USDA plays role of venture capitalist in rural development

Northwestern Financial Review, Oct 15-Oct 31, 2003 by Dullum, Justin

Q: How does the United States Department of Agriculture define rural?

We have many different classifications. For our program purposes though, we can't lend in standard metropolitan statistical areas. From there, our business lending program is limited to towns with up to 50,000 in population. Our housing and community facility program is generally limited to 20,000. For our water and wastewater programs, we look at 10,000 and under.

What are some current rural development issues?

Generally, we're looking at increasing economic opportunity and improving the quality of life in rural America. Those are the two fundamental ideas. If you look at the problems we have in Nebraska, we do a fair amount of development along the Interstate. The further away you get from those areas, we run into places where agriculture had once been the primary economic activity. Those activities have been cut back and then the support for those activities gets cut back and the areas struggle. There is also cultural change. We have a lot of Hispanic migration. We also have people who grow up in areas where less development is occurring. People who grow up in the area are going away to college and never coming back. The populations in these areas are aging. Then there are the infrastructure problems.

What are the biggest of these problems?

Waterlines are getting old. A lot of these systems were built in the 1920s. What's happening is water safety standards are getting tighter and upgrading these systems is a problem. I was at a conference recently where they said it would cost $120 million just to get up to the new code on arsenic levels. But I suppose if you had to boil the root of all of these challenges down into one word it would be jobs.

How is the USDA addressing these issues?

The agency is trying to reposition itself. Rural development spawned from the non-farm portion of the old Farmers Home Administration. In that capacity, we were known as the lender of last resort. Now we're trying to be the venture capitalist for rural America. Last year's farm bill had some rural development built into it. There is a rural business investment program, which has yet to get off the ground, which was designed to provide venture capital to rural areas. This takes our existing business programs and simplifies it, especially for the smaller businesses. Another program is our rural business enterprise grant program. That's an effort to help non-profits, which in turn support local businesses. That's been a useful program. We also support the establishment of revolving loan funds. Our approach to the smaller loans is to direct them into the revolving loan funds. We lend money at 1 percent up to $750,000. They repay the loan and any additional money gained goes back into the loan fund.

How are banks involved in this process?

The business and industry guaranty loan program only works through local lenders. They're the ones that initiate the loan. Our role is just to provide a guaranty on a portion of the loan. We start down at 60 percent and go up to 90 percent. Another big program banks have been involved in is our guaranty program for single-family housing and apartment buildings. This program was rolled out within the last 10 years. It takes awhile for these programs to become established but they are building momentum. There is also grant money for housing repairs.

Family farms vs. corporate farms; how important is this debate in the context of rural development?

I don't think it's an either/or situation. Conditions have changed over many years. We're probably going to have to think differently. This is where value-added agriculture comes into play - things like bio-fuels. The drought we've had has really demonstrated the value of water. We have to look at whether this valuable resource is best used raising $1.50 corn. A lot of our loans are going to help turn things in this direction - helping to create ways to turn ag products into the development of plastics, for example. I think getting these operations in place is more important in the discussion of rural problems and solutions.