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March 9, 2000, Thursday

SECTION: PREPARED TESTIMONY

LENGTH: 4484 words

HEADLINE: PREPARED TESTIMONY OF KEITH KELLY ADMINISTRATOR FARM SERVICE AGENCY

BEFORE THE HOUSE APPROPRIATIONS COMMITTEE SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND RELATED AGENCIES

BODY:
Mr. Chairman and Members of the Subcommittee, I am pleased to present the fiscal year 2001 budget for the Farm Service Agency (FSA). This budget focuses on a response to the continuing economic hardships facing much of agriculture. As you know, FY 2000 is setting new records in two major areas: Commodity Credit Corporation (CCC) net outlays are expected to reach an all-time high of $27.7 billion, and farm loan programs are providing loans and loan guarantees amounting to $5.8 billion. While this assistance is enabling most producers to keep their farming operations afloat, depressed commodity prices are forecast to continue into FY 2001. In this context, the budget for FY 2001 emphasizes timely delivery of the programs currently in place to assist producers through difficult times, and it offers a number of proposals to strengthen the safety net for those in the farm sector who are not sharing in the overall prosperity being enjoyed across the nation. COMMODITY CREDIT CORPORATION

Domestic farm commodity price and income support programs are administered by the Farm Service Ageno/and financed through the CCC, a government entity for which FSA provides operating personnel. The CCC is also the source of funding for the Conservation Reserve Program administered by FSA as well as many of the conservation programs administered by the Natural Resources Conservation Service (NRCS), and it funds many of the export programs administered by the Foreign Agricultural Service (FAS). When called upon, CCC also finances various disaster assistance programs authorized by Congress. The Corporation borrows funds from the Treasury to finance CCC programs. Commodity support operations, handled primarily through loans, payment programs and some limited purchase programs, currently include those for wheat, corn, soybeans, minor oilseed crops, cotton (upland and extra long staple), rice, tobacco, milk and milk products, barley, oats, sorghum, peanuts and sugar.

Program Outlays

The current 2001 budget estimates largely reflect estimated supply and demand conditions for the 2000 crop based on November data. Commodity Credit Corporation net expenditures for fiscal year 2001, including proposed "Safety Net" legislation outlays of $3.6 billion, are estimated at $19.0 billion, down $8.7 billion from a record high expenditure level of $27.7 billion --- including $700 million in proposed legislation outlays --- in fiscal year 2000. The previous record CCC expenditure level occurred in FY 1986, when net outlays were $25.8 billion.

The net decrease of $8.7 billion in projected FY 2001 CCC expenditures reflects the expiration of $5.8 billion of 2000 marketing loss assistance payments, the expiration of $1.3 billion of 2000 crop loss assistance, the expiration of $210 million of 2000 emergency livestock assistance, a decrease in production flexibility payments of $992 million, a decrease in commodity net lending of $595 million, a projected decrease of $848 million in loan deficiency payments from the huge levels of FY 2000, a decrease of $130 million in Section 416 ocean transportation, and a decrease in other direct producer payments and expenditures of $369 million.

The following "Safety Net" legislative proposals are included in the budget for commodity, conservation, and other CCC-funded programs.

CCC Program Initiatives

Supplemental income assistance is proposed for crop year 2000 and 2001 to eligible producers of wheat, feed grains, rice, upland cotton and oilseeds. The payments would be made only if projected gross income, including other Government payments, from the crop falls below 92 percent of the preceding 5-year average. The supplementary payments would be crop specific and would be based on actual production rather than some historical base. The proposed program will provide payments only to current producers of those crops with low prices and income. It is estimated that $600 million in assistance will be provided in FY 2000, $2.5 billion in FY 2001 and $2.5 billion in FY 2002.

Total funding proposed for cooperative development for new livestock and other processing cooperatives includes $80 million in FY 2001 and $50 million in FY 2002. The fund would be used to provide equity capital for new cooperatives and help finance the construction of cooperative-owned, value-added, processing facilities needed to counter concentration and retain income in rural areas. The fund would provide financing and obtain an equity interest in new processing cooperatives.

The initiatives propose to modify the Non-insured Assistance Program areawide trigger requirement so that producers with individual qualifying losses in areas that have been designated for natural disasters are able to receive program assistance. This change will provide an additional $110 million of assistance in both FY 2000 and 2001.

Extension of the dairy price support program is proposed. Current appropriations language extended the dairy price support to January 1, 2001; however, this proposal further extends the dairy price support program to January 2003. Under this proposal, $150 million is estimated to be spent to support dairy prices for fiscal years 2001 and 2002.

Legislation will also be proposed to enable unused balances in the Export Enhancement Program during fiscal year 2000 to be transferred to other USDA export promotion and food aid programs.

In April 1996, a cap of $275 million for CCC-funded automated data processing (ADP) obligations for fiscal year 1997 through 2002 was established by the 1996 Act.Subsequently, the Agricultural Research, Extension, and Education Reform Act of 1998 reduced the CCC ADP cap to $193 million. Finally, the fiscal year 1999 Appropriations Act (P.L. 105-277) again reduced the CCC ADP cap to $188 million. As it was last year, legislation is proposed to provide annual funding of $35 million in fiscal year 2001 and 2002 for Farm Service Agency computer systems to ensure essential system availability and continued ADP services in headquarters and field offices at bare minimum levels. This funding is critical because such expenditures were formerly funded under the legislated CCC ADP expenditure cap, and the new cap was depleted in early FY 2000. Without further funding, Mr. Chairman, it will be virtually impossible for FSA to adequately respond to the thrust of Service Center modernization or to ensure uninterrupted program delivery.

Conservation Programs Initiative

The FY 2001 President's Budget seeks an additional $1.1 billion in budget authority for a Conservation Programs Initiative. This is a key component of the Administration's Farm Safety Net Proposal to strengthen farm family income while promoting environmentally sound land management Within the $1.1 billion, increases are provided for five ongoing CCC-funded conservation programs: the Environmental Quality Incentives Program (EQIP), the Wetlands Reserve Program (WRP), the Conservation Reserve Program (CRP), the Farmland Protection Program (FFP), and the Wildlife Habitat Incentives Program (WHIP).

Also, under current law, an additional $125 million in bonuses will be offered to producers who enroll in CRP through the continuous signup. The Vice President announced these proposed conservation program initiatives on January 7. They include the following:

For EQIP, part of the President's Clean Water Action Plan, the annual authorized funding level would be increased from $200 million to $325 million. This program provides financial, technical and educational assistance to farmers and ranchers who wish to implement conservation practices for land currently in production.

Under WRP, which offers technical and financial assistance to farmers who wish to restore and protect agricultural wetlands, the Initiative would remove the current cumulative acreage cap of 975,000 acres, under which only 40,000 acres remain, and provide for the enrollment of an additional 210,000 acres in FY 2001 and an additional 250,000 acres in each subsequent year.

Funding provided by the 1996 Farm Bill for both FPP and WHIP has been exhausted. Under the Conservation Initiative, the FFP, which is also part of the President, s Lands Legacy Initiative, would be funded at $65 million annually. This program provides matching funds to State, local, and Tribal governments to purchase permanent easements and thereby protect farmland which may otherwise be threatened by urban and suburban sprawl. The Initiative also proposes $50 million annually for WHIP, which offers cost-share assistance to farmers and landowners for habitat restoration and technical assistance.The CRP provides farmers with technical and financial assistance in exchange for removing environmentally sensitive land from production for a 1 O- to 15-year period and implementing conservation practices. The CRP currently allows for up to 36.4 million acres to be enrolled. The President's Initiative would increase the enrollment cap by another 3.6 million acres to 40 million. Bonuses totaling up to $100 million in FY 2000 and up to $125 million each year in FY 2001 and FY 2002 would also be offered to producers who enroll land in CRP through continuous signup. These bonuses are expected to encourage enrollment of high environmental-value acreage, and are included in the CCC baseline. Legislation is also being proposed to provide CRP and WRP technical assistance of an additional $75 million for FY 2001.

The Initiative proposes a new $600 million Conservation Security Program (CSP), which would provide annual payments to farmers and ranchers who implement such conservation practices as nutrient management, grazing grassed waterways and windbreaks. Of the $600 million, $90 million (15 percent of the program) will be used by the NRCS to provide necessary technical assistance to farmers and ranchers.

CCC Outlays

Fiscal year 1999 net CCC outlays totaled over $19 billion, and outlays in FY 2000 are expected to reach an all-time high of $27 billion. The historical CCC outlay trend is shown on the following graph. (NOTE: Graph not transmittable)

Emergency/Assistance Outlays

The 1999 appropriations bill provided about $5.8 billion in budget authority to support farmers and rural communities with emergency assistance. The FY 2000 Agriculture Appropriations Act (Public Law 106-78) and the Consolidated Appropriations Act (Public Law 106-113), authorized emergency disaster and market loss assistance to producers of almost $9.0 billion in budget authority using several programs.

Reimbursement for Realized Losses

Mr. Chairman, the fiscal year 1999 appropriation for reimbursement of CCC net realized losses was $8.4 billion. This appropriation reflected reimbursement for net realized losses which covered the actual amount of unreimbursed losses incurred two years earlier.

The FY 2000 appropriation for reimbursement of net realized losses was $30.037 billion, an increase of $21.637 billion from the FY 1999 appropriation of $8.4 billion. The appropriation reimbursed CCC for the remaining unreimbursed net realized losses for fiscal years 1997 and 1998, and all of 1999 actual losses. The appropriation enacted by Congress for fiscal year 2000 to reimburse the Corporation for net realized losses was a current, indefinite appropriation. This provided CCC with the flexibility to request funds as needed from Treasury, up to actual losses recorded for the most recent actual year. Without this current, indefinite appropriation, CCC would have been unable to fully replenish its borrowing authority at the beginning of fiscal year 2000, and timely assistance to farmers would have been jeopardized due to insufficient borrowing authority. We appreciate the help of Congress in providing that critical funding authority, with the flexibility it permits to finance unanticipated legislative requirements.

The 2001 budget reflects a request to again revise the current appropriation language to eliminate the requirement that only allows reimbursement for actual realized losses recorded in CCC books as of the end of the preceding year. Our request provides a current, indefinite appropriation to reimburse the Corporation for all actual net realized losses, even if incurred in the current fiscal year.

Conservation Reserve Program

CRP is USDA's largest conservation/environmental program. The purpose of CRP, administered by FSA, is to cost-effectively assist farm owners and operators in conserving and improving soil, water, air, and wildlife resources by converting highly erodible and other environmentally sensitive acreage normally devoted to the production of agricultural commodities to a long-term resource-conserving cover. CRP participants enroll contracts for periods from 10 to 15 years in exchange for annual rental payments and cost-share and technical assistance for installing approved conservation practices. CRP acreage also contributes to the USDA Conservation Buffer Initiative and the Conservation Reserve Enhancement Program, which are part of the Administration's Clean Water Action Plan and are estimated to enroll 4.2 million acres through 2002. Also, in rules adopted after the 1996 Act, USDA reinstated the eligibility of certain cropped wetlands.

In fiscal year 1999, a general CRP signup (signup 18) was held from October 26 through December 11, 1998. Of the 7.1 million acres offered, a total of 5 million acres was approved for enrollment beginning in FY 2000. The national average annual rental payment for this acreage is estimated to be about $46 per acre. Technical assistance for this signup was funded with unobligated appropriated funds and authorized CCC funds. Rental payments for signup 18 begin in fiscal year 2001.

Another general CRP signup was held January 18 through February 11, 2000. We are in the process of collecting bid data from our field offices and expect to make final enrollment decisions and offers in April.

In FY 2000, CCC made payments of approximately $1.450 billion for rental costs and will make payments of about $124 million for sharing the cost of permanent cover on replacement acres. For FY 2001, the Budget projects CCC program costs of approximately $1.690 billion, consisting of $1.567 billion for rental payments on previously enrolled and extended acres and $123 million for cost-share assistance for permanent cover on enrolled acres. Rental payments for FY 2001 are not affected by the 20th signup which just concluded, since rental payments are not due until FY 2002.

I. FARM LOAN PROGRAMS

The loan programs funded through the Agricultural Credit Insurance Fund (ACIF) provide a variety of loans and loan guarantees to farm families who would otherwise be unable to obtain credit. In times of economic stress, access to adequate farm credit is often the only way for some farmers to continue their operations.

As a result of the continuing financial hardship in much of the agricultural sector, the demand for FSA loans and loan guarantees remains very high in FY 2000. However, the record $5.6 billion loan level that Congress provided for FY 2000 is expected to meet the strong demand. The 2001 budget likewise responds to an anticipated high demand by providing a total program level of about $4.6 billion in loans and guarantees, an increase of $1.5 billion, excluding emergency funds. The largest segment of FSA lending is carried out in partnership with private lenders through the guarantee programs, and this budget continues strong support for guaranteed loans, with a proposed program level of nearly $3.5 billion.

For direct farm ownership loans we are requesting a loan level of $128 million, the same as the FY 2000 appropriated level, excluding supplemental funding.

The proposed program level would enable FSA to extend credit to about 1,250 small and beginning farmers to purchase or maintain a family farm, about 500 fewer than estimated for the current fiscal year. The agency has established annual county-by-county participation targets for members of socially disadvantaged groups, based on demographic data. Also, seventy percent of direct farm ownership loans are reserved for beginning farmers, and about 35 percent are made at a reduced interest rate to limited resource borrowers, who may also be beginning farmers. For direct farm operating loans we are requesting a program level of $700 million, $200 million above the 2000 level excluding supplemental funding, to provide over 14,400 loans to family farmers.

For guaranteed farm ownership loans in fiscal year 2001, we are requesting a loan level of $1 billion, the same as 2000. This program level will give over 4,500 farmers the opportunity to either acquire their own farm or to save an existing one. For guaranteed farm operating loans we propose a fiscal year 2001 program level of nearly $2.5 billion, compared to $2.9 billion in 2000. This level will enable approximately 16,600 producers to finance their farming operations.

The Budget also proposes $150 million in emergency disaster loans in fiscal year 2001, sufficient to provide approximately 1,800 low- interest loans to producers whose farming operations have been damaged by natural disasters. We are proposing to dose the eligibility gap between USDA and Small Business Administration emergency loans so that in times of natural disaster every size farm and ag business has a place to turn for emergency assistance. In addition, our budget proposes just over $2 million for Indian tribe land acquisition loans and $100 million for boll weevil eradication loans.

OTHER APPROPRIATED PROGRAMS

State Mediation Grants

State Mediation Grants assist States in developing programs to deal with disputes involving a variety of agricultural issues -- distressed farm loans, wetland determinations, conservation compliance, pesticides, and others. Operated primarily by State universities or departments of agriculture, the program provides neutral mediators to assist producers, primarily small farmers, in resolving disputes before they culminate in litigation or bankruptcy. Mediation, at about $500 per case, offers significant savings over national level administrative hearings, which cost about $3,000 to $4,000 per case in direct costs alone.

Participating States certify their programs with FSA annually. In FY 2000, 23 certified States have received grants.

The Budget requests $4 million, an increase of $1 million over FY 2000, to help participating States expand the range of issues they are able to mediate and to meet the rising demand expected as a result of the slump in the farm economy. This year's record volume of farm loan activity, particularly in the context of continuing economic stress for producers, can be expected to generate an increased number of conflicts needing mediation.

Authority for State Mediation Grants expires at the end of FY 2000. A legislative proposal is being submitted to reauthorize the program through FY 2005.

Emergency Conservation Program

The President's Budget requests no Emergency Conservation Program (ECP) funding for FY 2001. Although no new funding was provided in the FY 2000 Agriculture Appropriations Act, the FY 2000 Consolidated Appropriations Act provided supplemental funding of $50 million. With these funds as well as carryover unallocated balances remaining from FY 1999 and reallocation of unused portions of prior allocations, ECP has allocated about $62.2 million to States so far in FY 2000. All funding is likely to be allocated by the end of the fiscal year.

Dairy Indemnity Program

The Dairy Indemnity Program compensates dairy farmers and manufacturers who, through no fault of their own, suffer income losses on milk or milk products removed from commercial markets due to residues of certain chemicals or other toxic substances. Payees are required to reimburse the Government if they recover their losses through other sources such as litigation. The FY 2001 appropriation request of $450 thousand would cover a higher than normal but not catastrophic level of claims.

ADMINISTRATIVE SUPPORT

The costs of administering all FSA programs are funded by a consolidated Salaries and Expenses (S&E) account. The account is comprised of direct appropriation, transfers from program loan accounts under credit reform procedures, user fees, and advances and reimbursements from various sources.

The FY 2001 Budget proposes funding of $1.095 billion from appropriated sources including credit reform transfers, a net increase of about $89.4 million over the FY 2000 level. The largest component of the increase reflects a change in source of financing rather than an actual increase in funding. Under Section 822 of the FY 2000 Agriculture Appropriations Act, $56 million was reimbursed to the S&E account from CCC for program delivery costs in FY 2000. Based on economic assumptions used in the President's Budget, we estimated the need for $45.2 million in FY 2001 to carry out similar workload, which was expected to decline somewhat. Therefore the FY 2001 Budget proposes restoration of $45.2 million of the one-time CCC funding to the S&E appropriated baseline. Other items of increase include pay and related costs, a new funds control system for farm loan programs, reengineering of other farm loan program systems, and telecommunications costs. These increases are partially offset by decreases in some operating costs and a reduction in temporary employee staffing. Based on historical trends, the Budget also assumes that $16 million in carryover funding from FY 2000 will be available to support the proposed county office staffing level in 2001.

The Budget also proposes to adjust the proportion of total S&E funding that is provided by transfer from the Agricultural Credit Insurance Fund in order to accurately reflect the full cost of administering the farm loan programs in accordance with the Federal Credit Reform Act of 1990. Over the past 5 years, the transfer has remained virtually fiat and has not reflected approved pay raises and rising operating costs or an increase in the number of employees actually carrying out the farm loan programs. To rectify the accumulated imbalance and bring our accounts into compliance with credit reform requirements, we are proposing an increase of $55.5 million in the ACIF transfer amount for FY 2001. A corresponding decrease has been taken from the S&E direct appropriation component, although it is not readily discernible due to the aforementioned increase for baseline restoration.

Mr. Chairman, I would like to comment briefly on the current status of FSA's program delivery and the outlook for the months ahead.

As you know, 2000 is expected to be a record high for both CCC and farm loan program outlays, and the level of expenditures is mirrored in the FSA workload in county offices. We made maximum use of temporary employees early in the year to enable county offices to keep up with their workload and avoid the delays that were experienced during the early months of FY 1999. However, funding to retain these temporary employees is insufficient, and it has become necessary to begin dismissing many of them. Most will be off the payroll by mid- March. We have also encountered significant unbudgeted costs during FY 2000, including both contractor and in-house costs associated with the Pigford Consent Decree. We have also had to pay for maintenance of information technology operations from the S&E account due to the depletion of the CCC cap on ADP expenditures early this fiscal year. The 2001 Budget does propose an increase of $35 million in the ADP cap for 2001 and 2002, which would allow us to meet our minimum ADP operations requirements. However, in order to make any progress toward realizing the considerable benefits of a Common Computing Environment (CCE) for the county-based agencies, positive action by the Congress is needed on the Department's request for $75 million under the Office of the Chief Information Officer for CCE expenditures.

A key element in the success of this effort is the replacement of aging business and technology systems of these partner agencies that will allow sharing of data and implementation of streamlined business processes. The new technology will also allow these agencies to use modern business approaches such as the Internet to provide better access to programs for customers. However, until the CCE is fully operational, the service center agencies will have to continue to fund the outmoded existing systems to provide programs to customers.

The proposed $75 million in CCE funds for 2001 would fund essential capital investments needed to achieve the goal of a fully operational common computing environment in 2002 as set forth in the Department's Service Center Modernization Plan. These investments are needed to integrate the workstations and more fully achieve the benefits of shared systems and re-engineered business processes, in order to improve service to our customers.An important part of the effort to modernize field operations for FSA, the Natural Resources Conservation Service, and Rural Development agencies is the effective consolidation of three separate and largely redundant administrative systems into one under the proposed Support Services Bureau. Separate systems constitute a glaring inefficiency that needs to be eliminated. Consolidated support would be provided for information technology, financial management, travel, procurement, civil rights, and human resources management. These services would be provided under the direction of an Executive Director who would report to a board of directors comprised of the heads of the serviced agencies. Unfortunately, language in the FY 2000 Appropriations Act prevented us from implementing our plans for the Support Services Bureau. I ask the Committee to take a look at that language and work with us to move our operations into the modern world. By pooling resources in the administrative arena, each agency will be in a better position to provide greater program support

Before closing I would like to note that the Administration will soon transmit a legislative proposal to convert all non-Federal county office employees to Federal status in 2000. This change will allow greater accountability of all employees under one personnel system and improve efficiency of Agency operations.

Mr. Chairman, this concludes my statement. I will be happy to answer your questions and those of the other Subcommittee Members at any time.

END

LOAD-DATE: March 11, 2000

Document 27 of 79.


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