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Rural Aid Goes to Urban Areas
USDA Development Program Helps Suburbs, Resort Cities

By Gilbert M. Gaul and Sarah Cohen
Washington Post Staff Writers
Friday, April 6, 2007

PROVINCETOWN, Mass. -- In a few weeks, artists, lawyers and bankers will begin arriving here for the busy summer season on high-speed ferries that take 90 minutes to make the trip from Boston. They will land at a recently refurbished municipal dock that was built with the help of a $1.95 million low-interest loan from the U.S. Department of Agriculture.

A few blocks away, the Provincetown Art Association and Museum has used nearly $3 million in grants and loans from the Agriculture Department to add gallery space and renovate a historic sea captain's house. A short drive back down the Cape, the department is financing a new actors theater in Wellfleet and recently awarded a grant to a garden center in Hyannis to build a windmill.

Although Cape Cod is only a short trip from Boston and Providence, R.I., and is home to some of the wealthiest beach towns in the United States, to the Agriculture Department it meets the definition of rural America. That means it qualifies for aid originally intended for farmland and backwoods areas that were isolated and poor, struggling to keep their heads above water.

"Provincetown is many things to many people, and to USDA we're rural," said Keith A. Bergman, the town manager. "We'll take it."

He isn't alone.

On Martha's Vineyard, the USDA guaranteed a $4.5 million loan for the popular Black Dog Tavern. The loan, which has since been repaid, was to refinance the tavern's mortgage and expand Black Dog's retail clothing stores. On Nantucket, where the population swells to the size of a small city in summer months, the Agriculture Department provides rental subsidies for families priced out of the local market.

All told, the USDA has handed out more than $70 billion in grants, loans and loan guarantees since 2001 as part of its sprawling but little-known Rural Development program. More than half of that money has gone to metropolitan regions or communities within easy commuting distance of a midsize city, including beach resorts and suburban developments, a Washington Post investigation found.

More than three times as much money went to metropolitan areas with populations of 50,000 or more ($30.3 billion) as to poor or shrinking rural counties ($8.6 billion). Recreational or retirement communities alone got $8.8 billion.

Among the recipients were electric companies awarded almost $1 billion in low-interest loans to serve the booming suburbs of Atlanta and Tampa. Beach towns from Cape Cod to New Jersey to Florida collected federal money for water and sewer systems, town halls, and boardwalks. An Internet provider in Houston got $23 million in loans to wire affluent subdivisions, including one that boasts million-dollar houses and an equestrian center.

The USDA's regulations determining eligible rural communities vary from program to program and are often influenced by Congress. There are 40 separate programs under Rural Development. They include low-interest housing loans, USDA-backed loans for businesses, and grants for communities and nonprofit groups.

In some programs, awards are limited to towns with populations of less than 2,500. In others, it's 5,000, 10,000, 20,000 or 50,000. In still other cases, the USDA bases its decisions on individual streets or blocks, using census data.

"Nobody understands it. I don't understand it," said J. Gregory Greco, a business specialist who works out of the USDA's Rural Development office in Harrisburg, Pa. "You may find one area of town is eligible and another isn't. It can be by street: One side is eligible and another is not. I defy you to give the logic of it."

Although Harrisburg is the state capital and is surrounded by growing suburbs, businesses still qualify for USDA-backed loans because the city's population -- 48,000 at the last census -- is 2,000 below the cutoff for certain programs. In 2004, the USDA guaranteed a $1.2 million loan for a new Hyundai dealership near a major interstate there. There are about a dozen other car dealers in the same Zip code, according to government data.

A few miles away, in Camp Hill, the USDA backed more than $5 million in loans to Coliseum Entertainment Group, which recently opened a restaurant and entertainment complex. And in State College, home of Pennsylvania State University, the USDA guaranteed a $4.6 million loan to United Entertainment of St. Cloud, Minn., to open a multiplex movie theater. A loan guarantee from the government allows businesses to borrow money at cheaper rates.

Patrick Myers, the president of Coliseum Entertainment, said he learned about the loan program from his bank.

"Apparently, it goes by population," he said of the "rural" designation. "I guess if we compare it to Washington, D.C., we are, but if you compare it to Kansas, we're not."

The Growing Program

The USDA's role in rural development dates to the Dust Bowl in the 1930s, when thousands of farmers went broke and many of the small communities where they lived dried up like the ground beneath their feet.

President Franklin D. Roosevelt responded with programs to resettle farmers and bring electricity to isolated corners of the nation. Rural electrification was a resounding success that brought many communities out of abject poverty. Over the years, programs followed for housing, telephones, business loans and community grants -- and the eligibility criteria expanded.

Today, 40 separate programs operate under the USDA's Rural Development division. They are included as a separate title in the Farm Bill, the government's five-year master plan for agriculture, currently up for renewal before Congress. There are programs for broadband Internet access, telemedicine and long-distance learning. Rural Development also provides billions in housing loans and rental subsidies for residents in more than 400,000 apartments scattered across the country.

The agency operates programs in every state, Puerto Rico and the U.S. Virgin Islands and has nearly 7,000 employees. Most states have multiple offices. New Jersey, for example, has five, as well as a satellite operation near the beach. Almost 50 employees in New Jersey work on sewer, housing and business programs, awarding loans and grants of nearly $50 million a year.

Thomas C. Dorr, the undersecretary for Rural Development, describes the division's role as the "venture capitalist for rural America." The program provides "equity, liquidity and technical assistance to finance and foster growth" and preserve rural communities, the political appointee said in testimony before Congress.

But as the program has expanded, it has become more complicated, bureaucratic and secretive. The USDA instructed its employees not to answer questions from a Post reporter, steering all queries to Washington. Some documents obtained under the Freedom of Information Act were heavily redacted, so reporters could not determine the amounts of loans or locations of businesses. New Jersey officials blotted out names and figures in one of their own news releases.

In general, USDA officials maintain that they are parceling out aid to rural areas according to the rules laid out by the department and Congress. "Rural America is vast," covering 75 percent of the nation's land mass, Dorr testified in October.

Members of Congress take a keen interest in Rural Development programs. Often a member will arrange a photo opportunity when the Agriculture Department awards a grant in the lawmaker's district. In several instances, members have interceded so towns and cities that would not otherwise be eligible could still get money, records and interviews show.

But even members of Congress have pointed out that the rules have become unwieldy. The "mixed definitions" of what is considered rural continue to challenge the Rural Development program, Rep. Frank D. Lucas (R-Okla.) said at a March 2006 hearing. "I believe we should work to find a consistent definition of the term 'rural' that would apply to all of the programs across all agencies," he said.

Boons for Provincetown

Provincetown, at the tip of Cape Cod, qualified for Rural Development aid because it has a year-round population of about 4,000, below the threshold of 20,000 for community loans and grants. The USDA does not take into account that the summer population is at least 10 times as large. Nor does it consider that Provincetown has some of the most expensive real estate in the United States and relatively modest taxes.

Property values are more than six times what they were 20 years ago, and the tax base tops $2 billion. More than two-thirds of the houses in Provincetown are investment properties or second homes.

But in the eyes of the Agriculture Department, it is still considered to be rural.

"Our regulation says a city or town of less than 20,000. That's it," said Daniel Beaudette, director of community programs for Rural Development in Massachusetts.

Many of the historic houses in Provincetown are being carved up into condominiums, with a tiny one-bedroom unit selling for upwards of $600,000, according to the town's tax assessor, Paul M. Gavin. "We're kind of like a little Manhattan here," he said.

In 2003, the town received its $1.95 million government loan from Rural Development to help rebuild MacMillan Pier. In an e-mail, a spokeswoman for the Massachusetts program explained that the pier was "considered an essential facility as it is the hub of the local fishing industry and the ferry to Boston."

But the local fishery is in decline. "The business of the harbor is now largely related to tourism," the town's Web site says. The ferry costs about $50 each way.

A short walk from the pier up Commercial Street, the nonprofit Provincetown Art Association and Museum has received four Rural Development loans and grants since 2004, using the money to increase its space, add climate-controlled facilities and renovate the sea captain's house. One loan, for $775,000, was awarded to cover cost overruns, records show.

Museum Executive Director Christine McCarthy said museum staffers stumbled upon the Rural Development program while looking for grants. "I had no idea they funded cultural projects," she said. USDA officials took a strong interest in the museum. "We're geographically challenged here," McCarthy said.

Rural by Some Measure

In New Jersey, the most densely populated state, Rural Development has awarded $250 million for projects in the past five years, including at least $75 million to beach and coastal towns, a Post analysis found. Last year, the agency spent $8.6 million on rental assistance there -- more than it spent on such aid in Nebraska, Kansas, Montana or North Dakota.

The city of Wildwood, on the Atlantic north of historic Cape May, experiences population swings similar to those of other beach towns. In the winter, the population is less than 6,000 and includes many poor seasonal workers. But in the summer, the boardwalk and spacious beaches fill up and the population nears 250,000, transforming Wildwood into one of the largest cities in the state. Best known for its low-slung motels and "Doo-Wop" style of architecture, the city is undergoing a revitalization, with property values tripling to about $2 billion.

Since 2001, Wildwood has been awarded about $13 million by Rural Development in loans and grants, records show. Nearly $10 million has been awarded for sewer repairs to handle the surging summer crowds and traffic from a new convention center. Wildwood has also received millions to replace windows and doors at its city hall, renovate a long stretch of boardwalk, repair public restrooms, spruce up streets, and conduct a parking study.

"Because of the densities of Wildwood, Wildwood may not appear to be rural, but it meets the formula for rural," said Gordon Dahl, a federally funded economic development official who has helped the city obtain many of its grants. "It's sort of like saying, 'Is the tax code fair?' Some people would say it is, and some people would say it isn't."

The city, which has been designated an "Urban Enterprise Zone" by state officials, has enjoyed the backing of Rep. Frank A. LoBiondo (R-N.J.). The congressman and his staff have made numerous inquiries to Rural Development officials on behalf of Wildwood and other towns in LoBiondo's district, correspondence obtained under the Freedom of Information Act shows.

"As I've always said, we are blessed to have Frank LoBiondo as a leader in Congress," Wildwood Mayor Ernie Troiano Jr. was quoted as saying in a news release issued by LoBiondo's office in August. "He continues to be proactive in obtaining necessary grants to help our communities and a fine example of what dedicated public servants means to our communities."

LoBiondo's spokesman said the congressman was responding to Wildwood's request for help. "The congressman is happy to write a letter," Jason Galanes said. "But that's the extent of his involvement.

"It's not for the congressman to create the definition or to dole these grants out," Galanes added. "The argument could be made that the federal government should update its definition. But it's not for the congressman to decide."

The four other beach towns on the five-mile barrier island with Wildwood received grants and loans from Rural Development totaling more than $10 million, a Post analysis found. Cape May got about $4 million to repair its sewers. City Manager Luciano V. Corea Jr. said the money is a form of tax relief for local property holders. "It's obviously going to save us a significant amount of money," he said. The median price of a house in Cape May is about $450,000.

Up the New Jersey coast, the beach town of Lavallette received more than $5 million for its water and sewer systems. The population is 10 times as large in the summer, more than 30,000, and places a strain on the systems, according to Michele Burk, the town's chief financial officer. The average price of a house in Lavallette is about $700,000.

Burk said "USDA went out of its way to advertise" that money was available. Ten to 15 years ago, year-round residents had to drive across the bridge to shop, Burk said. "Not so much anymore. Ten to 15 years ago," she said, "it was quite rural."

Rural Development aid can go even to areas from which the spires of Manhattan are visible. Haledon, N.J. -- about 10 miles from New York -- was awarded grants and loans for its water system totaling $4 million. "Haledon is a small community, well under 10,000, and it's not wealthy," said Justin Mahon, an engineer who worked on the project. "But would I characterize it as rural? No. This isn't Mississippi."

Subsidized Suburbs

Rural Development money does not go just to beach towns and hamlets looking to spruce up their boardwalks and rebuild their aging infrastructure. The money also fuels massive suburban growth.

Three utilities serving the booming Atlanta suburbs have received more than $400 million since 2001, records show.

Jackson Electric Membership Corp. describes its service area as one of the "most dynamic growth centers in America."

Greystone Power serves "eight metropolitan Atlanta counties," according to its Web site, including "some of the fastest growing areas not only in the state but in the nation."

Sawnee Electric Membership Corp. boasts that its territory includes the fastest-growing county in the nation, Forsyth County, in northern Georgia.

Utility companies are allowed to keep coming back to the USDA under a policy known as "once a borrower, always a borrower," which provides rural utilities access to a pool of cheap capital, even if the once-rural territory they served is rapidly transforming into a suburb.

Attempts by the Bush administration to repeal the provision have been rebuffed by Congress.

In addition to electricity, Rural Development money is also funding high-speed Internet service. In 2005, the USDA's inspector general questioned more than $100 million in loans to wire subdivisions near Chicago, Minneapolis, Pittsburgh and Kansas City. In one case, ETS Telephone Company & Subsidiaries got $22.9 million to wire a series of new subdivisions outside Houston, including one near a golf course.

"They met the definition for a rural area," USDA officials said.

Research editor Alice Crites contributed to this report.

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