Rural Housing
Changing the Definition of Rural Could Improve Eligibility Determinations Gao ID: GAO-05-110 December 3, 2004Rural America has become more diverse: technology and the spread of suburbia have linked rural areas to urban areas, resulting in diminished distinctions between the two. The Rural Housing Service (RHS) applies statutory requirements for eligibility that may not reflect changes in rural areas or best determine which areas qualify for its housing programs. GAO's objectives included assessments of how eligibility is defined for RHS programs and how changes in the current eligibility requirements might impact the RHS mission of meeting rural housing needs.
RHS determines which areas will be eligible (that is, defined as rural) for its programs by applying requirements in the Housing Act of 1949, as amended. While the definition largely focuses on population--generally up to 20,000--certain communities must also be "rural in character," not part of metropolitan statistical areas (MSA--which is defined as a county or counties associated with a city or urbanized area that has a population of at least 50,000), or demonstrate a serious lack of mortgage credit for lower- and moderate-income families. Also, a "grandfather" clause allows communities with populations over 10,000 to retain eligibility if they become part of an MSA--and still meet the "rural in character" criterion and not exceed 25,000 in population. These eligibility requirements resulted in dissimilar determinations for what appeared to be similar areas. For example, in visits to five states GAO found that applying the grandfather clause enabled certain communities within MSAs to retain eligibility while other communities within the same MSAs remained ineligible even though they met current "rural" and population criteria. In addition, GAO analysis of nationwide data found that RHS made more than 1,300 communities with populations of 10,000 or below eligible that were within or contiguous to areas that had populations of 50,000 or more. GAO identified alternatives to retaining the MSA, grandfather, and credit requirements in the Housing Act of 1949. Because MSAs contain both urban and rural areas and have increased substantially in both size and number in recent decades, they may not be good determinants of urban-rural distinctions. According to the 2000 census, about half the nation's rural population lives in MSAs. An alternative measure would be to use the Census Bureau's urbanized areas and urban clusters, which are density-based measures that provide finer-scale information and could help RHS better and more consistently make eligibility determinations for areas with similar population and characteristics. By dropping the MSA requirement, "grandfathering" also could be phased out, allowing RHS to make determinations that focused on current conditions rather than prior eligibility. In addition, a 1997 USDA report found that lack of credit in rural areas was no longer a serious problem; rather, a lack of income and ability to pay the mortgage were greater issues. Therefore, the requirement to demonstrate a lack of credit no longer appears to be relevant to meeting housing needs in rural America.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-110, Rural Housing: Changing the Definition of Rural Could Improve Eligibility Determinations
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Report to the Chairman, Subcommittee on Housing and Community
Opportunity, Committee on Financial Services, House of Representatives:
December 2004:
RURAL HOUSING:
Changing the Definition of Rural Could Improve Eligibility
Determinations:
GAO-05-110:
GAO Highlights:
Highlights of GAO-05-110, a report to the Chairman, Subcommittee on
Housing and Community Opportunity, Committee on Financial Services,
House of Representatives
Why GAO Did This Study:
Rural America has become more diverse: technology and the spread of
suburbia have linked rural areas to urban areas, resulting in
diminished distinctions between the two. The Rural Housing Service
(RHS) applies statutory requirements for eligibility that may not
reflect changes in rural areas or best determine which areas qualify
for its housing programs. GAO‘s objectives included assessments of how
eligibility is defined for RHS programs and how changes in the current
eligibility requirements might impact the RHS mission of meeting rural
housing needs.
What GAO Found:
RHS determines which areas will be eligible (that is, defined as rural)
for its programs by applying requirements in the Housing Act of 1949,
as amended. While the definition largely focuses on population”
generally up to 20,000”certain communities must also be ’rural in
character,“ not part of metropolitan statistical areas (MSA”which is
defined as a county or counties associated with a city or urbanized
area that has a population of at least 50,000), or demonstrate a
serious lack of mortgage credit for lower- and moderate-income
families. Also, a ’grandfather“ clause allows communities with
populations over 10,000 to retain eligibility if they become part of an
MSA”and still meet the ’rural in character“ criterion and not exceed
25,000 in population.
These eligibility requirements resulted in dissimilar determinations
for what appeared to be similar areas. For example, in visits to five
states GAO found that applying the grandfather clause enabled certain
communities within MSAs to retain eligibility while other communities
within the same MSAs remained ineligible even though they met current
’rural“ and population criteria. In addition, GAO analysis of
nationwide data found that RHS made more than 1,300 communities with
populations of 10,000 or below eligible that were within or contiguous
to areas that had populations of 50,000 or more.
GAO identified alternatives to retaining the MSA, grandfather, and
credit requirements in the Housing Act of 1949. Because MSAs contain
both urban and rural areas and have increased substantially in both
size and number in recent decades, they may not be good determinants of
urban–rural distinctions. According to the 2000 census, about half the
nation‘s rural population lives in MSAs. An alternative measure would
be to use the Census Bureau‘s urbanized areas and urban clusters, which
are density-based measures that provide finer-scale information and
could help RHS better and more consistently make eligibility
determinations for areas with similar population and characteristics.
By dropping the MSA requirement, ’grandfathering“ also could be phased
out, allowing RHS to make determinations that focused on current
conditions rather than prior eligibility. In addition, a 1997 USDA
report found that lack of credit in rural areas was no longer a serious
problem; rather, a lack of income and ability to pay the mortgage were
greater issues. Therefore, the requirement to demonstrate a lack of
credit no longer appears to be relevant to meeting housing needs in
rural America.
What GAO Recommends:
GAO is not recommending executive action. However, to better ensure
that RHS more consistently makes eligibility determinations for rural
housing programs Congress may wish to consider (1) including density
measures, rather than the currently used MSA criterion, in the statute
to better reflect where people live; (2) phasing out the
’grandfathering“ of communities that experienced changes in eligibility
because of inclusion in an MSA; and (3) eliminating the ’lack of
credit“ requirement. The Department of Agriculture generally agreed
with GAO‘s matters for congressional consideration.
www.gao.gov/cgi-bin/getrpt?GAO-05-110.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William B. Shear at (202)
512-4325 or shearw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
While Eligibility for Rural Housing Programs Focuses on Population,
"Rural in Character" Requirement Is Open to Interpretation:
RHS Targets Areas for Its Programs through Funding, Application, and
Strategic Planning Processes:
A Majority of RHS Loans and Grants in Five States Went to Smaller
Communities, but Our Review Found Varying Interpretations of
Eligibility:
Changes to Components of the Definition of Rural Could Address
Inconsistent Treatment of Similar Communities:
Conclusions:
Matters for Congressional Consideration:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: USDA Comment Letter:
Appendix III: GAO Contacts and Staff Acknowledgements:
GAO Contacts:
Staff Acknowledgements:
Tables:
Table 1: USDA's Rural Development Programs Have Different Eligibility
Requirements:
Table 2: Communities Must Meet Different Requirements for Eligibility
Based on Their Populations:
Table 3: Fourteen Communities Designated Exempt by the Congress in the
2004 Appropriations Legislation (P.L. 108-199), with Population Levels:
Table 4: Communities by Population Range in Five States That Received
RHS Housing Loans and Grants in Fiscal Years 1998-2004:
Figures:
Figure 1: Congress Increased Population Limits:
Figure 2: MSAs and Urbanized Areas/Urban Clusters Have Different
Boundaries:
Figure 3: Road Serving As Eligible Area Boundary outside Hagerstown,
Maryland:
Figure 4: City Line of Brookside, Ohio, Divides Eligible from
Ineligible Area:
Figure 5: Belpre, Ohio, Is Part of the Parkersburg, West Virginia-Ohio,
Urbanized Area:
Figure 6: Circleville and Washington Court House Relative to Columbus,
Ohio MSA:
Figure 7: Lamont and Taft Relative to Bakersfield, California, within
the Bakersfield MSA:
Figure 8: Both South Hadley and Belchertown Have Less Densely Settled
Areas within the Springfield MSA:
Figure 9: South Hadley and Belchertown Rural Areas:
Figure 10: Only a Small Portion of Casa Grande Is Densely Populated:
Figure 11: MSAs Encompassed More Territory in 2000 Than in 1970:
Figure 12: Eliminating MSA Criterion Could Allow Circleville To Be
Considered for Eligibility:
Figure 13: Using Urban Clusters, Rural Portions of Both Belchertown and
South Hadley Could Be Eligible:
Figure 14: Population Density in and around Westminster, Maryland,
Varies:
Figure 15: Taft, California, Could Be Eligible under Density-based
Criteria:
Letter December 3, 2004:
The Honorable Robert W. Ney:
Chairman:
Subcommittee on Housing and Community Opportunity:
Committee on Financial Services:
House of Representatives:
Dear Mr. Chairman:
The federal government has provided housing assistance to eligible
residents of rural America since the 1930s. Housing assistance is still
available for such residents; however, the rural America of 2004 is
different from the rural America of the 1930s, and the population
levels and other criteria used to determine whether a community is
rural and which areas are eligible for housing assistance have
evolved.[Footnote 1] As a result of changing economic and demographic
conditions, and greater proximity to urban centers, many of the
distinctions between rural and urban life have blurred. Advances in
transportation, computer technology, and telecommunications, along
with the spread of suburbia, have linked many rural areas to urban
areas. Farming is no longer the primary economic activity of rural
areas. However, as in urban areas, the need for decent, safe, and
affordable low-income housing remains strong in rural areas.
The Housing Act of 1949 authorized new rural lending programs to
farmers, which were administered by the Rural Housing Service's (RHS)
predecessor, the Farmers Home Administration, within the U.S.
Department of Agriculture (USDA). Over the decades, Congress changed
the requirements for rural housing program eligibility--for example, by
changing population limits--and rural housing programs have evolved to
serve low-and moderate-income people of all occupations. RHS now
facilitates homeownership, develops rental housing, and promotes
community development through loan and grant programs in rural
communities. Also, the eligibility requirements in the Housing Act of
1949 have been amended. The current definition of rural considers
factors such as whether an area is contained in a standard metropolitan
statistical area (MSA), is "rural in character," and "has a serious
lack of mortgage credit for lower and moderate-income families."
[Footnote 2] Concerned about whether the current definition of "rural"
used for RHS housing programs is still appropriate, you requested that
we evaluate RHS's eligible service areas. The objectives of this report
are to assess (1) how rural is defined and implemented for RHS housing
programs; (2) how RHS targets areas for program delivery; (3) the
populations of the rural areas served by RHS housing programs; and (4)
how a change in the current definition of rural would likely impact the
RHS mission of meeting rural housing needs.
To meet these objectives, we interviewed officials from USDA, the
Department of Housing and Urban Development (HUD), the Census Bureau
(Census), and the Office of Management and Budget (OMB) for information
about housing and other community programs for rural areas and to
understand how rural is defined for these programs and how populations
are counted and classified. We also reviewed the legislative history of
the statutory definition of rural for the purposes of rural housing
programs. We analyzed population data from Census and RHS program data
from USDA to determine what areas receive RHS loans and grants, and the
effects on those areas if the eligibility boundaries were to change. To
obtain a better understanding of how rural areas vary across the
country, we conducted case study visits in Arizona, California,
Maryland, Massachusetts, and Ohio. We did not attempt to derive our own
definition of "rural," but relied on USDA, Census, and OMB criteria for
determining rural areas. Appendix I contains a full description of our
scope and methodology.
We conducted our review from January 2004 through October 2004 in
accordance with generally accepted government auditing standards.
Results in Brief:
Section 520 of the Housing Act of 1949, as amended, defines rural for
most RHS housing programs and, based on instructions promulgated by the
national office, state and local (together, field) offices, determines
the boundaries to delineate eligible areas from ineligible areas--a
task field office officials acknowledged is time-consuming, based on
judgment, and:
can be problematic.[Footnote 3] The statutory definition generally
identifies eligible rural areas as those with populations up to 20,000
and defines "rural" and "rural areas" as any open country or any place,
town, village, or city that is not part of or associated with an urban
area. Specifically, there are several population levels at which
communities may be determined eligible, but as a community's population
increases, the statute imposes additional requirements that include
being "rural in character" (a concept that is not defined in the
statute), having a serious lack of mortgage credit, or not being
located within an MSA. Certain communities with populations up to
25,000 may be "grandfathered in" based on prior eligibility if they
still met the "rural in character" and lack of credit criteria.
Additionally, specific communities are automatically eligible for RHS
funding, irrespective of their population, because they are so
identified in the statute or in annual appropriations legislation. In
implementing the statute, USDA's instructions give its field offices
flexibility in determining which communities are eligible but require a
re-evaluation of eligibility determinations every 3 to 5 years,
depending on whether or not the communities are within an MSA. USDA's
instructions also provide descriptions of "open country," which is
defined in the statute, and instructs field offices on how to consider
contiguous areas for eligibility purposes.[Footnote 4] Additionally,
while the field offices may use population as the primary factor in
determining eligibility, field office officials said that drawing the
eligibility boundaries required an element of judgment because "rural
in character" is open to interpretation--even with the overall national
guidance on the statute and review of census populations, MSA
standards, maps, aerial photographs, and visits to communities.
While Section 520 determines how communities become eligible, RHS
relies on other processes to target areas of greatest need for program
delivery: funding set asides, funding allocations, application reviews,
and state-level strategic plans. RHS has regulations, guidance, and
procedures in place to cover the programmatic requirements to target
housing resources to specific places or special needs groups. However,
in the states we visited, economic and demographic factors limited the
agency's ability to make loans, and sometimes grants, in the specified
areas or to the groups targeted. For example, Arizona state officials
told us that the lack of qualified applicants, insufficient
infrastructure, and the poor quality of the housing stock have kept RHS
from meeting its goals for the colonias (rural communities located
within 150 miles of the Mexican border that often lack basic
infrastructure) and tribal lands.
Analysis of USDA's eligibility areas and program funding data from the
five states we visited found that, from October 1998 through April
2004, RHS's housing loans and grants generally went to residents of
communities with populations at or below 10,000. About 60 percent of
the 29,000 housing loans and grants approved for these five states
during that period went to communities with populations at or below
10,000. Another 25 percent went to communities with populations of
10,001 to 20,000, and almost 15 percent went to communities with
populations over 20,000, which included higher-populated communities
that received exemptions to the eligibility requirements. Our analysis
of RHS eligible areas nationwide compared to Census data found
approximately 1,300 examples where communities with populations at or
below 10,000 were within or contiguous with urban areas that had
populations of 50,000 or more. The statute states that eligible
communities cannot be part of or associated with an urban area. Some
field staff determinations of eligibility in these cases might be
questionable as some of these communities, despite their low
populations, might not be considered rural, and thus, eligible. We also
found rural communities with populations exceeding 10,000 that were
directly impacted by the MSA restriction and the grandfather clause.
Because MSAs are county-based and may contain both urban and rural
areas, the MSA restriction and the grandfathering of certain
communities resulted in some communities being eligible while others
with similar demographic profiles were ineligible.
Changes to the way rural is defined might allow RHS to treat
communities with similar characteristics more consistently. The methods
vary from changing population limits to dropping the "lack of credit"
requirement. Decreasing population limits would reduce the number of
areas eligible for the programs, potentially allowing RHS to
concentrate services in fewer areas. In contrast, increasing population
limits would increase the number of eligible areas, but potentially
dilute RHS's ability to serve many of the rural areas that it targets.
Another alternative, which might help RHS better serve its clients, is
to eliminate the MSA requirement. As OMB pointed out, many counties
included in MSAs contain both urban and rural areas. Using an
alternative measure, such as Census's urbanized areas and urban cluster
classifications as a guide, could help RHS better draw boundaries
around rural areas because density-based measures provide finer-scale
information. Furthermore, if MSAs were removed from the eligibility
criteria, RHS officials could make determinations for more communities
based on population data and "rural" character. Additionally, eligible
communities within MSAs would not need to be "grandfathered" based on
previous eligibility, which essentially gives these communities an
advantage over similar though ineligible towns located in MSAs.
Finally, eliminating the "lack of credit" requirement would have little
or no effect on targeting of priority areas or impact RHS eligibility
determinations because eligibility for RHS programs are based on income
levels.
To improve eligibility determinations in rural housing programs, this
report contains three matters for congressional consideration. Congress
may wish to consider (1) eliminating the MSA criterion and recommending
that RHS use density measures as a basis for its eligibility decisions,
(2) phasing out the practice of "grandfathering" communities that
experienced changes in eligibility because of inclusion in an MSA, and
(3) eliminating the "lack of credit" requirement.
In commenting on a draft of this report, USDA generally agreed with our
matters for congressional consideration. USDA stated that our report
articulates how the use of MSAs has resulted in disparate treatment of
some communities. USDA stated that applying a density-based measure may
have merit but that further study is needed to properly define such a
measure for nationwide application. We concur with this position. In
addition, the agency anticipates that the "lack of credit requirement"
could be removed with no detriment to RHS housing programs.
Background:
Federal housing assistance in rural America dates back to the 1930s
when most residents of rural areas worked on farms, and rural areas
were generally poorer than urban areas. Subsequently, Congress
authorized separate housing assistance for rural areas and gave USDA
responsibility for administering it. Rural housing programs are now
part of USDA's rural development mission area and RHS is responsible
for rural housing and community facilities programs.[Footnote 5]
Congress Has Changed the Definition of Rural to Reflect Population
Changes:
When the Housing Act of 1949 authorized rural lending programs in USDA,
eligibility was limited to persons who lived in dwellings on land
capable of producing at least $400 worth of agricultural products
annually. In 1962, Congress expanded eligibility to include low-income
elderly people living in rural areas. In 1965, Congress first defined
"rural" and "rural areas" for the purpose of rural housing program
eligibility as communities with populations below 2,500 or from 2,500
but not over 5,500 and "rural in character." Congress expanded the
eligibility categories and population limits for rural housing programs
several more times and imposed additional requirements.[Footnote 6] In
1970, Congress increased the population threshold to 10,000 as long as
the community was "rural in character." Then, in 1974, Congress
increased the population limit to 20,000 but stipulated that
communities with populations from 10,001 to 20,000 could not be within
an MSA and had to have a serious lack of mortgage credit for their
lower-and moderate-income families. In 1983, Congress modified the
statute by permitting communities to retain eligibility even though
they had become part of an MSA. Congress has updated this "grandfather"
clause several times to take into account updated census data. Figure 1
provides a timeline of changes to population limits and other
eligibility requirements.
Figure 1: Congress Increased Population Limits:
[See PDF for image]
[End of figure]
RHS Offers a Wide Array of Housing Services:
RHS helps low-to moderate-income residents (including the elderly and
farm laborers) of rural communities by providing loans and grants for
single-family homes and apartments. Eligible rural residents may obtain
direct or guaranteed loans to purchase single-family homes.[Footnote 7]
Additionally, RHS offers a housing preservation grant program, which
provides grants to sponsoring organizations for the repair or
rehabilitation of low-and very low-income housing. Very low-and low-
income rural residents can also participate in a program in which they
help in the construction of their homes in order to reduce their cost
of ownership. While many RHS programs promote homeownership in eligible
rural areas, RHS rental assistance programs also are available to a
variety of populations. Direct or guaranteed loans also are available
for the purchase or development of affordable rural rental housing for
low-income people, the elderly, persons with disabilities, and farm
laborers. Finally, RHS also offers rental assistance for eligible
households with incomes too low to pay the RHS subsidized rent from
their own resources.
From October 1, 1998, through September 30, 2004, RHS issued more than
434,000 direct and guaranteed housing loans and grants valued at $28.7
billion.[Footnote 8] All of these housing programs, with the exception
of the farm labor housing programs, are required to follow the
statutory definition of rural--as stated in Section 520 of the Housing
Act of 1949, as amended--to determine which communities are eligible.
Housing funded by the farm labor programs can be built anywhere in the
country as long as it is intended for farm laborers.
Definition of Eligible Area for RHS Housing Programs Differs from Other
USDA Rural Development Programs:
USDA's rural development mission area administers a number of related
community and business development programs that have eligibility
requirements that differ from RHS's. Most of the other definitions,
also statutorily imposed, cover areas with population limits ranging
from less than 2,500 to 50,000. Table 1 summarizes key rural
development programs and lists population and other requirements used
for determining eligibility.
Table 1: USDA's Rural Development Programs Have Different Eligibility
Requirements:
Rural Development Agency: Rural Housing Service (RHS);
Rural Development Program: RHS Single-family Direct and Guaranteed
Loans, Single-family;
Home Repair Grants, Multifamily Housing, Self Help Housing Technical
Assistance, Housing Preservation Grants, and Rural Rental Housing;
Area Eligibility Requirements: Area with a population of 10,000 or
below and rural in character. If not contained in a metropolitan
statistical area (MSA) and has a serious lack of mortgage credit with a
population in excess of 10,000 but not in excess of 20,000. If
classified as rural prior to Oct. 1, 1990, even if in an MSA, and (1)
has a population in excess of 10,000 but not in excess of 25,000 and
(2) is rural in character. This designation to remain in effect until
receipt of 2010 census data.
Rural Development Agency: RHS;
Rural Development Program: Farm Labor Housing Loans and Grants;
Area Eligibility Requirements: There are no geographical or population
limitations.
Rural Development Agency: RHS;
Rural Development Program: Rental Assistance Payments and Rural Housing
Site Loans;
Area Eligibility Requirements: With the exception of farm labor units
and developing sites for farm labor housing, rural areas are as defined
in the first box above.
Rural Development Agency: RHS;
Rural Development Program: Community Facilities Direct and Guaranteed
Loans and Grants;
Area Eligibility Requirements: Towns with populations up to 20,000
people.
Rural Development Agency: Rural Business-Cooperative Services (RBS);
Rural Development Program: Business and Industry Direct and Guaranteed
Loans, Rural Business Enterprise Grants, Rural Business Opportunity
Grants, and Section 9006 Renewable Energy Systems and Energy Efficiency
Program;
Area Eligibility Requirements: Any areas other than (1) a city or town
with a population greater than 50,000, and (2) the urbanized area
contiguous and adjacent to such a city or town.
Rural Development Agency: RBS;
Rural Development Program: Rural Cooperative Development Grants;
Area Eligibility Requirements: Any areas other than (1) a city or town
with a population greater than 50,000, and (2) the urbanized area
contiguous and adjacent to such a city or town.
Rural Development Agency: RBS;
Rural Development Program: Rural Economic Development Loans and
Grants;
Area Eligibility Requirements: Area with a population of 2,500 or
below.
Rural Development Agency: RBS;
Rural Development Program: Intermediary Relending Program;
Area Eligibility Requirements: All areas of a state not within the
outer boundary of any city with a population of 25,000 or more,
according to the last census.
Rural Development Agency: Rural Utilities Services (RUS);
Rural Development Program: Electric Loans;
Area Eligibility Requirements: Any area with a population up to 2,500.
Once an area or town has a loan, that area will always be eligible for
subsequent loans.
Rural Development Agency: RUS;
Rural Development Program: Telecommunications Infrastructure Loans;
Area Eligibility Requirements: Area with a population of 5,000 or
below.
Rural Development Agency: RUS;
Rural Development Program: Distance Learning and Telemedicine Loans and
Grants;
Area Eligibility Requirements: Area with a population of 20,000 or
below.
Rural Development Agency: RUS;
Rural Development Program: Rural Broadband Loans and Guarantees;
Area Eligibility Requirements: Area with a population of 20,000 or
below and not located in a standard MSA.
Rural Development Agency: Water and Environmental Programs (WEP);
Rural Development Program: Water and Waste Disposal Loans, Grants, and
Guarantees, Emergency Community Water Assistance Grants, Empowerment
Zones/Enterprise Communities, Rural Economic Area Partnership, Colonias
Grants, Native American Grants, Alaskan Villages Grants, Solid Waste
Management Grants, and;
Technical Assistance and Training Grants;
Area Eligibility Requirements: Area with a population of 10,000 or
below.
Source: USDA.
[End of table]
OMB and Census Provide Geographic Area Classifications:
For the past 50 years, OMB, in consultation with Census and other
experts inside and outside government, has defined MSAs to provide
consistency in collecting, tabulating, and publishing federal
statistics for geographic areas in the United States.[Footnote 9] An
MSA is a statistical entity consisting of a county or counties
associated with a core urbanized area of 50,000 or more people. MSAs
are not intended to be urban-rural classifications, and MSAs can
contain both urban and rural areas. OMB states that MSAs may not be
suitable for use in program funding formulas and cautions against using
them for nonstatistical purposes.
OMB uses Census's "urbanized areas" and "urban clusters" to help define
MSAs and micropolitan statistical areas.[Footnote 10] Urbanized areas
and urban clusters are statistical areas that do not necessarily follow
political boundaries. An urbanized area is a continuously built-up area
with a population of at least 50,000, comprising one or more places and
adjacent densely settled areas. An urban cluster consists of densely
settled territory that has at least 2,500 people but fewer than 50,000
people, a definition which encompasses a variety of communities, some
of which are eligible for rural housing and development programs.
Collectively, urbanized areas and urban clusters are referred to as
urban areas.
Census defines "rural area" by exclusion; that is, it views all areas
that it did not already identify as urbanized areas or urban clusters
as "rural." Using this Census definition, based on the 2000 census, 59
million Americans (or 20 percent of the population) reside in rural
areas, with slightly more than half of them residing within MSAs.
Figure 2 shows MSAs and urbanized areas/urban clusters, using data
derived from the 2000 census.
Figure 2: MSAs and Urbanized Areas/Urban Clusters Have Different
Boundaries:
[See PDF for image]
[End of figure]
While Eligibility for Rural Housing Programs Focuses on Population,
"Rural in Character" Requirement Is Open to Interpretation:
The Housing Act of 1949, as amended, defines rural for most RHS housing
programs largely based on population limits but also includes other
criteria such as being "rural in character," not being part of an MSA,
and having a serious lack of mortgage credit for lower-and moderate-
income families. Additionally, Congress has exempted certain
communities from complying with the eligibility requirements and, in
its annual appropriations, designated the communities that are eligible
for rural housing programs without having to meet the usual eligibility
requirements. A USDA handbook provides guidance to state field office
staff on implementing the definition. However, because "rural in
character" is open to interpretation, RHS field officials acknowledged
that determinations are based on judgment and can be problematic.
The Housing Act of 1949, as Amended, Defines Eligibility along
Population Thresholds:
While the Housing Act of 1949, as amended, generally identifies
eligible rural communities as areas not part of or associated with
urban areas and having populations of 20,000 or below, it appends other
requirements to areas with populations above 2,500. Communities with
populations from 2,501 to 10,000 also must be "rural in character."
Communities with populations from 10,001 to 20,000 are not required to
show that they are "rural in character" but they cannot be within MSAs
and must have a serious lack of mortgage credit for lower-and moderate-
income families.
Additionally, the statute's "grandfather" clause allows communities
that have experienced population growth or inclusion within an
expanding MSA to remain eligible for RHS programs (see table 2). The
clause enables communities to remain eligible if they meet the
following criteria:
* Were classified as "rural" before October 1, 1990, but determined not
to be "rural" as a result of data received from or after the 1990 or
2000 censuses,[Footnote 11]
* Can demonstrate that they are still "rural in character,"
* Have a serious lack of mortgage credit for lower-and moderate-income
residents,[Footnote 12] and:
* Have a current population in excess of 10,000 but not in excess of
25,000.
Table 2: Communities Must Meet Different Requirements for Eligibility
Based on Their Populations:
Eligibility by population: 2,500 or fewer residents;
"Rural" or "rural area" equates to open country or any place, town,
village, or city which is not part of or associated with an urban area:
Yes;
’Rural in character“: No;
Not within a standard MSA: No;
Has serious lack of mortgage credit for lower-and moderate-income
families: No.
Eligibility by population: 2,501 to 10,000;
"Rural" or "rural area" equates to open country or any place, town,
village, or city which is not part of or associated with an urban area:
Yes;
’Rural in character“: Yes;
Not within a standard MSA: No;
Has serious lack of mortgage credit for lower-and moderate-income
families: No.
Eligibility by population: 10,001 to 20,000;
"Rural" or "rural area" equates to open country or any place, town,
village, or city which is not part of or associated with an urban area:
Yes;
’Rural in character“: No;
Not within a standard MSA: Yes;
Has serious lack of mortgage credit for lower-and moderate-income
families: Yes.
Eligibility by population: Current grandfather clause: community with
population from 10,001 to 25,000, was classified as "rural" or "rural
area" before Oct. 1, 1990, but determined not "rural" or "rural area"
from or after the 1990 or 2000 censuses; eligible until 2010 census;
"Rural" or "rural area" equates to open country or any place, town,
village, or city which is not part of or associated with an urban area:
No;
’Rural in character“: Yes;
Not within a standard MSA: No;
Has serious lack of mortgage credit for lower-and moderate-income
families: Yes.
Source: GAO analysis of Section 520 of the Housing Act of 1949.
Note: Since the 1990 census, OMB has not used the term "standard MSA."
[End of table]
Exemptions to the Eligibility Requirements Found in Statute and Annual
Appropriations Legislation:
A number of communities are exempt from meeting the population
requirements of the Housing Act of 1949, as amended. The act made
Pajaro, California, Guadalupe, Arizona, and Plainview, Texas,
permanently eligible. Altus, Oklahoma, is eligible until receipt of
data from the 2010 census. In addition, in annual appropriations
legislation over the past several years, Congress has designated other
communities as meeting the eligibility requirements. These
congressional designations typically are valid for one fiscal year.
However, some communities, such as Casa Grande, Arizona, have been
congressionally designated for several years (see table 3).
Table 3: Fourteen Communities Designated Exempt by the Congress in the
2004 Appropriations Legislation (P.L. 108-199), with Population Levels:
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Lawrence County, Ohio;
Population, Based on 2000 Census: 62,319.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Havelock, North Carolina;
Population, Based on 2000 Census: 22,442.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Portsmouth, Ohio;
Population, Based on 2000 Census: 20,909.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Binghamton, New York;
Population, Based on 2000 Census: 47,380.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Vestal, New York;
Population, Based on 2000 Census: 26,535.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Ithaca, New York;
Population, Based on 2000 Census: 29,287.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Casa Grande, Arizona;
Population, Based on 2000 Census: 25,224.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Clarksdale, Mississippi;
Population, Based on 2000 Census: 20,645.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Coachella, California;
Population, Based on 2000 Census: 22,724.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Salinas, California;
Population, Based on 2000 Census: 151,060.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Watsonville, California;
Population, Based on 2000 Census: 44,265.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Hollister, California;
Population, Based on 2000 Census: 34,413.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Carolina, Puerto Rico;
Population, Based on 2000 Census: 168,164.
Community Designated in the FY 2004 Appropriations Legislation
(P.L. 108-199): Kinston, North Carolina;
Population, Based on 2000 Census: 23,688.
Source: P.L. 108-199 and 2000 census data.
[End of table]
Handbook Provides Guidance to Field Staff on Implementing Definition:
USDA's handbook, HB-1-3550, contains implementing guidance to help RHS
field staff designate eligible areas, and defines the flexibility field
offices have in implementing RHS housing programs. The handbook
provides information on assessing open country, population, and
contiguous areas, but is silent on what "rural in character" means. For
instance, open country includes areas that are "not part of or
associated with an urban area" and "separated by open space from any
adjacent densely populated urban area." Open space could include
undeveloped land or agricultural land, but not rivers, parks, or
commercial developments. The handbook also specifies that population
figures used by field staff must come from Census. Additionally, it
instructs that two or more communities "that are contiguous may be
considered separately for a rural designation if they are not otherwise
associated with each other, and their densely settled areas are not
contiguous." As previously noted, the handbook also states that there
is a serious lack of mortgage credit throughout rural America and thus
agency officials do not need to make this statutorily required
determination for areas they have already defined as rural.
The national office leaves it up to the field offices to determine
which areas are eligible in the states for which they are responsible.
In addition to applying the national guidance on open country,
population, and contiguous areas, field staff must ensure that any site
eligible for a rural housing loan or grant must:
* be "modest,"
* meet minimum standards regarding water and wastewater systems, and:
* meet street and access requirements, such as having direct access to
a maintained hard-surfaced road.
Field offices are required to review all areas under their jurisdiction
every 3-5 years to identify areas that no longer qualify as rural. More
specifically, for eligible communities within MSAs and in areas of
rapid growth, field offices are required to make the review every 3
years. Field staff may review current maps and aerial photographs, tap
local staff knowledge of the area, and drive through the communities to
determine where to draw the eligibility boundaries. Eligibility maps
are supposed to be updated after every review.
Determining What Is "Rural in Character" and Drawing Eligibility
Boundaries Require Element of Judgment:
According to RHS headquarters officials, rural America is diverse and
the concept of "rural in character" is broad and will vary by state and
circumstance. Senior headquarters officials told us that, given diverse
geography and settlement patterns in rural areas across the country and
the intent to implement RHS programs at the state and local level, they
depend on the knowledge of field staff in making eligibility
determinations. In fact, they expect rural to be interpreted
differently across the states. The national office also defers to the
field offices in determining what densely settled areas are and the
extent to which areas are contiguous with each other.
While the handbook does not specifically address what "rural in
character" means, field staff use the other components of the handbook
to help determine "rural in character" for their jurisdictions. Field
staff told us that drawing the eligibility boundaries required an
element of judgment because "rural in character" was open to
interpretation--even with the national explanations of "open country"
and "contiguous areas" and review of census populations, MSA standards,
maps, aerial photographs, and visits to the boundaries. In December
2002, the national office provided guidance on features that could be
used as boundaries, including streets, highways, streams, lakes,
railroads, and political boundaries, and requested that the field
offices redraw all boundaries in order to allow headquarters to create
an automated mapping system for the public to determine whether a
property was within an eligible area. Even with this guidance,
delineating eligible areas from ineligible areas is a task field staff
acknowledged is time-consuming, requires judgment, and can be
problematic. For example, one local office official told us that he
believes that "drive-through" visits to boundary areas largely are
subjective. Another senior field office official told us that making
adjustments to eligible areas is not an exact science. The official
believed that local supervisors have the best knowledge of local
conditions and the rural character of the areas and he trusted the
local supervisor's judgments in recommending boundary line changes.
However, even when local supervisors fully understand the local
conditions and rural character of an area, finding a way to equitably
decide on a boundary line sometimes becomes problematic. For instance,
field staff in Maryland told us that in response to the December 2002
national guidance, they chose to no longer use natural boundaries such
as rivers or mountains as eligibility boundaries for Maryland
communities. Maryland now only uses roads as boundaries. Figure 3 shows
a new boundary, a road outside Hagerstown, Maryland, that divides the
eligible area on the left from the ineligible area on the right. RHS
local office officials told us that the "road only" criteria forced
them to find the nearest public road to a populated section of
Hagerstown, which happens to go through farmland. The result is that
apparently similar rural areas received different designations.
Figure 3: Road Serving As Eligible Area Boundary outside Hagerstown,
Maryland:
[See PDF for image]
[End of figure]
Figure 4 shows an area near the city line in Brookside, Ohio, where the
city line divides the eligible from the ineligible area. While the
Maryland example shows that two parts of a road through farmland
received different designations, the Brookside example shows that using
a political boundary also does not necessarily equate to a readily
discernible urban-rural difference.
Figure 4: City Line of Brookside, Ohio, Divides Eligible from
Ineligible Area:
[See PDF for image]
[End of figure]
RHS Targets Areas for Its Programs through Funding, Application, and
Strategic Planning Processes:
RHS determines eligible areas by following requirements of the Housing
Act of 1949, as amended, but relies on other processes to target areas
for program delivery: funding set asides and reserves, funding
allocations, application reviews, and state-level strategic plans. RHS
has regulations, guidance, and procedures in place to ensure that it
meets programmatic requirements to target housing resources to specific
places or groups, and low-and moderate-income residents of rural areas
in general. However, in the states we visited, economic and demographic
factors limited RHS's ability to make loans in the specific areas or to
the groups targeted.
RHS Targets Low-and Moderate-Income Areas with the Greatest Housing
Needs:
Although RHS must respond to statutory, regulatory, and other
procedural requirements to make its loans and grants in certain areas,
it also uses planning procedures to further direct funds to areas of
greatest need--rural areas with low-and moderate-income populations
that lack decent, safe, and affordable housing. Funds are targeted
through set asides, allocations, application reviews, and state-level
strategic plans.
* RHS national and state offices are required to set aside funds to
ensure that single-family and multifamily programs serve specific
populations or rural areas. Areas targeted by set-asides are generally
underserved, and have low-and moderate-income residents who lack
decent, safe, and affordable housing. For instance, Section 509(f) of
the Housing Act of 1949, as amended, requires set asides in RHS's
single-family direct (Section 502) as well as single-family housing
repair loans and grants (Section 504) and multifamily rural rental
housing (Section 515) programs for the top 100 underserved counties and
colonias. Funds are also reserved and earmarked in RHS's single-and
multifamily housing programs at both national and state levels for many
targeted groups such as homeless applicants, or for specific areas such
as empowerment zones, or purposes such as self-help housing.[Footnote
13]
* The RHS national office annually targets remaining funds that have
not been set aside or reserved to states. Using a formula, RHS weights
the allocations toward states with areas that have higher percentages
of substandard housing and lower-income populations. States may be
directed or given the option to suballocate funds to district or county
offices. When performing a suballocation, states must use the same
allocation formula used by the national office.
* Once states receive funding, they approve applications annually for
single-family and multifamily housing loans and grants in the state.
While requirements differ slightly depending on the program, applicants
must meet very low-to moderate-income requirements. Further, properties
purchased by all applicants must be in eligible rural areas as
determined by the statutory definition.
* States also are required to develop strategic plans under the Federal
Agricultural Improvement and Reform Act of 1996 (P.L. 104-127). Unlike
other targeting methods, which occur annually, state strategic planning
is done on a 5-year cycle. These plans target program resources towards
areas with greatest housing needs. The act stipulates that USDA must
give priority to communities with the smallest populations and lowest
per capita income. State plans that we reviewed generally used census
or other economic data to assess and identify counties with poor
housing conditions, high vacancy rates, and high concentrations of low-
and moderate-income populations. Critical housing needs are identified
through surveys, forums, or interviews with interest groups.
Economic and Demographic Factors Often Limit Ability to Deliver
Products to Areas with Greatest Housing Need:
Although many funding directives are built into the system and RHS
prioritizes program activity, other factors may determine whether RHS
can actually make loans or grants in desired areas. In the five states
we visited, we found that the states had difficulty making loans in
areas targeted in their strategic plans as having the greatest housing
needs. For instance,
* Ohio targets its Appalachian region because it is home to some of the
lowest-income and highest-poverty areas in the state. However, state
officials explained that they have difficulty closing loans in this
region because of issues related to road systems, sparse populations,
high unemployment, unusable housing stock, and geography. For example,
industry officials told us that they would not consider building in
many of the communities along the Ohio River floodplain due to higher
insurance costs.
* Arizona's strategic plan targets colonias, tribal lands, La Paz
County on the California border, and Pinal County between Phoenix and
Tucson. However, RHS local officials said that they have difficulty
meeting their targets in these areas, and that foreclosure rates in
these areas are often higher because they are dealing with low-income
populations that have poor credit and other money management
challenges. For example, Arizona field office officials told us that
they have had problems serving the less-populated areas in the colonias
and Indian tribal lands due to the lack of qualified applicants,
insufficient infrastructure such as roads, and the poor quality of the
existing housing stock that could potentially be purchased.
* California's strategic plan prioritizes and ranks counties based on a
number of factors including most severe housing condition, incomes, and
housing vacancy rates. Loan and grant delivery to tribal lands and the
colonias is a priority. However, according to field office officials,
outreach efforts on tribal lands and the colonias have not been as
successful as desired.
* Massachusetts officials described a different scenario. The average
sales price of homes in the state often precludes many applicants from
finding an affordable house. Massachusetts officials said that the
problem exists even though applicants in the Section 502 single-family
guaranteed housing program can qualify at 115 percent of an area's
median income. As a result, in 1999-2003, Massachusetts did not use its
total allocation for both single-family direct program loans in 3 of
the 5 years and its guaranteed program in 4 of the 5 years.
A Majority of RHS Loans and Grants in Five States Went to Smaller
Communities, but Our Review Found Varying Interpretations of
Eligibility:
Our analysis of USDA's eligibility areas and program funding data in
the five states we visited shows that a majority of RHS loans and
grants went to residents of communities with populations of 10,000 or
below, while communities with higher populations received
correspondingly fewer loans and grants. Additionally, we found
variations in how RHS interpreted and applied the eligibility
requirements, which can be partly explained by demographic differences
in the rural areas of the states we visited and partly by differing
interpretations or judgments as to what is "rural in character" by
field offices. As a result, the application of the "rural in character"
finding in some eligible areas was open to question. We also found
that, as the population of a community increased, the application of
the "rural" criterion became less clear. Finally, we found that the
application of the statute's grandfather clause resulted in similar
communities receiving different determinations for eligibility.
More Than Half of RHS Loans and Grants Went to Communities with
Populations of 10,000 or Below:
For the five states we visited, 16,930, or about 58 percent, of the
almost 29,000 RHS housing loans and grants funded between fiscal years
1998 and 2004 were made in communities with populations of 10,000 or
below. The 29,000 loans and grants were made under RHS's major
programs, including single-family and multifamily direct and guaranteed
housing programs. As shown in Table 4, the majority of loans and grants
issued in the different housing programs went to communities with
populations at or below 10,000 and successively smaller percentages of
loans and grants for each program were made to communities in the
higher population tiers. RHS also provided 7,277 loans and grants, or
about 25 percent, to communities with populations ranging from 10,001
to 20,000. RHS funded an additional 15 percent of the loans and grants
to communities with populations over 20,000, including some with
populations over 25,000 that had received exemptions.
Table 4: Communities by Population Range in Five States That Received
RHS Housing Loans and Grants in Fiscal Years 1998-2004:
Population: 10,000 and below;
Single-family Direct Loans and Grants: 10,222;
Percent of Total: 57.2%;
Single-family Guaranteed Loan: 6,524;
Percent of Total: 60.4%;
Multifamily Direct and Guaranteed Loans: 184;
Percent of Total: 55.3%;
Total of All Programs: 16,930;
Percent of All Programs: 58.4%.
Population: 10,001 to 20,000;
Single-family Direct Loans and Grants: 4,751;
Percent of Total: 26.6%;
Single-family Guaranteed Loan: 2,450;
Percent of Total: 22.7%;
Multifamily Direct and Guaranteed Loans: 76;
Percent of Total: 22.8%;
Total of All Programs: 7,277;
Percent of All Programs: 25.1%.
Population: 20,001 to 25,000;
Single-family Direct Loans and Grants: 1,337;
Percent of Total: 7.5%;
Single-family Guaranteed Loan: 931;
Percent of Total: 8.6%;
Multifamily Direct and Guaranteed Loans: 26;
Percent of Total: 7.8%;
Total of All Programs: 2,294;
Percent of All Programs: 7.9%.
Population: Greater than 25,000;
Single-family Direct Loans and Grants: 1,195;
Percent of Total: 6.7%;
Single-family Guaranteed Loan: 843;
Percent of Total: 7.8%;
Multifamily Direct and Guaranteed Loans: 35;
Percent of Total: 10.5%;
Total of All Programs: 2,073;
Percent of All Programs: 7.2%.
Population: Not available;
Single-family Direct Loans and Grants: 358;
Percent of Total: 2.0%;
Single-family Guaranteed Loan: 49;
Percent of Total: 0.5%;
Multifamily Direct and Guaranteed Loans: 12;
Percent of Total: 3.6%;
Total of All Programs: 419;
Percent of All Programs: 1.4%.
Population: Totals;
Single-family Direct Loans and Grants: 17,863;
Percent of Total: 62%;
Single-family Guaranteed Loan: 10,797;
Percent of Total: 37%;
Multifamily Direct and Guaranteed Loans: 333;
Percent of Total: 1%;
Total of All Programs: 28,993;
Percent of All Programs: 100%.
Source: GAO Analysis of RHS Data.
Note: Data as of April 30, 2004.
[End of table]
Some Eligibility Determinations in Communities with Populations at or
below 10,000 Are Open to Question:
During our site visits and through our analysis of RHS eligibility
areas nationwide, we identified communities with populations at or
below 10,000 that were contiguous to ineligible, higher-population
communities, but that field offices determined to be eligible for RHS
housing programs. The statute says that communities considered for
eligibility cannot be part of or associated with an urban area and that
those with populations from 2,501 to 10,000 residents must be "rural in
character." As a result, it is not clear why all of these communities
were considered eligible by the field staff.
For example, field staff told us that Belpre, Ohio, an economically
depressed Appalachian community, is eligible for RHS programs because
it meets both the population and "rural in character" requirements.
However, Belpre is contiguous to Parkersburg, West Virginia, which has
a population of more than 33,000.[Footnote 14] In addition, the 2000
census considers Belpre, Ohio, along with Parkersburg and Vienna, West
Virginia, as part of an urbanized area because its total population is
over 50,000. Although it is across the Ohio River from Parkersburg,
bridges have connected Belpre and Parkersburg for decades. According to
a Belpre city employee, many people from Belpre work in Parkersburg
because there are more jobs there. Furthermore, most of Belpre has a
population density of 1,000 people or more per square mile, which
Census uses to determine urban areas. For these reasons, it is unclear
whether Belpre meets the eligibility requirements. Figure 5 shows
Belpre, Ohio, in relation to Parkersburg and Vienna, West Virginia, as
well as area density levels by census tract.[Footnote 15]
Figure 5: Belpre, Ohio, Is Part of the Parkersburg, West Virginia-Ohio,
Urbanized Area:
[See PDF for image]
[End of figure]
In addition to the case noted above, our analysis of RHS eligibility
areas nationwide found about 1,300 eligible communities with a
population of 10,000 or below that are either within an urban area or
contiguous with an urban area of 50,000 or more residents. Almost half
these communities have populations of 2,501 to 10,000, even though
Section 520 states that eligible communities at this population tier
should "not be part of or associated with an urban area" and must be
"rural in character." The remaining communities that are at or below
2,500 in population are not required to be "rural in character," but
are required to "not to be part of or associated with an urban area."
The approximately 1,300 communities represent 6 percent of the
communities with population of 10,000 or fewer nationwide.
MSA and Grandfathering Provisions Affect Eligibility of Rural
Communities:
During our visits, we also identified communities made eligible through
the grandfather clause and other communities that were ineligible
because of the MSA restriction in Section 520, even though these
communities had similar demographic profiles. As discussed previously,
the statute governing eligibility for RHS housing programs states that
communities with populations from 10,001 to 20,000 are not eligible if
they are within an MSA. In contrast, other communities with populations
from 10,001 to 25,000 could still be eligible even if they are within
an MSA because the statute allowed some communities to be
"grandfathered in" if they were eligible prior to October 1, 1990, and
still met the "rural in character" and lack of mortgage credit
requirements. The following four examples illustrate these effects:
Circleville and Washington Court House, Ohio:
Both Circleville and Washington Court House, Ohio, are located in the
general vicinity of Columbus, the state capital. Based on the 2000
census, both communities had populations of about 13,500 and were about
the same size--about 6.5 square miles. However, Circleville, which is
part of the Columbus MSA, is not eligible while Washington Court House,
which is just outside the Columbus MSA, is eligible. Because
Circleville is in an MSA and was not eligible prior to October 1990, it
remains ineligible regardless of its current population and whether or
not it is "rural in character" (see fig. 6).
Figure 6: Circleville and Washington Court House Relative to Columbus,
Ohio MSA:
[See PDF for image]
[End of figure]
Lamont and Taft, California:
We identified two communities in the Bakersfield, California, area
that, according to field office officials, had similar demographics.
Both of these communities are in Kern County and the county's borders
have defined the Bakersfield MSA since 1960. However, Lamont is
eligible and Taft is not. Lamont has just over 13,000 residents and is
about 14 miles from downtown Bakersfield. According to a state office
official, Lamont was grandfathered because it was eligible prior to
1980 while the Taft area was not. But the Taft area, which now has a
population of about 13,700 residents in four contiguous areas, is more
isolated and is located about 37 miles from downtown Bakersfield (see
fig. 7).[Footnote 16] Field office officials believe that their housing
programs would benefit Taft, an economically depressed area as
evidenced by its slow growth since 1980. They asked the national office
to allow Taft to receive RHS funding. However, a field office official
told us that the national office denied the petition stating that they
had to follow the statute regarding eligibility determinations and
could not make exceptions.
Figure 7: Lamont and Taft Relative to Bakersfield, California, within
the Bakersfield MSA:
[See PDF for image]
[End of figure]
The grandfather clause also directly affected the eligibility status of
two communities in Massachusetts that are adjacent to each other. Both
Belchertown and South Hadley are in the Springfield MSA. While both
towns have areas that could be considered "rural" and current
populations are in excess of 10,000 but not over 20,000, Belchertown
was grandfathered based on previous eligibility. In contrast, South
Hadley was never eligible because its population was over 10,000 and it
was already part of the Springfield MSA when grandfathering first
began. (see fig. 8).
Figure 8: Both South Hadley and Belchertown Have Less Densely Settled
Areas within the Springfield MSA:
[See PDF for image]
Note: Population density is shown only for South Hadley and
Belchertown.
[End of figure]
Figure 9: South Hadley and Belchertown Rural Areas:
[See PDF for image]
[End of figure]
Casa Grande, Arizona:
Casa Grande, Arizona, is located between Phoenix and Tucson and became
part of the Phoenix-Mesa MSA in 1993. Its eligibility for RHS housing
programs was grandfathered after its population increased above 20,000
(the grandfather clause allowed eligibility to already eligible towns
with populations up to 25,000). However, the 2000 census found that
Casa Grande's population had increased slightly over the 25,000 limit.
As a result, Casa Grande received a congressional exemption for each of
the last 3 fiscal years (2002-2004) to allow it to remain eligible for
RHS programs. A Casa Grande housing official told us that the
population increase was, in part, attributable to the success they have
had in adding over 300 homes and 1,500 residents to the area through
the self-help housing program. Additionally, Casa Grande covers about
48 square miles, and only one of its nine census tracts has a density
of more than 500 people per square mile (see fig. 10). As noted
previously, Census uses density as a measure of urbanization.
Figure 10: Only a Small Portion of Casa Grande Is Densely Populated:
[See PDF for image]
[End of figure]
Changes to Components of the Definition of Rural Could Address
Inconsistent Treatment of Similar Communities:
Changes to eligibility requirements in the definition of rural--whether
focused on population, the grandfather clause, or lack of credit
requirements--could affect whom and where RHS serves. An option that
would involve only changing the population limits in the definition of
rural would impact the number of eligible communities, but without
additional resources, the major change would be a shift in where
resources are spent. However, population limits alone do not determine
whether communities in currently eligible areas are "rural in
character" and "not part of or associated with urban areas."
Consequently, we explore three options that could allow RHS to better
determine eligibility: (1) using density measures that better reflect
where people live rather than county-based MSA criteria, (2)
discontinuing the "grandfathering" of communities, and (3) eliminating
the lack of credit requirement.
Eliminating MSAs and Using Density-based Measures Could Better Reflect
Population Patterns:
Changing the population limits in the definition of rural would impact
the number of eligible communities. For instance, if eligibility were
kept to communities with populations at or below 10,000, RHS might be
able to concentrate services in fewer eligible areas, potentially
making loans or grants to more applicants in low-population
communities. In contrast, increasing the population limit to 50,000,
the upper limit for some of the other USDA rural development programs,
could potentially affect RHS's ability to serve both existing and newly
added eligible areas by increasing the size of the potential applicant
pool. Without additional resources, RHS would have to shift available
resources to provide some service in all the added areas. However,
population limits alone do not address whether communities in currently
eligible areas are "rural in character" and "not part of or associated
with urban areas." As a result, we explored options that focused on
arriving at a better analysis of population patterns and eliminating
requirements that are not key to a determination of rural.
If the definition were changed to delete the MSA requirement and allow
the use of a density-based measure such as urbanized areas and urban
clusters to help make eligibility determinations, RHS would have better
information on which to base its decisions. We believe that the MSA
requirement is not a key element in identifying a rural community.
According to OMB, MSAs do not equate to an urban-rural classification
and counties included in MSAs may contain both urban and rural
territory. In addition, 2000 Census data show that 13 percent of the
population of counties currently in MSAs lived in rural areas and that
these rural residents living within MSAs included more than half the
population that the Census defined as rural. Also, updates and changes
that OMB makes to MSAs can result in changes to eligible rural areas
that are outside of RHS's control and may or may not support RHS's
mission of serving rural areas and residents. In addition, the number
of MSAs has increased since 1974 (when Congress increased the rural
housing programs' population eligibility limit from 10,000 to 20,000
for communities outside of MSAs that lacked mortgage credit). Figure 11
shows that since the 1970 census, OMB added 443 counties (net) to MSAs.
Figure 11: MSAs Encompassed More Territory in 2000 Than in 1970:
[See PDF for image]
[End of figure]
An MSA comprises one or more entire counties, with the result that MSA
boundaries follow county boundaries, which typically have little
relationship to an urban-rural divide. In contrast, urbanized areas and
urban clusters may be used to better identify rural areas, because they
are built from Census-defined block groups that show changes in
population at a relatively fine scale.[Footnote 17] We note that
density alone cannot measure differences between urban and rural.
However, mapping changes in density might help RHS officials better
pinpoint the areas in which the boundaries dividing eligible from
ineligible areas might be drawn. For example, by eliminating the MSA
criterion, RHS could review the eligibility of Washington Court House
and Circleville, Ohio, based on population and rural character
criteria. Additionally, using density-based mapping could help RHS draw
boundaries around these communities, which although Census-designated
as "urban clusters," still meet rural housing program population
requirements (see fig. 12).
Figure 12: Eliminating MSA Criterion Could Allow Circleville To Be
Considered for Eligibility:
[See PDF for image]
[End of figure]
Similarly, replacing MSA criteria with density-based classifications
such as urbanized areas and urban clusters could help resolve issues
illustrated by the two communities in Massachusetts that we discussed
earlier. Currently, all of Belchertown is eligible for RHS housing
programs, but all of South Hadley, which is near Belchertown, is not.
The limits of each town encompass both more-and less-densely settled
areas--that is, areas that could be judged as urban or "rural in
character" (see fig. 13). Using density as a guide for determining
eligibility, RHS could better judge where to draw a boundary that would
differentiate the rural from the urban areas in both jurisdictions.
Figure 13: Using Urban Clusters, Rural Portions of Both Belchertown and
South Hadley Could Be Eligible:
[See PDF for image]
[End of figure]
In another example, in April 1990, an RHS field office made
Westminster, Maryland, ineligible because the town was "fast becoming
urban." Westminster's population increased from about 9,000 residents
in 1980 to about 13,000 in 1990 and 17,000 in 2000. Westminster is
included in the Baltimore MSA. As shown in figure 14, portions of the
ineligible area are densely populated. However, although Westminster is
in a growing area, it is not contiguous to highly-populated communities
and is about 36 miles from downtown Baltimore, a situation that could
be more clearly represented using density-based measures.
Figure 14: Population Density in and around Westminster, Maryland,
Varies:
[See PDF for image]
[End of figure]
Although urbanized areas and urban clusters better reflect the urban-
rural continuum than county-based MSAs, the boundaries often appear
jagged or random. Because the boundaries can appear convoluted, it
would not be prudent to use the exact urbanized area/urban cluster
lines for eligibility boundaries. It would make more sense to use the
density information provided by the clusters as input for eligibility
determinations. For example, an RHS sister agency, the Rural Business
Cooperative Service, interprets language from the 2002 farm bill to
apply exact urbanized area boundaries in eligibility determinations for
its business and industry loan program (which helps develop rural
businesses).[Footnote 18] However, officials in one state we visited
told us that they believe that using exact urbanized area boundaries
prohibits them from making loans in rural town business districts.
These and RHS officials in other states we visited agreed that using
the density information would be helpful in their eligibility
determinations, but that they would not want to be held to using
density as the sole eligibility factor.
USDA's Economic Research Service (ERS) has developed a number of
density-based approaches that can be used to measure "rurality," such
as commuting zones and labor market area classifications. ERS developed
these approaches to go beyond the county level to better capture the
economic and social diversity of rural areas. For example, ERS reports
that its rural-urban settlement continuum model can more precisely
reflect the diversity of rural settlement patterns because it is based
on about 62,000 census tracts, rather than about 3,000 counties, and
also considers commuting flows to and from metropolitan core
(urbanized) areas, population density, and population growth during the
previous decade. ERS believes that the "census-tract continuum"
provides a more precise territorial delineation than do the county-
level data, particularly in the large western counties where MSA
boundaries stretch far beyond the actual urban core.[Footnote 19]
Grandfathering Attempts to Address Eligibility Issues Arising from MSA
Requirement:
Congress first wrote "grandfathering" language into the statute in
1983, 9 years after the MSA restriction became part of the statutory
definition. The provision enabled a number of communities located in
MSAs to retain their eligibility. Because census data show that 13
percent of MSA residents reside in rural areas, it is likely that RHS
will continue to grandfather certain areas as long as exclusion from an
MSA remains an eligibility criterion. If the MSA requirement were
eliminated and density-based measures such as urbanized areas and urban
clusters were used as a basis for eligibility determinations, the need
to "grandfather" communities would lessen since eligible communities
would then better reflect the rural character of the areas. Eligibility
decisions also would be made based on the most recent census data
rather than data dating as far back as 1980. Moreover, eliminating the
MSA requirement would allow more consistent treatment of communities
with similar demographics, some of which meet population requirements
and are rural in character, but are ineligible solely because of their
inclusion in MSAs.
The most illustrative example we found during our visits of the
potential effect of using urbanized areas and urban clusters and
discontinuing grandfathering is the Bakersfield/Lamont/Taft,
California situation. The left side of figure 15 shows the Bakersfield
MSA, which encompasses a county that is more than 100 miles wide in
parts, and is basically rural outside the environs of Bakersfield.
Lamont was grandfathered because it lost eligibility when its
population went above 10,000 at the 1980 census. Taft's population was
already over 10,000 prior to the 1980 census, so Taft was not eligible
for grandfathering. The right side of the figure shows what would
happen if MSAs and the grandfather clause were removed from the
equation. Taft would be in its own urban cluster outside of the
Bakersfield urbanized area, which happens to include Lamont. Based on
our visit, we believe this scenario, where the more rural community
would be the one eligible, is more in line with the overall purpose of
the legislation than the current situation.
Figure 15: Taft, California, Could Be Eligible under Density-based
Criteria:
[See PDF for image]
[End of figure]
Eliminating Lack of Credit Requirement Would Have Little Effect on
Eligibility Determinations:
The statute imposes a requirement to demonstrate a serious lack of
mortgage credit for lower-and moderate-income families in communities
with populations from 10,001 to 25,000. RHS has developed a policy
stating that a serious lack of mortgage credit at comparable rates and
terms to that offered by RHS exists in all rural areas. In effect,
RHS's blanket policy frees field staff to focus on the other
requirements in making eligibility determinations for communities with
populations from 10,001 to 25,000. However, a 1997 study by USDA's
Economic Research Service concluded that credit problems in rural areas
are primarily limited to sparsely populated or remote rural
areas.[Footnote 20] Such communities generally do not fall into the
10,001-25,000 range cited in the act.
Lack of income, rather than lack of credit availability, appears to be
the primary credit problem in much of rural America. Many of the RHS
officials and industry experts with whom we spoke said that they see
the problem more as lack of income than lack of credit. Moreover,
eligibility requirements for RHS programs are based on income levels.
For example, the single-family direct program is limited to low-income
households defined as those making 80 percent or less of area median
income. The single-family guaranteed program is limited to moderate-
income families, defined as those making 115 percent or less of area
median income. If income rather than credit were considered the major
issue, then the lack of credit requirement would not be central to
determining eligibility as RHS program requirements already incorporate
income levels. Also, RHS uses targeting to further prioritize loan and
grant making to areas based on income and other factors that determine
the need for affordable housing.
Conclusions:
Changing some of the requirements that define eligibility for RHS
housing programs would allow the agency to better serve rural areas.
Specifically, certain elements of the definition of rural in Section
520 of the Housing Act of 1949, as amended, are not key to making
determinations of what areas are "rural," and in some cases may cause
similar communities to receive dissimilar treatment. One such option
would be to eliminate the MSA requirement. As OMB acknowledged, many
counties included in MSAs contain both urban and rural areas. In
addition, according to the Census Bureau, over 50 percent of the
nation's rural population resides in rural areas within MSAs. Using
alternative measures, such as the urbanized area and urban cluster
classifications, as a guide could help RHS better draw boundaries
around rural areas because density based measures provide finer-scale
information. Furthermore, if MSAs were removed from the eligibility
criteria, the grandfather clause could also be phased out to allow more
eligibility considerations to be based on a community's current
characteristics. Our visits to five states have shown instances where
the combination of the MSA requirement and grandfathering granted
eligibility to communities that appear more closely linked with urban
areas than similar, but ineligible, communities. Finally, according to
USDA and mortgage industry experts, most of rural America does not
appear to lack credit. If credit availability issues are not prevalent
in rural areas, particularly those areas at the population tier
specified in the statute, then the requirement appears to have little
or no relevance to eligibility for rural housing programs.
Matters for Congressional Consideration:
To better ensure that the definition of rural results in more
consistent application of eligibility for RHS housing programs,
Congress may wish to consider:
* eliminating the MSA criterion and recommending that RHS use density-
based measures as a basis for its eligibility decisions,
* phasing out the practice of "grandfathering" communities that
experienced changes in eligibility because of inclusion in an MSA, and:
* eliminating the "lack of credit" requirement.
Agency Comments and Our Evaluation:
We provided drafts of this report to USDA, OMB, and the Census Bureau
for review and comments.
USDA provided written comments that are discussed below and presented
in Appendix II, and the Census Bureau provided technical comments that
were incorporated where appropriate. The Census Bureau's technical
comments included the observation that ERS has developed a set of
commuting areas that reflect both population density and commuting data
criteria. We added discussion of ERS's efforts to develop alternative
measurement approaches that add information beyond that captured at the
county level, such as commuting zones, labor market areas, and the
rural-urban settlement continuum and how these approaches could be used
as a basis to judge the "rural character" of individual communities.
USDA stated that our report articulates how the use of MSAs has
resulted in disparate treatment of some communities. The department
also noted that applying a density-based measure might have merit but
that further study is needed to properly define such a measure for
nationwide application. USDA cautioned that since rural areas were
diverse, unintended impacts could possibly result because density-based
measures might not always identify areas that were "rural in
character." We agree that further study is needed to develop a density-
based approach to identify areas that are "rural in character."
However, USDA's ERS has developed measurement approaches that reflect
both population density and commuting data criteria, and these density-
based approaches provide a basis to better identify and describe rural
areas.
USDA also added that Rural Development would implement any
modifications to the statutorily based "grandfathering" provisions that
Congress directs. Finally, USDA stated that Rural Development
anticipates that the "lack of credit requirement" could be removed with
no detriment to RHS housing programs.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from its issuance date. At that time, we will send copies of this
report to the Ranking Minority Member for the House Subcommittee on
Housing and Community Opportunity and the Chairmen and Ranking Minority
Members for the House Committee on Financial Services, Senate Committee
on Banking, Housing, and Urban Affairs, House Committee on Agriculture,
Senate Committee on Agriculture, Nutrition and Forestry, and other
interested congressional committees. We will send copies to the
Secretary of the Department of Agriculture, the Director of the Office
of Management and Budget, and the Director of the Bureau of the Census.
We will also provide copies to others upon request. In addition, this
report will be available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staff have any questions concerning this report, please
contact me at (202) 512-4325 or at [Hyperlink, shearw@gao.gov], or Andy
Finkel at (202) 512-6765 or at finkela@gao.gov. Key contributors to
this report are listed in Appendix III.
Sincerely yours,
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To determine how the Rural Housing Service (RHS) defines rural and
implements its programs, we interviewed officials from the U.S.
Department of Agriculture (USDA), Department of Housing and Urban
Development (HUD), the Census Bureau (Census), and the Office of
Management and Budget (OMB) to obtain their views on the federal
government's role in providing housing and other community programs to
rural areas. In addition, we also met with representatives of private
nonprofit housing organizations, including trade and advocacy
organizations, to ascertain their views on the target populations and
locations for RHS housing programs. To obtain an understanding of how
rural areas vary across the country and how RHS defines rural in
different parts of the country, we visited five states--Arizona,
California, Maryland, Massachusetts, and Ohio--and in each state met
with officials from RHS Rural Development field offices, and
representatives of state agencies and local organizations. We chose
these states because they face different challenges serving rural
residents. Collectively, they administer all the available rural
housing programs; depict a variety of urban, suburban, and rural
populations; contain both affluent and underserved areas, including
tribal lands and the colonias; and represent geographically and
demographically dispersed areas of the country. Furthermore, including
Massachusetts allowed us to evaluate some of the unique issues involved
with town-based rather than county-based local governing bodies.
Finally, we researched the legislative history of the statutory
definition (Section 520 of the Housing Act of 1949 and its amendments)
for all rural housing programs and analyzed Census and OMB
classifications of geographic areas, based on population levels and
density--particularly MSAs--to obtain an understanding of the
applicability of these classifications to the current definition.
To determine how RHS targets areas for program delivery, we reviewed
regulations and handbooks as well as state funding allocations and
obligations. We also reviewed state strategic plans and discussed
targeting goals and the ability to deliver resources to high-needs
areas with appropriate RHS headquarters staff and officials in the five
states we visited. We analyzed state loan and utilization data where
available and compared the data with the targeting goals for the five
states we visited. In addition, we spoke with representatives of
several national housing organizations to obtain their views on whether
RHS was targeting resources efficiently.
To evaluate the populations of the rural areas served by RHS housing
programs, we used information obtained from databases maintained by
Information Resources Management in St. Louis and focused our analysis
on the five states we visited. We used information extracted from the
Guaranteed Loan System (GLS), Dedicated Loan Origination and Servicing
System (DLOS), and Multi-Family Housing Information System (MFIS)
databases. Each extract from a database contained overall funding
information for USDA loans and grants in the department's single-family
direct, single-family guaranteed, and multifamily housing loan
programs, from October 1998 through April 2004.
To determine the characteristics of locations and populations within
the five states that receive RHS loans and grants, we used the most
recent funding information from the three databases in conjunction with
2000 census data. We analyzed the extent to which different population
ranges received RHS housing assistance under the aforementioned
programs for the 5-½ -year period. For our analysis, we divided each
location's population into one of five numerical ranges, and for each
range, computed the total number of loans and grants and the total
dollar amount of such assistance. This analysis enabled us to compare
and contrast the extent to which different locations within the states
received RHS housing assistance.
Although we found the St. Louis data to be generally adequate to
perform our analysis, the vast majority of these files did not contain
population data for the communities that received RHS assistance. We
used the 2000 census to identify population data for the 3,014 unique
communities in the five states that received 28,993 loans and
grants.[Footnote 21] In assessing the reliability of relevant 2000
decennial U.S. Census Bureau data, we reviewed information available
online from the U.S. Census Bureau Web site on its data quality
assurance processes. On the basis of the results of our document
review, we concluded that the relevant census data we used were
reliable for our purposes for this analysis. Because the census data
did not contain population information for 403 (13.4 percent) of the
unique communities, we used other sources to obtain this information,
ranging from checking a community's Web site (if one was available) to
calling a community's administrative offices. USDA state officials also
helped by supplying population data in some cases and confirming
population data we received from others sources in other cases. These
actions enabled us to document:
populations for all but 8 of the 3,014 unique communities identified in
the RHS databases. We could not identify population data for 419 of the
28,993 loans and grants because the databases did not include adequate
information (street address, name of town, and ZIP Codes) to identify a
corresponding community. To determine the extent of loan and grant
activity for the previous 6 years on a nationwide basis, we contacted
officials at the St. Louis Finance Office and obtained financial
reports for this period.
To ensure that RHS databases were reliable, we met with USDA officials
in St. Louis to discuss the accuracy and reliability of this
information. We also performed internal electronic and manual checks to
determine (1) the extent to which the data were complete and accurate,
(2) the reasonableness of the values and information in the data
fields, and (3) the existence of data limitations such as missing
information, incorrect data types, and the existence of other unusable
data that would undermine the accuracy and usability of the data. Based
upon this reliability assessment, we concluded that the data were
reliable for purposes of this report. The data obtained from RHS are as
of April 30, 2004.
To understand how a potential change in the definition of rural might
impact RHS' mission, we reviewed alternative definitions of and
classifications used to define rural, such as those used by Census and
OMB, and several classification schemes developed by USDA's Economic
Research Service. We also developed case studies in the five states we
visited. We interviewed officials at state and local RHS offices, and
spoke with representatives of local community development organizations
to obtain their views on the current definition of rural and the
challenges of implementing programs. We also visited numerous eligible
and ineligible rural communities in the various states to assess the
impact of the definition on seemingly similar communities (based on
demographic profiles).
We conducted our review from January 2004 through October 2004 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: USDA Comment Letter:
DEPARTMENT OF AGRICULTURE:
OFFICE OF THE SECRETARY:
WASHINGTON, D.C. 20250:
NOV 15 2004:
William B. Shear:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
441 G Street, NW Room 2A10:
Washington, DC 20548:
Dear Mr. Shear:
Thank you for providing the United States Department of Agriculture
(USDA), Rural Development with your draft report entitled Rural
Housing: Changing the Definition of Rural, Could Improve Eligibility
Determinations, Audit Number GAO-05-110. For your consideration, Rural
Development offers the following comments on your draft report and
requests that a copy of these comments be included in your final
version.
Rural Development provides affordable housing opportunities for very
low-to moderate-income borrowers in rural areas through its Single-
Family and Multi-Family housing programs. Rural Development takes its
stewardship of these programs seriously and evaluates ways to improve
their effectiveness on an on-going basis.
Based on the current statutory standard contained in the Housing Act of
1949, Rural Development has effectively implemented the requirements
for ensuring that its housing programs are delivered in areas and
communities that are rural. Over the years, dissatisfaction conveyed to
Rural Development about eligible lending areas for its housing
programs, and how they are derived, has been negligible. When inquiries
from the public do occur, they primarily center on the exclusion of an
area that was once considered eligible for Rural Development housing
programs. These exclusions occur on occasion, and are based on new
census data, in order to comply with statutory and regulatory
requirements.
In 2004, an interactive public web-site was deployed that contains
nationwide maps and street-level data for areas eligible for housing-
related programs. Feedback from partners and the public on this web-
site has been overwhelmingly positive. Users can now get clear and
quick references for eligible areas, including a specific property's
eligibility, based on street address information. The system's eligible
area information can be updated as required.
The Government Accountability Office (GAO) report articulates how the
use of Metropolitan Statistical Areas (MSAs), currently required by
statute, to define what is "rural" for Rural Development housing
programs, has resulted in disparate treatment of some communities.
GAO's report proposes to use density-based measures as an alternative,
and suggests that the MSA criteria should be eliminated.
While GAO's proposal to apply a density-based measure may appear to
have merit, further analysis would be needed to properly assess how
best to define such a measure for nationwide application and what the
impacts would be, including any unintended impacts. Due to the
diversity of rural areas, a density-based measure may not always
identify areas that are "rural in character." Rural Development
believes that a comprehensive analysis, preferably for alternative,
specific definitions of a density-based measure, would be needed to
potentially support a change in the statutory requirements.
GAO also recommends a phasing out of the "grandfathering" of
communities that experienced changes in their rural area designation
due to inclusion in an MSA. The "grandfathering" provisions for
communities have been provided for statutorily over time. Rural
Development will implement any modifications to this policy that
Congress directs.
GAO's report also recommends that the statutory "lack of credit
requirement" as it is applied to rural area determinations, be
eliminated. Rural Development anticipates that this standard could be
removed with no detriment to the housing programs. As stated in the
report, Rural Development's interpretation of this provision is applied
to the customers we serve, rather than the areas we serve. Individual
applicants for housing loans would still have to meet a credit-standard
test. Rural Development's housing programs are directed towards very
low-to moderate-income borrowers. While mortgage credit to the general
public is more readily available than in the past, credit that is truly
affordable for lower income families is not always widely available to
rural residents.
As Congress considers the recommendations of the GAO report, Rural
Development is interested in participating in a dialogue on any
contemplated changes to the statutory requirements to rural area
designations. Congress may wish to facilitate further study of this
issue to ensure that any proposed changes take into full account the
consequences of reliance on density measures as a rural area
determinant.
Our comments on this study pertain only to its relevance to Rural
Development's Single-Family and Multi-Family housing programs.
USDA is committed to the future of rural communities and intends to
continue improving the opportunities for decent, safe, affordable
housing in Rural America.
Thank you for this opportunity to comment on the report. If you have
any questions, please contact John M. Purcell, Director, Financial
Management Division, at (202) 692-0080.
Signed by:
GILBERT G. GONZALEZ:
Acting Under Secretary:
Rural Development:
[End of section]
Appendix III: GAO Contacts and Staff Acknowledgements:
GAO Contacts:
William B. Shear, (202) 512-4325, [Hyperlink, chowm@gao.gov];
Andy Finkel, (202) 512-6765, [Hyperlink, finkela@gao.gov].
Staff Acknowledgements:
In addition to those named above, Diane Brooks, Martha Chow, Mark
Egger, Diana Gilman, Christine Kuduk, Richard LaMore, John McGrail,
John Mingus, Barbara Roesmann, and Thomas Taydus made key contributions
to this report.
(250178):
FOOTNOTES
[1] For the purpose of this report, we use area and community
interchangeably to refer to any open country, place, town, village, or
city.
[2] Section 520 of the Housing Act of 1949, as amended (42 U.S.C.
1490). An MSA is a statistical entity consisting of a county or
counties associated with a core city that has a population of at least
50,000. Since the 1990 Census, OMB has not used the term "standard
MSA."
[3] The definition of rural applies to most RHS housing programs. Two
programs--farm labor housing loans and grants--are not restricted by
any rural eligibility definition. Housing built for farm workers
through these programs can be located anywhere in the country,
including cities. The definition also can be waived in situations where
an RHS loan was made on a house that currently is no longer in an
eligible area but needs a repair loan to remove major health and safety
hazards. While RHS also administers community facilities programs for
rural areas, Congress imposed a different definition of rural to
determine eligibility. This report focuses on RHS' housing programs.
[4] According to the RHS handbook, "contiguous areas" can be two or
more towns, villages, cities, or places. Field offices can consider
them separately for eligibility determinations "if they are not
otherwise associated with each other, and their densely settled areas
are not contiguous."
[5] RHS administers most federal rural housing programs. While HUD's
programs are generally for urban residents and communities, HUD
administers several housing programs targeted specifically to assist
Native Americans and residents of colonias, which are rural, mostly
unincorporated, communities within 150 miles of the U.S.-Mexican border
that often lack basic infrastructure. Residents may also apply for
other HUD programs, ranging from public housing to Federal Housing
Administration (FHA) loans. However, RHS loans, which have lower
interest rates and low or no down payment requirements, are generally
more affordable than FHA loans. Rural residents who are veterans can
also apply for loans guaranteed by the Department of Veterans Affairs.
[6] Eligibility for RHS's community facilities loans and grants
programs is based on a different statutory definition. For the
community facilities programs, "rural" means a city, town, or
unincorporated area that has a population of not more than 20,000.
[7] Direct housing loans enable low-or very low-income rural households
(less than 80 percent of area median income and less than 50 percent of
area median income, respectively) to purchase, build, repair, renovate,
or relocate houses. There is no required down payment and loan terms
can be for up to 38 years. Guaranteed loans are made by a bank or
another private lender rather than RHS; RHS guarantees repayment if the
borrower defaults. Applicants for guaranteed loans must have incomes
below 115 percent of area median incomes.
[8] Actual federal outlays are much lower because guaranteed housing
loans are based on subsidy costs and projected losses that are less
than loan levels.
[9] After each decennial census, OMB uses census data to define new
MSAs. OMB issued the most recent MSA list in 2003, based on the 2000
census. For details on the new standards, see U.S. Government
Accountability Office, Metropolitan Statistical Areas: New Standards
and Their Impact on Selected Federal Programs, GAO-04-758, (Washington,
D.C.: June 14, 2004).
[10] The micropolitan statistical area, was created for the 2000
census; it too is county-based and includes densely settled area with a
population of 10,000-50,000. The micropolitan statistical area is built
around urban clusters. Census defines a densely settled area as an area
with a population density of 1,000 people per square mile and includes
surrounding areas with a density of at least 500 people per square
mile.
[11] When the "grandfather" clause was first added to the Housing Act
of 1949 in 1983, it allowed communities to retain eligibility if they
were "rural" prior to the receipt of data from (or after) the 1980
census. However, grandfathered communities must still meet the "rural
in character" and lack of credit requirements, and have a population
not in excess of 25,000 to retain eligibility.
[12] Section 5.3 of a USDA Handbook (HB-1-3550) states "there is a
serious of lack of mortgage credit readily available to families
throughout rural America at rates and terms comparable to those offered
by the agency. Therefore, Agency officials do not need to determine if
there is a serious lack of mortgage credit available when determining
whether an area is rural or in reviewing rural area designations."
[13] The self-help housing program enables low-income people to work
together to build each other's homes. It combines the single-family
direct (502) loan program with a grant program for nonprofits to
oversee the construction.
[14] Parkersburg, West Virginia, is not an eligible area.
[15] Census tracts are small, relatively permanent statistical
subdivisions of a county or statistically equivalent entity used to
provide a stable set of geographical units for presenting decennial
census data. The 2000 census is the first census to divide the entire
country into census tracts.
[16] The Taft area includes Taft, Taft Heights, South Taft, and Ford
City.
[17] Block groups generally contain 600-3,000 people, with an optimum
size of 1,500 people.
[18] Farm Security and Rural Investment Act of 2002 (P.L. 107-171).
[19] Cromartie, John B. and Swanson, Linda L., Census Tracts More
Precisely Define Rural Populations and Areas, Rural Development
Perspectives, vol. 11, no. 3, Economic Research Service (Washington,
D.C.: June 1996).
[20] U.S. Department of Agriculture, Economic Research Service, Rural
Economic Division, Credit in Rural America, Agricultural Economic
Report No. 749 (Washington, D.C: 1997).
[21] Unique communities are places, towns, villages, or city names that
we identified in one or more of the 3 databases.
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