CURRENT LAW

RURAL WATER AND WASTE DISPOSAL LOANS PROGRAM ACCOUNT
(On basis of loan level, subsidy, and administrative expenses)
(In thousands of dollars)

Total:

(On basis of loan levels, subsidy, and administrative expenses)
(In thousands of dollars)

Item of Change

Staff-years are reflected in the Salaries and Expenses Project Statement.

NOTE: This program is included in the Performance Partnership Program proposed legislation package presented at the end of the Rural Business and Cooperative Development Service.

(On basis of apportable loan levels, subsidies, and adeinistrative expenses)

(in thousands of dollars)

:

$720,651 1
29.3701

$115,771 :

1905,523 :
30.262

$126,502 :

8.24.593 : 873,381 :
O
-11.927 (3):
A

is not required.

Staff years are reflected in the Solaries and Expenses Project Statement.

Bote: Lean level has decreased bax.ame the minidy rate has increased and cannot support the appropriated lean level.

JUSTIFICATION OF INCREASE AND DECREASES - CURRENT LAW

(1) A decrease of $24.593.075 for direct water and waste loans ($905.523.000 available in FY 1995).

The 1996 budget request reflects the Administration's continuing concern for rural development. The Administration recognizes the need to continue financial assistance by providing direct water and waste loans to low-income communities to aid their efforts in meeting Federal water quality and drinking water standards and to improve their health and economic conditions. The decrease in program level is due to the increase in the subsidy rate. This loan program has a three tier borrower interest rate: market, intermediate, and poverty. Because of the Administration's emphasis on reaching out to Tow-income and under-served communities, more loans will be made at the poverty and intermediate rates. This, along with the increase in the Treasury interest rate, causes the subsidy rate to increase thus requiring more budget authority even though there is a decrease in program level. The Administration believes that the development and improvement of water and waste disposal systems in rural areas are essential elements in our Nation's efforts to sustain and revitalize rural communities and necessary if the basic quality of life in rural areas is to be stabilized and improved. This program level will provide support for 1,172 water and waste systems. Additionally, this funding along with the grant program will provide 199,615 rural households with safe, affordable drinking water and an estimated 698,604 people will receive economic and health benefits from these programs.

The 1992 Environmental Protection Agency (EPA) Needs Survey indicates that rural areas with a population of less than 10,000 need $22.2 billion to bring their wastewater treatment facilities into compliance with the Clean Water Act. EPA'S Office of Drinking Water issued a report, entitled "The National Compliance Report", which shows that 72 percent of community water systems in significant noncompliance with the Safe Drinking Water Act were very small systems. Many of the rural communities that are included in these statistics will need the assistance of water and waste disposal loans to bring their water or sewer systems into compliance at a cost the residents can afford.

Since the Food, Agriculture, Conservation and Trade Act of 1990, amended the Consolidated Farm and Rural Development Act to give rural businesses the same eligibility status as rural residents, rural communities can now receive financial assistance to make needed improvements to their water and waste disposal facilities to meet the needs of rural businesses. Construction or improving water and waste disposal facilities to the meet the demands of rural businesses has increased the already heavy demand for water and waste loans and grants. At the end of FY 1994, Rural Utilities Service had about $2.1 billion in loan and $1.06 billion in grant requests on hand.

The requested FY 1996 program level will support the President's Rural Development Initiative as well as the Department's Water 2000 Initiative by focusing assistance on water and waste services to the most needy rural customers. Areas of priority will include communities that have remained persistently poor over the last 60 years or longer, such as the Delta Region and Indian Reservations, as well as areas facing more recent growth challenges such as the Colonias, areas affected by military base closings, or areas affected by other economic hardships which have an adverse effect on the strength and stability of the community. Also, $11 million, in addition to the State allocation, will be made available for use by the President's Pacific Northwest Economic Recovery Initiative which provides for economic adjustment assistance to workers, families, businesses, and communities affected by the President's Forest Plan for the Pacific Northwest and northern California and $16.430 million has been earmarked for use by the President's Initiative for Empowerment Zones and Enterprise Communities. This Initiative creates empowerment zones and enterprise communities to demonstrate how innovative, comprehensive, strategic alliances between private, public and nonprofit entities can develop the capabilities for achieving economic self-sufficiency for the community and its residents. The unobligated earmarked funds may revert to the National Office Reserve after June 30, 1996.

JUSTIFICATION OF INCREASES AND DECREASE - CURRENT LAW (CONT.)

The poverty line interest rate was reduced to four and one-half percent in FY 1994. The lower interest rate, used in conjunction with grant funds, will help offset the high construction costs per user to households in low density areas allowing more communities the opportunity to afford additions and improvements to their water and waste disposal systems. It is anticipated that accomplishment of this program in conjunction with the water and waste disposal grant program will generate 13,009 direct and 20,104 indirect construction and non-construction jobs.

(2) An increase of $73.381.000 for direct loans subsidy ($126.502.000 available in FY 1995).

This estimated subsidy amount is necessary to support the direct loan obligations associated with the requested FY 1996 loan levels, as required under the provisions of the Omnibus Budget Reconciliation Act of 1990. The increase is attributed an increased percentage of direct water and waste loans made at the poverty and intermediate rates. Also impacting this increase is the increase in Treasury interest rates.

(3) A decrease of $11.927,000 in administrative expenses ($30.262.000 available in FY 1995).

Justification for administrative expenses in the amount of $17,790,000 and the associated staff-years are reflected in the Salaries and Expenses Project Statement, since that amount will be transferred to Salaries and Expenses. The balance of $545,000 will be retained by the program account to cover program-related, nonrecoverable costs such as environmental assessments, analyses and audits.