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[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

 
   HEARING TO REVIEW RURAL DEVELOPMENT PROGRAMS OPERATED BY THE U.S. 
     DEPARTMENT OF AGRICULTURE AND STATUS OF AMERICAN RECOVERY AND 
               REINVESTMENT ACT FUNDS FOR THESE PROGRAMS 

=======================================================================

                                HEARING

                               BEFORE THE

   SUBCOMMITTEE ON RURAL DEVELOPMENT, BIOTECHNOLOGY, SPECIALTY CROPS,
                        AND FOREIGN AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 10, 2009

                               __________

                           Serial No. 111-18

          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

52-649 PDF                       WASHINGTON : 2009 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
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Washington, DC 20402-0001 

                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            FRANK D. LUCAS, Oklahoma, Ranking 
    Vice Chairman                    Minority Member
MIKE McINTYRE, North Carolina        BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California        SAM GRAVES, Missouri
DAVID SCOTT, Georgia                 MIKE ROGERS, Alabama
JIM MARSHALL, Georgia                STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South     RANDY NEUGEBAUER, Texas
Dakota                               K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
JIM COSTA, California                JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana              ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota           ROBERT E. LATTA, Ohio
STEVE KAGEN, Wisconsin               DAVID P. ROE, Tennessee
KURT SCHRADER, Oregon                BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois       GLENN THOMPSON, Pennsylvania
KATHLEEN A. DAHLKEMPER,              BILL CASSIDY, Louisiana
Pennsylvania                         CYNTHIA M. LUMMIS, Wyoming
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
SCOTT MURPHY, New York
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho

                                 ______

                           Professional Staff

                    Robert L. Larew, Chief of Staff

                     Andrew W. Baker, Chief Counsel

                 April Slayton, Communications Director

                 Nicole Scott, Minority Staff Director

                                 ______

Subcommittee on Rural Development, Biotechnology, Specialty Crops, and 
                          Foreign Agriculture

                MIKE McINTYRE, North Carolina, Chairman

BOBBY BRIGHT, Alabama                K. MICHAEL CONAWAY, Texas, Ranking 
JIM MARSHALL, Georgia                Minority Member
HENRY CUELLAR, Texas                 DAVID P. ROE, Tennessee
LARRY KISSELL, North Carolina        GLENN THOMPSON, Pennsylvania
WALT MINNICK, Idaho                  BILL CASSIDY, Louisiana

                Aleta Botts, Subcommittee Staff Director

                                  (ii)

                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     5
McIntyre, Hon. Mike, a Representative in Congress from North 
  Carolina, opening statement....................................     1
    Prepared statement...........................................     4
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, prepared statement..................................     6

                               Witnesses

Tonsager, Hon. Dallas P., Under Secretary for Rural Development, 
  U.S. Department of Agriculture, Washington, D.C................     7
    Prepared statement...........................................     8
Fong, Hon. Phyllis K., Inspector General, Office of Inspector 
  General, U.S. Department of Agriculture, Washington, D.C.......    12
    Prepared statement...........................................    13
Rivenbark, Hon. Franklin D., Commissioner, Pender County, North 
  Carolina; Member, Agriculture and Rural Affairs Steering 
  Committee, Rural Action Caucus Steering Committee, National 
  Association of Counties (NACo); Past Vice Chairman, Rural 
  Development Subcommittee, NACo, Burgaw, NC.....................    27
    Prepared statement...........................................    29
Martin, Debra, Director, Great Lakes Rural Community Assistance 
  Partnership, WSOS Community Action Commission, Fremont, OH.....    36
    Prepared statement...........................................    37
    Supplementary material.......................................    62
Sanchez, Hon. Chandler, Governor, Pueblo of Acoma, Acoma, NM; on 
  behalf of National Congress of American Indians................    41
    Prepared statement...........................................    42
Anderton, Doug, General Manager, Dade County Water and Sewer 
  Authority; Vice President, National Rural Water Association; 
  President, Georgia Rural Water Association, Trenton, GA........    48
    Prepared statement...........................................    49
Duck, Tom, Executive Director, Texas Rural Water Association, 
  Austin, TX.....................................................    51
    Prepared statement...........................................    53

                           Submitted Material

Hoelmer, David R., Senior Vice President and General Counsel, 
  AgStar Financial Services, ACA, submitted letter...............    61
Submitted questions..............................................    65

   HEARING TO REVIEW RURAL DEVELOPMENT PROGRAMS OPERATED BY THE U.S.
     DEPARTMENT OF AGRICULTURE AND STATUS OF AMERICAN RECOVERY AND
               REINVESTMENT ACT FUNDS FOR THESE PROGRAMS

                              ----------                              

                        WEDNESDAY, JUNE 10, 2009

                  House of Representatives,
 Subcommittee on Rural Development, Biotechnology, 
          Specialty Crops, and Foreign Agriculture,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 1300, Longworth House Office Building, Hon. Mike McIntyre 
[Chairman of the Subcommittee] presiding.
    Members present: Representatives McIntyre, Cuellar, 
Kissell, Conaway, and Cassidy.
    Staff present: Aleta Botts, Claiborn Crain, Tyler Jameson, 
John Konya, Scott Kuschmider, Rebekah Solem, Patricia Barr, 
Mike Dunlap, and Jamie Mitchell.

 OPENING STATEMENT OF HON. MIKE McINTYRE, A REPRESENTATIVE IN 
                  CONGRESS FROM NORTH CAROLINA

    The Chairman. This hearing of the Subcommittee on Rural 
Development, Biotechnology, Specialty Crops, and Foreign 
Agriculture to review Rural Development programs operated by 
the U.S. Department of Agriculture and the status of the 
American Recovery and Reinvestment Act funds for these programs 
and their review will now come to order.
    My name is Mike McIntyre. As Chairman of the Subcommittee, 
I want to welcome each of you to be here with us this morning. 
Thank you for your patience and thank you for joining us.
    We want to welcome everyone to review the rural development 
programs and the funding for these programs provided in the 
economic stimulus legislation that Congress passed earlier this 
year. Thank you for being here as we examine this topic. And I 
especially want to thank our witnesses, many of whom I have 
already spoken to just prior to the top of the hour. We 
appreciate your time and your efforts in coming today, and also 
the testimony you will soon be giving.
    This is the first appearance of Mr. Tonsager before our 
Subcommittee in his new role as Under Secretary for Rural 
Development, and we look forward to working with him for the 
benefit of rural areas throughout our country. Thank you, 
particularly, for being with us today.
    Back on the very first week of the 111th Congress, in this 
very room--before the Agriculture Committee had even fully 
organized--some of you were there that day--especially some of 
our staff folks--but some others from national organizations 
came. I wanted to make sure we had an economic roundtable, 
literally, at that table as we sat around and we talked about 
some of the concerns that we had, and whether or not rural 
areas would be included in the stimulus package. Unfortunately, 
there was not much attention given to rural areas.
    That week was a critical week because, being the very first 
week the new Congress was in session and when the hot topic, 
nationally, was the economic stimulus package that was being 
proposed, we wanted to make sure that taxpaying citizens of 
rural areas of America were not left out.
    Indeed, as we discussed further the infrastructure needs 
faced by rural communities and how rural areas were faring in 
the difficult economic environment, we realized more and more 
that there needs to be an emphasis on rural areas receiving 
assistance. That included not only the water and wastewater 
concerns but also rural broadband, and making sure we had 
essential help with regard to rural facilities.
    Thankfully, in light of that hearing, also my good friend 
Jim Clyburn, who hails from the adjoining state, South 
Carolina, just south of where I live in North Carolina, and 
others, our voices were heard and rural areas were included in 
the final economic stimulus package, much more so than they 
would have been initially or otherwise.
    So today we have come full circle now. The economic 
stimulus package has passed, of course, and we now have 
opportunity for implementation of some of the economic stimulus 
programs.
    Once the bill became law in February, I had announced the 
Subcommittee would hold hearings to provide necessary oversight 
of USDA's expenditures of this historic level of funds provided 
for rural economic development. So this is the first of those 
hearings to look back now on where we are, and where we are 
going, with regard to the actual use of funds to make sure we 
are getting the best for our taxpayer dollars, the most bang 
for our buck, if you will. We want to make sure we hear about 
the progress of those programs via the stimulus package.
    We also intend to hold a hearing in early July on another 
large part of that spending, and that will be particularly on 
rural broadband.
    Those of us who believe that the heartbeat of America 
continues to beat loudest in the quietest of our rural areas, 
we are pleased to see the funds that we have allocated go to 
the needs of rural areas. The American Recovery and 
Reinvestment Act authorizes $4.36 billion in budget authority 
over 2 years for Rural Development Loan and Grant programs, 
supporting a total level of $24.37 billion. Five programs 
receive funds through this particular legislation: Rural Water 
and Water Disposal, Rural Housing and Community Facilities, 
Rural Businesses, and Rural Broadband.
    Congress did not allocate those funds without serious 
consideration to the programs receiving the funds, and without 
serious questions as to whether the agencies involved would be 
able and ready to handle the task of investing these funds in 
our rural areas with sufficient oversight.
    If the funds were left unspent or, even worse, if they were 
expended on uses which Congress did not intend, then any 
stimulus would be lost.
    Time is critical. We realize that the taxpayers are really 
ready to see what bang for their buck that they are getting 
with the stimulus package. Now that we are almost halfway 
through this year, we want to make sure that we are going to 
see how the stream of those economic stimulus dollars are being 
spent. That accountability is the least we owe the taxpayers 
and, beyond that, we want to make sure they are being 
efficiently spent.
    Many of the programs in question within our jurisdiction 
with rural development have been in existence for years. So we 
have the great advantage that in our plea to get money for 
rural development and help through the stimulus package, we 
have had personnel in place in many agencies, around the 
country, ready to provide that effective relief, work, and 
oversight.
    Thus far, while a significant amount of funds have been 
obligated for rural water, rural housing, and rural community 
facilities, no funds have been obligated yet either under rural 
business, or rural broadband. As I mentioned a while ago, we 
will have a separate hearing on rural broadband due to the 
significant technical and unique issues related to that 
category. Right now, I would just say I am very interested in 
the publication of both the broadband funding notice and the 
broadband loan regulation that are currently pending, and we 
will eagerly await those as we look ahead to the end of this 
month and into our hearing in early July.
    Ultimately, Congress and this Subcommittee need to ensure 
that rural development programs are run efficiently and 
effectively, and we want to make sure that as we request new 
dollars for rural areas in the future we can show that the 
existing dollars are being spent wisely and appropriately.
    The funds provided in the stimulus legislation are not the 
only source of Federal rural investment. The regular 
appropriation for these programs also provides a significant 
infusion of funds, and we would like to hear how all of these 
funds are being tracked by the agencies charged with these 
programs, and any problems that may be arising as interested 
applicants pursue funding for these programs either through the 
stimulus, or through regular funding.
    I know that each weekend that I am home, and that many of 
my colleagues I am sure as well have heard, people want to 
know: How do I access; how can I get help; who can I call so I 
don't go through just a bunch of bureaucratic entanglement? All 
of us here in Congress, also in the Executive Branch, and I 
know those representing organizations and rural communities 
that are also in attendance, or who may be watching or 
listening to this hearing, want to improve on what 
opportunities are available in rural areas and make investments 
in the key infrastructure for the benefit of today's rural 
citizens for future generations.
    We want to make sure that through the actions of the 
Federal Government that thousands of communities have 
benefited, will continue to benefit, and that they can benefit 
from new or refurbished safe water systems, rebuilt health care 
centers, or new libraries with upgraded technologies, and we 
want to make sure that these funds that have been provided in 
the stimulus are used wisely.
    I encourage the witnesses today to use the 5 minutes 
provided for their statements to highlight the most important 
points in their testimony. Please do not read your testimony 
unless you can complete it within the 5 minutes, or unless you 
can read just the highlights and complete those within the 5 
minutes.
    Pursuant to Committee rules, testimony by witnesses along 
with questions and answers by Members of the witnesses will be 
stopped at 5 minutes. However, your complete written testimony 
will be submitted in its entirety in the record.
    [The prepared statement of Mr. McIntyre follows:]

Prepared Statement of Hon. Mike McIntyre, a Representative in Congress 
                          from North Carolina
    Good morning, and welcome to today's hearing to review rural 
development programs and funding for these programs provided in the 
economic stimulus legislation Congress passed earlier this year. I want 
to thank all of you for being here as we examine this important topic, 
and I want to especially thank our witnesses who will be testifying 
before us today. This is the first appearance of Mr. Tonsager before 
our Subcommittee in his new role as Under Secretary for Rural 
Development, and we look forward to working with him for the benefit of 
rural areas in this nation.
    In January of this year, during the first week this Congress was in 
session, I joined several organizations working with rural communities 
to point out the significant infrastructure needs faced by these 
communities and how rural areas were faring in the current difficult 
economic environment. As a result, we were able to secure funds within 
the stimulus package to address some of the needs for rural water 
systems, rural broadband, and essential community facilities. I 
promised in March that we would be holding hearings on these programs 
to provide oversight over their operations and the expenditure of this 
historic level of funds provided for rural economic development. This 
is the first of those hearings and we intend to hold a hearing in July 
on another large part of that spending--rural broadband.
    Those of us who believe the heart beat of America sometimes beats 
loudest in the quietest rural places were pleased to see these funds 
allocated to the needs of rural areas. The American Recovery and 
Reinvestment Act authorizes $4.36 billion in budget authority over 2 
years for rural development loan and grant programs, supporting a total 
program level of $24.37 billion. Five programs received funds through 
this legislation: rural water and waste disposal, rural housing, rural 
community facilities, rural business, and rural broadband.
    Congress did not allocate those funds without serious consideration 
of the programs receiving the funds and without serious questions as to 
whether the agencies involved were up to the task of investing these 
funds in our rural areas with sufficient oversight. After all, if the 
funds went unspent, or even worse, were expended on uses for which 
Congress did not intend, any ``stimulus'' would be lost. Fortunately, 
many of the programs in question have been in existence for many years, 
with personnel in place both nationally and in the states to help 
provide effective oversight.
    Thus far, while a significant amount of funds have been obligated 
for rural water, rural housing, and rural community facilities, no 
funds have been obligated under either the rural business or rural 
broadband programs. As I mentioned, this Subcommittee will be holding a 
separate hearing on rural broadband due to the significant technical 
and unique issues related to this category of program. Right now, I 
would just say that I am very interested in the publication of both the 
broadband funding notice and the broadband loan regulation that are 
currently pending, and I look forward to the hearing we will be having 
on this program in early July.
    Ultimately, Congress and this Subcommittee need to ensure that 
rural development programs are run efficiently and effectively for the 
benefit of the U.S. taxpayer and for the benefit of the rural areas 
they are designed to assist. We cannot in good conscience request new 
dollars for rural areas if existing dollars are not spent responsibly 
and tracked appropriately.
    The funds provided in the stimulus legislation are not the only 
source of Federal rural investment. The regular appropriation for these 
programs also provided a significant infusion of funds. I am interested 
in hearing how all of these funds are being tracked by the agencies 
charged with these programs and any problems that may be arising as 
interested applicants pursue funding from these programs, either 
through the stimulus or regular annual funding streams.
    I believe that all of us here--in Congress, from the Executive 
Branch, and representing organizations and rural communities--want to 
improve on what opportunities are available in rural areas and make 
investments in key infrastructure for the benefit of today's rural 
citizens and future generations. Through actions by the Federal 
Government, thousands of communities have benefited over the years from 
new or refurbished safe water systems, rebuilt healthcare centers, or 
new libraries with upgraded technologies. More recently hundreds of 
rural communities have benefited already from the funds provided in the 
stimulus. Nevertheless, if rural communities are going to continue to 
be helped by these programs, we should continue to examine ways to make 
them more relevant to communities' needs and make sure every dollar is 
spent toward making a rural community a better place for our rural 
citizens.

    The Chairman. At this time I would like to recognize the 
Ranking Member of the Subcommittee, Representative Mike 
Conaway, for any opening comments that he may have.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    Mr. Conaway. Thank you, Mr. Chairman. I too am pleased that 
we have this opportunity to hear testimony today regarding the 
investment in rural America. I appreciate the time that each of 
our witnesses has put into preparing their remarks, and look 
forward to hearing their comments. I am especially excited to 
hear from Tom Duck with the Texas Rural Water Association and 
his ideas on Wastewater Program issues in Texas.
    Rural America is one of the great economic machines of our 
economy, providing food, fiber, and fuel to the U.S. and the 
world. Our farmers, ranchers, and small businesses contribute 
to an agriculture industry which exports a fourth of its 
production and consistently maintains a trade surplus. Wise 
investment in education, infrastructure, and technology are 
important to a vibrant rural America.
    This year, we are monitoring the implementation of the 2008 
Farm Bill, which helped to refine and refocus our approach to 
rural development. This included an authorization for an 
additional $120 million to address a backlog in water and 
wastewater applications.
    The farm bill also authorized funding for rural business 
opportunity grants, the rural Microentrepreneur Assistance 
Program, a rural collaborative business investment program, and 
a comprehensive rural broadband strategy.
    This Subcommittee is also closely watching how funds for 
the stimulus bill are being disbursed. The stimulus was an 
imperfect approach to an economic policy with an unprecedented 
increase in the size and cost of government. However, now that 
it is in place, it is incumbent upon Congress to ensure that 
when the Administration spends over a trillion dollars 
authorized in the stimulus, it is directed to areas with the 
greatest impact possible.
    I will be interested to see how rural Texas may benefit 
from the nearly $6 billion in broadband deployment, water and 
waste projects, community facilities, grants, loans and the 
rural business development programs.
    What we hope to focus on this morning is how funds are 
being allocated through both the farm bill programs and the 
spending through the stimulus. We are taking a very close look 
at the coordination of projects, strategic infrastructure 
planning, and the distribution of funding obligations.
    Proponents of the stimulus have made big promises, though 
little or no funding has been disbursed to USDA's Rural 
Development programs to date. Some questions that I hope would 
be answered today are what communities and counties will be 
disadvantaged if their needs are not counted in the backlog of 
projects; have communities been discouraged from applying for 
funds in the past due to associated costs and previous 
perceptions of funding shortages; and how our Fiscal Year 2009 
appropriated funds and stimulus funds are being distributed 
across pending and new infrastructure applications.
    Again, I want to thank each of our witnesses for being 
here, and look forward to their remarks. Now that the Chairman 
and I have proved that we are the two smartest people on the 
face of the Earth, let's hear from our witnesses instead.
    The Chairman. I will defer to your judgment. Thank you, Mr. 
Conaway. The chair requests that other Members submit their 
opening statements for the record.
    [The prepared statement of Mr. Peterson follows:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress from Minnesota
    Thank you, Chairman McIntyre for calling this hearing today. I also 
want to commend you for the work you have done this year on calling 
attention to the specific needs of rural America during the economic 
downturn.
    Today's oversight hearing is an important one, and I would like to 
echo Chairman McIntyre's welcome to Mr. Tonsager to this Committee in 
his new role. Mr. Tonsager holds an important position as USDA 
administers the greatest number of Federal rural development programs 
and has the highest average of program funds that go directly to rural 
counties.
    While there are a lot of moving parts to Rural Development, their 
mission remains focused on serving the areas of greatest need with the 
financial and technical resources that are available. It is our job to 
make sure that the mission is being fulfilled.
    USDA's Rural Development programs are tasked with addressing the 
unique challenges of our country's less populous areas. Logistics, 
distance, lack of infrastructure and economic under-investment are 
significant challenges rural America faces, whether it is lack of 
health care and first responder services, promoting homeownership, 
increasing broadband deployment, or providing water and waste disposal 
systems. Rural Development programs are designed to fill in the gaps 
where needed, and spur vital economic development whenever possible.
    Rural Development programs finance essential infrastructure that 
most urban and suburban residents take for granted. Reliable, 
affordable broadband Internet service, for example, is one of the most 
important needs facing rural America today. It is vital to job creation 
and retention, economic development, entrepreneurship, education, and 
medical technology.
    I also want to welcome the Office of the Inspector General for 
appearing today. With the recent directive from the Administration to 
speed up stimulus funding, the IG's office has its hands full 
monitoring the use of these taxpayer dollars on top of its normal 
function of auditing and accounting for the proper use of appropriated 
funds.
    Ever since I have been elected, I have had somebody out there in my 
district working full time on economic development. A lot of that work 
has been through rural development, and we have gotten a lot 
accomplished as a result of those programs. So I know firsthand the 
value that these programs provide and the potential return on 
investment that exists. Along those lines, I welcome the witnesses on 
today's second panel who will hopefully give this Committee some good 
insight on how RD funds can help make things work on the ground out in 
rural America.
    I welcome today's witnesses and I look forward to their testimony. 
I yield back my time.

    The Chairman. We will begin with our first panel, Mr. 
Dallas Tonsager, the Under Secretary for Rural Development; and 
Phyllis Fong, Office of Inspector General for the USDA. Thank 
you for coming and being with us today and giving me the 
pleasure of meeting you.
    Mr. Tonsager, please begin.

          STATEMENT OF HON. DALLAS P. TONSAGER, UNDER
      SECRETARY FOR RURAL DEVELOPMENT, U.S. DEPARTMENT OF 
                 AGRICULTURE, WASHINGTON, D.C.

    Mr. Tonsager. Mr. Chairman, Members of the Subcommittee, 
thank you for the invitation to testify on USDA Rural 
Development programs. This is the first time I have appeared 
before you, and I look forward to continuing this discussion in 
the future.
    The onset of a new Administration is always an opportunity 
for reevaluation and change. Today is no exception. In this 
case, reevaluation and change are driven not just by a new 
Administration, but by a new farm bill and the Recovery Act as 
well.
    Let me say at the beginning, however, that I have the 
highest regard for the vision and commitment of my predecessors 
and our 6,000 dedicated employees. USDA Rural Development is a 
going concern. We will be celebrating our 75th anniversary next 
year. There is a continuity in the work that we do.
    I had the privilege of being a state director during the 
Clinton Administration. Eight years ago, two farm bills, and 
another Administration have intervened but, for me, this still 
feels like home.
    That said, there are some things that we do intend to do 
differently. This is my fourth week, so I must speak of my 
goals rather than my accomplishments. Although I do want to 
take note of the almost $4.9 billion of Recovery Act dollars 
that we have obligated since April 1 for rural housing, 
community facilities, and water projects, that alone is a 
significant achievement, but looking ahead, I believe that we 
can and should do a better job of reaching out to underserved 
communities and devoting more energy and resources to the 
poorest of the poor.
    I would hope when one maps our investments in 2 or 3 years 
from now there will be a greater focus on heavily rural, as 
opposed to near urban jurisdictions. Similarly, we can and 
should do a better job going forward of getting out of the 
office and providing greater support in the more remote areas.
    I pledge to do a better job of providing my staff with the 
tools they need to become a more mobile 21st century workforce. 
I would hope that we could accelerate the remarkable progress 
that we have begun making on renewable energy. It is a critical 
priority.
    Finally, I hope that we will be able to strengthen our 
programs that provide a critically important foundation for 
economic and community development. The Value-Added Producer 
Grant Program, for example, is a very powerful but, in my view, 
underutilized tool. The farm and rural economies are 
interdependent. Value-added agriculture drives sustainable 
development both on and off the farm, and I anticipate a 
renewed emphasis on it in the years to come.
    These are not new issues. I do not mean to suggest that 
Rural Development has been insensitive to these concerns. That 
would not be fair to our staff who have been engaged in these 
areas and who are passionate advocates for their programs, nor 
do I mean to suggest that we will be drawing lines in the sand. 
We serve all of rural America. But in terms of outreach and the 
allocation of scarce staff resources, I do anticipate there 
will be a shift in priorities.
    My written testimony summarizes the status of our Recovery 
Act and major new farm bill programs. Let me make two brief 
points now to frame that discussion.
    First, this year we face the challenge of concurrently 
managing a continuing resolution, the Omnibus Bill, the rollout 
of the new farm bill, the Recovery Act, and disaster funding. 
This has been a challenge. Most of that work was done before I 
arrived a few weeks ago. I know it wasn't easy, but it has been 
done.
    The Recovery Act investments are flowing, most of the new 
farm bill Program NOFAs have been published, or will be 
shortly. The section 903 Biorefinery Assistance Program has 
already announced its first guarantee and another is soon 
expected.
    This represents a substantial amount of work in a short 
time frame, and I want to acknowledge the efforts of the Rural 
Development staff who made it happen.
    Second, the several tranches of funding represents 
opportunities as well as challenges. Recovery Act funding, for 
example, is time sensitive. If a project is eligible for 
Recovery Act or regular appropriations funding, we will have a 
systematic preference to use that time limited funding first. 
On the other hand, Recovery Act funding is also subject to 
numerous conditions, some statutory and some policy driven. 
Meritorious projects that fall outside the Recovery Act 
parameters will be funded through regular program dollars. This 
is a balancing act, and we will be prudent stewards of the 
funds you entrust to us.
    The bottom line remains the same--economic recovery and 
improving economic opportunities and the quality of life in 
rural communities. It is an important job, and I look forward 
to working with you to get it done.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Tonsager follows:]

  Prepared Statement of Hon. Dallas P. Tonsager, Under Secretary for 
  Rural Development, U.S. Department of Agriculture, Washington, D.C.
    Mr. Chairman, Members of the Subcommittee, thank you for your 
invitation to testify on USDA Rural Development's programs. This is the 
first time I have appeared before you, and I trust that it will be the 
beginning of an ongoing dialogue. I know that you share our commitment 
to increasing economic opportunity and improving the quality of life in 
rural America, and I look forward to many more opportunities to 
continue this discussion in the future.
    USDA Rural Development next year will celebrate our 75th 
anniversary, dating back to the creation in 1935 of the Rural 
Electrification Administration and the Resettlement Administration, 
which later became the Farmers Home Administration. Since that time, 
rural America has changed. So have our programs, our organizational 
structure, and even our name. We have adapted with the times. But rural 
America continues to face unique challenges, and we continue to stand 
ready to assist in meeting them.
    The onset of a new Administration is always an opportunity for 
reevaluation and change. Today is no exception, and in this case 
reevaluation and change are driven not just by a new Administration, 
but by implementation of a new farm bill and the Recovery Act as well.
    Let me emphasize at the outset, however, that I have the highest 
regard for the vision, energy, and commitment of both my predecessors 
and our approximately 6,000 dedicated employees. USDA Rural Development 
is a going concern. We have been ``at this'' for a long time. Even at a 
time of transition, it is important to recognize that there is a deep 
continuity in the work that we do. I had the privilege of serving as a 
Rural Development State Director during the Clinton Administration. 
Eight years, two farm bills, and another Administration have 
intervened, but for me, this still feels like coming home.
    Nonetheless, there are some things that we intend to do 
differently. I have been on the job for 3 weeks, so I must put this in 
terms of goals rather than accomplishments--but I believe that we can 
and should do a better job of reaching out to underserved 
constituencies and devoting more energy and resources to the poorest of 
the poor.
    I would hope, 2 or 3 years from now, that when one maps our 
investments, there will be less of a concentration in exurban areas and 
a greater presence in more rural jurisdictions.
    Similarly I would hope, again 2 or 3 years from now, that we will 
see less clustering of investments in close proximity to our field 
offices, and that we will be doing a demonstrably better job of getting 
out of the office and providing technical support in more remote areas.
    I would hope that we will not only sustain, but accelerate, the 
remarkable progress that we have begun to make in the deployment of 
renewable energy, and that we will have reinvigorated a number of our 
traditional programs that may not be new . . . that may not have been 
the focus of innovation, and change in the farm bill . . . but that 
continue to provide a critically important foundation for economic and 
community development in rural America.
    The Value-Added Producer Grant program, for example, is a very 
powerful, highly flexible, but yet underutilized tool. I recognize that 
most rural Americans don't farm and that most rural income, including 
most farm family income, is earned off the farm. But I also know that 
the farm and rural economies are interdependent and that value-added 
agriculture drives sustainable development across the board in rural 
communities. The Value-Added program has proven itself over the years 
to be effective, cost-efficient, and productive. This is another area 
in which I anticipate that we will place a renewed emphasis in the 
years ahead. We serve all of rural America and we will work 
aggressively and on an equal opportunity basis with all comers.
    But in terms of outreach, marketing, technical assistance, and the 
allocation of scarce staff resources, I do anticipate that there will 
be a shift in priorities. This will be a point of emphasis with our new 
state directors as they come aboard in the coming weeks, and I look 
forward to continuing discussions with you on these topics as we move 
ahead.
    I will focus today on two urgent priorities: economic recovery, and 
implementation of the new farm bill. Economic recovery is the first 
order of business for the Obama Administration and USDA Rural 
Development is a full partner in that effort.
    The American Recovery and Reinvestment Act of 2009 (ARRA) provided 
$4.36 billion in Budget Authority to Rural Development to support a 
projected Program Level of more than $28 billion. Loans, loan 
guarantees and grants will be awarded to build high speed broadband 
infrastructure, construct or improve rural water and waste disposal 
systems, finance homes for rural families, build critical community 
facilities, such as rural hospitals, community centers and public 
safety facilities, and to fund new rural business ventures. We have a 
full plate.
    To support the goals of the Recovery Act, it is important that 
these funds be deployed rapidly. But it is equally important that they 
be spent smart, and right. We will take the time and invest the 
resources required to ensure that these objectives are met. ARRA is 
also being implemented with unprecedented transparency and 
accountability. I would direct your attention to the geo-spatial 
mapping tool on the USDA homepage; which will show the location of 
every ARRA investment nationwide. We will also in the near future be 
deploying an RD-ARRA ``dashboard,'' another online tool that will 
provide a wealth of detailed program information in an accessible, 
easily searchable format. While these tools have been developed as part 
of the ARRA initiative, they are clearly adaptable to Rural 
Development's other programs as well, and that application is already 
under discussion for the future.
    With the exception of the ARRA broadband program and ARRA Business 
and Industry, all USDA Recovery Act funds are being administered 
through our regular program channels, subject to the additional ARRA 
statutory provisions related to prevailing wage standards, Buy American 
requirements, and recipient reporting requirements. Our more than 450 
state and area service centers are fully engaged, providing us with an 
unmatched ability for outreach and to provide technical support.
    We are also working to ensure that funds are available to rural 
communities that need them the most. In doing so, we are considering 
factors such as unemployment, outmigration, rural population, income 
level, areas of persistent poverty, lack of service, aging 
infrastructure and health issues. While we are just getting started, 
ARRA is already making a tangible difference in rural communities:

USDA Rural Development--ARRA Accomplishments to Date: As of June 3, 2009
------------------------------------------------------------------------
                    Funding Received   Total Project $   Total Project $
   Program Area      (Program Level)      Announced         Obligated
------------------------------------------------------------------------
     Broadband      $9.1 billion                  $0                $0
B&I Guaranteed                 TBD                $0                $0
     Community      $1.197 billion    $57.75 million    $13.34 million
     Facilities
          RBEG         $19 million                $0                $0
    SFH Direct        $967 million                      $134.6 million
SFH Guaranteed      $10.250 billion                     $4.3 billionWater and Waste     $3.7 billion        $758 million      $451 million
------------------------------------------------------------------------

    The numbers don't tell the full story. The ARRA funds obligated 
through the end of last month translate into over 37,000 new homes 
financed in rural communities across all 50 states. They include 252 
water and waste disposal infrastructure projects in 34 states that will 
improve the quality of life for more than 424,375 residents. They 
include 279 essential community facilities projects--for health care, 
public safety, educational and cultural facilities--that will help 
communities in 39 states.
    And that's just the beginning. ARRA was signed into law on February 
17, less than 4 months ago, and it required a substantial amount of 
work to implement. Funds are just beginning to flow. We have already 
obligated more than $539 million, and we have established even more 
aggressive goals for the next 100 days.

   The Rural Business Enterprise Grant Program (RBEG) has not 
        yet obligated any ARRA funds, but 191 applications from the 
        first application window were in hand as of May 18. We 
        anticipate awarding $19.4 million in RBEG grants by Labor Day. 
        These funds will support a variety of activities including 
        adult distance learning programs, job retraining programs, and 
        business incubators to provide support and guidance to new 
        rural small businesses. We anticipate publication of a ARRA 
        Rural Business Enterprise Grant NOFA this summer.

   We also anticipate publication of the ARRA broadband NOFA by 
        early summer. I understand that the Subcommittee expects to 
        hold another hearing later this summer on the broadband 
        program. I look forward to discussing this in detail with you 
        at that time.

   The Single Family Housing Program is on track to provide an 
        additional $1.4 billion in new guarantees for rural home loans 
        between now and Labor Day, enough to support 50,000 residential 
        mortgage loans to rural residents.

   We expect to provide an additional $120 million for 1,900 
        new direct housing loans to low and moderate income families.

   These investments will bring the total by Labor Day to more 
        than $5.7 billion in guaranteed home loans and $250 million in 
        direct housing loans since ARRA began.

   Finally, the Rural Development Water and Waste Program will 
        provide an additional $585 million in new loans and grants by 
        Labor Day to construct and upgrade approximately 200 water and 
        waste systems in rural America. With these new applications, we 
        will reach the $1 billion mark for total ARRA funding of water 
        and waste programs by Labor Day, and approximately 150 projects 
        funded under ARRA will be into construction.

    Implementation of ARRA has entailed a very heavy additional burden 
on a very talented and dedicated USDA Rural Development staff. We are 
not in the business of block granting large lump sums to states, 
municipalities, and other governmental entities. We are a direct 
lending agency; we lend to individuals, rural small businesses, and 
nonprofits; and our portfolio largely consists of relatively small 
loans and loan guarantees. The increased workflow is very substantial, 
and I am very proud of the way in which our people have risen to the 
challenge.
    We face different but no less important challenges with regard to 
the new farm bill. In 2002, the farm bill contained for the first time 
an Energy Title and a rural broadband program. These initiatives 
reflected the fundamental structural changes and new opportunities 
emerging in rural America. It is not surprising that Congress revisited 
both of these issues in 2008, and we recognize that broadband and 
renewable energy are key priorities going forward.
    As with the ARRA broadband initiative, I will withhold detailed 
comment on the farm bill broadband program until our next meeting. I 
know that this is of great interest to you, and I look forward to 
discussing it in detail.
    With regard to renewable energy, the 2008 Farm Bill strengthened 
and expanded an already robust Rural Development program area. Since 
2002, Rural Development has emerged as a leader in the deployment of 
renewable energy. We have assisted agricultural producers and rural 
small businesses in improving the energy efficiency of their operations 
and in investing in ethanol, biodiesel, wind, solar photovoltaics, 
solar thermal, digester anaerobic and geothermal energy production. We 
are excited by the opportunity to build upon this record of success.
    Renewable energy and energy efficiency are urgent national 
security, economic security, and environmental imperatives. They are a 
priority for the President, and for Rural Development. America needs to 
diversify our energy supply. We need clean, sustainable, alternative 
energy to reduce our dependence on oil. We urgently need to support, 
and indeed to lead, a strong international effort to reduce greenhouse 
gas emissions. And we cannot afford to miss the historic opportunity 
for valued-added agriculture and sustainable rural economic development 
offered by renewable energy.
    I am pleased to report today that Rural Development has now 
completed the initial rollout of our new farm bill energy programs, 
with the sole exception of the Section 9009 Rural Energy Self 
Sufficiency Initiative for which no funding is available.
Section 9003: Biorefinery Assistance Program.
    The Section 9003: Biorefinery Assistance Program provides loan 
guarantees for the development, construction and retrofitting of viable 
commercial-scale biorefineries producing advanced biofuels. The Fiscal 
Year 2009 NOFA was published November 20, 2008. Two application windows 
were announced. The first closed on December 31, 2008.
    From Round 1, the first award was made in January, 2009, for an $80 
million loan guarantee for the production of cellulosic ethanol. A 
second application is currently under review. This is an application 
for a $25 million loan guarantee to retrofit a biodiesel refinery to 
produce second generation biofuel. A decision is imminent.
    The Round 2 application window closed April 30, 2009 of the 12 
applications received, only five were determined to be complete 
applications. Of these five applications two are currently under 
review. These involve second generation biofuel technologies to produce 
cellulosic ethanol, biodiesel, and methane gas and electricity. Awards 
for the second round are projected for September 15, 2009.
Section 9004: Repowering Assistance.
    The Section 9004: Repowering Assistance Program provides for 
payments to biorefineries (that were in existence at the time the 2008 
Farm Bill was passed) to replace fossil fuels used to produce heat or 
operate biorefineries with renewable biomass. The NOFA was signed this 
Monday, June 8, and has been submitted for publication in the Federal 
Register. We anticipate publication within the next several days.
Section 9005: Bioenergy Program for Advanced Biofuels.
    The Section 9005: Bioenergy Program for Advanced Biofuels provides 
for payments to eligible agricultural producers to support and ensure 
an expanding production of advanced biofuels. A Notice of Contract 
Proposal (NOCA) was signed this Monday, June 8, and has been submitted 
for publication in the Federal Register. We anticipate publication 
within the next several days.
Section 9007: Rural Energy for America Program.
    The Section 9007: Rural Energy for America Program expands and 
renames the program formerly called the Renewable Energy Systems and 
Energy Efficiency Improvements Program (formerly Section 9006). Since 
the enactment of the first-ever Energy Title in a farm bill in 2002, 
this program has provided grants and loan guarantees to agricultural 
producers and rural small businesses for more than 2,140 energy 
efficiency and renewable energy projects ranging from biofuels to wind, 
solar, geothermal, methane gas recovery, and other hybrid projects. 
While not limited to biofuels, the Section 9007 Program is nonetheless 
available on a competitive basis to biofuels producers (agriculture 
producers and rural small businesses).
    Four percent of Section 9007 funding is reserved for Energy Audits 
and technical assistance. A Notice of Solicitation of Applications 
(NOSA) for the Energy Audit and technical assistance funding was 
published March 11,2009 with an application deadline of June 9, 2009. 
This is a competitive grant program and we are now beginning to review 
and score applications. We anticipate announcing awards by August 1, 
2009.
    The remainder of Section 9007 funding will be awarded on a 
competitive basis and will finance feasibility studies along with 
investments in energy efficiency and renewable energy production. The 
NOFA was published on May 26, 2009.
    Two non-energy related farm bill programs have also elicited a high 
level of public interest. The Section 6022 Rural Microentrepreneur 
Assistance Program is an exciting opportunity to target technical 
assistance and financial support on very small rural businesses, many 
of them home-based. We anticipate publication of an interim rule later 
this fiscal year.
    And last but not least, the Fiscal Year 2009 NOFA for the Value-
Added Producer Grant program, initially published on May 6, 2009, has 
been withdrawn in order to address concerns raised by this 
Subcommittee. We will republish a revised NOFA at the earliest possible 
date. To ensure that potential recipients have the greatest opportunity 
to apply, we also intend to extend the application period to 3 months, 
which will push the award date into October. As I indicated at the 
beginning of my testimony, value-added agriculture is a personal 
priority for me, and I look forward to working with this Subcommittee 
to ensure that we maximize the potential of this highly effective 
program.
    In closing, let me again thank this Subcommittee and the Congress 
for the generous support you have provided over the years to USDA Rural 
Development. We administer a plethora of programs, but in the end, our 
mission is simple. We are here to serve rural America, to create 
economic opportunity, and to improve the quality of life in rural 
communities. I am both honored and humbled by the opportunity to return 
to Rural Development as the Under Secretary, and I regard it as a 
privilege and an opportunity to work with you on behalf of the 60 
million Americans who call rural America home. Thank you.

    The Chairman. Thank you very much. That was very well done, 
and we will look forward to discussing some of those matters 
with you further, in just a moment, with questions from the 
Members.
    For now, I would like Inspector General Fong to proceed.

          STATEMENT OF HON. PHYLLIS K. FONG, INSPECTOR
           GENERAL, OFFICE OF INSPECTOR GENERAL, U.S.
          DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C.

    Ms. Fong. Good morning, Mr. Chairman. Thank you, Ranking 
Member Conaway, and other Members of the Subcommittee for 
inviting me here this morning. We are very pleased to be able 
to testify about the oversight work we are doing on our 
Recovery Act funds at USDA.
    As you have noted, RD has significant responsibilities in 
this area with the tremendous portfolio and large number of 
dollars to be put out in programs. So, we have, in the IG's 
office, put together an oversight plan and program to take a 
look at all of these dollars as they are planned to be spent 
and obligated.
    So this morning I want to just take a few minutes to 
highlight three key points for you in terms of the work that we 
are doing.
    First of all, in the IG's office we are taking a proactive 
approach to working with RD and with other USDA agencies to 
ensure, to the greatest extent possible, that agencies have 
good procedures in place to award funds to eligible recipients. 
We want to prevent fraud, waste, and mismanagement before it 
occurs rather than coming in at the end and finding it after 
the funds have already been spent.
    Of course, if we do identify instances of fraud or other 
improper activities, we will take steps to address those 
instances with the appropriate authorities. But we are 
emphasizing very much in our work the proactive approach.
    Second, we recognize the importance of timely reporting to 
both RD and to Congressional Committees so that you can carry 
out your oversight responsibilities. In order to do this, we 
have started a program of issuing quick audit reports whereby 
we notify agency managers of potential problems as soon as we 
find them, so that they can consider taking immediate 
corrective actions where appropriate.
    We have recently issued four of these quick reports 
concerning different aspects of the Single-Family Housing 
Guaranteed Loan Program in order to address concerns that 
substandard loan applications could be submitted to RD for 
approval.
    I am happy to report that RD has responded very positively 
to our recommendations. They have outlined to us a number of 
significant actions that they will take to address the issues 
that we have identified. These issues are discussed in detail 
in my full statement.
    The main point that I want to make here is that we are 
trying to work very constructively and cooperatively with RD to 
identify these issues up front, and we are very pleased with 
the way these discussions are going.
    My final point is that we in the IG Office have planned 
audit coverage of every USDA and RD program that is receiving 
Recovery Act funds. In the RD program, we currently have six 
audits in process, and they relate to loans and grants for 
single-family housing, water and waste disposal systems, 
community facilities, and rural business ventures. We expect to 
initiate three more audits related to the housing programs 
before the end of this fiscal year. In general, our approach 
will be to look at internal controls up front, to test 
recipient eligibility, to determine whether funds are being 
used for authorized purposes, to look at the tracking and 
reporting of the use of funds, and ultimately to go in and take 
a look at program effectiveness and whether program measures 
are being met.
    As we complete our reports we will be providing them to the 
Committee pursuant to our usual procedures, as well as 
internally within the Department.
    This concludes my testimony. I am very happy to be here to 
testify, and look forward to addressing your questions.
    [The prepared statement of Ms. Fong follows:]

 Prepared Statement of Hon. Phyllis K. Fong, Inspector General, Office 
 of Inspector General, U.S. Department of Agriculture, Washington, D.C.
    Good morning, Chairman McIntyre, Ranking Member Conaway, and 
Members of the Subcommittee. Thank you for inviting me to testify about 
our work at the U.S. Department of Agriculture (USDA) Office of 
Inspector General (OIG) regarding oversight of the American Recovery 
and Reinvestment Act of 2009 (Recovery Act) \1\ funds provided to 
USDA's Rural Development programs. USDA OIG is directly responsible for 
continuous oversight of USDA's vast programs and operations; in Fiscal 
Year 2008, the Department had expenditures of approximately $95 billion 
and approximately 90,000 employees. USDA alone received $28 billion in 
Recovery Act funding for a broad array of Department programs and 
operations, ranging from rural development programs, nutrition 
assistance, and watershed activities, to wildfire management and 
broadband activities. Nine separate USDA programs or accounts received 
at least $300 million in supplemental funding.
---------------------------------------------------------------------------
    \1\ H.R. 1, Public Law 111-5, February 17, 2009.
---------------------------------------------------------------------------
    I will begin my testimony with an overview of our plan to conduct 
oversight of USDA Recovery Act activities and report our results. I 
will then summarize the results of several specific audits we have 
completed relating to Rural Development's Recovery Act programs as well 
as work that is in process and planned.
I. USDA OIG's Oversight Plan for USDA's Recovery Act Activities
    We have developed a number of actions to enable OIG to provide 
timely and effective oversight of USDA's Recovery Act expenditures. In 
addition to the efforts described below, we conducted immediate 
outreach to the Department--including meetings with the top officials 
of the relevant USDA agencies--to advise them of OIG's plans and to 
solicit their input on where our efforts would be most effective. We 
are providing them with information on oversight ``best practices'' as 
they come to our attention. For example, we provided USDA agencies with 
a recently issued guide to grant oversight and best practices for 
combating grant fraud and with information related to a fraud scheme 
pertaining to Recovery Act funds.
    Summarized below are the major elements of our oversight plan, 
organized by audit and investigative activity.
A. Recovery Act Oversight at USDA: Audits
    We are focusing on key elements such as whether USDA agency 
officials have established proper internal control procedures and 
compliance operations, as well as reviewing whether participants in 
Recovery Act-related programs meet eligibility requirements. OIG's 
audit work will be conducted in multiple phases based on USDA's 
Recovery Act activities and expenditures.
    Phase 1:

    (1) In recent years, OIG has made audit recommendations on 
        virtually every USDA program that will receive Recovery Act 
        funding. We assessed the extent to which USDA agencies 
        implemented our recommendations to determine whether program 
        weaknesses have been corrected. In cases where OIG's 
        recommendations were not fully implemented, we worked with 
        agency officials to identify the corrective action necessary to 
        ensure effective controls on USDA's Recovery Act expenditures. 
        (The results of this work for Rural Development are described 
        in subsequent sections of this testimony.)

    (2) We expanded the scope of audits that were already in process or 
        planned for USDA programs receiving Recovery Act funds. Among 
        them are reviews of the Farm Service Agency's oversight of farm 
        loans; Rural Development programs for single family housing, 
        business and industry loans, and water and waste disposal 
        programs; the Forest Service's wildland firefighting program; 
        and the Food and Nutrition Service's Supplemental Nutrition 
        Assistance Program (SNAP).

    (3) We are expediting the completion and release of several audits 
        related to Recovery Act-funded programs, including Rural 
        Development's broadband program and the rehabilitation of flood 
        control dams by the Natural Resource Conservation Service. (The 
        results of our work for broadband are described in subsequent 
        sections of this testimony.)

    Phase 2:

    (1) We are designing new audits to specifically review various 
        aspects of the programs receiving Recovery Act funding.

    (2) We are reviewing each USDA agency's Recovery Program Plan and 
        then will develop targeted oversight initiatives.

    (3) Our newly formed Data Analysis and Data Mining group will begin 
        its Recovery Act-related oversight by analyzing data pertaining 
        to Rural Development's Single Family Housing Direct Loan 
        Program.

    Phase 3:

    We will evaluate the determinations USDA agencies make about the 
        effectiveness of their Recovery Act activities by analyzing 
        their performance measures with respect to outcomes.
B. Recovery Act Oversight at USDA: Investigations
    Our Recovery Act investigative efforts will emphasize preventing 
and identifying fraud, initiating timely investigations when potential 
criminal activity occurs, and responding to whistleblower reprisal 
complaints from non-Federal employees. OIG will work with U.S. 
Attorneys and States Attorney General Offices to prosecute violators 
and seek asset forfeiture when appropriate.
    Phase 1:

    (1) OIG agents are increasing the fraud awareness briefings they 
        conduct for agency personnel and will be distributing 
        information to program stakeholders on our investigative 
        capabilities and the avenues available for citizens to report 
        Recovery Act-related fraud.

    (2) Our National Computer Forensic Division will be assisting in 
        fraud identification related to USDA's Recovery Act programs, 
        such as matching our audit data mining results against external 
        databases.

    (3) We are actively participating on national and regional task 
        forces such as the Contract and Procurement Fraud Task Forces 
        and the Mortgage Fraud Task Forces. These organizations 
        increase OIG's ability to identify fraud and partner with other 
        Federal/state investigators and prosecutors.

    (4) OIG is continuing close liaison with USDA agencies to identify 
        fraudulent activities and coordinate with their compliance and 
        investigations units for joint investigations, as appropriate.

    (5) We will use OIG's Hotline as a source of information on 
        potential criminal activity affecting USDA's recovery 
        activities. Each month, our Hotline staff receives 
        approximately 275 contacts and performs an initial assessment 
        of the complaints and allegations to determine the level of OIG 
        investigative inquiry that is warranted. OIG is separately 
        tracking complaints regarding Recovery Act funding and related 
        whistleblower reprisal complaints.

    Phase 2:

    (1) After assessing the results of the initiatives described above 
        (and information revealed by our Recovery Act-related audit 
        work), we will open criminal investigations, as appropriate.

    (2) We will work to ensure that entities involved in criminal or 
        serious misconduct are held accountable via criminal and/or 
        civil prosecution, asset forfeiture, agency fines, and 
        administrative sanctions (suspension/debarments, etc.).
C. Reporting OIG's Recovery Act Activities and Results
    We recognize the importance of timely reporting by IGs about 
Recovery Act-related activities. Fulfilling our reporting obligations 
under the Recovery Act will assist agency heads and Congressional 
oversight committees in carrying out their responsibilities. We will 
therefore alert USDA officials to program integrity and efficiency 
problems as quickly as possible to expedite corrective actions. We will 
incorporate the Recovery Act's new requirements regarding whistleblower 
reprisal complaints into our semi-annual reports to Congress. As 
provided by Office of Management and Budget (OMB) guidance, OIG is 
separately reporting our use of Recovery Act monies and other funds for 
Recovery Act-related activities in our reports and ``Recovery.gov'' 
submissions.
    We have instituted a new process to timely issue audit reports 
related to Recovery Act funds. As we perform our audits, if we identify 
an issue that could/should be addressed quickly by program officials to 
prevent fraud, waste, or mismanagement, we will produce a report 
recommending immediate action. These quick turn-around reports can then 
be rolled up into consolidated reports. (Examples of these reports are 
detailed in subsequent sections of this testimony.)
II. Recovery Act-Related Audit and Investigative Work for Rural 
        Development
    Rural Development has significant responsibilities related to the 
Recovery Act. The agency has been charged with administering $4.36 
billion in recovery funds, that when implemented will deliver more than 
$20 billion in loans and grants to improve economic opportunity and the 
quality of life in rural America. Loans and grants will be awarded to 
build high-speed broadband infrastructure; construct or improve rural 
water and waste disposal systems; finance homes for rural families; 
build critical community facilities, such as rural hospitals, community 
centers, and public safety facilities; and fund new rural business 
ventures.
A. Broadband
    In March 2009, we released our report \2\ on the broadband loan and 
loan guarantee program. This work was initiated at the request of 
Congress to determine if the Rural Utilities Service (RUS) had made 
sufficient corrective actions in response to our September 2005 report 
\3\ and to answer specific questions posed by the House and Senate 
Committees on Appropriations.
---------------------------------------------------------------------------
    \2\ Rural Utilities Service's Broadband Loan and Loan Guarantee 
Program, Audit Report No. 09601-8-Te, issued March 31, 2009.
    \3\ Rural Utilities Service's Broadband Grant and Loan Programs, 
Audit Report No. 09601-4-Te, issued September 30, 2005.
---------------------------------------------------------------------------
    We found that RUS had not fully implemented corrective action in 
response to our September 2005 audit report. RUS had written a proposed 
change to the regulation which would have addressed some of our 
recommendations; however, they did not implement the rule, choosing to 
wait for passage of the Food, Conservation, and Energy Act of 2008 
(2008 Farm Bill) to ensure that their proposed rule met the new 
requirements. During the period prior to enactment of the 2008 Farm 
Bill, RUS continued to make loans to providers in areas with 
preexisting service, sometimes in close proximity to large urban areas.
    In its response to our report, the agency agreed to take corrective 
actions. However, we remain concerned with the current direction of the 
broadband program, particularly as it receives greater funding under 
the Recovery Act. As structured, RUS' broadband program may not meet 
the Recovery Act's objective of awarding funds to projects that provide 
service to the greatest number of rural residents who do not have 
access to broadband service.
    Given our concerns, we are coordinating with both the Government 
Accountability Office (GAO) and the Department of Commerce (DOC) OIG. 
In March and April 2009, GAO initiated two audits on RUS' broadband 
program. DOC-OIG is currently conducting audit work to oversee the $4.7 
billion that the National Telecommunications and Information 
Administration has been awarded to deploy broadband using Recovery Act 
funds.
B. Prior Audit Recommendations
    In April 2009, we reported on our initial Recovery Act oversight 
project, which was to review audit recommendations that could impact 
internal controls over Recovery Act activities for each agency.\4\ We 
identified recommendations where Rural Development had not implemented 
the agreed-upon corrective actions within the mandatory 1 year 
timeframe. We then determined which of these recommendations, if left 
unresolved or not mitigated, would introduce a significant risk of 
inefficient or improper use of Recovery Act funding. For Rural 
Development, we identified 17 audit recommendations that met these 
criteria involving approximately $10 billion of Recovery Act funds.
---------------------------------------------------------------------------
    \4\ Existing Risk to Rural Development's Economic Recovery Program, 
Audit Report No. 85703-1-HQ, issued April 3, 2009.
---------------------------------------------------------------------------
    In response to our report, Rural Development itemized the actions 
it was taking to address the risks associated with the unimplemented 
recommendations related to the business and industry guaranteed loan 
program, the single family housing direct loan program, and the 
broadband grant and loan program. For example, the agency explained 
that corrective action for eight of the 11 recommendations related to 
the business and industry guaranteed loan program is affected by the 
publication of the new guaranteed loan regulation. The agency also 
responded that, until the new regulation is published, it has taken the 
steps necessary to minimize the risk of loss to the program, including 
annual training to state offices and lenders, monitoring to ensure 
compliance, and periodic notices to provide instruction and 
clarification.
    For the five recommendations related to the broadband grant and 
loan programs, Rural Development states that it is implementing the 
evaluations, oversight, and monitoring systems and procedures required 
for Recovery Act programs under OMB guidance. Rural Development has 
said it plans to have these systems and procedures in place before 
Recovery Act funds are obligated.
C. Single Family Housing Guaranteed Loan Program
    The Rural Housing Service is responsible for distributing Recovery 
Act funds through the Single Family Housing Guaranteed Loan Program. As 
of June 3, 2009, Rural Development had obligated over $4.3 billion to 
guarantee over 36,000 loans. Our role, as mandated by the Recovery Act, 
is to oversee agency activities and to ensure funds are expended in a 
manner that minimizes the risk of improper use. As of May 22, 2009, we 
have issued four reports related to our oversight activities of rural 
housing. These reports address: (1) internal control weaknesses related 
to the agency's Guaranteed Underwriting System (GUS); (2) waivers of 
the agency's debt ratio policy for borrowers participating in the 
program; (3) lenders' use of independent mortgage brokers (``brokers'') 
to originate loans that are guaranteed by Rural Development; and (4) 
procedures used by agency field staff when reviewing and approving 
applications for loan guarantees. These issues will be compiled into a 
final report at the conclusion of our audit. During this initial phase, 
we did not perform testing to verify lender compliance with agency 
policies and procedures. As a result, we have no conclusions on the 
overall extent of abuse that is, or may be, occurring in the program. 
Our concern is that substandard loan applications could be submitted to 
and approved by Rural Development.

    (1) GUS Internal Control Weakness

      In January 2007, Rural Development implemented GUS, an automated 
        underwriting system, to streamline the process used by lenders 
        to submit loan guarantee applications. According to agency 
        national officials, approximately 40 percent of all 
        applications for loan guarantees involving Recovery Act funds 
        have been processed through GUS, compared to a historical 
        average of 25 percent. The internal control weakness we 
        identified relates to the documentation requirements for 
        lenders who submit loan guarantee applications through GUS. We 
        found lenders do not submit documentation that supports the 
        eligibility of borrowers for applications accepted by GUS. For 
        example, while lenders are required to maintain supporting 
        documents, they do not provide evidence such as employer 
        earning statements that supports borrower income to agency 
        officials. This type of evidence is provided when applications 
        are manually processed by agency officials. Thus, lenders are 
        able to enter inaccurate borrower information into GUS with 
        minimal risk of detection by agency officials prior to 
        approving a loan guarantee.
      In response to our recommendations, Rural Development implemented 
        additional controls for processing single family guaranteed 
        housing loans with Recovery Act funds. For example, effective 
        May 18, 2009, Rural Development suspended the use of Recovery 
        Act loan funds for new conditional commitment requests so it 
        could revise GUS quality control processes currently in place. 
        The agency developed additional quality control standards by 
        incorporating a pre-loan closing review of five percent of GUS 
        submissions for each GUS-approved lender. The agency also plans 
        to increase compliance testing conducted after loan closing 
        with a focus on GUS loan origination quality. Reviews will 
        concentrate on the participating lenders that originate a high 
        volume of GUS loans or that may have certain GUS loan 
        performance metrics.

    (2) Waiver of Debt Ratios

      During our review, we noted that agency policy regarding the 
        waiver of debt ratio requirements was unclear and not being 
        administered by field staff as expected by national officials. 
        Agency policy states that lenders are to submit a request for 
        waivers to debt ratio requirements in writing to Rural 
        Development and include documentation of the appropriate 
        compensating factors for support of sound underwriting 
        judgment. Based on this policy, agency national officials 
        expected field staff to obtain evidence of the compensating 
        factors, such as bank statements for instances where the 
        compensating factor was a large savings account. However, in 
        the field, we observed that Rural Development staff approved 
        lender request for waivers based only on the request and a 
        description of the compensating factor. For example, the 
        agency's guidelines state that the ratio of total debt to 
        income should not exceed 41 percent; however, we identified a 
        case where this ratio was over 60 percent. Our concern is that 
        lenders may create or exaggerate compensating factors to 
        justify approving a loan for a substandard borrower.
      In response to our recommendations, Rural Development has stated 
        that it will issue additional quality control procedures for 
        its field offices. For example, manually underwritten loans 
        with debt ratios above certain thresholds will be required to 
        be reviewed by the loan approval official's immediate 
        supervisor. Written supervisory concurrence will be required to 
        be retained and/or imaged. Supporting documentation of the 
        compensating factors will be required to be retained as part of 
        the permanent record.

    (3) Lenders' Use of Brokers

      The agency relies on lenders' underwriting processes to 
        scrutinize loan applications originated by brokers. Rural 
        Development guidance states that a lender may use agents (i.e., 
        brokers) in carrying out its responsibilities. However, lenders 
        are fully responsible for the actions of their agents. We are 
        concerned that some lenders will not adequately evaluate 
        broker-originated loans before submitting them to Rural 
        Development officials. Our concern is based on two factors 
        that, in our view, increase the risk that lenders will submit 
        substandard loans to Rural Development. The two factors are (1) 
        the compensation method for brokers and (2) the industry 
        practice by which originating lenders typically sell loans to 
        other lenders after loan closing. Brokers are compensated for 
        each originated loan. (Specific compensation depends on the 
        brokers' contracts with the originating lenders and state 
        regulations.) Thus, there is an incentive to submit as many 
        loan applications as possible to originating lenders to 
        increase the brokers' income. The agency relies on lenders to 
        review information on applications during the underwriting 
        process to prevent such abuse. However, those reviews may not 
        always be effective because it is a common industry practice 
        for originating lenders to sell the loans they make to other 
        lenders for servicing. Therefore, some originating lenders may 
        be less willing to dedicate resources to scrutinize loans that 
        will be sold to other lenders. In addition, the agency 
        generally does not deny loss claims made by servicing lenders 
        or seek recourse against originating lenders.
      In response to our recommendations, Rural Development has stated 
        that it will increase its compliance testing with a focus on 
        loan origination quality for loans originated by brokers. 
        Reviews will concentrate on participating lenders that 
        originate a high volume of loans initiated by brokers.

    (4) Procedures for Reviewing and Approving Applications

      During our visits to four agency field offices, we observed that 
        agency loan specialists routinely performed all functions in 
        the loan guarantee process with no supervisory review prior to 
        issuance of the guarantee. These functions included the review 
        of loan guarantee applications for completeness and borrower 
        eligibility, the approval of the application for guarantee, and 
        the input of applications into the agency's system of records 
        (GUS) where the obligation of funds will occur. The agency does 
        not require a segregation of duties or supervisory (or second 
        party) review prior to issuance of the loan guarantee. This 
        creates a situation where agency loan specialists and other 
        field staff could fail to detect lender errors or collude with 
        lending officials to guarantee substandard loans. Of greatest 
        concern to us is that agency field staff may not detect lender 
        errors and mistakes because of the significant loan volume 
        associated with the distribution of Recovery Act funds. In less 
        than 2 months of distributing Recovery Act funds, the agency 
        has already exceeded the typical number of guarantees in a 
        year. We are aware that some area offices have too few 
        employees to adequately separate duties. For instance, one of 
        the four offices we visited had three employees, only one of 
        which was a loan specialist. It would be difficult to 
        adequately separate duties in that office. However, the other 
        three offices had five employees, four of which were loan 
        specialists. Therefore, it would be more feasible to separate 
        duties in those circumstances.
      Rural Development did not agree with our recommendation that the 
        agency implement segregation of duties in offices where it was 
        feasible based on staffing levels to ensure the accuracy of all 
        applications versus just a sample. Instead, the agency proposed 
        additional quality control procedures to ensure a second party 
        review is taking place on a selection of loans approved by 
        Rural Development officials. The agency explained that this 
        review will be performed by designated agency employees and 
        better ensure loans originated were adequately reviewed for 
        eligibility. OIG will continue to assess this issue as we 
        further examine this program.
D. Work in Process and Planned
    As of June 2, 2009, OIG had six Rural Development Recovery Act 
audits in process related to guaranteed and direct single family 
housing, water and waste disposal loans and grants, community facility 
loans and grants, business enterprise grants, and business and industry 
guaranteed loans. We expect to initiate as many as three additional 
assignments related to housing before the end of this fiscal year. Our 
audit plan for Fiscal Year 2010 will be developed this summer and put 
in place by October 2009. It is likely that the Fiscal Year 2010 plan 
will include audits of Rural Development programs to determine if 
funding recipients complied with program requirements and to evaluate 
agency determinations about the effectiveness of Recovery Act 
activities.
    This concludes my testimony. I want to thank Chairman McIntyre, 
Ranking Member Conaway, and Members of the Subcommittee for the 
opportunity to present testimony on behalf of OIG. I would be pleased 
to address your questions.

    The Chairman. Thank you both for your efficiency and for 
highlighting the most important parts of your testimony, and 
thank you for your written testimony, which is also very 
helpful and has some great detail I am sure Members may want to 
ask about.
    The chair would like to remind Members they will be 
recognized for questioning in order of seniority for Members 
who were here at the start of the hearing. After that, Members 
will be recognized in order of arrival. I appreciate the 
Members' understanding, pursuant to our regular procedures.
    Also, if any Members had opening statements that they 
wanted to submit for the record, we will be glad to accept 
those and to print those in full.
    With regard to questions, Secretary Tonsager, Rural 
Development makes loans and grants in rural areas, of course, 
but what impact do you see the downturn in the economy having 
on rural economy and rural businesses? To your knowledge, has 
RD seen an increase in late payments or delinquencies on loans? 
And, if so, how do you address those issues in the current 
economic climate with these programs?
    Mr. Tonsager. I think the downturn has had a significant 
impact on rural areas. The studies I have seen suggest that 
there has been a higher percentage of unemployment in rural 
areas than there was in urban areas occurring because of the 
downturn. I do not have data on the exact performance of the 
programs at this point, but my belief is that we have not yet 
seen a significant increase in the number of delinquencies 
occurring. We will have to get back to you on that.
    The Chairman. Is there a particular point person, for those 
who are listening or watching today or that may later ask the 
question, if they are finding they are having a difficulty with 
late payment or potential delinquency, that in order to avoid 
further problems that they should contact in your agency?
    Mr. Tonsager. We have different processes, depending on the 
programs. We have a servicing center that deals with single-
family housing programs in St. Louis. So there is a process 
associated with that. The other programs, I believe, are dealt 
with out of local offices.
    But, again, forgive me, 4 weeks on the job, I don't have as 
good a knowledge as I maybe should at this point.
    The Chairman. If you would after your testimony today, 
perhaps the best person for a community that may be 
experiencing a problem, or a business, to contact is their 
local or regional Rural Development Director or State Rural 
Development Director. You can have someone from your office 
confirm that for the record. Or if there is a central 
clearinghouse phone number that your agency may have, or may 
want to establish, so that anyone can call an 800 number or a 
central number, that might also be helpful so that we can 
maximize assistance to the taxpayer.
    Also, I understand that the Business and Industry Loan 
Program is, of course, seeing increased demand, given the tight 
credit market. Have there been any discussions regarding 
whether some current business and industry limits should be 
relaxed? In other words, I know there has been some questions 
about the maximum level of guarantee or the timing of the loan 
with regard to the start of construction on a project.
    Mr. Tonsager. Yes. We are examining some issues relative to 
the Business and Industry Loan Guarantee Program. We believe 
there may be some adjustments, and we hope to make those within 
our regulatory authorities. We are not prepared to step out and 
announce what changes might occur. But we are looking very 
close because we think the circumstances have changed at this 
moment in our economy, and we have to evaluate the risk we can 
take with the program against the good we can do in assisting 
more communities.
    The Chairman. Thank you, sir.
    Ms. Fong, the Office of the Inspector General has recently 
formed a Data Analysis and Data Mining Group. Can you tell us 
how you have provided the key technical expertise and resources 
that are required for such work?
    Ms. Fong. We have, as you pointed out, formed that group 
very recently. We happen to have on staff a number of very 
experienced statisticians who are already in our Audit Division 
in a number of our locations. We also hired some additional 
staff to supplement that expertise, and we now have a small 
unit of highly qualified, highly technical expert people to 
start running these kinds of work for us.
    The Chairman. Mr. Conaway, I now recognize you for 
questions.
    Mr. Conaway. Thank you, Mr. Chairman. I also want to thank 
the witnesses for your precision in your answers. Mr. Tonsager, 
welcome. Tonsager?
    Mr. Tonsager. Tonsager.
    Mr. Conaway. Right, I will work on that. Dallas is easier.
    Mr. Tonsager. Okay, Dallas works.
    Mr. Conaway. You mentioned in your testimony you hope that 
the focus will be on rural broadband as opposed to preexisting 
services. A recent IG audit said that hadn't been the case. Who 
is in charge of making sure your hope is fulfilled?
    Mr. Tonsager. Well, of course we must coordinate our 
efforts with the NTIA and the resources they have been given by 
you all from Congress for the Broadband Program. So we have 
been working closely with them, and the White House has been 
engaged in the discussions regarding rural broadband issues.
    So clearly it is my intention, my assertion with people 
that we must try to serve the more challenging rural areas of 
the U.S. I am late to this process. Much of the work has been 
done already regarding the NOFA that will come out, hopefully, 
very soon.
    Mr. Conaway. So based on what you understand so far, you 
think it is headed in that direction or is it going down the 
path of least resistance, which is to continue to serve the 
biggest communities?
    Mr. Tonsager. I have not been fully briefed on the NOFA.
    Mr. Conaway. Okay. Looking through both testimonies, the 
bias so far has been toward clearing out the backlog. Can you 
help me understand, is the backlog rank ordered in terms of the 
date of application, or are they rank ordered in the order of 
importance or biggest impact or bang for the buck. Which one is 
it?
    Mr. Tonsager. It is ranked, I believe, by the criteria 
associated with the grant application. I do not believe it is 
rank ordered by date. Is it, Jim? Oh, it is first in, first 
out.
    Mr. Conaway. So why does that make sense?
    Mr. Tonsager. I don't have a good response for you, sir. I 
know there is an identified backlog associated with what was 
given to us to meet, and so we are trying to move our way 
through that backlog as quickly as we can.
    Mr. Conaway. Okay. I guess in terms of--it is hard to use 
the word ``scarce'' in resources when you are talking about the 
stimulus bill, because that seems to have a wealth of money out 
there, and a wealth of money leads to wasted money. And so 
focusing whatever resources we have on that, on the most 
important first, seems to me a better plan than simply who 
showed up asking first versus something else. So that is very 
troubling.
    Ms. Fong, welcome. Thank you very much. I am a CPA by 
background, and so your audits are keen. Why the sudden full-
court press on auditing all things rural? Is that just a recent 
focus that you guys have? Why just all of a sudden?
    Ms. Fong. Let me just back up a step and just mention that 
with respect to Recovery Act programs, that is such an 
important initiative involving huge amounts of dollars that we, 
as an IG office, felt that that was one of the highest 
priorities for us to look at. And so we have developed a plan 
to look at every program within USDA that receives recovery 
dollars. RD, of course, received a large amount. So did the 
Forest Service, so did the Food and Nutrition Service. And so 
we are looking at all of those programs as well.
    Mr. Conaway. In your experience and background, if an 
entity, whatever it has, has weak, poor, or nonexistent 
internal controls in the way they operate and shepherd dollars, 
and that is the position that is already there, in your 
experience, if you double, triple, quadruple their funding 
stream is there some sort of a self-curative process that means 
the weaknesses from the internal controls get cured?
    Ms. Fong. I am not sure if there is a cause and effect 
there. I think----
    Mr. Conaway. Would spending more money help them spend it 
wiser?
    Ms. Fong. Not necessarily. I think our view would be that 
if the program has strong internal controls, it will operate 
well regardless of the amount of money going through the 
program. If it does not have strong internal controls, then if 
you put more money into it there will be more opportunity for 
poor expenditures. And so we would always want to strengthen 
internal controls.
    Mr. Conaway. You audited one of the groups from 2005. You 
had some preexisting audit recommendations that were basically 
ignored by the entity and then they began to say well, we are 
going to wait until 2008. I will find your testimony here 
specifically. We are going to wait until 2008 before we fix 
that.
    Is that the normal way that the Agriculture Department 
works? You guys go audit and see these errors or mistakes or 
weaknesses in internal controls, and they can just ignore them, 
at somebody's peril, I suspect?
    Ms. Fong. I think there you are getting to the very crux of 
the relationship between our office and the Department. As you 
know, from an auditor's standpoint it is our responsibility to 
make recommendations to correct issues that we see. We don't 
have the authority to make the changes ourselves. And so we do 
our best to persuade program managers, and we do our best to 
work with them to develop the best solution to the issues. In 
fact, we are continually working with the agencies within USDA.
    Mr. Conaway. I yield back. We have another round.
    The Chairman. Thank you, Mr. Conaway.
    Mr. Kissell, my colleague from North Carolina.
    Mr. Kissell. Thank you, Mr. Chairman, and thank you, 
panelists, for being here today.
    Mr. Tonsager, just for everybody's information, we had a 
chance to talk some yesterday in my office, and I appreciate 
you coming by there. We talked about the role of biofuels, 
ethanol in rural development, and you mentioned to me that you 
had recently been to a world conference on biofuels in Brazil. 
If you would expound just a little bit on what your view is of 
the role of biofuels in rural America, and, especially, the 
ideas that you found in Brazil in terms of biofuels and the 
impacts on land usage in Brazil.
    Mr. Tonsager. Thank you, sir. I think that biofuels are a 
huge economic opportunity for rural America, and we are very 
aggressively going to look for every way we can help to enhance 
the economic opportunities for the creation of a cellulosic 
biofuels industry, as well as the preservation of corn-based 
biofuels industry.
    I found that in Brazil they have done a remarkable job. 
Their sugarcane-based industry is growing significantly. They 
have found ways to cogenerate electrical power from bio-gas 
from the process associated with that. They are aggressively 
moving forward with their industry and reaching out to the rest 
of the world with their industry. So, it was an excellent 
experience, and I hope we can learn lessons from them on how 
they have moved forward in their industry and apply them here 
as well. I hope we can--we are competitors, of course, with 
Brazil, but hopefully we can be partners in many ways as well.
    Mr. Kissell. We talked specifically about land usage in 
Brazil and what effects on the rain forests, which is a concern 
expressed by some, of biofuels and growing these products. What 
did the Brazilians say in terms of their land use in making up 
the acreage that produces the biofuels?
    Mr. Tonsager. What they told me is that less than one 
percent of their land mass is associated with the creation of 
feedstocks for biofuels. So they would make the argument that 
they are not significantly impacting because of biofuels, 
specifically, on the rain forests.
    Mr. Kissell. Thank you, sir.
    Switching to broadband for just a second, we are looking at 
phrases that say rural and unserved, and--how can we define 
rural? How are you defining rural in terms of providing these 
services? How are you defining unserved in terms of who will be 
getting the first wave, so to speak, of the opportunity to have 
this investment?
    Mr. Tonsager. I wish I could specifically speak to that. We 
are going to see a NOFA published soon. In my opinion--and, 
again, I really can't go into the discussion about how I see it 
at this point because of the pending NOFA that will be 
published. I would hope--it would be my intent as I run this 
agency that we go to the more challenging areas of the country 
to provide the best service we can in those areas. I think I am 
reluctant to define specifically for you my understanding of 
the rural or underserved areas.
    The Chairman. If the gentleman will yield just a moment, I 
will give you your time back.
    I know I mentioned at the outset we will have a hearing 
separately on rural broadband, and I respect the fact you are 
waiting for the rules to come out. But the definitions that Mr. 
Kissell has asked about I trust you would be able to provide 
after they were published at the end of the month.
    Mr. Tonsager. Sure.
    The Chairman. We would want to make sure and follow up. And 
in respect to Mr. Kissell's question, if you would plan to 
provide that within 10 days after they are published because 
that will be a key definition that will also help our Committee 
go forward, our Subcommittee, when we do have that hearing, to 
know what definition you have given to what he asked on rural 
and unserved; underserved as well.
    Thank you. Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman. I believe that goes 
to a lot of the questions about how these services will be 
provided and will we really be getting to the rural areas, as 
we know them, in providing that service, or will it be more 
continuing of the serving the same areas and not getting to 
these areas that we need to draw attention to.
    The last question being, it was an indication that this 
money may be coming out in like three waves, with the first 
wave being available in June, towards the unserved areas. I am 
just wondering, when will the money really start to become 
available?
    Mr. Tonsager. Well, we of course have to wait for the 
publication of the NOFA, and then we will move as quickly as we 
can. I do not know the deadlines or the time frames at this 
point.
    Mr. Kissell. And as soon as we do, then we can make them 
available to us so we can start letting the people know that it 
is available.
    Mr. Tonsager. We will be most anxious to let it be known 
broadly as possible to make sure that everyone has an 
opportunity.
    Mr. Kissell. Thank you, sir. Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Kissell. Mr. Under Secretary, 
if in particular, in response to Mr. Kissell's question as a 
follow-up, when you make that broadly known, if you would 
particularly be sure to contact the Members of this 
Subcommittee, because I know we are going to have an intense 
interest in it since we will be having a hearing on it in July. 
We want to make sure we don't overlook it, because we know the 
end of June some time will be lost here because of the natural 
inclination for us to spend time in our districts during the 
work period over the 4th of July. So we will be having the 
hearing the week we get back. So as soon as that is available, 
if you would provide it to our offices in particular, in 
addition to how you may generally disseminate that information, 
we would greatly appreciate it. Thank you so much.
    Mr. Cassidy.
    Mr. Cassidy. I am going to say Mr. Under Secretary, I know 
why you told the Texan to say Dallas.
    I have a couple of questions. The stimulus money is subject 
to Davis-Bacon, regular program funding is not. Some of these 
applications have been developed, price-structured under the 
regular program funding, and yet because of Davis-Bacon we are 
going to have higher costs associated with this stimulus 
funding.
    So I guess several questions for my community that put 
these packages together; first, do they have to resubmit under 
the different cost structure. Second, this is going to ask them 
to come up with additional dollars, and these are rural 
communities often with a poor tax base. And so is there any 
accounting for any possibility of waiving the Davis-Bacon under 
the stimulus package funding if they cannot come up with the 
extra dollars required to meet the Davis-Bacon requirement?
    So I guess the first question, do they have to resubmit? 
Second, what happens if they have to come up with additional 
dollars? Third, is there a way that they can choose what 
funding source they apply to, because it is going to be cheaper 
to go through regular funding if the money is there than it 
would be through stimulus?
    Mr. Tonsager. Of course, they could make the applications 
in the categories they would wish to pursue. The funding 
sources for the stimulus package are significant. I understand 
the issues associated with Davis-Bacon, as I have come into the 
office and been briefed regarding that and what it means.
    We are still waiting for some guidance relative to Davis-
Bacon and the Buy America provisions. At this point I would say 
yes, that is correct. That was what was given to us by Congress 
as direction to apply Davis-Bacon for the stimulus funds.
    Mr. Cassidy. So, as it turns out, the extra money that will 
be required as matching on the part of the community, you 
acknowledge that will have to take place. Frankly, it is just a 
fact of life and I am not trying to put words in your mouth. I 
am trying to, if you will, make my communities back home 
understand the game.
    Mr. Tonsager. My deputy has been helpful with me in 
suggesting that we look at the grant loan combination on an 
affordability basis, which has always been true of the water 
and sewer programs. So our goal is to make the program 
affordable for our communities. So we would attempt to balance 
the loan/grant combination under the new cost structure just as 
we would have previously. So there is some offset, I believe, 
to it.
    Mr. Cassidy. Okay. Second, although you haven't published 
the rules, I am very interested in the Rural Microentrepreneur 
Assistance Program. It seems like that would be a good program. 
So knowing you haven't published the rules, but nonetheless can 
you at least give a bearing by which folks interested in this 
program can kind of start setting their course as they await 
the final Rural Development rule?
    Mr. Tonsager. I am a fan of the program. I have not been 
engaged in a dialogue on the program yet. I apologize for my 
lack of knowledge in several program areas at this point.
    Mr. Cassidy. That is okay. I understand. Last, I guess 
because I am almost out of time, the stimulus is trying to move 
money into communities. There are formulae through which it can 
be given through state formulae, but also through direct 
application. Will all funding be allocated by state formulae 
or, if not, how will USDA be allocating the stimulus funding 
among the states?
    Mr. Tonsager. I believe we focused on the backlog for 
funding that was existing in the national office. Typically, we 
of course do a formula approach with the regular program money. 
I am unsure whether there was any allocations to states of the 
stimulus money. My belief is it just applied to the existing 
applications.
    Mr. Cassidy. Thank you. I yield back.
    The Chairman. Thank you, Mr. Cassidy.
    As a follow-up to Mr. Cassidy's question, and because it 
did emanate through this Subcommittee in the House, as well as 
our similar Subcommittee in the Senate, the Rural Entrepreneur 
Business and the Microenterprise Assistance Program, we are 
very excited about when they were put in last year's farm bill. 
So as soon as you have the parameters for that in the rules, 
would you please let us, as a Committee, also know?
    We would encourage you to do that with great accuracy but 
also with great haste, because as we go around, I know in our 
district and from hearing conversations with my other 
colleagues in their districts, that program is indeed one that 
had great bipartisan support. It would be of great assistance 
to the fastest growing segment of small business, which are 
microenterprises, those that employ less than ten people. So we 
are highly interested in the Business Entrepreneur and 
Microenterprise Assistance Program. Please advise us as soon as 
you are able to have that ready. We urge that to be done with 
all due haste, as I mentioned, and we thank you for your 
attention to that.
    I want to thank our panel. Because of your promptness, we 
are going to take just a few moments to see if any other 
Members of the panel have questions. I know the Ranking Member, 
Mr. Conaway, does.
    I will recognize you for your remaining questions.
    Mr. Conaway. Thank you, Mr. Chairman. We may want to just 
pose the questions and then ask the witnesses to either respond 
quickly or get back to us. One has to do with transparency. If 
we have 2008 money, we have 2009 money, and we have stimulus 
money, that we all want to know where it went, we all want to 
know who is getting it and those kinds of things. I need a 
commitment from you, Dallas, that you are going to put together 
some sort of a system that reconciles all the various databases 
and that we in fact will be able to know where all the money 
is, where it has gone, and which categories and those kind of 
things. So, that we don't lose ourselves in this plethora of 
data and then miss the big picture or the little picture. Your 
efforts, and Ms. Fong as well, to make sure that the world is 
able to see, good or bad, where this money went, is going to be 
important.
    I am also concerned that the FIFO method on backlogs 
clearly disadvantages new emerging issues that may in fact be 
more important than something that has been on the backlog for 
a long time and may not be as important.
    So some way that you take a fresh look at that process that 
says for the stimulus money, just funding stuff that had been 
asked for for a long time, automatically, versus something that 
has newly emerged, make sure we understand how that works.
    Ms. Fong, if you go through your report, particularly the 
housing area, it reads like a litany of the things that went 
wrong in the broader housing market where you have detached 
collection of loans from the folks making the loans. And your 
report shows extensive weaknesses in internal control 
throughout the system. A commitment from you that this will be 
a quick turnaround to look at what the agencies have done. I 
know you can't force them to do anything, but you can shine 
some pretty bright lights on them should they not do that. And, 
also, some sense of what the collection has been, or 
delinquencies I guess is a better phrase, has been in the 
housing areas, particularly as we move through this area 
because of bad loan applications, misinformation on 
applications, waiving the standards on debt-to-equity ratios 
and income-to-debt ratios. All of that is exactly what happened 
in the broader housing market across this country, and we don't 
really want to facilitate that going further wrong if it is not 
already wrong in rural America.
    Finally, with respect to your data mining efforts, I would 
call to your attention Tarleton State and the data mining work 
they do with RMA, the Risk Management Agency, and the other 
things as maybe a partner, perhaps, in that arena because I do 
think that can be very helpful.
    So, Mr. Tonsager--Dallas--if you could make sure that we 
get a pretty clear picture from a transparency standpoint where 
this money is going by community, by county, all those kind of 
things, and then help me understand why a FIFO method works 
best in this arena for these vast amounts of money that is 
being spent with respect to these stimulus dollars.
    So I look forward to hearing back from you and have some 
conversations. Ms. Fong, if you need any help, I will be glad 
to pitch in.
    I yield back.
    The Chairman. Thank you, Mr. Conaway. Any other panel 
Members have additional questions? If not, we thank you very 
much for your time today to both of you. I wish you well and 
Godspeed, and thank you for your commitment to our nation and 
your public service. God bless you.
    We invite our next panel to come on up to the table and 
let's get ready. We want to get your testimony in before we get 
summoned to vote. We want to respect your time. So please come 
forward immediately and assume your positions at the table.
    Welcome to our second panel and to your staff and other 
friends that may be here to support you in your testimony.
    We have Mr. F.D. Rivenbark, Commissioner from Pender 
County, from Willard, North Carolina, on behalf of the National 
Association of Counties; Debra Martin, Director of the Great 
Lakes Rural Community Assistance Partnership, from Fremont, 
Ohio; Chandler Sanchez, Governor of the Pueblo of Acoma, Acoma, 
New Mexico, on behalf of the National Congress of American 
Indians; Doug Anderton, General Manager of the Dade County 
Water and Sewer Authority, Trenton, Georgia, on behalf of the 
National Rural Water Association; Tommy Duck, Executive 
Director of the Texas Rural Water Association of Austin, Texas, 
and I believe Mr. Conaway would like to provide an introduction 
of the witness from Texas.
    Mr. Conaway, I welcome the introduction of your special 
guest from Texas.
    Mr. Conaway. Well, I just want to add my thanks to Tommy 
for coming up here and pitching in on these important issues, 
and we look forward to having your comments and your wisdom on 
how we should proceed.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. I am especially pleased to present 
our first presenter starting off the panel. F.D. Rivenbark 
serves as a County Commissioner in Pender County, North 
Carolina, which is in the Seventh Congressional District that I 
am blessed with the opportunity to represent. Mr. Rivenbark 
represents the National Association of Counties here today, 
which was one of the groups in this room back in the first week 
of January when we had that discussion, I mentioned earlier, to 
make sure rural areas were not left out of the stimulus 
package.
    Mr. Rivenbark brings his service as a County Commissioner 
for over 30 years; his experience teaching vocational 
agriculture, serving as a principal in the Pender County School 
System, and over 30 years of service in the U.S. Army and Army 
Reserves. And also as a Member of the Armed Services Committee, 
I want to thank you in particular for your service to our 
country in that capacity, Mr. Rivenbark.
    Commissioner Rivenbark grew up on a Pender County farm 
located in the Horsebranch community just north of Burgaw and, 
from what I understand, has a perfect attendance record over 
the last decade at Burgaw Baptist Church.
    Mr. Rivenbark, we welcome you. We recognize your church, 
community, and national service that you have given, and here 
today in particular your service as a County Commissioner and 
on behalf of the National Association of Counties. I enjoyed 
being in your county, in Pender County just last week, and am 
thrilled that you have come to be with us here in Washington 
today.
    Mr. Rivenbark, you may proceed.

            STATEMENT OF HON. FRANKLIN D. RIVENBARK,
          COMMISSIONER, PENDER COUNTY, NORTH CAROLINA;
MEMBER, AGRICULTURE AND RURAL AFFAIRS STEERING COMMITTEE, RURAL 
                     ACTION CAUCUS STEERING
 COMMITTEE, NATIONAL ASSOCIATION OF COUNTIES (NACo); PAST VICE 
                  CHAIRMAN, RURAL DEVELOPMENT
                 SUBCOMMITTEE, NACo, BURGAW, NC

    Mr. Rivenbark. Thank you, Chairman McIntyre, Ranking Member 
Conaway, and Members of the Committee, for the opportunity to 
testify on behalf of the National Association of Counties on 
the status of rural development programs operated by USDA and 
the status of the American Recovery and Reinvestment Act funds 
for these programs.
    More importantly, I want to thank you, Mr. Chairman, for 
your leadership and ensuring that USDA Rural Development 
funding was included in the Recovery Act.
    My name is Franklin D. Rivenbark. I am a County 
Commissioner in Pender County, North Carolina, and I currently 
serve in several leadership roles with the National Association 
of Counties. In my testimony, Mr. Chairman, I want to express 
NACo's overwhelming support for the programs and mission of 
USDA Rural Development and offer some constructive feedback.
    USDA's regularly appropriated funding and Recovery Act 
funding is making a significant difference across rural America 
during the economic crisis, and in my county it has been 
critical to the continuation of vital infrastructure projects. 
I want to commend the Administration and especially Secretary 
Vilsack and Under Secretary Tonsager for their deep commitment 
to rural development and leadership of the implementation 
process.
    This morning, I would like to make three key points, which 
are described in much greater detail in my written statement. 
First, the Recovery Act is making a significant difference in 
my county and in rural communities across the country. However, 
challenges exist for rural counties in their request to obtain 
Recovery Act funds and implement new reporting requirements. 
USDA Rural Development is acting extremely quickly to award 
projects, and the Administration has been open and transparent 
during its rulemaking processes.
    In my county, the construction of the Pender County Water 
Treatment Plant Project and Pender Emergency Medical Services 
Facility and Emergency Operations Center were in jeopardy at 
the beginning of this year, but will now continue, due to USDA 
Rural Development funding provided in the Recovery Act.
    Despite the good work of USDA, the overall size of the 
Recovery Act and speed of implementation has left many rural 
counties struggling to navigate the maze of funding 
opportunities and move forward on implementation, while many 
Federal rules and regulations are still in the process of being 
created.
    USDA Rural Development staff is widely recognized for 
excellent customer service. NACo suggests that staff be trained 
to work with rural counties, especially our most distressed 
counties, to strengthen the linkages that exist between USDA 
Rural Development and other Federal and state programs, and to 
help them navigate the new transparency and reporting 
requirements.
    Second, infrastructure development remains one of the most 
significant roadblocks to economic development and 
competitiveness in small towns and rural America. USDA Rural 
Development is effective at helping communities overcome these 
roadblocks, but needs to receive additional resources in the 
coming fiscal years to meet these infrastructure needs.
    NACo supports Congress's and the Administration's growing 
support for rural broadband deployment and rural renewable 
energy development. However, the successful expansion of these 
two opportunities for rural America is dependent upon a 
simultaneous expansion of support for basic rural 
infrastructure.
    County governments provide and maintain basic public 
infrastructure services, especially costly water and sewer 
systems that are essential building blocks for economic and 
community development. Therefore, local and state funding for 
infrastructure needs cannot meet demand for the foreseeable 
future. This fact, combined with the aging infrastructure in 
rural America, means that USDA Rural Development's Water and 
Environmental Programs and Community Facilities Program will 
need enhanced funding, especially grant funding, if rural 
America is going to be able to meet the infrastructure needs 
that are necessary for economic development.
    Third, USDA Rural Development's traditional and newly 
authorized programs are an essential ingredient for rural 
communities as they seek to enhance their basic infrastructure, 
as well as employ techniques to promote entrepreneurs and 
businesses. However, these traditional programs should be 
bolstered by new and more aggressive incentives to promote and 
award flexibly funded regional approaches to rural development.
    The newly authorized Rural Collaborative Investment Program 
is one model that would provide much-needed incentives and 
resources for the enrichment of rural development strategies on 
a regional and local basis, as well as flexible program dollars 
to implement regional and local projects and priority 
initiatives.
    In my county, local flexibility and incentives for regional 
collaboration would allow us to work better regionally to 
develop a water system that can better meet our expected future 
demand.
    I have clarified these three points in depth in my written 
testimony.
    Thank you, again, Chairman McIntyre, Ranking Member 
Conaway, and Members of the Subcommittee, for the opportunity 
to testify this morning on behalf of the National Association 
of Counties on these critical rural development issues. I 
appreciate your time and interest, and I look forward to 
answering any questions.
    [The prepared statement of Mr. Rivenbark follows:]

Prepared Statement of Hon. Franklin D. Rivenbark, Commissioner, Pender 
County, North Carolina; Member, Agriculture and Rural Affairs Steering 
      Committee, Rural Action Caucus Steering Committee, National
 Association of Counties (NACo); Past Vice Chairman, Rural Development 
                     Subcommittee, NACo, Burgaw, NC
    Thank you, Chairman McIntyre, Ranking Member Conaway and Members of 
the Subcommittee for the opportunity to testify today on the status of 
rural development programs operated by USDA and the status of American 
Recovery and Reinvestment Act funds for these programs. Most 
importantly, I want to thank you Mr. Chairman for your leadership in 
ensuring that USDA Rural Development funding was included in the 
Recovery Act. The roundtable you held during the Recovery Act debate 
was instrumental in educating Members of Congress and their staff about 
the vital role USDA Rural Development programs could play in our 
nation's recovery efforts.
    My name is Franklin D. Rivenbark. I am a County Commissioner in 
Pender County, North Carolina and I currently serve in several 
leadership roles with the National Association of Counties (NACo). 
Pender County is located in the Chairman's Congressional district in 
the far southeast corner of the state and is the sixth fastest growing 
county in North Carolina with a population of around 50,000 people. I 
also serve on NACo's Rural Action Caucus Steering Committee, 
Agriculture and Rural Affairs Steering Committee and am a Past Vice 
Chair of NACo's Rural Development Subcommittee.
    My goal today in covering this important topic is to give you some 
concrete examples from my county and to represent the National 
Association of Counties. USDA's regularly appropriated funding and 
Recovery Act funding is making a significant difference across rural 
America during the economic crisis and in my county it has been 
critical to the continuation of vital infrastructure projects. I want 
to commend the Administration especially Secretary Vilsack and Under 
Secretary Tonsager for their deep commitment to rural development and 
steady leadership of the implementation process. NACo is pleased that 
USDA leadership is implementing their commitment to make rural 
development a key focus of the agency.
About the National Association of Counties
    Established in 1935, the National Association of Counties (NACo) is 
the only national organization representing county governments in 
Washington, D.C. Over 2,000 of the 3,068 counties in the United States 
are members of NACo, representing over 80 percent of the nation's 
population. NACo provides an extensive line of services including 
legislative, research, technical and public affairs assistance, as well 
as enterprise services to its members.
    NACo's membership drives the policymaking process in the 
association through 11 policy steering committees that focus on a 
variety of issues including agriculture and rural affairs, human 
services, health, justice and public safety and transportation. 
Complementing these committees are two bipartisan caucuses--the Large 
Urban County Caucus and the Rural Action Caucus--to articulate the 
positions of the association. NACo's Rural Action Caucus (RAC) 
represents rural county elected officials from the nation's 2,187 non-
metropolitan or rural counties.
    In my testimony, Mr. Chairman, I want to express NACo's 
overwhelming support for the programs and mission of USDA Rural 
Development and offer constructive feedback about the agency's programs 
and its implementation of the Recovery Act. NACo and its partners in 
The Campaign for a Renewed Rural Development fought for recognition of 
the need to bolster this agency in order to revitalize rural America 
during the farm bill and stimulus debates. The Campaign is a 
collaboration of twenty-eight national organizations with a strong 
interest in the sustainability and prosperity of small town and rural 
America and is chaired by NACo Past President Colleen Landkamer. The 
inclusion of significant resources for USDA Rural Development projects 
in the Recovery Act is an important commitment that we urge the 
Administration and Congress to continue through strong appropriations 
and the development of an even stronger Rural Development Title in the 
next farm bill.
    NACo especially supports increased grant resources for rural 
infrastructure improvements, renewable and alternative energy 
development, business and entrepreneurial development, broadband 
deployment and community facility enhancements. In addition, NACo 
strongly support the goals and concept of the Rural Collaborative 
Investment Program (RCIP), an innovative and forward-thinking rural 
development program authorized in the 2008 Farm Bill but not yet funded 
or implemented.
    This morning, I would like to make three key points.

   The Recovery Act is making a significant difference in my 
        county and in rural communities across the country. However, 
        many challenges exist for rural counties in their quest to 
        obtain Recovery Act funds and implement new reporting 
        requirements. USDA Rural Development is acting extremely 
        quickly to award projects and the Administration has been open 
        and transparent with NACo during its rulemaking processes. 
        However, rural counties are struggling to navigate the maze of 
        funding opportunities provided throughout Recovery Act and move 
        forward on implementation while many Federal rules and 
        regulations are still in the process of being created.

   Infrastructure development remains one of the most 
        significant roadblocks to economic development and 
        competitiveness in small town and rural America. USDA Rural 
        Development is effective at helping communities overcome these 
        roadblocks, but needs to receive additional resources in the 
        coming fiscal years to meet these infrastructure needs. NACo 
        supports Congress and the Administration's growing support for 
        rural broadband deployment and rural renewable energy 
        development. However, the successful expansion of these two 
        opportunities for rural America is dependent upon a 
        simultaneous expansion of support for rural infrastructure. 
        Entrepreneurs, small business leaders and private sector 
        industries drive our nation's innovation, competitiveness and 
        job growth. These individuals and entities also rely, expect 
        and demand that public entities such as county governments 
        provide and maintain basic public infrastructure services, 
        especially costly water and sewer systems, that are essential 
        building blocks for economic and community development.

    Historically, the bleakest fiscal periods for state and local 
        governments, when most capital projects are put on hold, is the 
        first 2 years of an economic recovery. Therefore, local and 
        state funding for infrastructure needs cannot meet demand for 
        the foreseeable future. This fact combined with the aging 
        infrastructure in rural America means that USDA Rural 
        Development's Water and Environmental Programs and Community 
        Facilities Program will need enhanced funding; especially grant 
        funding, if rural America is going to be able to meet the 
        infrastructure needs that are necessary for economic 
        development.

   USDA Rural Development's traditional and newly authorized 
        programs are an essential ingredient for rural communities as 
        they seek to enhance their basic infrastructure, as well as 
        employ techniques to promote entrepreneurs and businesses. 
        However, these traditional programs should be bolstered by new 
        and more aggressive incentives to promote and reward flexibly 
        funded regional approaches to rural development. This reflects 
        the reality of today's marketplace where rural counties and 
        communities are not only competing statewide and nationally, 
        but more likely, internationally. The newly authorized Rural 
        Collaborative Investment Program (RCIP) is one model that would 
        provide much needed incentives and resources for the enrichment 
        of rural development strategies on a regional and local basis, 
        as well as flexible program dollars to implement regional and 
        local projects and priority initiatives.

    First, Mr. Chairman, the Recovery Act is making a significant 
difference in my county and in rural communities across the country. 
However, many challenges exist for rural counties in their quest to 
obtain Recovery Act funds and implement new reporting requirements. 
USDA Rural Development is acting extremely quickly to award the backlog 
of projects, especially in rural housing, community facilities and 
water and wastewater disposal. It is still very early to comment on 
implementation of USDA programs as we are still in a beginning phase of 
the process, especially in regards to broadband deployment. NACo looks 
forward to working with the Administration to ensure that counties play 
a key role in helping to ensure full broadband coverage in both 
unserved and underserved areas and understands the need to be patient 
as this critical funding provision is implemented.
    Despite, being in the early stages of implementation, I can provide 
several positive examples from my county and offer some thoughts about 
challenges rural counties are facing in general. The Pender County 
Water Treatment Plant Project is a perfect example of the benefits of 
the Recovery Act. The project was challenged at the beginning of this 
year due in part to the economic downturn making it nearly impossible 
to raise additional revenue through the private sector. The county 
received $16.5 million in USDA direct loans and a $1 million grant in 
2008. The total project cost is estimated at $25 million and it is 
anticipated that Recovery Act funding or regularly appropriated funding 
that has been freed up by the Recovery Act will be available to fill 
the gap and allow the project to continue. This will create jobs in the 
county and help us continue to attract new businesses by having a plant 
with the capacity to be updated to meet future demand. The project will 
serve Rocky Point Water and Sewer District and Topsail and Scotts Hill 
Water and Sewer District. This funding is coupled with funding in 2008 
for the Town of Atkinson which received a loan of $432,000 and grant of 
$490,000 for a new water system. The Town of Burgaw also received a 
loan of $5 million in 2008 for improvements to their wastewater system.
    In addition, Pender EMS, a nonprofit, will receive $2 million in 
community facilities funding, mostly in the form of a direct loan and a 
small grant to construct a new emergency medical services facility and 
emergency operations center in the Town of Burgaw. The center is a 
joint venture with the county that was supposed to begin construction 
on January 1, 2009, but was put on hold due to the freezing up of the 
private credit market. The $2 million in USDA funding will keep the 
project on track. The funding may or may not come from the agency's 
Recovery Act funds, but it is clear that without the Recovery Act, 
regular appropriations would not have been available to keep the 
project on track. Although, not funded through the Recovery Act, USDA's 
Rural Housing Programs have also been instrumental in helping our 
community through the downturn, especially the annual funding that our 
county housing department receives to provide rental assistance to 
eight low income families, including seniors.
    The number of success stories such as this are growing, however, 
many rural counties are struggling to navigate the numerous Recovery 
Act funding opportunities and move forward on implementation while 
rules and regulations are still being created. I've outlined the 
feedback NACo is receiving from its members and some suggested remedies 
to help counties cope with these challenges.
    Staff Capacity and Persistent Poverty Counties--USDA Rural 
Development staff at the local, state and national level are well 
respected across rural America. My staff in Pender County and I both 
agree that USDA Rural Development staff are the best to work with of 
any Federal or state agency. They bend over backwards to make projects 
work and deeply care about the rural communities they serve. Yet, the 
agency is only one piece of the maze of programs and opportunities 
which rural counties are striving to understand. Unfortunately, many 
rural counties do not have the capacity to effectively compete for 
Federal grants and loans. NACo expects July and August to be the peak 
of open grant announcements. We urge USDA to train its field staff to 
assist rural communities with making the connections to programs and 
resources that are present not only at USDA, but also through other 
Federal and state agencies. Often other programs complement and match 
USDA programs, but are not easily accessible or well know to small 
communities.
    This Subcommittee should also ensure that USDA does significant 
outreach to our nation's 398 persistent poverty counties and other 
rural counties that have not traditionally been successful applying for 
or receiving USDA Rural Development funding. The Recovery Act requires 
that at least ten percent of USDA Rural Development funding (excluding 
the broadband program) be allocated for assistance in persistent 
poverty counties. The spirit of this provision will not be met by 
simply funding just enough projects to reach the ten percent threshold. 
Instead, NACo believes that USDA should engage in targeted outreach to 
these communities to ensure that those communities most in need are 
aware of their opportunities and afforded all possible help in 
successfully applying for funding that they are eligible to obtain.
    Administrative Costs--NACo accepts the Recovery Act's emphasis on 
enhanced transparency, tracking of project success and oversight. 
However, this enhanced focus on transparency and oversight creates 
significantly more costs for state and local governments to implement 
Recovery Act projects.
    The White House Office of Management and Budget issued guidance on 
May 11, 2009 allowing 0.5 percent of Recovery Act funds to be applied 
to program administration, in accordance with rules and procedures 
outlined in the guidance. While the guidance refers to states, White 
House officials have advised NACo that this also applies to local 
governments. NACo has requested that this inclusion of local 
governments be provided in writing so that Federal agencies uniformly 
allow local government administrative costs.
    Guidance--The Administration has been open and transparent 
throughout the Recovery Act implementation process. As diligent as they 
have been in working to implement the law, OMB's delay in releasing 
guidance on calculating job creation and retention is very concerning 
for counties. Many grant applications require these calculations and 
thus counties have been forced to plan their projects, apply for 
funding and even begin implementation without all of the key guidance 
documents at their disposal. The rules for reporting, estimating job 
creation and retention and deciphering allowable administrative costs 
are being written as we go along.
    Counties want to ensure that they quickly implement projects that 
meet the final guidelines that will eventually be published. Therefore, 
we urge the Administration to continue to keep in mind that local 
governments are under the pressure of speedy implementation without all 
of the facts for what comes next. The Administration should accept the 
good faith efforts of counties and allow them ample time to come into 
compliance as rules and regulations are written throughout the process. 
NACo especially urges reporting guidance to be released as soon as 
possible. The law requires reporting guidance to be released 45 days 
before the first reporting deadline of October 10. The 45 day window is 
not enough time. Counties will need this guidance released much earlier 
to ensure adequate time to comply.
    Buy American--Many counties located near our nation's international 
borders have expressed concern with the implementation of the Recovery 
Act's Buy American provisions. NACo asks that all Federal agencies use 
the flexibility of OMB's April 23, 2009, interim guidance to grant 
waivers based on nonavailability, unreasonable cost, and inconsistency 
with the public interest. These waivers should be granted as quickly as 
possible to ensure that counties that rely on foreign suppliers are not 
adversely impacted by extended waiver request review periods.
    Legislative Solution to Regulatory Uncertainty--NACo supports H.R. 
1282, which is sponsored by Representative Edolphus Towns, and passed 
the U.S. House of Representatives on May 20. We urge the Senate to 
quickly pass the companion legislation, S. 1064, sponsored by Senator 
Joseph Lieberman. The Enhanced Oversight of State and Local Economic 
Recovery Act amends the American Recovery and Reinvestment Act of 2009 
to require Federal agencies receiving funds under such Act, subject to 
guidance from the Director of the Office of Management and Budget 
(OMB), to reasonably adjust applicable limits on administrative 
expenditures for Federal awards to help award recipients defray costs 
of data collection, auditing, contract and grant planning and 
management, and investigations of waste, fraud, and abuse required 
under such Act.
    It authorizes state and local governments receiving funds to set 
aside up to 0.5% of such funds, in addition to any funds already 
allocated to administrative expenditures, to conduct planning and 
oversight to prevent and detect waste, fraud, and abuse. County 
governments are on the front lines of implementing the Recovery Act and 
this clear set aside for administrative costs will help ensure more 
effective implementation at the local level.
    The Act also authorizes the Administrator of the General Services 
Administration (GSA) to provide for the use by state and local 
governments of GSA Federal supply schedules for goods or services and 
requires the OMB Director to issue guidance to ensure accurate and 
consistent reporting of ``jobs created'' and ``jobs retained'' as those 
terms are used in such Act. The first provision will allow county 
governments to obtain lower rates for goods and services and the second 
provision will provide certainty on reporting requirement in regards to 
jobs created and jobs retained.
    Second, Mr. Chairman, infrastructure development remains one of the 
most significant roadblocks to economic development and competitiveness 
in small town and rural America. USDA Rural Development is effective at 
helping communities overcome these roadblocks, but needs to receive 
additional resources in the coming fiscal years to meet these 
infrastructure needs. NACo strongly supports Congress and the 
Administration's growing support for rural broadband deployment and 
rural renewable energy development. However, the successful expansion 
of these two opportunities for rural America is dependent upon a 
simultaneous expansion of support for basic rural infrastructure. The 
Recovery Act funds the backlog of basic infrastructure projects and is 
a critical down payment on this need. Yet, the backlog will quickly 
fill up again if regularly appropriated infrastructure funding is not 
enhanced. Entrepreneurs, small business leaders and private sector 
industries drive our nation's innovation, competitiveness and job 
growth. These individuals and entities also rely, expect and demand 
that public entities such as county governments provide and maintain 
basic public infrastructure services, especially costly water and sewer 
systems, that are essential building blocks for economic and community 
development.
    Historically, the bleakest fiscal periods for state and local 
governments, when capital infrastructure projects are put on hold, is 
the first 2 years of an economic recovery. Therefore, local and state 
funding for infrastructure will not meet demand for the foreseeable 
future. This fact combined with the aging infrastructure in rural 
America means that USDA Rural Development's Water and Environmental 
Programs and Community Facilities program will need enhanced funding; 
especially grant funding, if rural America is going to be able to meet 
the infrastructure needs that are necessary for economic development.
    Local governments own and maintain 75 percent of public roads, 50 
percent of bridges and 90 percent of public transit systems. More than 
98 percent of the nation's investment in water infrastructure has been 
made at the local level and virtually all public schools are owned and 
operated by local governments. We are not asking to be dependent on the 
Federal Government. I share these stats to let you know that local 
governments stand ready to be a key partner in economic recovery and 
are willing to pay our fair share for infrastructure needs. The stark 
reality is that we will not be able to afford these investments during 
the downturn and the first several years of the recovery without an 
enhanced Federal partnership.
    While USDA Rural Development is an essential partner for our rural 
counties and communities, we have been alarmed that its infrastructure, 
housing, broadband and community facilities portfolios were 
increasingly focused on direct loan and loan guarantee programs over 
the past decade. The maintenance of grant levels for key infrastructure 
programs in the President's FY 2010 Budget is a good first step because 
it reversed the trend of cuts. However, there remains a need to bolster 
these grant programs from years of cuts in order to help with seed 
capital and gap financing for our local projects. In Pender County and 
in communities across North Carolina and the nation we are eager to 
reverse the trend away from grants. Our persistently distressed 
communities and all communities recovering from a disaster need a 
higher portion of grant funding for our projects to be economically 
feasible.
    This need for adequate grant funding applies to rural counties and 
communities struggling to establish new water, sewer, broadband and 
community services, as well as countless counties and communities faced 
with the daunting task of replacing infrastructure that is often 
approaching 50 to 100 years old. For distressed and underserved rural 
counties and communities, especially the smaller and more rural areas, 
the trend of increased reliance on Federal direct loan and loan 
guarantee programs puts costly infrastructure improvement projects out 
of reach. As a result, a good portion of our nation's rural counties 
and communities will continue be in economic distress, long after a 
recovery has reached the rest of the nation.
    According to a 2009 report by the American Society of Civil 
Engineers, the nation's infrastructure remains in serious need of 
improvements and increased Federal investment. The conditions of the 
country's roads, drinking water systems, public transit, wastewater 
disposal, hazardous waste disposal and navigable waterways have 
worsened since the society's first report card in 2001. The improvement 
costs are now calculated at $2.2 trillion over the next 5 years. While 
state and local governments, industry and nonprofit organizations are 
making major contributions to our public infrastructure enhancement 
efforts, this immense job will never be completed without the 
aggressive leadership, participation and resources of the Federal 
Government.
    In addition to the health and social benefits of this long-term and 
on-going process, infrastructure development is vital to the nation's 
ability to maintain and sustain a world-class economy. This will be 
particularly critical as the nation works to expand the renewable fuels 
industry. The transport of raw and finished products, for example, is 
already placing new and growing demands on our infrastructure and 
transportation systems. As proven by USDA Rural Development investments 
over the years, the role of basic public infrastructure and facilities 
are at the core of both sustaining existing businesses, nurturing new 
companies and improving the quality of life in rural counties and 
communities. That is why USDA Rural Development is so significant to 
local efforts to develop water and sewer facilities, technology-related 
infrastructure, broadband services, housing and other essential 
community projects. These are all fundamental for commerce and 
improving the quality of life in our communities. As stated earlier, 
the private sector relies, expects and demands that counties and local 
communities provide and maintain these services and infrastructure.
    As the Committee works to evaluate the existing portfolio of USDA 
Rural Development programs, we also encourage you to help make the 
application process for new and existing programs more user-friendly 
and streamlined. While technical assistance providers such as our 
partners at the regional development organizations have developed the 
experience and expertise required to navigate the extensive USDA 
program portfolio and application process, it can still be a very 
burdensome and time consuming endeavor. This is especially important 
considering that over 33,000 of the nation's 39,000 units of local 
government have populations below 3,000 and 11,500 employ no full-time 
professional employees, according to U.S. Census Bureau data. 
Therefore, NACo supports USDA Rural Development's stated goal of 
putting together a community development component in rural development 
specifically geared toward smaller communities that don't have 
sufficient capacity. One way to assist localities with limited 
resources will be to increase USDA field staff's knowledge about 
community development--and to provide direct training and assistance to 
communities.
    Third, Mr. Chairman, USDA Rural Development's traditional and newly 
authorized programs are an essential ingredient for rural communities 
as they seek to enhance their basic infrastructure, as well as employ 
techniques to promote entrepreneurs and businesses. However, these 
traditional programs should be bolstered by new and more aggressive 
incentives to promote and reward flexibly funded regional approaches to 
rural development. This reflects the reality of today's marketplace 
where rural counties and communities are not only competing statewide 
and nationally, but more likely, internationally. The newly authorized 
Rural Collaborative Investment Program (RCIP) is one model that would 
provide much needed incentives and resources for the development of 
rural development strategies on a regional and local basis, as well as 
flexible program dollars to implement regional and local projects and 
priority initiatives.
    As the home to nearly \1/3\ of the nation's population, small town 
and rural America is a diverse, complex and constantly evolving place. 
Rural America compromises 2,187 of the nation's 3,066 counties 
(counties with 50,000 and below population), 75 percent of all local 
governments and 83 percent of the nation's land. Unfortunately, current 
Federal policies and programs often treat rural counties and 
communities differently than their urban counterparts, resulting in a 
significant policy bias and disadvantage for rural regions and 
counties.
    Current Federal policies are working to simply sustain rural 
America rather than help rural regions and counties pursue new economic 
and community growth opportunities. Meanwhile, urban areas often have 
direct control and access to Federal resources for community, human and 
physical infrastructure improvements that are essential building blocks 
for local development and job growth. NACo is a strong advocate for 
Federal community and economic development support for our urban 
counties and regions, yet we also firmly believe that rural counties 
and communities should have more robust Federal support for their rural 
development needs.
    New program tools are needed that are more flexible and broad to 
meet the individual and specific needs of our rural regions and 
counties, rather than forcing our rural leaders to fit and refigure 
their projects into the existing set of categorical USDA Rural 
Development programs. For example, Pender County, a rapidly growing 
county, could benefit if USDA allowed the county to expand its current 
water treatment plant project to meet the demands that we know will 
occur over the next 5 to 10 years, but instead we are only allowed to 
design a facility to meet current needs. Thus, almost immediately upon 
completing the project, the county will be required to incur additional 
costs related to planning, environmental assessments, engineering and 
design, and so forth for a plant expansion. In this instance and many 
others, local flexibility in planning for projects would allow for more 
fiscally responsible and effective use of resources at the local, state 
and national level.
    In addition, USDA should enact performance measurements and 
implement needs assessments for all programs. USDA, stakeholders, 
Congress and the public at large will benefit from more rigorous 
evaluation tools to assess the effectiveness of programs. Providing a 
needs assessment for all programs will help Congress appropriately fund 
all programs.
    NACo believes the weakness of the current programs is their stand 
alone nature. We seek to move rural development beyond just categorical 
programs to a stronger commitment to regional rural development 
strategies and programs designed by local leaders. We must allow 
effective USDA Rural Development programs to be placed within a 
planning process that gives rural county and community leaders 
flexibility, resources and incentives to leverage their local assets 
and use Federal and state resources for their top local priorities.
    Study after study by Federal agencies and universities have 
concluded that additional funding for strategic planning, capacity 
building and technical assistance programs is one of the most pressing 
needs facing rural governments and communities. This stems from the 
fact that most rural local governments simply do not have the financial 
resources to hire professional economic development practitioners. And, 
presently there are few Federal programs designed specifically for 
their needs--unlike urban areas that receive millions of dollars in 
direct funding from HUD and Department of Transportation. Programs such 
as RCIP offer a great opportunity to build upon the existing regional 
and local institutions throughout rural America, while also fostering 
new approaches to developing comprehensive regional strategies, new 
multi-sector partnerships and new program flexibility to address the 
unique needs and potential of each region.
    All of the nation's rural regions, counties and local communities 
must engage in an on-going and dynamic strategic planning process, 
otherwise they will fall prey to complacency and world progress. Even 
local economies that are excelling today are subject to sudden or 
subtle changes in international, national and local markets. Loss of 
local control with the emergence of global companies, consolidation of 
banks and other industries that were once locally owned and controlled 
and other factors will continue to make the task of regional and rural 
development more challenging.
    Even more importantly, RCIP would offer fully flexible 
implementation grants for regional and local projects that are 
identified and prioritized in a region's comprehensive rural 
development strategy. On a national competitive basis, counties, 
nonprofit organizations, educational institutions and other eligible 
organizations would be eligible to apply for project implementation 
resources that address a broad range of community and economic 
development needs, including renewable energy, broadband deployment, 
value-added agricultural development, infrastructure improvements, 
entrepreneurship, business development finance and community facility 
improvements. RCIP investments would not replace the existing USDA 
Rural Development portfolio, but instead would complement and leverage 
existing public, private and philanthropic resources. We urge the 
Subcommittee to work with their colleagues on the Appropriations 
Committee to fully fund the RCIP program and work to ensure that 
existing USDA Rural Development programs are as flexible as possible to 
accommodate innovative local and regional planning efforts.
    In conclusion, I would like to reiterate the three key points. 
First, the Recovery Act is making a significant difference in my county 
and in rural communities across the country. However, many challenges 
exist for rural counties in their quest to obtain Recovery Act funds 
and implement new reporting requirements. Second, infrastructure 
development remains one of the most significant roadblocks to economic 
development and competitiveness in small town and rural America. USDA 
Rural Development is effective at helping communities overcome these 
roadblocks, but needs to receive additional resources in the coming 
fiscal years to meet these infrastructure needs. Third, USDA Rural 
Development's traditional and newly authorized programs are an 
essential ingredient for rural communities as they seek to enhance 
their basic infrastructure, as well as employ techniques to promote 
entrepreneurs and businesses. However, these traditional programs 
should be bolstered by new and more aggressive incentives to promote 
and reward flexibly funded regional approaches to rural development.
    Thank you again, Chairman McIntyre, Ranking Member Conaway and 
Members of the Subcommittee for the opportunity to testify this morning 
on behalf of the National Association of Counties on these critical 
rural development issues. I appreciate your time and interest. I look 
forward to answering any questions.

    The Chairman. Thank you, Commissioner Rivenbark.
    Ms. Debra Martin.

    STATEMENT OF DEBRA MARTIN, DIRECTOR, GREAT LAKES RURAL 
             COMMUNITY ASSISTANCE PARTNERSHIP, WSOS
            COMMUNITY ACTION COMMISSION, FREMONT, OH

    Ms. Martin. Good morning. I would like to thank you, 
Chairman McIntyre, Ranking Member Conaway, and Members of the 
Subcommittee, for the opportunity to be here to talk about 
Rural Development programs.
    I am the Director of the Great Lakes Rural Community 
Assistance Program, which is one of the six regional RCAPs 
across the country. RCAP is a nationwide program that helps 
small communities meet their water, wastewater, and other 
community development needs. We provide training and technical 
assistance to build the capacity and sustainability of small 
systems, and to assist them with the development of their 
infrastructure projects.
    Through the course of our work, we deal with Rural 
Development programs and staff on a daily basis. Since our 
primary focus is on infrastructure, we are quite familiar with 
the water and waste disposal programs. However, as you are well 
aware, the needs in rural communities go well beyond 
infrastructure, and so in an effort to provide comprehensive 
services, we have dealt with a number of other programs as 
well.
    Rural Development programs are critically important to 
small communities. They provide small communities the 
opportunity to develop projects that protect public health, the 
environment, and assist with the future development of the 
community.
    In the interest of time, I am going to talk mostly about 
the Water and Waste Disposal Programs today, although I have 
included some information about other programs in my written 
testimony.
    The infrastructure needs in small communities in this 
country are absolutely staggering. According to the most recent 
needs surveys conducted by EPA, small systems will need $34 
billion for drinking water and $69 billion for wastewater over 
the next 20 years. For very small communities, developing an 
infrastructure is a major challenge. It is absolutely 
impossible for them to achieve the economies of scale that are 
found in larger systems and, because of that, rural residents 
pay on average about three to four times more for these 
services than people in urban areas.
    In our work it is not unusual to see small, impoverished 
community residents paying over $100 a month for water and 
sewer services. In addition, there are literally hundreds of 
small communities in my region alone that are unsewered and are 
currently under EPA mandates to develop sewer systems.
    When you are looking at a $4 million capital cost for a 
sewer system, with a hundred households, which is the case in 
many of these areas, you don't have to be a mathematical genius 
to know that the math just doesn't work on those, and it is 
quite an economic struggle for them to try to develop these 
systems. This is why Rural Development funding is so critical.
    For many, many years, Rural Development has served as the 
lender of last resort for these rural areas.
    The SRF programs that are available through EPA are good 
programs for larger systems, but the longer terms and the grant 
funding that is available through Rural Development make them 
an absolutely critical source for these smaller areas.
    Another challenge the small communities face specifically 
with regard to the Economic Recovery Act is that they are the 
least likely to have shovel-ready projects, and that is because 
of the significant costs that go into developing a project to 
the point that it is shovel-ready. And so that is a challenge 
going forward. There is a time limit on the funds, and yet 
bringing small communities to the point that their projects are 
actually shovel-ready is a difficulty.
    In addition, over the past several years, outside of the 
Economic Recovery Act funding, Rural Development has seen its 
funding decrease steadily over the past several years. Water 
waste disposal programs from 2003 through 2008 were reduced by 
25 percent, the Community Facilities Program funding was 
reduced by 28 percent, and housing programs by 33 percent.
    In addition to that, the grant funds that are appropriated 
to the programs have declined significantly over the years. In 
2003, the average percentage of grant funding that was 
allocated was about 39 percent, and it is about 26 percent 
today. Without the grant portion of the funding, it is nearly 
impossible for the smallest systems to be able to develop their 
projects.
    And we realize that in terms of budget authority the loan 
dollars can be stretched further and allow them to serve more 
projects; however, at some point if that trend continues, then 
the program will cease to be a viable option for the 
communities that it was intended to serve.
    Another issue or challenge that we see is that the 
administrative portion of Rural Development funding that pays 
for staffing, and so forth, for Rural Development has been 
reduced over the years, and this is particularly a challenge 
with the Economic Recovery Act funding adding to the number of 
projects that need to be served.
    And I will just stop right there since I am out of time, 
and I thank you again for the opportunity to talk about the 
programs and welcome your questions.
    [The prepared statement of Ms. Martin follows:]

    Prepared Statement of Debra Martin, Director, Great Lakes Rural
  Community Assistance Partnership, WSOS Community Action Commission, 
                              Fremont, OH
    Thank you, Chairman McIntyre and Ranking Member Conaway, for the 
opportunity to address the Committee. The role of the Federal 
Government's USDA Rural Development programs in rural America is 
critical, and we applaud the Committee's efforts to ensure that these 
programs are working as intended and having a positive impact, 
particularly in today's economically challenging times.
    My name is Debra Martin, and I am the Director of the Great Lakes 
Rural Community Assistance Program (RCAP), based in Ohio and serving 
the States of Illinois, Indiana, Kentucky, Michigan, Ohio, West 
Virginia, and Wisconsin. The Great Lakes RCAP is part of the national 
RCAP network, whose regional service providers help small, typically 
low-income, rural communities address water, wastewater, and other 
community development needs. The RCAP network provides training and 
technical assistance to build the capacity and sustainability of small 
systems, and to assist small communities with the development of needed 
water and wastewater facilities. The RCAP network serves over 800 
communities every year through funding provided by USDA's Technical 
Assistance and Training Grant Program under its Water and Waste 
Disposal Program.
    Working with rural communities nationwide, we deal with Rural 
Development programs and staff on a daily basis. Our primary focus is 
on infrastructure, so we are intimately familiar with the Water and 
Waste Disposal program. However, needs in rural communities go well 
beyond infrastructure, and in an effort to provide more comprehensive 
programming, our organizations have made extensive use of other Rural 
Development programs such as Community Facilities, housing programs, 
the Rural Community Development Initiative program, the Intermediary 
Relending Program, and others.
    The infrastructure needs alone in this country are staggering. The 
most recent needs surveys by EPA estimate the funding needs in small 
systems and rural areas at $34 billion for drinking water and nearly 
$69 billion for wastewater over the next 20 years.
    Small systems nationwide comprise approximately 83% of all public 
drinking water systems and 70% of public wastewater facilities, though 
they account for a much smaller share of the total population served. 
Small communities face unique challenges in developing, upgrading, and 
operating their water and wastewater facilities. For example, small 
utilities must spread their capital and operating costs among fewer 
customers--including large commercial, industrial, and institutional 
users--making it impossible to achieve economies of scale found in 
larger systems.
    Customers in small systems pay, on average, three to four times 
more than their urban counterparts for water and wastewater services, 
according to EPA data. To cite one example, the Appalachian community 
of Corning, Ohio, with a population of 593 and a median income of 
$27,868, recently developed a new sewer system. Despite utilizing RCAP 
assistance to obtain every available source of Federal and state grant 
funding, village residents are paying $65 per month for their sewer 
service. Coupled with a $45 per month average water bill, community 
residents are paying nearly 5% of their income for these utilities. The 
situation in Corning is hardly unique. In fact, it mirrors what is 
happening in small communities all over the country.
    RCAP is committed to educating local officials about the importance 
of maintaining infrastructure investments, encouraging local 
responsibility, and ensuring that residents are paying their fair share 
for these services. RCAP offers training to utility boards and managers 
on topics such as financial management, budgeting, asset management and 
rate-setting. However, there is a point at which the cost of projects 
is simply not affordable to rural residents. Assistance from the 
Federal Government is vital to small communities in developing needed 
infrastructure. Without Federal grants and subsidized long-term loan 
funds, the vast majority of projects in rural America, many of which 
are only marginally affordable even with these funds, are simply not 
feasible.
    The current credit crisis puts small communities at a more 
pronounced disadvantage. With credit tightening and state and local 
government revenues shrinking, infrastructure funding is more 
competitive. Some state agencies have had difficulty marketing and 
selling bonds used to capitalize various state funding programs, even 
those that carry AAA ratings. In such an environment, it can be very 
difficult for small communities to compete with larger cities, 
particularly when they are far less likely to have shovel-ready 
projects.
    For many years, USDA Rural Development has served as the ``lender 
of last resort'' for rural communities. The USDA's Water and Waste 
Disposal Loan and Grant Program is one of the few infrastructure 
programs available exclusively for small communities. Rural Development 
is also the lead Federal agency for improving housing, community 
facilities, and providing economic opportunity in rural areas. Rural 
Development programs must be adequately funded if small communities are 
going to have the opportunity to develop projects that are critical to 
public health, the environment, and their future development.
Issues and Challenges in Current Rural Development Programming
    In recent years, Rural Development has seen funding for its 
programs steadily decrease. Since 2003, funding has been reduced by 25% 
for water and sewer, 28% for rural community facilities, and 33% for 
rural housing loans and grants (excluding funds made available recently 
through the ARRA).
    In addition, grant funding for water and sewer projects, as a 
percentage of the overall allocation, declined from 39% in 2003 to 26% 
as of 2006. As previously noted, grant funds are critical to help 
defray the enormous costs of infrastructure development. If the trend 
of reducing the grant-to-loan ratio continues, the program will cease 
to be a viable option for most small communities, especially those 
serving low-income populations.
    The ARRA funding is critical to meet current needs. However, it 
presents many challenges, both to communities utilizing the programs 
and to the agency, in expending the funds in a timely manner.
    Rural Development's administrative budget has stagnated in recent 
years, so the agency has fewer field staff to process loan and grant 
applications, a particular problem in handling the time-sensitive ARRA 
funding. From 2007-2008, Ohio's Rural Development office experienced a 
73% increase in demand for its housing programs, and a 170% increase in 
its business programs.
    Moreover, the ARRA imposes additional requirements that add to the 
cost of projects for communities and the administrative time required 
to track and report on those provisions.
    The challenges for small communities in meeting the compressed 
timelines imposed by ARRA are great. There are numerous time-consuming 
and labor-intensive steps to the application process, which typically 
can take communities 2 years or more to complete. An engineering report 
and an environmental review are required before the agency begins 
processing an application. These reports can cost $30,000-$50,000--a 
substantial portion of their annual budget. Since there is no guarantee 
that funding will be available, many communities are reluctant to take 
this risk. In addition, completing an environmental report at this 
stage slows the process considerably; it typically takes 3-6 months to 
complete a review.
    There are many more tasks to be completed before funds can be 
obligated. Once obligation occurs, several additional time-consuming 
steps must be completed before construction can begin, such as 
submission of user agreements and plans for connection of customers, 
securing rights-of-way and easements, completion of engineering design 
and a review by Rural Development, securing required permits, 
development of an annual budget.
    The RCAP program and the technical assistance it provides serve as 
a bridge between the agency and communities. RCAP staff have a detailed 
working knowledge of Rural Development goals, processes, and priorities 
and can help meet them while serving the needs of small communities. 
For instance, last week the RCAP program in Ohio, in conjunction with 
Rural Development, conducted a workshop to reach out to communities and 
make them aware of additional funding available through the agency and 
how to access it. This workshop was attended by over 100 people. RCAP 
assists not only with the applications and every phase of the project 
development process, but also provides training and technical 
assistance to projects after construction is complete, helping small 
systems understand how to properly manage and operate the system in a 
financially sustainable manner.
    Examples of additional issues with Rural Development programs that 
need to be corrected in order to maximize their effectiveness include 
the following:

   The IRS ruling that communities cannot utilize tax-exempt 
        bonds when securing loan guarantees under the Water and Waste 
        Disposal and Community Facilities programs. This negates the 
        favorable interest rate they receive through the program and 
        renders the program ineffective.

   Intermediary Relending Program (IRP) funding, which makes 
        loans to nonprofits that re-lend the funds to local businesses, 
        has declined in recent years, despite the program's proven 
        record of job creation and significant leveraging without a 
        single default.

   The Rural Business Opportunity Grant (RBOG) is funded at 
        such a low level outside its earmarked funds that it wastes the 
        resources of agency staff and the communities that complete the 
        100+ page application, since 99% of applications go unfunded. 
        This program should either be funded at a higher level or 
        discontinued.

   The Value-Added Producer Grant and the Rural Energy for 
        America Program are available to farmers, but applications are 
        only accepted once per year, generally during the busy spring 
        planting season. Program funding should be announced early in 
        the fiscal year so that producers could work on the application 
        during the winter months. The timing of annual appropriations 
        is typically blamed for the delay.
Recommendations To Assist Rural America and Improve RD Programs
    Solving the problems facing rural communities requires a multi-
pronged approach that includes adequate funding, along with steps to 
ensure that grant funding is available only to the most needy 
communities, that there is sufficient technical assistance available to 
ensure that the funds are distributed where they are most needed, and 
that alternative approaches are considered. Specifically, RCAP offers 
the following recommendations:

    (1) Annual appropriations for Rural Development programs need to 
        increase. While it may be unrealistic to expect programs to be 
        funded at ARRA levels, programs should have funding restored to 
        the highest feasible levels. (This includes the IRP and RBOG 
        programs mentioned above.)

    (2) Improve the grant-to-loan ratio in the Water and Waste Disposal 
        Program. The farm bill authorized lower interest rates, which 
        will help make projects more affordable for communities. 
        However, the additional loan subsidy further reduces available 
        grant funding, and many low-income communities simply cannot 
        develop feasible projects without grants.

    (3) Eliminate the ``similar systems rule'' in the Water and Waste 
        Disposal Program. Rural Development awards grant funding to 
        systems to subsidize user rates to a ``reasonable'' level. This 
        generally is based on user rates as a percentage of median 
        household income. However, the similar systems rule is 
        essentially a loophole that allows consideration of the rates 
        paid by systems in the same geographic area, regardless of 
        income. This permits some systems to receive grant funding and 
        maintain rates that are too low, when a low-interest loan would 
        have been affordable. Establishing rates as a percentage of 
        median income is equitable and should be the sole means of 
        determining grant funding.

    (4) Strengthen provisions that require communities to consider 
        regionalization/collaboration. Too often, these options are 
        given a cursory examination and dismissed because of a lack of 
        support by the community. In order to maximize limited 
        resources, communities need to realistically examine whether 
        operating their own facilities is cost effective. Many Rural 
        Development offices have not forced communities to consider 
        these alternatives because they are not politically popular. 
        Therefore, such a requirement should be part of the law. While 
        there may be legitimate reasons for communities not to choose 
        regionalization, the burden of proof should be on the 
        community.

    (5) Increase technical assistance funding that will allow RCAP and 
        other providers to keep pace with growing demand. Currently, in 
        Ohio and other Great Lakes RCAP states, there is far more 
        demand for assistance, particularly with new sewer projects, 
        than can be met with existing technical assistance funding. 
        These projects tend to be very time and labor-intensive, as 
        they are typically the smallest and, hence, the most difficult 
        to fund, communities.

    In addition to technical assistance for water and wastewater, a 
        broader technical assistance program to help rural communities 
        access funds for community facilities, community planning, and 
        economic development should be created. During the course of 
        our water and wastewater work, we are frequently approached by 
        rural communities to provide these other services because they 
        lack full-time staff or expertise to access funds that might be 
        available to them. In the last 2 years, we have received over 
        60 requests for such assistance in the Great Lakes region.

    (6) Delay the environmental assessment requirement until after the 
        initial application is submitted. As long as the assessment is 
        completed prior to the start of construction, it will meet the 
        requirements of the National Environmental Policy Act. This 
        would allow the assessment to be completed simultaneously with 
        other requirements--including final engineering design--and 
        would speed the processing of applications.

    (7) Provide a legislative remedy to the IRS ruling on loan 
        guarantees.

    (8) Make programs directed to farmers available at appropriate 
        times of the year, or consider moving to a year-round 
        application period.

    We thank the Committee for considering our testimony on these 
issues and thank you for your commitment to meeting the needs of rural 
America's communities.

Debra Martin, Director,
Great Lakes RCAP,
WSOS Community Action Commission,
Fremont, OH.

    The Chairman. Thank you very much. I am sure there will be 
an opportunity through questions and available additional 
testimony if you would like to provide that in writing.
    I will now call Governor Sanchez.

STATEMENT OF HON. CHANDLER SANCHEZ, GOVERNOR, PUEBLO OF ACOMA, 
 ACOMA, NM; ON BEHALF OF NATIONAL CONGRESS OF AMERICAN INDIANS

    Governor Sanchez. Chairman McIntyre, Ranking Member Conaway 
and Members of the Committee, my name is Chandler Sanchez, and 
I am the Governor of Pueblo of Acoma. On behalf of Pueblo of 
Acoma and the National Congress of American Indians, the oldest 
and largest national organization representing tribal 
governments, thank you for providing Indian Country with this 
opportunity to testify.
    Indian Country is America's most rural population, 60 
percent of Native Americans live in rural America compared to 
the national average of 30 percent. Tragically nine out of ten 
poorest counties in America contain Indian reservations. Our 
infrastructure deficiencies are Third World-like. For example, 
30 percent of Natives do not have basic telephone access, and 
90 to 95 percent do not have high-speed Internet service. 
Thirteen percent of us don't have access to clean water, and 14 
percent of us don't have electricity. Sixty-five percent of our 
roads are dirt and gravel. And while the U.S. unemployment rate 
has risen to nine percent, many of our communities struggle 
with an unemployment rate as high as 90 percent.
    Although we are the most rural, we are dramatically 
underserved by the USDA. For example, we lack access to water 
at the rate of 20 times greater than anyone else. And yet of 
the 250 economic stimulus water projects announced by the USDA, 
we could only find one that was clearly tribal. While USDA does 
have great tribal liaisons, and many are very dedicated 
employees, there continues to be a major impediment blocking 
Indian Country access to USDA's programs.
    In preparation of this testimonial, NCAI asked tribal 
leaders how USDA applications were going. The most common 
answers we received were that they had never heard of the 
program, or that they didn't have the resources to apply.
    We recommend first that USDA conduct full government-to-
government consultation with Indian Nations to facilitate 
implementations of the Recovery Act; ten percent set-aside for 
persistent poverty counties. No such consultation has yet taken 
place.
    Second, that there should be a more substantial set-aside 
for Indian Country in rural water and water disposal programs, 
and that the programs predominantly provide grants for poorer 
communities. Over 13 percent of tribal homes lack basic access 
to safe drinking water and/or basic sanitation compared to the 
nationwide average of one percent.
    Lack of inadequate and safe water is not only a health 
hazard, but also a major barrier to economic development. For 
example, the Cheyenne River Sioux Tribe has imposed a ban on 
new construction because of an inadequate water system that is 
at a 99 percent capacity. A new water intake system would cost 
approximately $80 million. Last year Congress appropriated $60 
million for all tribes in rural water accounts, with a USDA cap 
of no more than $1 million per tribe.
    Third, we recommend that the Community Facilities Program 
should have a trouble--specific set-asides appropriate to the 
needs in Indian Country, and that the program should 
permanently provide grants for poorer communities. My own tribe 
applied for this last year for a community facility loan/grant 
package for the construction of $14 million community center 
and wellness facility. This center, which is 100 percent 
shovel-ready, would serve our reservation and the entire 
surrounding rural community, a total of 10,000 people.
    USDA worked with us closely; however, we were stunned when 
we received a draft loan/grant letter that provided for $14 
million in loan and loan guarantees and absolutely no money in 
the form of a grant. USDA's officials have explained that the 
Community Facilities Program does not have sufficient grant 
funding, and that we need to come to Congress. So here I am.
    Let me close with a list of some of the other 
recommendations that we have detailed information on each of 
them in my written testimonial. Congress and the USDA should 
fund the Administration's request for USDA's tribal office and 
evaluate the current office for an Assistant Secretary for 
Tribal Affairs; establish an Indian Country office in Rural 
Development; provide Indian reservations with the same access 
to USDA as given to every community in America; create tribal 
set-asides in all Rural Development programs proportionate to 
the needs; ensure that the grants rather than loans are 
actually available for the poorest counties and communities; 
better tailor the application process for tribal governments; 
distribute some funds based on need formulae rather than 
competitive grants.
    And finally, while we recognize it isn't the focus of 
today's hearing, we hope Indian Country is invited back to talk 
about many concerns we have about telecom and the USDA.
    Thank you so much for having me here to speak today. The 
tribes at NCAI look forward to working closely with the 
Committee on these issues. Thank you.
    [The prepared statement of Governor Sanchez follows:]

Prepared Statement of Hon. Chandler Sanchez, Governor, Pueblo of Acoma, 
     Acoma, NM; on Behalf of National Congress of American Indians
    Chairman McIntyre, Ranking Member Conaway, and the Members of the 
Committee, thank you for having me here today. My name is Chandler 
Sanchez and I am the Governor of the Pueblo of Acoma. On behalf of the 
Pueblo of Acoma and the National Congress of American Indians (NCAI), 
the oldest and largest national organization representing tribal 
governments, I am delighted to be here. Thank you so much for ensuring 
that a Native voice was heard today.
    As you know, the USDA in general and the Rural Development Office 
specifically is extremely important to Native people, yet we continue 
to be dramatically underserved. Indian Country is America's most rural 
population. While only 30% of America lives in rural areas, nearly 60% 
of Natives still live in rural America. And we are probably the rural 
population most in need of rural development. Nine of the ten poorest 
counties in America are not in the South or in West Virginia, they are 
counties with Indian reservations. And while only 1% or less of the 
general U.S. population doesn't have access to a phone, or to 
electricity, or to clean water--30% of Natives do not have basic 
telephone access, 14% of us still don't have electricity, and over 13% 
of us don't even have access to clean water. And while the U.S. is 
concerned with the unemployment rate rising to 9%, many of our 
communities have been struggling with 90% unemployment. There is 
perhaps no area more desperately in need of the USDA Rural Development 
services than Indian Country.
    Despite this desperate need, Indian Country is not getting served 
well by the USDA. For example, of the 250 economic stimulus water 
projects just announced by the USDA, I could only find one that was 
Tribal. Yet we lack access to water at a rate 20 times greater than 
anyone else.
    It is not news that the USDA is bureaucratic and inflexible. But 
there are a number of systemic issues built into the USDA requirements 
structure that perpetuate this problem in Indian Country. I will go 
into more detail, but one example is the USDA and Congressional 
preference for loans over grants. We understand and respect this from a 
business point of view, but many of our communities have no resources 
for loans, and no way of getting resources to pay back loans until we 
have basic infrastructure in place. It's a vicious cycle. Another 
example is the USDA's preference for ``incumbents'' in their funding. 
If the current companies, the incumbents, were serving Indian Country 
well, we wouldn't have this dramatic lack of service.
    I don't mean to infer the USDA has done nothing. They have a very 
good tribal liaison in the Rural Development office that is working 
very hard, a number of very dedicated state employees, and they have 
done some calls and webinars for Indian Country on the economic 
stimulus, both with NCAI and with the White House. However, there 
continue to be major systemic impediments, and the overall USDA effort 
has been insufficient. I think most telling is that in preparation for 
this testimony, we sent out a notice throughout Indian Country asking 
for stories on how these programs were working. Unfortunately, rather 
than being given a list of how the applications were going and how any 
funds were being spent, the most common answer we received was that 
they had either never heard of the programs or they didn't have the 
resources to apply. Something is inherently broken when the resources 
are not getting to those who need them most.
The Need for USDA Rural Development in Indian Country
    This Committee, perhaps better than any other, understands the 
importance of the USDA and its rural development programs for Indian 
people. While only 30% of America lives in rural areas, nearly 60% of 
Natives still live in rural America. And not only are our areas just 
rural, they are often very remote and isolated. For example, most of 
the villages in Alaska still have no road access at all and all travel 
is only available a few months of the year by plane. Throughout all of 
Indian Country, 65% of our roads are dirt and gravel, treacherous 
throughout the year and impassable during bad weather.
    Not only can we not travel well, we cannot communicate well, with 
30% of us not having basic telephone service and 90-95% of us not 
having high speed Internet access. Last year NCAI took a delegation to 
Indian Country, and the while there the White House staff were very 
surprised to find that even their high tech international phones would 
not get a signal in Indian Country. Without the basic skeletal 
infrastructure of roads, water, and communications in place, economic 
development continues to elude us. Despite the well known successes of 
a few of our Tribes located in more populated settings, nationally we 
continue to have a poverty rate twice that of the rest of America 
(25%).
    The Poorest Counties in America Are Indian Country. A census 
statistic, in which we take no pride, is that nine of the ten poorest 
Counties in the U.S. are Native American reservations and communities, 
six of them alone are in North and South Dakota. By and large these are 
rural and often isolated counties, which are in desperate need of a 
better relationship with USDA and Rural Development.

------------------------------------------------------------------------
              County                          Tribe/Reservation
------------------------------------------------------------------------
 1    Buffalo County, South Dakota  Crow Creek
 2    Shannon County, South Dakota  Pine Ridge
 3    Starr County, Texas           ----
 4    Ziebach County, South Dakota  Cheyenne River
 5    Todd County, South Dakota     Pine Ridge
 6    Sioux County, North Dakota    Standing Rock
 7    Corson County, South Dakota   Standing Rock
 8    Wade Hampton, Alaska          Several Native Villages/92% Native
 9    Maverick County, Texas        Kickapoo Traditional Tribe of Texas
10    Apache County, Arizona        Navajo and White Mountain Apache
------------------------------------------------------------------------

USDA Rural Development and Indian Country
ARRA and ``Persistent Poverty Counties''
    The Recovery Act provides a 10% set-aside to persistent poverty 
counties for the billions of dollars provided to USDA Rural Development 
programs for water and infrastructure, business and investment, 
community facilities, and rural housing. To date however we do not know 
how USDA intends to reach out to these another persistent poverty 
counties, especially since, as was just discussed, nine of ten of the 
poorest are actually Tribal counties and it is the Tribes, not the 
County government, that provide most of the services. To the best of 
our knowledge, the USDA has not reached out to consult with the Tribal 
governments themselves within these counties or to discuss and plan 
implementation of this provision.
    ``Persistent Poverty County'' Recommendation:

   NCAI and the Tribes would be pleased to be invited to be 
        part of the solution. We very much look forward to hearing from 
        USDA on approaches being considered and any progress that may 
        have already been made in the dispensation of funding to 
        persistent poverty counties and the Tribes within those 
        counties.
Rural Water and Waste Disposal
    13% of Tribal Homes No Water Access. Currently over 13% of tribal 
homes lack basic access to safe drinking water and/or basic sanitation 
(living conditions often associated only with the developing world). 
The statistic for the rest of America is less than one percent 
nationwide, 0.6%. With the proportion of Native people lacking access 
to safe drinking water at over 20 times the national average, one would 
think that the proportion of Federal funding would at least approximate 
this dramatic difference. However, just using the USDA's own press 
announcements regarding over 250 water projects water and waste water 
projects funded under ARRA (April 28 and May 28), we counted only one 
of which we could identify as Tribal, or 0.4% of the projects recently 
funded.
    Alaskan Example. In rural Alaska residents of many Alaska Native 
Villages must still use external ``honey-buckets'' and then have their 
waste transported by all-terrain vehicles to untreated sewage lagoons 
nearby. To compound this problem, many of these lagoons often overflow 
(as according to a 2003 Government Accountability Office report, 184 
out of 213 Alaskan villages are subject to flooding, melting 
permafrost, and erosion due to warming temperatures),i 
leading to a variety of additional health issues.
---------------------------------------------------------------------------
    \i\ United States General Accountability Office, ``Alaska Native 
Villages, Most Are Affected by Flooding and Erosion but Few Qualify for 
Federal Assistance,'' GAO-04-142 (December 2003).
---------------------------------------------------------------------------
    South Dakota Example. The water need for economic development is so 
great in our Nations it is almost overwhelming to discuss. For example, 
in South Dakota, the Cheyenne River Sioux Tribe's, economic development 
has been completely halted due to lack of water. The antiquated water 
system is at 99% capacity, and there is a complete ban on new 
construction. While the housing need is enormous, there is absolutely 
no housing available, and 750 requested homes wait in the queue to be 
built. This bars economic development, as the Tribe cannot hire new 
employees or teachers, or attract any new business, as there is nowhere 
for them to live or build. The lack of water and housing is also a 
public safety issue. Unfortunately Indian Country has some of the 
highest rates of violence against women, but there is no housing for 
our women and children to move into, if they need to get out of their 
home environment into safety.
    The new water intake system for Cheyenne River will cost 
approximately $80 million. Last year Congress appropriated $16 million 
for all tribes in the rural water account, with a USDA cap of no more 
than $1 million per tribe. Clearly this rate of Congressional and USDA 
investment will never pull Indian Country out of its third world water 
conditions.
    Water Recommendations:

   Increase Set-Aside Authorization. This is not just an 
        appropriations issue, this is an authorization issue. We need 
        this Committee to commit to a more substantial set-aside for 
        Indian Country in the Water account. If our need is 20 times 
        that of the general population, a 20% or more set-aside in the 
        rural water account for this area is necessary and humane until 
        this dramatic gap begins to close.

     We recognize that the Alaska water account has had 
            Federal implementation issues over the last few years and 
            we look forward to that being worked out, and that program 
            finally being effectively distributed within Alaska.

   Focus on Grants Rather Than Loans. Additionally, this 
        account needs to be available predominantly in grant funds to 
        these poorer communities. If these Tribes had the resources to 
        build out with loans, they would have already done so. While 
        the USDA policy is that up to 75% of the project cost can be 
        provided in loans, in reality that caps at around 25%. This 
        ratio needs to be addressed for these poorest counties and 
        areas. The problems with the loan issue are compounded by the 
        fact that many of these Tribes have treaty right access to 
        these waters, and many of the water access issues were caused 
        by the Federal Government itself, including the national 
        damming projects.

   Interagency Coordination on Indian Water Projects. Several 
        agencies such as the USDA, Indian Health Service, Environmental 
        Protection Agency and Housing and Urban Development, provide 
        some aspect of water infrastructure funding for Indian Country. 
        However, each agency has different engineering standards, 
        reporting requirements, and grant cycles among other things 
        that make it extremely difficult for Tribes to be able to 
        access these resources. One good example of cooperation is the 
        USDA-IHS Memorandum of Understanding (MOU) to designate a lead 
        agency to manage all of the major aspects of a project, such as 
        project management, funding, and engineering standards. That 
        MOU resulted in MOAs between IHS and USDA in the States of 
        Washington and Mississippi. Such interagency cooperation on 
        Indian water projects should be replicated across more of the 
        programs and the agencies, and in state to create efficiencies 
        that result in water infrastructure in rural America, including 
        Indian Country.
Rural Community Facilities
    The Rural Community Facilities program is one which Tribes are very 
excited about, as with much of rural America, our needs for essential 
community facilities such as fire houses, ambulance services, tribal 
court buildings, etc. are great. For example, our education buildings 
alone are, on average, at least 60 years old; while, 40 years is the 
average for non-Indian schools.
    In particular, we are grateful for the Tribal college facilities 
program under this account for our land-grant institutions. The Tribal 
Colleges are a one of the biggest facilitators for educational and 
economic growth in our communities. However, there are no set asides in 
this program for tribal governments and Indian Country. Additionally, 
as with the water program the loan amounts available are dramatically 
greater than grant amounts. Many of our communities, especially those 
in the most impoverished areas, are not able to adequately participate 
in a loan program.
    My own tribe, the Pueblo of Acoma, applied this year for a Rural 
Development loan/grant package for the construction of a $14 million 
community center and wellness facility. This center, which is 100% 
shovel-ready, would not only serve our reservation, with a population 
of about 4,000, but also surrounding communities with an additional 
rural population of 6,000. It would house a gymnasium and other 
wellness facilities to help us address diabetes and other community 
health issues.
    The state USDA office has worked with us closely and we have great 
respect for these Federal employees. They care about Indian Country. 
However, we were stunned when we received from them a draft community 
facilities loan/grant letter that provided for $14 million in loan and 
loan guarantees and absolutely no money in the form of a grant. We were 
told that as a matter of policy USDA does not provide significant grant 
funding for community facilities.
    With all of the economic stimulus funding that has been made 
available for shovel-ready projects, it is hard to believe that USDA 
could not come up with any grant funds. We thought that we might see 
something like 30-40% of the project funded by grants--not zero 
percent. It is clear to us that USDA Rural Development is not mobilized 
to get out ARRA funds where they are most needed, as was intended by 
the Congress.
    Since then, USDA officials have said that they might be able to 
provide $200,000 in the form of a grant. But this is still barely more 
than 1% of the total cost. This facility is important to our community. 
Acoma is willing to borrow many millions towards construction of this 
facility, but we need USDA grant support. This is just one of many 
examples where many of the resources are not getting down to those 
communities that need it most.
    Rural Community Facilities Recommendation:

   Create a Set-Aside Authorization. Unlike many of the other 
        USDA programs, there is no Tribal specific set-aside in the 
        Rural Facilities program. A set-aside proportionate to the need 
        would dramatically help with the extensive facilities needs in 
        Indian Country.

   Focus on Grants Rather Than Loans. Additionally, this 
        account needs to be available predominantly in grant funds to 
        these poorer communities. If these Tribes had the resources to 
        build out with loans, they would have already done so. While 
        the USDA policy is that up to 75% of the project cost can be 
        provided in loans, in reality that caps at around 25%. This 
        ratio needs to be addressed for these poorest counties and 
        areas.
Rural Business
    Unfortunately, we are unable to adequately address the Rural 
Business program in this testimony as we could only identify one Tribe 
that was in the process of applying for these economic stimulus funds.
    Rural Business Recommendation:

   While we are hopeful there are a number more individual 
        Native and Tribal governments participating, we believe there 
        needs to be much more education and outreach to our communities 
        about these programs.
Telecommunications
    We recognize telecommunications is not the focus on this particular 
hearing, so we will not go in to much depth, but with only 5-8% high 
speed Internet penetration rate, and 32% of our population still with 
no telephone service at all, we are hopeful that a witness from Indian 
Country will be called to testify at any future telecom specific 
hearings. Quickly I just want to mention one area of concern and offer 
some additional concrete recommendations. First, the current non-Tribal 
providers being funded by USDA are not serving Indian Country well. If 
they were, we would not have such access issues. But USDA's system is 
set up to perpetuate this lack of access, by favoring current providers 
or ``incumbents.'' We advocate for preference for Tribal providers, 
regardless of whether there is another provider nearby in the service 
area.
    Telecom Recommendations:

   Create a Tribal Spectrum Loan Program with FCC for Tribes to 
        purchase spectrum and develop spectrum services in Tribal 
        communities.

   Ensure all authorizations and appropriations are designed to 
        be reflective of the disproportionate lack of access in Indian 
        Country.

   Ensure the USDA is properly implementing the ``Substantially 
        Underserved Trust Area'' (SUTA) discretionary program Congress 
        created in the farm bill.

     Ensure the USDA is reaching out to Tribal governments 
            to encourage them to serve as their own providers.

     Ensure USDA is using the discretion granted under the 
            program to waive nonduplication restrictions and matching 
            funds requirements, and to give the highest funding 
            priority to designated projects in SUTAs.

   Change broadband authorization to not continue to prioritize 
        non-Tribally owned incumbent providers when the service area 
        includes Tribal lands.

   Create a telecom set-aside for Tribal areas consistent with 
        the level they are under-serviced compared to the rest of the 
        U.S.

   Use criteria for funding projects and service in rural and 
        Tribal areas and assessment of funding achievement which 
        measures ``increased connection'' to public infrastructure and 
        public access points.

   Authorize and provide grants and loans to conduct 
        telecommunications engineering and financial feasibility 
        studies.
Additional Recommendations
Improve Outreach and Consultation
   Establish Indian Country Office in USDA Rural Development. 
        The USDA state structure does not work particularly well for 
        Indian Country. It does not take into account the broader 
        national deficiency for Natives. The Rural Development does 
        have an Indian liaison, Ted Buelow, and he is terrific. But he 
        is one person for over 560 Tribes, the areas with the very 
        greatest need it is an impossible task for just one person. 
        USDA Rural Development should have a completely staffed Indian 
        office at Headquarters reporting directly to the Under 
        Secretary, with at least one tribal liaison for each major 
        office within Rural Development.

   Fund the Administration's Request for USDA Department-wide 
        Office of Tribal Liaison. While today we are just focusing on 
        Rural Development, all of USDA has a dramatic impact in Indian 
        Country. For example, agriculture is the second largest 
        industry in Indian Country, many tribes depend on an array of 
        additional USDA programs, such as in telecommunications, 
        electricity generation, extension programs, and FDPIR. In 
        addition, many of our most sacred lands and places are located 
        on U.S. Forest Service land. We are disappointed that the new 
        Administration let go of our Tribal liaison. But we are hopeful 
        that they intend to fill that position again very quickly, and 
        expand that office as they requested $1 million to fund a 
        Tribal Governmental office for USDA. We respectfully ask that 
        the Committee not only support the Appropriations Committee in 
        funding this request, but also permanently authorize this 
        office.

   Provide Indian Reservations with the Same USDA Access Given 
        Every County in America. Congress mandates and funds research 
        and extension services in every county in the nation except on 
        Indian reservations. The Extension Indian Reservation Program 
        (EIRP) must be expanded to provide access, education and 
        training to Tribes, including Alaska Native Villages, and 
        Tribal colleges. This program provides the only Federal source 
        of funding to cover the cost of placing extension agents on 
        Indian reservations. Only 27 reservations have EIRP programs, 
        which is only 5% of all Tribes. The new farm bill directs 
        extension agents to be placed in areas ``where there has been a 
        need demonstrated.'' I hope we have sufficiently demonstrated 
        ``need'' today and respectfully request the Committee to ask 
        the USDA about the progress on EIRP expansion.

   Encourage USDA To Implement its New Tribal Consultation 
        Policy. Perhaps more than any other agency, significant 
        progress needs to be made in USDA's understanding of the nation 
        to nation relationship that exists between Tribes and the 
        Federal Government. Rather than viewing the Federal Government 
        as a partner, especially regarding decisions that directly 
        affect Tribes, the USDA has largely treated Tribes as either an 
        afterthought or an impediment. USDA had established an agency 
        directive that closely follows the Executive Order on 
        Collaboration and Consultation with Indian Tribal Governments 
        (E.O. 13175), but we do not yet believe it has been 
        implemented. We look forward to working with USDA to educate 
        and advise USDA decision makers and staff to ensure that tribal 
        consultation is understood, appreciated, and implemented. We 
        look forward to forming a much needed partnership.
Directly Address the Disproportionate Need
   Create Tribal Set-Asides Proportionate to the Need. As 
        discussed throughout the testimony, in many areas Tribal lands 
        have a clearly disproportionate need for many of the USDA's 
        Rural Development programs. Yet none of these programs 
        allocates funds proportionate to that need, and only a handful 
        of these programs have set-asides for Tribes. Set asides in 
        dozens of other Federal programs range anywhere from 3-20%, 
        depending upon the need, and many agencies have Tribal-only 
        programs in areas in which the need is so disproportionately 
        great.

   Grants Rather than Loans for the Poorest Counties and 
        Communities. For many of our communities, there are no viable 
        loan repayment options. While technically USDA can fund up 75% 
        of the project cost with grants, practically speaking no one 
        really receives much more than 25%. This ratio needs to be 
        addressed for these poorest counties and areas.
Remove Barriers to Access

   Better Tailor Application Process for Governments. Many 
        Tribes whom I spoke to in preparation for this testimony 
        outlined the difficulty they had with the USDA in the 
        application process regarding Tribal financials. The USDA 
        application process is not designed to take into account the 
        complexities of a Tribal government and its financials; they 
        often require too much onerous irrelevant information. We 
        strongly recommend USDA reach out to other agencies, like IHS 
        and Bureau of Indian Affairs who more regularly provide grants 
        to Tribal governments, to design a less intrusive and more 
        effective application process.

   Distribute Some Funds Based on Need Formulas Rather Than 
        Competitive Grants. It is well known within Indian Country that 
        our communities most in need do not often have the grant 
        writing capabilities to effectively vie for competitive grant 
        programs. So while communities may have the greatest need, it 
        is precisely this reason that they are often unable to allocate 
        any free resources to effective grant writing. We encourage 
        Congress and the USDA to look into more formula based programs 
        where funds are distributed to areas with the greatest rural 
        development need.

   Better Interagency Coordination on Indian Projects. Several 
        agencies such as the Indian Health Service, Environmental 
        Protection Agency and Housing and Urban Development, provide 
        some aspect of funding for Indian Country that they share with 
        USDA. However, each agency has different standards, reporting 
        requirements, and grant cycles among other things that make it 
        extremely difficult for Tribes to be able to access these 
        resources.

    The Chairman. Thank you. Thank you very much for your 
testimony.
    Mr. Anderton.

STATEMENT OF DOUG ANDERTON, GENERAL MANAGER, DADE COUNTY WATER 
   AND SEWER AUTHORITY; VICE PRESIDENT, NATIONAL RURAL WATER 
                    ASSOCIATION; PRESIDENT,
          GEORGIA RURAL WATER ASSOCIATION, TRENTON, GA

    Mr. Anderton. Thank you, Chairman McIntyre and Ranking 
Member Conaway, for inviting me to testify today. It is a great 
honor to be asked to represent the small, low- and moderate-
income communities across the nation who depend on rural water 
to provide the most basic of needs. As the Vice President of 
the National Rural Water Association, and the sitting President 
of the Georgia Rural Water Association, I hear daily from rural 
communities in need of assistance. Water is the essential 
ingredient of life, and the work of this Committee and its 
counterpart in the United States Senate, along with the USDA, 
to restore and improve the public health, environmental and 
sustainability of these small communities--in other words, to 
level the playing field with our urban counterparts--is 
essential so individual small communities can prosper in this 
global competitive environment.
    I speak to you on behalf of the National Rural Water 
Association, and NRWA is a nonprofit federation of state rural 
water associations who represent the nation's largest utility 
membership. Our mission is to provide support services for our 
state associations, who have more than 26,696 water and 
wastewater system members.
    I have come here today to discuss the American Recovery and 
Reinvestment Act and its impact thus far. I would like to first 
thank the Chairman and Ranking Member and other Members of this 
Committee for their foresight with this legislation, and would 
be remiss if I did not mention that it was Chairman McIntyre 
who held a briefing in January to ensure rural America was not 
left behind.
    With billions in rural water projects waiting for funding 
through the USDA Rural Utilities Service's Water and Wastewater 
Grant Program, the need for these communities was apparent. As 
you know, this Committee and your Senate counterparts provided 
Rural Utilities Service with $135 million to address the 
backlog of projects in the Water and Wastewater Loan Program 
during the consideration of the 2008 Farm Bill. Using this 
allocation, RUS was able to distribute money directly to the 
rural communities within 90 days. USDA was also able to target 
these funds to low- and moderate-income rural communities.
    Compared to other Federal assistance, this program speaks 
directly to the needs of rural America. These rural communities 
often have extreme difficulties in competing with their urban 
counterparts for funding with other Federal and state agencies 
that may lack an understanding of the unique circumstances 
rural residents face.
    It was for these reasons that funding of $1.38 billion in 
budget authority, enough for $3.78 billion in program level, 
was included in this bill. This represents the largest single 
infusion in the USDA Water and Wastewater Program's history, 
enough funds to completely eliminate the backlog of existing 
projects and address those new project applications which 
communities have been waiting to submit.
    The amount of the ARRA funding released by the Department 
of Agriculture to small and rural water systems has increased 
over the past months with announcements of $132 million and 
$635 million. This has somewhat trailed the level of funding 
distributed by the EPA-State Revolving Loan Fund, where most of 
the money is already allocated on projects. We anticipate that 
USDA spending rate will increase over the next several months 
to meet the number of applications received.
    There are several factors which may be contributing to this 
slower distribution. The first is the current lack of guidance 
from the Department on the Buy American and the Davis-Bacon 
provisions in the bill. While other departments have issued 
guidance on these provisions to allow communities to tailor 
applications and develop proposals, the USDA has yet to do so.
    A second concern is the fact that ARRA did not provide the 
Secretary any flexibility or waiver authority in administering 
these funds to local communities. We have heard numerous 
situations where a small community is not eligible because they 
slightly exceed the population or median income limit, or 
needed to have a higher grant-to-loan ratio for affordability 
purposes.
    The ability to use grant dollars for very low-income 
communities is critical as well. Previous legislation for 
disaster and stimulus purposes provided the Secretary with 
limited authority to assist these communities that otherwise 
meet the Congressional intent for assistance. We would ask that 
the Committee explore and provide the Secretary this authority.
    Mr. Chairman and Members of the Committee, we believe, at 
National Rural Water, that Rural Development has the field 
structure and the proven experience to handle this huge task. 
And we at National Rural Water Authority are willing to assist 
in any way that we can.
    I sincerely thank you for the work that you have done on 
behalf of rural America. Your efforts are appreciated. And I 
look forward to any questions you may have for me. Thank you.
    [The prepared statement of Mr. Anderton follows:]

Prepared Statement of Doug Anderton, General Manager, Dade County Water 
       and Sewer Authority; Vice President, National Rural Water
  Association; President, Georgia Rural Water Association, Trenton, GA
    I would first like to thank Chairman McIntyre and Ranking Member 
Conaway for inviting me to testify today. It is a great honor to be 
asked to represent small, low and moderate income communities across 
this nation who depend on rural water systems to provide the most basic 
of needs. As the Vice President of the National Rural Water Association 
and sitting President of the Georgia Rural Water Association, I hear 
daily from rural communities in need of assistance, whether it is to 
design or construct a new system, repair an existing system or respond 
to a pending emergency, we are always there. Some of these communities 
would not be in existence without the USDA programs we discuss today. 
Water is the essential ingredient to life, and the work of this 
Committee and its counterpart in the United States Senate, along with 
that of USDA to restore and improve the public health, environment and 
sustainability of these small communities, or in other words, to level 
the playing field with our urban counterparts so individualism small 
communities can prosper in this globally competitive environment. Many 
lack the capacity or resource base to make these changes without the 
direct assistance of these programs.
    I speak to you today on behalf of the National Rural Water 
Association (NRWA). The NRWA is a nonprofit federation of State Rural 
Water Associations which represent the nation's largest utility 
membership. Our mission is to provide support services to our state 
associations who have more than 26,696 water and wastewater systems as 
members.
    Member state associations are supported by their water and 
wastewater utility membership and offer a variety of state specific 
programs, services, and member benefits. Additionally, each state 
association provides training programs and on-site assistance in areas 
of operation, maintenance, finance, and governance. Whether a rural 
system needs help developing a new rate schedule, setting up proper 
testing methods, maintaining or upgrading their operator license, or 
even understanding those ever-changing and complex governmental 
regulations, state rural water associations and NRWA are the first and 
best source for assistance to these systems.
    NRWA's support for a clean and healthy environment is second to 
none. Our state associations have historically trained over 40,000 
water and wastewater system personnel a year for over 2 decades and 
provided over 60,000 on-site technical assistance visits a year. Over 
2,600 ground water protection plans have been adopted by local 
communities, and another 2,300 are in the process of being adopted. 
NRWA and its state associations are on the front lines everyday 
ensuring water is safe and available each time someone in rural America 
turns on the tap.
    I've come here today to discuss the recently passed American 
Reinvestment and Recovery Act (ARRA) and its impact thus far. I would 
first like to thank the Chairman, Ranking Member and the other Members 
of the Committee for their foresight with this legislation. I would be 
remiss if I did not mention that is was the Chairman of this Committee 
that held a briefing on January 9 of this year to make sure Rural 
America wasn't left behind and with this historic appropriation level, 
enough to fund the entire backlog, of water and wastewater requests--
you have achieved that goal. On behalf of the thousands of rural 
communities throughout this nation, I want to personally thank you.
    As Congress reviewed the current needs of communities nationwide 
for the development of a stimulus measure earlier this year, rural 
areas became a central point of discussion. With billions in rural 
water projects waiting for funding through the USDA Rural Utility 
Services' (RUS) Water and Wastewater Grant and Loan Program, the need 
in these communities was apparent. While Congress had attempted to 
address these needs in both annual appropriations and supplemental farm 
bill funding, the need had far exceeded the available funds. To this 
end, NRWA supported the inclusion of funds to address this need in the 
ARRA, and pointed to the success the Department of Agriculture had at 
delivering these funds in a swift manner in the past. Unlike other 
programs where funds are divided amongst the states then given to local 
and state governments to distribute, the USDA Water and Wastewater 
Grant and Loan program directly funds projects and has been able to 
distribute these funds in a manner unmatched by other Federal agencies.
    The primary issue that confronts us today is how we can assist USDA 
in getting the funding out the door of the Department, and into the 
hands of the communities who so desperately need it. We also need to 
continue to help these communities not only access these funds, but 
help to ensure that these funds are used efficiently to protect the 
community and government's investment. These investments are important 
to job creation and economic recovery in many of the nation's smallest 
and hardest hits communities.
    As you know, this Committee and your Senate counterparts provided 
the Rural Utilities Service with $135 million to address the backlog of 
projects in the Water and Wastewater loan program during consideration 
of the 2008 Farm Bill. Using this allocation, RUS was able to 
distribute the money directly to rural communities within 90 days. This 
distribution of funds was unique in its efficiency. In getting the 
funding out the door in a timely fashion through projects which were 
already in the pipeline, the Department did an outstanding job. 
However, historically additional funding means additional applications. 
Communities learn of the opportunity for additional funding and the 
number of applications increase, further increasing the backlog.
    USDA was also able to target these funds to low and moderate-income 
rural communities under 10,000 in population which are not able to 
obtain affordable commercial credit. Compared to other Federal 
assistance, this program speaks directly to the needs of rural America. 
These rural communities often have extreme difficulty in competing with 
their urban counterparts for funding in other Federal and state 
agencies that may lack an understanding of the unique circumstances 
rural residents face.
    The need for additional funding and the outstanding track record of 
distribution of funds, made the RUS Water and Wastewater Grant and Loan 
Program a prime candidate for funding under the ARRA. It was for these 
reasons that funding of $1.38 billion in budget authority, enough for 
$3.778 billion in program level was included in the bill. This 
represented the largest single infusion in the USDA Water and 
Wastewater Program's history, enough funds to completely eliminate the 
backlog of existing projects and address those new project applications 
which communities had been waiting to submit.
    The amount of ARRA funding released by the Department of 
Agriculture to small and rural water systems has increased over the 
past months with announcements of $132 million and $635 million. This 
has somewhat trailed the level of funding distributed by the 
Environmental Protection Agency-State Revolving Loan Fund (SRF), where 
most of the money is already allocated to projects. We anticipate that 
the USDA spending rate will increase over the several months to meet 
the number of applications received.
    There are several factors which may be contributing to this slower 
distribution. The first is the current lack of guidance from the 
Department on the Buy American and Davis-Bacon provisions in the bill. 
While other Departments have issued guidance on these provisions to 
allow communities to tailor applications and develop proposals, USDA 
has yet to do so. For example, in April the EPA released guidance 
outlining the procedures to comply with the Buy American provisions, 
their interpretation, and documentation which would be needed. This 
direction greatly assisted communities in working towards project 
starts and receiving their funding.
    A second concern is the fact that the ARRA didn't provide the 
Secretary any flexibility or waiver authority in administering these 
funds to local communities. We have heard numerous situations where a 
small community is not eligible because the slightly exceeded the 
population or median income limit or needed to have a high grant to 
loan ratio for affordability purposes. For example, the state of 
Arkansas has a very low median income level which must be met by a 
community in order to qualify for funding under this program. 
Conversely, an identical town in Missouri, located just across the 
border, would actually qualify for funding with a median income level 
that is much higher, thus putting the Arkansas community at an extreme 
disadvantage. The ability to use grant dollars for the very low income 
communities is critical as well. The credit elsewhere clause has also 
slowed down the process. Previous legislation for disaster and stimulus 
purposes provided the Secretary with very limited authority to assist 
these communities that otherwise meet the Congressional intent for 
assistance. USDA has also always used any waiver authority very 
conservatively. We would like to ask the Committee to explore providing 
the Secretary this authority.
    Mr. Chairman and Members of the Committee, I sincerely thank you 
again for the work you have done on behalf of rural America and for 
taking the time to not just throw funding at an issue, but truly work 
to solve the problem. Your efforts are appreciated and I look forward 
to any questions you may have for me.

    The Chairman. Thank you, sir. Thank you for your kind words 
as well.
    Mr. Tommy Duck.
    Mr. Duck. Good morning.
    The Chairman. Good to have you.

 STATEMENT OF TOM DUCK, EXECUTIVE DIRECTOR, TEXAS RURAL WATER 
                    ASSOCIATION, AUSTIN, TX

    Mr. Duck. Chairman McIntyre, Ranking Member Conaway and 
Members of the Subcommittee, for the record my name is Tom 
Duck, and I am the Executive Director of Texas Rural Water 
Association. TRWA is a statewide trade association. We are 
based in Austin, Texas. We represent over 751 water utilities 
in our state who supply water to some 2\1/2\ million customers, 
primarily in rural communities. Our association helps water and 
wastewater systems supply Texans with safe and affordable water 
and wastewater service.
    TRWA also provides other services, including a very 
valuable Technical Assistance Program that I am proud to say is 
funded by a grant from the USDA. It is called our Circuit Rider 
Program. We also provide assistance to water utilities in the 
form of operator certification training as well as board member 
training. It is very critical that you have those components in 
place if you are going to be an effective water utility 
provider.
    As you know, Rural Utilities Service's Water and Waste 
Program began in the 1960s and has been a critical component to 
Rural Development ever since. Today RUS has a $9.9 billion 
portfolio, with over 17,000 loans nationwide. According to 
USDA, they estimate that for every $1 billion that is spent in 
the Water and Wastewater Program, it produces 23,000 jobs. 
These are green jobs, such as building or improving a 
wastewater or water treatment plant, building water storage, or 
laying distribution or collection lines that bring water to 
people, or clean up wastewater and improve the environment and 
public health. Currently in Texas there are roughly 70 projects 
totaling just over $200 million that are currently pending in 
the application process.
    I want to salute this Committee for their hard work in 
addressing the water infrastructure needs nationwide, as well 
as in our state, and providing funding in the stimulus package. 
This should do away with the backlog of applications. However, 
for the funding to be effective, it first has to reach the 
communities which are in desperate need of getting these funds, 
and that is kind of at the heart of my concern today.
    Historically, the USDA in Texas has done an excellent job 
in distributing these funds when it has become available from 
Congress. For example, in 2002, when additional funding was 
provided by this Committee in the farm bill, the funding was 
distributed in 90 days. The speed by which the Department acted 
is to be commended. While I realize that the current stimulus 
package imposed additional requirements at an unprecedented 
program level, I would hope the Department could move forward 
with the same haste. This speed has not been apparent at this 
point in the process.
    It should be noted while our urban counterparts in the 
state have received guidance on how the stimulus applications 
should address issues that were addressed earlier, as the Buy 
American provision and Davis-Bacon labor requirements, we have 
not heard similar direction from RUS. This silence has raised 
questions for many of our rural constituents. Some type of 
guidance is needed from the Department. It is desperately 
needed.
    As you know, the RUS Water and Waste Program targets low- 
and moderate-income people in areas with population of less 
than 10,000 people that are not able to obtain commercial 
credit elsewhere. That being said, communities who cannot meet 
those thresholds have similar infrastructure needs and are 
unable to apply.
    Our circuit riders, through our Technical Assistance 
Program, often visit rural communities, which, due to a 
slightly higher population or their proximity to an urban area 
where income is higher, are disqualified from participating in 
the regular RUS programs. It would seem allowing those 
communities to apply, then granting the Secretary of 
Agriculture or his designee the ability to review these on a 
case-by-case basis, could be very beneficial. The spirit of 
this program, started in the 1960s, is to assist rural 
communities in need. A population of slightly over 10,000 
should not exclude a rural community from participating if the 
Department feels there is need.
    The last two areas I have mentioned for improvement are the 
limited grant authority in the program and the environmental 
requirements.
    The limited grant authority poses a significant problem for 
many low-income areas in our state, such as the Colonias, that 
may require waiting years for significant grant funds before 
they are available. Raising the amount of grant available to 
these communities would significantly improve low-income 
families getting water and waste services more quickly.
    The second issue is environmental reviews and compliance 
issues for the use of the funds. Often the environmental review 
process takes longer for a project than the engineering or 
construction phase. For this funding to be a true stimulus, the 
funding should be distributed quickly and used by these 
communities in a timely and efficient manner.
    In conclusion, thank you for giving me the opportunity to 
appear before this Committee today. It is an honor to be here, 
and I will stand for any questions that you might have.
    [The prepared statement of Mr. Duck follows:]

 Prepared Statement of Tom Duck, Executive Director, Texas Rural Water 
                        Association, Austin, TX
    Thank you, Chairman McIntyre and Ranking Member Conaway, for 
inviting me to discuss Rural Texas' need for water and wastewater and 
the impact of the American Recovery and Reinvestment Act (ARRA) 
funding. I appreciate the opportunity and am glad to see two Texans, 
Rep, Cuellar and Rep. Conaway, continuing the tradition of great 
Members on the Committee in the footsteps of former Reps. Stenholm and 
Combest. Today I will discuss how this substantial investment in Rural 
Texas has brought hope that the USDA Rural Utility Service Water and 
Waste Disposal Loan and Grant Program can produce jobs and use products 
made in the U.S. while outlining a couple of concerns which have arisen 
with the funding to this point.
    I speak to you today on behalf of the Texas Rural Water Association 
(TRWA) and our members. The TRWA is a statewide nonprofit educational 
and trade association dedicated to the improvement of water quality and 
supply. Founded in 1969, TRWA represents a full spectrum of the 
drinking water community including: Nonprofit Water Supply and Sewer 
Service Corporations, Special Utility Districts, Municipal Utility 
Districts, WCIDs, Small Municipal Utilities and Privately-Owned Water 
Utilities. Membership includes more than 700 water utilities in Texas 
who supply water to some 2.5 million people.
    Our mission at TRWA is to help water and wastewater systems supply 
Texans with safe and affordable water and wastewater services by 
providing technical assistance, educational and informational programs, 
publications, member support services, and representation of our 
members in the legislative and regulatory processes. TRWA conducts 
comprehensive technical training programs for water and wastewater 
operators, managers and board members. Participants in TRWA conferences 
and workshops can earn credits for water operator certification 
renewal, and TRWA's newest program, Operator Certification, provides 
training to industry personnel in pursuit of obtaining or renewing 
water and wastewater operator certification in Texas. TRWA also employs 
field representatives who provide water and wastewater training and on-
site technical assistance to rural communities throughout the state. 
When a rural utility seeks assistance, one of these experts is 
dispatched, free of charge, to help resolve the problem. Field 
representatives are trained to provide advice on such items as 
preventative maintenance, leak detection, water audits, rate analysis, 
budgeting, personnel policies, and complete system overviews.
    While spending the last 23 years working for the Texas Rural Water 
Association (TRWA) I have seen the need for water and wastewater 
funding increase continually. While some feel that this funding may be 
better spent in other areas, I challenge them to take the time to ride 
with our circuit riders and see firsthand the aging and crumbling water 
infrastructure in our rural communities and walk away without changing 
their minds. Worse yet are those areas which have never had running 
water and continue to suffer substandard service and living conditions 
for lack of funding for infrastructure. In Texas we have personnel in 
the field everyday addressing these issues whether in the Colonias of 
the South and West Texas or the aging systems of the eastern part of 
the state.
    The only program in the Federal Government that can address the 
needs of these small, low-income rural communities for water and 
wastewater infrastructure is the RUS Water and Wastewater Grant and 
Loan Program. As you know, the Rural Utility Services' Water and Waste 
Program began in the 1960's and has a $9.9 billion portfolio with over 
17,866 loans. The USDA estimates that for every $1 billion that is 
spent in the Water and Waste Program produces 23,000 jobs. These are 
green jobs such as building or improving a wastewater or water 
treatment plant, building water storage, or laying distribution or 
collection lines that bring water to people or clean up wastewater and 
improve the environment and public health. The majority of products for 
these improvements are made in the U.S. In my state there are roughly 
70 projects totaling just over $200 million in funding currently in the 
application process. Another point I would like to make is the 
successful repayments which this program can claim. The Office of 
Management and Budget rates the RUS Water and Waste Disposal Program as 
one of the highest rated loan programs in the Federal Government. The 
loan delinquency rate is 0.53%. In other words, 99.47% of those 
receiving loans are current on their payments--higher than any 
government program. I think this speaks directly to the character of 
Rural Water Systems and that of Rural America in general. We pay our 
bills and expect others to as well. When rural communities came to 
Congress looking for funding for this program, it was not for a hand-
out, but a hand-up.
    I salute this Committee for their hard work in addressing this need 
and providing funding that should do away with the backlog for my 
state. The funding provided should not only cover those applications 
currently in the system, but also address the increase we know will 
come from communities waiting to apply. However, for the funding to be 
effective, it first has to reach the communities which so desperately 
need it, and getting it there is where I find my concerns.
    The USDA in Texas has done an excellent job in the past with 
direction from the Washington office in distributing funding when it 
has become available. For example, in 2002 when additional funding was 
provided by this Committee in the farm bill, the funding was 
distributed in 90 days. The speed with which the Department acted was 
to be commended. While I realize that here are additional requirements 
and an unprecedented program level, I would hope the Department could 
move with that same haste. This speed has not been apparent at this 
point in the process. While our urban counterparts in the state have 
received guidance on how applications should address issues such as the 
``Buy American'' provision and Davis-Bacon labor requirements for 
funding sources more focused to them, we have not heard similar 
direction from RUS. This silence has not only raised questions for 
applications which are being held to file until guidance is received, 
but has left communities with pending applications scrambling to see 
what additional information or compliance is needed. Some type of 
guidance from the Department is desperately needed. RUS has possibly 
the best employees and record of service in the Federal Government as 
is seen by their past performance. I hope this record can be built upon 
by quick action on the task this Committee has charged them to 
complete.
    As mentioned before, the Water and Waste Program targets low and 
moderate income people in areas with population lower than 10,000 
people that are not able to obtain commercial credit elsewhere. That 
being said, communities who cannot meet those thresholds have similar 
needs and are unable to apply. Our circuit riders often visit rural 
communities, which due to a slightly higher population or their 
proximity to an urban area where income is higher, are disqualified 
from participating in the RUS programs. It would seem allowing these 
communities to apply then granting the Secretary of Agriculture or his 
designee the ability to review these applications on a case-by-case 
basis would be very beneficial. The spirit of the program is assistance 
to communities in need in rural areas, and a population of slightly 
over 10,000 should not exclude a rural community from participating if 
the Department feels there is a need.
    The last two areas I would mention for improvement is the limited 
grant authority in the program and environmental requirements. The 
limited grant authority poses a significant problem for many low-income 
areas that may require waiting years before significant grant funds are 
available. Raising the amount of grant available to their communities 
would significant improve low-income families getting water more 
quickly. The second issue is that frequently the environmental reviews 
and compliance issues for the use of funds. Often the environmental 
review process takes longer for a project than the engineering or 
construction. For this funding to be a true stimulus, the funding 
should be distributed quickly and used by these communities, and both 
of these factors slow that process.
    In conclusion I would like to again thank the Committee for their 
time and the invitation to speak to you today. Thank you on behalf of 
those Texans who benefit from the assistance you continue to provide. 
By standing up for these priorities and ensuring they are treated as 
equals with their urban counterparts, you make a difference in their 
daily lives.

    The Chairman. Thank you very much for your heartfelt 
comments.
    We are closing in quickly on time to get ready to go to 
vote, so we will try to run through these questions and 
hopefully can conclude before the call for votes.
    Mr. Rivenbark, you mentioned the excellent relationship you 
have with the USDA Rural Development staff. We know there is a 
limited number of staff, and that many times rural communities 
do not feel that they have sufficient access to the expertise 
they may need to help them navigate through the process.
    Can you tell us how you would suggest that USDA Rural 
Development can do a better job helping these communities who 
are in the need of most assistance? In other words, what would 
you recommend to help improve USDA outreach, given the 
circumstances?
    Mr. Rivenbark. As an example, we frequently hire local 
engineers to help us move forward with our projects as we are 
working to develop the water and sewer plants that I referred 
to. Having that outside engineer was crucial; that county does 
not have an engineer on staff. And I would say that flexibility 
in all of it is important to us.
    The Chairman. Can you tell us, you mention in your 
testimony about the need for greater performance measurements 
in needs assessments for Rural Development programs. Tell us 
how rural communities can do a better job of measuring 
performance, and how rural programs can do a better job of 
determining which of those projects are worthy of Federal 
investment.
    Mr. Rivenbark. Well, developing criteria to evaluate the 
project's success, develop criteria to evaluate needs in areas 
that are not being served sufficiently by USDA. They should 
make all the information available to the public so that future 
funding decisions are made with this information available.
    The Chairman. If I may, Governor Sanchez, thank you for 
your very important remarks. I know the Under Secretary stayed 
for a while and was present as you were testifying. I know he 
had another commitment. He had to leave shortly after you 
finished testifying. But I have instructed staff, and I want to 
make sure before you leave today, and some of the Rural 
Development staff is still here, that this problem you have of 
them not responding to you or your offer to be part of the 
solution--let us let you all hook up today and find out who it 
is you need to talk with. Let them know how they can get back 
in touch with you so that this concern you have of the tribes 
not being part of the solution, or not being allowed to give 
input, can be resolved. The last thing we want to have is poor 
contact or communication problems. At minimum we can provide 
that, I hope, today before you leave.
    Governor Sanchez. Thank you, Mr. Chairman.
    The Chairman. Thank you. Thank you for your testimony.
    Also I want to make sure that the Colonias that you 
mentioned, Mr. Duck, you are talking about are down near 
McAdenville and across the border from Reynosa, Mexico?
    Mr. Duck. Yes, sir.
    The Chairman. Both of my sons, my wife, and my father have 
been down there and worked in those Colonias, and we thank you 
for your commitment and concern for that area. I know my 
colleagues from Texas may have further comments about that in a 
moment.
    In the interest of time now, I will call on Mr. Conaway, 
our Ranking Member, for any further questions.
    Mr. Conaway. Thank you for coming to testify.
    If you talk to anybody about the issue of the FIFO funding 
on this, has that impacted--or does it impact new emerging 
issues that might be suitable for funding under any of this 
broad array of money that is being provided? Does it give you 
any concern; should I be concerned about that; should we be 
concerned about it?
    And then under--kind of specifically under the Buy American 
Program, counties along both the northern border and southern 
border have long-standing supply contracts in place that may 
not fit the Buy American requirement that comes with the 
strings attached to it. Can you, Tommy or Mr. Rivenbark, either 
one, speak to those issues?
    Mr. Rivenbark. The Buy American part is important, but 
there are times when it interferes with navigating the 
paperwork, and if something can be done to help eliminate that.
    Mr. Conaway. Eliminate the paperwork or--I am not sure what 
you are making reference to.
    Mr. Rivenbark. I think sometimes the paperwork is a little 
stringent. Not eliminating the paperwork, though.
    Mr. Conaway. Okay. Mr. Duck?
    Mr. Duck. Yes. We support, obviously, Buy American. And I 
think that the issue that rural communities have is they are 
very patriotic, very supportive, obviously, of Buy American, 
but there needs to be some guidance from the USDA. I think that 
what we are suggesting is in order to expedite these processes, 
let us clarify some of the issues. There has been lack of 
guidance, and that is really----
    Mr. Conaway. What guidance would you----
    Mr. Duck. Let me give you an example. The EPA programs that 
a lot of our urban communities get through the stimulus package 
through the SRF, through the State Revolving Fund, there are 
very clear guidance documents on Buy American, and very clear 
documents on the Davis-Bacon requirements, and how you process 
that paperwork and those applications. That is what I think is 
needed in the rural communities.
    The rural communities, you have an operator who is also the 
manager, maybe the meter reader, and does everything. So they 
don't have time to read the Federal Register. They don't have 
time to do some of the things that maybe our urban counterparts 
might do. So if you could streamline the package, the 
application package, explain the terminology and what is going 
on, why it is important, why we need this, and how you get to 
the end product.
    Mr. Conaway. So far that has not been done?
    Mr. Duck. No, sir.
    Mr. Conaway. Is there any kind of coordinator, ombudsman 
that USDA should provide that would allow the broad array of 
issues such as water, wastewater, broadband facilities, 
whatever it might be, that these small communities who don't 
have the resources that you just made reference to could call a 
one-stop shopping kind of thing at USDA, to at least start the 
process, help them navigate? Do they have that? Would that be 
helpful?
    Mr. Duck. It would be very helpful. I am not aware if that 
exists.
    Mr. Conaway. Okay. One of the things we are hearing back 
home is just frustration of not knowing who to call, when to 
call. And they start with Tinker, to Evers, to Chance, and it 
is almost as if that is done intentionally so that only the 
really serious people make their way through it. But we will 
try to pass on that idea to our new Under Secretary, because I 
do think he understands. He has been in your role, similar 
roles, and he understands the frustration.
    I yield back, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman, and thank you, panel, 
for being here today and sharing with us. Mr. Rivenbark, 
especially to you as a fellow North Carolinian from up in 
Montgomery County saying hello down to yourself in Willard, 
North Carolina, it is good to have you here today.
    Mr. Chairman, I really don't have any questions. I think 
that their concerns that they expressed today are a summary of 
what I am hearing when I go in the district, what I am hearing 
from rural America, the infrastructure needs.
    I have two communities in my area, a district that they 
talk about sewage running in the ditches, where children come 
in and have to wipe their feet to get the sewage off before 
they go in their house; houses that are being vacated because 
they don't have sewage facilities. And it is not just one or 
two communities, it is just a repeated pattern in all of our 
counties. So, the communication has been talked about, the need 
to inform. These are things we need to work on and just 
constantly look for ways to help rural America.
    So thank you, Mr. Chairman.
    Thank you all for being here.
    The Chairman. Thank you, Mr. Kissell.
    Mr. Cassidy.
    Mr. Cassidy. Ms. Martin, as you were speaking, I am saying, 
wow, this woman has wisdom. It just seems like when I go to my 
rural areas, they have the poorest tax base, and they are 
supposed to have an engineering crew on retainer who has 
everything worked out, so when you say you have to submit in 30 
days, boom, they have it. It seems like a conspiracy of the man 
to hold down the rural area.
    Now, that said, I am trying to think of the solutions, 
because each of you seem to sing from the same songbook. That 
is why it has been so good for me, because it wasn't just my 
imagination.
    When I used to do my taxes before my wife took it over, I 
used to use TurboTax. There was kind of an on-line way where I 
could plug in my numbers, and if there was a question, I hit 
the little question mark, and, boom, it took me. Would that be 
practical? Could you say to rural communities, here is your 
version of TurboTax, and it is a little skimmed down because 
you don't itemize, and maybe the big urban areas do, but we 
will cut you a little slack on some of details, et cetera, et 
cetera. Would that work?
    Ms. Martin. That is a great idea. I am not sure whether the 
programs could be simplified to that level, and frankly, in a 
lot of rural communities, we deal with the smallest and most 
rural communities, don't have computers in terms of their 
offices.
    I think that certainly would be a possibility, but in our 
experience being out there providing technical assistance, what 
we typically find, and particularly in the smallest 
communities, there are no full-time staff people. And so when 
you have part-time people who are doing this in addition to 
their regular job, and their families and all of the other 
commitments that they have, what we find is they just need a 
lot of hand holding, they need someone to sort of walk them 
through the process. Frequently what we find is that they are 
overwhelmed, frankly. If you hand them a guidance document that 
is 40 or 50 pages long, it is fairly overwhelming. And so we 
tend to take them through the process step by step. We start 
with, ``These are the things that you need to do in the next 30 
days. When they have gotten through that, now in the next 30 
days, you need to do this piece.'' They find it a little less 
overwhelming that way.
    Mr. Cassidy. It seems like death by paperwork.
    What is the possibility that--Mr. McIntyre, that we could 
get some sort of working group where you guys and maybe some of 
these people could actually develop something like this? We 
clearly need tools to lower the cost of developing these 
applications on the part of the folks who are relatively 
unskilled; fair statement?
    Ms. Martin. Yes.
    Mr. Cassidy. So my question is how do we develop those 
tools? I am asking you and any of you, because you are the ones 
in the field, to give us insight on this.
    Ms. Martin. We would welcome being a part of any group that 
wants to look at how to simplify the process. I mean, the 
process is complex, as is any project development process. And 
there are things that are part of the process that can't be 
avoided. It is just inherent in the nature of developing a 
project.
    With that being said, there are certainly ways that the 
process might be simplified. One of the things that we recently 
did is we developed a publication written to, what we think is 
a simple, understandable level on how to develop a project, 
what are the pitfalls, what are the things you need to avoid 
and those kinds of things. So, anything like that that can help 
simplify the process would be wonderful, and we would certainly 
welcome being a part of that.
    Mr. Cassidy. I have a minute left. Do any of you have a 
comment?
    Mr. Rivenbark.
    Mr. Rivenbark. In listening to the conversation, I think 
that the IT people at the lowest level at our county would be 
ideal to involve in trying to create something as you suggest.
    Mr. Cassidy. I think the solution should come from you all 
if the problem has come from above, so to speak. Things roll 
downhill.
    Anyone else?
    Mr. Anderton. I might add that the National Rural Water 
Association has been in partnership with the USDA for almost 30 
years now in providing on-the-ground technical support and 
assistance to the very communities that have been mentioned 
here. And we stand ready through our circuit riders and 
technical people to assist USDA in any way that we can and 
working face to face and leading these people through the 
application process.
    Mr. Cassidy. I yield back. Thank you.
    The Chairman. Thank you very much. An excellent idea, Mr. 
Cassidy, and we would encourage each of you to go back, and if 
you had a wish list of ten ways to improve access to Rural 
Development programs and funding, we would like you to submit 
that to our Committee, especially within the next 10 calendar 
days while the record of today's hearing remains open, that 
would be a great homework assignment. It would be a great 
assignment to help us as we look forward in a most serious 
matter of how to improve.
    We have a new Under Secretary. You heard him say in his own 
testimony he is getting acquainted with his job and wants to 
learn more about ways in which to make things more efficient. 
So let us do it, let him know, because you have a fresh start, 
and there is no reason not to take advantage of that fresh 
start in the most positive way, especially with American 
taxpayer dollars to be used in the most expeditious and 
efficient way.
    Mr. Cuellar was here, but I believe he stepped out.
    Is there any general question that our panel would like to 
ask of our witnesses here today? If not, I would like to thank 
all of you for your attendance today. We have done well on our 
timing. Thank you for coming to this hearing.
    Under the rules of the Committee, the record of today's 
hearing will remain open for 10 additional calendar days to 
receive additional material and any supplementary written 
responses, which we now especially requested from the 
witnesses, to any question posed or requested by the Members or 
the Chairman.
    This hearing of the Subcommittee on Rural Development, 
Biotechnology, Specialty Crops, and Foreign Agriculture is now 
adjourned. May God bless you, and may you travel safely. Thank 
you.
    [Whereupon, at 11:40 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
      
   Submitted Letter from David R. Hoelmer, Senior Vice President and 
            General Counsel, AgStar Financial Services, ACA
June 18, 2009

Hon. Mike McIntyre,
Chairman;

Hon. K. Michael Conaway,
Ranking Minority Member;

Members;

Subcommittee on Rural Development, Biotechnology, Specialty Crops, and 
Foreign Agriculture,
Committee on Agriculture,
Washington, D.C.

    Dear Chairman McIntyre, Ranking Minority Member Conaway and Members 
of the Subcommittee:

    My name is David Hoelmer and I am Senior Vice President and General 
Counsel of AgStar Financial Services, ACA headquartered in Mankato, 
Minnesota. AgStar is a Farm Credit System institution which was given 
the mission by Congress to provide credit to agriculture and rural 
areas. AgStar has and continues to provide credit to agricultural 
producers, agribusinesses, rural residents, and rural communities in 
general.
    Rural America is facing a serious slowdown in economic investment 
activity. However, there is no shortage of feasible business plans and 
green technologies looking for capital. A number of healthcare, bio-
based and renewable energy projects critical to the vitality and 
survival of rural communities are in need of debt and equity 
investments.
    Unfortunately, many lenders are facing serious capital constraints. 
Also, few lenders are willing to take risks in new technology, start-up 
businesses, and construction of facilities. Yet these are the projects 
that will likely create the most job opportunities across these 
communities. Rural businesses, essential community organizations 
(especially aging healthcare related facilities) and bio-based 
businesses are facing serious challenges in finding equity to invest in 
their projects. Although significant increases in funds will flow to 
USDA Rural Development, few will find access to these funds without 
rule changes that address access to equity and loan guarantees. This is 
an historic challenge which can not be viewed through a traditional 
regulatory lens.
    AgStar applauds the Biorefinery Assistance Program included in the 
2008 Farm Bill which provides loan guarantees through USDA for the 
development, construction and retrofitting of commercial scale 
biorefineries as was mentioned by Under Secretary Dallas Tonsager in 
his testimony before the Subcommittee on June 10, 2009. However, few 
biorefineries were able to take advantage of these guarantee funds.
    We propose the following modifications to USDA programs to enhance 
and expand the use of USDA Rural Development stimulus funds to provide 
more immediate and broader impact to rural America:

    (1) Loan guarantees for construction on all eligible community 
        facility, business and industry, and biorefinery facilities,

    (2) Loan guarantees for refinancing all eligible community 
        facility, business and industry, and biorefinery facilities,

    (3) Loan guarantees for eligible community facility, business and 
        industry, and biorefinery rural loans financed within the last 
        24 months, and

    (4) Loan guarantees for annual operating lines of credit for 
        community facility, business and industry, and biorefinery 
        operations.

    The benefits of these proposed rule changes are significant. These 
changes would reduce risk for lenders, increase the number of projects 
that could be financed, free up capital for lenders upon approval of 
the loan guarantees, (resulting in an Asset Relief Program, without the 
Trouble), reduce interest rates and fees for clients, and subsequently, 
reduce necessary equity requirements to obtain financing. Most 
importantly, these proposed rule changes would result in a substantial 
increase in job creation across Rural America.
    Numerous green jobs could result from these projects. Without a 
rule change in accessing loan guarantees, many, if not most of these 
projects, will, however, be unrealistic. Lenders will be unwilling to 
finance startup technologies and projects that face higher risks in an 
uncertain market. Lenders are looking for lower risk ventures which 
provide more certainty. Assuming these projects are feasible and there 
is an identified market demand, the proposed loan guarantee rule 
changes would significantly improve the prospects and timelines for all 
of these projects. Many of these project timelines could be improved by 
12-24 months in many cases.
    AgStar appreciates your support of these recommendations and 
requests adoption of the proposed USDA Rural Development rule changes.
            Sincerely,
            
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            
Sr. VP and General Counsel,
AgStar Financial Services, ACA.
                                 ______
                                 
     Supplmental Material Submitted by Rural Community Assistance 
                              Partnership
    The RCAP network appreciates the invitation to submit additional 
recommendations for improving Rural Development programs. USDA Rural 
Development makes critical investments in rural America, and we applaud 
the Committee's efforts to ensure that these programs achieve maximum 
effectiveness, particularly in today's economically challenging times.
    The national RCAP network's six regional service providers help 
small, typically low-income, rural communities address water, 
wastewater, and other community development needs. We provide training 
and technical assistance to build the capacity and sustainability of 
small systems and to assist with the development of needed facilities. 
The RCAP network serves 800 communities each year through funding 
provided by Rural Development's Technical Assistance and Training Grant 
Program under its Water and Waste Disposal Program. However, in an 
effort to provide more comprehensive assistance, our organizations have 
made extensive use of programs such as Community Facilities, housing 
programs, the Rural Community Development Initiative, the Intermediary 
Relending Program, and others.
    RCAP offers the following recommendations to improve access to 
rural development programs and provide information on these programs to 
communities.
1. Improve consistency in program implementation across the country.
    While Rural Development programs operate under the same set of 
regulations in each state, there are often variances in how those 
regulations are interpreted, and hence, how programs are implemented. 
For example, the first test for grant eligibility and the most 
favorable loan terms for the water and waste disposal program is the 
median household income of the area. Some states allow income surveys 
to be conducted by third parties if the community believes that the 
census data is no longer reflective of conditions in the community, 
while others allow no surveys, and still others allow surveys only 
under specific circumstances with prior permission of the state office. 
In the same vein, states have different ways of determining 
affordability thresholds for water and sewer systems. Most states 
utilize a specific percentage of median household income (which seems 
to vary by state), while others have set dollar thresholds that a 
community must meet regardless of how low their median income might be. 
In yet another example, some states will contribute the maximum grant 
funds allowable by law to particularly needy projects, while other 
states will rarely, if ever, allocate more grant funds to any one 
particular project than the loan/grant ratio received by the state. 
These inconsistencies make the program more difficult to market and use 
in some states that have more stringent requirements than are necessary 
in the regulations governing the program. To the extent possible, the 
process should be standardized and staff should be retrained where 
necessary.
2. Require utility board training for borrowers.
    Rural Development should require its small community system owners 
(town councils, utility boards) to receive training as one of the 
conditions of receiving funding. Too often, these officials come into 
their jobs with no training and no knowledge of protecting their 
investment. Consequently, they often think of their jobs as being 
nothing more than holding down utility rates, even at the expense of 
not having adequate funds to maintain their system. Many technical 
assistance providers, including RCAP, offer training to these officials 
that helps to educate them about their responsibilities as system 
owners, and we are seeing positive results from this training. If we 
are to have any hope of stemming the tide of massive funds necessary 
for infrastructure replacement, we must teach responsible system 
ownership.
3. With particular regard to ARRA funding, delay environmental 
        assessments until after initial application.
    Currently, a community must complete both a preliminary engineering 
report and an environmental assessment before USDA begins processing an 
application. These reports can be expensive--often a significant 
portion of a small utility's annual budget. Since there is no guarantee 
that funding will be available, many communities are reluctant to take 
this risk. In addition, preparing an environmental report at this stage 
slows the process considerably, as it typically takes several months to 
complete. In some instances, the report may need to be redone at the 
time of final engineering design. A number of years ago, only a cursory 
environmental review was required at time of initial application. 
Returning to this timeline would save communities significant upfront 
costs. As long as the assessment is completed prior project bidding and 
construction, the requirements of the National Environmental Policy Act 
are satisfied. This would allow the assessment to be completed 
simultaneously with other requirements, and would speed the processing 
of applications. In addition, since the environmental review would be 
completed after Rural Development's initial review of the project, the 
community would have greater assurance that the project could be funded 
before incurring this expense.
4. Post guidance on RUS website for specific provisions related to ARRA 
        funding.
    There are certain provisions related to ARRA funding that are not 
typically required for communities that seek Rural Development funding, 
such as Davis-Bacon wage requirements, Buy American provisions, and 
others. The national RUS office should develop guidance for small 
communities and their engineers on meeting these requirements and have 
it prominently posted on their website, as well as publicizing it 
through their state and local offices. To the extent that it is 
possible to develop a standard bid package that would incorporate these 
provisions, this would help small systems tremendously in dealing with 
the new requirements.
5. Restore Rural Development Program Funding Levels
    In recent years, Rural Development program funding has declined 
significantly. Since 2003, funding has been reduced by 25% for water 
and sewer, 28% for rural community facilities, and 33% for rural 
housing (excluding ARRA funds). The Rural Business Opportunity Grant 
Program is funded at such a low level that 99% of the 100+ page 
applications submitted go unfunded, a waste of the resources of the 
communities preparing them and agency staff reviewing them.
    Rural water infrastructure investment needs alone in this country 
are staggering. The most recent needs surveys by EPA estimate that 
small systems and rural areas will require $34 billion for drinking 
water and $69 billion for wastewater over the next 20 years. Increasing 
Rural Development funding at least to previous levels is critical to 
meeting this need.
6. Increase the grant-to-loan ratio for the Water and Waste Disposal 
        Program
    Grant funding for water and sewer projects, as a percentage of the 
overall allocation, declined from 39% in 2003 to 26% in 2006. Grant 
funds are critical to defray the enormous costs of infrastructure 
development, especially in the smallest low-income communities. These 
utilities lack economies of scale found in larger systems, so their 
customers pay, on average, up to four times more than their urban 
counterparts, according to the EPA. It is not uncommon for rural 
residents to pay 5% of their income for these utilities after a major 
project is completed. Therefore, the trend toward reducing the grant-
to-loan ratio renders the program non-viable for many of the 
communities it was designed to serve.
7. Increase the Salaries and Administration Budget
    Rural Development's administrative budget has stagnated in recent 
years, so the agency has fewer staff to process funding applications, 
which have increased dramatically. For example, from 2007-2008, Ohio's 
Rural Development office experienced a 73% increase in demand for its 
housing programs, and a 170% increase in its business programs. 
Moreover, the farm bill, ARRA, and regular appropriations will result 
in thousands of new loans in the agency's portfolio in a short time 
period. Area and state offices will be busier than ever collecting 
year-end reports and helping address problem areas.
8. Increase Technical Assistance Funding
    The Rural Development Water and Waste Disposal application process 
is time and labor intensive and requires a great deal of paperwork. 
Even once an application is approved, a community must finish a nine-
page list of requirements known as the USDA-RUS Loan Letter of 
Conditions Provisions before funds are obligated and construction 
begins. Many small communities have only part-time or volunteer staff 
and are ill-equipped to address these requirements, so they need 
assistance to navigate the process. As previously noted, Rural 
Development does not have the staff to complete this work and, instead, 
relies heavily on nonprofit technical assistance providers. However, 
funding for technical assistance has not increased in recent years 
(excluding short-term ARRA funding). As a result, hundreds of 
communities around the country go unserved each year.
    In addition, technical assistance funding should be provided to 
help communities access Rural Business and Cooperative Service 
Programs, because of similar complexities of those programs. During the 
course of our water and wastewater work, we are frequently asked by 
rural communities to provide these other services, because they lack 
full-time staff or expertise to access funds that might be available to 
them.
9. Focus Grant Funds on the Neediest Systems
    Rural Development awards its limited grant funding to systems to 
subsidize user rates to a ``reasonable'' level. Generally, this is 
based on user rates as a percentage of median household income, but can 
take into account additional factors. Establishing rates as a 
percentage of median household income is equitable and should be the 
primary--if not the sole--means of determining grant funding.
10. Require Communities to Seriously Consider Regionalization
    Too often, options that involve regionalization or collaboration 
are given a cursory examination and dismissed because of a lack of 
support by the community. In order to maximize limited resources, 
communities need to realistically examine whether operating their own 
facilities is cost effective. Rural Development offices have not forced 
communities to consider these alternatives because they are not 
politically popular. Therefore, such a requirement should be part of 
the law. While there may be legitimate reasons not to choose 
regionalization, the burden of proof should be on the community.
11. Require State Offices to Coordinate Funding With Other Agencies
    Rural Development's Water and Waste Disposal Program does not 
operate in a vacuum. Infrastructure financing is also available through 
State Revolving Fund programs, the Economic Development Administration, 
and, to varying degrees, through state Community Development Block 
Grant Programs and state-funded programs. A system that coordinates 
these funding sources to maximize the impact and effectiveness of each 
is highly desirable. In a majority of the states, agencies communicate 
on some level to compare projects. Formalizing these networks to 
simplify application procedures and coordinate funding would remove 
significant administrative and financial burdens for small communities, 
by limiting the number of applications and environmental reviews 
prepared, and the time delays that come from awaiting funding decisions 
from various agencies.
12. Provide a Legislative Remedy to the IRS Ruling on Loan Guarantees
    The IRS has ruled that communities cannot utilize tax-exempt bonds 
when securing loan guarantees under the Water and Waste Disposal and 
Community Facilities programs, because it is considered ``double 
dipping.'' However, this negates the favorable interest rate 
communities receive under the programs and renders them ineffective. As 
a result, the loan guarantee programs are generally under-subscribed. 
If Congress continues to advance loan guarantees as a financing option, 
it should eliminate this barrier to their use.
13. Adjust Application Schedules for Some Programs
    The Value Added Producer Grant Program and the Rural Energy for 
America Program are important resources available to farmers, but 
applications are only accepted once per year, generally during the busy 
spring planting season. (The timing of annual appropriations is 
typically blamed for the situation.) Program funding should be 
announced early in the fiscal year so that producers could prepare 
applications during the winter months.
                                 ______
                                 
                          Submitted Questions
Response from Hon. Dallas P. Tonsager, Under Secretary for Rural 
        Development, U.S. Department of Agriculture
Questions Submitted By Hon. Mike McIntyre, a Representative in Congress 
        from North Carolina
    Question 1. Rural Development (RD) makes loans and grants in rural 
areas. What impact do you see the downturn in the economy having on 
rural communities and rural businesses? Has RD seen an increase in late 
payments and delinquencies on loans? How do you address these issues 
within the programs? Who should communities or entities at risk for 
delinquency contact to assist them?
    Answer. Rural America has experienced a number of effects from the 
current recession: a loss of rural jobs, higher unemployment, a 
decrease in some areas in local tax revenues, lower demand for many 
rural products, lower farm income, and lower commodity and land prices. 
These effects vary greatly from one community to another. USDA Rural 
Development administers more than 40 programs, and these also have been 
affected by the recession with the impacts varying widely by program.
    In the aggregate, however, the Rural Development loan portfolio has 
performed remarkably well in a difficult economic environment. This is 
a tribute to the agency's high underwriting standards and the 
professionalism and diligence of our program staff.

                                              1. RD Loan Portfolio
                               (Rural Business, Rural Housing and Rural Utilities)
                                           Guaranteed and Direct Loans
                                               Delinquency Summary
----------------------------------------------------------------------------------------------------------------
                      Principal Balance      Delinquent Principal Balance           % Principal Delinquent
----------------------------------------------------------------------------------------------------------------
  FY Ending Sept         ($Millions)           30 Days          > 1 Year           30 Days          > 1 Year
----------------------------------------------------------------------------------------------------------------
       FY 2008             $106,474.8           $5,787.4          $1,024.4             5.44%             0.96%
    FY 2009 Q1             $109,745.9           $6,664.6          $1,081.5             6.07%             0.99%
        Jan-09             $110,755.3           $6,747.7          $1,097.8             6.09%             0.99%
        Feb-09             $111,312.1           $6,010.3          $1,103.3             5.40%             0.99%
        Mar-09             $112,951.8           $6,003.8          $1,128.9             5.32%             1.00%
        Apr-09             $114,096.0           $6,361.0          $1,140.0             5.58%             1.00%
----------------------------------------------------------------------------------------------------------------

    The aggregate figures mask significant differences. The Rural 
Development Utilities Programs have not experienced a material change 
in delinquencies, with an aggregate delinquency rate (% of principal 
delinquent for more than 1 year) of just 0.14 percent. The 1 year 
delinquency rate for the Business and Industry Guaranteed Loan program, 
5.36 percent at the close of Fiscal Year (FY) 2008, improved to 5.25 
percent by April 30, 2009, although we anticipate a recession-driven 
increase by the close of FY 2009. The 1 year delinquency rate for the 
Single Family Housing Direct Loan program increased from 3.29 percent 
at the end of FY 2008 to 3.45 percent as of April 30, 2009; for the SFH 
Guaranteed Loan program, the increase was 0.47 to 0.53 percent. The 
corresponding increases for the Multi-Family Housing program and the 
Community Facilities program were 0.70 percent to 0.75 percent and 1.64 
percent to 1.92 percent respectively.
    For the Rural Development portfolio as a whole, the delinquency 
rate increased from 0.96 percent to 1.00 percent in that same time 
period. Delinquency trends are monitored closely by all program areas, 
and we attempt to engage troubled borrowers and develop appropriate 
counseling and loss prevention strategies. We encourage borrowers who 
anticipate difficulty in repayment to contact their loan officer or 
Rural Development State Office to initiate remedial action as early as 
possible.

    Question 2. What is the timeline and plan for implementation of the 
Rural Microentrepreneur Assistance Program authorized and funded in the 
2008 Food Conservation and Energy Act?
    Answer. Rural Development (RD) plans to proceed with publication of 
a proposed rule with a final rule to follow. The final rule will be 
published in sufficient time for funding to be awarded in FY 2010.

    Question 3. Governor Sanchez's testimony cites a lack of outreach 
from USDA Rural Development to Native and persistent poverty counties. 
Do you plan to reach out to these specific communities? If so, how?
    Answer. In the remaining months of Fiscal Year 2009, USDA Rural 
Development plans to conduct a two-pronged outreach strategy focused on 
rural American Indian and Alaska Native (AI/AN) customers. The plan 
includes a series of six (6) regionally focused webinars, followed by 
six (6) regional application fairs. This combined effort will not only 
raise awareness of the programmatic resources available to AI/AN 
customers through USDA Rural Development but will also provide forums 
to begin the application process under the appropriate programs.
    These future events will augment past efforts that included 
participation on a White House Office of Intergovernmental Affairs ARRA 
Teleconference (April 7, 2009), conducting a USDA Rural Development 
ARRA specific Webinar for the National Congress of American Indians 
(April 30, 2009) and hosting breakout sessions covering USDA Rural 
Development's programs, including ARRA resources, at the Department of 
Health and Human Services' Administration on Aging National Title VI 
Training and Technical Assistance Forum (Rockville, MD--April 28, 2009) 
and the National American Indian Housing Convention (New Orleans, LA, 
May 13, 2009).
    With regard to persistent poverty areas, as required in the 
Recovery Act, Rural Development allocated 10% of available loan and 
grant dollars in the Housing, Community Facilities, Business and 
Industry and the Water and Waste Disposal Programs for assistance in 
persistent poverty counties as defined in the Act. In our Single-Family 
Housing Direct Program, our state offices have also been instructed 
that 40% of the allocated funds be made available to very-low income 
applicants. In addition, Rural Development State Offices are conducting 
outreach to areas in need of funding, including persistent poverty 
counties.
Questions Submitted By Hon. K. Michael Conaway, a Representative in 
        Congress from Texas
    Question 1. When responding to how funding is allocated among 
eligible projects under the Stimulus, you said it was based on first-
in, first-out (FIFO) and that projects were approved solely on the 
basis of when applications were submitted. Can you please explain in 
greater detail how this arbitrary approach in any way prioritizes 
communities most in need of funding?
    Answer. Rural Development programs are designed to ensure that 
funds are awarded to applicants with the greatest need. Most of our 
Recovery Act funds are being implemented through existing programs, 
which have regulations regarding review and ranking of requests for 
funding. In general, applications are selected for processing on a 
first-come, first served basis, unless funding is limited. As part of 
the review process, applications are awarded priority points based on a 
number of factors. Although there are program-specific criteria, the 
highest number of priority points are typically assigned to the 
smallest, most needy communities and applicants. When funds are 
limited, these points are used to rank applications to be used to 
determine which applications are to be funded.
    In addition, Section 3 of the Recovery Act requires agencies to 
expend the funds made available as quickly as possible consistent with 
prudent management. As a result, readiness to proceed does factor into 
our selections for funding. In many program areas, such as Single 
Family Housing, Community Facilities and Water and Waste, Disposal, 
backlogs of applications seeking funding exist. These projects have 
been reviewed and scored and are more likely to be ready to proceed to 
implementation quickly.
General Priority Point Criteria
    Business and Industry Guaranteed Loans--Priority points are 
assigned to applications based on population, long-term population 
decline, persistent poverty levels, types of jobs that will be created, 
underserved/underrepresented areas and groups, impact of natural 
disasters, loan features, and the impact and offerings of the business 
proposed.
    Community Facilities--Priority points are assigned to applications 
based on population, income levels, health and public safety priorities 
and other factors at the discretion of the state director, such as 
unforeseen exigencies or emergencies.
    The Rural Business Enterprise Grant Program--Priority points are 
assigned to applications based on population, unemployment, income 
levels, underserved/underrepresented areas and groups, outmigration 
areas, persistent poverty areas, applicant experience, evidence of 
small business development, leveraging of other funds and other 
criteria.
    Single Family Housing Direct Loan Applications--Priority points are 
not assigned to Single Family Housing Direct applications, however, 
funds are allocated to the states in accordance with the allocation 
formula found in Rural Development Instruction 1940-l. Typically 
applications are selected for processing on a first come--first served 
basis. Recovery Act funds have initially been utilized to help clean up 
the large backlog of applications that existed. States have also been 
instructed that 40% of the allocated funds be made available to very-
low income applicants.
    Water and Waste--Priority points are assigned to applications based 
on population, health priorities, income levels and whether an 
applicant is a pubic body or Indian Tribe. Points are also assigned to 
application that will merge ownership, management, and operation of 
smaller facilities providing for more efficient management and 
economical service; enlarge, extend, or otherwise modify existing 
facilities to provide service to additional rural areas; or serve an 
area that has an unreliable quality or supply of drinking water.
    Broadband Program--Broadband Program--Implementation of the 
Broadband Initiatives Program (BIP) under the Recovery Act will 
necessitate a competitive grant, loan, and loan/grant combination 
process. This process is still under development, and will include 
application rating and ranking criteria.

    Question 2. USDA has emphasized their dedication to transparency in 
administering funds, yet many sources of information as to where 
funding is actually supposed to go do not add up. Could you provide to 
the Committee a list of funding by state, town, and project of all the 
Stimulus funding across all Federal agencies?
    Answer. President Obama is committed to implementing the Recovery 
Act with an unprecedented level of transparency and accountability. 
This is frankly a work in progress; the reporting protocols and web-
based public access tools continue to evolve. I have appended * a 
detailed state/town/project list of all USDA Rural Development Recovery 
Act investments. Similar data is available on request from other 
agencies. In addition, detailed project information in various formats 
is available on www.USASpending.gov, www.Recovery.gov, and on other 
Federal agency websites. I would especially direct your attention to 
the geospatial mapping tool found on the USDA website at http://
www.usda.gov/recovery/map/. These tools will continue to be improved in 
the months ahead.
---------------------------------------------------------------------------
    * The document entitled, USDA Rural Development Consolidated ARRA 
Obligations (as of June 17, 2009), has been retained in Committee 
files.
---------------------------------------------------------------------------
Question Submitted By Hon. Bill Cassidy, a Representative in Congress 
        from Louisiana
    Question. The Davis-Bacon provisions will increase costs for rural 
communities and require them to commit a greater local match for a 
Rural Development loan. You suggested that in order to mitigate this 
cost increase, a different mix of grants and loans could be provided to 
the local community. Please elaborate on what adjustments would be made 
to alleviate the cost increases caused by the Davis-Bacon requirements. 
Also, how would these adjustments affect the availability of grant and 
loan funding to other communities, as well as the total number of 
projects that could be funded by Rural Development programs?
    Answer. The Rural Development programs impacted by the application 
of Davis-Bacon Requirements are typically needs-based programs where 
loans and grants are offered based on an applicant's ability to assume 
and repay debt. Our Community Facilities and Water and Waste Disposal 
Programs are two such programs. Agency funding offers will be adjusted 
in consideration of increased project costs associated with 
implementation of the Davis-Bacon provision of the Recovery Act. 
Whether the additional funding is provided will be loan or grant will 
be based upon the applicant's eligibility and financial situation.
    We do anticipate that implementing Davis-Bacon will likely result 
in higher project costs for construction funded through the Recovery 
Act. Early estimates are that impacted projects could experience costs 
that are 10-20% higher than under our existing programs. This will 
impact the number of projects that we will ultimately be able to fund.
    Rural Development has significant responsibilities related to the 
Recovery Act. The Agency has been charged with deploying $4.36 billion 
in recovery funds, that when implemented will deliver more than $20 
billion in loans and grants to improve economic opportunity and the 
quality of life in rural America. Rural Development intends to fund a 
significant number of loans and grants across all of its programs, 
including an estimated 9600 essential community facilities, 
approximately 8,000 direct home loans and 90,000 home loan guarantees, 
hundreds of new rural businesses, and 1,400 new or improved rural water 
and waste systems.
Response from Hon. Phyllis K. Fong, Inspector General, Office of 
        Inspector General, U.S. Department of Agriculture
Questions Submitted By Hon. Mike McIntyre, a Representative in Congress 
        from North Carolina
    Question 1. The Office of the Inspector General was provided with 
$22.5 million in the Recovery Act for oversight and audit. How is this 
funding broken down by mission area? Are you able to increase staffing 
numbers to the required level given that this is just one-time funding?
    Answer. The monies received by the Office of Inspector General 
(OIG) for oversight work related to the American Recovery and 
Reinvestment Act of 2009 (Recovery Act) were not broken down by mission 
area, although the Appropriations Committees advised that $7.5 million 
of the amount was for oversight of Forest Service Recovery Act 
programs. We nevertheless plan to perform audit work in each USDA 
program and activity that received Recovery Act funding through the 33 
audits planned for this year or in subsequent fiscal years. This work 
will be performed internally or through contractors except for audit 
work related to Rural Development's Broadband Program. Given the 
release of our current report in March 2009, we are coordinating with 
the Government Accountability Office since it is taking the lead in 
this area related to Recovery Act funding. As of June 19, 2009, two 
audit reports and seven flash reports (quick-turnaround reviews that 
identify issues that should be addressed by USDA program officials 
before Recovery Act funds are expended) have been issued and 23 audits 
are in process (see Attachment 1). Reports are posted on our website 
www.usda.gov/oig. To date, OIG's investigative work has focused on 
conducting fraud awareness briefings in the various agencies of USDA 
receiving Recovery Act funding, dissemination of oversight best 
practices, and performing reviews of several procurement actions 
referred to OIG by the Recovery Accountability and Transparency Board.
    We believe we are able to increase staffing to levels needed for us 
to do the additional oversight work required of OIG. We have been able 
to manage the process by hiring at the lower grades (leaving the 
natural attrition that occurs at the higher levels to offset future 
staffing levels), using contractors where possible to supplement our 
workforce, and using temporary hiring authorities (like hiring retired 
annuitants).

    Question 2. Are the staff that you are hiring now experienced 
enough to evaluate the often complex projects (including broadband 
deployment) that will be funded through the stimulus?
    Answer. On the Audit side of our operations, we are hiring 
primarily entry-level auditors. In addition, we are hiring several 
experienced senior audit managers that recently retired from our 
agency. Both managers have years of experience in auditing the programs 
and operations of USDA. These managers will assist teams in developing 
the scope and approach to various audit assignments resulting from the 
Recovery Act. The audit work we will perform as a result of the 
Recovery Act will include basic data collection and analysis to 
evaluate such issues as whether participants are eligible for the 
programs and whether they comply with program requirements. The entry-
level auditors will be used to perform these tasks and assist our more 
experienced auditors who will be leading the overall audit. Over time, 
these entry-level auditors will receive structured and on-the-job 
training that will allow them to progress to the journeyman level. This 
career progression for a staff auditor generally encompasses a 4 year 
period, at which time the auditors we are currently bringing on board 
should be ready to replace the staff we will lose to attrition and 
retirements.
    On the Investigations side, we are currently in the process of 
hiring criminal investigators. The majority of these positions are GS-
9, entry-level. Once hired, the investigators must successfully 
graduate from the Basic Criminal Investigator Training Program at the 
Federal Law Enforcement Training Center, in Glynco, Georgia; and attend 
a 3 week Inspector General Basic Training Course at the IG Academy. 
Once these have been successfully completed, the newly hired criminal 
investigators will be fully authorized to conduct investigations 
relating to the programs and operations of the U.S. Department of 
Agriculture, including executing arrest and search warrants, and 
carrying firearms. These newly trained criminal investigators will 
initially be assigned to work with a senior level criminal 
investigator, who will mentor and train them in conducting 
investigations of USDA programs. As they gain experience and complete 
additional training courses, they will conduct investigations 
independently.

                                                  Attachment 1
                               USDA-OIG Assignments Funded Under ARRA for FY 2009
                                          (current as of June 10, 2009)
----------------------------------------------------------------------------------------------------------------
                           American Recovery and Reinvestment Act of 2009 (P.L. 111-5)
-----------------------------------------------------------------------------------------------------------------
                                        Form 1 Plan Page
    Agency Acro         Assign_Nbr            Nbr                                  Title
----------------------------------------------------------------------------------------------------------------
                                                    Completed
----------------------------------------------------------------------------------------------------------------
               FS          08703-1-HQ            09HQ006  Existing Risk to Forest Service's Economic Recovery
                                                           Program (Issued 04/03/09)
               RD          85703-1-HQ            09HQ006  Existing Risk to Rural Development's Economic Recovery
                                                           Program (Issued 04/03/09)
----------------------------------------------------------------------------------------------------------------
                                                     Ongoing
----------------------------------------------------------------------------------------------------------------
              FSA          03703-1-Ch            09CH018  Controls over Aquaculture Grant Recovery Act Funds
                                                           (Phase I)
                                                          Flash Report: 03703-1-Ch(1) (Issued 05/08/09)
                                                          Flash Report: 03703-1-Ch(2) (Issued 06/03/09, response
                                                           pending)
              FSA          03703-1-Te            09TE024  ARRA--Direct Farm Operating Loans--Phase I
              RHS          04703-1-Ch            09CH022  Controls Over Eligibility Determinations for Single-
                                                           Family Housing Guaranteed Loan Stimulus Funds (Phase
                                                           I)
                                                          Flash Report: 04703-1-Ch(1) (Issued 05/11/09)
                                                          Flash Report: 04703-1-Ch(2) (Issued 05/14/09)
                                                          Flash Report: 04703-1-Ch(3) (Issued 05/22/09)
                                                          Flash Report: 04703-1-Ch(4) (Issued 05/22/09)
                                                          Flash Report: 04703-1-Ch(5) (Issued 06/10/09, response
                                                           pending)
              FAS          07703-1-HQ            09HQ006  ARRA Trade Adjustment Assistance for Farmers (TAAF)
                                                           Program--Monitoring Implementation
              RHS          04703-1-Hy            09HY021  Controls Over Eligibility Determinations for Rural
                                                           Community Facilities Program Direct Loan and Grants
                                                           Stimulus Funds (Phase I)
              RHS          04703-1-KC            09KC033  Single-Family Housing Direct Loans Stimulus Controls
               FS          08703-1-At            09AT027  Forest Service's Use of ARRA Funds for Hazardous Fuels
                                                           Reduction
               FS          08703-1-Hy            09HY013  (ARRA) Oversight and Control of Forest Service
                                                           Activities
               FS          08703-1-SF            09SF023  Administration of Biomass Grants Funded Under ARRA,
                                                           Phase I
               FS          08703-2-SF            09SF025  FS Capital Improvement and Maintenance (Phase 1)
              RUS          09601-1-At            09AT002  RUS Controls Over Water and Waste Disposal Loan and
                                                           Grant Programs
             NRCS          10703-1-KC            09KC037  Emergency Watershed Protection Program Floodplain
                                                           Easements
             NRCS          10703-2-KC            09KC036  Watershed Protection and Flood Prevention Operations
                                                           Program
             OCFO         11703-1-HQ             09HQ006  ARRA Reporting Oversight
              FNS         27099-71-Hy            09HY004  Summary of Nationwide Electronic Benefits Transfer
                                                           (EBT) System Operations
              FNS          27703-1-At            09AT021  The Emergency Food Assistance Program (TEFAP)
              FNS          27703-1-Hy            09HY020  ARRA--FNS Management Oversight of the Supplemental
                                                           Nutrition Assistance Program (SNAP)
              FNS          27703-1-KC            09KC035  Supplemental Nutrition Assistance Program Increased
                                                           Benefits From Stimulus Funds
              FNS          27703-2-At            09AT015  Recovery Act Impacts on SNAP--Phase One
              FNS          27703-2-Hy            09HY001  State Fraud Detection Efforts for SNAP
              RBS          34703-1-KC            09KC032  Rural Business Enterprise Grants
              RBS          34703-1-Te            09TE025  ARRA--Rural Business and Industry Guaranteed Loan
                                                           Program
               MULTI       50703-1-HQ            09HQ006  ARRA Contract Oversight and Activities
----------------------------------------------------------------------------------------------------------------
                                                     Planned
----------------------------------------------------------------------------------------------------------------
              FNS                                09FM025  ARRA Spending for WIC Management Information System
              FNS                                09CH014  Vendor Monitoring in the WIC Program
               FS                                09SF024  Wildland Fire Management
              FSA                                09FM026  ARRA Spending for FSA IT Issues
              FSA                                09KC003  Supplemental Agricultural Disaster Assistance Programs
                                                           and ARRA Transition Assistance
              RHS                                09CH021  Controls Over Eligibility Determinations for Single-
                                                           Family Housing Guaranteed Loan Stimulus Funds (Phase
                                                           II)
              RHS                                09HY022  Controls Over Eligibility Determinations for Rural
                                                           Community Facilities Program Direct Loan and Grants
                                                           Stimulus Funds (Phase II)
              RHS                                09KC034  Single Family Housing Administrative Expenses for
                                                           Stimulus Spending
----------------------------------------------------------------------------------------------------------------
                       33 stimulus assignments planned
                                23 initiated
                                12 completed
----------------------------------------------------------------------------------------------------------------

Response from Doug Anderton, General Manager, Dade County Water and 
        Sewer Authority; Vice President, National Rural Water 
        Association; President, Georgia Rural Water Association
Questions Submitted By Hon. Mike McIntyre, a Representative in Congress 
        from North Carolina
    Question 1. Please provide additional recommendations you would 
make to improve access to rural development programs and provide 
information on these programs to communities.
    Answer. The current water and waste disposal grant and loan program 
operated by the Rural Utilities Service has a great long successful 
history of providing critical infrastructure assistance to meet one of 
the most basic needs in rural America--providing safe and affordable 
water and waste water assistance to low and moderate-income 
communities. Rural Development also has the unique advantage over other 
Federal agencies by having a diverse field structure with community 
development expertise scattered throughout small town rural America.
    Without this assistance, many of these communities could not 
survive or compete in this global economy. With the economic downturn, 
many of these small communities are also faced with the additional 
burden of reduced tax revenues that impact their ability of providing 
critical services on a larger scale that their urban counterparts.
 Recommendations
    In order to assist Rural Development to increase their ability to 
help these communities in need, we would like to recommend that this 
Committee explore the option of providing the Secretary of Agriculture 
limited waiver authority for these programs. This authority has been 
granted to the Secretary in previous disaster related bills and the 
Department has been very conservative in its use. This Committee could 
also require a written notification prior to the Department issuing a 
waiver to continue to conduct the proper oversight and ensure the 
waiver is consistent with the Congressional intent.
    This authority, while small in scope, would provide large direct 
benefits to communities in need. For example, a community which has a 
population of ten thousand two hundred people does not qualify for 
assistance when a community of nine thousand nine hundred would, 
regardless of the need. At this point, the community over ten thousand 
would be unable to even apply for assistance. It would seem that 
allowing this community to apply while giving the Secretary the 
authority to review these applications on a case-by-case basis would be 
beneficial. Not only would a waiver of this type be beneficial to 
address issues related to population, but for income and matching 
requirements as well. Many small, rural, lower-income communities, 
including the Colonias and some federally-recognized Native American 
Tribes, cannot assume the mandatory 25 percent loan or matching 
requirement for the total development costs as currently required by 
law. This requirement hits those with the lowest of incomes the hardest 
as they are the ones unable to debt service or provide matching funds 
at any significant level.
    There is no silver bullet which will guarantee access to the RUS 
programs by all rural communities, and that was not the purpose of the 
program. However, giving the RUS the flexibility to work with some of 
those communities which fall slightly out of their current reach, but 
within the original intent of Congress for the program, would be 
extremely beneficial.

    Question 2. How are rural water systems able to take advantage of 
economies of scale to spread out fixed costs and better serve rural 
citizens in small systems? Are you able to merge systems to keep them 
economically viable? How do communities collaborate on systems?
    Answer. Small and rural water systems are able to take advantage of 
economies of scale to improve service, expand service, and realize 
economic efficiency. This is currently happening and the trend is 
accelerating due to growth, financial assistance, and increased 
regulatory burden. The main forms that of greater economies of scale 
include: physical consolidation or regionalization of water supply 
distinction and/or treatment systems, management/governance 
consolidation (which may not required physical interconnection of 
service), interconnection with retail suppliers with available supply 
and treatment facilities, and satellite management of small communities 
too far apart to regionalize, etc.
    Regionalization or consolidation can work (and is working) in some 
situations, but only for the portion of small systems and only when the 
systems are in close proximity and the economics make sense. Rural 
Water is the lead proponent of consolidation when it makes sense (when 
it results in better service for the consumer) and we have consolidated 
numerous communities in all the states. Consolidation and 
regionalization that is in the consumers' best interest will happen 
naturally at the local level. Federal policy that favors consolidation 
over the locally preferred solution is a step in the wrong direction 
for consumers.
    The trend toward consolidation/regionalization in the country's 
water supply is empirically reflected in the decrease in the number of 
community water systems (CWS). According to EPA, in 1993 there were 
57,561 community water systems in the U.S. That number has decreased to 
51,988 in 2008. Additionally, there are 8,860 community water systems 
which purchase some, or all, of the water from neighboring water 
supplies.
    Currently, USDA encourages multi-system and regional approaches 
when ranking applications for funding by favoring projects that will 
merge ownership, management and operation of smaller facilities for 
more efficient management and economical service.
    In Kentucky, in the last 30 years, the number of public water 
systems has decreased by 70% in the state--from 1,700 public water 
systems to 400 today. The key ingredient in Kentucky trend was state 
financial aide and local support.
    Kentucky Rural Water Association has assisted most of these 
communities (their members) through the process to ensure the 
consolidation will be workable and beneficial to all the communities in 
the mix. In the rare cases where the government pressured apprehensive 
communities to consolidate, the new consolidated system still has 
problems long into the future.
    Rural Water has led or assisted in more communities consolidating 
their water supplies than any program, policy or organization. Again, 
when communities believe consolidation will benefit then, they eagerly 
agree. However, if communities are coerced to consolidate, one can 
almost guarantee future controversy.
Response from Tom Duck, Executive Director, Texas Rural Water 
        Association
Questions Submitted By Hon. Mike McIntyre, a Representative in Congress 
        from North Carolina
    Question 1. Please provide additional recommendations you would 
make to improve access to rural development programs and provide 
information on these programs to communities.
    Answer. I think that providing additional grant funding would be a 
key to improvement. In working with the lowest income communities, they 
sometimes find it hard to access the program because they have no way 
of raising the funding to pay for the loan portion of projects funded 
by USDA.
    As I mentioned in my testimony, allowing the Secretary to waive any 
or all requirements on communities as long as they fall under the 
Congressional intent of the program would be beneficial as well. 
Communities are barely ineligible for funding for a handful of reasons 
and do not qualify for funding.
    Improving the environmental review process is also of the utmost 
importance in improving access to these funds. Many projects spend more 
time on this work than they do on the actual planning and construction.

    Question 2. Do your rural water systems serve any Native American 
Tribes? What particular challenges do you find in these rural water 
systems with how the Federal program is designed?
    Answer. Texas Rural Water does provide assistance to rural water 
systems which serve Native American Tribes throughout the State of 
Texas. These communities have very specialized needs and tend to be 
extremely low income. These communities have an extremely difficult 
time in meeting the matching funding requirements of the program. With 
low tax bases and high poverty, there is no way for these communities 
to service debt. These communities need specialized technical 
assistance and I would suggest the establishment of a program of 
circuit riders specially trained in issues related to these communities 
as one way to increase outreach and ensure greater participation by and 
assistance to these underserved areas.

    Question 3. Do Colonias and other resource limited communities have 
the ability to apply for the Water and Waste Disposal programs? Does 
TRWA or NRWA provide technical assistance to communities in putting 
together applications or in managing their systems?
    Answer. Colonias and other resource limited communities often fall 
into many of the same categories as Native American Tribes. While many 
are eligible, they either don't know of the programs, or an unable to 
participate. Few truly understand the conditions present in these 
communities. Most of these communities not only lack running water, but 
wastewater systems as well. Many utilize cesspools and septic systems 
which are very susceptible to flooding and overflow. Colonias often are 
so remote and inaccessible that merging with other systems in not an 
option. Another difficult issue is related to the actual location of 
the Colonias in Texas. They are located very close to the Rio Grande 
River. The Colonias are often constructed in the floodplains of the 
river and this contributes to the flooding of the systems that are 
present. These communities lack a tax base able to sustain any loan so 
many go without accessing the USDA programs due to the limit on grant 
funds available. That being said, USDA Rural Development has done a 
good job of getting out and working in these communities. While the 
limitations and poverty are important factors, culture is a major 
factor as well. In the Colonias of Texas and the rest of the border 
region, organizations must be a trusted part of the communities to have 
success. Texas Rural Water has great relationships in these communities 
and has built a trust in the border region second to none. We currently 
operate both Water and Wastewater circuit riders in the Colonias and 
would like to see a program specifically dedicated to this work. The 
issues we face in these communities are common throughout the border 
and a program specifically tailored to those needs would be beneficial.
    TRWA, through NRWA, provides technical assistance to these 
communities in both managing these systems and developing applications 
for assistance. Many of these communities lack the very basics needed 
to operate water systems and apply for funding. A fax machine or 
computer is considered a luxury when many communities don't have water 
or electricity. However, circuit riders assist these communities in 
every aspect of system operation as well as the process for applying 
for Federal funds.
Response from Hon. Franklin D. Rivenbark, Commissioner, Pender County, 
        North Carolina; Member, Agriculture and Rural Affairs Steering 
        Committee, Rural Action Caucus Steering Committee, National 
        Association of Counties (NACo); Past Vice Chairman, Rural 
        Development Subcommittee, NACo
Questions Submitted By Hon. Mike McIntyre, a Representative in Congress 
        from North Carolina
    Question 1. Given the competition for Federal funds, would you 
suggest that funds be devoted to traditional infrastructure development 
in rural areas or to local and regional planning initiatives such as 
the new Rural Collaborative Investment Program?
    Answer. Both types of funding are critical. Basic infrastructure is 
fundamental to rural development. However, only funding basic 
infrastructure is not sufficient to help communities thrive and get 
past impediments to rural development. Programs such as RCIP, 
incentivize regional planning and fund local strategies, including 
traditional infrastructure. In my community, we really could use local 
flexibility to allow our water and wastewater planning to accommodate 
new businesses. We would also benefit from a program like RCIP that 
would fund our innovative local priorities, including water 
infrastructure that will meet future demands and other projects that 
don't fit in the regular USDA boxes and rules. We support both basic 
infrastructure and any program or model that puts the prioritization of 
local and regional priorities first, above making communities apply for 
whatever particular ``rural development'' funding stream is available 
at the time. RCIP is one excellent model, but NACo is open to other 
suggestions.

    Question 2. You mentioned that rural counties are struggling to 
navigate the maze of funding opportunities. Has information provided by 
the department been sufficient for communities interested in these 
funds? What have been the greatest obstacles to communities interested 
in applying for these funds?
    Answer. USDA Rural Development staff members at the local, state 
and national level are well respected across rural America. My staff in 
Pender County and I both agree that USDA Rural Development staff are 
the best to work with of any Federal or state agency. They bend over 
backwards to make projects work and deeply care about the rural 
communities they serve. So yes the department has communicated 
sufficiently with my county, but many counties, especially our nation's 
persistently poor counties are in need of greater outreach by the 
agency.
    The greatest obstacle to communities applying for USDA Rural 
Development funding is the lack of local staff capacity in our nation's 
most rural communities. These communities need greater outreach and 
technical assistance. USDA is only one piece of the maze of programs 
and opportunities which rural counties are striving to understand. 
Therefore, many rural counties do not have the capacity to effectively 
compete for Federal grants and loans. We urge USDA to train its field 
staff to assist rural communities with making the connections to 
programs and resources that are present not only at USDA, but also 
through other Federal and state agencies. Often other programs 
complement and match USDA programs, but are not easily accessible or 
well know to small communities.

    Question 3. Please provide additional recommendations you would 
make to improve access to rural development programs and provide 
information on these programs to communities.
    Answer. USDA should undertake significant outreach to our nation's 
398 persistent poverty counties and other rural counties that have not 
traditionally been successful applying for or receiving USDA Rural 
Development funding. The Recovery Act requires that at least ten 
percent of USDA Rural Development funding (excluding the broadband 
program) be allocated for assistance in persistent poverty counties. 
The spirit of this provision will not be met by simply funding just 
enough projects to reach the ten percent threshold. Instead, NACo 
believes that USDA should engage in targeted outreach to these 
communities to ensure that those communities most in need are aware of 
their opportunities and afforded all possible help in successfully 
applying for funding that they are eligible to obtain.
    The agency can also improve access by including rural county 
leaders in their outreach and planning efforts. The new state directors 
should work very closely with the state associations of counties to 
learn the best ways to communicate with and receive feedback from 
county leaders in their state.
    USDA should also map and identify those communities that are not 
receiving rural development funding and reach out to those communities. 
They should also help connect these communities with technical 
assistance providers that can help them effectively identify needs and 
apply for funding.
Response from Hon. Chandler Sanchez, Governor, Pueblo of Acoma, New 
        Mexico; on Behalf of National Congress of American Indians
Questions Submitted By Hon. Mike McIntyre, a Representative in Congress 
        from North Carolina
Overall Response
    The National Congress of American Indians wishes to thank the 
Subcommittee for the opportunity to provide advice on improving the 
implementation of the persistent poverty counties provision of the 
Recovery Act, and other recommendations to improve tribal access to 
rural development programs.
    One overarching theme in NCAI's response to these questions is 
relationship building between USDA and tribes through a proactive 
departmental outreach to tribal leaders, agencies, communities and 
individuals that result in sustained dialogue, collaboration and 
programmatic implementation. The difference is in the timing. The 
recommendations relating to Question 1--the implementation of the 
persistent poverty counties provision of the Recovery Act--are based 
upon a short time frame that acknowledges that they are feasibly 
implemented only through existing departmental and tribal resources. 
Recommendations relating to Question 2 look further into the future and 
envision structural changes within USDA that would enhance USDA-tribal 
partnerships across the full range of Rural Development programs. A 
second overarching theme relates to building the tribal capacity to 
implementation of USDA Rural Development programs. Specific 
recommendations on how to implement these themes across the relevant 
programs are provided.
    Question 1. What would be your advice to the department as to the 
approach it should take to implement the provisions requiring a set-
aside for persistent poverty counties?
    Answer.
    1. Develop an administrative or statutory fix that allows Sec. 105 
        to be applied on a reservation-by-reservation basis for 
        qualifying tribes.

    Sec. 105 of the Recovery Act states that at least ten percent of 
the amounts appropriated to the `Rural Housing Service, Rural Community 
Facilities Program Account', ($130,000,000) the `Rural Business-
Cooperative Service, Rural Business Program Account', ($150,000,000) 
and the ``Rural Utilities Service, Rural Water and Waste Disposal 
Program Account ($1,380,000,000) shall be allocated for assistance in 
the form of loans and grants to persistent poverty counties.'' Overall, 
$166,000,000 is set-aside under the Recovery Act to assist persistent 
poverty counties.
    Many Indian tribes are in, or contain persistent poverty counties. 
According to the 2000 Census, eight of the ten poorest counties in 
America (based on per capita income). Unemployment among Native people 
has consistently been twice the national average. According to the 2000 
Census, the unemployment rate on tribal reservations was 22 percent--
comparable to the national unemployment rate of 25 percent during the 
Great Depression. The poorest counties in which tribal land are 
contained in whole or part are listed by overall national rank below 
and briefly described in a manner to demonstrate some of the inherently 
challenges in implementing the persistent poverty counties provision on 
a county wide versus reservation wide basis.

   (1) Buffalo County, South Dakota is predominantly part of 
        the Crow Creek Indian Reservation. The Reservation itself is in 
        all or part of four counties. (Population: 2,032 Per Capita 
        Income: $5,213)

   (2) Shannon County, South Dakota is entirely within the Pine 
        Ridge Reservation. The reservation itself spans across four 
        counties. (Population: 12,466 Per Capita Income: $6,286)

   (4) Ziebach County, South Dakota lies almost entirely within 
        the Cheyenne River Indian Reservation, which itself is in all 
        or part of five other counties. The balance of the county lies 
        within the Standing Rock Indian Reservation, which is in all or 
        part of four counties. (Population 2,519: Per Capita Income: 
        $7,463)

   (5) Todd County South Dakota lies entirely within the 
        Rosebud Indian Reservation. The reservation lies in whole in or 
        part, in four counties. (Population: 9,050 Per Capita Income: 
        $7,714)

   (6) Sioux County, North Dakota lies entirely within the 
        Standing Rock Indian Reservation and forms the northernmost 30 
        percent of the reservation. The balance of the reservation is 
        in South Dakota. (Population: 4,044 Per Capita Income: $7,731)

   (7) Corson County, South Dakota lies entirely within the 
        Standing Rock Indian Reservation. (Population: 4,181 Per Capita 
        Income: $8,615)

   (8) Wade Hampton Census Area in Alaska is part of the 
        unorganized borough. As of the 2000 census, the population is 
        92.53% is Native American. (Population: 7,028 Per Capita 
        Income: $8,717)

   (10) Apache County contains parts of the Navajo Indian 
        Reservation, the Fort Apache Indian Reservation, and Petrified 
        Forest National Park. (Population: 69,423 Per Capita Income: 
        $8,986)

    Many of these counties are only a part of a reservation. Some 
counties contain two or more reservations. Most tribes above are in 
more than one county, and in is in two states. There is perhaps only 
one tribe in United States--the Menominee Tribe in Wisconsin--where the 
reservation's boundaries are conterminous with county boundaries. 
However, Tribal governments, and not county governments, are the 
predominant governing entities on reservations and their members.
    Thus, reservation areas that experience persistent poverty but are 
only part of a county, might not qualify for Sec. 105 funding based on 
a county-by-county implementation, if the economic circumstances in the 
non-reservation area of the county are not similar. A reservation that 
fully contains a persistent poverty county, likely experiences this 
condition reservation wide, yet Sec. 105 funding might not extend 
throughout the reservation. These scenarios demonstrate the 
difficulties and paradoxes in implementing Sec. 105 on a county by 
county basis for tribes that experience persistent poverty. If the 
primary intent of this provision is to address persistent poverty on a 
governmental level, then the provision should account for the inherent 
practicality of working on reservation by reservation basis with the 
tribal government. A legislative and/or administrative fix must be 
developed to allow USDA to work on a tribe-by-tribe basis, with the 
tribal government as the central point of contact, to implement Sec. 
105. The section should be renamed and operated either de facto or de 
jure as a set aside for Persistent Poverty Counties and Indian Tribes.

    2. Building and supporting the foundation for implementation

    The applicable rural programs of Sec. 105--Community Facilities, 
Business Programs, and Water and Waste Disposal--are designed to put 
buildings, businesses, and water infrastructure into place. However, 
the foundation for successful programmatic implementation is built upon 
sufficient organizational infrastructure, human capital, and strategic 
planning. USDA's Economic Research Service recommends improvements in 
``the competitiveness of rural firms by enhancing the core skills of 
both management and labor. Competitiveness in today's market 
increasingly depends on the ability to obtain and use information, 
technology, and new management techniques.'' \1\ This foundation is 
often lacking in areas of persistent poverty, and therefore requires as 
much if not more support before, or as the funds from these programs 
are distributed.
---------------------------------------------------------------------------
    \1\ http://www.ers.usda.gov/publications/aib710/aib710co.htm.

      a. Sustained USDA outreach, collaboration, and consultation with 
---------------------------------------------------------------------------
            Indian tribes

    Fundamentally, this requires a commitment from the highest levels 
of USDA to the state offices, to reach out and dialogue with tribal 
governments and Federal partners on a regular basis and throughout the 
organizational levels, to design strategic plans on a reservation by 
reservation basis that address capacity and ensure proper 
implementation of the programs. USDA should ensure that its directive 
on tribal consultation--DR 1350-001--is followed in the offices within 
states that have Indian nations within their boundaries.

      b. Programmatic Support to Build the Foundations

    Programs and funds that can support the development of these 
foundations--whether found in the three programs or elsewhere--should 
be a necessary complement to the implementation of these programs. For 
example, the Rural Business Enterprise Grant (RBEG) program provides 
grants to fund technical assistance needs and to establish and fund 
revolving loan programs. Federal programs to empower rural communities 
and tribes and design strategic plans such as USDA's Empowerment Zones 
and Enterprise Communities (EZEC) should be revitalized. Three tribes 
working together--the Menominee Indian Tribe, Sokaogon Mole Lake 
Chippewa Community and Lac du Flambeau Chippewa Community--through its 
joint enterprise, the Northwoods NiiJii Enterprise Community, have 
demonstrated the success of the EZEC program.
    Similarly, operation and maintenance of buildings, water 
infrastructure and waste disposal facilities are critical to the 
sustainability and cost-effectiveness of this physical infrastructure. 
Some tribes experience the premature decline and inoperability of such 
facilities for lack of sufficient training, funding and staff. Turnover 
of operators of drinking water facilities in some tribal areas is high 
because tribal governments simply lack the funds to provide adequate 
salaries. With this turnover also goes the investment and knowledge in 
training and expertise to manage the systems. In the area of water 
infrastructure, USDA can work closely with its partner Federal agencies 
EPA and the Indian Health Service, to ensure sustained operation and 
maintenance of such facilities.

      c. Lower loan: grant ratios 

    Recovery Act funding for the three programs in Sec. 105 is in the 
form of loans and grants. State Directors have the discretion to 
determine how funding is allocated, resulting in a great variance in 
how Indian tribes are treated. If a state director prefers to issue 
loans instead of grants to an applicant, it could be a make or break 
decision. For a tribe in a persistently poverty county, this often 
means ``break.'' This dynamic is one reason why available USDA funding 
to tribes to build water infrastructure, perennially often goes 
unspent, despite the fact that over 13% of tribal homes lack 
fundamental access to safe drinking water and basic sanitation--a 
percentage well over 20 times the national average. Therefore, we 
request that that loans: grants ratio of funds provided to persistent 
poverty counties and tribes be lower than the ratio provided to other 
eligible applicants.

    3. Specific Programmatic Recommendations 

      a. Business Development and Community Facilities 

    Two economic development opportunities may exist for many 
reservations of persistent poverty--traditional foods and renewable 
energy--that can be supported by Sec. 105 funding. These opportunities 
can and should be combined with other USDA and Federal programs. The 
need for strategic planning between USDA and the tribe, as mentioned 
above, is critical to tailoring the program on a reservation specific 
basis.
    For example, using a hypothetical tribe in the Great Plains (as 
many of the poorest counties in the nation are part of or wholly on 
tribal reservations in South Dakota), Sec. 105 funding for business 
development and community facilities can be used to implement Sec. 4211 
of the 2008 Farm Bill. That section allows for the purchase of bison 
meat from Native American bison producers and producer-owned 
cooperatives of bison ranchers; and establishes a ``Traditional and 
Locally Grown Food Fund'' that allows the purchase of foods designated 
``traditional'' or locally grown, and supports the procurement of the 
foods by Native American farmers and ranchers up to 50% where 
practicable. Sec. 105 funding can support the economic development of 
Native American bison producers and help build the facilities necessary 
for their operations.
    Similarly, many of these tribes have significant wind energy 
potential, and many of their homes and building can benefit from energy 
efficiency measures. Tribes in the Great Plains are in an area that 
some view as ``the Saudi Arabia of Wind.'' Sec. 105 business 
development and community facilities funding can help these tribes 
develop renewable energy enterprises and small businesses for 
weatherization in partnership with USDA, DOE, DOI and HUD and others, 
and in anticipation of even more support in future clean energy 
legislation.

      b. Water infrastructure and waste disposal facilities

    An interagency group (which includes USDA) was established in 2007 
with the goal of reducing by 50% the number of tribal homes lacking 
fundamental access to safe drinking water and basic sanitation has 
identified many barriers and solutions to the reality that over 13% of 
tribal homes experience these conditions. As mentioned above, USDA 
funding for water infrastructure on tribal lands is not fully accessed, 
in part because it offered in the form of loans. A greater percentage 
of Sec. 105 funding for water infrastructure funding should be provided 
to qualifying tribes in the form of grants.
    Second, multi-agency efforts to build a water infrastructure 
project on a reservation somewhat predictably, is often laden with 
numerous and often overlapping and contradictory administrative 
requirements. Designation of a lead Federal agency that consolidates 
all aspects of the project--including design, funding and 
construction--is an effective common-sense solution. USDA state offices 
in Oregon and Mississippi have already implemented that solution which 
should replicated across all other USDA state offices addressing water 
infrastructure issues on tribal lands. These state offices have signed 
and implemented MOUs with their IHS regional office counterparts to 
designate a lead agency for each water infrastructure project. This 
model can also be replicated with EPA and IHS in the distribution of 
Sec. 105 funding for waste disposal facilities.

    Question 2. Please provide additional recommendations you would 
make to improve access to rural development programs and provide 
information on these programs to communities.
    Answer.

    1. USDA commitment to staffing and training on tribal issues 

    Tribal access to rural development programs can be improved by 
increasing the number of USDA employees dedicated to tribal issues. At 
present, USDA has designed one FTE at the headquarters office to advise 
the Secretary on tribal policy across the full panoply of USDA 
programs. USDA Rural Development has one Native American liaison. 
Tribal governments are becoming increasingly aware of the great 
diversity and value of RD programs, including housing, business and 
investment, water infrastructure, renewable energy, electrification, 
and community facilities. But without sufficient staffing, department 
knowledge of tribal issues, consultation with tribal governments, and 
tribal involvement in RD programs, can suffer.
    The staffing issue and agency outreach to tribes can also be 
illustrated by way of comparison to other Federal agencies with 
missions that are not tribally specific. EPA has the equivalent of over 
180 FTEs dedicated to tribal environmental issues, including a 
headquarters office of approximately 15 FTEs, and regional tribal 
offices in each EPA region that has tribes. HUD has an Office of Native 
American Programs (ONAP) at headquarters with 22 FTEs, and five ONAP 
offices in their regions. Both agencies have regular dialogues with 
tribal leaders and representatives. We recommend that the USDA 
headquarters office and Rural Development establish and staff tribal 
offices, that USDA encourage the state directors with tribes in their 
states, to dedicate staffing to tribal issues, and that tribal advisory 
groups be established to dialogue on a regular basis with the 
department.
    All departmental personnel with programs that impact tribal 
governments and communities should have training on tribal issues. The 
previous Administration developed a Federal ``Working Effectively with 
Tribal Governments'' training that has yet to be fully implemented, but 
can be accessed with minimal effort. As mentioned above, these staff 
should also be educated in the USDA directive on tribal consultation 
(DR-1350-001).

    2. Extending Extension Programs to Indian Reservations 

    Tribal awareness of rural development programs can also be 
bolstered by a steady USDA presence on tribal lands. This can be done 
relatively cheaply via USDA's extension programs. Extension programs 
also support activities in agriculture, leadership development, natural 
resources, family and consumer science, and community and economic 
development. Clearly this is an avenue through which USDA can be a 
meaningful presence for so many tribal members living on reservations. 
For example, when one thinks of rural America, one of USDA's Extension 
Programs--the 4-H program comes to mind. The 4-H logo programs 
emblematic of America's rural identity, and for good reason. It has 
been funded by USDA's extension programs since 1914, and currently over 
97% of America's counties comprising over 3,100 extension offices have 
robust extension programs.
    Though Congress mandates research and extension services in every 
county in the nation, this reality does not extend to Indian Country. 
The Federally Recognized Tribal Extension Program (FRTEP) currently 
consists of 30 extension agents on Indian reservations. Less than 4% of 
tribal members living on their reservations have access to these 
programs. Current funding is $3 million. NCAI and our coalition allies 
ask initially for a mere $10m annually for FRTEP, to create up to 85 
new offices, as a first step towards more significant and sustained 
funding for FRTEP into the future.

    3. Addressing Poverty through Telecommunications

    USDA's Economic Research Service finds that one way of addressing 
persistent poverty is ``to improve the connections between rural and 
urban areas by improving infrastructure and the dissemination of 
information and the ability to use it. Advanced telecommunications, for 
example, while not a panacea, afford rural communities more economic 
opportunities by providing them with better access to information, 
markets, and services such as business and technical assistance, 
medical care, and educational opportunities.'' \2\
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    \2\ http://www.ers.usda.gov/publications/aib710/aib710co.htm.
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    A GAO report in 2006 finds that 32.1% of tribal homes lack 
telephone service.\3\ The national effort to expand broadband across 
the country, including Recovery Act funding of $2.5 billion in 
competitive grants and loans through USDA's Rural Utilities Service, 
can go a long way in addressing this situation. This Federal support in 
the Recovery Act, along with support for distance learning and 
telemedicine, speak directly to USDA's ERS's recommendation, and will 
help implement the solutions identified in the GAO report, and in turn 
improving economic opportunities for tribes experiencing persistent 
poverty.
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    \3\ http://www.gao.gov/new.items/d06513t.pdf.

For more information, please contact Jose Aguto, Policy Advisor, 
National Congress of American Indians.

                                  
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