WASHINGTON, July 30, 2014 – USDA and rural lender CoBank last week announced the creation of a fund designed to entice some of Wall Street’s wealthiest investors to back infrastructure projects in rural America. CoBank pledged $10 billion for the U.S. Rural Infrastructure Opportunity Fund, and USDA is hopeful more investments will follow.
The announcement didn’t create any new program, but rather a larger scope for programs already in place. USDA and CoBank each already offer infrastructure loans, but now the two will work together to group projects involving smaller loans, making investing in the projects more appealing to the private sector.
“In talking to the New York City pension folks yesterday, they have no interest in one-off projects in rural America,” Vilsack said Thursday at the White House Rural Opportunity Investment Conference in Washington. “They’re just simply not large enough for them to take the time to commit the resources to look at one project.”
Vilsack described a hypothetical scenario where USDA might contribute $50 million to a general grouping of wastewater projects, the infrastructure fund might contribute $150 million, and a pitch could be made to private sector investors to contribute to a project backed by CoBank and the federal government. Instead of past programs where USDA’s $50 million funded two or three projects, the outside contributions would enable USDA funding to be stretched further.
“This is a different and more creative and more partnership-oriented system where USDA is catalyzing and bridging and encouraging and challenging the private sector to work,” Vilsack said.
CoBank CEO Bob Engel said that he hoped his company could provide the “Good Housekeeping Seal” for outside investors unfamiliar with USDA and show that loans of the variety the fund will support are safe investments.
“There’s two reasons people repay loans, one is capacity and the other is willingness,” Engel said in an interview on Tuesday. “The beauty of rural America is people want to repay their loans.”
USDA Rural Development currently offers loans for projects that are similar to those the infrastructure fund might consider. A USDA spokesman said the program’s total investment for 2013 in three categories -- housing and community facilities, utilities, and business and cooperative categories – amounted to nearly $5.2 billion. Leveraged funds -- outside investments that could come from private companies or state and local governments -– for the same period totaled about $3.3 billion. Vilsack said USDA is also engaged in $20 to $30 billion in infrastructure activity every year and has a waiting list of sorts for projects that need funding.
Engel estimated CoBank currently has rural infrastructure loans that take up about $30 billion of the bank’s roughly $100 billion bottom line.
Vilsack said the proven success of leveraging funds with outside sources demonstrates the potential for this new initiative.
“We (at USDA) know where investment opportunities exist, so we are in a position to help promote these projects among investors,” Vilsack said in a press release. “With new efforts like this we can move beyond existing programs and help encourage substantial private investment in projects that grow the economy and improve quality of life for millions of Americans.”
In an effort to demonstrate immediate private sector interest, Vilsack showed up to a press event with a fistful of business cards he said were given to him by people interested in contributing to infrastructure funding.
Several months ago, CoBank and seven other lenders in the Farm Credit System put up nearly $150 million to create the Rural Business Investment Co. The RBIC is a fund designed to “focus on investments that help rural communities and industries,” including businesses involved in production agriculture, agricultural product marketing, and input suppliers, rather than focusing on infrastructure. CoBank and USDA will play an active role in the infrastructure fund, while RBIC is managed entirely by Advantage Capital Partners.
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