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The USDA's Losing Effort

Costly Program for Rural Businesses Yields Dubious Results

"You know, some people could argue a job at minimum wage is better than no job at all," said William Hagy, the USDA's deputy administrator for business programs. (By Ricky Carioti -- The Washington Post)
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By Gilbert M. Gaul
Washington Post Staff Writer
Wednesday, December 5, 2007; Page A01

Under a program to create jobs in rural America, the U.S. Department of Agriculture guaranteed $1.6 million in loans to Aztec Environmental Inc., an asbestos-removal company in Panama City, Fla.

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Aztec did create jobs -- for hundreds of workers from Guatemala. "Locals didn't want the work," said Debbie Livingston, one of the owners.

Three years later, in February, Aztec went out of business after a federal investigation into allegations of environmental abuses and the hiring of illegal immigrants. Now, the USDA could lose hundreds of thousands of dollars on the loan.

The Aztec case is one graphic example of the scores of troubled loans that the USDA has backed in a little-known part of the agency's vast system of farm subsidies. Since the 1970s, the loan program has endured nearly $1.5 billion in losses while backing almost $14 billion in guarantees to private banks, a Washington Post investigation found.

Actual losses are almost surely higher, according to a Post analysis of thousands of USDA loans and grants. USDA officials refuse to disclose losses on loans to individual companies, even after they go out of business, arguing that it "could substantially harm" the companies' competitive positions.

More than three decades after the loan program was created, USDA officials still don't know whether it works. Funds have gone to firms that have hired foreign workers instead of Americans. Millions more have gone to failing and bankrupt businesses. Most of the jobs are not new. Many are low-tech and low-wage.

In addition to the loan program, the USDA has handed out almost half a billion dollars in rural development grants to businesses and nonprofits since 2001.

Loan guarantees or grants have gone to a car wash in Milford, Del.; a country club in Great Falls, Mont.; a movie theater in Smithfield, N.C.; a water park in Myrtle Beach, S.C.; an alligator hunter in Dade City, Fla.; snowmobile clubs in Maine; and dozens of gas stations and convenience stores in Maryland, Ohio, Pennsylvania and Arkansas.

"You know, some people could argue a job at minimum wage is better than no job at all," said William Hagy, the USDA's deputy administrator for business programs. "In a lot of rural areas, that's all there are."

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

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

Congressional committees charged with overseeing USDA business programs rarely question the agency's claims or probe deeply into the programs. Instead, some lawmakers have aggressively lobbied the USDA to approve costly projects in their districts.


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