Federal Investment
in Rural America Falls Behind
1
Highlights of This Study
• Approximately 80 percent of the landmass in the United States is classified as rural. 55 million Americans
live in rural areas, some 22 percent of the total U.S. population.
• In rural areas, median family income is 25 percent lower, and the poverty rate 28 percent higher than in metro
areas. Rural counties make up 95 percent of the persistent poverty counties in the United States.
• Congress, in its funding of the one federal department with responsibility for rural development – the
United States Department of Agriculture – has given priority to farming support programs over rural
development. Funds earmarked for rural development consistently remained at about 2 to 5 percent of that
department’s total actual budget outlays between 1996 and 2002.
• USDA acknowledges that farm payments are not a substitute for rural economic development policy.
(USDA’s Agricultural Outlook/October 2000 article, “How Important Are Farm Payments to the
Rural Economy”)
• Roughly one out of every three dollars of federal rural development funding came from other federal
departments and agencies. But in terms of overall federal spending, community development in rural counties
accounted for only one-tenth of one percent of total per capita funding from 1994 to 2001, significantly less
than the population figures might warrant.
• From 1994 through 2001 the federal government spent more than two times (and sometimes up to five times)
as much per capita on metropolitan community development as it did on rural community development.
Overview
Fifty-five million Americans live in rural areas of the United States. Spread out over four-fifths of our nation’s
land area, most rural communities are in serious decline – both economically and in the quality of life they offer.
The root cause of the decline varies from region to region.
In farm and ranch country, mechanization and adoption of technological changes in production have been
instrumental in eliminating jobs for decades. The same is true in the coalfields of Appalachia and in the
timberlands of the Northwest. Farming used to dominate the rural economy. That is no longer the situation.
In 2000, the United States Department of Agriculture’s Economic Research Service (ERS) classified only 420
of the nation’s 2,040 rural counties as being economically dependent on farming.
Some 750 rural counties lost population from 1995 to 2000, with the largest losses occurring in the Midwest,
Great Plains and Appalachia, according to ERS statistics.
But, the rural out-migration problem extended beyond those regions. Population also declined in the rural
areas of western states including California, Idaho, Montana and Oregon, in counties that in the early 1990s
had been attracting people from urban areas. In fact, more than 300 non-metropolitan counties switched from
a population gain in 1990-95 to a population loss in 1995-2000. And data since 2000 suggests that growth
in non-metropolitan populations has continued to slow.
While stagnant population growth keeps some rural communities from thriving, actual out-migration creates
a devastating downward spiral of problems for others. With fewer people to support them, local businesses,
health providers, churches and other organizations are forced to consolidate, reduce services or close altogether.
In turn, remaining residents and businesses must bear a greater and greater tax burden as they try to maintain
local schools, hospitals, libraries, infrastructure and social services.
Communities in population decline also struggle to maintain social, recreational and other quality-of-life services
and opportunities for its residents. Most people want to live and work in communities with a decent quality
of life.
2
As people leave rural communities to seek better conditions and opportunities, those left behind tend
to be older and poorer. In rural areas, the median age is four years older (38 vs. 34 years), the median
family income 25 percent lower, and the poverty rate 28 percent higher than in metro areas.
Residents of rural areas are aging more rapidly than residents in urban areas due to aging-in-place,
out-migration of young adults and in-migration of older persons from metro areas.
Of course, not all rural areas are alike. The Mississippi Delta, Midwest, Appalachia and the western
Great Plains have significant cultural and economic differences from each other, and they face
different types of challenges. And, as the overall statistics point out, the challenges are becoming
more threatening with each passing year.
“If we allow current trends to continue, many communities will become dying repositories of the
poor and aged,” says Chuck Hassebrook, executive director of the Lyons, Nebraska-based Center
for Rural Affairs. “But it need not be that way,” he adds. “Rural decline stems from decisions made
by people – policy choices and policy biases – that can be changed by people.”
Purpose of Study
The conditions of many rural communities have spawned a great deal of discussion in recent years as
to what the federal government’s policy should be toward rural communities and rural development.
But, while debating what should be, discussions have often omitted much analysis of what the
current policy actually is. This study attempts to make up for that omission by examining details
of the federal government’s spending priorities during the past decade.
Using Census data, ERS tracks spending across government departments and agencies, breaking it
out by area (rural and metro) and by functional category. There are six functional categories:
agriculture and natural resources, community resources, defense and space, human resources, income
security, and national functions. Community and regional development is a subcategory of community
resources. A brief description of each category can be found in the Appendix.
ERS’s data is available for the years 1994 through 2001. United States Department of Agriculture
(USDA) budget outlay figures are available for 1996 through 2002.
Using these government data sources, this study:
• Compares total per-person federal spending in rural areas to total per-person federal spending in
metro areas during the period 1994-2001.
• Compares per-person federal spending for community and regional development in rural and
metro areas over this same period, and
• Compares USDA spending for rural development relative to that department’s total spending from
1996 through 2002.
Total Federal Funding to Rural and Metro Areas
Table 1 and Figure 1 show that the federal government spent more dollars per person for people
living in metro areas than it did for people living in rural areas. That was the case in every year over
the eight years studied.
The spread favoring metro areas was greatest in 1996, when the difference reached $720 per person.
It narrowed each year after 1996, to $111 per person in 2001. That year the government spent an
average of $6,109 per person on every person in the United States – with an average of $6,131 spent
on each person living in a metro area compared to $6,020 spent per person living in a rural area.
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TABLE 1
Per Capita Federal Funds By Function and By Fiscal Year
Category
1994
1995
1996
1997
1998
1999
2000
2001
All Federal Funds
Total US
Metro
Non-Metro
4532
4635
4131
4979
5082
4547
5097
5243
4523
5238
5333
4846
5114
5212
4725
5542
5601
5306
5690
5743
5481
6109
6131
6020
Agriculture & Natural Resources
Total US
77
Metro
30
Non-Metro
261
80
26
291
52
19
181
80
118
302
74
25
269
111
35
416
113
39
412
147
46
564
Community Resources
Total US
Metro
Non-Metro
142
145
130
475
506
352
500
554
336
508
549
349
587
633
406
595
632
445
680
728
486
751
807
521
Defense & Space
US Total
Metro
Non-Metro
705
807
305
687
789
201
705
811
290
645
734
294
643
728
305
671
762
308
678
771
308
716
815
310
Human Resources
US Total
Metro
Non-Metro
79
67
82
78
76
85
90
87
100
101
98
113
84
82
95
106
102
122
119
113
143
126
117
159
Income Security
US Total
Metro
Non-Metro
2868
2816
3072
2940
2903
3088
3040
2993
3226
3138
3089
3329
2920
2864
3143
3277
3201
3582
3276
3182
3656
3502
3387
3968
National Functions
US Total
Metro
Non-Metro
705
786
385
712
782
439
702
781
391
767
845
458
804
879
508
782
870
433
822
910
467
867
958
498
16
19
8
16
19
8
13
15
3
16
18
6
15
18
6
17
20
6
Community and Regional Development
Total US
13
17
Metro
15
20
Non-Metro
5
4
Source: Calculated by the United States Department of Agriculture’s Economic Research Service (ERS) using federal funds data from
the Census Bureau.
4
A closer look at Table 1 indicates that the gap narrowed during those six years – not due to higher
federal rural development spending, but to increases in two categories: (1) Agriculture and natural
resources, and, (2) Income security.
The income security category in Table 1 is largely Social Security payments. Per-person Social
Security spending increased in rural areas at a higher rate due to the higher median age and higher
poverty rate of rural residents.
The agriculture and natural resources category (noted in Table 1) does not include rural development
spending by USDA. Those funds are included in the community resources category (and the
community and regional development subcategory) along with community resource funding from
other federal departments and agencies. The increase in agriculture and natural resource spending
during the period of the study was (as can be seen in Figure 3) largely due to increased spending
for federal farm supports and foreign trade programs. USDA spending on rural development from
1996 to 2002 ranged from just 2 to 5 percent of the department’s total budget.
In summary, the fact that Social Security and other federal income security spending increased on
a per-person basis in rural areas during the years of the study is more a reflection that rural residents
are older and poorer on average than their metro counterparts than it is an indication of greater
federal commitment to rural areas. And as for the other major source of increased federal funding
to rural areas – farm and farm export subsidy payments – they are a poor mechanism for rural
economic development. More on this point later in the paper.
Total Federal Funding for Rural Development
USDA is the federal department responsible for rural development. However, as noted earlier,
many other federal departments and agencies fund community development programs and projects
without regard to whether the people or communities are in rural or metro areas.
Some of their money understandably ends up in rural communities. In fact, funding by these
non-USDA departments and agencies accounted for roughly one out of every three dollars of rural
development funding in 2001.
FIGURE 1
Per Capita Federal Funds By Year
All Federal Funds
Source: Calculated by the United States Department of Agriculture’s Economic Research Service (ERS) using federal funds data
from the Census Bureau.
5
FIGURE 2
Per Capita Federal Funds By Year
Community & Regional Development
Source: Calculated by the United States Department of Agriculture’s Economic Research Service (ERS) using federal funds data
from the Census Bureau.
Departments and agencies with substantial funding in rural areas include the Departments
of Commerce, Defense, Education, Energy, Health and Human Services, Housing and Urban
Development, Interior, Justice, Labor, Transportation, and agencies and commissions such
as the Environmental Protection Agency, Small Business Administration, Appalachian Regional
Commission, Federal Emergency Management Agency and the Corporation for National and
Community Service.
While the list of federal departments and agencies funding community and regional development
programs that help rural residents is large, the number of dollars they spend (on a per-person basis)
in rural communities is very small. This can be seen in Table 1 under the community resources
category and the community and regional development subcategory.
Community resources is a broad category. In addition to community and regional development,
it includes federal spending for business assistance, Native American programs, environmental
protection, transportation, housing and community facilities. While this category of federal spending
is broad, it only accounted for about 7 to 9 percent of total federal per-capita spending from 1994
through 2001. Within the category, per-capita rural funding lagged roughly one-third behind
metro funding.
In 1994, the $130 rural community resources funding level was $15 per person less than the $145
metro level. In 1995, rural funding fell to $154 less than metro funding. And, by 2001, rural
funding trailed metro by $286 ($521 rural compared to $807 metro).
That $286 per person advantage for metro may actually be understated, since it includes federal
funding for transportation that includes maintenance and construction of interstate highways and
other large roads. This spending can push up rural spending totals, but the expenditure may serve
more urban residents (driving from one city to another) than rural residents.
A look at the subcategory community and regional development within community resources gives
a more focused look at what the federal government spends on community and regional development
in rural and metro areas. This sub-category includes USDA rural development funding along with
grants and financial assistance for rural and metro community development offered by other federal
departments and agencies.
6
When spending for this subcategory is broken out between rural and metro, it shows that rural
development programs accounted only for about one-tenth of 1 percent of all per-capita federal
spending during the eight-year period (Table 1).
Comparing federal community and regional development funding in rural areas with funding in
metro areas, it can be seen in Figure 2 that rural per-capita community and regional development
numbers ran at from one-half to one-fifth of the level of metro funding.
The ERS data was only available through 2001. What has happened in the years since? Chuck
Fluharty, director of the Rural Policy Research Institute, Columbia, Missouri, says per-capita federal
spending from all federal departments and agencies for rural development likely hasn’t increased since
2001. “While more current data is not yet available,” says Fluharty, “and while this aggregate data
masks critical sectoral differences in federal funding flows to rural areas, it is generally agreed by rural
policy analysts and rural advocates that federal funding commitments to non-agricultural programs
in rural America have declined in the past several years.”
Fluharty adds that “recent congressional and administration actions will, in all probability, further
reduce these commitments to rural America in current and future federal budgets, although specific
program funding levels resulting from these actions are not yet available.”
It should be noted that because ERS excluded data from the Table 1 figures that couldn’t be traced
to the county level, some rural funding was not included. Among the funds left out were the
Community Development Block Grant State Programs, where dollars may be divided up among
various undesignated areas and programs. Even if the omissions were all counted in the rural column,
they would still only close the per-capita rural-to-metro funding gap in community resources by a
few dollars.
Fluharty says rural areas could be significantly advantaged if Community Development Block
Grants and Community Services Block Grants funds were targeted in a “more integrated, strategic
and continuous manner.” He calls the current Block Grant programs “woefully inadequate federal
commitments to rural community capacity building.”
USDA Funding for Rural Development
While ERS federal spending data for the years after 2001 is not available, actual USDA spending
for 1996 through 2002 is available. USDA’s spending on rural development ranged from just 2 to 5
percent of its total budget (see Figure 3) during that period.
USDA spending is an important gauge for measuring the federal government’s spending priorities
for rural development because USDA is the federal department charged with responsibility for
rural development. Congress’s priorities can be seen by looking at the department’s actual 2002
spending, which totaled $68.7 billion. Of that total, only $2.7 billion was earmarked for rural
development work.
From 1996 to 2002, actual outlays on farm and foreign agricultural service (including commodity
price supports) programs made up from 16 to 49 percent of the USDA total budget.
And, over the same period, actual outlays on food, nutrition, and consumer services (including
food stamps) accounted for from 43 to 69 percent of total USDA spending. USDA spending
on rural development during these years ranged from just 2 to 5 percent of its total budget (see
Figure 3).
There has been a common perception that farm policy is the same as rural policy and that supporting
farm commodity programs also supports rural communities.
Certainly, programs that increase farmer income give a positive boost to the economies of farm
7
FIGURE 3
USDA Actual Budget Outlays
By Year
Source: United States Department of Agriculture annual budget summaries for 1996 to 2002.
communities. But farming is losing its economic significance in many rural counties. Of the more
than 2,000 rural counties in the U.S. in 2000, only 420 were farming-dependent, down from
618 in 1990. ERS classified a county as farming-dependent if 15 percent or more of earnings
(in 1998-2000) or employment (in 2000) came from farming.
Despite the fact that farming no longer dominates the rural economy, USDA spending continues
to focus on food and fiber production rather than on rural development.
“Congress has profoundly uninvested in rural development while grossly overspending on subsidies
to the nation’s largest farms that drive smaller farmers out of business,” says Hassebrook. “The
current policy,” he adds, “is a lose-lose disaster for small farmers and rural communities.”
Even USDA acknowledges that farm payments are not good economic development policy. USDA’s
Agricultural Outlook/October 2000 article, “How Important Are Farm Payments to the Rural
Economy,” notes: “Government programs that provide payments to farmers can benefit some rural
areas. But as economic development policy, they perform poorly. A large part of government farm
payments go to areas where they are barely a blip in the local economy. Farming-dependent counties
– where government payments to farmers play a significant role in the local economy – received
only 37 percent of farm program payments in 1998, while 19 percent went to metro counties and
44 percent went to non-farm-dependent non-metro counties.
“In metro and non-farm-dependent metro counties, government payments to farms have no noticeable
effect on the local economy because they account for such a small share of the income. In communities
with healthy growth prospects, government payments to farms may slow the growth of other economic
sectors by driving up land prices and diverting capital away from local businesses.”
Conclusion
Approximately 80 percent of the landmass in the United States is classified as rural. And, 55 million
Americans live in rural areas. Rural communities and their residents are stewards of much of the
nation’s productive soil, scenic rivers and other natural resources. Yet in rural areas, median family
income is 25 percent lower, and the poverty rate 28 percent higher than in metro areas. Rural counties
make up 95 percent of the persistent poverty counties in the United States.
Government statistics show that from 1994 through 2001, on a per-person basis, federal spending
8
from all federal departments and agencies to rural areas lagged spending to metro areas. The gap
narrowed during the period – not due to increases in rural development spending, but to per-capita
increases in Social Security and other income security payments to rural residents as well as increases
in agricultural and natural resources funding to rural areas.
Congress, in its funding of the key federal department with responsibility for rural development –
the United States Department of Agriculture – has given priority to farm programs over rural
development. Funds earmarked for rural development consistently remained at about 2 to 5 percent
of that department’s total actual budget outlays between 1996 and 2002.
During the same period, actual outlays by USDA for farm and foreign agricultural service (including
farm payment) programs made up from 16 to 49 percent of the USDA total budget.
One clear conclusion emerges from the federal spending data: The small level of federal funding
for rural development – both in total from all federal departments and agencies and through USDA –
shows that funding for rural development has been a low priority for the federal government.
And this has been the situation regardless of the political party in control of Congress and the
White House.
Appendix
Function Categories of Federal Spending
Based on Census Bureau reporting categories, the United State Department of Agriculture’s Economic Research
Service (ERS) provides the following definitions of the six function categories of federal spending:
Agriculture and natural resources—includes spending for agricultural assistance, agricultural research and
services, forest and land management, water and recreation resources.
Community resources—includes spending for business assistance, community facilities, community and regional
development, environmental protection, housing, Native American programs, and transportation.
Defense and space—includes spending for aeronautics and space, defense contracts, defense payroll and
administration.
Human resources—includes spending for elementary and secondary education, food and nutrition, health
services, social services, training and employment.
Income security—includes spending for medical and hospital benefits, public assistance and unemployment
compensation, retirement and disability – includes Social Security.
National functions—includes spending for criminal justice and law enforcement, energy, higher education
and research, and all other programs excluding insurance.
About the W.K. Kellogg Foundation
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