with some funds, you will frequently provide additional loans at higher interest rates from your other programs. Do SBA borrowers get the same treatment from you, especially if their disaster is smaller than your standards? RESPONSE. ŠBA borrowers or applicants for their disaster loans will be given the same consideration as other applicants, if they meet FmHA's eligibility criteria. Mr. TRAXLER. What do you do to see to it that farmers are notified of their ability to get additional assistance from FmHA if their SBA assistance is not sufficient? RESPONSE. FmHA and SBA operate under a Memorandum of Understanding which requires that national officials of both agencies confer frequently on how best to coordinate the disaster assistance available. Also state and local officials have open lines of communication and they cooperate in providing information to the public and media to ensure that everyone gets fair treatment. Mr. TRAXLER. What can you do to provide more information to the farmers in my district who are uncertain about whether or not to take an SBA disaster loan because the reimbursement amount is insufficient given current market prices, or for those who took SBA loans but find that the amounts were insufficient. Would you be willing to at least publicize their options if not contact these farmers directly? When? RESPONSE. We believe our ongoing publicity effort concerning the availability of FmHA assistance will assure that farmers are informed on these programs. Mr. TRAXLER. Your Agency wrote the regulations that limit the reimbursement rate on a fixed basis. Why can't you rewrite them to recognize fluctuating market prices? Are you willing to provide for such a revision? RESPONSE. Because of the problems that have occurred in establishing agricultural commodity prices in a fair and equitable manner, we will be revising our regulations to require that commodity prices be established by using the average monthly price for the 12 months immediately preceding the date of occurrence of the designated disaster. INTEREST RATES Mr. TRAXLER. There are proposals now to increase interest rates to the point of the cost of money, rather than any kind of subsidized rate. Many farmers are having a tough time because of price problems. Won't higher interest rates freeze some farmers out of your last resort loan capability? RESPONSE. The existing subsidy on EM loans for the amount of actual loss bears little relationship to the financial status of the borrowers or the economic burden imposed on such borrowers as a result of disasters. Farmers are primarily concerned with the lack of available credit in rural communities rather than a need to benefit from a subsidized loan program. During fiscal year 1980, the average size EM actual loss loan was about $24,600. The difference in annual installments over a seven year loan of this amount is about $1,300 each year, assuming the interest rate is raised from 5 percent to 13 percent. Farmers should not be put out of business under such a program change and should not be unduly affected. Converting the subsidized, less than cost of money interest rates on farm loans to cost of money rates will still result in farmers receiving FmHA loans at rates generally lower than rates now prevailing in the private sector. FmHA will be able to provide assistance to the more economically sound operators who must have FmHA assistance to continue their operations or to get started. The use of existing authorities in scheduling payments, use of payment deferments, rescheduling and reamortizing should offset the higher interest rate. However, the higher rate may result in loans not being made to some less efficient and marginal operators. Mr. TRAXLER. If some farmers can no longer qualify for loans because of higher interest rates, what will happen to their farms and our food producing capacity? If an experienced farmer is having a difficult time, I doubt many FmHA county committees will be willing to take a chance on a new farmer taking over the operation, and that has been one of the criticisms of the treatment of young farmer applicants; they get the impression that some county committees aren't willing to take a chance on them. RESPONSE. A cost of money interest rate will not prevent us from helping most of the applicants now receiving loans. We do not foresee any difficulty with county committees determining eligible applicants who have the ability to be successful. We will continue to provide assistance wherever possible to meet the needs for family farmers to stay in business. FARM OWNERSHIP LOANS Mr. TRAXLER. You propose to cut ownership loans in the coming year. This is going to hurt farmers who are trying to expand or start. Do you believe this reduction is healthy for the future of agriculture? RESPONSE. We believe it will be healthy for agriculture in the long run. The Government has gradually assumed a larger role in providing agriculture credit for the acquisition, refinancing and development of family size farms. Young and beginning farmers have become more and more reliant on government credit. Private credit sources have tended to shift the responsibility to the Government to finance younger farmers. We believe that if the Government reduces its role dollarwise, in providing this type of financing, private credit will be more responsive. We are finding that sellers of farms are taking a much larger role in providing a portion of the credit as a participating lender when FmHA will loan the balance needed. Recent legislation should permit the Federal Land Bank to be more active in providing participation credit with FmHA's insured loans and supplying more credit with a FmHA guarantee. More emphasis will be placed on using FmHA's subordination authorities allowing other lenders to provide the credit when subsequent loans or additional real estate credit is required. A reduction in loan funds and a proposed curtailment in some other FmHA loan authorities will permit the county office personnel to spend more time with individual applicants and borrowers in developing sound loans and providing the necessary supervision and support to enable them to succeed. LOAN TURNAROUND TIME Mr. TRAXLER. I get many complaints about how long it takes to process FmHA loans. Can you give me the average processing time for each of the types of loans you make? RESPONSE. We do not have data readily available on the time required for processing FmHA loans. A number of factors affect the time and in some cases the period may be longer than desired. Our regulations require that an applicant be notified of eligibility within 30 days of receipt of a completed application. The time from receipt of the application to closing the loan may be affected by the availability of loan funds, county office staffing and workload, the promptness of the applicant in supplying needed information, the time required to obtain title opinions or other legal work and other such factors. We believe most loans are processed in 30 to 60 days. To assist in processing applications, field personnel are shifted when possible, temporary employees are employed, and contractors may be used to process emergency loans. Currently we have a working agreement with Agricultural Stabilization and Conservation Service in which that agency is assisting FmHA process emergency loans in county offices that have a large backlog of applications. There are more than 1,600 temporary people employed to help process and service EM loans. Mr. TRAXLER. How many disbursement centers do you have for the checks? Most of us can't understand why it take about six weeks for a farmer to get his check after the loan has been approved. RESPONSE. It normally takes approximately 12 to 18 days from the time the applicant's loan is approved to receipt of the check in the FmHA field office. However, in some cases, additional delays in check delivery occur because of backlogs in our Finance Office-often attributable to discrepancies in the preparation of the check request document submitted by the field offices. In an effort to resolve the discrepancies, we have informed our field offices of the common elements which cause the check request document to be rejected and have given them guidelines for completing the document correctly. We are also currently placing special emphasis on resolving our backlogs in the Finance Office and improving our existing computer system. We believe these actions will provide immediate benefits in the form of a more timely and reliable check delivery system. Mr. TRAXLER. Why can't you authorize the county director or at least the state office to write the checks, even if the ability to write checks is limited to no more than a certain dollar amount? RESPONSE. Major changes would have to be made in our existing accounting system in order for checks to be written at the field office level. In addition, decentralization of the check writing function at the field office level could eliminate the ability to control cashflow and would result in additional work for our field staff. However, we are exploring the possibility of using a funds transfer system to expedite the flow of funds to the field. Under this system, funds would be transferred between Treasury and designated financial institutions electronically, based on FmHA authorization. Therefore, the funds would be available on the day needed. It is anticipated that this system will be pilot tested in fiscal year 1981. BUSINESS AND INDUSTRY LOAN PROGRAM Mr. TRAXLER. I am disturbed by proposals to gut the business and industrial loan program. It does much good for many in farm communities who might not otherwise have access to sufficient credit sources. Let me also say that no one in the Department has yet convinced me that there will be sufficient private credit sources to take over these programs as they are terminated. You have had problems with the B&I program. Why can't you just do a better job of administering it instead of dumping the program? I realize that it is awfully hard to make mistakes in a nonexistent program, but when you terminate the program, not only do you eliminate the mistakes but you also eliminate the assistance it provided. RESPONSE. The Administration realizes that this program has had its problems. The borrowers for this program do not have to meet a credit elsewhere test as do other FmHA borrowers. The elimination of this program would enable FmHA to limit its scope and preserve its role as a lender of last resort in the areas of farm credit, housing and certain community projects. WATER AND SEWER Mr. TRAXLER. Every year I have communities that are in desperate need of new water and sewer systems, often as a result of federal demands. You want to reduce the funds available to finance these systems, telling communities to look elsewhere. How many applications were pending at the end of fiscal 1980 that you were unable to fund? What was the total dollar amount of these applications? RESPONSE. As of September 30, 1980, we had on hand 2,923 loan preapplications and unobligated applications totaling $2.1 billion. Also, we had on hand 1,648 grant preapplications and unobligated applications totaling $912.6 million. All of these loans and grants are not ready for funding at the present time. We will use all our resources to provide supervision and technical assistance to those communities with the greatest need. We will work with private lenders, other federal agencies and state and local entities to develop the needed projects. Mr. TRAXLER. Do you expect demand for the program to get smaller? Please advise me of your basis for any such estimate. RESPONSE. We expect a continuing demand for new and improved water and sewer facilities in rural America. We will use all our resources to provide supervision and technical assistance to those communities with the greatest need. We will work with private lenders, other federal agencies and state and local entities to develop the needed projects. Emphasis will be placed on co-funding of projects with other agencies, private lenders, and state and local governments. We will also work with applicant officials to develop the most appropriate facilities at the lowest possible cost. Emphasis will be placed on innovative and alternative designs and design standards which can impact on the initial cost of the system and reduce operating cost to within the owner's ability to pay. Mr. TRAXLER. How many communities are in jeopardy of losing water service if they do not get FmHA approval? RESPONSE. The information you requested is not available. However, we will give priority consideration to projects that need funding to comply with the Safe Drinking Water Act. In addition, we will work with private credit sources and other federal, state, and local agencies in co-funding of projects to assist communities having the greatest need. RURAL RENTAL HOUSING Mr. TRAXLER. You also want to reduce support for housing in rural areas. Again, I emphasize the fact that you are the lender of last resort, and if you do not provide a loan, nobody will. What will be the impact of the reduction in each of the housing loan programs, especially the 515 program? RESPONSE. The subsidized Section 515 rural rental housing program was authorized at $870 million in fiscal year 1981. The fiscal year 1982 subsidized request is for the same amount. No unsubsidized funds are being requested for fiscal year 1982. This funding level will permit continued operation at the same level for subsidized loans assisting those areas and individuals in greatest need. It will also permit us to pay greater attention to a balanced loan making and servicing program. Mr. WHITTEN. Mr. Alexander also has some additional questions he would like answered for the record. The questions and responses follow:] NATIONAL RURAL COMMUNITY FACILITIES ASSESSMENT STUDY Mr. ALEXANDER. Twenty years ago the Nation became sharply aware of a serious and continuing threat to a way of life that has been the heart and foundation of America's social and economic structure. I refer to the emptying of our countryside communities, small towns and cities as our people were forced by economic circumstances to move to bigger and bigger cities in search of jobs. For those of us whose lives and heritage is deeply rooted in the countryside, the problem had already been a real and disturbing one for many years. But it was not until the 1960's that the 1970's that Congress and Presidential Administrations began turning the recognition of the situation into programs which could help countryside communities, small towns and mid-sized cities overcome their infrastructure problems and become attractive places for private business and industrial development. Although per capita income is increasing in these areas, it is still generally well below the national and frequently below the state averages. Although we see and hear of infrastructure cities, more often we see and hear of needs still unmet and unmeetable without federal assistance. Unlike our most urbanized areas, we have, until now, had little effort to obtain a comprehensive, factual compilation of the unmet needs and problems of the countryside as well as of existing community facilities. But since 1978, Farmers Home Administration has been in the forefront of an effort to gather and analyze the kind of information needed by our Federal Government, state and local governments and the private sector to establish, alter or continue investment programs to insure that national growth and development is achieved in a balanced fashion in the countryside as well as in our heavily populated urban areas. I refer of course, to the National Rural Community Facilities Assessment Study. The following questions deal with that study. RESPONSE. The objectives of the National Rural Community Facility Assessment Study are to estimate the cost of providing essential, minimum level facilities to rural people; identify by state, by size of community and by other characteristics, the places of greatest need; identify types of facilities which are most inadequate; establish a basis for state and local governments to participate in maintaining a facility inventory for their own planning purposes; facilitate focusing FmHA Community Facility Programs and other federal programs; and identify for private sector investors, areas for potential investment. Mr. ALEXANDER. What is the scope of the study? RESPONSE. The study embraces rural communities by census and program definitions. That is, communities below 50,000 population outside standard metropolitan areas and communities in the non-urbanized portion of metropolitan areas. The focus is communities as a unit so that facility inadequacies can in each case be associated with a defined group of potential users. The study would cover all 50 states. Mr. ALEXANDER. What kinds of community facilities will be included in the National Rural Community Facility Assessment Study? RESPONSE. Thirty-seven facilities would be included. They fall under thirteen general headings. The list of facilities represents a careful process of selection based on panels of local government officials, federal officials, Agency personnel and facility experts. All essential community facilities would be included. Some other facilities for which data can be gathered at a very small cost are also in the list. A listing of the facilities studied will be supplied for the record. [The information follows:] Community 1. Local government buildings. 2. Community meeting rooms. Education 1. Elementary schools. 2. Middle schools. 3. Secondary schools. 4. Post-secondary schools. 5. Public libraries. Electric utilities 1. Community power suppliers. Telecommunications 1. Cable television. Health 1. Hospitals. 2. Nursing homes. 3. Clinics for primary medical, dental, and mental health care. 4. Emergency vehicle services. Industrial parks Recreation 1. Community recreation facilities. Solid waste 1. Collection facilities and equipment. 2. Processing and disposal sites. Water supply 1. Community systems, source facilities, transmission facilities, treatment facilities, storage facilities, and distribution facilities. 2. On-site systems. Wastewater disposal 1. Community systems, collection systems, treatment facilities, and disposal facilities. 2. On-site systems. OTHER AGENCY PARTICIPATION Mr. ALEXANDER. To what extent are other federal agencies, state and local governments, and other community facility leaders being involved in the conduct of this study and in what manner? RESPONSE. In the development of the study, officials in virtually all federal agencies and departments with programs serving rural people were contacted. These officials were asked to comment on the facilities questions related to their program area and identify local officials to review prepared plans. The local officials included mayors, fire chiefs, utility managers, etc. from small towns. In addition, representatives of organizations which represent local and state officials in their professional specialties were involved. Mr. ALEXANDER. What kinds of questions do you expect the study to answer? RESPONSE. We expect the study would tell us: the aggregate essential community facility needs in rural areas, demographic and economic conditions which are associated with community facility needs, where local government and private sector resources can address shortfalls and where opportunities exist for private sector investments. Mr. ALEXANDER. Please tell the Committee to what level of specificity will the study results be reported. For instance, will national totals only be given or will there be a more detailed breakdown, to state or census region level? RESPONSE. The contract requires the contractor to provide state estimates at a high level of confidence of rural facility shortfalls. Even more reliable information will be available for the major census divisions, regions and the nation as a whole. |