2016 Budget: Rural Business Development

This food co-op in Fairbanks, Alaska, shown in 2013, was partially funded with a USDA business-development loan. The president’s budget proposal includes $13 million in loans and grants to create more outlets for local foods. The Healthy Food Financing Initiative was included in the 2014 farm bill. Source: USDA

Although it accounts for less than a fifth of the U.S. Department of Agriculture’s overall budget, the Rural Development agency gets outsized scrutiny from the many rural groups that rely on it for program funds.

Programs supported through Rural Development include rural housing; utilities services like phone, electric, broadband, telemedicine, and water and sewer infrastructure; small business development; and a range of large and small economic development projects.

The president’s proposed 2016 budget would hold Rural Development’s overall funding to roughly 2015 levels. But funding for these rural programs has dropped by one third since 2003, and by half when adjusted for inflation, said Brian Depew with the Center for Rural Affairs, a policy organization that follows Rural Development funding.

(Before we go any further, remember that this is a proposal from the Obama administration to Congress. Anything – or nothing – could happen before the beginning of the next fiscal year. This year, for example, Congress didn’t approve a final budget until halfway through the budget cycle.)

Today, let’s look at the Rural Business and Cooperative Services programs, which provide loans and grants to a variety of economic development endeavors. (We’ll report on Rural Housing and Rural Utilities Service programs later. If you or your organization have analyzed these program areas, shoot me an email at tim@dailyyonder.com.)

Discretionary spending in Rural Business would increase by about $50 million to $1.1billion for fiscal year 2016 under the president’s proposal. While the overall levels would remain steady from this year, a few new programs and shifts in emphasis are apparent.

The president’s budget sets aside $20 million for a new child poverty program that would work in “rural areas experiencing severe economic distress … [to] support innovative strategies to combat rural child poverty.” The program would provide grants of up to three years to local governments and nonprofits to allow them to work with low-income families. The USDA budget summary notes that this proposed program is an initiative of the White House Rural Council, a Cabinet-level effort.
Another new initiative will provide loans and grants to support access to local foods. The $13 million Healthy Food Financing Initiative, created in the 2014 farm bill, will provide money and technical assistance to support marketing and promotion for locally produced foods. The program would also support retail outlets for farm products and “increase the availability of locally and regionally produced foods.”
The Rural Energy for America Program, which provides loans and grants for the purchase of renewable energy systems such as solar and wind power, would get a bump in discretionary funding from only $13 million in 2015 to $81 million in 2016. (More money for the renewable energy program is included in mandatory funding that was part of the farm bill.)
Rural Economic Development loans would more than double to $85 million in the budget proposal, with another $12 million in funding available for outright grants for economic development. These funds (which are generated from utilities investments and fees, not taxes) go to rural utilities to set up no-interest business loans to create employment. The budget summary says the program would create or save 4,200 jobs. Funds for this program are provided by earnings on rural utilities investments and fees, the USDA reports.
The budget would provide $6 million in funding to help leverage an additional $37 million in private funds to invest in rural startups. The USDA describes the fund as a “venture capital style” mechanism to provide additional equity for rural areas.
The Rural Microentrepreneur Assistance Program would receive $5 million in discretionary funds (plus another $3 million in funds already allotted through the farm bill) to help micro-lenders put more money on the streets for entrepreneurs. USDA says the $5 million investment would wind up supporting $25 million in small loans to rural business people. (Brian Depew sent us a a comment on the micro-lending program, which you can read below.)
The flagship loan program in the rural business program would receive less funding in 2016. The administration requests reducing spending for the Business and Industry Guaranteed Loan Program from $920 million currently to $758 million next year, a drop of about 18%. The fund helps ensure that lenders “are willing to extend credit to establish, expand or modernize rural businesses.” About $50 million of that amount would go toward infrastructure to “enhance retail sale of biofuels.” The USDA budget summary says the overall loan program will create or save nearly 9,000 jobs.
The Delta Regional Authority, which focuses development efforts on the Mississippi Delta, is zeroed out of the president’s budget proposal. The authority received $3 million for grants in 2014 and 2015.
The Value Added Producer Grants program would drop by $1 million to $10 million in 2016 under the proposed budget.

The budget proposal has another $690 million in expenditures that are mandated under the farm bill and not part of the current budget negotiation process. Nearly all of this mandated funding supports energy programs such as loans to build biofuels refineries and purchase renewable energy systems through the Renew Energy for America Program (REAP).

Does your organization have an analysis for the president’s proposed budget? Share it with us. Email a copy to tim@dailyyonder.com.)

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Comment on the Rural Development Budget

Brian Depew with the Center for Rural Affairs said his organization was pleased with the boost in discretionary funds for the Rural Microentrepreneur Assistance Program

“Demand for this type of loan capital and assistance is high across the country among rural business owners and entrepreneurs who need loans but can’t work with traditional banks,” he said. “The program has funded more than 159 programs in 42 states to provide business training, technical assistance and lending to low and moderate-income rural entrepreneurs. In recent years, demand in the field has outstripped funds to support the program.”

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