RURAL DEVELOPMENT
The Rural
Development (RD) mission area includes: the Rural Utilities Service (RUS), the
Rural Housing Service (RHS) and the Rural Business-Cooperative Service
(RBS). The goal of the RD mission area
is to improve the economic opportunities and quality of life in rural
RURAL DEVELOPMENT
The 2004 budget includes nearly $12 billion in loans, grants, and related assistance in ongoing programs for rural residents and communities. This represents a $1.4 billion increase over the 2003 budget.
The major provisions of this level of assistance are as follows:
· The 2004 budget maintains flexibility to transfer funding among programs, as authorized under the Rural Community Advancement Program (RCAP). This flexibility allows funds to be directed toward meeting local priorities. The table on page 38 indicates the program levels included in RCAP.
· Loans and grants for water and waste disposal projects are funded at nearly $1.5 billion, the same as the 2003 budget. Within the total, grants are reduced to $346 million, down $241 million from the 2003 budget. However, loans for such projects are increased by a comparable amount. Because of the relatively low interest rate on loans, more projects should be feasible with less grant funding required and, therefore the overall program should be able to operate at a much higher loan to grant ratio than it has over the past few years.
·
Most direct loan and loan guarantee programs are
maintained at their 2003 budget level.
This includes $2.6 billion in electric loans and $495 million in
telecommunications loans.
·
Electric loan funds will be targeted to
borrowers that serve areas of high poverty.
Borrowers will also be asked to recertify that they are serving areas that
are rural, rather than urban or suburban.
·
The Administration continues to support the
accelerated privatization of the Rural Telephone Bank (RTB), which is fully
capable of becoming a private entity.
Therefore, the 2004 budget does not include support for RTB loans. As a private entity, the RTB will be able to
obtain financing to make loans from the commercial markets.
·
The distance learning and medical link program
is maintained at the same level as supported by the 2003 budget - $50 million
in direct loans and $25 million in grants.
In addition, the 2004 budget includes support through discretionary
funding for $196 million in loans and
$2 million in grants for broadband facilities and internet access.
·
For Section 502 single family housing, the 2004
budget supports nearly $1.4 billion in direct loans – an increase of $400
million over the 2003 budget estimates - and almost $2.8 billion in guaranteed
loans, including $225 million for refinancing.
The increase in direct loans represents RD’s contribution to the President’s
initiative to increase homeownership, especially among minorities. The 2004 program levels will allow the agency
to provide loans and guarantees to provide about 49,000 homeownership
opportunities. In recent years, there
have been shortfalls in the demand for guaranteed loans. However, RD recently reduced the guarantee
fee to bring it more in line with the fee charged by other Federal
agencies. In response, the demand for
its guaranteed loans has risen significantly.
·
For Section 515 multi family housing, the 2004
budget includes $71 million in direct loans for the repair, rehabilitation, and
preservation of existing projects. No
funding is provided for new construction.
This proposal is consistent with the Administration’s 2003 budget
decision to focus efforts on maintaining the existing portfolio of about 17,800
projects. Many of the projects are over
20 years old and in need of repair or rehabilitation. The demand for loans to repair and
rehabilitate existing projects has been increasing in recent years, as has the
cost of providing rental assistance payments to keep the projects viable and
available to low-income tenants.
·
The 2004 budget includes $740 million to fully
fund all expiring rural rental assistance contracts for existing projects and to
provide contracts for new construction of farm labor housing projects.
·
The 2004 budget includes $680 million for RD’s
salaries and expenses. This level of
funding includes funding to cover higher pay costs and to invest in information
technology to improve the overall management of the programs.
·
RD will conduct a pilot loan asset sale in 2004
in cooperation with FSA. Data generated
will help USDA evaluate the potential for achieving budget savings through the
sale of loan assets to private investors on a regular basis. The 2004 budget reflects an estimated
$5 million in budget savings for a pilot within the RD mission area total.
RURAL UTILITIES SERVICE (RUS)
The electric and
telecommunications programs administered by RUS provide loans to establish,
expand, and modernize vital components of the infrastructure of rural
A program evaluation conducted as part of the 2004 budget process identified a need to reassess program goals and performance measures. In response, RUS will analyze loans made in 2002 and 2003 to determine the characteristics of the communities to which the loans are going, who the loans are supporting, benefits derived from the loans by the communities, and how many loans and dollars are going to support poverty areas. In addition, RUS will develop program goals and performance measures to better define the purpose of the program and support the future needs of rural communities.
The Distance Learning and Medical Link Program is more recent and more specific in purpose. The financial assistance provided under this program improves the educational opportunities for rural residents and opens up new avenues for them to receive medical assistance in time of need.
The Broadband and Internet Services Program was established as a pilot program in 2001 and was continued in 2002. It is used to finance the installation of various modes of broadband transmission capacity, including fiber optic cable for high speed internet access, and to provide local dial-up internet service to under served areas. Funds are targeted to communities that currently lack internet access via a local call. Recipients include existing RUS telecommunication borrowers or their subsidiaries as well as other entities. The 2002 Farm Bill authorized a permanent program and provided mandatory funding for the program. The program is expected to be operational in 2003. For 2004, the Administration is proposing that the program be continued using discretionary funding authority. The mandatory funding provided by the 2002 Farm Bill would be blocked.
The proposal to stop making new Rural Telephone Bank (RTB) loans with Federal funds is to continue the progression of the RTB toward becoming a private bank. The RTB has the potential to obtain funding from the major capital markets, and remain a vital source of credit for telephone borrowers. Privatization will allow the bank more flexibility in how it supports telephone borrowers. The RTB was established in 1971 as a supplemental source of funding for telephone loans. The first step toward privatization was taken in 1996 with the retirement of $18 million in government-owned, Class A stock. Since 1996, an additional $97.4 million in such stock has been retired, leaving an outstanding balance of $476.7 million.
The Water and Waste Disposal Program provides financing for rural communities to establish, expand or modernize water treatment and waste disposal facilities. For the most part, eligibility is limited to communities of 10,000 or less in population that are unable to obtain credit elsewhere. Grants are limited to a maximum of 75 percent of project costs and, typically average about 35 to 45 percent of program costs. They are available only to those communities with low median household income levels. Program regulations stipulate that the grant amount should only be as much as necessary to bring the user rates down to a reasonable level for the area. Interest rates on loans range from 4.5 percent for poverty communities to a ceiling of 7 percent, although the highest rate currently being charged is 4.875 percent for communities that can afford to pay a market rate of interest. Grant and loan funds are usually combined based on the income levels of users and user costs. The 2002 Farm Bill provided mandatory funding that was used in August of 2002 to make $665 million in loans and grants for 377 projects. This action reduced the backlog of projects waiting for funding. Further, the 2002 Farm Bill funding was used primarily to fund projects for poverty level communities, which required a very heavy emphasis on grants rather then loans. A greater share of the applications received since then is from higher income communities that either do not qualify for grants or do not require as much emphasis on grants for their projects to be viable.
A program evaluation of the Rural Water and Waste Disposal Loan and Grants Program was conducted as part of the 2004 budget formulation process. As a result of that evaluation, the Administration will develop improved annual and long-term goals and outcome measures for the program.
RURAL HOUSING SERVICE (RHS)
The Section 502 single family housing program provides direct and guaranteed loans for the purchase of modest housing in rural areas. Direct loans are made at an interest rate starting at 1 percent. Direct loans are limited to families who have income under 80 percent of the area median income. The average annual income of a direct loan borrower is generally about 55 percent of area median income or about $17,000 on a national basis. Loan guarantees primarily serve families with incomes of up to 115 percent of area median income. Interest rates on guaranteed loans are negotiated between the lender and borrower. Until recently, lenders were charged a 2 percent (one-time) fee for RHS’ guarantee of the loans they make. However, in October of 2002, this fee was reduced to 1.5 percent for loans to purchase housing and 0.5 percent for loans to refinance existing RHS loans. This action was taken as part of the President’s initiative to increase homeownership, especially among minorities.
The Section 515 multi family housing loan program provides direct loans to construct and maintain multi family rental projects that serve low and very low-income families. Projects receive payment assistance to make rents affordable. The average annual income of a section 515 tenant is $7,900. Direct loans have a rate of 1 percent, and most projects receive rental assistance payments to make them affordable to very low-income tenants. As noted earlier, USDA has a portfolio of about 17,800 existing multi family projects with an outstanding indebtedness of about $12 billion. Most of these projects were built in the 1980’s and are, or will soon be, eligible for prepayment and departure from the program. There are concerns about the physical condition of the projects and the extent that loans for repair and rehabilitation will be needed. In addition, there are concerns about the long-term costs of maintaining existing projects and the ramifications of allowing projects to leave the program, particularly, the potential impact on existing tenants and other low-income people on the availability of affordable housing. Accordingly, USDA is committed to doing a thorough review of the matter and developing better strategies for managing the existing portfolio of projects before adding to future costs by funding new projects. Part of this review will include the data generated from the program evaluation included in the 2004 budget on multi family programs.
The Section 538 multi family housing loan guarantee program provides guarantees of loans that are made by private lenders. The program is designed to leverage other sources of financing. It serves rural families with incomes up to 115 percent of the area median income, who can afford to pay unsubsidized rents. The program has operated for only a few years and is still evolving. Regulations for administering the program are being revised to make it a more attractive component of the complete funding package, including access to secondary market funds and use of tax credits and other subsidies.
The rural rental assistance program provides funding for five year contracts with project owners for reducing rent payments to make up the difference between the 30 percent of income the low-income tenant pays and the rent required for the project owner to meet debt servicing requirements. Most of the funding for this program is used to renew expiring contracts on projects that are financed for up to 50 years although dependent on rental assistance that is funded in five-year increments.
The community
facilities program provides direct loans, guarantees and grants to finance
essential community facilities, with priority given to health and safety
facilities. There are three interest
rates available on direct loans, with the lowest, 4.5 percent, offered to
communities where the median income is below the poverty level and for projects
to meet health and safety standards. For
community facility programs, the 2004 budget provides $250 million in direct
loans, $210 million in guarantees, and $17 million in grants. This level of funding will support over 560
new or improved health care facilities, child care, fire and emergency services
and other facilities lacking in rural
RURAL BUSINESS - COOPERATIVE SERVICE
(RBS)
RBS administers the Department’s rural business assistance programs, including technical assistance, development, and research on agricultural cooperatives. The agency delivers a wide variety of services to its clients. Business and Industry (B&I) loan guarantees, for example, provide protection against loan losses so that private lenders are willing to extend credit to establish, expand, or modernize rural businesses. Special efforts are being made to help rural communities diversify their economies, particularly into value-added processing, by focusing on cooperative ventures.
The 2004 budget supports a $602 million program level for business and industry guaranteed loans, which is based on current assumptions, including a one-time fee of 2 percent, and represents a decrease of about $130 million from the 2003 level. This decrease reflects an increase in subsidy costs for the program due to a combination of higher than anticipated defaults and lower interest rates.
Rural business enterprise grants are maintained at the 2003 level of $44 million. These grants are made to public bodies and non-profit corporations that assist small and emerging business.
The rural relending program is also maintained at its 2003 level of $40 million. This program provides 1 percent interest loans to eligible intermediaries that relend the money at higher The 2004 budget also maintains RBS programs that provide research and technical assistance for cooperatives. These programs are relatively modest in size, yet provide opportunities to encourage farmers and rural residents to organize cooperatives as a way to expand their income base.
The 2002 Farm Bill authorized a number of new programs that are in the process of being implemented by RBS, including a value-added grants program, a loan and grant program for renewable energy and energy efficiency, and two additional business lending programs – a rural business investment program and a rural strategic investment program. The 2004 budget proposes blocking some of the mandatory funding the 2002 Farm Bill provided for these programs. It also includes discretionary funding instead of mandatory funding for the value-added and renewable energy programs.