SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 3481 words

COMMITTEE: SENATE APPROPRIATIONS

HEADLINE: FY 2003 APPROPRIATION

TESTIMONY-BY: JAMES R. LITTLE,, ADMINISTRATOR,

AFFILIATION: FARM SERVICE AGENCY

BODY:
FARM SERVICE AGENCY

Statement of James R. Little, Administrator Before the Subcommittee on Agriculture, Rural Development, and Related Agencies

March 14, 2002

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to present the fiscal year (FY) 2003 budget for the Farm Service Agency (FSA).

The President's Budget for FSA and the Commodity Credit Corporation (CCC) provides for spending increases of $73.5 billion over the baseline estimates for the FY 2002-2011 period, consistent with the tenets of the congressional Budget Resolution for those fiscal years. About $69 billion of this increase covers CCC-funded activities, including farm commodity and income support, conservation, and export and related programs. Although a year-by-year distribution of this increase cannot be accurately determined until a new farm bill is enacted, "placeholder" estimates are reflected in the Budget for both FY 2002 and 2003. In contrast, our Salaries and Expenses budget does not reflect an increase, despite the fact that our administrative requirements are expected to increase significantly as we implement and administer the new bill. For planning purposes we are working diligently to forecast the workload impacts and related costs of the potential scenarios contained in the House- and Senate-passed bills. Once program provisions become clarified by a conference agreement, we will be able to provide definitive estimates of both start-up and ongoing administrative costs of the new act. FSA will be impacted significantly by the commodity and conservation provisions of the new act. We are already engaged in preparing ourselves so we can hit the ground running and provide for prompt and efficient program delivery once the President signs the bill into law. For example, we are already examining a range of administrative and programmatic issues, including how we will update crop bases. We are also engaged in a number of other initiatives designed to improve the overall operation of the agency and better serve our customers no matter what the final shape of the new farm bill. I'd like to highlight a few of these areas.

Technology

Over the last several years the Department has made considerable progress in its ongoing effort to collocate agencies into one- stop Service Centers throughout the country. To realize the full benefit of the new office structure, improved information management, data sharing between the Service Center agencies, and retooling our processes are essential. Through collaboration and cooperation with our sister agencies - the Natural Resources Conservation Service, the Rural Development mission area, and the Risk Management Agency - we have made significant progress toward achieving this goal. Some examples include:

- FSA, on behalf of the county-based agencies, recently released software to State and county offices to implement the State and County Information Management System (SLIMS). This software, which merges legacy name and address data into the SLIMS Internet database, is an important first step in information sharing among Service Center agencies. It will eliminate the need for each agency to maintain its own customer identification system and will lead us toward an integrated, almost seamless, automated environment servicing all Service Center agencies. This is one of the critical elements toward putting the "E" in e-Government.

- FSA is working closely with the other county-based agencies to enable agricultural producers to access and file electronically all forms and selected records by June 20, 2002, in compliance with the mandates set forth in the Freedom to E-File Act. Through collaboration with the Office of the Chief Information Officer, the infrastructure has been put in place and a process is being developed to ensure that all major program benefits can be delivered electronically. This capability, coupled with other streamlining efforts and improvements, will further improve FSA's service delivery and customer satisfaction.

- Another key component of technology improvement is the Geographic Information System (GIS), which offers the potential to transform the way the Service Centers do business by replacing manual, hard-copy processes with an integrated digital system.

When fully operational, GIS will provide a seamless database encompassing aerial photography, soil information, customer information, and farm records, and will enable us to eliminate the printing and storage of paper maps. Service Center agencies have been collaboratively investing in and implementing GIS and have begun the early phases of implementation. The system is now at a critical juncture in providing digital geospatial data and the tools to make practical use of the information collected. FSA's budgetary component includes $27.8 million under the Department's Common Computing Environment account to accelerate progress on the GIS to help comply with the mandates of the Freedom to E-File Act and Government Paperwork Elimination Act. In addition, the President's Management Initiatives direct the Department to explore the use of CCC funding of private sector support for these initiatives. We will be working with the Department to determine how best to leverage our resources to achieve this mandate. Also, FSA is involved with the government- wide Quicksilver initiative called Geospatial One-Stop. The Department of Interior is the lead agency on this initiative, which will significantly enhance the implementation of e- Government by making geospatial data more accessible and usable. The Geospatial One-Stop builds upon existing capabilities to accelerate the development of the National Spatial Data Infrastructure, technology, policies, and standards that support "one-stop" access to the Federal government's spatial data assets.

Program Integrity

Under the provisions of the Agricultural Risk Protection Act (ARPA), FSA is partnering with the Risk Management Agency (RMA) to enhance program integrity and compliance for RMA insurance products. While RMA is the lead for this effort, FSA has been working closely with RMA and during FY 2001 trained approximately 2,500 local FSA personnel to assist RMA in obtaining evidence of program abuse and fraud. In addition, through the alliance established between FSA and RMA and in collaboration with insurance providers, more than $15 million in improper insurance claim payments were recovered in FY 2001. Efforts are also under way to reconcile data collected by our two agencies to ensure data consistency and compliance under provisions of ARPA.

Program Outreach

FSA is committed to reaching out to producer populations that have been under-served by our programs. Toward this end, the Secretary recently signed a cooperative agreement with the National Tribal Development Association to implement the National FSA American Indian Credit Outreach Initiative. As a 4-year pilot program in Montana, this program has doubled the number of Montana Indians accessing FSA farm loans and, through pre-loan education and counseling, has achieved a delinquency rate that is half the national average. In order to replicate this success nationwide, the expanded cooperative agreement outlines a 3-year phased approach to ensure orderly and cost-effective expansion of the initiative to all Federally recognized Indian tribes in the contiguous 48 States. We plan to bolster other outreach efforts, as well, to ensure that all underserved populations are served in all parts of the nation.

Recruitment

To improve the diversity of our workforce, particularly in the field, FSA is taking a number of actions to improve recruitment efforts of minorities, especially Hispanics. These efforts are designed to remove barriers that often limit minorities' access to employment in FSA. We have established Regional Recruitment Teams that coordinate broad regional and agencywide recruitment efforts to more effectively target minority applicants, particularly in the States and counties where most of our vacancies exist and/or our diversity is not representative of the local civilian population. These teams participate in recruitment fairs, conferences, and trade shows to pool a region's vacancies so that we have multiple occupations and vacancies to discuss with potential applicants. FSA is also increasing its mentoring programs with schools and organizations, particularly schools with large minority populations, where we sponsor career planning workshops. In addition, we are adopting an on-line application system that will make it easier to apply for agency vacancies.

BUDGET REQUESTS

Turning now to the specifics of the 2003 Budget, I would like to highlight our proposals for the commodity and conservation programs funded by the Commodity Credit Corporation (CCC); the farm loan programs of the Agricultural Credit Insurance Fund; our other appropriated programs; and administrative support.

COMMODITY CREDIT CORPORATION

Domestic farm commodity price and income support programs are administered by FSA and financed through CCC, a government corporation for which FSA provides operating personnel. Commodity support operations, handled primarily through loans, payment programs, and some limited purchase programs, currently include corn, barley, oats, grain sorghum, wheat and wheat products, soybeans, minor oilseed crops, cotton (upland and extra long staple), rice, tobacco, milk and milk products, peanuts, and sugar.

CCC is also the source of funding for the Conservation Reserve Program (CRP) administered by FSA, as well as many of the conservation programs administered by the Natural Resources Conservation Service. In addition, CCC funds many of the export programs administered by the Foreign Agricultural Service. When authorized by the Secretary or through legislation, CCC also finances various disaster assistance programs.

Program Outlays

The 2003 budget estimates largely reflect supply and demand assumptions for the 2002 crop, based on October 2001 data. CCC net expenditures for FY 2003 are estimated at $11.6 billion, down $5.8 billion from a level of $17.4 billion in FY 2002, and continuing the downward trend from CCC's record high of $32.3 billion in FY 2000.

The net decrease in projected FY 2003 CCC expenditures primarily reflects the expiration of $10 billion in 2001 emergency and market loss assistance authorized by the Agricultural Risk Protection Act, the 2001 Agriculture Appropriations Act, and two FY 2001 supplemental appropriations. In FY 2002, about $260 million in carryover market loss assistance payments have already been made. However, no such assistance payments are reflected in the Budget for FY 2003. Other components include decreases of about $2.3 billion in loan deficiency payments and nearly $313 million in Section 416 ocean transportation, partially offset by increases of $20 million in production flexibility contract payments and $43 million in non-insured crop assistance payments.

Reimbursement for Realized Losses

The FY 2002 Appropriations Act authorizes CCC to replenish its borrowing authority as needed from Treasury, up to the amount of realized losses recorded in CCC's financial statements at the end of the preceding fiscal year. Under this authority, we are projecting that in FY 2002 CCC will draw approximately $22.1 billion for FY 2001 losses.

Conservation Reserve Program

The Conservation Reserve Program (CRP), administered by FSA, is USDA's largest conservation/environmental program. It is designed to cost-effectively assist farm owners and operators in conserving and improving soil, water, air, and wildlife resources. This assistance is accomplished through the conversion of highly erodible and other environmentally sensitive acreage from the production of agricultural commodities to a long-term resource-conserving cover. CRP participants enter into contracts for periods of 10 to 15 years in exchange for annual rental payments, along with cost-share and technical assistance for installing approved conservation practices. The authorizing legislation currently allows enrollment of up to 36.4 million acres. The program is administered through general signups, normally held annually through a competitive bid process, and an ongoing continuous signup for selected high-impact practices such as riparian buffers and filter strips.

In FY 2001, no general CRP signup was held, but a 1-year extension was offered for contracts expiring during the fiscal year. In addition, about 20,000 acres were enrolled in the Farmable Wetlands Pilot Project. For FY 2002, again, no general signup is expected due to the uncertainty of a new farm bill and its pending implementation date. However, a 1-year extension opportunity was announced in January for the 1.7 million acres under contracts expiring this fiscal year. About 600,000 new acres are expected to be enrolled under continuous signup, including acres under the Conservation Reserve Enhancement Program (CREP), and about 200,000 acres are anticipated under the Farmable Wetlands Pilot Project. The FY 2003 Budget assumes a general signup of about 1.8 million acres as well as enrollment of another 800,000 acres under continuous signup and the CREP.

In FY 2002, CCC will pay approximately $1.68 billion for rental costs and about $120 million for sharing the cost of establishing permanent cover on the enrolled acreage. The bulk of the rental payments, covering acres enrolled in regular signps, was issued early in the fiscal year. For FY 2003, the budget projects CCC costs of approximately $1.86 billion, consisting of $1.73 billion for rental payments on previously enrolled and extended acres, and $126 million for cost-share assistance.

FARM LOAN PROGRAMS

The loan programs funded through the Agricultural Credit Insurance Fund provide a variety of loans and loan guarantees to farm families that would otherwise be unable to obtain the credit they need to continue their farming operations.

The FY 2003 Budget proposes a total program level of about $3.8 billion, a decrease of $89 million from FY 2002. Of this total, $3 billion is requested for guaranteed loans, offered in cooperation with private lenders, to serve a larger proportion of borrowers through these programs.

For direct farm ownership loans we are requesting a loan level of $100 million, a decrease of $47 million from the FY 2002 appropriated level. The proposed program level would enable FSA to extend credit to about 1,000 small and beginning farmers to purchase or maintain a family farm. In accordance with legislative authorities, FSA has established annual county-by- county participation targets for members of socially disadvantaged groups, based on demographic data. Also, 70 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 $600 million, $11 million under the FY 2002 appropriated level, to provide nearly 14,500 loans to family farmers.

For guaranteed farm ownership loans in FY 2003, we are requesting a loan level of $1 billion, the same as FY 2002. This program level will provide approximately 4,500 farmers the opportunity to acquire their own farm or to preserve an existing one. One critical use of guaranteed farm ownership loans is to allow real estate equity to be used to restructure short-term debt into more favorable long-term rates. For guaranteed farm operating loans we propose an FY 2003 program level of $2 billion, a decrease of $6 million from 2002. This level will enable about 16,500 producers to finance their farming operations. This program enables private lenders to extend credit to farm customers who otherwise would not qualify for commercial loans and ultimately be forced to seek direct loans from FSA.

In addition, our budget proposes to continue the current program levels of $2 million for Indian tribal land acquisition loans and $100 million for boll weevil eradication loans. For emergency disaster loans, carryover funding from 2002 is expected to provide sufficient credit to producers whose farming operations have been damaged by natural disasters.

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.

States with certified mediation programs may request grants of up to 70 percent of the cost of operating their programs. The FY 2003 Budget requests $4 million, an increase of $507 thousand, to extend the program to 32 States. So far in FY 2002, 28 States have received mediation grants.

Emergency Conservation Program

To restore farmland damaged by natural disasters and return it to productive agricultural use, the FY 2003 Budget requests $48.7 million for the Emergency Conservation Program (ECP). As of March 1, $11.5 million has been allocated in FY 2002 to share the cost of repairing damage caused by drought, floods, tornadoes, and other disasters across the country. With more than half of this fiscal year remaining and the hurricane season still ahead, most, if not all, of the available funding is likely to be allocated by the end of the year. An FY 2003 appropriation would ensure timely emergency assistance to producers.

Dairy Indemnity Program

The Dairy Indemnity Program (DIP) 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 2003 appropriation request of $100 thousand, together with unobligated carryover funds expected to be available at the end of FY 2002, would cover a higher than normal - but not catastrophic - level of claims. While the usage of this program has been low in recent years, DIP is a potentially important element in the financial safety net for dairy producers in the event of a serious contamination incident.

ADMINISTRATIVE SUPPORT

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

The FY 2003 Budget requests $1.34 billion from appropriated sources, including credit reform transfers covering subsidies. Included in the request is $86 million to cover GSA rental payments; the accruing cost of retirement for current employees covered by the Civil Service Retirement System; and the accruing cost of post-retirement health benefits for current employees. These' items were previously funded outside of FSA's appropriations on either a departmentwide or a governmentwide basis. The Explanatory Notes provided to the Committee show comparable levels for these items in FY 2001 and 2002.

The Salaries and Expenses budget reflects a net increase of $49 million in FY 2003, primarily for pay-related costs, including the cost of maintaining permanent county office staff years that were supported in 2002 with funds carried forward from 2001.

As I mentioned previously, with divergent versions of the farm bill pending at the time of the budget's development, our estimates do not provide for any costs specifically associated with implementing or administering the new legislation. In the absence of farm bill workload assumptions, the Budget shows straightlined employment levels of 5,806 Federal and 11,251 non- Federal county staff years, which reflect the workload of recent years when significant supplemental assistance has been provided. However, new program requirements under the new farm bill are likely to call for significant resources to implement and administer. Once the new program provisions are in place, we will provide updated estimates of FY 2003 staffing requirements and related costs.

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



LOAD-DATE: March 20, 2002