THE USDA'S LOSING EFFORT

December 6, 2007

Most Americans probably are not aware that the U.S. Department of Agriculture (USDA) is in the lending business.  But while they represent a small fraction of overall USDA spending, the programs administered by the agency's Rural Business-Cooperative Service account for more than $1 billion annually in loan guarantees, loans and grants, says the Washington Post.

Consider:

  • In 2006 alone, the USDA backed more than $766 million in private loans to businesses, guaranteeing up to 90 percent of the face value of some loans.
  • It awarded $75 million in grants to nonprofits, local governments and businesses; including $100,000 to the agricultural giant Welch's to market grape juice in Mexico.

But in the three decades since the loan programs were created, many have doubts about their efficacy.  According to officials:

  • Funds have gone to firms that have hired foreign workers instead of Americans.
  • Millions more have gone to failing and bankrupt businesses.
  • Most of the jobs under the program are not new, and many of them are low-tech and low-wage.

Nevertheless, in congressional testimony and news releases, USDA officials stress that the loan and grant programs have helped revitalize rural America by creating or saving 1.5 million jobs since 2001.  In some cases, however, creating a single job costs hundreds of thousands of dollars.

Unfortunately for the USDA's, its documented losses are hard to ignore, says the Post. More than one in five loans -- nearly 2,700 -- result in a loss in the Business and Industry Guaranteed Loan Program, the agency's largest rural lending effort.  Yet the USDA has asked for its money back from just 19 banks for fraud or mismanagement since 1974.

Source: Gilbert M. Gaul, "The USDA's Losing Effort," Washington Post, December 5, 2007.

For text:

http://www.washingtonpost.com/wp-dyn/content/story/2007/12/04/ST2007120402047.html

 

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