United States General Accounting Office GAO Report to the Committee on Agriculture, Nutrition, and Forestry, U.S. Senate May 1997 RURAL DEVELOPMENT Availability of Capital for Agriculture, Business, and Infrastructure GAO/RCED-97-109 United States GAO General Accounting Office Washington, D.C. 20548 Resources, Community, and Economic Development Division B-276456 May 27, 1997 The Honorable Richard G. Lugar Chairman The Honorable Tom Harkin Ranking Minority Member Committee on Agriculture, Nutrition, and Forestry United States Senate Because access to capital is a prerequisite for economic growth, you asked us to examine the availability of capital in rural1 America for agriculture, business, and community infrastructure. Specifically, you asked that we describe the primary financial institutions that are used to finance agriculture, rural businesses, and rural communities’ infrastructure, and obtain the views of rural officials on (1) whether rural borrowers have difficulty in obtaining access to capital, (2) whether rural borrowers have adequate knowledge of the availability of financial assistance, and (3) what potential alternatives may be used to improve the availability of capital. To address these questions, we spoke with officials of federal, state, regional, local rural development, and lending institutions in four states—Alabama, Maine, Minnesota, and Washington. Additionally, we spoke with officials of federal agencies and national associations. Furthermore, in October 1996, we surveyed over 700 officials—members of associations involved in rural development and officials of the community and economic development departments in all 50 states—to obtain their views on the availability of capital in rural areas. The groups and individuals surveyed were chosen because of their experience in working with rural lenders and borrowers. Although the survey respondents were located throughout the United States, their responses cannot be generalized to all rural localities. Many sources of financial assistance are available to meet rural areas’ Results in Brief demand for capital. While commercial banks and the Farm Credit System are the primary providers of capital for agriculture and rural business, rural communities more often turn to the public sector to obtain capital for infrastructure. 1 For this report, rural refers to locations outside of metropolitan statistical areas. This definition includes counties containing a city or an urbanized area with a population of less than 50,000 and a total area population of less than 100,000. Page 1 GAO/RCED-97-109 Rural Development B-276456 Most rural business and agricultural borrowers that are creditworthy and rural communities with an adequate tax base generally have little difficulty in obtaining capital, according to rural officials. However, the officials we surveyed believe that certain borrowers in rural areas, such as start-up, expanding, and minority-owned businesses and financially struggling rural communities, have difficulty in obtaining capital. In their view, these borrowers have experienced difficulties because they lack (1) equity or collateral, (2) business or management skills, or (3) an adequate tax base. Rural officials could not quantify the severity of these difficulties. Nonetheless, the officials we surveyed believe that economic development in their areas is hindered by these borrowers’ difficulties in obtaining capital. Rural development and lending officials we surveyed also believe that potential agricultural and business borrowers are not always aware of the range of financial resources available to meet their capital demands. However, these officials do not believe that this lack of awareness should, by itself, prevent borrowers from obtaining capital. Rural development officials believe that the primary providers of capital in rural areas are familiar with alternative sources of funds and can appropriately direct borrowers to these sources. While the extent of rural areas’ difficulties in obtaining capital has not been determined, rural development officials suggested three proposals to make capital more available in rural areas. One proposal would use existing loan guarantee programs and technical assistance entities to target resources to borrowers that are having difficulty obtaining access to capital. Another proposal would modify the charters of some government-sponsored enterprises to expand their loan-making authority and/or require them to lend funds to borrowers that currently have difficulty in obtaining capital. The third proposal would allow community-based revolving loan funds financed with federal dollars to sell their loans into a secondary market. It is unclear, however, whether the potential benefits of these proposals for rural areas would exceed the potential financial losses to the federal government. Moreover, targeting funds to borrowers in rural areas that are having difficulty obtaining access to capital may result in fewer funds being available to creditworthy borrowers. About 2,300 of the 3,100 counties in the United States are classified as Background rural. Between 1990 and 1995, the population increased in about Page 2 GAO/RCED-97-109 Rural Development B-276456 75 percent of these rural counties and decreased in the remaining 25 percent. Growth in rural communities depends in part on the ability of rural borrowers to obtain capital—both debt and equity—for development and expansion. Rural firms need access to capital to start and expand businesses, and rural communities need access to capital to replace or upgrade aging infrastructure. According to studies, such as one published by the Federal Reserve Board of Kansas City,2 borrowers in rural areas have traditionally had difficulty in obtaining access to capital, when compared with their urban counterparts. According to the U.S. Department of Agriculture’s (USDA) Economic Research Service, rural economies are characterized by a preponderance of small businesses, fewer and smaller local sources of financial capital, less diversification of business and industry, and fewer ties to nonlocal economic activity.3 These rural attributes may exacerbate businesses’ funding difficulties. In recent years, a number of changes have occurred that could affect the availability of capital for businesses and communities in rural areas, such as pressures to reduce government spending and mergers of small rural community banks with large banks not located in rural areas.4 Many sources of financial assistance are available to meet rural areas’ Wide Range of demand for capital.5 Table 1 shows the primary sources of loans, loan Commercial guarantees, equity capital, and grants for business and agriculture and Institutions and infrastructure in rural America. Government Programs Available to Assist Rural Areas 2 Mark Drabenstott, “Capital for Agriculture and Rural America: Redefining the Federal Role,” Economic Review. Vol. 80, No. 3, Federal Reserve Bank of Kansas City, Third Quarter, 1995. This article is based on testimony presented to the Senate Committee on Agriculture, Nutrition, and Forestry on Mar. 31, 1995. 3 Are Revolving Loan Funds a Better Way to Finance Rural Development? Economic Research Service Agriculture Information Bulletin 724-05, (Oct. 1996). 4 For more information on the issue of bank mergers, see Interstate Banking: Experiences in Three Western States (GAO/GGD-95-35, Dec. 30, 1994). As noted in the report, according to some bankers and focus group participants, in three states visited, large banks were credited with increasing credit availability to those small businesses that met the large banks’ lending criteria. Other bankers and participants mentioned, however, that the practices of centralizing and standardizing loan decisions, common to large banks, could result in some small businesses’ having difficulty in obtaining credit in markets where there are few alternatives to large banks. 5 For more detailed information on available programs, see Rural Credit: Availability of Credit for Agriculture, Rural Development, and Infrastructure (GAO/RCED-93-27, Nov. 25, 1992). Page 3 GAO/RCED-97-109 Rural Development B-276456 Table 1: Primary Sources of Funding in Rural America Type of assistance Agriculture and business Community infrastructure Loan Loan Capital sources Loans guarantees Equity capital Loans guarantees Grants Commercial banks X X Farm Credit System X X USDA X X X X X Small Business X X X Administration Other federal grant and X X X X X X loan programs States’ programs X X X X X X Insurance companies X Nonprofit community X X development corporations Venture capital entities X Merchants and dealers X (e.g., leasing/trade credit) For agriculture and small businesses, the primary sources of capital are commercial banks and the Farm Credit System (FCS). The funds commercial banks use for lending are primarily derived from customers’ deposits and are used for short-term loans.6 The Federal Home Loan Bank System (FHLBS) supplies loans (called advances) to its member banks. In addition, all banks have access to capital from the Federal Agricultural Mortgage Corporation (Farmer Mac), which operates in the secondary market. If the banks receive advances or package their loans and sell them into a secondary market, they can use the capital they receive to make longer-term loans. Commercial banks and others can have some of their loans guaranteed under federal and state loan guarantee programs, such as USDA’s and the Small Business Administration’s (SBA) loan guarantee programs for businesses. For example, USDA’s Business and Industry Guaranteed Loan Program, targeted to rural areas, was funded at $688 million for fiscal year 1997. To qualify for loan guarantees under these programs, applicants must be unable to obtain financing elsewhere and must demonstrate an ability to repay their loan. In addition to guaranteed loans, USDA provides direct loans targeted to rural businesses and grants to rural entities that 6 Generally, any loan with a maturity of 1 year or less is considered a short-term loan. Page 4 GAO/RCED-97-109 Rural Development B-276456 provide financial and technical assistance to rural businesses. SBA also provides direct micro-loan financing to small business borrowers using intermediaries, such as nonprofit community development corporations, and provides grants to these intermediaries for technical assistance to their borrowers. Furthermore, USDA participates with other federal agencies in initiatives such as the Empowerment Zone/Enterprise Community program and the Pacific Northwest Economic Adjustment Initiative, which target federal funds to selected communities. Like commercial banks, the FCS makes loans to farmers, ranchers, rural homeowners, agricultural cooperatives, rural utility systems, and agribusinesses. However, unlike commercial banks, FCS has its lending authority established by the Congress. As of December 31, 1996, FCS’ loan balance was $61.2 billion. Furthermore, unlike commercial banks, FCS is not a depository institution. Instead, it is cooperatively owned by its members—borrowers—who must buy stock in FCS’ entities as a prerequisite for borrowing. FCS’ funds for loans are raised through the sale of bonds and notes in global capital markets and are frequently used for longer-term loans for agriculture and agribusiness. FCS, like FHLBS and Farmer Mac, is a government-sponsored enterprise (GSE). The Congress created GSEs to help make capital available to certain sectors of the economy, such as agriculture and housing, in which the private market was perceived as not effectively meeting capital demands. While the government has no legal obligation to protect GSE investors, the federal ties cause these investors to believe that the federal government would not let the GSE default on its obligations. As a result, GSEs can borrow at interest rates that are usually only slightly higher than those paid by the Department of the Treasury. In addition to commercial banks and GSEs, nonprofit community development corporations (CDC) are an important source of capital for business entities that are unable to obtain capital from commercial banks and FCS. A large number of rural CDCs have been established since the 1970s. These CDCs are organized as nonprofit entities to promote economic development in certain target areas by providing a range of assistance. They provide financing in their service area to organizations that are unable to obtain commercial or public funds, most typically by establishing revolving loan funds. In making loans, CDCs may participate with other entities, commercial or public, in making loans. Their loan Page 5 GAO/RCED-97-109 Rural Development B-276456 funds are capitalized by grants and/or long-term, low-interest loans from federal agencies, such as the Department of Commerce’s Economic Development Administration (EDA); states; and private sources, such as nonprofit foundations and corporations. Venture capitalists are another source of funding for agriculture and businesses in rural areas. Venture capitalists are private investors and organizations that provide funds and technical and managerial expertise to help start and maintain new and emerging businesses by backing entrepreneurs who have financially sound and marketable ideas. In providing this assistance, venture capitalists seek partial ownership in the business and a return commensurate with their assumed risk. Merchants and dealers—equipment dealers and other suppliers—are another important source of capital. For these lenders, a borrower’s creditworthiness is of less concern because the credit either is secured by the value of the asset provided to the borrower or is protected by a lien against the borrower’s business. For rural communities’ infrastructure, such as water and wastewater systems and roads and bridges, state and local governments are the principal source of capital. State and local governments finance infrastructure through taxes, user fees, and bonds. Their funds are supplemented by federal agencies, such as USDA, which, since 1965, has provided about $28 billion in grant and loan funds for water and waste disposal to financially struggling rural communities. Other sources of federal financial assistance are a large number of programs in the Department of Housing and Urban Development and EDA. Rural development officials we surveyed reported that creditworthy Rural Development agricultural and business borrowers and rural communities with an Officials Report That adequate tax base have little difficulty in obtaining capital. However, Certain Types of certain types of rural borrowers, such as start-up, expanding, and minority businesses, as well as financially struggling rural communities, are finding Borrowers Have it difficult to obtain access to capital, primarily because they do not have Difficulty in adequate equity, business operating skills, or an adequate tax base. These officials acknowledged that these types of potential rural borrowers Qualifying for Capital consist of those that (1) are never likely to meet traditional commercial lending standards and (2) might be able to meet them. While some rural officials say that concerns over access to capital have increased in recent years, they could not quantify the number of borrowers that have Page 6 GAO/RCED-97-109 Rural Development B-276456 experienced difficulties in obtaining capital. Most survey respondents noted that the difficulties some borrowers experience in obtaining capital not only affects the individual borrowers but also hinders rural communities’ economic development. A number of federal, state, local, and private initiatives have been developed to increase the availability of capital. Certain Types of As shown in table 2, over half of the survey respondents who claimed to be Borrowers Have Difficulty knowledgeable about rural capital issues reported that start-up and in Obtaining Access to expanding farms and businesses, minority-led enterprises, and financially struggling rural communities find it difficult to obtain debt and equity Capital capital. In addition, according to studies we reviewed, borrowers that are unlike other local businesses, such as a software developer in a community that depends primarily on agriculture, may have difficulty in obtaining capital from local sources. Table 2: Percentage of Survey Respondents Who Believe That Percent responding “moderate to very great difficulty Certain Borrowers Have Difficulty in in obtaining capital”a Obtaining Capital Type of borrower Debtb Equityc Production agriculture Beginning farmers 85.7 87.2 Minority farmers 69.8 77.2 Expanding farmers 61.1 71.1 Business Start-up 88.6 93.3 Minority-owned 74.5 82.1 Expanding 64.8 75.4 Infrastructure Communities 55.2 58.8d Note: Our survey results did not show any significant differences by geographic region. a Percentages are based on the number of respondents who were knowledgeable or had at least some experience with rural capital issues. As shown in app. II, fewer respondents were familiar with production agriculture issues than with business or infrastructure issues. b Debt capital is borrowed funds paid back over time with interest. Page 7 GAO/RCED-97-109 Rural Development B-276456 c Equity capital is ownership funds that become part of the capital base, yielding a return based on the profitability of the business over time. d These represent grant funds, tax revenues, and user fees. Source: GAO’s analysis of questionnaire data. According to rural development officials we spoke with and the studies we reviewed, a number of factors account for the difficulties certain borrowers face. (See bibliography for a listing of the literature reviewed.) First, the borrowers that are having difficulties obtaining access to capital, such as beginning farmers and start-up businesses, lack sufficient equity or collateral to qualify for debt capital at most banks. Therefore, these borrowers have to turn to lenders that specialize in providing capital to higher-risk ventures, such as venture capitalists, for their primary funding. Similarly, financially struggling rural communities have difficulty financing their infrastructure requirements because their declining tax base makes it difficult to incur debt. Second, those we surveyed and the studies and testimonies we reviewed, such as a 1995 Washington State Development Finance Report and a 1996 testimony by a researcher on rural capital markets, suggest that the lack of business skills is a major impediment for start-up and expanding businesses. These potential borrowers cannot effectively prepare sound business and marketing plans, financial statements, applications, and other documents required to secure the capital they seek. Likewise, many small communities do not have, nor can they afford, professional managers who know how to identify and apply for the financing programs available to the communities and how to comply with the programs’ rules and regulations. In the view of those we interviewed, many of the traditional lenders do not have the time or inclination to provide these borrowers with the level of attention needed to make them successful. Furthermore, even when dealing with a loan guaranteed by a federal or state guarantee program such as SBA’s, the borrowers are not required by the guarantor agencies to obtain technical assistance as a precondition for qualifying for the loan. Third, borrowers seeking funds for nontraditional businesses may not be able to obtain capital because commercial banks in rural areas may be unable or unwilling to evaluate these lending opportunities. For example, several studies we reviewed reported that while local bankers may thoroughly understand lending for production agriculture, they may not Page 8 GAO/RCED-97-109 Rural Development B-276456 have the management expertise to evaluate the profitability of loans to a software developer. Finally, several studies, such as the 1995 Washington State Development Finance Report and a 1993 report on minority and seed capital, report that some minority borrowers may not be able to obtain capital, even though they meet commercial lending standards. Some officials who assist minority agricultural and business owners have charged that discrimination prevents some minority borrowers from obtaining capital. Survey Respondents The majority of those we surveyed who were familiar with rural capital Believe That Problems in issues reported that economic development in rural areas is at least Obtaining Capital May moderately hindered by the difficulties agriculture, businesses, and communities face in obtaining capital. Table 3 reports the percentage of Hinder Economic respondents who believe that limitations on the availability of capital Development hinder rural economic development. Table 3: Percentage of Survey Respondents Reporting That Percent responding that economic development is Limitations on Capital Availability hindered to a moderate or very great extenta Hinder Economic Development in Type of borrower Debt Equity Rural Areas Production agriculture 57.4 67.6 Business 73.0 78.1 Community infrastructure 64.9 68.6 a Percentages are based on the number of respondents who were knowledgeable or had at least some experience with rural capital issues. As shown in app. II, fewer respondents were familiar with production agriculture issues than were familiar with business or infrastructure issues. Source: GAO’s analysis of questionnaire data. A January 1997 report by the Rural Finance Task Force of the Rural Policy Research Institute is consistent with our questionnaire results.7 The Institute reported that difficulties in obtaining access to debt capital present a significant impediment to broadening the economic base of a rural community. 7 The Current Adequacy of Rural Financial Markets: Rural Economic Development Impacts of Seven Key Policy Issues. This report was prepared for the Senate Committee on Agriculture, Nutrition and Forestry, the House Agriculture Committee, and the USDA. Rural Policy Research Institute. Columbia, Mo.: Jan. 1997. Page 9 GAO/RCED-97-109 Rural Development B-276456 Initiatives to Help Increase To attempt to overcome the difficulties that potential borrowers Capital Availability encounter, several initiatives are either planned or ongoing. To help borrowers that are having difficulty obtaining access to capital, federal and state governments have set up programs to assist beginning farmers, start-up businesses, and small communities that want to fund water and sewer projects. For example, although no funds have been appropriated, the 1996 farm bill established in USDA a venture capital demonstration program for rural America. The program would fund up to 10 venture capital organizations for community development to provide capital to private business enterprises. Similarly, Minnesota created Minnesota Technology, Incorporated, in 1992 with $7 million to provide equity capital to start-up, small, and expanding businesses located predominantly in rural areas. As of June 1996, this fund had invested about $2.6 million in 10 firms. At the local level, hundreds of revolving loan funds have been established to help start-up and expanding businesses eventually obtain capital from commercial lending sources. For example, in Minnesota alone, about 180 community-based revolving loan funds have been established to provide financial assistance to small rural businesses. In Fayetteville, Arkansas, the Community Resource Group, Incorporated, created a community loan fund in 1992 with funds primarily from USDA and a major private foundation to provide capital for water and wastewater projects. The fund’s efforts are targeted to financially struggling small rural communities in seven southern states. Since 1992, the fund has made 66 loans that have a total value of over $3.2 million. Several federal, state, and private programs, such as SBA’s Small Business Development Centers, have been developed to provide technical assistance to prospective borrowers. However, the majority of rural development officials we surveyed did not believe that these programs were sufficient. Our questionnaire showed that 59 percent of those surveyed believe that the technical assistance provided to agricultural and business borrowers is marginal or inadequate. According to several rural development officials we interviewed, this negative response may be due in part to the fact that technical assistance resources are insufficient to meet the demand. Finally, to help minority borrowers, numerous federal and state programs have been targeted to these borrowers. For example, SBA has set-aside Page 10 GAO/RCED-97-109 Rural Development B-276456 programs for minority-owned businesses, and states, such as Alabama, have loan programs targeted to minority-owned enterprises. Many rural development officials we surveyed reported that potential Rural Officials Believe borrowers were unaware of available financial resources and did not That Many Potential know how to apply for debt and equity capital.8 According to these Borrowers Are Not officials, this was particularly the case for borrowers seeking assistance for businesses. (See table 4.) Aware of the Variety of Financial Resources Available Table 4: Views of Rural Development Officials on Potential Rural Borrowers’ Percent responding Percent responding Awareness of and Knowledge of How “probably or definitely “probably or definitely do to Apply for Financial Assistance unaware of availability of not know how to apply for Type of financing sought financial assistance”a financial assistance”a Production agriculture 47.4 64.1 Business 55.9 70.1 Community infrastructure 31.0 49.7 a Percentages are based on the number of respondents who were knowledgeable or had at least some experience with rural capital issues. As shown in app. II, fewer respondents were familiar with production agriculture issues than with business or infrastructure issues. Source: GAO’s analysis of questionnaire data. This perceived lack of awareness of financial assistance occurs even though federal and state agencies and commercial entities have made considerable efforts to better inform rural public and financial institutions about available assistance. For example, the federal government publishes The Catalog of Federal Domestic Assistance, which details federal assistance programs, and agencies supplement this publication with information on their own programs. Similarly, states and commercial entities, such as banking associations and utility companies, have developed and disseminated numerous publications to advertise the financial resources and programs available to 8 For more information on this issue, see Rural Development: Patchwork of Federal Programs Needs to Be Reappraised (GAO/RCED-94-165, July 28, 1994). Page 11 GAO/RCED-97-109 Rural Development B-276456 assist rural borrowers. They also conduct outreach workshops, seminars, and other types of meetings to inform prospective agricultural, business, and community customers of the sources of available assistance. According to rural development officials we interviewed, banks and other capital providers are generally knowledgeable about available sources of capital and can refer borrowers to these sources. They also believe that borrowers’ need for business operating knowledge is often greater than their need for more knowledge about how to find capital. Finally, these officials believe that, in financing infrastructure, rural areas have great difficulty in discovering the types of support potentially available and completing the documentation required to apply and qualify for loan and grant assistance. In the view of many rural development officials, including respondents to Alternatives Have our survey, funding for existing federal grant and loan programs is Been Proposed for insufficient to satisfy the potential rural borrowers not served by available Improving the capital sources. However, given current budgetary constraints, most officials we interviewed believe that additional federal support is unlikely Availability of Capital to be forthcoming. Consequently, rural development officials proposed in Rural Areas three alternatives that could improve the availability of capital for certain borrowers that are experiencing difficulty in obtaining capital. While these alternatives may not require federal appropriations, these officials acknowledged that these alternatives present risks to taxpayers that may result in some future costs. These alternatives are (1) using existing loan guarantee programs and technical assistance entities to target resources to borrowers having difficulties obtaining access to capital, (2) expanding the charters of some GSEs and/or requiring them to target some of their funds to borrowers having difficulties obtaining access to capital, and (3) authorizing federal agencies that have provided capital to state- and community-based revolving loan funds to allow these revolving loan funds to sell their loans into a secondary market. It is unclear, however, whether the potential benefits of these proposals for rural areas would exceed the potential financial losses to the federal government. Moreover, targeting funds to borrowers in rural areas having difficulty obtaining access to capital may result in having fewer funds available to creditworthy borrowers. We have not performed a detailed analysis of the needs for or merits of these alternatives because adequate historical information is not available. However, we discussed their potential benefits, limitations, and risks with Page 12 GAO/RCED-97-109 Rural Development B-276456 knowledgeable officials in the Department of the Treasury, FCS, the Farm Credit Administration, and the federal agencies that initially provided grants to the community-based revolving loan funds. Each alternative is discussed below. Changing the Federal Loan Rural development and lending officials we interviewed suggested that Guaranty Program(s) and existing loan guarantee programs, such as SBA’s Business Loan Guarantee Linking Them to Technical Program, be modified to require that a small percentage of their guaranteed loan funds be targeted to those borrowers that are having Assistance difficulties obtaining access to capital, such as start-up and expanding businesses. This program change would require that guarantor agencies apply less stringent lending standards to these applicants. However, because of the higher risk associated with these borrowers, the officials suggested that loan approval be contingent on a borrower’s agreeing to work closely with a technical assistance provider, such as SBA’s Small Business Development Centers. Technical assistance has been beneficial in other loan programs. For example, revolving loan fund officials told us that they have been able to reduce their loan default rates by providing extensive technical assistance. We identified two consequences of applying less stringent lending standards. First, the risks of financial losses to the federal government could increase. Second, because a share of funds would be targeted to borrowers in rural areas having difficulty obtaining access to capital, fewer funds might be available for guaranteed loans to creditworthy borrowers. In commenting on a draft of this report, SBA stated that it believes that insufficient resources are available to meet the technical assistance needs of rural America’s small businesses. To ensure that borrowers needing technical assistance are aware of its partners’ services and locations, SBA currently notifies all its guaranteed loan recipients of the services and location of its nearby technical assistance partners. However, given the limited funding currently available to the Small Business Development Centers, SBA believes that this alternative’s requirement that all borrowers receive technical assistance would not be cost-effective. Changing Federal Rural development and lending officials we interviewed told us that the Government-Sponsored charter of FCS and the FHLBS could be revised to expand the availability of Enterprises Page 13 GAO/RCED-97-109 Rural Development B-276456 capital in rural America. While these proposals may have merit, they also have limitations. The ideas proposed for revising FCS include (1) providing capital to nonagricultural businesses and/or (2) requiring that a certain amount of FCS’ portfolio include loans to borrowers that have encountered particular difficulty in obtaining access to capital, such as beginning farmers; start-up and expanding businesses; and small, financially struggling rural communities. FCS has also proposed legislation that would give it authority to provide capital to nonagricultural businesses. However, this proposed legislation did not seek authority for targeting loans to borrowers that have encountered difficulties in obtaining access to capital. According to rural development officials, both ideas have merit because FCS has an important presence in rural America, with 1,476 offices and more than 80 years of experience in serving agriculture and agriculture-related cooperative business entities. Furthermore, FCS already has access to global capital markets. However, according to officials we spoke with, these two ideas present some financial risk to the federal government. Allowing FCS to lend to nonagricultural businesses may increase its exposure to losses because its loan officers may not have the expertise necessary to evaluate the risks associated with business or infrastructure projects unrelated to agriculture. FCS officials acknowledge the limitations of their current staffing but believe that they could overcome this limitation by developing or hiring the staff needed to implement any new authority. A proposal that a certain amount of FCS portfolio include loans to borrowers that have had difficulties in obtaining capital also presents financial risk to the federal government because it would increase the FCS’ exposure to losses. Additionally, targeting a share of FCS’ funds to borrowers having difficulty obtaining access to capital may result in fewer funds being available to lend to creditworthy borrowers. Furthermore, FCS may be reluctant to make such loans because doing so conflicts with regulatory requirements to ensure that funds are loaned to borrowers that are likely to repay their loans. Similarly, the rural development and lending officials’ proposed revision to the charter of FHLBS would have limitations. The proposed revision would expand FHLBS’ authority beyond providing advances to members for home mortgages to include providing advances for loans for rural development Page 14 GAO/RCED-97-109 Rural Development B-276456 activities, such as financing smaller businesses and communities’ infrastructure. This proposal also raises concerns about exposure to loss, lack of expertise in evaluating loan applications outside the historical experience of FHLBS and its member institutions, and potential unwillingness to lend to higher-risk borrowers. In addition, fewer funds may be available to borrowers that have traditionally borrowed from FHLBS’ member institutions. The proposal to revise FHLBS is similar to changes specified in H.R. 3167, “The Enterprise Resource Bank Act of 1996,” which we examined in a June 1996 letter to the Chairman of the House Committee on Banking and Financial Services.9 We concluded that the proposed mission is broader than FHLBS’ original mission, which focused the GSE’s activity on a specific sector of the economy that the Congress perceived as being characterized by some degree of market failure. We concluded that the broader mission, expanded membership, and additional eligible collateral proposed under the bill could lead to an increase in taxpayers’ exposure to risk because the proposal is likely to lead to expanded activities by FHLBS. We also noted that the government would have little assurance that FHLBS would use this expanded authority to actually channel significant amounts of additional credit to the new mission-related activities. Our concerns over the potential risk to taxpayers of expanding the role of GSEs are not new. In a December 1993 report on FHLBS,10 we developed criteria to be used in judging whether such activities are appropriate. Among these criteria are (1) the new activity should be consistent with the FHLBS’ mission, (2) the GSE should have the expertise needed for the new activity, and (3) any new activity should be properly priced after any risk adjustments. According to a Department of the Treasury official, the expansion of GSEs raises a broader policy question about whether GSEs should be used solely to correct for market imperfections or also to subsidize credit to borrowers that would not obtain credit in the private market. 9 Enterprise Resource Bank Act (GAO/GGD-96-140R, June 27, 1996). 10 Federal Home Loan Bank System: Reforms Needed to Promote Its Safety, Soundness, and Effectiveness (GAO/GGD-94-38, Dec. 8, 1993). Page 15 GAO/RCED-97-109 Rural Development B-276456 Allowing the Sale of Officials we interviewed, as a well as a 1991 study by the Federal Reserve Federally Subsidized Bank of Kansas City, have proposed creating secondary markets for rural Community Development businesses and community infrastructure loans as a way of increasing capital availability in rural areas while allowing market forces to operate.11 Loans Under this proposal, rural, community-based revolving loan funds would be able to sell their loans into a secondary market, thereby making funds currently tied up in existing loans available for new loans. Figure 1 shows the flow of funds from revolving loan funds through an intermediary that packages the loans for sale to investors in the secondary market. Figure 1: Flow of Funds From Revolving Loan Funds Through an Intermediary to Secondary Market Investors Sales Traditional sources of capital: Lendable proceeds Secondary market funds Revolving loan intermediary: Governments funds Foundations Loan notes Pools loans and creates Charitable contributors, such bonds for sale to investors as individuals and corporations Loans Repayments Purchase bonds $$ Borrowers Investors While some rural, community-based revolving loan funds now sell into a secondary market, most do not. The revolving funds that do not sell into a secondary market are often partially capitalized with federal funds that cannot be sold at a discount from face value unless the managers of the revolving funds receive permission from the concerned federal agencies. USDA officials told us that even though selling these loans into a secondary market could make more funds available, they hesitate to provide 11 Regional Economic Development and Public Policy, Federal Reserve Bank of Kansas City, May 1991. Page 16 GAO/RCED-97-109 Rural Development B-276456 permission because of the potential adverse public reaction to selling federally subsidized loans at less than face value. According to rural development officials, allowing the sale of federally subsidized community development loans could make a substantial amount of additional capital available to rural areas. Studies by EDA and a privately sponsored secondary market entity state that funds invested in economic development loans might be freed up for further investments. According to an official of a privately sponsored secondary market entity, these loans would represent a major untapped source of potential financing for community development initiatives across the country if they were sold in a secondary market. For example, a privately sponsored survey of revolving loan funds in 15 states identified more than 24,000 economic development loans, totaling more that $1.2 billion. According to EDA, another study suggested that as much as $6 billion in economic development loans may be available for sale in a secondary market. However, according to the official of the privately sponsored secondary market, uncertainty exists about whether this secondary market proposal would be successful without federal financial assistance. This uncertainty occurs because revolving loan funds make some loans at less than market rates and/or for more lengthy terms to certain borrowers. Therefore, because of the additional risk and the lack of higher interest rates to compensate investors for this risk, these loans would have to be purchased at a discount so that investors could earn a return that is competitive with current market rates. This discount would have to be subsidized by either the private or public sector, or both, in order to encourage revolving loan funds to sell these loans. According to this official, if the private sector is unwilling to provide these funds, a federal subsidy might be required. Another limitation of this proposal, according to some rural officials, is that revolving loan fund managers might be reluctant to sell more of their loans to a secondary market. Currently, these managers rely primarily on an infusion of capital from federal and state government, foundations, and charitable contributors to make new loans. Managers we interviewed said that they are reluctant to sell their loans because they need the income from their existing loan portfolio to fund their administrative expenses. Furthermore, rural development officials expressed concerns about the adequacy of revolving loan funds’ loan-making and -servicing practices and the existence of an active demand for capital from these institutions, Page 17 GAO/RCED-97-109 Rural Development B-276456 which are funded in part by federal agencies, such as USDA and EDA. They told us that many of these revolving loan funds may not have sufficient management expertise to evaluate the risk associated in lending to borrowers that cannot obtain capital from traditional sources or meet demand for capital and technical assistance. A potential benefit of a secondary market of this type may be its ability, over time, to develop information on the performance of revolving loan funds. This information could be useful in evaluating whether federal financial assistance to these entities should be continued. In commenting on our draft report, USDA noted that, in support of this concept, it is considering providing additional capital in rural areas through a demonstration project that would allow the sale of third-party recipient loans by lenders in the Department’s Intermediary Relending Program. Under this program, USDA lends funds to intermediaries, that, in turn, provide loans to recipients who are developing business facilities or community development projects in rural areas. Eligible intermediaries include public bodies, nonprofit corporations, Indian tribes, and cooperatives. EDA, in commenting on the draft report, stated that while it is aware of the drawbacks and barriers associated with the development of a secondary market, it is eager to further explore securitization by pursuing a demonstration program involving the sale of securities in a secondary market. EDA believes that the risks related to such a demonstration are more than offset by the potential to accelerate the development of a secondary market for economic development loans and the benefits of private investment in economic development lending programs. Accordingly, EDA, pursuant to discussions with Treasury officials and other agencies that sponsor revolving loan fund programs, and in consultation with congressional oversight committees, is poised to undertake a demonstration of actual securitization transactions. In seeking to demonstrate securitization, EDA reported that it plans to allow the transactions to occur without influencing the pricing of the transactions—that is, EDA is not planning to permit its funds to be used for credit enhancement or other schemes designed to influence the pricing of the transactions. In this way, EDA hopes that the demonstration will reveal the true value of economic development loans and give a realistic picture of the investor community’s interest in seeking out loan-backed securities for economic development. Page 18 GAO/RCED-97-109 Rural Development B-276456 We provided copies of a draft of this report to USDA, SBA, and the Agency Comments Department of Commerce for their review and comment. Their comments and our responses are in appendixes III, IV, and V. In commenting on the draft report, USDA noted that its Rural Business-Cooperative Service programs, while relatively small when compared with SBA’s programs, are, in some localities, the only source of federal funding for business and economic development activities. With respect to the alternative proposed by rural development officials to allow the sale of federally subsidized community development loans in a secondary market, USDA stated that it is currently developing a memorandum of agreement to initiate a demonstration project that will allow the sale of loans into a secondary market. We incorporated USDA’s comments into our report where appropriate. SBA, in commenting on the draft report, agreed that certain borrowers in rural areas, such as start-up, expanding, and minority-owned businesses have difficulty in obtaining capital, and stated that, in some areas, insufficient resources are available to meet technical assistance requirements. SBA noted, however, that given its limited funding for technical assistance, SBA’s approach of notifying borrowers of available services and locations is significantly more cost-effective than requiring that all borrowers receive technical assistance as a condition of receiving a loan. We incorporated these comments where appropriate. In commenting on the draft report, the Department of Commerce’s EDA stated that the report did not provide a balanced assessment of the potential for secondary marketing of economic development loans. EDA stated that the potential benefits of developing such a secondary market outweigh the possible shortcomings. In our report, we discuss both potential benefits and limitations of the alternatives and do not take a position on this matter. We incorporated EDA’s comments where appropriate. We conducted our review from May 1996 through April 1997 in accordance Scope and with generally accepted government auditing standards. Our scope and Methodology methodology are discussed in detail in appendix I. The reports we reviewed concerning rural capital are listed in a bibliography. Page 19 GAO/RCED-97-109 Rural Development B-276456 As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies of this report to the House Committee on Agriculture, other interested congressional committees, the Secretaries of Agriculture and Commerce, and the Administrator of SBA. We will also make copies available to others upon request. If you have any questions about this report, please call me at (202) 512-5138. Major contributors to this report are listed in appendix VI. Robert A. Robinson Director, Food and Agriculture Issues Page 20 GAO/RCED-97-109 Rural Development Page 21 GAO/RCED-97-109 Rural Development Contents Letter 1 Appendix I 24 Scope and Methodology Appendix II 26 Summary of Responses to Questionnaire to Rural Development Officials Appendix III 47 GAO Comments 54 Comments From the U.S. Department of Agriculture Appendix IV 55 GAO Comments 58 Comments From the Small Business Administration Appendix V 59 GAO Comments 61 Comments From the Department of Commerce Appendix VI 62 Major Contributors to This Report Page 22 GAO/RCED-97-109 Rural Development Contents Bibliography 63 Tables Table 1: Primary Sources of Funding in Rural America 4 Table 2: Percentage of Survey Respondents Who Believe That 7 Certain Borrowers Have Difficulty in Obtaining Capital Table 3: Percentage of Survey Respondents Reporting That 9 Limitations on Capital Availability Hinder Economic Development in Rural Areas Table 4: Views of Rural Development Officials on Potential Rural 11 Borrowers’ Awareness of and Knowledge of How to Apply for Financial Assistance Figure Figure 1: Flow of Funds from Revolving Loan Funds Through an 16 Intermediary to Secondary Market Investors Abbreviations CDC community development corporation EDA Economic Development Administration FCS Farm Credit System FHLBS Federal Home Loan Bank System GSE government-sponsored enterprise SBA Small Business Administration USDA U.S. Department of Agriculture Page 23 GAO/RCED-97-109 Rural Development Appendix I Scope and Methodology To describe the primary financial institutions that are used to fund rural agriculture, business, and infrastructure, we reviewed the literature on economic development in rural America and obtained information from federal, state, and local officials concerned with rural development. To obtain the views of rural officials on potential borrowers’ awareness of the sources of finance, the availability of capital, and possible legislative proposals for closing identified gaps, we sent a questionnaire to over 700 rural development officials who are members of the National Association of Development Organizations; the National Association of Regional Councils; and the agricultural and rural affairs steering committee of the National Association of Counties. We also surveyed all 50 state departments of community and economic development, or their equivalents.1 Our survey questionnaire was designed to obtain information on rural capital issues for production agriculture, businesses, and community infrastructure. We did not include commercial banks and the Farm Credit System in our survey because surveys performed by others had included these traditional suppliers of capital. Before mailing our questionnaires, we solicited expert review to determine the validity of the instrument by pretesting a preliminary version on officials from selected state, local, and other community organizations of varying size and in different parts of the United States. We pretested in four cities: Richmond, Virginia; Jackson, Mississippi; Boise, Idaho; and Indianapolis, Indiana. On the basis of the comments from these four pretests, we revised the questionnaire so that the questions would be uniformly interpreted and understood. Once we were confident that the questionnaire was free of any design flaws, we conducted a first mailing to officials from state, local, and community organizations. The officials were given approximately 10 days to complete and return the questionnaire. After a 2-week period, we sent out a “follow-up” letter to those recipients who had not yet returned their questionnaire. After another 2-week period, if questionnaires were still not returned, we mailed reminder postcards requesting the return of the questionnaires. 1 The National Association of Development Organizations’ goals include promoting economic development, focusing primarily on rural areas and small towns and providing technical assistance to its members. These members are drawn primarily from multicounty planning and development agencies. The National Association of Regional Councils’ principal mission is advocacy on behalf of regional councils, both rural and urban, at the national level. The National Association of Counties provides research and reference services for county officials and represents county officials at the national level. Page 24 GAO/RCED-97-109 Rural Development Appendix I Scope and Methodology We edited the returned questionnaires to ensure that they were complete and filled out correctly. The questionnaire data were then converted into electronic data for statistical analyses. We received responses from about 67 percent of those surveyed. In presenting the survey results, we only included the responses from those who claimed at least some experience in agriculture, business, or community infrastructure, which accounted for about 74 percent of those returning the questionnaire. Our survey results are shown in detail in appendix II. We also interviewed rural development officials in four states—Alabama, Maine, Minnesota, and Washington. These officials included bankers and representatives of community development organizations; venture capitalists; members of the rural finance task force of the Rural Policy Research Institute; and representatives of federal and state governments. Furthermore, we interviewed officials of federal agencies in Washington, D.C., that provide capital to rural America. These agencies included USDA, the Department of Commerce’s Economic Development Administration (EDA), and the Small Business Administration (SBA). We also interviewed officials of national associations in Washington, D.C., that represent the interests of businesses, farmers, lenders, developmental organizations, and local communities across the country. These associations included the American Bankers Association, Independent Bankers Association of America, Farm Credit Council, Farm Credit Administration, National Federation of Independent Businesses, National Small Business United, the American Farm Bureau Federation, the National Farmers Union, the National Association of Development Organizations, the National Association of Regional Councils, the National Association of Counties, the Council of State Community Development Agencies, and the National Association of Towns and Townships. Page 25 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 26 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 27 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 28 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 29 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 30 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 31 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 32 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 33 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 34 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 35 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 36 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 37 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 38 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 39 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 40 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 41 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 42 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 43 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 44 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 45 GAO/RCED-97-109 Rural Development Appendix II Summary of Responses to Questionnaire to Rural Development Officials Page 46 GAO/RCED-97-109 Rural Development Appendix III Comments From the U.S. Department of Agriculture Note: GAO comments supplementing those in the report text appear at the end of this appendix. See comment 1. Page 47 GAO/RCED-97-109 Rural Development Appendix III Comments From the U.S. Department of Agriculture See comment 2. Page 48 GAO/RCED-97-109 Rural Development Appendix III Comments From the U.S. Department of Agriculture Page 49 GAO/RCED-97-109 Rural Development Appendix III Comments From the U.S. Department of Agriculture See comment 3. Page 50 GAO/RCED-97-109 Rural Development Appendix III Comments From the U.S. Department of Agriculture See comment 4. Page 51 GAO/RCED-97-109 Rural Development Appendix III Comments From the U.S. Department of Agriculture Page 52 GAO/RCED-97-109 Rural Development Appendix III Comments From the U.S. Department of Agriculture Page 53 GAO/RCED-97-109 Rural Development Appendix III Comments From the U.S. Department of Agriculture The following are GAO comments on the U.S. Department of Agriculture’s (USDA) letters dated April 21-25, 1997. 1. We have added more detail on USDA’s financial and technical assistance GAO Comments programs that are targeted to rural areas for business and economic development. 2. USDA included some attachments that provided additional detailed information about specific agency programs. We have not included these attachments in the report. 3. We have revised the report to recognize that USDA plans to conduct a demonstration project allowing the sale of loans to third-party recipients. 4. We recognize that certain restrictions exist with respect to the sale of tax-exempt bonds to finance community infrastructure needs. However, a complete discussion of this issue is beyond the scope of this report. Page 54 GAO/RCED-97-109 Rural Development Appendix IV Comments From the Small Business Administration Note: GAO comments supplementing those in the report text appear at the end of this appendix. Page 55 GAO/RCED-97-109 Rural Development Appendix IV Comments From the Small Business Administration See comment 1. Page 56 GAO/RCED-97-109 Rural Development Appendix IV Comments From the Small Business Administration Page 57 GAO/RCED-97-109 Rural Development Appendix IV Comments From the Small Business Administration The following are GAO comments on the Small Business Administration’s (SBA) letter dated April 18, 1997. 1. We have revised the report to recognize that SBA officials believe that, GAO Comments given the limited funding currently available, requiring that all borrowers receive technical assistance would not be as cost-effective as the practice of notifying guaranteed loan recipients of the services that are available. Page 58 GAO/RCED-97-109 Rural Development Appendix V Comments From the Department of Commerce Note: GAO comments supplementing those in the report text appear at the end of this appendix. See comment 1. Page 59 GAO/RCED-97-109 Rural Development Appendix V Comments From the Department of Commerce See comment 2. Page 60 GAO/RCED-97-109 Rural Development Appendix V Comments From the Department of Commerce The following are GAO comments on the Department of Commerce’s Economic Development Administration’s (EDA) letter dated May 6, 1997. 1. The report recognizes both the potential benefits and limitations of the GAO Comments alternatives. We revised the report to recognize that EDA officials believe that the potential benefits of developing secondary markets for economic development loans outweigh the possible shortcomings. 2. We revised the report to recognize that EDA officials plan to explore secondary markets by pursuing a demonstration program involving the sale of loans into secondary markets. Page 61 GAO/RCED-97-109 Rural Development Appendix VI Major Contributors to This Report Robert C. Summers, Assistant Director Dale A. Wolden, Evaluator-in-Charge James L. Dishmon, Jr. Kelly S. Ervin William F. Mayo Mary Jane Meek Carol Herrnstadt Shulman John C. Smith Page 62 GAO/RCED-97-109 Rural Development Bibliography 1995 Development Finance Report. Washington State Lenders Network. 1995. 1996 Annual Report. Community Reinvestment Fund. Minneapolis, Minn: 1996. Agricultural Income and Finance: Situation and Outlook Report. Annual Lender Issue. U.S. Department of Agriculture, Economic Research Service. 1996. Are Revolving Loan Funds A Better Way To Finance Rural Development? USDA, Economic Research Service, Agriculture Information Bulletin, No. 724-05. 1996. Armstrong, Judy, et al. Rural Economic Development: A Profile of Eight Rural Areas Located in the Lower Mississippi Delta Region. Federal Reserve Bank of St. Louis, Community Affairs Department. 1995. Barry and Associates. Agency Market Funds, Commercial Banks, and Rural Credit. Study prepared for the Farm Credit Council. 1995. Barry, Peter J. The Effects of Credit Policies on U.S. Agriculture. AEI Studies in Agricultural Policy. Washington, D.C.: American Enterprise Institute, 1995. _____, Bruce J. Sherrick, and Paul N. Ellinger. Farmer Mac’s New Environment: Key Issues and Performance Factors. U. of Illinois, The Center for Farm and Rural Business Finance. Champagne-Urbana, Il.: 1996. Bugbee, Anton, and Associates. Business Capital Needs in Greater Minnesota. Draft report prepared for Minnesota Technology, Inc. 1996. Can Federal Action Improve Efficiency in the Market for Farm Loans? USDA, Economic Research Service, Agriculture Information Bulletin No. 724-01. 1996. Cole, R., et al. Financial Services Used by Small Businesses: Evidence from the 1993 National Survey of Small Business Finances. Federal Reserve Bulletin. 1995. Page 63 GAO/RCED-97-109 Rural Development Bibliography Credit Availability for Small Businesses and Small Farms. Submitted by the Board of Governors of the Federal Reserve System. 1993. Deller, Steven C., and Norman Walzer. Rural Roads and Bridges: Management Issues Facing Local Highway Officials. USDA, Agricultural Marketing Service. 1996. Dewar, Margaret E. “Loans to Business to Encourage Rural Economic Development.” Policy Studies Journal, Vol. 20, No. 2 (1992), pp. 230-43. Drabenstott, Mark. “Capital for Agriculture and Rural America: Redefining the Federal Role.” Federal Reserve Bank of Kansas City. Economic Review, Vol. 80, No. 3. (1995). _____. Regional Economic Development and Public Policy. Federal Reserve Bank of Kansas City. Kansas City, Mo.: 1991. _____ and Tim R. Smith. “The Changing Economy of the Rural Heartland. Economic Forces Shaping the Rural Heartland. Federal Reserve Bank of Kansas City. Kansas City, Mo.: 1996. Duncan, Marvin, et al. The Current Adequacy of Rural Financial Markets: Rural Economic Development Impacts of Seven Key Policy Issues. U. of Missouri, Rural Policy Research Institute. Columbia, Mo.: 1997. Duncan, Marvin, Laurence Crane, and Cole Gustafson. “North Dakota’s Development Bank.” Choices (1995), pp. 38-40. Duncan, Marvin, and Mark Edelman. Rural Finance Reform: A Rural Community Perspective. U. of Missouri, Rural Policy Research Institute. Columbia, Mo.: 1995. Eisinger, Peter. “Review Essay—The State of State Venture Capitalism.” Economic Development Quarterly, Vol. 5, No. 1 (1991), pp. 61-76. Evaluation of Wisconsin’s Entrepreneurial Assistance Network. Wisconsin Department of Development, Division of Economic Development. Madison, Wis.: 1995. Flora, Jan L., et al. From the Grassroots: Case Studies of Eight Rural Self-Development Efforts. USDA, Economic Research Service, Agriculture and Rural Economy Division. 1993. Page 64 GAO/RCED-97-109 Rural Development Bibliography Gustafson, C., and Sara Anderson. “Credit Rationing of North Dakota Agribusiness.” Journal of Agribusiness, Vol. 13, No. 2 (1995), pp. 99-121. Harris, Jerold L. Testimony of the President and Chief Executive Officer of the Farm Credit Bank of Wichita before USDA. Nov. 1, 1995. Keeton, William R. “Do Bank Mergers Reduce Lending to Businesses and Farmers? New Evidence from Tenth District States.” Federal Reserve Bank of Kansas City. Economic Review, Vol. 81, No. 3. (1996). Lamberson, Morris, and Clint Johnson. “Financing Experiences of Small Manufacturers in Arkansas: Survey and Analysis.” Economic Development Review (Spring 1992), pp. 62-66. Markley, Deborah. Availability of Capital in Rural America: Problems and Options. Report prepared with support from the W.K. Kellogg Foundation and the Ford Foundation. 1992. _____. White Paper on Rural Financial Markets. Policy Research Group. Chapel Hill, N.C.: 1995. A Minority and Seed Capital Program. Prepared for the Benton-Franklin Counties Governmental Conference, Washington State, 1993. National Development Council. Washington, D.C.: 1993. Moss, L., P. Barry, and P. Ellinger. Financing Agriculture: Competitive Challenges for Commercial Banks. U. of Illinois, Center for Farm and Rural Business Finance. Champagne-Urbana, Il.: 1996. Mt. Auburn Associates. Capital Availability for Small Business in Washington: Executive Summary. Somerville, Mass.: 1989. _____. Financial Markets and Small Business Finance in Washington State: Final Report. Somerville, Mass.: 1989. New Tools for Commercial Banks in Rural America. American Bankers Association, Rural Economic Development Task Force. 1994. O’Hare, William. “People With Multiple Disadvantages Live in Rural Areas, Too.” Rural Development Perspectives, Vol. 9, No. 2. (1994). Page 65 GAO/RCED-97-109 Rural Development Bibliography A Path to Smarter Economic Development. National Academy of Public Administration. Washington, D.C.: 1996. Patton, W. David, and Jeffery Duggan. “Surveys Reveal Differences in Capital Availability between Rural and Urban Idaho.” Small Town (July-Aug. 1990). Paulson, JoAnn. “Essays in Rural Economics: New Business Finance Problems in Rural Minnesota—Real or Imagined.” Minnesota Agricultural Economist, No. 659 (1989). Petersen, Christi. Minnesota Women-Owned Businesses: An Analysis of Access to Capital. Minnesota Department of Trade and Economic Development. 1995. Radin, Beryl A. “State Rural Development Councils Are Creating Public-Private Partnerships.” Rural Development Perspectives, Vol. 11, No. 2. (1996). Report to Congress on Credit in Rural America. USDA, Economic Research Service (Apr. 1997). Rural Conditions and Trends: Federal Programs. USDA, Economic Research Service, Vol. 7, No. 2. 1996. Rural Conditions and Trends: Financial Institutions. USDA, Economic Research Service, Vol. 6, No. 2. 1995. Rural Conditions and Trends: Rural Trends in the Early 1990’s. USDA, Economic Research Service, Vol. 6, No. 1. 1995. Rural Conditions and Trends: Socioeconomic Conditions. Economic Research Service, Vol. 7, No. 3. 1996. Ryckman, Scott. “Survey of Agricultural Credit Condition.” Regional Economic Digest, Vol. 7, No. 4 (1996), pp. 6-9. Small Business Lending in Washington. 1995 ed. Small Business Administration, Office of Advocacy. Washington, D.C.: 1996. Small Business Lending in Minnesota. 1995 ed. Small Business Administration, Office of Advocacy. Washington, D.C.: 1996. Page 66 GAO/RCED-97-109 Rural Development Bibliography Stinson, Thomas F., and Margaret Dewar. “Strategies for Economic Development.” EURA Reporter, Vol. 25, No. 2 (1995). _____ and Andrea Lubov. “Minnesota’s Nonmetro Cities Use Revolving Loans as a Development Tool.” Rural Development Perspectives, Vol. 8, No. 2. (1993). _____ “Revolving Loan Funds: Funding Economic Development in Non-Metro Cities.” Minnesota Agricultural Economist, No. 669 (1992). Sullivan, D., and Ann P. Ziebarth. Is Bigger Better? Financial Sector Concentration and Rural Community Reinvestment. U. of Wisconsin. Madison, Wis.: 1996. Survey of Small and Mid-Sized Businesses. Arthur Andersen’s Enterprise Group and National Small Business United. 1995. Writing and Administering Development Loans: A Workbook and Reference Guide. Community Reinvestment Fund. Minneapolis, Minn.: 1995. (150423) Page 67 GAO/RCED-97-109 Rural Development Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Rural Development: Availability of Capital for Agriculture, Business, and Infrastructure
Published by the Government Accountability Office on 1997-05-27.
Below is a raw (and likely hideous) rendition of the original report. (PDF)