Back to the Future: The Farm Bill and Rural Economic Development

It is time to shatter the myth that rural America is an agrarian economy. No one industry dominates rural America: service and manufacturing industries each employ approximately 20 percent of the rural economy, while agriculture currently represents less than eight percent.

As Congress begins to address the next farm bill, legislation aimed at relieving distressed rural areas, it is a critical time for rural economic development policymakers and practitioners to make sure the legislation inclusively responds to rural America’s needs.

Congress Ready to Act
While House leaders have aggressively worked to ready the reauthorization of the 1996 farm bill before the October 2002 deadline, the Senate leadership has moved more cautiously and not yet determined a timeframe for their bill. However, budgetary politics may force their hand sooner than either house would want; most legislators argue that reauthorization must take place this year to ensure the $73.5 billion reserved for the new farm bill in the FY2002 budget resolution will be available. Delaying action until next year will risk a reduction of this mandatory spending because of diminishing budget surplus projections.

In a reverse of recent agriculture policy, the $167 billion 10-year reauthorization bill (HR 2646)—passed by the House Agriculture Committee in July—contains a new two-tiered $50 billion counter-cyclical price support system for the nation’s farmers. This contrasts with the intent of the previous farm bill to wean farmers off government subsidies. However, the reality has been that Congress has responded to low-commodity prices by providing $30 billion in emergency aid since 1997. On August 13, President Bush signed the most recent emergency aid package (HR 2213), which contained $5.5 billion for crop producers.

Outside the bright spotlight on production agriculture is a modest $1.3 billion increase for rural development. Like many programs in the rural development title, the Rural Community Advancement Program (RCAP) is reauthorized at its current level. Included in RCAP are grants and loans that fall under the three funding streams: Rural Business-Cooperative Service, Rural Housing Service and Rural Utilities Service. Programs within RCAP, such as the water and wastewater grants, community facilities, Intermediary Relending Program, and Rural Business Enterprise Grant program, will remain static.

Regional Councils Stand to Gain
A new centerpiece rural development program included in the House version is a ten-state $150 million strategic planning pilot program. This includes $2 million each year for regionally based strategic plans with the remaining $13 million reserved annually for plan implementation. Although many questions remain about this new initiative, it is encouraging that the program specifically lists regional development organizations as partners in the broad coalitions of regional and local governments which will be given priority in the selection process. If this language is included in the final version of the bill, regional development organizations in the ten states chosen could receive matching grants to partner with other entities to develop and carry out strategic plans.

Other new programs include $2 billion over five years for a rural satellite television loan guarantee, $500 million over ten years for a value-added grant initiative, and $300 million over ten years for a revised community water assistance program. In addition, the bill increases the single loan limit under the business and industry loan program to $100 million from $25 million.

Changes Still Needed for
Rural Programs to Have Impact
These new programs offer additional resources for rural development yet key issues remain. In contrast to the billions of dollars in direct funding that urban areas receive through the US Department of Housing and Urban Development (HUD) and the US Department of Transportation (DOT), rural development relies on competitive grants, loans and loan guarantees. An example of this inequity can be seen in HUD’s Community Development Block Grant (CDBG) program. By design, CDBG’s urban portion is an entitlement to approximately 1,000 of the nation’s largest cities and counties resulting in billions of dollars for infrastructure improvements. The other portion pits the nation’s 14,000 rural communities against each other for funding.

Many rural communities lack the necessary professional capacity at the local level to overcome the fragmented and often cumbersome process of obtaining federal assistance. A recent National Association of Counties’ (NACo) study shows the severity of the problem in rural America and the inequity between urban and rural counties: 60 percent of urban counties employ an economic development professional, compared to 34 percent of their rural counterparts. A multi-county program through regional development organizations would ease this imbalance.

A Rural Research Policy Institute study found that 70 percent of federal assistance to rural areas comes in the form of transfer payments, such as emergency agriculture payments and Social Security. While these funds are critical to rural economies—they make up 20 percent of per capita income—this is markedly higher than urban areas, which receive 40 percent of federal assistance from transfer payments. Transfer payments do not help build the necessary infrastructure to support long-term sustainable economies.

For a regional development organization participating in USDA rural development programs, the House version is a step in the right direction, especially the strategic planning pilot program. This new initiative will give eligible communities the necessary resources to measure local needs and chart future development. However, there is increasing pressure upon Congress to strengthen the rural development and conservation titles in light of the makeup of rural America. The Senate appears to concur and will focus more attention on conservation and rural development.

Nearly 98 percent of those working on farms require off-farm income to support their families. — Presidents’ Council for Sustainable Development, 1998 Only 6.3 percent of rural Americans live on farms. — Rural Policy Research Institute, 1999

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