ment of Agriculture where, in effect, they would respect each others turf. When I asked for a copy of the memorandum of agreement, it turned out that there was no memorandum of agreement.

Apparently, SBA made a determination, wrote the letter to the Department of Agriculture, and said, in effect, let us know what you think about this.

Well, Ag thought so much about it, they did not even answer the letter. SBA, under the old truism, felt that silence is acceptance, and made their unilateral determination that these people would not be covered.

I am very appreciative of the work that Chairman Smith has done with the appropriations for SBA; that there are areas in there for funding. And, as I understand it, there have been funds appropriated and there is some language in the report that at least makes clear what the legislative intent would be as far as the implementation of the SBA laws. The one factor that SBA hinges on is the debate in the SenateLord knows how long ago that was when SBA was first created and there was a colloquy that this is not meant to duplicate existing programs, and the sponsor of the bill assured the Senate that it was not. So, SBA clearly says that legislative intent was that it should not become involved in this. However, the Congress, I believe it was in 1973, maybe 1974, adopted the language that I talked about before that, in effect, said that if businesses cannot get loans elsewhere, then there is no duplication.

The SBA, in their wisdom, have interpreted that-because that was the Treen amendment dealing with fish harvesters down in Louisiana, I guess the only discussion during the hearings was dealing with the fish harvesters. Therefore, this, again, only applies to fish harvesters and not to other areas, notwithstanding the plain thrust of the language.

So, as I say, I would hope that the subcommittee could clarify, at least for the purposes of meeting Government-imposed standards, that SBA should make these funds available if these are, in fact, small businesses.

It is really kind of ludicrous that they could lend money to an ice cream shop to process and sell a product of the dairy farmer's milk, but they cannot provide a loan for dairy farmers to meet a governmentally imposed standard that, if they do not meet it, will put them out of business.

So, I see a great inconsistency in the law. I can understand that they do not want to have a loan program where there is a loan program over here, and that, really, they would be duplicative of each other; but, this is not the case.

And this has become almost a cause within my office, just because as we went around trying to find out what happened, we cannot believe that the governmental bureaucracy is that insensitive.

I am really kind of surprised that Mr. Kleppe, coming from a rural State, was that insensitive to the problem. So, again, for the record, I would submit my testimony which is basically the memorandum, reworked, that I think members of this subcommittee have received. And I would urge that whatever can be done, to be done somewhat expeditiously. I asked Mr. Kleppe if even a joint resolution of Congress, directing him to do something, would have any force and effect.

And it was my impression that he said that it would not. And basically I just do not think he said that they cannot provide these loans; the law clearly provides that I said, Tom, are you saying that you will not provide the loans? And he said that it was the same thing. And I said, no, it is not the same thing. "Can't" means it is impossible. "Won't" means that it is unilateral decision on your part not to.

And I would hope that this subcommittee considers legislation this year whose authorization would clearly give SBA directions. We are not asking them to duplicate some program or to get into other sources of business. But we feel that for the short run that this is the best approach to the problem.

They have the authority to grant the loans, to meet the EPA standards. They have authorizations for appropriations for that purpose. And, specifically, for the purpose of water pollution control.

So I think, in the short run, that this would be the best approach. I know that Mr. McFall has a piece of far-reaching legislation that would make a great deal of sense, and I think, conceivably, it could be a longrun solution.

As I said, my greatest fear is that when this is all over, we will have changed the policy and there will be some at least 80 families that I represent that have been on the land for years that will be closed down because we were not able to do it fast enough.

So, I thank the subcommittee very much for the courtesy of hearing me, and for the interest that you have shown. I again thank Chairman Smith for his efforts in the Appropriations Committee and I just would urge very strongly that whatever can be done in an expeditious manner, maybe even as the short range because I do not know if this is the long-range solution; but, as the short-range solution,

And, if the people that I represent have that deadline, I am sure that there is a similar deadline for others in the country. And, as I say, I just happen to represent dairy farmers but I know that I have gotor, Don Clausen has in the abutting district of Petaluma which used to be the egg capital of the world, and they still have quite a few egg farms up there. I know some people who have small farms who grow crops where the pesticides run in the water. They are faced with the same situation.

So, possibly some language that says if a farm is a small business, at least by the economic determination of small business, and they are mandated to meet the Federal standard, that loans should be made available through SBA.

This, to me, is an ideal situation. It helps small farmers deal with it, the dairy farmers who we know have problems as far as parity is concerned. It helps clean up the environment and it helps provide employment, and we can provide jobs, good environment, and help keep families farming.

It is almost a good individual program to run for President on because it is as close to being ice cream as you could find. And I am just surprised that SBA does not see it that way.

I would be happy to answer any questions that the subcommittee may have.

[Mr. Burton's prepared statement follows:]

PREPARED STATEMENT OF HON. JOHN L. BURTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Thank you Mr. Chairman and members of the subcommittee for giving me this opportunity to discuss a matter which concerns me very much. The area of SBA loans to agricultural producers demands clarification and legislative directives. Presently, a large portion of the Nation's farmers cannot obtain loan assistance from either SBA or Agriculture, especially in the case of having to comply with a Federal or State order. I am confident that this committee will achieve a solution to this very serious problem.

As a result of Public Law 92-500, the Water Pollution Control Act, all of the dairy farmers in my district are compelled to have completed, by September 1976, extensive pollution control facilities for the purpose of keeping cow wastes out of creeks and surrounding waters. The cost of complying with these EPA standards runs from $40,000 to $100,000 a unit.

The problem of meeting EPA standards exists not only for dairy farmers, but for other crop producers as well.

All of the dairy farmers that I represent are family operations, and, I might add, as a result of the present economic conditions, they are marginal operations. The size of the herd varies from 100 to as high as, in some instances, 250 head. In California, these are very small dairy operations. They would definitely fit the description of a small business.

My constituents sought help from the Department of Agriculture but no help was given.

In my opinion, the best loan source for my constituents is the Small Business Administration which can provide 30-year loans at 62% interest. Under present law, SBA is conducting a loan program to assist small businesses with EPA compliance. In fact, EPA assumes that SBA is making loans to all small businesses, including farms, affected by the Water Pollution Control Act.

Section 7(g) (1) of the Small Business Act states, "The Administration is empowered to make loans to assist any small business concern to meet water pollution control requirements established under the Federal Water Pollution Control Act. This section has an unappropriated authorization of $800 million for that purpose."

Notwithstanding the unappropriated authorization of section 8 of Public Law 92-500-which is 15 U.S.C. 636(7) (g) (1) of the Small Business Act-SBA has been granting pollution control loans under a different and more general authority, 15 U.S.C. 636(5). This authority is the general revolving fund which enables SBA to grant loans and request funding for any small business forced to meet requirements of Federal or State law. In addition to pollution control, SBA has also assisted businesses under this section to comply with OSHA regulations. Unfortunately, SBA has administratively determined that they will not make loan funds available to small agricultural businesses such as dairy ranchers. SBA bases their exclusion on three premises:

(1) Historically they have refused to be involved in the field of agricultural credit on the assumption that the Department of Agriculture has total responsibility for farmers and associated credit problems;

(2) The SBA maintains that they are prohibited from assisting small agricultural businesses by the nonduplication provisions of the Small Business Act, 15 U.S.C. 647.

"The SBA shall not duplicate the work or activity of any other department or agency of the Federal Government, and nothing contained in this chapter shall be construed to authorize any such duplication unless such work or activity is expressly provided for in this chapter. If such loans are being denied by such other agencies responsible for such work due to administrative withholding from obligation or withholding for apportionment, or due to administratively declared moratorium, then, for the purposes of this section, no duplication shall be deemed to have occurred."

(As it will be shown later in the statement, the section in italics would seem to make my farmers eligible for SBA assistance because they are being denied loans by the Department of Agriculture.)

I was initially told that, based on the above two premises, SBA had entered into a memorandum of agreement with Agriculture, whereby they have agreed not to assist any farmer receiving USDA supports.

I was subsequently informed that no formal memorandum of understanding had been signed with the Department of Agriculture to delineate responsibilities between the two agencies.

The agreement that did occur was in the form of a letter which SBA transmitted to FHA on August 22, 1972. This letter informed the Farmers Home Administration that SBA had already revised its policies in the agribusiness area, so no formal memorandum would be necessary. This letter concludes by asking FHA to inform SBA of any problems with the new determinations. Because Agriculture neither responded to the letter, nor raised any questions about the classifications, SBA assumed agreement to the conditions. This revised policy was published in its final form in 38 Code of Federal Regulations 19021. Section 120.2 (d) (9) of that part states-"Financial assistance will not be granted by SBA if the assistance would be used primarily in agricultural activities. Agricultural activities include, but are not limited to, the production of food and fiber." These regulations proceed to state than an agricultural producer may be eligible for SBA assistance if he has been formally declined assistance by an agency of the Federal Government, "Provided however, That an activity will not be eligible for financial assistance (SBA) if it (i) produces one or more crops currently eligible for U.S. Department of Agriculture support payments or production loans." These regulations, then, place a blanket restriction on any SBA assistance to small farmers, regardless of the purpose of the loans.

The supposed memorandum of understanding was the primary basis for SBA's refusal to become involved in the area of credit for small farmers. It turns out that the memorandum of understanding was a unilateral administrative decision within SBA, however. It seems logical to assume that SBA could use the same unilateral authority to include farmers in SBA programs as it did to exclude farmers. Since no statutory provisions or interagency agreements exist which bar SBA assistance for the agricultural producers, I can see no real grounds for SBA to continue its present policy.

SBA has categorically admitted that there are no statutory provisions which prevent that agency from administering loans to small agricultural businesses for pollution control. The agency simply feels that it "would be wrong" to provide the assistance and that it would be setting a dangerous precedent.

SBA also agrees that there are no programs currently operating within Agriculture that encompass the problems of pollution abatement loans to the ranchers in my district. This seems to me to nullify the claim of duplication, but SBA feels that the failure of Agriculture to implement the grant program does not, in the words of the SBA administrator, "make it incumbent upon SBA to provide the assistance to the constituents of another agency."

SBA's refusal to provide assistance to small agricultural businesses to meet EPA control standards is solely an administrative determination and could be administratively altered if Administrator Kleppe were so inclined.

After several conversations with SBA, I have been told that the only way they would change their policy would be in response to a specific piece of legislation. Subsequently, I introduced H.R. 5675 which will amend section 7(g) (1) of the Small Business Act to include, "establishments primarily engaged in production of cow's milk." Section 7(g) (1) of the act was created to conform with section 8 of the Water Pollution Control Act, Public Law 92-500. This bill would mandate SBA assistance to dairy ranchers for purposes of compliance with the Water Pollution Control Act.

The chairman, Congressman Smith, has introduced H.R. 5982 which clarifies the eligibility of certain small agricultural businesses. Section 1(b) of this bill modifies the nonduplication clause of the Small Business Act, 15 U.S.C. 647, to make it applicable only if qualified applicants are actually being granted loans by another agency.

The Department of Agriculture, under Farmers Home Administration (FmHA), has some authority to help meet these problems, but as you will see by the conclusion of this statement, it does not provide any help.

Title 7 United States Code section 1923 establishes the Real Estate Loan Division which administers basic farm ownership loans. This program allows direct loans of up to $100,000 at 5-percent interest for a 40-year term. The primary purposes of this section are, "for the acquiring, enlarging, or improving of farms, including farm buildings, land water development, use and conservation." Generally, FmHA has been making its pollution abatement loans under this section. There is a limitation on the total indebtedness of the farmer under this program of $225,000, including the amount of the loan.

This division had a budget of $350 million in fiscal year 1975 and has requested the same amount for fiscal year 1976.

Title 7 United States Code section 1932 establishes the business and industrial loan programs. Subsection (a) reads, in part, "The Secretary may also make and insure loans for the purpose of pollution abatement and control."

The Department has administratively determined that this program is only for the development of rural business and industry, and they do not delve into the area of agricultural financing. I have been told that as a result of our office's inquiry, along with others, that FmHA has modified the regulations of the business and industrial loan program to include dairy ranchers in the pollution abatement programs. This modification will enable ranchers to obtain loan guarantees against default for a maximum of 30 years.

There is no provision for a reduced interest rate, nor is there any guarantee for the term of the loan. These factors are negotiated between the lender and the borrower. Loans of this nature usually take the form of a real estate loan with terms longer than 10 years. However, the interest is determined at the prevailing rate, which makes this guarantee wholly inadequate for the needs of small farmers. Small farmers cannot afford to pay 10 percent interest. It is unfortunate that the Secretary has only allowed guaranteed loans to be made under this program, and has completely disregarded his direct loan authority. Title 7 United States Code section 1932 (b) authorizes a grant fund of $50 million strictly for the purposes of pollution abatement and control. Thus far, the Secretary has not requested funding to implement this provision and no funds have been appropriated against this authorization.

It is also questionable whether $50 million would be sufficient to encompass the needs of all of the farmers throughout this Nation affected by the EPA regulations, but it would be a start.

Title 7 United States Code section 1942 is the third agricultural loan program that has potential for the problem of pollution abatement and control. The title of this program is the "Operating Loan Division" which provides direct loans of up to $50,000 at 834 percent for a period of 7 years. This loan program addresses itself to all types of operating loans. The short time of the loan, 7 years, makes this the least practical type of loan for small farmers.

Subsection (c) of 1942 provides the authority for direct loans for pollution abatement and control projects.

Subsection (d) contains a grant authorization of $25 million for the same purposes. But, as in the case of the grant program in section 1932 (b), the Secretary has never requested funding, nor has Congress appropriated funds against the authorization.

Notwithstanding the provisions of 7 U.S.C. 1923, or 7 U.S.C. 1942, direct loans are not available for my constituents and many other small farming businesses, because the Department of Agriculture has administratively defined a family farm as one in which "the operator, his family, and not more than one full-time hired hand do the required labor on the farm." There is no strict herd size limitation, but I have been told that these loans are not generally available to a farmer with more than 100 head of cattle. The dairy ranchers I represent are absolutely family farm operations, but they do not fall within the narrow administrative definition set by the Department of Agriculture, and therefore they are excluded from these programs.

There are many problems raised in this statement.

My constituents must have loans by September of this year, or shortly thereafter, in order to start construction of the facilities prior to the rainy season. Otherwise, they will be unable to meet the EPA standards by September of 1976. It is my opinion that the best short-range solution to the problem would be to mandate SBA to consider all small businesses eligible for loans in order to meet EPA standards, regardless of the type of business. This would require additional appropriations against outstanding but unfunded authorizations. A long-range solution could be a broad pollution abatement program with the Farmers Home Administration, with a statutory mandate for direct loans or outright grants to all persons engaged in agricultural small business who are faced with EPA requirements.

It is incredible that under present law, SBA and FmHA could jointly provide millions of dollars to open a factory in rural America, and yet they cannot provide $100,000 to individual farmers who must comply with Federal EPA standards, or go out of business. Most of my farmers would end up losing their land that has been in their families for two or three generations, unless something is done.