Mr. WHITTEN. Gentlemen, the committee will come to order.

Here with us today, is Mr. James V. Smith, Administrator, Farmers Home Administration, who is a long-time friend of members of the committee and a former Member of Congress. He has done a really fine job with at least one of the biggest and toughest positions in the Department.

I think about four-fifths of real rural development centers in the agency, Mr. Smith-and that does not mean it works without the Extension Service or without the Soil Conservation Service and various other activities-but even the local participants in the watershed program come to your agency for loans in most instances.

We are always very glad to have our friend, Dr. Cowden, representing the Secretary of Agriculture.

Mr. Smith, I recognize you are here because you are the actual operating head of the agency, but it comes under the overall supervision of the Secretary's Office. Please insert at this point in the record biographical sketches for anyone who is appearing before the committee for the first time.

Dr. Cowden, do you have a statement?

BIOGRAPHICAL SKETCH OF GEORGE C. KNAPP, ASSISTANT ADMINISTRATOR, MANAGEMENT, FARMERS HOME ADMINISTRATION

Mr. Knapp was born at Westfield, Iowa, January 19, 1927. He served in the Army, has a B.A. degree from the University of South Dakota and B.C.S. from Southeastern University in Washington, D.C.

After farming for several years (1950-56) near Westfield, Iowa, Mr. Knapp began his service with the Department of Agriculture as assistant county supervisor, Farmers Home Administration. He was subsequently transferred to the Department's Office of Budget and Finance in Washington. In April 1967, after various staff assignments in the Office of the Secretary, Mr. Knapp transferred to the Consumer and Marketing Service as assistant deputy administrator, management; and in December 1967 was designated deputy administrator, management. In June 1971, Mr. Knapp transferred to the Farmers Home Administration as assistant administrator for management.

Mr. Knapp lives in Annandale, Va., with his wife and four children.

BIOGRAPHICAL SKETCH OF JAMES D. KEAST, ASSISTANT GENERAL COUNSEL FOR RURAL DEVELOPMENT AND CONSERVATION, OFFICE OF THE GENERAL COUNSEL, U.S. DEPARTMENT OF AGRICULTURE

James D. Keast was appointed Assistant General Counsel, Rural Development and Conservation, Office of the General Counsel, on August 2, 1971. At the time of his appointment, Mr. Keast was in private practice of law in St. Louis, Mo. Mr. Keast was born in Macedonia, Iowa, on February 13, 1930. He attended public schools in southwest Iowa and graduated from Carson High School, Carson, Iowa. Mr. Keast received a bachelor of science degree in agricultural economics from Iowa State University in 1953 and a law degree (juris doctor) from the State University of Iowa in 1960. He served in the U.S. Marine Corps from 1953 to 1957 and is presently a Lieutenant Colonel in the U.S. Marine Corps Reserve.

Upon graduation from law school, Mr. Keast joined the staff of Doane Agricultural Services, Inc., located in St. Louis, Mo. Mr. Keast left full-time employment with Doane Agricultural Services, Inc., in 1962 to engage in the private practice of law as a partner in the law firm of Schwartz & Keast. Mr. Keast continued to serve as general counsel of Doane Agricultural Services, Inc., and tax and legal editor of the Doane Agricultural Reports. He coauthored five editions of the Doane's Tax Management Guide which discusses Federal income

taxation, estate planning, and business organizations for the farmer and rancher. He is admitted to practice before the Iowa, Missouri, and Federal bars. Mr. Keast resides at 1417 Montague Drive, Vienna, Va. He is married to the former Marcia Bolton of Des Moines, Iowa.

STATEMENT OF THE ASSISTANT SECRETARY OF AGRICULTURE

Dr. COWDEN. Mr. Chairman, I have a brief statement here.

Mr. Chairman and members of the committee, I appreciate this opportunity to make the opening remarks in behalf of the Farmers Home Administration budget for fiscal 1973.

Farmers Home is a credit agency with a good and consistent record of service to rural America. Congress, through this agency's supervised credit, has given USDA practical and workable programs to help farmers, rural residents, and rural communities.

For fiscal year 1973, major programs will be at record high levels. Last May, the President, in his "Salute to Agriculture" message, established new high priorities for farmer loan programs and for water and sewer loan programs.

The rural housing program is scheduled to continue increasing the supply of housing for low-and moderate-income families. Funding in fiscal 1973 will be $2.2 billion-up about $500 million over this year. This is four times the 1969 level.

It is appropriate for this time to note two recent actions. The President has sent to the Congress a rural development message proposing a rural development program to be funded at a level of $1.3 billion annually. On February 23, 1972, the House passed and sent to the Senate H.R. 12931, a rural development bill. Both of these actions propose to expand the role of Farmers Home as a rural credit agency.

This committee is most familiar with the emphasis we have placed on providing opportunities for decent homes and modern water and waste disposal facilities in rural areas. We are pleased with the recognition that is now being given toward providing for the well-being of rural residents. We realize there is challenge in meeting our goals for rural development. Progress is being made, and we are moving in the right direction. Your assistance is appreciated.

The record of Farmers Home's past accomplishment and its plans for fiscal 1973 will be presented to the committee in full detail by James V. Smith, FHA Administrator.

Thank you.

THE HISTORY OF FHA

Mr. WHITTEN. Thank you. Dr. Cowden.

I think it would be appropriate here and I guess perhaps I am allotting more time to this in the record than usual-but with the country becoming urbanized, and with the news media directing their attention in that direction to a great degree, it might be worthwhile at this point to recall the early beginning of this Agency.

Mr. Natcher and I have been on this committee quite a long time. My colleagues on the Republican side have been on the subcommittee or actively engaged in agriculture for a long time and we know these programs from the ground up.

I recall when I first came to this committee, the Farm Security Agency had been set up in depression days and then, as now, to qualify for loans, you had to show that funds were not available from other sources.

The average employee of the Agency at that time at the local level had to certify that he was doing his own labor on the farm, and, as I recall it, that he did not have over one employee.

Dr. Dillard Lasseter, formerly head of this agency, and a very fine, capable fellow came by my office the other day, which brings this to mind-at that time we had in several areas of the United States where there were large communal farms that had been bought during the depression. Everybody had an interest in the company store, so to speak, and nobody owned a tractor.

Frankly, it was very similar to what I found in Russia some years ago. It was a communal system. In my county, nobody owned a gin. A gin belonged to the community and so forth.

After the Congress set out to get people back on their individual initiative and in their own ownership, it took several years for the executive level to break up these big operations which did not turn out. to be what they should have been.

QUALIFICATIONS OF FIELD PERSONNEL

The average agent in the average county required qualifications which would enable him to supervise a loan of $300 or $400 for operating expenses, and perhaps a cow and a turning plow and a shovel or

two.

I remember when they were trying to get this whole policy changed. I had a picture where they took a plantation barn worth maybe $12,000 to $20,000 at this time and actually tore off a corner of this fine barn to put up a replica, which was the Farmers Security type of building which would have been worth $1,200 or $1,400.

If you hired two employees on your farm, you were subject to having your loan foreclosed. I have kidded about this over the years. After I came here, the circuit judge I worked with wrote me and said this man had come to see him and said, "Judge, I want you to know the Farm Security Administration, every time they buy a mule, gives my brother a kickback of $15. I want you to write Jamie." He said, I shouldn't write Jamie; he doesn't believe in that kind of thing. The judge said, "Jamie will put a stop to it." He said, "That is not what I want; I want him to cut me in on it, too."

In all seriousness, they had what we called home advisers, and they, in turn, visited these people who were at the very bottom financially, to get them started.

They taught the housewife to can fruits, vegetables; taught her how to budget, arrange the finances of the family. I could name many families with whom I am familiar in my area who got their start this way and whose sons and daughters have finished college, and who now hold public office, positions of responsibility-bank directors, and so on. Many, many people have been able to get their start through your agency.

We in the Congress have had the responsibility of increasing the authority and the operations of this agency to meet growing needs.

As these people have become more prosperous, as they took larger farms, in order to take advantage of new, expensive mechanized equipment. You had to grow with it to meet the needs.

By the same token, you have had to greatly improve the qualifications of the average FHA employee, not that you did not have welltrained people back then; but you have been able to improve your staff through the years.

INCREASED FHA AUTHORITIES

Some years ago Congress passed a housing act which included $500 million for rural housing loans.

They obtained 20 or 30 votes based on that $500 million, and then, having gotten the votes and passed the act, the $500 million just stayed there. They did not implement that part of it for rural America.

It was at the insistence of this subcommittee that they started moving out with the $500 million, and then we realized that the policy of the Agency required that you have your major income from farming in order to get a loan. With the changing population picture throughout the United States this was restricting construction rather than building homes. We changed that from farm to rural, and that is when we really got going.

IMPOUNDED FUNDS

What is disturbing, Mr. Smith, is that with a growing need for credit in rural America over the last serveral years, we have had trouble getting the Office of Management and Budget to release all the funds that we have made available, this is especially true of production loan money which is quite scarce.

We have tried with two Secretaries. I think we have had their help. We have tried in every way we know how-this committee and its members to get the Office of Management and Budget to release $58 million that this committee provided last year for grant money, so that we could really expedite and speed up environmental protection by making water systems and sewage treatment works available in rural areas.

We have been disturbed that $75 million in production loans that Congress provided has been frozen. There have been other instances that have been enumerated in the hearings here that do not necessarily come directly under you.

Then we have another problem-and I know that anv President or any Congress with a $44 billion deficit has to worry about plenty of things but one of the worries that we should have is putting first things first. I consider getting food, clothing, shelter, and some of the conveniences of city life to rural people to be the best way to solve the many present-day ills of the cities. Most would rather stay in rural America if they could make a living.

All of this has been listed in the record prior to your appearance here, but I said at the outset, I think that you have done a splendid job with a tremendous responsibility. You have done it when they have limited the funds available for the watershed loans, which has slowed down the Soil Conservation Service.

You have done it with this greatly increased workload when you had a 5 percent directive from the OMB to cut personnel by not filling vacancies.