iowa. 

It was three farmers that put this thing together. It was a family 

business owner, Tony George, who committed to putting ethanol 

into his Indy racing as a premium fuel. It is these kinds of independent things that tend to happen if you provide the right kind 

of incentives. 

I don’t know what the perfect package of incentives is, but I do 

know that DoE is clearly interested, and they have visited with us 

on the loan guarantee programs. To the extent that we can be of 

any help and any assistance in that, we will. 

I also know that cellulosic research is evolving probably in a 

more rapid manner than we expect, although I don’t know how 

many years it is going to take. But we do have to bridge this 

‘‘death valley,’’ if you may, going from precommercialization to commercialization. That is a tough shot for people. 

The underlying part of this, in my view, it gets back to what I 

said earlier, there is $1.45 trillion of equity in rural America. We 

15

are looking at the possibility in cellulosic ethanol of taking cornbased ethanol on a per acre basis from maybe 450 to 460 gallons 

per acre to using some of the cellulose out of the stober (phonetic) 

up to 1,000 gallons per acre, which is a tremendous gain. If we can 

get the right mix of these things, I think it will happen pretty fast. 

But the bottom line, we are building a brand new industry. It is 

a brand new industry that has its own distribution challenges. It 

has its own pricing challenges. it has all of those things that you 

end up with in a new business. 

I don’t have the perfect answer. I don’t know how to give you 

that perfect answer. But I will tell you that, from a private sector 

point of view, in my estimation, we will make rather lightening 

progress when all of the things click, and we will wonder why it 

didn’t happen earlier. 

Mr. LUGAR. Thank you. We will stay in touch. Chairman 

Chambliss. Senator Salazar. 

Mr. SALAZAR. Thank you very much, Undersecretary Dorr. Staying on that same line of thinking from Senator Lugar and others 

concerning the bioenergy future of rural America, yesterday we had 

a panel of experts on the Energy Committee who talked about cellulosic ethanol, and they are determined to get us to a point where 

we can actually commercialize cellulosic ethanol within 6 years. It 

is part of the president’s initiative, and the experts at DoE tell us 

that we will get there within 6 years. 

Yet, some of the witnesses from the biodiesel industry who also 

talked about moving into a greater diversification of the feed stock 

so that we not only use soy, but we start using canola and trying 

to push further in that direction because of the oil content of 

canola. 

I would imagine that most of us who are sitting on this Committee are going to be looking at this energy title of this farm bill 

as a great, golden opportunity and a new chapter of opportunity for 

rural America. 

My question to you is: as we anticipate those things happening 

in the life of this next farm bill, what is it that we ought to be 

doing differently in terms of anticipating some of those opportunities and needs out in rural America? 

I looked at your testimony last night, and I saw that from 2001 

to 2005 there were 89 ethanol projects that were supported by 

USDA, mostly loan guarantees, but a total of $84 million. 

If you were to take us from where we are today at 2006, looking 

out ahead and 6 years and the reality of cellulosic ethanol, tell us 

what kinds of things we could be doing as a policy out of this Committee, out of this Congress to help incentivize this successful wave 

that I think is coming toward us? 

Mr. DORR. Certainly. I don’t know that I have any better sense 

than, frankly, anyone else does. I mean, as I have already indicated, this is an evolving industry and an evolving market. But I 

would go back to something I said earlier, and that is that these 

are largely distributed energy production business models that are 

primarily rural focused. 

In that context, it is going to require a different set of regulations. For example, to incorporate 20–megawatt wind generation 

farms into larger, more traditional regulated generation transVerDate 0ct 09 2002 08:11 Dec 20, 2006 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 C:\DOCS\30428.TXT TOSHD PsN: LAVERN
16

mission structures, if that becomes economically viable, it is going 

to require different kinds of tax structures or investment vehicles. 

I would even suggest that disclosure requirements to make it 

possible for small investors in these rural communities to participate in these programs are critically important. For example, if you 

are going to build a $150 million ethanol facility and you want to 

raise 40 percent equity, it is very easy right now to go to New York 

or Chicago or someplace and get one check for $60 million. 

Now, I would be the last guy to suggest that we impose movement on capital, but I would also tell you that as a farmer and a 

rural person I would love to see this wealth, this equity wealth, be 

manifested and kept in the rural area. The simple fact of the matter is if you are going to raise $60 million in my hometown of Marcus, Iowa, instead of taking one transaction, it is going to take 3,000 transactions. How do you mitigate 

that problem? Does that mean that we shouldn’t do it? No, absolutely not. 

What it does mean is we should look at ways to develop investment vehicles to maintain the governance, the transparency, and 

the clarity to make it possible for the plumber, the school bus driver, the school teacher, the tenant farmer, and the landowner to invest in these as equity vehicles so that when the developer comes 

in and is looking for equity money he can go get it from that source 

and not necessarily having to go to Chicago or Des Moines or 

Omaha or New York. That is going to require that we address disclosure issues and other things that are involved with the SEC. 

Now, these are far beyond my expertise. But I would just simply 

submit that we do have technology. We do have computer technology. We do have the ability to track things quickly. We ought 

to be able to somehow devise a fix so that the local people in our 

rural communities can invest in these. That is a big issue that I 

think we could all use a lot of help on. I don’t know that I’ve got 

the answers to that. 

Mr. SALAZAR. Let me just say, Mr. Secretary, I very much look 

forward to working with you on that issue, and I know that members of this Committee do as well. Because with the bioenergy revolution I think out in rural communities, I think all of us share the 

concern of wanting to make sure that some of that ownership and 

some of that benefit remains there at the local level. I very much 

look forward to working with you on that. 

Can I ask just one more quick question? I know my time is up, 

Chairman Chambliss. 

Chairman CHAMBLISS. (Moving head up and down.) 

Mr. SALAZAR. The president’s budget looking ahead, as I recall—

this has been some time ago when I looked at the detail—indicated 

that there was going to be, the proposal was that we were cutting 

about $318 million, as I recall from Rural Development Programs. 

Whatever the amount is, I don’t know if that $318 million is correct but it’s close to that amount, what impact is it going to have 

in a practical way on your ability to deliver the Rural Development 

Programs that are currently authorized? 

Mr. DORR. I’m not certain of that number. I am, quite frankly, 

certain that we are not losing three hundred and some million dollars of budget authority. I do know that our programs, as I said 

17

earlier, ebb and flow. Yet, there has been a continual pattern of 

growth in these programs, and a very consistent one. 

The loss that you reflect on right now may be as a result of the 

aggregate number that is a result of the supplemental for Hurricane Katrina, so there may be some reduction in that. I think that 

we have strong programs. I think that we have a strong delivery 

mechanism. 

I would simply point out that we have 800 offices throughout the 

United States, and we have over 5,000 people in the field. Our people, our local people, live, they eat, they go to church, they educate 

their kids with the people in those communities. 

We take a lot of pride in the fact that they are very sensitive to 

what is going on and help foster and develop and ‘‘bubble up’’ economic development opportunities in the rural communities. We are 

going to continue to push that, and I think we will be successful 

at it. 

Will we always have enough money in every individual program? 

I suspect not. But will we in the long run? Because the market is 

sensitive to what the demands are and address most of them in one 

way or the other? I think, likely. 

Mr. SALAZAR. Thank you, Mr. Chairman. 

Chairman CHAMBLISS. We’ve got less than 5 minutes left in the 

vote, so we want to break for that. Mr. Dorr, there may be other 

questions afterwards. We are going to ask you to stick around. But 

before we go, Senator Harkin has one request. 

Mr. HARKIN. Just following up, Mr. Secretary, on the ValueAdded Grant Program and the Market Development Grant Program, just in order to inform us as to where we are in this and 

looking ahead to the next farm bill, Mr. Chairman, I would like to 

ask if we can get the figures, for the record, on the number of applications that have come in and the share of them that have been 

approved and funded? 

Mr. DORR. Yes, sir. 

Mr. HARKIN. I just think there is a lot more that have come in. 

I think it might inform us as to what the demand is out there for 

it. 

Mr. DORR. Certainly. 

Mr. HARKIN. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary. 

Chairman CHAMBLISS. Have you voted? 

Ms. LINCOLN. I have not voted. I’ve got constituents in the hallway. Is there at least 11 minutes left in the vote? 

Chairman CHAMBLISS. No. We’ve got about 3 minutes left, yeah. 

Ms. LINCOLN. Well, I have two questions for Mr. Secretary, or 

three, and I will just submit them for the record. Is that all right? 

Chairman CHAMBLISS. Or, you can come back after the vote, 

whichever. We are going to come right back. 

Ms. LINCOLN. OK. 

[Recess.] 

Chairman CHAMBLISS. Well, Mr. Dorr, it looks like you’re off the 

hook here. 

[General laughter.] 

Chairman CHAMBLISS. I don’t think any of my colleagues are 

going to be coming back that want to inquire of you. There will be 

18

some questions I know that will want to be submitted for the 

record. 

Let’s see, is Blanche’s staff here? 

[No response.] 

Chairman CHAMBLISS. Her questions will be submitted to the 

record, then, for the record. 

Thank you very much for being here. We look forward to staying 

in touch and, again, discussing a dialog on the complex issues we 

have talked about. 

Mr. DORR. Thank you, Mr. Chairman. I appreciate your counsel. 

Chairman CHAMBLISS. Our next panel consists of three individuals: The Honorable Glenn English, chief executive officer of the 

National Rural Electric Cooperative Association located in Arlington, Virginia; Ms. Jane Halliburton, supervisor of Story County, 

Iowa, from Nevada Iowa; and Ms. Mary McBride, executive vice 

president, Communications and Energy Banking Group, CoBank, 

Denver Colorado. Welcome to all three of you. 

Glenn, we are always glad to see you back on the Hill and to see 

you on this side. We will look forward to hearing your testimony. 

Glenn, we will start with you, go to Ms. Halliburton, and Ms. 

McBride. Welcome all of you. 

STATEMENT OF THE HON. GLENN ENGLISH, CHIEF EXECUTIVE OFFICER, NATIONAL RURAL ELECTRIC COOPERATIVE 

ASSOCIATION, ARLINGTON, VIRGINIA 

Mr. ENGLISH. Thank you very much, Mr. Chairman. I want to 

commend you and the Committee for holding these hearings. Rural 

development is an extremely important topic, particularly as far as 

rural electric cooperatives are concerned. We have been creating 

value, as far as infrastructure is concerned, for rural communities 

for over years now. 

Mr. Chairman, I think that it is best summed up in a meeting 

that I had earlier this year at Homeland Security in discussions 

that we were having there regarding Rita and Katrina and kind of 

doing in the aftermath on what could be done differently. One of 

the senior officials at Homeland Security made the point to us that 

the one thing that they found is that recovery was impossible until 

they got the electric power back on. 

Virtually everything that they were doing required some kind of 

electric power. Whether it was a clean water supply or whether it 

was telecommunications or healthcare, they all required electricity. 

I think far too often that is something that is underappreciated and 

misunderstood until we don’t have it. 

I was pleased to see that Homeland Security recognized that and 

also we tried to make sure that they understood the breadth and 

the scope of electrical operatives. I think a lot of people don’t appreciate and understand that as well. 

We cover, roughly, three-quarters of all the land mass of the 

United States. While we serve the fewest number of people, about 

12 percent of all the folks in the country that are being served, we 

do have a huge land mass, and it requires an infrastructure that 

takes up 43 percent of all the electric utility industry. 

Over the next few years, we are going to have an even greater 

impact in growth, I think, as electric cooperatives continue to inVerDate 0ct 09 2002 08:11 Dec 20, 2006 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 C:\DOCS\30428.TXT TOSHD PsN: LAVERN
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crease in their size. We right now serve about 40 million people 

across this country. We are growing about twice as fast as other 

sectors of the electric utility industry. 

Also, we have a new billing cycle that is going to be underway, 

Mr. Chairman. In 2001, Vice President Cheney made the point that 

the capacity that we have as far as generation of electric power in 

this country had pretty much been consumed, and to meet the future economic needs of the country there is going to have to be a 

considerable amount of growth in the entire electric utility industry. 

What the vice president was pointing out, that we were only 

going to require between 1,300 and 1,900 new power plants over 

a 20–year period. That certainly affects electric cooperatives in the 

same fashion as it affects the rest of the industry. 

We expect that we are going to need somewhere in the neighborhood of $28 billion in new construction of power plants in order to 

meet the needs of our members, even over the next 10 years. Obviously, that is a major amount of growth. 

Over the past 5 years, roughly, 60 percent of all the financing for 

electric cooperatives has come from the private sector, and about 

40 percent has come from the Rural Utility Service. 

However, as we move forward to meet these new needs in constructing this new generation and making certain that we are 

doing our part to help keep the economy of this country moving, 

we would expect that there will even be a bigger percentage of the 

financing that will be necessary to come from the Rural Utility 

Service. 

Now, we have seen an increasing growth, as you are aware in 

your native state of Georgia, in some of the more suburban areas 

of the country, and that is where a lot of this new financing has 

gone. 

However, we will serve the rural areas of the country, and we 

obviously are going to need a huge amount of resources in order to 

meet that need. We anticipate over and above what the president 

has requested electric cooperatives in order to build this generation 

is going to need somewhere in the neighborhood of $6 billion, which 

is $2.2 billion over and above what the president’s budget request 

was this year. 

Now, what this cost of this financing is, roughly, $25 million a 

year for the Rural Utility Service. We are prepared to make certain 

that, for budget purposes, we don’t increase that impact as far as 

the Federal budget is concerned. So we will be doing our part to 

help pick up the cost of financing that $6 billion that is anticipated 

that we will need. Mr. Chairman, I want to thank you again for 

the opportunity to appear here, and I will be happy to answer any 

questions that you might have for me. 

[The prepared statement of Mr. English can be found in the appendix on page XXX.] 

Chairman CHAMBLISS. Well, thank you. We are always glad to 

have you here. 

Ms. Halliburton, we will look forward to hearing from you. 

20

STATEMENT OF JANE HALLIBURTON, SUPERVISOR, STORY 

COUNTY IOWA, NEVADA IOWA 

Ms. HALLIBURTON. Thank you, Chairman Chambliss and Ranking Member Harkin, for allowing me to appear this morning on behalf of the National Association of Counties and the National Association of Development Organizations on the importance of a strong 

rural development in our next farm bill. 

My name is Jane Halliburton, and I am a county supervisor from 

Story County, Iowa. I currently serve on the NACo Board of Directors. NACo is the only national organization that represents county 

governments. NADO represents regional development organizations nationwide. 

As you know, rural America is a diverse and constantly changing 

place. This morning I would like to make three key points on the 

state of rural development programs and then make some recommendations on the upcoming farm bill reauthorization. 

First, rural communities need Federal development assistance 

programs and policies that allow 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 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’s Community Development Block Grant and the DOT’s highway and 

transit programs, the bulk of rural assistance is in the form of 

loans and transfer payments such as social security and AG payments and competitive grant programs. 

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 to urban 

areas, a distinct advantage over our rural communities, while 

urban areas are building the communities and industries of tomorrow, rural areas are forced to make do with the 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 regions by bringing 

the public and private sectors together. 

The underlying goal was to place rural regions and communities 

in the driver’s seat to chart their future. It represented one of few 

21

Federal incentives to promote regional collaborations and public/

private investments, but the program was never fully implemented 

and the funding was later rescinded. 

Last, critical public infrastructure such as water and wastewater 

and telecommunications are still sorely needed in numerous communities throughout rural America. In 2004, NADO conducted an 

E-forum with 200 regional development professionals and local government officials. When asked, ‘‘What is the major roadblock to 

economic development in your region,’’ the highest rated response 

was: ‘‘Inadequate public infrastructure.’’

Private sector investors and businesses expect and demand that 

local governments and communities have the public infrastructure 

in place before they will locate in a community. 

For rural America to fully compete in today’s global economy, 

there must be 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. 

A recent ‘‘Des Moines Register’’ article showed what happens 

when individuals have Internet capacity and an entrepreneurial 

spirit. In Soldier, Iowa, a town of 207, a family owned bookstore 

is now selling 95 percent of its inventory online. We would urge the 

Committee to look for ways to further close the digital divides so 

other small businesses can succeed online. 

I would again like to thank Chairman Chambliss and Ranking 

Member Harkin for the opportunity to appear, and we stand ready 

to work with you in crafting a farm bill that develops our rural 

communities. I would be happy to respond to any questions. 

[The prepared statement of Ms. Halliburton can be found in the 

appendix on page XXX.] 

Chairman CHAMBLISS. Thank you very much, Ms. Halliburton. 

Ms. McBride. 

STATEMENT OF MARY McBRIDE, EXECUTIVE VICE PRESIDENT, 

COMMUNICATIONS AND ENERGY BANKING GROUP, CoBANK, 

DENVER, COLORADO 

Ms. MCBRIDE. Thank you. Thank you, Chairman Chambliss. My 

name is Mary McBride. I am executive vice president for the Communications and Energy Banking Group, for CoBank. CoBank provides financial services to 2,400 customers throughout the United 

States. 

These customers are also CoBank’s member owners and include: 

rural electric cooperatives, farmer-owned cooperatives, rural water 

systems, and rural telecommunications companies. In 2005, we extended over $26 billion in loans and leases to help capitalize these 

rural-focused businesses. 

We currently have relationships with about 200 other lenders including over 100 commercial banks where we work together to 

meet the credit needs of rural America and agriculture. 

CoBank and our members are involved in a number of programs 

under the USDA Rural Development Program. Let me briefly mention six areas of interest: the first one is the USDA Rural Utility 

Service. 

22

An important part of CoBank’s mission is serving the needs of 

our customers in the area of electric distribution and power supply. 

CoBank currently provides approximately $7 billion in loans to 

rural electric cooperatives. 

Many of our rural electric cooperative customers have borrowing 

relationships with both RUS and CoBank. The need for financing 

for baseload power plants and stronger transmission systems is increasing substantially. CoBank anticipates increasing our lending 

for baseload generation to help meet this demand. 

We also agree with NRECA that RUS will need additional funding for baseload generation. We look forward to working with RUS 

and other lenders in joint efforts to address the emerging needs for 

generation for rural electric cooperatives. CoBank also anticipates 

increased lending to rural telecommunications companies. We currently provide $2.9 billion in capital to these rural businesses. 

Although not part of the jurisdiction of this Committee, I would 

be remiss if I did not mention the importance of the Universal 

Service Fund to rural communities. Most rural telecommunications 

businesses serve sparsely populated areas, and therefore have 

higher costs than those serving urban and suburban areas. Maintaining a strong USF is essential to rural communities and rural 

telecommunications businesses. 

Second, the second issue is value-added agricultural grants. The 

Value-Added Producer Grants Program authorized in the farm bill 

has been used by a number of agricultural cooperatives. The program is helpful in supporting feasibility studies and providing 

startup working capital. 

Unfortunately, while the 2002 Farm Bill authorized $40 million 

annually for this program, it has been funded at significantly lower 

levels. We believe that full funding of the Value-Added Producer 

Grants Program is important to encouraging new ventures relating 

to rural development. 

The third area of interest is rural business investment companies. The 2002 Farm Bill provided for the creation of rural business 

investment companies to encourage equity investments in rural 

America. This RBIC provision could be more successful if the regulations allowed for a streamlined process for establishing non-leveraged RBICs that are seeking no guarantees from the Federal Government. 

Fourth, the USDA Cooperative Development Program: the USDA 

has a long history of providing research, technical and educational 

assistance to farmer cooperatives. Continued support for this assistance will help new cooperative enterprises to me developed. 

Fifth, the USDA Business and Industry Loan Guarantee Program: in order to facilitate credit for some CoBank customers, we 

do at times work with certain customers to obtain B&I loan guarantees from USDA. The guarantee can be very helpful for agricultural cooperatives with low equity. 

While we have found the USDA staff involved with this program 

to be knowledgeable of the agricultural industry and to possess 

good credit skills, rigid program guidelines and procedures create 

difficulties in dealing with fluid situations that exist with many 

borrowers. 

23

Last, would be biofuels initiatives: CoBank is the leading lender 

to the biofuel sector in the country. New biofuel facilities are creating new jobs and economic activity in rural communities. The tax 

and other incentives provided to the biofuels sector are of utmost 

importance as this industry progresses. We look forward to working 

with this Committee on further actions to strengthen the biofuel 

sector in the next farm bill. 

Thank you for the opportunity to testify, and I am certainly willing to answer any questions that you might have. 

[The prepared statement of Ms. McBride can be found in the appendix on page XXX.] 

Chairman CHAMBLISS. Thank you. 

Mr. English, you note in your testimony that over the next decade we are going to need $28 billion in capital to keep up with the 

future demand for power generation and transmission. If the current funding at RUS for electric programs continues as projected, 

will there be a shortfall in lending? I think you have already answered that question. 

Will the private sector be able to meet the additional demand for 

that capital over and above what we know is going to be coming 

out of RUS? 

Mr. ENGLISH. Well, Mr. Chairman, a portion of this obviously is 

going to have to come from the private sector, no question about 

that. But keep in mind that in the private sector you are going to 

have a huge demand by other segments of the electric utility industry, particularly investor-owned utilities. 

We are going to need, particularly as far as that generation that 

is going to apply to the most rural and the poorest areas of this 

country, we are going to need the Rural Utility Service to be a 

major player in this area as they have traditionally been. That is 

the reason that we are very hopeful that we will be able to acquire 

funding at $2.2 billion above what the president included in his 

budget—I should say the loan levels. 

To that point, the actual cost of this program, as I mentioned before, and the budget impact we expect to continue to be in the $25 

million area as it has been traditionally, or has been in the last few 

years. 

Chairman CHAMBLISS. Are co-ops around the country finding it 

difficult to borrow money in the private sector, or is that something 

that has eased off in the last several years? 

Mr. ENGLISH. Well, the credit rating of electric cooperatives right 

now is very, very good. We over the past decade, unlike so many 

in the electric utility business, did stay home, did take care of business, did focus on the membership that we had in delivering the 

service they needed. That turned out to be a very wise business decision as well as our job, so I think at this particular point we are 

in very good shape. 

But as I said, that is not to say that RUS won’t be needed and 

needed greatly by the electric cooperatives to meet this task. This 

is a huge task. Mr. Chairman, we are going to have to increase 

generation by a third over the next 10 years, and that is a huge 

increase for us, in order to meet the needs of rural America. 

Chairman CHAMBLISS. As I recall from my experience, there was 

a phasing out of the lending of funds to co-ops that started out in 

24

rural areas like IBMC in my state and now we have been overwhelmed by urbanization. Has that, in fact, happened now? In 

other words, are co-ops that serve primarily urban areas ineligible 

for current loan funds from RUS? 

Mr. ENGLISH. Well, we have the ‘‘once rule, always rule’’, rule, 

Mr. Chairman, that has been in place for some time. What we have 

found, as I mentioned, is that there is more private funding taking 

place as far as electric cooperatives. 

A lot of it is focused into the suburban areas and the growth that 

has taken place there, but it has been primarily because of the 

needs are such that they need that money very rapidly. Given the 

time that it takes to go through and get an RUS loan, many times 

that has discouraged them. There has been that. 

There have been some other practices by the Federal Government that has encouraged them to go elsewhere for some funding. 

But for the last 5 years, 60 percent of the funding has come from 

the private sector as opposed to percent by the Rural Utility Service. 

Chairman CHAMBLISS. Well, every region of the country will be 

different. Overall, what sectors of the rural economy are experiencing the greatest level of growth and demand for power and what 

sectors of the rural economy do you expect will be driving the need 

for additional generation? 

Mr. ENGLISH. Well, there was a discussion earlier today, Mr. 

Chairman, about renewables. We expect that there will be growth. 

We are all very hopeful we will be able to reduce our dependence 

on foreign energy and produce more of that energy here at home. 

This should be a new industry for rural America. 

As I mentioned, since we provide power for three-quarters of 

rural America or three-quarters of the geographic area in this 

country, that includes nearly all of the areas that are going to be 

producing this new energy. 

That is going to require a good deal of power, and it puts additional responsibilities on us not only to build a generation to make 

sure that power is going to be available, but it also puts us in a 

position of making sure that that power is the most cost-effective 

we can. Namely, we want to try hold those rates down. Any beginning business, startup business, is at risk. 

As you heard Secretary Dorr talking about earlier, it is their 

hope that we will see a lot of local rural communities investing in 

these new businesses. We want to try to help keep those costs as 

low as we can. That is going to be the job that we undertake. 

Obviously, financing plays into that. Depending upon what interest rates are, depending on whether we can acquire that money to 

build what is going to be very expensive generation for the future, 

that will play a big role I think in what the open costs are for these 

new startup businesses. 

Chairman CHAMBLISS. Ms. Halliburton, you note a recent survey 

of NADO members citing inadequate public infrastructure as a 

leading roadblock to economic development in rural regions. Do you 

believe that private sector venture capital is available but only 

once localities address infrastructure needs, or once infrastructure 

development is addressed will localities need assistance to access 

that venture capital? 

25

Ms. HALLIBURTON. Well, of course my flip answer to that would 

be yes, sir, because it does vary from region to region. But our experience has demonstrated that it is very, very important to have 

a solid infrastructure in place to be able to attract new development into that area. 

When I say ‘‘infrastructure,’’ I’m talking not only about what is 

currently in place and trying to repair and maintain that in the 

rural areas, but then to develop new—whether it is telecommunications or renewable energy. To attract that venture capital, can 

sometimes be very difficult. That is going to vary from region to region. 

Chairman CHAMBLISS. How significant is the availability of 

broadband access to economic development in your county and 

those in close proximity? And, what is the greatest impact that 

broadband access will have on rural areas in your opinion? 

Ms. MCBRIDE. Oh, it is highly significant particularly, I mean, 

across the country, but I can give you some examples in my very 

own county. In the county seat of Nevada, we have a business that 

has started up that is really a family owned business. They have 

quilting supplies. But because they do have the availability of 

broadband, that business has expanded rapidly. The majority of 

their business is now done over the Internet. There is the example 

I gave you of a tiny community of just over 200 where they are 

having, again, significant success. 

The accessibility and the reliability are not at all consistent, so 

this varies greatly from one area of the country to another, from 

one area of a state to another. We find that rural people, they have 

this great entrepreneurial spirit, and they will take advantage of 

every opportunity they have. But the assistance to make sure that 

that access is there is of primary importance, and I think that will 

only continue to increase. 

Chairman CHAMBLISS. Ms. McBride, in your written and verbal 

statements, you note that CoBank works with commercial banks to 

meet the needs of rural business. In Washington, we often hear 

about the disagreements involving farm credit and the commercial 

banking trade organizations. Tell us how CoBank has an interworking relationship with commercial banks relative to rural development? 

Ms. MCBRIDE. Certainly. In a number of our loans, which would 

be in agribusiness, communications and on the energy side, we 

work with commercial banks in a risk—— sharing capacity. When 

loans get extremely large and they are too large for our individual 

balance sheet or for the individual balance sheets of the commercial banks, we syndicate those loans and we share the risks in 

those various transactions. As noted in the testimony, we work 

with, roughly, about a hundred commercial banks in that capacity. 

Chairman CHAMBLISS. In your statement, you note that CoBank 

is the leading lender to the biofuels industry. Why is that, and how 

long has CoBank been involved in financing ethanol plants? 

Ms. MCBRIDE. CoBank has been involved in financing ethanol 

plants since about 1992. Many of these ethanol plants were begun 

by farmers and essentially by farmer-owned cooperatives back in 

the early nineties. 

26

Owing to our close relationship with those farmer-owned cooperatives, we began to fund those plants as they were started up, and 

that led to us increasing funding over the past several years. Now 

we are the largest lender to the ethanol industry in the country. 

Chairman CHAMBLISS. Are you seeing more and more activity 

coming into your institution? 

Ms. MCBRIDE. Yes. I mean, I would say we probably get four to 

five calls a day on ethanol plants. What we are seeing that has 

principally changed from the early 1990’s is that in the early 1990’s 

these were farmer-owned entities; they were locally controlled. Now 

we are seeing increasingly Wall Street firms and international 

firms coming in to set up ethanol plants. 

Chairman CHAMBLISS. What about biodiesel? Are you getting a 

lot of inquiries relative to construction of that type of facility? 

Ms. MCBRIDE. Yes. Yes, we are. We’ve got, I believe, four biodiesel facilities that we have financed to date, and we are seeing 

increasingly more areas in biodiesel and moving further along into 

other biomass transactions also. 

Chairman CHAMBLISS. In your statement, you talk about the increased need for financing of baseload generation. Could you expand on how CoBank might work with RUS to finance baseload 

generation facilities? 

Ms. MCBRIDE. Certainly. We work very closely with RUS. As I 

mentioned also in the testimony, we are looking at increasing our 

capacity for lending for baseload generation. Through frequent 

meetings with RUS, we try to determine where they have needs 

and gaps and see if we can fill in those gaps, whether it is for interim financing or for longer-term financing. 

I would also state that we agree with Mr. English here that the 

needs that this industry is facing are so vast that they are going 

to need more than what RUS can lend currently and what CoBank 

and others in the industry can lend currently. 

Chairman CHAMBLISS. What about nuclear generation facilities, 

do you get many inquiries relative to proposals regarding construction of nuclear generation facilities? 

Ms. MCBRIDE. We are beginning to hear a little bit about that. 

We have heard from a couple of our cooperative customers who 

were beginning to express some interest there. It has not gotten as 

far with us yet to a loan application or down the road that far, so 

we are beginning to hear something on that and know that it is 

an area that we need to start spending some time on. 

Chairman CHAMBLISS. Mr. English. I know we in Georgia are 

looking at expanding VAGL, which our co-ops certainly have a 

large stake in. What about nuclear generation facilities around the 

country? Are you seeing more and more interest from co-ops relative to that? 

Mr. ENGLISH. There is, Mr. Chairman. Normally, what we will 

see from electric cooperatives that we will try to do a joint venture 

usually with one of the investor-owned utilities. Those are very expensive propositions. We may very well see some partnering between electric cooperatives in building some new generation. 

However, also I should mention that as well as the Rural Utility 

Service and CoBank that we have the Cooperative Finance Corporation that also plays a big role as far as electric cooperatives are 

27

concerned in helping finance the needs of electrical cooperatives, 

and I expect they will play a big role in building this new generation as well. But it is going to take all this financing to undertake 

something of this size. 

In fact, it has been estimated that the costs may, and I’m not 

talking about lending but the total costs of the program, be in the 

neighborhood of $35 billion or more just for electric cooperatives 

alone. This is a lot of money that is going to be needed in a very 

short period of time if we are going to achieve this objective and 

meet the needs of our country. 

Chairman CHAMBLISS. Well, let me thank all three of you for 

being here today and presenting testimony. We are going to leave 

the record open for 5 days for any questions, written questions, 

that may be submitted. We would ask that you address those 

promptly and get your answers back to us. Again, thanks all of you 

for being here. We look forward to staying in touch with you. 

This hearing will be concluded. 

[Whereupon, at 12:22 p.m., Tuesday, June 20, 2006, the hearing 

was adjourned.] 

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