Mandated Financial Training for FSA/USDA Farm Borrowers

Ten years ago the U.S. farm sector was in the depths of a farm financial crisis that resulted in financial failure for an estimated 250,000 farms (Hanson, 1990). Cooperative Extension is now responding to a legacy of that crisis: the 1990 Farm Bill (The Food, Agriculture, Conservation and Trade Act of 1990) requires financial training for farm borrowers with the Farm Service Agency, U.S. Department of Agriculture (FSA/USDA).

*Final approval for vendor training proposals is generally provided by USDA-Washington. The exception, giving state directors authority to approve Extension proposals, represents an implicit expectation that Cooperative Extension will both participate and provide a high-quality product.

*Because FSA/USDA is officially regarded as the 'lender of last resort' for farmers denied credit by other lenders, the financial training is primarily directed at limited-resource/low net worth farmers.

This article outlines a Cooperative Extension approach to borrower education based on experiences from the 1994-95 financial workshop training cycle in Pennsylvania.

Organization, Structure and Content of the Financial Training

A team of 26 county agricultural and regional farm management Extension agents organized to lead the training in Pennsylvania. An Extension specialist developed the core instructional and workshop exercise materials. Multi-county farm management agents reviewed and revised the materials. Participating agents identified suitable workshop sites, typically a county Extension office conference room with satellite down-link technology. The key role of the participating agents was to provide on-site instruction and organizational leadership during the workshops. Based on the "Rules and Regulations" (Federal Register) published by the Federal Government, the following guidelines for the financial training were developed:

1. The length of training was 30 hours, five hours per day over six days.

2. Major finance topics taught were the balance sheet, income statement, cash flow budget, household budget, financial ratio analysis, fixing broken farm finances, andfinancial planning. Goal-setting and decision-makingmethods were incorporated as financial planning components.

3. Instruction methods combined presentation ofcore instruction concepts by satellite transmission or videotape, and on-site problem-solving exercises and quizzes.

4. Five minute video segments featured interviews withfarmers, with each interview addressing one of the core topics. This was to illustrate the importance of financial management in a real-life context.

5. Live question and answer sessions ended each day's training. Questions were received at the university television studio via telephone and fax.

6. Homework assignments included developing 1994 financial statements from own-farm financial records, and preparing 1995-98 production, investment, and household budget plans for the participants' farms.

Distance Learning Elements of The Workshops

Satellite broadcasts of core instructional segmentscontributed to the 'live' context of the workshop experience at the 18 workshop sites. Using satellite transmission provided a degree of group ownership to the 170 borrowers in attendance and the approximately 100spouses, sons/daughters and partners who participated. Key elements to the success of the workshops was the complementary use of both 20-30 minute broadcast and pre-taped video instruction periods followed by a 45 minute problem-solving exercise completed either individually or in groups.

Extension agents were generally pleased with the satellite uplink/downlink technology and its 'live' contribution to the training. However, agents expressed the following concerns with the live-broadcast component of distance education methods:

First, heavy reliance on live broadcasts can increase the probability of reception difficulties due to uncontrollable technical problems. Temporary transmission difficulties were experienced at several workshop sites over the course of the six day instruction period. Second, compared to pre-taped video instruction, live satellite broadcasts reduce the control of the site leader over the pacing of the presentation. Third, a trend to rising prices for purchase of satellite time increases budgetary exposure. Our view is that a combination of satellite transmissions AND pre-taped videos of core materials provides the benefits of live sessions, greater agent comfort with pacing of materials, and effective cost-control for the workshop budget.

Grading, Tuition, Costs, and Administration of the Borrower Training

As required by the federal regulations governing the training program, farmers were graded on a scale of 1-3. A 1 indicated 'pass,' a 2 indicated 'additional training required,' and a 3 indicated 'fail.' Eighty-six percent of the participants received a passing grade of '1.' Seven percent of the participants received a grade of '2,' requiring them to seek additional finance and record-keeping training from their FSA/USDA loan officer. Only three farmers, about 2% of the paid participants, were given a failing grade of '3.' However, nine farmers, about 5% of participants, did not complete the final two days of the course and received a grade of 'incomplete.' An 'incomplete' allows a participant to make-up missing workshop exercises and homework with the assistance of the site leader.

Given the presumed intent of the program to place Cooperative Extension and private sector vendors on an equal footing, cash costs for the program were fully recovered as were part of the personnel costs for the time allocated by Extension staff. Tuition of $290 per farm borrower covered the cost of workbooks and lunches for up to 2 participants from each farm. If requested, FSA/USDA is required to lend the farmer the fee as an additional component of farm operating costs.

Major expenses for the workshops on a participant basis were: meals ($90), purchase of satellite time ($56), reproduction of workshop materials including workbooks and pre- taped videos ($33), per diem and travel costs for in-service training ($21), payment of administrative costs to the Short Courses office of the College of Agricultural Sciences, Penn State ($18), and postage and supplies ($13). Total variable costs per participant were $231. The remaining $59 from the tuition fee provided a total overhead return of approximately $10,000 for services rendered by the studio production staff, Extension agents and the Extension specialist.

Variable costs per registrant will likely decline to less than $200 in the future, as some material development and agent training costs decline over time. Administration of accounting and financial transactions by the Short Courses Program at Penn State proved to be an efficient method to process tuition fees and accounts payable.

Evaluation of the Training

Participants achieved the following end-of-session exam scores on multiple-choice quizzes testing their knowledge of finance concepts: balance sheet, 76%; income statement, 82%; cash flow budget, 90%; and financial ratio analysis, 84%. These scores contrast with a pre-workshop score of 51% correct on a test of basic finance concepts.

FSA/USDA required an evaluation of participant satisfaction with the training. The following results indicate that farmers generally found the workshops to be satisfactory.

Implications for Future Borrower Training

A number of observations can be made about the borrower training workshops based on the development and coordination experiences of the university specialist in-charge and feedback from site leaders. Because FSA/USDA is a 'lender of last resort,' workshop participants tend to be farmers among the most in need of improved financial management while at the same time are among the least involved with traditional educational efforts often targeted at commercial-size, technologically-advanced farmers (Hanson, 1995).

TUITION LEVEL. Following the first day's instruction, there were few farmer complaints regarding the $290 tuition, of which $90 was used for cost of meals. The tuition fee of another approved vendor for financial training in Pennsylvania was $480. The higher-priced vendor received no applications, suggesting that ruition level is a sensitive issue to farmers. A practical rule is for tuition to cover 100 per cent of cash costs related to the financial training and to additionally reimbirse some share of the non-cash (overhead) costs of agent and specialist time dedicated to development of materials and workshop training.

MINIMUM HOURS OF INSTRUCTION. FSA/USDA encouraged 40 hours of finance instruction. Previous experience indicated that financial training of 10-20 hours was not adequate for farmers to demonstrate needed knowledge of financial statements. The 30 hour training in the Penn State program was the minimum for adequate coverage of the subject matter requirements published in the Federal Register.

QUIZZES AND GRADING. Our experience indicates that farmers found the multiple-choice quizzes a valuable learning experience. The grading requirements added a sense of achievement and gave enhanced value to the certificates of completion awarded at the end.

COMPLEXITY OF MATERIALS. It is absolutely critical to ensure that concepts are presented in a straight-forward and simple approach. For most participants, finance concepts were not well-understood until they were furtherdeveloped with problem- solving exercises, a core feature of Cooperative Extension workshop methods. Homework, based on own-farm records, both individualized and enhanced the learning experience.

COORDINATION ACROSS STATE LINES. In so far as farm enterprises and agronomic conditions are similar, interstate coordination of Cooperative Extension specialists and agents is likely to enhance workshop success. Coordination reduces the need for each state to develop its own unique set of instruction materials.

DISTANCE LEARNING APPLICABILITY. The borrower training is especially suitable for distance learning methods given budget and time limitations for university specialists and declining numbers of farm management agents in the field. A combination of live satellite transmissions and pretaped videos offers the benefits of live television instruction with the time-flexibility and cost-savings of pre-taped video cassettes.

An Education Opportunity for Cooperative Extension

Mandated financial training for FSA/USDA borrowers provides Cooperative Extension a unique adult-education opportunity. A key to a successful workshop for the limited-resource, FSA/USDA farmers is an unrelenting focus on the clarity/simplicity of instructional materials. A second key to educational programming success is the generous use of workshop exercises and homework based on own-farm financial records as well as case-farms. The continuing status of borrower trainingrequirements provided by the 1990 Farm Bill results in on-going education dividends from the initial investment in the development of workshop materials and methods.

The mandated borrower training also presents an unusual opportunity for Cooperative Extension to develop linked education efforts across state boundaries. Coordinated, multi-state Extension programs can particularly benefit from the adoption of distance learning methods in the context of a workshop approach to training.

Hanson, G. D. (1990). Beyond the farm debt crisis. Choices, Fourth Quarter, pp. 33-35.

Hanson, G. D. (1995, August). Adoption of intensive grazing systems [15691 bytes]. Journal of Extension [On)line journal], 33(4). Available E)mail: almanac@joe.org Message: send joe august 1995 research 3

Rules and Regulations. (1993). Federal Register 58, no. 249, 30 December, 69190-98.