oversight

Farm Programs: Efforts to Achieve Equitable Treatment of Minority Farmers

Published by the Government Accountability Office on 1997-03-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                    United States General Accounting Office

GAO                 Testimony
                    Before the Subcommittee on Department Operations,
                    Nutrition, and Foreign Agriculture,
                    House of Representatives


For Release
on Delivery
Expected at
                    FARM PROGRAMS
1:00 p.m. EST
Wednesday
March 19, 1997
                    Efforts to Achieve Equitable
                    Treatment of Minority
                    Farmers
                    Statement of Robert A. Robinson, Director,
                    Food and Agriculture Issues
                    Resources, Community, and Economic
                    Development Division




GAO/T-RCED-97-112
Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to testify on the work we have done on
the U.S. Department of Agriculture’s (USDA) efforts to achieve equitable
treatment of minority farmers. Our testimony today is based on our
January 24, 1997, report.1

Let me place our work in the context of concerns about this issue. As you
know, the number of minority-owned farms is declining at a more rapid
rate than other farms, which has called into question the treatment of
minority farmers in receiving federal assistance. Furthermore, for a
number of years, minority farmers have reported that USDA officials do not
treat them in the same way as nonminority farmers in the conduct of
USDA’s programs, particularly in decisions made in the Department’s
county offices and district loan offices.

Because of these concerns, we were asked to review the efforts of USDA’s
Farm Service Agency (FSA) to treat minority farmers fairly. As we were
nearing completion of our work, the concerns of several minority farmers
were publicized, leading the Secretary of Agriculture to take a number of
actions, including holding national and statewide forums on the treatment
of minority farmers. At these meetings, minority farmers made a number
of charges of discriminatory practices in USDA. For example, they charged
that USDA officials deny them courtesy and respect while giving large-scale
farmers service and loans. They also charged that the loans of minority
and small farmers are not processed in a timely manner and that FSA is
foreclosing on minority-owned farmers at a higher rate than on
nonminority-owned farms. Finally, they stated that FSA lacks diversity in
the state and county committee structure and county office staffing. While
these efforts were underway, the Secretary suspended all foreclosures on
farm loans. Our testimony today focuses on the work we did to (1) identify
FSA’s efforts to treat minority farmers in the same way as nonminority
farmers in delivering program services; (2) examine the representation of
minorities in county office staffing and on county committees in the
counties with the highest number of minority farmers; and (3) examine
data on the disposition of minority and nonminority farmers’ applications
for participation in the Agricultural Conservation Program and the direct
loan program at the national level and in five county and five district loan
offices for fiscal years 1995 and 1996. Because of the small number of



1
 Farm Programs: Efforts to Achieve Equitable Treatment of Minority Farmers (GAO/RCED-97-41,
Jan. 24, 1997).



Page 1                                                                     GAO/T-RCED-97-112
             offices we visited, we cannot generalize our findings to FSA’s offices
             nationwide.

             In summary, we found that the Farm Service Agency’s Civil Rights and
             Small Business Development Staff (the Staff) oversees the agency’s efforts
             to achieve fair treatment for minority farmers. In fiscal years 1995 and
             1996, the Staff closed 28 complaints of discrimination against farmers on
             the basis of race or national origin and found discriminatory practices in 2
             of the 28 cases. The Staff also conducted 13 management reviews of field
             offices and found no evidence of unfair treatment. Finally, according to
             the Staff, their training of all FSA personnel on civil rights matters will be
             completed by the end of 1997. We did not evaluate the quality and
             thoroughness of the staff’s activities.

             With respect to the representation of minority employees in the Farm
             Service Agency’s field offices, USDA’s database showed that, as of
             October 1996, 32 percent of the employees serving the 101 counties with
             the highest number of minority farmers are members of a minority group.
             Moreover, for the same period, 89 percent of these minority employees
             were either county executive directors or program assistants. Minority
             farmers make up about 17 percent of the farmer population in these
             counties. Furthermore, in 36 of the 101 counties, at least one minority
             farmer is a member of the county committee.

             Finally, the applications of minority farmers for the Agricultural
             Conservation Program and for the direct loan program were disapproved
             at a higher rate nationwide than for nonminority farmers for October 1,
             1994 through March 31, 1996. We found that disapproval rates for minority
             farmers were also higher at three of the five county offices and three of the
             five district loan offices we visited. However, our review of the
             information in the application files at these offices showed that decisions
             to approve or disapprove applications were supported by information in
             the files and that decision-making criteria appeared to be applied to
             minority and nonminority applicants in a similar fashion.


             Within USDA, FSA has the overall administrative responsibility for
Background   implementing agricultural programs. FSA is responsible for, among other
             things, stabilizing farm income, helping farmers conserve environmental
             resources, and providing credit to new or disadvantaged farmers. FSA’s
             management structure is highly decentralized; the primary
             decision-making authority for approving loans and applications for a



             Page 2                                                      GAO/T-RCED-97-112
                         number of agricultural programs rests in its county and district loan
                         offices. In county offices, for example, committees, made up of local
                         farmers, are responsible for deciding which farmers receive funding for
                         the Agricultural Conservation Program (ACP). Similarly, FSA officials in
                         district loan offices decide which farmers receive direct loans. These FSA
                         officials are federal employees.

                         Under the ACP, FSA generally paid farmers up to 75 percent of a
                         conservation project’s cost, up to a maximum of $3,500 annually. 2 FSA
                         allocated funds annually to the states on the basis of federally established
                         priorities. The states in turn distributed funds to the county committees on
                         the basis of the states’ priorities. Farmers could propose projects at any
                         time during the fiscal year, and the county committees could approve the
                         proposals at any time after the funds became available. Consequently,
                         county committees often obligated their full funding allocation before
                         receiving all proposals for the year.

                         The district loan offices administer the direct loan program, which
                         provides farm ownership and operating loans to individuals who cannot
                         obtain credit elsewhere at reasonable rates and terms. Each district loan
                         office is responsible for one or more counties. The district loan office’s
                         agricultural credit manager is responsible for approving and servicing
                         these loans. FSA accepts a farmer’s loan application documents, reviews
                         and verifies these documents, determines the applicant’s eligibility to
                         participate in the loan program, and evaluates the applicant’s ability to
                         repay the loan. In servicing these loans, FSA assists in developing farm
                         financial plans, collects loan payments, and restructures delinquent debt.

                         For both the ACP and the direct loan program, as well as other programs,
                         farmers may appeal disapproval decisions to USDA’s National Appeals
                         Division (NAD).


                         FSA’s efforts to achieve equitable treatment for minority farmers are
Ongoing Efforts to       overseen by the agency’s Civil Rights and Small Business Development
Enhance Minority         Staff through three separate activities. First, the Staff investigates farmers’
Farmers’ Participation   complaints of discrimination in program decisions through its Civil Rights
                         and Small Business Development Staff. During fiscal years 1995 and 1996,
in Farm Programs         the Staff closed 28 cases in which discrimination was alleged on the basis

                         2
                          Section 336 of the Federal Agricultural Improvement and Reform Act of 1996 (P.L. 104-127, Apr. 4,
                         1996), known as the 1996 farm bill, repealed the ACP and replaced it with the Environmental Quality
                         Incentives Program. For fiscal year 1997, the new program will be administered jointly by FSA and the
                         Department’s Natural Resources and Conservation Service.



                         Page 3                                                                         GAO/T-RCED-97-112
                      of race or national origin. In 26 of these cases, the Staff found no
                      discrimination. In the other two cases, the Staff found that FSA employees
                      had discriminated on the basis of race in one case and national origin in
                      the other. At the time of review, USDA had not resolved how it would deal
                      with the employees and compensate the affected farmers. As of January 7,
                      1997, the Staff had 110 cases of discrimination alleged on the basis of race
                      or national origin under investigation. Ninety-one percent of these cases
                      were filed since January 1, 1995.

                      Second, the Staff conducts management evaluations of FSA’s field offices
                      to ensure that procedures designed to protect civil rights are being
                      followed. During fiscal years 1995 and 1996, the Staff evaluated
                      management activities within 13 states. None of the evaluations concluded
                      that minority farmers were being treated unfairly.

                      And third, the Staff provides equal employment opportunity (EEO) and civil
                      rights training to its employees. Beginning in 1993, the Staff began to
                      present revised EEO and civil rights training to all FSA state and county
                      employees. About half of the FSA employees have been trained, according
                      to the Staff, and all are scheduled to complete this training by the end of
                      1997. The training covers such areas as civil rights (program delivery) and
                      EEO counseling, mediation, and complaints.


                      In addition to these activities, FSA has specific efforts to increase minority
                      farmers’ participation in agricultural programs. For example, since
                      September 1993, the Small Farmer Outreach Training and Technical
                      Assistance Program has assisted small and minority farmers in applying
                      for loans. Over 2,500 FSA borrowers have been served by these efforts. FSA
                      has also assisted Native American farmers by establishing satellite offices
                      on reservations. More recently, in July 1996, FSA created an outreach office
                      to increase minority farmers’ knowledge of, and participation in, the
                      Department’s agricultural programs.


                      In the 101 counties with the highest numbers of minority farmers,
Employment of         representing 34 percent of all minority farmers in the nation, FSA
Minority Staff in     employees and county committee members were often members of a
County Offices and    minority group.

Representation of
Minority Farmers on
County Committees

                      Page 4                                                      GAO/T-RCED-97-112
Minority Employment in    As of October 1996, 32 percent of FSA’s employees serving the 101 counties
County Offices            were members of a minority group. In the offices serving 77 of these
                          counties, at least one staff member was from a minority group. Moreover,
                          89 percent of these minority employees were either county executive
                          directors or program assistants. Minority farmers make up about
                          17 percent of the farmer population in these 101 counties.

                          In addition, 7 of the 10 county and district loan offices we visited had at
                          least one minority employee. The executive directors of two county
                          offices, Holmes, Mississippi, and Duval, Texas, were members of a
                          minority group, as were the managers of two district loan offices, Elmore,
                          Alabama, and Jim Wells, Texas, and the deputy managers of three district
                          loan offices, Holmes, Jim Wells, and Byron, Georgia.

                          The number of minority employees could change as FSA continues its
                          current reorganization. FSA plans to decrease its field structure staff from
                          14,683 in fiscal year 1993 to 11,729 in fiscal year 1997—a change of about
                          20 percent. We do not know how this reduction will affect the number of
                          minority employees in county and district loan offices.


Minority Representation   We found that for the 101 counties with the highest numbers of minority
on County Committees      farmers, 36 had at least one minority farmer on the county committee. In
                          the five county offices we visited, two committees had minority members
                          and the other three had minority advisers. We have previously reported on
                          this issue. In March 1995, in Minorities and Women on Farm Committees
                          (GAO/RCED-95-113R, Mar. 1, 1995), we reported that minority farm owners and
                          operators, nationwide, accounted for about 5 percent of those eligible to
                          vote for committee members, and about 2 percent of the county
                          committee members came from a minority group.


                          According to FSA’s data, applications for the ACP for fiscal year 1995 and for
Reasons Provided for      the direct loan program from October 1994 through March 1996 were
Disapprovals of ACP       disapproved at higher rates nationwide for minority farmers than for
and Direct Loan           nonminority farmers. To develop an understanding of the reasons for
                          disapprovals, we examined the files for applications submitted under both
Applications              programs during fiscal years 1995 and 1996 in five county and five district
                          loan offices. We chose these offices because they had higher disapproval
                          rates for minority farmers or because they were located in areas with large
                          concentrations of farmers from minority groups. We chose the ACP and the
                          direct loan program because decisions on participation in these programs



                          Page 5                                                      GAO/T-RCED-97-112
                             are made at the local level. In addition, nationally, these programs have
                             higher disapproval rates for minority farmers than for nonminority
                             farmers.


Reasons for Disapproval of   Nationally, during fiscal year 1995, the disapproval rates for applications
ACP Applications             for ACP funds were 33 percent for minority farmers and 27 percent for
                             nonminority farmers. We found some differences in the disapproval rates
                             for different minority groups. Specifically, 25 percent of the ACP
                             applications from Native American and Asian American farmers were
                             disapproved, while 34 percent and 36 percent of the applications from
                             African American and Hispanic American farmers, respectively, were
                             disapproved.

                             To develop an understanding of the reasons why disapprovals occurred,
                             we examined the ACP applications for fiscal years 1995 and 1996 at five
                             county offices. (See attachment I for the number of ACP applications
                             during this period from minority and nonminority farmers in each of the
                             five counties, as well as the number and percent of applications that were
                             disapproved.)

                             When ACP applications were received in the county offices we visited, they
                             were reviewed first for compliance with technical requirements. These
                             requirements included such considerations as whether the site was
                             suitable for the proposed project or practice, whether the practice was
                             still permitted, or whether the erosion rate at the proposed site met the
                             program’s threshold requirements.

                             Following this technical evaluation, if sufficient funds were available, the
                             county committees approved all projects that met the technical evaluation
                             criteria. This occurred for all projects in Dooly County and for a large
                             majority of the projects in Glacier County. In Holmes County, the county
                             committee ranked projects for funding using a computed cost-per-ton of
                             soil saved, usually calculated by the Department’s local office of the
                             Natural Resources Conservation Service. The county committee then
                             funded projects in order of these savings until it had obligated all funds.

                             In the remaining two counties, Russell and Duval, the county committees,
                             following the technical evaluations, did not use any single criterion to
                             decide which projects to fund. For example, according to the county
                             executive director in Russell County, the committee chose to fund several
                             low-cost projects submitted by both minority and nonminority farmers



                             Page 6                                                     GAO/T-RCED-97-112
                             rather than one or two high-cost projects. It also considered, and gave
                             higher priority to, applicants who had been denied funds for eligible
                             projects in previous years. In contrast, the Duval county committee
                             decided to support a variety of farm practices. Therefore, it chose to
                             allocate about 20 percent of its funds to projects that it had ranked as
                             having a medium priority. These projects were proposed by both minority
                             and nonminority farmers.

                             In the aggregate, 98 of 271 applications from minority farmers were
                             disapproved in the five county offices we visited. Thirty-three were
                             disapproved for technical reasons and 62 for lack of funds. FSA could not
                             find the files for the remaining three minority applicants. We found that
                             the applications of nonminority farmers were disapproved for similar
                             reasons. Of the 305 applications for nonminority farmers we reviewed, 106
                             were disapproved. Fifty-three were disapproved for technical reasons and
                             52 for lack of funds. FSA could not find the file for the remaining applicant.
                             Approval and disapproval decisions were supported by material in the
                             application files, and the assessment criteria used in each location were
                             applied consistently to applications from minority and nonminority
                             farmers.


Reasons for Disapproval of   Nationally, the vast majority of all applicants for direct loans have their
Direct Loan Applications     applications approved. However, the disapproval rate for minority farmers
                             is higher than for nonminority farmers. From October 1994 through
                             March 1996, the disapproval rate was 16 percent for minority farmers and
                             10 percent for nonminority farmers. We found some differences in the
                             disapproval rates for different minority groups. Specifically, 20 percent of
                             the loan applications from African American farmers, 16 percent from
                             Hispanic American farmers, 11 percent from Native American farmers, and
                             7 percent from Asian American farmers, were disapproved.

                             To assess the differences in disapproval rates, we examined the direct loan
                             applications for fiscal years 1995 and 1996 at five district loan offices. (See
                             attachment II for more detailed information on direct loan disapproval
                             rates in five district offices.)

                             Our review of the direct loan program files in these locations showed that
                             FSA’s decisions to approve and disapprove applications appeared to follow
                             USDA’s established criteria. These criteria were applied to the applications
                             of minority and nonminority farmers in a similar fashion and were




                             Page 7                                                       GAO/T-RCED-97-112
supported by materials in the files. The process for deciding on loan
applications is more uniform for the direct loan program than for the ACP.

The district loan office first reviews a direct loan application to determine
whether the applicant meets the eligibility criteria, such as being a farmer
in the district, having a good credit rating, and demonstrating managerial
ability. Farmers who do not demonstrate this ability may take a course, at
their own expense, to meet this standard. If the applicant meets these
criteria, the loan officer determines whether the farmer meets the
requirements for collateral and has sufficient cash flow to repay the loan.
These decisions are based on the Farm and Home Plan—the business
operations plan for the farmer—prepared by the loan officer with
information provided by the farmer. If the collateral requirements and the
cash flow are sufficient, the farmer generally receives the loan.

In the five district loan offices we visited, 22 of the 115 applications from
minority farmers were disapproved. Twenty were disapproved because the
applicants had poor credit ratings or inadequate cash flow. One was
disapproved because the applicant was overqualified and was referred to a
commercial lender. In the last case, the district loan office was unable to
locate the loan file because it was apparently misplaced in the
departmental reorganization. However, correspondence dealing with this
applicant’s appeal to NAD indicates that the application was disapproved
because the applicant did not meet the eligibility criterion for recent
farming experience. NAD upheld the district loan office’s decision. The
Department allows all farmers to appeal adverse program decisions made
at the local level through NAD. The division conducts administrative
hearings on program decisions made by officers, employees, or
committees of FSA and other USDA agencies.

The applications of nonminority farmers that we reviewed were
disapproved for similar reasons. Of the 144 applications from nonminority
farmers we reviewed, 15 were disapproved. Nine were disapproved
because of poor credit ratings or inadequate cash flow; five were
disapproved because the applicants did not meet eligibility criteria; and
one was disapproved because of insufficient collateral.

Additionally, in reviewing the 129 approved applications of nonminority
farmers, we did not find any that were approved with evidence of poor
credit ratings or insufficient cash flow.




Page 8                                                      GAO/T-RCED-97-112
We also wanted to obtain information on whether FSA was more likely to
foreclose on loans to minority farmers while restructuring or writing down
loans to nonminority farmers. Between October 1, 1994, and March 31,
1996, we found only one foreclosed loan for a—nonminority farmer—in
the five district loan offices we reviewed. We also found 62 cases in which
FSA restructured delinquent loans. Twenty-two of these were for minority
farmers.

Finally, the amount of time FSA takes to process applications from minority
and nonminority farmers is about the same. Nationwide, from October
1994 through March 1996, FSA took an average of 86 days to process the
applications of nonminority farmers and an average of 88 days to process
those of minority farmers. More specifically, for African Americans, FSA
took 82 days; for Hispanic Americans and Native Americans, 94 days; and
for Asian Americans, 97 days.


This completes my prepared statement. I will be happy to respond to any
questions you may have.




Page 9                                                    GAO/T-RCED-97-112
Appendix I

Agricultural Conservation Program
Disapproval Rates in Five County Offices


                                 Minority applications                          Nonminority applications
                             Total      Disapproved          Percent          Total     Disapproved            Percent
County office         applications      applications     disapproved   applications     applications       disapproved
Russell, Alabama               18                 11             61             96                47               49
Dooly, Georgia                  5                  0              0             29                 0                0
Holmes, Mississippi            28                 16             57             88                38               43
Glacier, Montana               74                  9             12             47                 6               13
Duval, Texas                  146                 62             42             45                15               33




                                      Page 10                                                      GAO/T-RCED-97-112
Appendix II

Direct Loan Disapproval Rates in Five
District Offices


                             Minority applications reviewed                 Nonminority applications reviewed
                             Total      Disapproved          Percent          Total      Disapproved         Percent
District office       applications      applications     disapproved   applications      applications    disapproved
Elmore, Alabama                30                  7             23             22                  3            14
Byron, Georgia                 20                  9             45             45                  9            20
Holmes, Mississippi            39                  5             13             29                  0             0
Glacier, Montana                4                  0              0              7                  1            14
Jim Wells, Texas               22                  1              5             41                  2             5




(150428)                               Page 11                                                     GAO/T-RCED-97-112
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. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested