	Background

The government has been providing housing assistance in rural areas since  the 1930s. At that time, most rural residents worked on farms, and rural  areas were generally poorer than urban areas. Accordingly, the  Congress authorized housing assistance specifically for rural areas and  made USDA responsible for administering it. Although the physical condition of rural housing has greatly improved  over time, it still lags somewhat behind that of urban housing. Housing programs were moved to the newly created  RHS in the new Rural Development mission area which was tasked with  helping improve the economies of rural communities. Changes in the Rural Housing Environment Raise Questions About the Need to Maintain Separately Operated Rural Housing Programs

Given the diminished distinctions between rural and urban areas today,  improvements in rural housing quality and access to credit, and RHS’s  increasing reliance on guaranteed lending and public/private partnerships,  our September 2000 report found the federal role in rural housing is at a  crossroads. We listed arguments for and against fundamentally changing  the programs’ targeting, subsidy levels, and delivery systems, as well as  merging RHS’s programs with HUD’s or other agencies’ comparable  programs. Arguments For and Against Separately Operated Programs

A number of arguments have been presented to support continuing RHS’s  housing programs separately from HUD and other agencies or for  maintaining a separate system for delivering these programs, including the  following:    Some rural residents need the close supervision offered by RHS local  offices because they do not have access to modern  telecommunications or other means of obtaining information on  affordable housing opportunities;   Rural borrowers often need a local service office familiar with their  situation in the first year of a loan;    Rural areas could lose their federal voice in housing matters;    Rural areas could lose the benefits of the lower rates and terms RHS’s  direct and guaranteed loan programs currently offer; and   HUD and other potential partners have not focused on rural areas. Without a mechanism to prioritize the portfolio’s  rehabilitation needs, including a process for ensuring the adequacy of  individual property reserve accounts, RHS cannot be sure it is spending its  limited rehabilitation funds as effectively as possible and cannot tell  Congress how much funding it will need to cover the portfolio’s long-term  rehabilitation costs. As a result, RHS cannot be sure that it is spending these  funds as cost-effectively as possible.
Why GAO Did This Study

Federal housing assistance in rural America dates back to the 1930s, when most rural residents worked on farms. Without electricity, telephone service, or good roads connecting residents to population centers, residents were comparatively isolated and their access to credit was generally poor. These conditions led Congress to authorize separate housing assistance for rural residents, to be administered by USDA. Over time, the quality of the housing stock has improved and credit has become more readily available in rural areas. Also, advances in transportation, computer technology, and telecommunications have diminished many of the distinctions between rural and urban areas. These changes call into question whether rural housing programs still need to be maintained separately from urban housing programs, and whether RHS is adapting to change and managing its resources as efficiently as possible.

What GAO Found

Our testimony is based on two reports--the September 2000 report on rural housing options and May 2002 report on multifamily project prepayment and rehabilitation issues. GAO found that while RHS has helped many rural Americans achieve homeownership and has improved the rural rental housing stock, it has been slow to adapt to changes in the rural housing environment. Also, RHS has failed to adopt the tools that could help it manage its housing portfolio more efficiently. Specifically, dramatic changes in the rural housing environment since rural housing programs were first created raise questions as to whether separately operated rural housing programs are still the best way to ensure the availability of decent, affordable rural housing. Overlap in products and services offered by RHS, HUD, and other agencies has created opportunities for merging the best features of each. Even without merging RHS's programs with HUD's or those of other agencies, RHS could increase its productivity and lower its overall costs by centralizing its rural delivery structure. RHS does not have a mechanism to prioritize the long-term rehabilitation needs of its multifamily housing portfolio. As a result, RHS cannot be sure it is spending limited rehabilitation funds as effectively as possible and cannot tell Congress how much funding it will need in the future.