AMEND THE CONSOLIDATED FARMERS HOME ADMINISTRATION ACT MONDAY, JULY 1, 1968 HOUSE OF REPRESENTATIVES, Washington, D.C. The committee met, pursuant to notice, at 10 a.m., in room 1301, Longworth House Office Building, Washington, D.C., Hon. W. R. Poage (chairman) presiding. Present: Representatives Poage, Gathings, Stubblefield, O'Neal, Jones of North Carolina, Belcher, Teague of California, Wampler, Goodling, and Kleppe. Also present: Martha Hannah, subcommittee clerk; William C. Black, general counsel; Hyde H. Murray, assistant counsel, L. T. Easley, staff consultant; and Fowler C. West, assistant staff consul tant. The CHAIRMAN. The committee will please come to order. The committee is met this morning on a number of different subjects. We are trying to clean up our docket. The first item we have is H.R. 18209 which is a bill to amend the Farmers Home Administration Act. Even though our attendance is not what we would like for it to be, I think it would be advisable if we moved along as rapidly as we can, because I am sure that you gentlemen know that there is pressure for the movement of bills. If they are not in this week they will not get a rule. Therefore we will proceed. (H.R. 18209 follows:) [H.R. 18209, 90th Cong., second sess.] A BILL To amend the Consolidated Farmers Home Administration Act of 1961, as amended, to provide for loans to supplement farm income and to provide for additional recreation loans, extend the period for water and sewer grants prior to completion of a comprehensive plan, increase the amount of unsold insured loans that may be made out of the fund, raise the aggregate annual limits on grants, remove the annual ceiling on insured loans, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Consolidated Farmers Home Administration Act of 1961, as amended, is further amended as follows: The first sentence of section 303 is amended to read as follows: "Loans may be made or insured under this subtitle for (1) acquiring, enlarging, or improving farms, including farm buildings, land and water development, use and conservation, (2) recreational uses and facilities, (3) enterprises needed to supplement farm income, (4) refinancing existing indebtedness, and (5) loan closing costs." SEC. 2. Section 304 is amended by inserting "(a)" after "subtitle", and by changing the period at the end of the section to a comma and adding the following: "not including recreational uses and facilities, and (b) without regard to the requirements of section 302 (2) and (3), to individual farmowners or tenants to finance outdoor recreational enterprises or to convert to recreational uses their farming or ranching operations, including those heretofore financed under this title." SEC. 3. Section 306 (a) (2) "$150,000,000". is amended by changing "$50,000,000" to SEC. 4. The last sentence of section 306 (a) (3) is amended by changing "1968" to "1971". SEC. 5. Section 306 (a) (6) "$25,000,000". is amended by changing "$5,000,000" to SEC. 6. Section 306 is further amended by adding at the end thereof the following: "(d) An applicant for a loan under this section for a water or sewer project to serve any area in any city or town shall, together with the Secretary, make all reasonable efforts to obtain private or cooperative financing of the project; and where such efforts are unsuccessful, the Administrator of the Farmers Home Administration shall personally so determine and furnish a report thereon prior to the approval of the loan to the Committee on Agriculture and Forestry of the Senate and the Committee on Agriculture of the House of Representatives. Whenever, in the judgment of the Secretary, a sewer or water project can be financed through a grant under this section and a loan from private or cooperative sources as advantageously to the applicant and as economically to the Government as through financing by the Government under this section (taking an allowance to cover current administrative costs into account), the Secretary shall require the applicant to obtain such loan from private or cooperative sources. "(e) Each department or agency of the Federal Government which is authorized to furnish financial assistance for any of the purposes for which financial assistance may be furnished under this section shall carefully review each application for such assistance received by it, determine whether the needs of the applicant may be better served by another department or agency, and, if so, advise the applicant and such other department or agency of such determination. The President shall issue such rules and regulations as he deems necessary or desirable to assure (1) the coordination of the program authorized by this Act with related programs of other agencies, including the Department of Housing and Urban Development, the Department of Commerce, and the Department of the Interior; and (2) the availability to prospective applicants of information on the alternative programs available to them." SEC. 7. Section 308 is amended by striking the word "Loans" from the beginning of the first sentence and inserting in lieu thereof "Until October 1, 1971, loans" and by striking the comma after the word "Secretary" and the phrase "aggregating not more than $450,000,000 in any one year,". SEC. 8. Section 309 (f) is amended by changing "$50,000,000" to "$100,000,000". SEC. 9. Section 312 is amended by (a) revising subsection (4) to read as follows: "(4) financing land and water development, use, and conservation,"; (b) inserting new items (5) and (6) to read as follows: "(5) without regard to the requirements of section 311 (2) and (3), to individual farmers or ranchers to finance outdoor recreational enterprises or to convert to recreational uses their farming or ranching operations, including those heretofore financed under this title, (6) enterprises needed to supplement farm income,"; and (c) by renumbering the present items "(5), (6), and (7)" to "(7), (8), and (9)". SEC. 10. Section 313 is amended by changing the colon after "$35,000" to a comma, and by striking the proviso in item (1). SEC. 11. Section 316 is amended by (a) striking from the first sentence "at an interest rate not to exceed 5 per centum per annum," and (b) adding at the end of the section the following: "Loans made under this subtitle shall bear interest at a rate determined by the Secretary of the Treasury taking into consideration the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities of such loans, adjusted to the nearest one-eighth of 1 per centum, plus not to exceed 1 per centum per annum as determined by the Secretary." SEC. 12. Section 331 is amended by adding a new subsection (f) at the end thereof to read as follows: "(f) Release mortgage and other contract liens if it appears that they have no present or prospective value or that their enforcement likely would be ineffectual or uneconomical." SEC. 13. Section 333 (b) of the Consolidated Farmers Home Administration Act of 1961 is amended by inserting "310," after "306," in both places and striking the word "farming". The CHAIRMAN. We have with us this morning Mr. Baker, Mr. Bertsch, and several others. Do you want to lead off? STATEMENT OF HON. JOHN A. BAKER, ASSISTANT SECRETARY OF AGRICULTURE; ACCOMPANIED BY HOWARD BERTSCH, ADMINISTRATOR, FARMERS HOME ADMINISTRATION, U.S. DEPARTMENT OF AGRICULTURE Mr. BAKER. Thank you, Mr. Chairman. As you have just mentioned, I have with me Mr. Bertsch, the Administrator of Farmers Home Administration, and also Mr. Charles Brodersen, of the General Counsel's office. May I express my appreciation to you, Mr. Chairman, for introducing H.R. 18209 and for scheduling this hearing. Your committee has our full list of recommended amendments to the Consolidated Farmers Home Administration Act. Some of the amendments we recommended are included in H.R. 18209 and some are not. I know that the chairman and members and staff of the committee have studied these proposals carefully and you have incorporated in H.R. 18209 those that you feel can move through Congress without delay for required further exploration of complex new programs. We appreciate your desire to move forward with those that do not require detailed further study. I understand and accept your desire this morning to confine our discussion to the provisions of H.R. 18209. Therefore, our testimony will be directed to its provisions. With the indulgence of the committee, however, I shall merely list briefly without discussion those of our proposals that are not included in H.R. 18209 with the understanding that we stand ready to explore each of them later with the committee at an appropriate time. These are: Specification of the existing successful grazing association loan program as a separate loan purpose; Provision for a flexible maximum interest rate on real estate loans; A new program to close the credit gap for rural cooperatives; and A proposed new amendment to authorize the making of insured, as well as direct, operating loans to low-income small farmers to supplement and increase the loan level of credit available to those unable to borrow from any other source funds needed to make a crop. I understand, Mr. Chairman, it is not appropriate and in order to discuss these proposals at the hearing this morning. We would, however, welcome discussion of them with the committee at the earliest possible date. Now, Mr. Chairman, I will ask Mr. Bertsch to outline briefly our position on the provisions of H.R. 18209. Then, Mr. Bertsch and I will welcome the opportunity to respond to any questions that you or members of the committee may have. If I may, Mr. Chairman, I would like to say that as a rather close and interested observer I have been pleased and gratified by the progressive and competent job Howard Bertsch has done these past 8 years in leading a truly fine Government agency to greater service for family farms, for elimination of rural poverty and for the development and betterment of rural communities. The CHAIRMAN. Before Mr. Bertsch begins, I would like to state that you have done a very fine job, Mr. Baker; and, to you, Mr. Bertsch, we congratulate you. We appreciate the interest you have always taken and the cooperation you have always extended the committee. We appreciate the fine administrative job you have done, and your cooperation. We do appreciate your fine work. We are delighted to have you with us and we will be pleased to hear from you now. STATEMENT OF HOWARD BERTSCH, ADMINISTRATOR, FARMERS HOME ADMINISTRATION, U.S. DEPARTMENT OF AGRICULTURE Mr. BERTSCH. Thank you, Mr. Chairman. I wish to express my appreciation to Secretary Baker, too, for his generous remarks. I think I have learned over the years to duck just about this time. I greatly appreciate this opportunity to testify on H.R. 18209, a bill that would enable the Farmers Home Administration to be even more effective in strengthening the economy of rural America. Many of the proposals contained in this bill were recommended by the President in his message on "Prosperity and Progress for the Farmer and Rural America.' Sections 1 and 9 of the bill would enable the Farmers Home Administration to make loans for the development of small non farm business enterprises to a broader group of farmers than our current authorities permit. For the past three and a half years we have been making such loans under delegation from the Office of Economic Opportunity to farm families and other rural people who have extremely low incomes. All total, 21,900 initial loans of this type have been made for a total of $43 million. We have found this type of credit assistance to be effective. More than 300 different types of trades and small businesses have been established. Typical of these enterprises are farm machinery repair shops, small grocery stores, electrical appliance repair shops, cutting and hauling timber, and the production of handicrafts. The incomes of most of the borrowers have been increased. The repayment record had been satisfactory, and hundreds of small rural communities now have services that previously were not available. But many of the farm families who could make good use of such credit are currently ineligible. Their incomes or their assets place them above the poverty level, or they need larger amounts of credit than are available under the Economic Opportunity Act. Such families, assuming they are not able to increase their incomes through the development or purchase of additional land or through off-farm employment, would be able to increase their income under H.R. 18209 by developing small businesses needed in their community. In effect, section 1 and section 9 would fill a credit gap that now exists in rural areas between the farm families who can obtain credit assistance for small businesses under the Economic Opportunity Act and the farm families who can meet the credit requirements of commercial lenders. These loans, as is the case with all loans made by the Farmers Home Administration, would be made only to families who cannot obtain credit on reasonable rates and terms from other sources. As soon as the families reach a point where they could qualify for credit from other sources they would be required to refinance their debts. Sections 2 and 9 would enable the Farmers Home Administration to be more effective in helping farmers add to their incomes by developing income-producing recreational enterprises. Allow me to briefly review our past experience in this field. Since 1962, the Farmers Home Administration has been authorized by Congress to make loans to farmers for the development of incomeproducing recreational enterprises on their farms. Nearly 800 farmers have received loans totaling approximately $5 million to carry out necessary construction, buy equipment, and meet other expenses of developing recreational facilities. Recreational enterprises financed on family farms include fishing for a fee, boating facilities, picnicking, sports and camping areas, horseback riding, vacation farms, travel trailer parks, swimming facilities, cabins and cottages, hunting preserves, nine-hole golf courses, and pack service for biggame hunting. A survey of 306 farm-based recreational enterprises financed by the Farmers Home Administration shows that nine out of 10 borrowers are making a profit and those who have been in the business for more than 3 years realize an annual average profit of $2,143 in addition to their farm incomes. These recreational enterprises added a total of $1.4 million to the gross incomes of the 306 borrowers who were surveyed. Youth camps seem to be the most profitable, with golf facilities and marinas ranking second and third. The need for recreational facilities is constantly increasing. Estimates compiled by the Bureau of Outdoor Recreation show that Americans paid six and a half billion visits in 1965 to facilities for 19 kinds of popular outdoor recreation activities. The Bureau forecasts that this volume will increase to more than 10 billion visits by the year 1980, assuming that the facilities to handle this expansion exist. One of the barriers to the development of additional farm-based, income-producing recreational enterprises stems from the fact that currently a farmer who borrows funds from the Farmers Home Administation to develop a recreational enterprise must agree to continue to farm. Many potential borrowers reason that to be successful in a business they must be able to devote their full time to its operation. They see conflicts occurring at critical times on the demands for their labor and management if they attempt to set up and run recreational enterprises alongside of their farm business. So they abstain from entering the recreation field. H.R. 18209 would make it possible for a farmer to convert his entire farm to recreation. This, in our opinion, would be a great boon to the development of needed recreational facilities and enable farmers with marginal operations and with talent for handling a recreation business to make substantial increases in their incomes. Section 3 of the bill would increase the amount of development grants that could be made in a fiscal year for water and waste disposal projects from the present limit of $50 million to $150 million. Development grants were first authorized in 1965. The demand for these grants demonstrates that the present authorization of $50 million |