Detailed Information on the
Community Facilities Program Assessment

Rewrite program regulations to address identified concerns and deficiencies, such as construction method requirements, underwriting requirements, and security requirements

Obtaining tangilble statistics to create and improve performance measures by utilizing a newly created performance related computer model developed exclusively for Rural Development programs

Monitoring the current annual measure inputs such as delinquencies and defaults to ensure that they continue to provide ambitious targets and that goals will be achieved.

Measure: Guaranteed Loan Loss Ratio. The ratio is the annual amount of guaranteed loan losses divided by the outstanding loan portfolio balance.

Explanation:Reducing the level of loan losses when compared to the outstanding portfolio balance is an indication that program managers are providing effective outreach to induce a large pool of quality applications, training employees to make strong loan approval decisions, and have developed a successful methodology for loan approvals. It is a clear indication of program efficency.

Measure: To increase the percentage of the rural population who have improved health care services to 5.5 percent by 2010

Explanation:The greatest amount of CF funding goes to health care projects, particularly to critical access hospitals. Many rural residents travel significant distances to the nearest health care facilities, which are often outdated. Reasonable access to up-to-date facilities will result in longer, healthier lives for rural residents.

Measure: To increase the percentage of the rural population who have improved public safety services to 3 percent by 2010.

Explanation:The largest number of CF projects funded are in the area of public safety. Improved public safety, whether through the acquisition of an additional police vehicle, new fire truck, or communications equipment, will reduce losses of life and property, thus improving the quality of life for the rural residents served.

Measure: Number of health care and public safety facilities approved.

Explanation:Increasing the number of health care and public safety facilities approved for funding on an annual basis will indicate that USDA Rural Development is working with new partners in the financial, public safety, and health care arena in order to effectively utilize limited USDA funds to develop these essential services for rural Americans.

Measure: Percentage of funding obligated for health care and public safety projects

Explanation:This measure will indicate the degree of emphasis that USDA Rural Development through regulatory efforts, outreach, partnering, and other informal mechanisms has put on meeting rural American's needs for public safety and health care services.

Measure: Direct Loan Loss Ratio. The ratio is the annual amount of direct loan losses divided by the outstanding loan portfolio balance.

Explanation:Reducing the level of loan losses when compared to the outstanding portfolio balance is an indication that program managers are providing effective outreach to induce a large pool of quality applications, training employees to make strong loan approval decisions, and have developed a successful methodology for loan approvals. It is a clear indication of program efficency.

Is the program purpose clear?

Explanation: The Community Facilities (CF) direct and guaranteed loan and grant programs provide financial assistance to help support essential rural community facilities such as health care, public safety, and educational/cultural services. Loans are available to public entities such as municipalities, counties, non-profit corporations, and tribal governments. The funding is only available in rural areas defined as cities, towns, or census designated places that have a population of 20,000 or less. There are also various requirements depending on whether the community is receiving a loan, grant or loan guarantee. In the majority of situations, the programs require that the communities be of low to moderate income.

Evidence: The program is authorized in section 306 of the Consolidated Farm and Rural Development Act, as amended by the 2002 Farm Bill (7U.S.C. 1926). The Rural Development mission statement is to increase economic opportunity and improve the quality of life for all rural Americans. The CF programs directly address the USDA Strategic Goal 3, which is similarly worded.

Does the program address a specific and existing problem, interest, or need?

Explanation: The CF program is designed to provide loan and grant assistance for essential community facilities. Many rural communities are unable to provide even the most basic services to their residents due to a number of socio-economic factors, including declining population, changes in agricultural economics (movement from family farms to conglomerates), and the loss of small manufacturing operations, which often provided the second income needed to keep the family farm viable. Furthermore, rural areas generally have a higher proportion of elderly persons in their total population and thus may have a greater need for certain specialized services. Historically, the great majority of CF funding goes to health care facilities and public safety projects, which are becoming increasingly complex and expensive.

Evidence: Many rural areas have difficulty financing infrastructure such as hospitals, fire departments, and schools. USDA analysis has also found that while rural counties tend to exceed metro areas in funds received from income security, funding for community resource development is primarily directed towards metropolitan counties. For example, the per capita supply of physicians is lower than in nonmetro areas: in 1998, 14 percent of primary care physicians practiced in nonmetro areas, substantially lower than the nonmetro share (20 percent) of the total population. In addition, studies have found that African Americans, Hispanics, and Native Americans are more likely to live in counties that fall into the bottom quartile for physician-to-population ratio, Samuelsm M.E., and et al, "Rural Research Focus: Minorities in Rural America." U.S. Department of Health and Human Services. Rogers, C,C,m "Rural Health Issues for the Older Population," Rural America, vol.17 (2), Summer 2002.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: There are several federal community development programs and state and local economic development agencies that are designed to serve low-income and rural communities. A recent GAO report highlighted 73 federal agencies that serve the purpose of economic development, with several federal agencies specifically supporting the construction of facilities in low-income rural communities (USDA, Appalachian Regional Commission (ARC), Economic Development Agency, HUD's Community Development Block Grant program, and the Federal Housing Administration). Some programmatic distinctions do exist. For example, ARC serves a limited geographical area and small rural communities may find themselves at a disadvantage with larger communities competing for CDBG funds. In addition, funds may be leveraged with other programs to provide a greater level of support to low income rural communities.

Evidence: GAO report 00-220. Economic Development: Multiple Federal Programs Fund Similar Economic Development Activities (September 2000) Catalog of Federal Domestic Assistance

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The three funding streams allow for flexibility in serving the low and very low income populations, according to their specific needs. The CF Direct and Guaranteed Loan program criteria require that the applicant be unable to qualify for credit from private sources at reasonable rates and terms. Another measure of the program's effectiveness and efficiency is the fact that the CF grant funding is limited to the amount needed to make the proposed project feasible. The CF Grant programs also have a sliding scale that allows communities with lower median household income to apply for a larger percentage of the project cost. One CF Grant program, the Economic Impact Initiative is only eligible to communities with a not-employed rate greater than 19.5%. The CF Direct and Guaranteed Loan program borrowers are monitored on a monthly basis to ensure that payments are being made and that corrective actions are taken to satisfy delinquent debts. The subsidy rates in the CF programs for FY 2006 are relatively reasonable, at 3.35 percent for the direct program and 0.36 for the guaranteed loan program, as are delinquency rates which are under 2 percent for the direct loan program and under 3 percent for the guaranteed loan program. These criteria and factors ensure that the CF programs continue to be effective and efficient in achieving the purpose.

Evidence: Performance as measured by the targets and goals within the strategic plan and the PART. See the Federal Credit Supplement. See also 7 CFR, Part 1940, Subpart L; 7 CFR , Part 1942, Subpart A; and 7 CFR, Part 3570, Subpart B.

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The CF program has clearly stated population and income requirements targeting low-income rural communities, which, by definition, have severely limited resources to meet the needs of their residents. Communities with a population in excess of 20,000 are not eligible. Priority is given to communities with populations of 2,500 or less and 5,500 or less. Priority points are also given to communities where the median household income of the service area is less than the poverty line for a family of four, or less than 80 percent of the Statewide nonmetropolitan median household income. Priority points under the Community Facilities Direct Loan and Grant program are provided for health care and public safety projects. Currently most of the funding is targeted to health care and public safety facilities, which are in great demand in many rural communities.

Evidence: The CF funds are allocated to the Rural Development State Offices based upon rural population, unemployment, and income, which effectively targets intended beneficiaries. The formula for allocation is found in 7 CFR Part 1940, subpart L. See also 7 CFR Part 3570, subpart B and 7 CFR, Part 1942, Subpart A.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: Community Programs has developed long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program. Specifically, the goals are to 1.) increase the percentage of the rural population which has access to improved health care facilities to 5.5 percent by FY 2010; and 2.) increase the percentage of the rural population which has improved public safety services to 3 percent by FY 2010. A task force developed these measures by examining the 80 different purposes within CF and determining that the funds were primarily being used for either healthcare facilities: hospitals and clinics or public safety facilities: fire and police stations and related equipment.

Evidence: The goals were developed in accordance with the statutory direction of section 306c of the Consolidated Farm and Rural Development Act. Annual Performance Plan.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The goals have ambitious targets and timeframes. Meeting these goals by 2010 will require a concerted effort by management at all levels to focus resources on these outcomes. For example, funding for health care projects provided improved services to 5.0 percent of the rural population in FY 2003, 5.4 percent in FY 2004, and 3.5 percent in FY 2005. Program management projects incremental increases each year until reaching 5.5 percent in FY 2010. Similarly, in the area of public safety, the increases in FY 2002 and FY 2004 were 2.1 percent and 2.8 percent, respectively. The targets for FY 2006 and FY 2007 are 2.6 percent, with steady increases planned until reaching 3 percent in FY 2010. The goals are ambitious because both the long-term measures target incremental increases over the next five years, while program funding levels are expected to remain the same.

Evidence: The goals were developed in accordance with the statutory direction of section 306c of the Consolidated Farm and Rural Development Act. Annual Performance Plan.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The main annual performance measures that relate to the long term goals and directly demonstrate progress toward those goals are the number of health and public safety facilities approved for funding and the percent of funding obligated for these purposes. (See discussion in 2.2 above.) Management carefully monitors these annual targets to determine whether annual increases in outputs are having a meaningful impact on addressing the lack of public safety and health care related essential community facilities in rural areas. The program is also using its loan loss ratios to measure the program's efficiency. The level of CF direct and guaranteed loan losses when compared to the outstanding portfolio gives a clear indication that program dollars are being used efficiently. This helps maintain a low subsidy rate for the programs, allowing the appropriated budget authority to assist more communities, thus evidencing progress toward achieving the long-term goals.

Evidence: Annual Performance Plan, USDA Strategic Plan, Guaranteed Loan System

Does the program have baselines and ambitious targets for its annual measures?

Explanation: Baselines were established for each of the annual measures using historical data from 2001, 2002, and/or 2003. Targets for the number of health care and public safety facilities financed and percentage of funds obligated for health care and public safety projects are ambitious given that targets increase substantially although funding is expected to remain near the same level. To help achieve these targets, the Agency plans to maintain reasonable subsidy rates through decreased loan loss levels and provide increased outreach to health care and public safety organizations. The Guaranteed Loan Loss ratio and Direct Loan Loss ratio have increased annually from 2001 through 2004. Starting in FY 2005, we targeted a decline in the CF Guaranteed and Direct loan loss levels. For each ratio, we have established targets for 2005 through 2010 which set a goal of an annual incremental decline. By 2010, the CF Guaranteed Loan Loss ratio target is 36% and the CF Direct Loan Loss ratio target is 39% of the FY 2004 loan loss levels. Clearly, reversing the trend of annual loan loss level increases and reducing loan loss levels by more than 60% by 2010 is ambitious. In FY 2005, the Community Programs Division put into affect a concerted effort to either utilize or deobligate obligated Community Facilities funds. Our statute allows Community Programs to collect and reallocate loan dollars from the deobligated funds. Community Programs created approximately $126 million in Community Facilities Direct Loan dollars during FY 2005 from previous-year deobligated funds. The FY 2005 CF program annual measures are significantly higher than the targeted goal because a considerable amount of the additional funds were provided to rural America for the construction and renovation of critical access hospitals. This figure is an outlier created by these unusual circumstances and will not be replicated due to a reduced pool of potential unliquidated obligations to draw from.

Evidence: Agriculture and Rural Development Appropriations Bill, which reflects funding levels. Annual Performance Plan, which reflects that Community Programs projects increased outcome levels for the CF program measures while the proposed funding remains constant over the long term. Guaranteed Loan System.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: Through program regulations, the Agency, lender, and borrower mutually agree to both creditworthiness standards and reporting requirements to document the goals and objectives of the program. Working with contractors and other government partners, the Agency has developed health care financial feasibility and public safety training for field staff, which contributes to meeting the program goals. Similarly, partnerships have been developed with the private sector and other Federal agencies to develop architectural models for critical access hospitals. These models will increase efficiencies and thus allow limited resources to serve more needy rural communities.

Evidence: Agency regulations, primarily 7 CFR, Part 1942, Subpart A; 7 CFR, Part 3575, Subpart A; and 7 CFR, Part 3570, Subpart B.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Program evaluations are largely focused on loan making and servicing activities and do not assess whether the program is achieving its desired longterm outcomes. OIG periodically reviews aspects of the program to identify potential areas of improvement, but reviews are largely focused on the financial integrity of the portfolio and to ensure that funds are spent for authorized purposes. In addition, the Agency performs Management Control Reviews and State Internal Reviews and these evaluations have been used to improve program management. However, the newly developed measures that the program is now being evaluated on should stimulate these types of evaluations in the future.

Evidence: USDA Office of Inspector General Midwest Region Audit Report. Rural Housing Service Community Program Loans to River Valley Health System, Columbus, OH (June 2001). Management Control Reviews; State Internal Reviews

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Budget requests are not currently tied to the accomplishment of long-term performance goals, which are relatively new. Funding requests are largely determined by the demand for community facilities in rural areas. However, the program is unable at this time to determine the level of resources necessary to meet key outcomes (e.g., reducing the number of rural areas that lack access to essential facilities such as fire facilities and hospitals) In addition, this measure depends on that purpose continuing to be where the bulk of the funds go, but budgeting is based on demand for the 80 different purposes as a whole, not just those 2 purposes That being said, program performance and funding are linked by relating funding requests to the number of customers who would be provided access to new and/or improved community facilities Improved performance measures have been developed to express more explicitly program performance in serving health and public safety needs. Program costs for loans and loan guarantees are expressed in subsidy rates.

Evidence: Rural Development Strategic Plan, annual budget submission documents, BPI quarterly and annual performance reports.Federal Credit Supplement. USDA's explanatory notes (Vol. 2 pp. 23-29). USDA's Budget Summary, an Annual Performance Plan, the President's Budget document and Congressional testimony.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: Community Programs has revised its performance measures to include new long-term outcome based measures and more meaningful outcome measures. The Agency has also undertaken a complete rewrite of program regulations to address identified concerns and deficiencies. Upgrades to the automated loan and grant processing system (GLS) are ongoing. An improved GLS will allow more comprehensive monitoring of program accomplishments.

Evidence: Rural Development is revising program regulations (7 CFR Part 1942, subpart C; 7 CFR Part 3575, subpart A). USDA Strategic Plan

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The Agency tracks use of funds by States and pools funds multiple times each year to ensure that funds are directed to those with the greatest needs. The Agency monitors borrower and grantee data to ensure that public safety, health care, loan loss level, and delinquency targets are met. The Agency also monitors delinquency on a monthly basis. Borrowers are required to submit financial and other operational information each year. The borrower information is used to monitor the performance and activities of our partners and suggest corrective actions when borrower performance is sub par. Agency staff consult frequently with HHS and HUD staff, periodically meet with them, and frequently participate in conferences and meetings together. Data/information collected from these sources is used to plan direction of the field, assistance visits, training, and other actions needed to manage the program and improve performance. For example, recent servicing reports show a significant number of total delinquencies are in assisted living facilities. Staff members are currently studying these cases and compiling a checklist of warning signals to look for in processing these loans. Program personnel meet regularly with a variety of nation-wide public interest groups, including attending conferences, to share information on matters of mutual interest and concern. Working with HUD and HHS, the Agency recently developed an architectural prototype for rural critical access hospitals. The Guaranteed Loan System (GLS) is the Agency's current database for the Community Facilities Direct Loan, Guaranteed Loan, and Grant Program. GLS contains detailed information on the performance of the loan (delinquency rates and payment history), lender characteristics (type, key personnel, lender branch data) and borrower characteristics (entity type, project information, compliance reviews, security inspections, and status of insurance.) All of the information amassed through these partnerships is used to improve program management and performance and accurately set meaningful performance goals and targets.

Evidence: Agency delinquency reports and servicing reports.; monthly reports and other obligation information; 5001 reports issued by the Finance Office. Borrower audits in accordance with OMB Circular A-133 and GAGAS when applicable. Borrower submitted management reports. Guaranteed Loan System. See "Explanation" for a more detailed example.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: The Deputy Administrator, Directors at the national office and the Program Directors in the State offices are directly responsible for achieving key program results. These key program managers are rated on maintaining a low delinquency rate, efficient utilization of funds including loan loss levels, and other performance results. Contractors are subject to requirements of the contract documents that include quality and schedule components. Contract documents typically specify the quality and quantity of components, based on operating conditions and performance requirements, to be used in construction. Standard contract documents, such as American Institute of Architects contracts, are used for contractors providing various types of services. Cost-sharing partners and other Government partners are similarly held accountable for cost, schedule, and performance results. Guaranteed lenders submit detailed information on operations and the status of their CF loan portfolio on a semi-annual basis. Reports on distressed borrowers are required on a quarterly basis. The lender must analyze the financial statements and provide the Agency servicing office with a written summary of the lender's analysis and conclusions, including trends, strengths, weaknesses, extraordinary transactions, and other indications of the financial condition of the borrower. The information is compared to industry standards and recommendations are made or corrective actions taken when necessary. No lender in the Community Facilities Guaranteed Loan program holds more than one loan note guarantee for a delinquent borrower.

Evidence: Guidance in 7 CFR Part 1942, subpart A; 7 CFR Part 3570, subpart B; 7 CFR Part 3575, subpart A; 7 CFR Part 1940, subpart L; and standard contract documents. Unnumbered Letter dated 2/21/06. Performance elements and standards. Guaranteed Loan System.

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: Funds are obligated in a timely manner. Field staff monitor the use of funds through project completion to ensure that monies are obligated in a timely manner and are spent as intended. National Office staff carefully monitor fund usage and program operations on an ongoing basis throughout the year. The field staff, the borrowers, and construction contractors jointly develop schedules and timelines for the completion of the project and disbursement of funds. The field staff and national office staff are both intricately involved in the review of the single audit, development of recommendations based upon issues defined in the audit , and follow-up on any corrective actions that are occurring in relation to the audit. The Community Facilities Direct Loan, Guaranteed Loan, and Grant program obligations are reported accurately and promptly to the Federal Assistance Awards Data System. The only carryover for this funding stream is due to project cancellations, which are unavoidable with these types of construction loans and grants where interim financing is required and the project must be fully completed before the USDA money is outlayed.

Evidence: Guidance in 7 CFR Part 1942, subpart A; 7 CFR Part 3570, subpart B; 7 CFR Part 3575, subpart A; 7 CFR Part 1940, subpart L. Federal Assistance Awards Data System.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The Agency has shown increased efficiencies in program delivery. While funding levels have remained relatively constant, the number of health care and public safety facilities being financed has increased. Rural Development has noted that significant loan losses typically occur when the borrower cease to operate the CF funded facility. The regulations governing the Community Facilities Direct Loan and Guaranteed Loan program have numerous loan servicing requirements. These loan servicing requirements are in place to give the essential community facilities every possible opportuity to be successful in maintaining their service to the rural community while continuing to meet their financial obligations to USDA Rural Development. The regulation administering the CF Direct Loan, Guaranteed Loan, and Grant programs also require that Rural Development make every effort to recover the maximum level of Federal dollars, once it becomes evident that the borrower will not be able to operate the facility. The regulations governing the CF direct loan, guaranteed loan, and grant programs have a significant number of loan recovery requirements related to transfers, sale of security property, and loan restructuring. A reduction in loan losses ultimately requires the Federal Government to provide less subsidized funds for each project creating a more cost effective program. Each State Program Director is held directly responsible for loan servicing of each CF delinquency. Delinquency rates and loan loss levels have been incorporated in the performance plan for senior managers at the National Office level. The Agency through regulatory requirements also encourages the maximum free and open competition in all procurement and contracting activities. Program managers also encourage the use of new designs and advanced technology where appropriate to achieve efficiencies and cost effectiveness.

Evidence: Guidance in 7 CFR Part 1942, subpart A; 7 CFR Part 3570, subpart B; 7 CFR Part 3575, subpart A; 7 CFR, Part1951, subpart E; 7 CFR, Part 1956, subpart C; Annual Performance Plans. Guaranteed Loan System.

Does the program collaborate and coordinate effectively with related programs?

Explanation: Rural Development has several Memorandums of Understanding (MOUs) with Federal agencies such as HHS, ARC, the Delta Regional Commission, and EDA. Such MOUs set forth the cases in which supplementary grant funding may be combined with CF loan financing, what the maximum percentages may be, how those funds will be transferred and managed, and how responsibility for oversight will be shared between the agencies. The Agency also frequently consults and participates in conferences and meetings with HHS and HUD staff. Other partnerships, such as the Federal Interagency Partnership for the Southwest Border Region, are designed to share information on best practices, the availability of funding, and other resources to target the needs of a specific area. The Agency has also been involved in discussions with the Department of the Treasury and the North American Development Bank concerning new markets tax credits and the Community Adjustment and Investment program.

Evidence: The Agency has MOUs with HHS for cases where communities are eligible for financing from both agencies - for example, Rural Development agrees to provide financing for the construction of the facility and HHS financing (through the Health Resources Services Agency) is used for technical assistance and capacity building. MOUs with ARC and DRC allow Rural Development field staff to administer funding in cases where those agencies do not have a field presence (similar agreements have also been established with EDA).

Does the program use strong financial management practices?

Explanation: The most recent OIG audits (both program specific and general agency audits) and Management Control reviews of the Community Facilities Loan and Grant programs have identified no material weaknesses. No audit or review has ever identified any instance of the Community Facilities Loan or Grant programs failing to meet the requirements of the Federal Credit Reform Act of 1990, the Debt Collection Improvement Act or applicable guidance under OMB Circular A-129. CF Grants must meet the requirements of the applicable section of 7 CFR, Parts 3015, 3016, and 3019. When CF Grant funds are used to purchase real estate or expensive equipment, these regulations require us to recover the Federal interest in the property when it is sold. Program personnel carefully evaluate the financial position of every applicant, whether for direct or guaranteed loans or grants. Annual audits of borrower financial statements and other management records are required, along with periodic monitoring visits, to ensure that funds are properly spent and that the borrower or grantee remains financially viable. These practices are reflected in the delinquency rate that is usually maintained at under 2 percent for the direct loan program and under 3 percent for the guaranteed loan program. Rural Development undergoes an annual financial audit; the Agency received a clean opinion on its latest financial statements and has no material internal control weaknesses. Upgrades are being made to the automated loan and grant processing system, allowing more comprehensive monitoring of program accomplishments through GLS.

Evidence: Agency accounting system requirements, borrower management reports, Borrower single audits, Management Control Reviews, OIG program audits, and the annual OIG audit of Agency financial statements. Lender Agreement. 7 CFR Parts 3015, 3016, and 3109.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: Management Control Reviews and State Internal Reviews are conducted periodically, as are assistance visits.Program managers constantly conduct program evaluations and monitor operations in order to identify and correct any deficiencies. For example, the guaranteed loan subsidy rate, while still low, has increased recently, due to an unusual number of repurchased loans. Managers analyzed the causes of repurchases, and are taking steps to prevent further such losses. We have established an early warning system through the lender's watch list on problem loans that would allow us to take corrective action and prevent large loss situations. Area offices are to communicate with their lenders, based on an unnumbered letter, that RD is to receive immediate notification of suspected problems. Efforts are then made jointly by the lender and RD to cure the delinquency and strengthen the project. The National Office is closely monitoring the servicing of delinquent loans through quarterly submissions of status reports to the National Office and quarterly conference calls to discuss each states problem loan, offer guidance and serve as a learning tool to the other states. Field offices are to pursue early submission of estimated loss claims on defaulted loans. Payment of the estimated loss will prevent excessive interest accrual on the unpaid balance. Common deficiencies, such as access by disabled individuals, are addressed to program personnel nationwide through training sessions, teleconferences, or issuance of Administrative Notices, as deemed appropriate. Program regulations are being revised to reflect current conditions in the rural environment, as well as the field staff structure which now exists.

Evidence: Compliance with MCR requirements, documentation on State Internal Reviews, assistance visit reports.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: Proper underwriting practices are reflected in the delinquency rate that is maintained at under 2 percent for direct loans and under 3 percent for guaranteed loans. Delinquent Community Facilities Direct Loans are monitored on a monthly basis for potential corrective actions. Management capabilities, economic and industry trends, and collateral position are analyzed to ensure that the Federal Government recovers the maximum repayment of its investment. The Community Facilities Direct Loan program is in compliance with the Debt Collection improvement Act and resolves and reports delinquency in accordance with Treasury guidance. Guaranteed lenders submit detailed loan information on a semi-annual basis. Reports on distressed borrowers are required on a quarterly basis and are required to provide immediate notification in at risk situations. The lender analyzes the financial statements and provide the Agency servicing office with a written summary of the lender's analysis and conclusions, including trends, strengths, weaknesses, extraordinary transactions, and other indications of the financial condition of the borrower. The information is compared to industry standards and recommendations are made or corrective actions taken when necessary. No lender in the Community Facilities Guaranteed Loan program holds more than one loan note guarantee for a delinquent borrower. Loan applications not meeting certain thresholds require National Office review for concurrence in approval. National Office managers monitor obligation reports from GLS on a daily basis; other management reports are monitored as issued. Management Control Reviews and State Internal Reviews are conducted periodically. All borrower's annual audits are reviewed in State Offices, and those with findings are reviewed at the National Office level. The USDA OIG also conducts periodic reviews to ensure funds are spent for the intended purpose and that proper loan-making and servicing procedures are used. A nationwide OIG audit is being conducted in FY 2006. In addition, the Agency is subject to and closely adheres to the requirements of OMB Circular A-123, dealing with risk assessments and internal controls, as well as the Improper Payment Act, and other related legislation.

Evidence: Guidance in 7 CFR Part 1942, subpart A; 7 CFR Part 3570. subpart B; 7 CFR Part 3575, subpart A. USDA OIG Midwest Region Audit Report, Rural Housing Service Community Program Loans to River Valley Health System, Columbus, OH (June 2001). Unnumbered Letter dated 2/21/06. Program Funds Control System.

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: An annual subsidy rate for CF loans and loan guarantees is calculated using OMB's Federal Credit Reform subsidy model, an audited cash flow model. This model computes the risk of the loan program for the Federal government. The current subsidy rate calculation is a very credible estimate of the government's NPV costs for the CF loan programs.

Evidence: Federal Credit Supplement; OIG audits of credit subsidy model.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: We are on track to meet or exceed our long-term goals. This is determined by looking at the individual annual data over a period of years. While one year may be an outlier, analyzing a collection of years shows that we are exceeding our goal. Over the last 5 years we met or exceeded our goal for health care in 4 out of 5 years and for public safety we have steadily progressed every year. Evaluating our performance in this way is necessary because, while the task force identified the most common uses of the funds as being health and public safety, in any given year we do not control this demand. For long term measures, the data is appropriately evaluated over a period of years with a set target over 10 years.

Evidence: The goals were established under the statutory direction of section 306c of the Consolidated Farm and Rural Development Act. USDA's Stragic Plan and Annual Performance Plan.

Does the program (including program partners) achieve its annual performance goals?

Explanation: There are four annual performance goals for the CF program: CF direct loan loss ratio, the CF guaranteed loan loss ratio, the number of health care and public safety facilities approved, and percentage of funding obligated for health care and public safety projects. Recent results indicate we are on track to meet or exceed our annual performance goals. In 2003 and 2005, we met or exceeded all of the proposed goals. In 2004, we met or exceeded the proposed goals for the number of health care and public safety facilities approved and percentage of funding obligated for health care and public safety projects. In 2004, we were unable to achieve the goals for loan loss ratios, but have strengthened our loan servicing by commiting resources to early intervention and more frequent monitoring. The more stringent 2005 loan loss ratio goals were exceeded. For each of the measures, if you examine the annual figures, it is clear that we are to a very large extent achieving our overall targets.

Evidence: Annual performance measures and Agency accounting information. Guaranteed Loan System.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: Although the program is facing relatively constant funding levels and deteriorating economic conditions in rural areas, our annual efficiency goals are still being met. Our regulation has been developed to insure efficient and cost effective program administration. The regulations governing the Community Facilities loan and grant programs require that every effort is made to reduce loan losses during normal loan servicing and through the loan liquidation process. Rural Development has also taken extra steps that require increased monitoring and early intervention on borrowers that demonstrate signs of potential weakness. The Guaranteed Loan Loss ratio and Direct Loan Loss ratio have increased annually from 2001 through 2004. Starting in FY 2005, we targeted a decline in the CF Guaranteed and Direct loan loss levels. The CF Guaranteed Loan Loss ratio indicates a 71% reduction from .0169 in 2004 to .0048 in 2005. The CF Direct Loan Loss ratio indicates a 61% reduction from .0052 in 2004 to .0020 in 2005. A look at the CF efficency measures clearly indicates that the program has demonstrated improved efficiencies and cost effectiveness over the past year. For each ratio, we have also established targets for 2005 through 2010 which set a goal of an annual incremental decline. By 2010, the CF Guaranteed Loan Loss ratio target is 36% and the CF Direct Loan Loss ratio target is 39% of the FY 2004 loan loss levels. As we continue to further reduce the loan loss levels as evidenced by our aggressive targets, the subsidy level and appropriated dollars required to meet the needs for rural public safety and health care facilities will be reduced.

Evidence: Annual Performance Plans and Reports. The FY 2006 CF subsidy rates are very low. Program regulations, 7 CFR, Part 1942, Subpart A; 7 CFR, Part 3575, Subpart A; 7 CFR, Part 3570, subpart B; 7 CFR, Part 1951, subpart E; 7 CFR, Part 1956, subpart C. 7 CFR Part 3015; 7 CFR Part 3016; 7 CFR; Part 3019.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The program does an excellent job providing financing for the development of essential community facilities and leveraging funding from other sources where appropriate. The financial performance of the portfolio is also strong as the program's subsidy rates have been negative or very low in recent years. There are few Federal Government lenders that specifically provide direct loan funding to health care and public safety organizations. Both HHS and HUD provide similiar guaranteed loan funding. The subsidy rates are 0.09 percent for the CF guaranteed loan program for FY 2006, 3.57 percent for HHS's Health Facilities Construction Loans and 2.3 percent for HUD's Community Development Loan Guarantees (section 108). The Community Facilites Direct Loan program delinquency rate has been at or below 2% and the Communiity Facilites Guaranteed Loan program delinquency rate has been at or below 3% for the past 5 years. These figures will compare favorably with most private sector lenders and far exceed the vast majority of Federal government lending programs. As noted in questions 1.2 and 1.3 above, many rural communities are facing challenges in providing essential community facilities as technology becomes ever more complex and expensive. The CF programs are uniquely designed to address these needs, providing capacity building and technical assistance, as well as financing, to level the playing field to allow rural communities the opportunity to compete in the global economy.

Evidence: USDA Strategic Plan 2002-2007; FY 2006 Annual Performance Plan; FY 2006 Congressional Justification materials; HHS Strategic Plan 2003-2008; HUD FY 2004 Annual Performance Plan; Federal Credit Supplement, GLS.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: While evaluation on program performance related to the identified performance measures are lacking, the annual evaluations that are performed do show positive outcomes. Periodic reviews conducted by the OIG have evaluated positively the financial performance of the portfolio and lender servicing activities. Recent audits have not identified any areas of concern regarding the expenditure of funds or the financial integrity of the portfolio. Management Control Reviews and State Internal Reviews have been used to improve program management and the Agency is currently revising its regulations based on such evaluations.

Evidence: OIG audits, Management Control Reviews and State Internal Reviews