Idaho Commerce Director Don Dietrich assured House and Senate budget writers Tuesday that federal funds will "backstop" deep cuts in rural development grants.

But lawmakers worried that $2.5 million in proposed cuts would make economic recovery harder for Idaho's smaller communities. Those grants help communities pay for infrastructure like sewers that help attract and expand businesses.

"It sounds like a de-emphasis of the rural programs through your department," said Rep. Frank Henderson, R-Post Falls. "I hope that's not true."

The recession has reduced the demand for rural development funds, Dietrich said. Federal Community Development Block Grants can be used to meet that demand, he said. But Joint Finance-Appropriations Committee Co-chairman Sen. Dean Cameron, R-Rupert, told Dietrich that times like these demand that his agency do even more to drum up economic activity.

"It seems to me that if there isn't the demand, one of the things the department could be doing is trying to generate the demand," Cameron said. "I think it requires not a diminished effort, but an increased effort in working with those local communities and working with those small businesses to advance forward."

Gov. Butch Otter recommended $2.6 million in general fund cuts for Commerce but added $717,000 to support his Project 60 effort to expand the state's economic activity to $60 billion annually.

Cameron suggested more holdbacks could be coming, with reduced tax collections as the economy slows even further.

But neither budget writers nor Dietrich talked about the potential of federal stimulus funding. Both the House and Senate versions, which could be reconciled in a conference committee this week, include significant funds that would come to states through the federal Community Block Development Grant program.

The Idaho Commerce Department still has leftover state funds in its coffers, and it is prepared to help rural communities tap both its funds and HUD funds, said Bibiana Nertney, a department spokeswoman.

"If those funds grow or shrink, we'll continue to help communities qualify for those funds," she said.

Rocky Barker: 377-6484