The voices of Urban Institute's researchers and staff
May 25, 2017

Cuts to USDA’s Rural Development Agency are a blow to rural America

May 26, 2017

Rural communities may soon have fewer resources to meet their needs and weaker support to access those that remain. Two weeks ago, Secretary Perdue released a plan to significantly restructure USDA’s Rural Development agency, and this week, the Trump administration’s proposed 2018 budget guts the agency, eliminating almost all direct loan programs for rural businesses, utilities, and housing 

The budget sends a clear, but troubling, message to rural Americathe federal government is not needed because the private housing market can meet the needs of rural Americans. 

What do these cuts mean for housing programs serving rural America? 

With this proposed budget, the Rural Housing Service would end new construction and preservation of all rental housing for low-income households and farmworkers, except where it can leverage private-sector resources. All direct loans to construct new affordable rental housing and to preserve existing, aging properties would also be eliminated, including a program that has helped preserve almost 25,000 rental units as safe, decent, affordable housing for rural households. 

The proposed budget also eliminates direct loans to low-income homebuyers. This program generally costs the government about $61 million to provide about $900 million in loans to around 9,000 new homeowners a year who make below 80 percent of the median income for their countyThese low-interest loans with no down payment have provided more favorable terms than most government guaranteed or conventional mortgages, putting homeownership in reach of over 2 million rural households since the 1950s. 

The budget also combines four separate grant programs across USDA Rural Development, including home repair and community facilities grants from the Rural Housing Service. It does so in the name of increased flexibility (for which other programs are criticized and cut), but it then earmarks almost half of the money for the Appalachia region.  

Though Appalachia is certainly one high-need area, there are many others, including the Mississippi Delta, colonias along the US-Mexico border, persistently poor rural communities throughout the southwest, and tribal areas, all of which would have reduced access to these resources 

The unreliable private market can’t adequately fill the gap 

What remains in the proposed budget are guaranteed loan programs that rely on the private sector to make the loans while the government insures them. These cost the government less money, but they also often fail to reach lower-income households.  

Though single-family direct home loans target those earning under 80 percent of the median income (and 40 percent of the funds must target even lower-income households), guaranteed loans can assist those earning up to 115 percent of the median income. And even though the multifamily guaranteed loan program budget has been slightly expanded in this budget, it still funds a low level of production and renovation while relying on uncertain private-sector partners to provide necessary debt and equity.  

The good news is overshadowed  

In one positive element of the budget, USDA rental assistance is preserved to continue to assist 268,000 rural households with supplemental rent payments to make their rents affordable. But the reality is many more families need support. Also, the amount of funding was increased for vouchers for households to use when they lose their unit or for rental assistance as a property leaves the USDA portfolio. However, this could be a sign that the USDA expects  more properties  to leave its portfolio and become unaffordable for their current tenants 

Little evidence suggests that the private market alone can adequately address the housing needs of rural America. Instead, the administration should reinvest in an aging supply and invest in new buildings where the need for more affordable rental housing is growing in rural communities. The government should also provide important access to mortgage credit for low-income households, filling significant gaps in homeownership opportunities for rural families.

Anthony Arredondo holds a test strip to a comparison chart to show Freer Water Control and Improvement District (FWCID) Manager Diana Adame, right, that the tested water is less than one part per billion of arsenic, thanks to financial assistance of the U.S. Department of Agriculture Rural Development. Photo by Lance Cheung/USDA via Flickr Creative Commons.

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