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The Farm Bill Levels the Playing Field for Rural Americans

May 29, 2013
Just one week after insulting immigrants with the release of a flawed study, the Heritage Foundation gave the back of its hand to rural Americans with a counterfactual attack on the Farm Bill. The Heritage Foundation, in a posting on its Foundry blog, dismissed grant and loan programs for renewable energy as “green” subsidies, advising rural Americans to wait until the free market provides them the capital to improve energy efficiency, build renewable energy projects and create jobs.

Heritage’s position lacks historical perspective. The modern-day Farm Bill grew out of the Farm Credit Act – early 20th century legislation to extend credit services and business capital to rural Americans and farms because the free market failed to provide those services. Rural America represents a smaller, geographically dispersed population and therefore a higher risk, higher cost, and lower return market for many such services. Even today, institutional lenders seek government loan guarantees as a condition of providing debt equity and credit services to rural communities.

Cell phone service is actually a perfect example of the free market’s failure to meet the needs of rural Americans. And, again, there is a long history of Congressional intervention to correct the market and provide smaller markets access to basic services taken for granted by people in big cities, such as Washington. Congress established the Rural Electrification Administration in the 1930s, and authorized it in 1949 to expand rural access to telephone service. These programs are now part of the USDA’s Rural Economic Development office and are authorized and funded within the Farm Bill. Congress has over time authorized the agency to ensure that rural communities gain access to 911 emergency services and broadband telecommunications.

USDA continues to use loan guarantees as one of the primary tools for helping companies raise sufficient capital to extend services to rural markets. The loans are issued by private lenders, not USDA. It is inaccurate to call them subsidies, as Heritage does. Loan applicants work with a commercial lending partner, who is responsible for due diligence. And USDA’s loan guarantees have a much higher repayment rate than many private loans, such as college loans. USDA has a loan portfolio of more than $100 billion, with more than 97 percent of those loans up-to-date on payments.

Similarly, the renewable energy programs within the Farm Bill – while less than 1 percent of the overall program cost – are providing tremendous returns across rural America. Since 2008, Farm Bill programs have supported 6,600 U.S. projects that employ 15,000 people and generate or save more than 7.3 billion kilowatt hours of electricity – enough to power 680,000 U.S. homes annually. The BCAP program now supports more than 860 growers in 188 counties across 12 states who are converting 59,000 underutilized acres to energy crops. And since 2008, USDA has provided matching funding to 46 research and development projects in 24 states.

Clearly, rural American businesses and farms have the desire and the good ideas to deploy renewable energy and energy efficiency. But they may yet lack the access to capital and lending services necessary to bring the ideas to fruition. That is the original chicken-and-egg situation the Farm Bill was established to overcome.

Both the House and Senate Agriculture Committees have wisely voted to reauthorize the energy title programs in their separate versions of the Farm Bill. The Senate version provides the robust mandatory funding to ensure that these programs continue to work. Let’s hope that House members aren’t fooled by the spurious “free market” arguments of the Heritage Foundation and can agree to match the Senate funding level.

Lloyd Ritter is Co-Director of the Agriculture Energy Coalition.

The Agriculture Energy Coalition is a broad membership-based consortium of organizations and companies representing a broad spectrum of clean, renewable energy, energy efficiency and bioproducts stakeholders. It includes members focused on feedstock production and conversion technologies, rural economic development and diversification, biofuels, products and power, and renewable electricity production, environmental quality, and others. Coalition members are committed to seeing a strong bi-partisan energy title in the 2012 farm bill that builds on the tremendous clean energy accomplishments USDA has already realized and provides resources to USDA at a level that enables them to continue and expand this important mission.