At the Opportunity Finance Network conference in October, I finally got a chance to sit down and talk with Lisa Mensah, undersecretary for USDA rural development, whose energy and spirit had grabbed my attention at the Rural Housing Summit hosted by USDA and the Federal Reserve in May.
Mensah oversees the Rural Housing Service, the Rural Utilities Service, and the Rural Business-Cooperative Service. Mensah began her career in commercial banking at Citibank before joining the Ford Foundation, where she was responsible for the country's largest philanthropic grant and loan portfolio of investments in rural America. She was also the founding executive director of the Initiative on Financial Security at the Aspen Institute. In our short conversation, we discussed topics that ranged from housing to rural lending by community development financial institutions to climate change.
Miriam Axel-Lute: At the Rural Housing Summit, you made a very striking statement, “I'm tired of rural areas feeling so alone.” I was hoping you could talk a little more about that, how rural and urban areas are divided, or how we separate them, and what we ought to be doing to make sure that that doesn't happen.
Lisa Mensah: I don't remember my exact quote, but I think you caught my spirit. I've not quite been in this position for two years. I used to work on rural issues at the Ford Foundation. And what has struck me about being the head of rural development is how many people have given up on rural America. And some of the same old arguments: “Why try?” “Why aren't we just giving people bus tickets?” “If zip code is the problem, why not just move people to a better zip code?” “If the economy isn't healthy, move.”
I'm surprised in 2016 that we still have to fight this. First, everybody can't move, and second, they shouldn't. There's so much love and promise for rural America. There's so much beauty. It is the place where we have our food and our fiber and our fuel, so we can't move everybody. People don't want to move, and there's so much promise located here.
So what I keep thinking about is how do we complete the promise? There is wealth in rural America. We're thought of globally as having wealthy rural areas. But there are too many places left outside of the promise.
CDFIs have in their very DNA the job of “leave no one behind.” Finish the economic knitting together of rural and urban, finish the economic knitting together of communities so that everyone moves forward.
It's interesting that you said “knitting together,” because at the summit [Urban Institute’s] Erica Poethig said there's more in common here than we often think about, and she urged us to talk about the things that both urban and rural areas have in common, to think about them as interdependent regions as opposed to these two very separate places.
Mensah: Right. We've known for a long time, the way economies thrive is interdependent. You don't have to put everything in one tiny community, but you have to be able to link. And then, you need enough in rural areas. You need enough to make it thrive.
One of the things that's been fun for me [is] to come into a position that works on community facilities, housing, [and] critical infrastructure like broadband. I'm deliberately not isolated to saying only businesses. I get to spend time on all of those areas, because those are part of our portfolio.
Are there specific things that urban-focused CDFIs may have to understand or think about differently to better serve the rural parts of their service areas?
Mensah: Well, I think most CDFIs have big hearts, but they're pretty careful about their mission, because they have to match money to mission. That's what's fun about the discipline of a CDFI. You can have a big, caring development heart, but you're making loans, which is kind of a tough, hard-nose business, so you've got soft and hard.
We work with CDFIs to create business opportunities under a few of our programs, or our rural micro-enterprise program. I hope CDFIs are looking at us for those.
But, in a recent re-lending program, what we pushed for CDFIs to join us on [is] facilities lending, which is more long term, which is more like project finance, and where a lot of CDFIs have already got some chops, some experience financing the daycare facility, or financing the senior center. The CDFI has done it because they realize that, without key supports for place, the other things don't work. You can't be driving your kid 20 miles to a daycare center in order to work in rural America.
I think it is exciting to lead a department at the U.S. Department of Agriculture, where we are investors in facilities, and where we can team up with CDFIs who want to finance those kinds of facilities.
If an organization is interested in that, what's their next step at this point?
Mensah: We did, first-time ever, a special effort, a re-lending effort, and those applications came to us in August, and we made the first 26 decisions in September. So that first wave was really intense, brutish, short, as they say, and we are very excited that group is the first group to borrow from us $401 million to re-lend to facilities. We'll be closing those loans and expecting them to start re-lending those funds. Those are 40-year funds from us at 2-3/4 percent.
For future CDFIs, we want you to keep looking at us. We're just catching our breath from this wave. But we're hoping that CDFIs, even if they missed this opportunity to be a re-lender with us, we hope this has increased exposure to our programs. CDFIs are often the first to put a nose to the deal. They are talking with local mayors. They are talking with local civic groups. They know what's on the horizon.
So, I would hope, even in this very fiscal year, if a CDFI didn't borrow from us to be a re-lender, I hope they'd be in touch with our state offices, with our local staff, and know we're open for business. We've got 40-year money that we put into communities of under 20,000 [residents]. And if we don't do it on your balance sheet, I hope you'll work with us to identify those deals and help your communities. I haven't met a CDFI who doesn't like networking and connecting. That seems to be in the DNA. So we want to put ourselves out there as partners with funds and with mission to deliver these funds in communities of under 20,000.
And what about small business? What would you recommend to CDFIs who are looking at trying to be more of a presence in their rural areas on small business? How is it different? How is it similar? What are some of the things that are important to notice [for] those areas?
Mensah: Well, we all know that, for many rural areas, small businesses will be the job creators, the jobs that stay, the jobs that give people real livelihoods. So it is no surprise that [many] CDFIs have had an enterprise theme. When you're partnering with us, there are a couple portfolios that you should be aware of, both our micro-enterprise fund and our intermediary loan program.
This is often the toughest kind of lending, because businesses come to you in all shapes and sizes. They come with all kinds of trajectories. Not everyone is ready for traditional formal capital markets, so CDFIs are often a bridge to formal capital markets. Sometimes they stick with their borrowers over time.
I think I've always felt that, as business lenders, CDFIs’ big role is to see deals at an early stage and to do more than just see glossy financials and run a cash flow analysis on them. I got to do that more when I was a banker when publicly traded companies came to us. CDFIs get to see enterprises at an earlier stage. For government, where we're often good is we have long-term sources of capital, and often we are the guarantor. We guarantee other lenders.
So, I hope that CDFIs think of us as a key partner. It may take a couple of layers of finance to get a company financed, so you may need that deal from a traditional bank. You may need us to be guaranteeing some piece of that. It's clearly an area of great need.
A lot of the businesses in rural areas have some sort of agriculture component. Are there conversations, or money, for helping those businesses prepare for and adapt to climate change?
Mensah: Very much so. It's been a hallmark of this administration, that we want to help the entire rural economy, and the entire economy, transition to cleaner and greener sources of energy. A lot of our programs align with that. Two of our programs, both the REAP loan and grant program (great agricultural acronym, Rural Energy Assistance) specifically target businesses who want to do efficiency upgrades that are better for the environment and better for the bottom line.
There's the energy efficiency side, and there's also dealing with the effects. Are they going to be able to grow the same things, or have the same weather patterns, things affecting the land, which is a harder question to deal with.
It's harder. I have a lot of confidence in the commitment and the ingenuity. Our ag sector has weathered a lot of storms.
Jill Stuckey (Georgia State director for rural development): And we have a great example in Georgia, because here in Georgia our climate has changing. We now have an olive oil industry in Georgia. We're growing olives. We couldn't have done that 10 years ago. We're also now looking at a pomegranate project, which before it was traditionally south of Georgia. There's opportunities and there's challenges.
If we skip back to housing, a question has come up a lot recently is about the challenges of flood insurance. The lower income populations tend to be in the places that are flooding the most, and so they're getting hit harder by the increases in flood insurance and the requirements. Does that interact with [USDA] housing programs at all?
Mensah: I don't have a specific example of any change in policy that we've made. One of the things that I'm very proud of of our housing programs is how closely they work with low- and very low-income borrowers. Our direct housing program and the way we guarantee the mortgages of others are really directed to keep low-income, lower income households in their homes. And our ability to work with borrowers helped us during the crisis.
So, I don't have a specific answer to you on changes in insurance, but I can say that we have one of the strongest mortgages in the industry. I think we were able to expand our programs, expand the market's ability to do housing in rural areas, because Congress already gave us the right to have a guaranty program.
These tough years for housing for rural America and for lower income rural Americans were actually years where rural development stepped up. We've had significant growth in our housing programs, both our guaranteed loans and our direct loans. So, it's been an area of personal pride to me to see low-income Americans get more homes. We've made huge gains, so very proud of that. We're over $1 billion this year of home mortgages directly.
I was speaking with someone who works in Montana, and she was saying one of the things she's most concerned about is the need for recapitalizing the 515 properties, that there's so many and that they are the key affordable housing resource in many of these communities, and that they're going to need recapitalizing soon. She's concerned about losing them, or maintaining the quality. Can you talk a little bit about those properties?
Mensah: Well, the multifamily portfolio of rural development, our 515 properties, 14,000 properties, it's really a jewel. And it took so many decades to build these properties. We had some of our largest expansion in the 1970s and 1980s of construction of these multi-family [buildings]. It was inspired by the devastating conditions that we saw in the 1960s and prior. So, that was a huge success of the housing movement, to build, in cooperation with private developers, thousands of multifamily properties.
So, no surprise that in 2016 some of those mortgages that were made are coming due. It is time to think hard about preservation, about transferring properties to new owners who want to reinvest, about the new technologies we have to make properties again more energy efficient, upgrades to those. So, this is an issue that we welcome and are focused on. This has been a big year for us. [We put out] some new tools for the community to understand where every one of those properties is located and when mortgages are coming due.
It's not an immediate issue, but it's an immediate issue. Meaning we're not going to lose huge units in the immediate year or two, but it's certainly an immediate issue to take seriously. I count it as a point of privilege that we have 14,000 properties in our care. I understand those [residents] are workers. Those are grandparents. Those are people for whom having affordable rental housing is critical to their ability to work and have a good life in rural America. So, [it’s a] huge point of pride that we've made great strides in both how we think about this as a cohort, how we get more information, and how we get serious about the next generation of owners and expansion of this program.
There’s been a decrease in the amount of field staff from USDA. Is there going to be a use of nonprofit organizations to step into that gap? Or how is that going to be handled?
Mensah: Well, there's no question that change has happened. There was one time not too long ago that my agency was double its size. It probably had 10,000 people. With the start of this administration, we were probably over 6,000. We're a little under 5,000 now. Two things: every one of these jobs is crucial, and they're great jobs. We're a field-based agency that needs hands and legs to deliver its work. So, we're not going to get out of the business of representing the Department of Agriculture in rural America. [Rural development’s programs], along with most of the agency's programs, are delivered in offices. We're not people that just sit in capital cities and try to figure out rural America. However, the reality is that it's a tougher budget climate for every activity at the federal level, so it's been hard to grow.
But, we've done two things. We've become more efficient with some of our processes and some of our technologies. And I never give up arguing for the people we need, because we have grown.
The powerful thing is that, while our staff may have shrunk, no one expected us to be a well over $200 billion program, delivering more and more and more, nearly $30 billion of investment every year. So, if you could have looked back and said would we be doing as much with the current number, probably no one would have predicted we have, and we've done so successfully and with very low default rates.
So, I look forward to seeing a robust team. I think it's one of our best weapons, that we have people who love this agency and work over decades for it. It's no question, more hands would be great, but we're seriously investing in our people. It's key to doing this work.
(Image courtesy of Brainerd Dispatch).
Thank you for this interesting and informative interview. Lisa Mensah’s leadership and optimism is greatly appreciated by many of us living and working in rural America.