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Wednesday, November 25, 2009
NELSON AND COLLEAGUES: FIX USDA PROPOSED RULE THAT LIMITS HELP FOR RURAL ENTREPRENEURS

November 25, 2009 – Nebraska’s Senator Ben Nelson and eight other senators have called on U.S. Agriculture Secretary Tom Vilsack to fix a proposed USDA rule that would limit effectiveness of the Rural Microenterpreneur Assistance Program and ignore the intent of Congress. In a letter to Vilsack, the senators said that the proposed rule adds costs to rural entrepreneurs, overlooks the help local non-profits can provide and imposes caps on grants reducing small business access to technical assistance.

“RMAP is an important new resource for rural America,” Senator Nelson and his colleagues wrote.  “When Congress enacted RMAP, our nation was not in an economic downturn.  Yet we are today, and for that reason, America needs speedy implementation of this program.  Traditional private-sector lenders are pulling back from providing credit to small businesses, especially from those lacking strong business plans and critical skills.

“After reviewing the proposed rule, we are concerned it does not address a number of important issues relating to our nation’s small rural communities.  The proposed rule does not reflect Congressional intent to fund organizations to train microentrepreneurs in critical business skills and provide them with technical assistance.  Furthermore, the Rule increases the cost of capital to rural microentrepreneurs beyond that contemplated in the law.”

RMAP is designed to provide technical and financial assistance, as well as capacity building, to very small businesses and sole proprietorships. Senator Nelson along with former Senator Salazar and Senator Stabenow introduced legislation to include RMAP in the Food, Conservation, and Energy Act of 2008 (Farm Bill) which authorized the program and provided it $4 million in funding for FY09 and FY10, and $3 million for FY11.  In addition, Senator Nelson secured an additional $5 million for the program in FY10; guaranteeing the program will have a total of $13 million in funding available when USDA completes its rule making process.
 
The Rural Microentrepreneur Assistance Program builds off a successful program Nelson instituted as governor. The Nebraska Microenterprise Partnership Fund, created in 1997, has provided nearly 1,046 loans - totaling $9.5 million - to Nebraska small businesses. The Center for Rural Affairs estimated that in 2006 alone the program helped create or save 7500 jobs at a cost of just $330 per job.

The November 23, 2009 letter to Vilsack was signed senators Nelson, Carl Levin, Tim Johnson, Debbie Stabenow, Jeff Merkley, Kirsten Gillibrand, Russ Feingold, Jon Tester and Max Baucus.

The letter follows:

The Honorable Thomas J. Vilsack, Secretary
U.S. Department of Agriculture
1400 Independence Avenue, S.W.
Washington, DC 20250-002

Dear Mr. Secretary:
We are writing regarding the proposed rule for the Rural Microentreprenuer Assistance Program (RMAP) issued by the U.S. Department of Agriculture (USDA) on October 7, 2009.

RMAP is an important new resource for rural America.  Small businesses make up 90% of all rural business, as more than 1 million rural businesses have 20 or fewer employees.  Small firms in rural areas need capital to finance start-up costs, as well as expansion.  The continued success of these entrepreneurs is essential to ensuring that rural communities survive.

When Congress enacted RMAP, our nation was not in an economic downturn.  Yet we are today, and for that reason, America needs speedy implementation of this program.  Traditional private-sector lenders are pulling back from providing credit to small businesses, especially from those lacking strong business plans and critical skills.

After reviewing the proposed rule, we are concerned it does not address a number of important issues relating to our nation’s small rural communities.  The proposed rule does not reflect Congressional intent to fund organizations to train microentrepreneurs in critical business skills and provide them with technical assistance.  Furthermore, the Rule increases the cost of capital to rural microentrepreneurs beyond that contemplated in the law.

Capacity Building

The proposed rule (Section 4280.310(a)(5)) limits Enhancement Grants provided under Section 379(E)(b)(4)(A) of the Food, Conservation, and Energy Act of 2008 (Farm Bill), P.L. 110 246, to organizations already operating a program for training and other enhancement services, which would ultimately result in strengthening these organizations internally.  Yet the overall purpose of this section was to develop the technical infrastructure necessary to increase the success of microentrepreneurs by offering them training in critical business skills.  This could be accomplished by building the capacity of local nonprofit organizations to provide training and technical assistance to microentrepreneurs.  The proposed rule does not contemplate this approach and should be changed to accommodate the capacity building, training, and technical assistance clearly authorized under the law.

In addition, the proposed rule caps technical assistance grants to organizations at $100,000 – despite clear legislative language allowing such grants up to 25% of outstanding loans – thereby reducing small business access to technical assistance.  By eliminating the training funds and capping technical assistance funds, the proposed rule will make it difficult for organizations to provide the services microenterprises need to succeed.

Loan Rates and Loan Loss Reserve

The Farm Bill also established a minimum interest rate of at least 1% for USDA loans (Section 379E(b)(3)(B)(ii)).  However, the proposed rule does not implement the interest rate as set out under the law.

The proposed formulation – based on the lower of 100 or 200 basis points below the five-year T bill rate – may have merit, but is not clearly explained in the rule and has the potential to raise interest rate charges to microenterprises.  In the interest of time, clarity and ease of administration, we believe USDA should follow the law and implement a loan rate set out by the Farm Bill.

As a way to protect the government’s interest, Section 379E(b)(3)(C) of the Farm Bill requires a Loan Loss Reserve Fund of “at least 5% of the outstanding balance of such loans owed by the microenterprise development organization.”  The rule requires that the Loan Loss Reserve be funded by the borrower.  The intention of Congress on this provision was to allow 5% of the USDA loan to be used for the loss reserve.  Requiring another 5% match on loan funds would limit the participation of smaller organizations, which would be counter to Congressional intent.

Thank you, Mr. Secretary, for your consideration of our concerns.  We look forward to hearing from you regarding these comments and to a speedy implementation of this important program.”

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