Blog for Rural America

The Center for Rural Affairs, a private, non-profit organization, is working to strengthen small businesses, family farms and ranches, and rural communities. Permission to reprint items from this web log is hereby granted, on the condition that clear credit is given to the original source of the material. If the blog provides information for a story, please let us know by sending an email to

Friday, April 21, 2006

Building Hope in Rural Colorado

Building Hope in Rural Colorado

by Jon Bailey, Center for Rural Affairs

Guest Commentary that appeared in the Denver Post on April 16, 2006

Rural Colorado needs more jobs and businesses for its future, especially in counties that face chronic population loss. There is a proposal that could create nearly 1,100 new businesses and several thousand new jobs in the 11 Colorado counties that have lost 10 percent or more of their population over the past 20 years. Senators Byron Dorgan, D-N.D., Chuck Hagel, R-Neb. and Colorado Democrat Ken Salazar have proposed the New Homestead Act, a legislative menu of incentives and policies to address rural depopulation.

One crucial provision of the bill would create Individual Homestead Accounts (IHAs), savings accounts (generally matched with public funds) that would allow tax-free withdrawals for specified purposes. Allowable uses include unreimbursed medical expenses; first-time home purchases; business development costs; and college expenses.

Any resident of a qualifying county would be allowed to create an IHA. Federal matching funds would be deposited into IHAs on a sliding scale based on income.

The Center for Rural Affairs has published a report - Building Wealth in Rural Communities: The New Homestead Act and Individual Homestead Accounts - examining the potential impact of the act on rural communities. Based on 2000 Census data, we estimate that more than 23,288 rural Colorado households would qualify for IHA matching funds.

Most of the New Homestead Act counties would qualify because they lack economic opportunity, leading to a downward spiral of decreasing population and declining economic activity. Individual Homestead Accounts have the potential to break this cycle by helping residents and newcomers in qualifying counties expand or create small businesses and jobs, purchase homes and obtain more education.

Self-employment and entrepreneurship are major factors in rural economic development. Entrepreneurship is the best option rural people have to create economic opportunities and jobs and counteract the decline in rural manufacturing and agricultural employment. IHAs would offer another economic development tool to promote rural entrepreneurship.

We estimate that nationwide, more than 153,000 businesses would be expanded or created and more than 268,000 jobs would be created in rural communities nationwide, and nearly 1,100 businesses in rural Colorado.

All states with qualifying counties would benefit from the IHA provision by creating jobs and businesses and enhancing local economic opportunities. And urban areas of states with New Homestead Act counties would benefit from a stronger rural economy.

While the Individual Homestead Account provision would benefit many rural people and communities, some minor changes would make the program stronger.

For example, home rehabilitation, renovation, and repair as well as home purchases for those who are not first-time home buyers should be allowable uses. And health insurance premiums should be "qualified medical expenses" to help the rural uninsured.

Moreover, business technical assistance and business planning should be qualified business costs. IHAs should be focused on helping more people in rural communities own and operate businesses and on providing a path for the success of those individuals and businesses.

The New Homestead Act has been introduced in Congress several times but has not yet become law. Coloradans who hope for and believe in a better future for their rural communities and state should urge their members of Congress to support the act.

Depopulation in many rural communities is tied to diminishing economic opportunities in rural America. Individual Homestead Accounts and the New Homestead Act offer a vision for creating true, nationwide ownership and opportunity society.

post a question or comment here or contact John Crabtree,

Center for Rural Affairs
Values. Worth. Action.


  • At 9:34 PM, Anonymous Anonymous said…

    I must be honest and admit firsthand that I'm not very knowledgeable on the Homestead Act, and while I feel that its something that should go into law, I'm a bit frustrated. I live in a small town and have a family. I want to continue to live in this community however I don't farm and I don't own or want to own a business. Exactly how many businesses can a small town have? Don't misunderstand me, I'm in full support of entrepreneurship and its importance, but there needs to be something done about the average small town resident who just wants to work and raise a family without owning their own business, shouldn't there?

  • At 10:05 PM, Blogger Charlie said…

    That idea sounds like it has promise.

  • At 10:15 PM, Blogger Center for Rural Affairs said…

    I certainly understand your frustration. One of the problems of rural economic development being focused on business recruitment models for so many years is that rural communities have lost decent jobs that pay a wage that support a family and in many cases either those jobs have not been replaced or they have been "replaced" with low wage jobs that do not support a family.

    We believe that the New Homestead Act holds promise for rural communities, not just because Individual Homestead Accounts can help someone start a business. But also because they could be used to help first time home owners, or help people receive more education that would help in the job market.

    None of these ideas, in and of themselves, address all of the challenges that people in rural communities face. But it would be a huge step, a break from the failed rural economic development policies of today, and a move toward creating opportunity for more people to make a decent living and raise their family and live in a decent home - all in a rural community.

    Thank you so much for your comments. If you have more ideas on what could be done for rural folks in circumstances similar to your own, I hope you will share them. Or, if you have other questions, please post again.

    John Crabtree
    Center for Rural Affairs
    Values. Worth. Action.

  • At 10:26 PM, Blogger Center for Rural Affairs said…

    Charlie, thanks for you post, I agree, Senator Dorgan, Senator Hagel and others have come up with a good idea in the New Homestead Act.

    I looked at your Blog and I see that you are a fan of our Senator Hagel. Thanks again for your comment. A call to your Senators in support of the New Homestead Act would be a big help, we could always use more Southern co-sponsors.

    John Crabtree
    Center for Rural Affairs
    Values. Worth. Action.

  • At 10:39 PM, Anonymous Anonymous said…

    I didn't want my first comment to be misunderstood. I do feel that the Homestead Act is something that should be passed. I just feel that as Mr. Crabtree responded that jobs are being replaced with low wage jobs and that some of us can fall through the cracks. What if you already own a home? I think that the government needs to take a good hard look at better wages for employees that work hard and support the business owners so that they can pay better wages. I don't know a business owner in my community that wouldn't love to pay their employees better and provide them with better benefits, but they can only afford so much. I don't know what other solutions can be made to keep people in the smaller towns. Its a tough situation that everyone is in. I do commend the Senators for at least coming up with this solution. Its definitly a start.

  • At 10:59 PM, Blogger Center for Rural Affairs said…

    Thank you for your additional comments. I certainly understood from your first post that you were supportive of the New Homestead Act. I hope that my response did not seem otherwise.

    I really do understand your frustration. A number of states are currently considering (and several have passed) increases in the minimum wage. Again, this is not an answer for everyone's situation. But it is a start.

    But we also have to recognize that the decline of unions and free trade agreements that have cost American good paying manufacturing jobs, yes, in rural communities too.

    Here are a few ideas that might be considered.

    What if states were more open to locating state jobs in rural communities. With computers and the potential for telecommuniting, more public employees could be located in home offices or in rural communities.

    Likewise, what about an initiative to provide work for larger companies in urban centers that could be done by rural small businesses or individuals instead of outsourced off-shore? Perhaps a clearinghouse of businesses and individuals available with the training and capacity to do the work and assistance with bidding for the work or linking companies with rural providers.

  • At 10:50 AM, Anonymous Anonymous said…

    so what exactly can Homestead Accounts be used for?

  • At 2:04 PM, Blogger Center for Rural Affairs said…

    The most recent version of the New Homestead Act (2005) would create Individual Homestead Accounts (IHAs), savings accounts (generally matched with public funds) that allow tax-free withdrawals for specified purposes in New Homestead Act counties. Allowable IHA uses include unreimbursed medical expenses; first-time home purchases; business development costs; and higher education expenses.

    While the Individual Homestead Account provision would benefit many rural people and communities, some minor changes would make the program stronger. For example, home rehabilitation, renovation, and repair as well as home purchases for those who are not first-time home buyers should be allowable uses. And health insurance premiums should be “qualified medical expenses” to help the rural uninsured.

    Moreover, business technical assistance and business planning should be qualified business costs. IHAs should be focused on helping more people in rural communities own and operate a business and providing a path for the success of those individuals and businesses. Targeting IHA business expenditures to owner-operated businesses provides focus and technical assistance and business planning make for a straighter path.

    The New Homestead Act has been introduced in Congress several times but has not yet become law.

    You can help move the New Homestead Act forward by contacting your Senators and Representative and urging them to co-sponsor the legislation when it is introduced.

  • At 7:42 PM, Anonymous Anonymous said…

    I think that John was really on to something when he said that maybe smaller towns can bring better jobs to their communities with bringing in state and federal jobs! With telecommunications and technology these days I think that is a very realistic thing that small communities should try to take advantage of.

  • At 8:56 AM, Anonymous Anonymous said…

    I would like to comment that it's great the government is finally starting to take a step in the right direction to help our rural communities. But I still have to say it's the surroundings of a rural community that truly generates potential for everyone. Most every rural town is surrounded by and was founded apon agriculture, so helping the prospects of a new breed and generation of beginning farmers become evential landowners and producers would a secure way of promoting rural counties again for everyone. We need to get out of the forced habit of telling anyone who wants to enter ag and our rural world that you have to be one of the big guys to qualify, that's not what America is about and believe it or not, no matter what they say about any growing community or business, you have to start with new blood and enterprenuers, and we can not expect them to start with a thousand acres and thousand head of livestock.

  • At 1:01 AM, Anonymous Anonymous said…

    I am the person who made the first comment about being frustrated. I've been reading the discussion that has continued and I have been thinking about this alot and I have one solution that I think Rural America needs to focus on.

    It isn't just entrepresneurship, it isn't just agriculture, it isn't just education and higher paying jobs...its diversity. I think that our lawmakers need to concentrate on DIVERSITY.

    We can't expect young people to take over the family farms without our lawmakers supporting them by doing something to make it cost effective for them to do it. We need the lawmakers to ban corporate farms and do something about the low grain prices.

    We can talk about how fortunate we are to have lower cost of living expenses all we want, but we can't expect young college graduates with huge student loans to come back with their degrees and try to make a living with the wages that are being paid.

    We can't expect corporations to want to expand to Rural America if there aren't people to work.

    We can't expect families to stay in the area if they can't receive benefits and just how can we expect businesses to stay open much less people opening businesses without these people to shop in their stores?

    I know I'm sounding kind of pessimistic but I think that with diversity we can make some positive changes.

    I think its time we start getting some young fresh blood in our local and state governments. I am personally sick and tired of the same incumbents running the same tired campaigns promising the same empty promises election after election.

    I'm sick of the naysayers making comments that the family farm is dead. Says who?

    Instead of sounding pessimistic like I just did...we need to start being more optimistic and make things happen.

    I do think that the Homestead Act is a great avenue. I do think we need to contact our Senators to make this happen and while we are on the phone or writing letters to them encouraging them to do just that, mention the word diversity to them.

  • At 5:03 AM, Anonymous Anonymous said…

    I would like to agree with the person who mentioned diversity. It's the right coarse and action. I commented previousley about the agriculture part of it. And would like to add, though it's hard to ban a business for being big, and that's the real problem for all who want to enter and many who want to remain, our agribusiness have became simply just to large, the competitiion has dwindled and so the prices have fallen, in all commodities, in no small part of our own governments policies and programs that were supposed to help our "family" farms stay aloft, but remember, everyone has family and the word is often abused in this business. We really need to take a hard look at what many of these ag businesses have become, monopolies. Does the current oil situation remind you of whats to come, what if food ever gets there, when only a handful control it from top to bottom in the words of "vertical intergration. So that leaves diversity for now and the ones who want to have a shot at the business, but the knowledge and support structure is not there for our hopeful new members. While some bright individuals have succeeded at diversity, it is a big challenge. Our universites and governments have to be challenged to actually help all of us including our rural townsfolk business oportunities become more diversified and ways to grow our businesses with niche markets, good rural labor products, decent wages, healthcare, and so on in a changing world. As of now it's all about becoming more productive and to be big, with few examples of how to start from little or scratch with room to grow. Another good point, we do need some real new blood in our state legislatures and local offices, it's time for better representation for our rural world and people who care enough to make the hard choices before we're all from ghost towns.

  • At 12:57 PM, Blogger Center for Rural Affairs said…

    I just read the two most recent posts and I must say thank you for your comments.

    Actually, I believe that microenterprise development (development of self-employment and businesses with 5 or fewer employees) in rural communities is an important way to promote diversity. The Center for Rural Affairs, for our part, is investing resources in diversity in this way.

    Our Hispanic Business Center, a part of our Rural Enterprise Assistance Project, works with rural Latino entrepreneurs in starting their own businesses in rural Nebraska. Likewise, our Women's Business Center, also part of REAP, works with rural women in starting their own businesses in rural communities.

    I understand fully the point of the person who posted about diversity that entrepreneurship is only part of the total picture of revitalizing rural communities. But it is something that we do well and therefore it is a focus of ours. We know that there are other solutions to the challenges faced by rural communities and we try to bring the strengths that we have to offer to the fore.

    Innovation in rural business, innovation in agriculture, entrepreneurship - all have a place alongside other changes in rurla communities that can create a diversity of thinking, and different way of looking at our communities that are of real benefit. Thank you again for your comments, I could not agree more and I hope this discussion continues. john

    John Crabtree
    Center for Rural Affairs
    Values. Worth. Action.

  • At 2:57 PM, Anonymous Anonymous said…

    The entire Great Plains greatly needs government assistance to stimulate and diversify the economy. We don't need handouts, we merely need the essential tools (investments) to put us on equal footing with the rest of the country.

    However, the worst thing that could happen is to receive funding for an expensive project that is likely to fail and I put this Homestead Act in that category.

    There are some parts of it that are very good, such as providing financing for entrepreneurs. However, many of the gimmics such as the savings accounts and credits are not significant enough to really make much of a difference in attracting residents or retaining youth. The program likely will waste much needed resources supplementing people who likely already want to live in this region for other reasons.

    There is a very successful model out there, the Appalachian Regional Commission. It does have some of the same important elements such as business financing, but it is largely (in dollar terms) focused on long term public infrastructure. The program has turned that region around over the past three decades.

    My biggest concern with the Homestead Act is that it is subsidy based. Any program based on annual subsidy will only be effective as long as the subsidies are in place. I think it could be a good bridge to work along with long-term infrastructure investments, who in themselves can not turn around a region in a short period of time.

    The Great Plains is a great place. We can look around and see many elements of where we are better or equal to the rest of the country. So why do we struggle? Not entirely, but largerly because we are not on equal footing with the rest of the country in infrastructure. Just look at the growth in Nebraska. With few exceptions, the I-80 corridor grows while the rest of the state ages.

    At the end of the day, I really do not see the Feds coming in to support this region given the long-term budget situation, focus on cutting taxes for the wealthy and fighting resource wars.

    We will need to do much of the investments on our own. Observing the NE governor's race with its focus on cutting spending and little disucussion on strategic investment, I don't see much hope there either.

    I really wish rural development advocates would quit their naive resistance to casino gambling. If even half of the funds of casino revenues were earmarked for rural economic development we could have a very, very signifanct resource to make a real impact. But of course, they would need to be earmarked for such.

  • At 3:43 PM, Anonymous Anonymous said…

    i understand much of what the previous poster said, and i agree with many of his observations, but not his conclusions. First, and foremost, he says that the federal government's "long term budget situation." I think it is important to remember that we did not get to our current budget situation over the long term, we got here in 5 years. One presidential term.

    People used to say the same things in the early 90's, no money, big deficits, no way to invest...

    But one, much maligned President with a hostile Congress changed all that in the same amount of time it took the current President to spend his way back to record deficits.

    We have a choice, if we have enough courage we can do the same thing again. I hope this time we remember the lesson.

  • At 4:24 PM, Anonymous Anonymous said…

    I really wish I could share your optimism that our Federal government will get back to surpluses, but today's landscape is far different from 1992.

    We weren't fighting expensive "wars that will not end in our lifetime," the baby boomers were not near retirement, personal debt was nowhere near where it is today, oil was cheap etc etc. More improtantly, there was an opposition party that was respected. The word "Liberal" is now a dirty word despite all the evil actions of the CONservatie party.

  • At 4:32 PM, Anonymous Anonymous said…

    LOL. Well, not many people that know me would ever call me optimistic. But I absolutely agree with your last post, things are very different.

    I would only argue, and my point was, politics is dynamic, not static, the way things are now are not the way things will be - could be worse, could be better - but I am not naive enough to believe that all the trendlines of today will continue on forever.

  • At 6:13 PM, Anonymous Anonymous said…

    I don't know about the rest of the New Homestead Act, but the portions that I read about in Mr. Bailey's post here - Individual Homestead Accounts - are not subsidy based, or at least are not based on annual subsidies as one of the previous posts described. IHA's, like IDA's, are savings based and the subsidy is matching funds on a sliding scale related to income (and only in qualifying counties).

    If someone saves money and the government matches that money when they go to start a business, etc., that is not an annual subsidy. And when an actual person, not some large corporation buys a house or a business, it makes them more tied to the community, not less so.

    I don't agree with a lot of what that poster said, but I definitely agree that we need to invest in infrastructure along with entrepreneurs. Actually, I don't think anyone here is really disagreeing too much, or not disagreeing on anything other than the finer points.

    thanks Jon, and thanks John

  • At 9:34 AM, Anonymous Anonymous said…

    I am THAT poster. When I discussed it being an annual subsidy, I was talking about the program. If the program only lasts three years, how much of the benfits will still be evident in 15 years given a declining multiplier. Build a road, a school etc and we still have growing benefits 25 years later.

    I also still question how much of the money will go to people who will live here regardless. This is an important question that should not be brushed off. (Retainage is good, but we need more than a way to slow decline)

    I think this is a good discussion, but we need a program that will make a significant impact, not provide a random alloaction of embellished feel good stories.

  • At 1:08 PM, Anonymous Anonymous said…

    OK, THAT poster, you had me in agreement until your most recent post, especially on investment in infrastructure.

    OK, OK, I am sure we still agree on most things. And I definitely agree that this has been a good discussion!

    But the point of a program that is focused on savings and building assets is that it HAS longevity, that the impact continues long after the programmatic investment in that individual. So, I guess we disagree there, but that's OK.

    You really lost me, however, with this line - "we need a program that will make a significant impact, not provide a random alloaction of embellished feel good stories."

    What if someone said to you, "the last thing that we need is to spend millions of dollars on are road leading to nowhere and schools that won't have any kids in 5 years...?"

    Of course, people who might say that would probably just be opposed to doing anything to help rural communities. But the "embellished feel good stories" comment is heading toward that kind of debate.

    I think both the idea of investing in savings and asset-building AND investing in infrastructure is possible. Can you explain to me why the two are mutually exclusive?

    Budget deficit or no, Congress spent a TON of money last year on roads and other infrastructure. Couldn't they spend a tiny fraction of that on rural strategies like those described by the Center for Rural Affairs?

    This really has been a good discussion, I guess I find myself of the side of the discussion that says, create more economic opportunity and that will help create rural community revitalization.

    BTW, I really respect the ideas that I have read about here - on all sides. If I have missed the points that others are trying to make, I hope they will comment again and "set me straight" LOL

    thanks everybody

  • At 3:01 PM, Anonymous Anonymous said…

    Mike: I am glad we still agree on most things especially that we want a good program for the Plains.

    First I will answer a few of your questions to me:

    -I agree a successful business has longevity, my question is Will a majority of the successful businesses be there only because of this program or will they just be taking advantage of it, kind of along the same lines of LB775 debate in many cases.

    - You wondered what I meant by: "we need a program that will make a significant impact, not provide a random alloaction of embellished feel good stories." Here is a quick example. Joe was going to start a business. Since this program is started he uses it even though he does not need to. The NHA program then embellishes and makes everyone feel good by saying, if it were not for the NHA........ Again along the lines of many LB775 examples.

    - What if someone said to you, "the last thing that we need is to spend millions of dollars on are road leading to nowhere and schools that won't have any kids in 5 years...?"

    I would agree with them. We have to use funds strategically and wisely. Again look at ARC success of having a strategic transportation plan geared toward ED rather than random "pork projects" than do not work toward an efficient network.

    - "I think both the idea of investing in savings and asset-building AND investing in infrastructure is possible. Can you explain to me why the two are mutually exclusive?"

    Obviously you have not read my comments especially my reference to the ARC model (do what works, right), I agree they are both important.

    Now lets look at the specifics, and please answer one of my original questions: Will these incentives really entice new residents and retain youth or will they merely subsidize people who were going to live and work in Plains anyhow?

    - Repay up to 50% of college loans for recent grads who live and work there for 5 years (maximum of $10,000)

    I have to committ five years for $2,000 a year or less, come on. The difference in wages urban to rural is more than this. Most of this will go to people, like me, who want to live in a rural area anyhow.

    -Provide a $5,000 tax credit for the home purchases of individuals who locate there for 5 years (or 10% of purchase price, whichever is lower)

    $1,000 a year. Hardly an incentive to pull someone from an appreciating housing market to a depriciating market. Of course I would have used it, but I was going to come anyhow.

    - Protect home values by allowing losses in home value to be deducted from federal income taxes

    There has to be more here than appears, I hope. This almost looks like a way to make it easier to LEAVE.

    -Establish Individual Homestead Accounts to help build savings and increase access to credit
    individuals can contribute a maximum of $2,500 per year for up to 5 years

    Sounds like a good tax dodge for the wealthy. (Read about how HSAs benefit the wealthy more) For working class, just look at how many can't afford to contribute to 401k. How much of this will go to people who really do not need it and were going to live here anyhow?

    -government can provide a match of 12.5-50% (depending on income)
    tax and penalty-free distributions can be made after 5 years for small business loans, education expenses, first-time home purchases, and unreimbursed medical expenses
    accounts can grow tax-free and all funds are available for withdrawal upon retirement

    Sounds good, although many of these incentives are available in other forms around country, but again, how much will go to people who are coming anyhow?

    As mentioned from the start, I think the incentives for businesses to expand or locate in high out-migration areas are needed, but again how much of these funds will "create" new growth and will they stay after the intial subsidy disappates. This is a legitimate question and even Ernie Goss questions this.

    I am not trying to be contankerous, I just want to make sure we are supporting a successful program.

  • At 3:40 PM, Anonymous Anonymous said…

    for those of us who are not as familiar with some of the specifics of your post

    what is LB775?
    who is Ernie Goss?

    I have been reading these posts with great interest, but I am not from Nebraska or Colorado, where I assume these references originate. Also, although the "debate" seems to be heating up a bit, perhaps a casual observation is in order? I do think that there is more agreement here than there is disagreement. Now, having said that, I hope the discussion continues to heat up :-)

  • At 10:00 PM, Anonymous Anonymous said…

    LB 775 is an economic development incentve program in NE that has legitimately helped create jobs, but has also padded the pockets of our largest and wealthiest companies who could have/would have expanded without assistance.

    Ernie Goss is a well respected Economist from Creighton University

  • At 10:02 PM, Blogger Center for Rural Affairs said…

    I am going to try to handle some of your questions. I hope that I capture the points that you have made. I appreciate the detailed and wonderfully intense discussion.

    I see that as I began this post, answers to two questions from another post were just answered.

    John Crabtree

  • At 11:00 PM, Blogger Center for Rural Affairs said…

    To your first question, will a majority of successful businesses that utlize Individual Homestead Accounts (IHA's) "be there only because of this program or will they just be taking advantage of it"

    I think it would be naive to say that any program will only benefit businesses that would not have otherwise existed. So, I will not say that of asset-building strategies, I cannot.

    However, based on our experience and the experience of others in this field, asset-building strategies and entrepreneurial development both have the capacity to address persistent, deep-rooted economic hardship that exists in many rural parts of the nation as well as the growing economic disparity between rural and urban communities.

    In Nebraska, the Center's REAP program (entrepreneurial development) has assisted over 4,000 small rural businesses get started and expand. Can I say that none of those 4,000 would have started without us? No. Can I say, 3,000? Well, maybe. Can I say 2,000 or even 2,500? Yes, with confidence. Because we work with each and every business and that is what we know from our direct contact. It is still anecdotal evidence, not statistics. But we are proud of these numbers.

    Your point about embellishment is well taken. It does happen, with just about every public program focused (directly or indirectly) on economic development. We (the Center) must avoid doing the same thing. We support the New Homestead Act, but we have also pushed for changes, some of which are meant to address some of your points. But many elements of this legislation have great merit, and our support for asset-building and entrepreneurial development strategies is unabashed, and will remain so because we have been doing this work for a long time, we know it works, and just as I said in a recent post we should "try what works."

    You will never, ever hear me (us) question the wisdom of strategic investment in infrastructure (but, we'll criticize some of the pork barrel infrastructure projects that Congress is becoming famous (infamous?) for, and we agree on that). We have worked with the ARC and have been good allies over the years. The Commission does good work.

    Clearly, everyone here agrees that investment in entrepreneurial development and infrastructure both have merit, that agreement makes me happy and hopeful.

    Your question about whether or not the New Homestead Act will truly entice people to live here who would not have otherwise deserves careful consideration.

    Our answer is yes, not everyone who benefits perhaps (see previous) but yes, it will help people make a home and perhaps start a business and remain in that rural community.

    Net outmigration from rural communities is, substantially, a product of limited economic opportunity. The IHA provision that allows withdrawls for business start would be extremely useful and have a real impact, not just on assisting with entrepreneurial startups but also with the success of those startups in early years.

    Consider, according to the National Association for the Self Employed, 70% of startup capital for microenterprises come from personal savings and credit cards. IHA's are a savings (and at some income levels, a savings matching) program, so IHA's would enhance the amount of a startup that could be funded through savings and not debt financed, increasing the likelyhood of success and longevity.

    As for credit cards, it seems clear that avoiding that form of debt financing for a business startup increases likelyhood of success and longevity.

    Jon Bailey's op-ed discusses some of the changes that we would like to see in the IHA provisions. I agree with you that the provision on deducting home value loss is troubling. Incentives like student loan repayment incentives, etc. would not, in my opinion, be as effectively targeted to those who would otherwise not be able to live in rural America, as you point out. I do not share the same concern that you have about IHA's serving as a tax-shelter for the wealthy (HSA evidence notwithstanding) because there are much better vehicles available to the investor class.

    I know that this is long and I probably have not addressed enough of your questions. I will try again, and strive for more brevity, if you will indulge me by asking again about things I overlooked.

    Let me close with this. Individual Development Accounts have been very successful where they have been applied. The poorer the constituency, the better they work. The data supports this and so do the stories of those who have used them. The lack of a barrier to entry, small amounts of savings, very small can still make a major difference to those who save and realize the federal match.

    Arguably, the best part of the New Homestead Act is that the authors recognize that traditional economic development models of industrial and business recruitment simply do not work for rural communities. The New Homestead Act invests in one strategy, namely asset-building, that is a radical departure from traditional economic development. Rural America needs more of that.

    John Crabtree
    Center for Rural Affairs
    Values. Worth. Action.

  • At 10:03 AM, Anonymous Anonymous said…

    Thanks for taking time to provide a detailed reply. It is clear, of the three sections, we both question Section 1's effectiveness, whereas with Sections II and III (the venture capital sections) we would probably agree they just need some tweaking (there is never perfect legislation.)

    I will still contend, this NHA is a program that will be more effective if viewed as a short term stimulus that serves as a bridge with long-term investments (which are far more costly and take longer to stimulate real growth), just as ARC does.

    The goal should be that eventually the subsidies are no longer needed and the infrastructure puts us in a situation where we can fairly compete with the rest of the country.

    Probably my biggest concern, and maybe I am missing something, is that the politicians may look at the NHA alone as a solution and neglect a real and effective long-term strategy.

  • At 10:27 AM, Blogger Center for Rural Affairs said…

    I really do not agree that it is a short term stimulus. I take your meaning, however, and I can accept the underlying premise.

    I wholeheartedly agree that coupling entrepreneurial development, asset-building strategies and improved farm policies with longer term investment in infrastructure and other ecnomically strategic investments - that sort of broad, holistic approach has more merit than any of the three by themselves.

    Your last paragraph is dead on. That is the most common Congressional response to any discussion about revitalizing rural communities. Congress will do one thing (not even necessary that it is a helpful thing - think about unlimited commodity program payments) and then many will turn around and say, "what more do you want...we just gave you a new road, or X million for economic devleopment, or X million in commodity program payments..." and then go about their business as if half a loaf is really a full loaf.

    I have no trouble debating priorities in tight budgetary times. In tight times, some times you get something, sometimes you don't and have to figure out a different plan. But when government provides only part of the solution to a challenge (like the challenges faced by rural communities) and then holds it out as the end all, that diminishes everything we are all trying to do. Remember, there are no silver bullets.


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