Copyright 2000 Federal News Service, Inc.
Federal News Service
February 29, 2000, Tuesday
SECTION: PREPARED TESTIMONY
LENGTH: 4470 words
HEADLINE:
PREPARED TESTIMONY OF KEITH KELLY ADMINISTRATOR FARM SERVICE AGENCY
BEFORE THE SENATE APPROPRIATIONS COMMITTEE SUBCOMMITTEE ON
AGRICULTURE, RURAL DEVELOPMENT 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 Agency 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 Presidents 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 Presidents
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 10- 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.(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 to reimburse the Corporation for
net realized losses enacted by Congress for fiscal year 2000 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. Mr. Chairman, we appreciate your help in
providing that critical funding authority.
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.
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 or 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 close 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 $58.6 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&Eaccount 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
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