by Terry L. Besser
Assistant professor and extension sociologist
Iowa State University Extension to Communities
More businesses. More jobs. More population. More houses. Larger tax base. Community improvement. Higher quality of life. This is often believed to be the progression of events involved in community development.
Research does not support the idea that community improvement and higher quality of life always result from more jobs. Nor is it true that more businesses and jobs are the only way to realize improved quality of life. Still, no one doubts that economic development and community improvement are linked to each other. Everyone interested in the welfare of rural towns should be concerned about a new report issued by the Rural Policy Research Institute (RUPRI) for the U.S. Senate Committee on Agriculture, the House Agriculture Committee and the U.S. Department of Agriculture. In the report, RUPRI warns of serious weaknesses in the rural economy.
The weaknesses identified by RUPRI include the fact that many rural areas have been bypassed by recent economic growth. Approximately 400 rural counties nationwide have fewer jobs today than in 1969. The declining counties are clustered in the agricultural heartland, the Mississippi Delta, the Southern Cotton Belt and the natural-resource-dependent areas of the West. What growth there has been in rural employment is concentrated in slow-growth or declining industries. These businesses are particularly vulnerable to overseas competition. The majority of new jobs created in the slow growth and declining industries locating in rural areas are low skill and low wage jobs. The increase in low quality jobs in rural areas is widening the already existing income gap between rural and urban residents.
According to the RUPRI analysts, one strategy for changing the kind of economic development occurring in rural areas is to expand rural investment activity. Capital at reasonable rates is needed for business start-ups, expansions and operating expenses. It is needed to finance housing construction and purchases, especially for low and medium priced units. Furthermore, the maintenance and improvement of public facilities (such as schools, utility systems, libraries and roads) requires the availability of affordable financing. RUPRI contends that investment capital at reasonable rates has not been available in rural areas and that this situation has caused significant hurdles to sustaining, transforming and growing rural economies.
To support this position, RUPRI reports that the consolidation of banks in rural areas has sometimes resulted in significant negative consequences for the local economy. The report claims that "A small number of credit institutions in a given area results in reduced competition, conservative lending practices and limited financial services available to rural borrowers." Also, when a local bank is merged with a large holding company or becomes a branch of a large and distant bank, there is sometimes a reduction in lending to local businesses or a change in the business focus of the newly merged bank. On the other hand, if the local credit needs match the business focus of the parent bank, lending may increase.
The report goes on to note that rural builders and homeowners have more difficulty securing home equity loans than do their urban counterparts. A number of factors account for shortage of home financing. Among them are the lack of competition in credit institutions, lower volume market of houses, higher costs of infrastructure and few construction contractors. Together these factors increase the expenses and risk associated with small town housing construction.
Another contributor to the financial challenges facing rural communities is the intergenerational transfer of assets from rural to urban areas. RUPRI notes that it is increasingly common for capital to be transferred from small towns and farms to estate heirs who live in urban areas. As control of equity and capital flows out of rural areas, local bank deposits decline in number and amount, resulting in less local money available for local lending. Eventually the communityÕs base of accumulated wealth diminishes.
The RUPRI analysts suggest several policy changes to address the problem of inadequate financial markets in rural communities. Space allows me to present only a few here. Recommendations include:
*Authorization of Farmer Mac to create a secondary market for a wider range of rural lending including rural housing and infrastructure.
*The Farm Credit System and/or the Federal Home Loan Bank could be granted enhanced charter authority, creating an alternative source of debt capital for rural businesses.
*Tax changes to allow greater write-off of capital losses on the sale of rural housing, allow the use of IRAs or other tax deferred savings accounts for first time moderate and low-income home buyers and/or provide more incentives for private/public housing developers who construct low and moderate income housing in rural and underserved areas.
*Encourage and assist in the establishment of community foundations and cooperative community mutual funds to retain investment income within rural areas.
The full text of the RUPRI report is available by contacting the University of Missouri at (573) 882-0316.
Contacts:
Terry L. Besser, ISU
Extension Sociology, (515) 294-6508
Del Marks, ISU Extension
Communication Systems, (515) 294-9807
