SPEAKERS CONTENTS INSERTS
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LOAN DEFICIENCY PAYMENT WORKLOAD ISSUES
GENERAL FARM COMMODITIES, RESOURCE
CONSERVATION, AND CREDIT
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
MARCH 4, 1999
Serial No. 1068
Page 2 PREV PAGE TOP OF DOCPrinted for the use of the Committee on Agriculture
COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
Page 3 PREV PAGE TOP OF DOCKEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
VIRGIL H. GOODE, Jr., Virginia
Page 4 PREV PAGE TOP OF DOCMIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on General Farm Commodities, Resource Conservation, and Credit
BILL BARRETT, Nebraska, Chairman
JOHN A. BOEHNER, Ohio,
NICK SMITH, Michigan
FRANK D. LUCAS, Oklahoma
SAXBY CHAMBLISS, Georgia
JERRY MORAN, Kansas
JOHN R. THUNE, South Dakota
Page 5 PREV PAGE TOP OF DOCWILLIAM L. JENKINS, Tennessee
DOUG OSE, California
ROBIN HAYES, North Carolina
DAVID MINGE, MN,
Ranking Minority Member
BENNIE G. THOMPSON, Mississippi
DAVID D. PHELPS, Illinois
BARON P. HILL, Indiana
EVA M. CLAYTON, North Carolina
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr. Georgia
JOHN ELIAS BALDACCI, Maine
C O N T E N T S
Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, opening statement
Clayton, Hon. Eva M., a Representative in Congress from the State of North Carolina, prepared statement
Minge, Hon. David, a Representative in Congress from the State of Minnesota, opening statement
Monson, John, national legislative chairman, National Association of FSA County Office Employees
Page 6 PREV PAGE TOP OF DOCPrepared statement
Schumacher, August, Jr., Under Secretary, Farm and Foreign Agricultural Services, U.S. Department of Agriculture
LOAN DEFICIENCY PAYMENT WORKLOAD ISSUES
THURSDAY, MARCH 4, 1999
House of Representatives,
Subcommitee on General Farm Commodities,
Resource Conservation & Credit,
Committee on Agriculture,
The subcommittee met, pursuant to call, at 10:03 a.m. in room 1300, Longworth House Office Building, Hon. Bill Barrett (chairman of the subcommittee) presiding.
Present: Representatives Smith, Lucas, Moran, Thune, Jenkins, Minge, Phelps, Hill, Clayton, Pomeroy, Holden, Bishop, Baldacci, and Stenholm (ex officio).
Also present: Representative Gutknecht.
Staff present: Mike Neruda, Russell Laird, Alan Mackey, Wanda Worsham, clerk; Callista Bisek, Russell Middleton, and Anne Simmons.
OPENING STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Mr. BARRETT. The hearing will come to order.
Page 7 PREV PAGE TOP OF DOC Today the members of the Subcommittee on General Farm Commodities, Resource Conservation, and Credit, and other Agriculture Committee members will receive testimony reviewing the staffing, budget workload requirements of the Loan Deficiency Payment Program.
This will be the first of several hearings which will take place on the subject of LDP's. I want to thank the members of the subcommittee as well as members of the full committee for their continued interest in this very important issue. I want to thank Chairman Combest specifically, for his continuing interest and his continuing efforts on behalf of U.S. producers in regard to adequate delivery of services from the USDA.
A special thank you also to you, Under Secretary Schumacher, for your willingness to come back again to the Hill today to share with us, to testify on these very critical issues. It is always a pleasure to have you and your staff here. We are always glad to see you, we are always glad for the information that you share with us.
There are many, many policy issues of the Loan Deficiency Program. Today, however, I would hope that the subcommittee would focus on the equally problematic issue of LDP workload, staffing and developing the budgeting for our FSA Offices in relation to their delivery services. On the 18th of March, this subcommittee will hold another hearing to discuss policy issues of LDP's. What has given this program a lot of bad press has been the staff shortages and the inability of county offices to bring on temporary employees in order to get LDP's processed.
We are not here today to disparage or criticize our farm service agency employees. Regretfully, county employees are on the receiving end for criticisms of the LDP Program. In my many visits with these employees in many of the counties in my congressional district, I have personally heard a lot of stories, a lot of horror stories about the extra hours that these men and women have spent serving our Nation's producers.
As a matter of fact, last week a headline from the largest daily newspaper in my district, you can't see the headlines here perhaps, but it reads ''FSA Struggling To Process Farm Payments''.
Page 8 PREV PAGE TOP OF DOC I think all members of this subcommittee and all members of the full committee are getting headlines like this and a lot of press. And I think that says it all. It is pretty well known that the processing of loan deficiency payments has lagged very far behind.
A time when we have producers in rural areas that are struggling from low market prices and adverse weather conditions, it is critical that these checks get out to our producers. As we prepare for the spring planting out in my country, in Nebraska and other midwestern States, our producers have got to show an adequate cash flow as they meet with their lenders.
Producers have financial commitments remaining from last year's crop. The LDP's are invaluable to pay off debts and to ensure lenders of a positive cash flow for this crop year. Getting this income to our producers should be a number one priority at the Department. A continuing debate about field office reorganization, political gamesmanship between USDA and the OMB, should not come at the expense of our producers.
We are all for the prudent use of taxpayers' dollars. However, we do need adequate, sensible staffing levels to meet the delivery service needs, to handle not only loan deficiency payments but also the paperwork on market loss applications, disaster and farm program payments and small hog operation payments. Reorganization to eliminate field office efficiencies is commendable. And I have supported it in the past.
But it makes no sense to save USDA budget dollars on the backs of our producers so that this money could be used in other less critical, less time-sensitive programs. For example, in my district and in my State, the FSA has about 36 percent fewer county employees than it did in 1993. While county offices have been working 110 percent to try and stay even with the customer demand, the workload was coming in at much more than 110 percent.
The administration has requested $42.7 million in supplemental appropriations for salaries and expenses to support temporary staffing needed to provide services to farmers and ranchers. This probably isn't enough to get us through this year. Staffing numbers will probably have to be similar to those needed during the 1980's, when we had the pick and roll. The Department's fiscal year 2000 budget proposes to cut an additional 752 employees from FSA.
Page 9 PREV PAGE TOP OF DOC While USDA also proposes to increase Forest Service manning by 630 employees. I have some concerns with that one as well. It is difficult for me to understand how the Department could submit a budget cutting substantially the FSA manning levels when there was a larger FSA workload than expected and adequate staff was not available. And on the other hand, ask for a sizable increase in the Forest Service manning level.
Mr. Secretary, I am sure that you will be able to reassure this subcommittee that you will do all that you can to speed up the process and to make sure that we won't have the same problems with the 1999 profit year.
At this point, I want to recognize the ranking member of the subcommittee, the gentleman from Minnesota, Mr. Minge.
OPENING STATEMENT OF HON. DAVID MINGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. MINGE. Thank you, Mr. Chairman. And again, welcome Mr. Schumacher. I wish to associate myself with your remarks, Mr. Chairman, as they relate to the loan deficiency payment and the challenge that we have in adequately staffing offices around the country. I know this is a critical problem and we are also concerned about how the Loan Deficiency Payment Program is structured to make sure that it is fair as it applies to the farmers across this country.
I have received many complaints. They say why is it that this payment may change on a daily basis, or changes on a weekly basis? Can't we have one LDP for the whole season or the whole production year? Isn't there a way that we could reduce the paperwork? And things such as this. And I am particularly interested in the views of the Department and others as to whether or not the program can be simplified in some respects so that it is both easier to administer at the field level and that we try to meet some of the criticisms of unfairness or gaming of the program by some of the farmers in some parts of the country.
Page 10 PREV PAGE TOP OF DOC I would also like to just comment briefly, Mr. Chairman, on the budget crunch that the Department faces, particularly with the Farm Service Agency. It is very tempting for those us here on the Hill to assume that the U.S. Department of Agriculture wanted to reduce the staffing levels at FSA. From having worked with you, Secretary Glickman, Parks Shackelford and others, I know that is not the case.
I know that you are trying to live within budget constraints, budget caps, baseline figures that are very, very harsh. I also know that these figures are not ones of your choosing. These are figures that came from the Hill. And all of us up here have responsibility for the size of those figures, particularly the majority that was negotiating with the administration when the Balanced Budget Act of 1997, was agreed to.
So we are not here today to somehow act as if we are surprised that a Balanced Budget Act of 1997, was passed. And we are not surprised that the U.S. Department of Agriculture has been told by the White House and OMB that you too have to live within the caps and the rules and all of the other things that apply to all of the Federal agencies. But we are here to try to work with you to find a way to make sure that we adequately staff the programs that are on the books.
And if there are some hard choices that have to be made in the weeks ahead, I think that all of us recognize that we are going to have to share in those hard choices. And one thing I hope that does not occur, is that we do not treat those of you that so generously share your time and come to the Hill, as if you have an adversarial relationship with us in that undertaking.
And I would like to express my sincere appreciation to you personally for your generous allocation of time to this committee as we have tried to struggle through these many issues. And I look forward to your testimony. Thank you.
Mr. BARRETT. Thank you, Mr. Minge. In order to move forward quickly, any other opening statements of course may be submitted for the record.
Page 11 PREV PAGE TOP OF DOC I am pleased to introduce Mr. Gus Schumacher, the Under Secretary for Farm and Foreign Agricultural Services, USDA. I believe Mr. Schumacher will be accompanied by Mr. Parks Shackelford, Associate Administrator for Programs, Farm Service Agency. Ms. Vicki Hicks, Deputy Administrator of Commodity Operations, FSA. Mr. Robert Springer, Acting Executive Director for State Operations, FSA.
Gus, you may proceed.
STATEMENT OF AUGUST SCHUMACHER, JR., UNDER SECRETARY FOR FARM AND FOREIGN AGRICULTURAL SERVICES, U.S. DEPARTMENT OF AGRICULTURE
Mr. SCHUMACHER. Thank you very much, Mr. Chairman, Mr. Minge and members of the subcommittee. This is an important hearing and I am very pleased to be here with my colleagues because I think that given the situation in the countryside it is a very timely hearing and look forward to following up with some of my staff with follow up hearings as well on this very important issue.
What I would like to do very briefly, and I have a statement for the record, with your permission, I would like to submit. But very briefly, walk through a few of the key issues on LDP's, BCS's and the workload, Mr. Chairman.
And to offer a few possible ideas that maybe this committee and the full Agriculture Committee and the Congress can work with us in resolving some of these problems.
Some of them we can do administratively, some I think we need support from Congress. First, the Marketing Assistance Loans for rice, cotton, oil seeds, wheat and feed grains have continued under the Fair Act, the 1996 act, which allows repayment of commodity loans at less than the loan rate whenever prices dropped below loan levels.
Unfortunately, they continue to be below loan levels, especially these days for soy beans. At the time of the passage of the 1996 act, little loan deficiency, LDP or marketing loan gain, what they call MLG activity, was expected to occur during this period. And I can go into the comparison in those three, where we are, during the question period.
Page 12 PREV PAGE TOP OF DOC Well we have had record harvests here and record harvests abroad, strong dollar and particularly as we have indicated many times here, a significant downturn in export markets. Therefore, we were soon faced in 1998, and increasingly in 1999, unexpected and sharp declines in market and major crop prices. LDP's emerged as a significant portion of direct Government payments beginning in 1998. Let me see if I have, well I will come back to that in the question period.
I think we are having major increases and I would like to get that on the record during the question period. Where we were in 1997, where we are in 1998, and where we expect to be in 1999. I think it is very important in terms of having this for the record so we are going to be looking at the workload issues as well. Our year-to-date activities, most of the crops are large and reflects a heavy, heavy, you have already indicated in your remarks here, county office workload Farm Service Agency.
The result of the price drop has been indicated and the natural disasters that have impacted agriculture in all regions of the country, all regions of the country. The northeast, California with citrus, especially in the southeast and of course in the Northern Plains and now in the Midwest because of the price drops. As you have indicated, the President has submitted a supplemental $42.9 million to help ease caseload for the FSA workload situation.
The total number of transactions expected from loans made, loans repaid and LDP's during 1998 and 1999, we take them together, what we expect in 1998 and 1999, USDA actual transactions is 6.4 million transactions. Not anticipated. That is what we have, we feel that we were making 6.4 million individual transactions to America's family farmers. Therefore, there is no question that we face a serious, a very serious workload challenge as we strive to get the LDP Program to American family farmers in a timely manner.
As you have noted, we certainly have received many complaints from producers, producer groups, from yourselves, even some of you here on the committee, and a few State Governors regarding what are considered as inequitable rates across counties and over time. There is also a common misconception that the posted county pricing system that was designed to ensure that all producers of a commodity have the potential of earning the same LDP and marketing loan gainlet me repeat that. I want to be very clear about that.
Page 13 PREV PAGE TOP OF DOC There is also a common misconception that the posted county pricing system was designed to ensure that all producers of a commodity have the potential of earning the same LDP and marketing loan gain. I have submitted an attachment with my formal statement, Mr. Chairman, describing how the posted county pricing system operates. For example, LDP rates that are consistently higher in one county than a neighboring or nearby county, have been known to cause producers to store the commodity in question in a higher LDP county.
Congressman Minge and I have discussed this at some length over the last year or so. Green Warehousemen have indicated that the Loan and LDP Program is disrupting the market by leading producers to store and market their production in areas where the producers would not otherwise have stored or marketed. We are working to address this. To a lesser extent, persons have also complained, farmers, that the loan repayment rates have been set at levels that are higher than the local market prices.
This gives producers an incentive to forfeit, if their loans are maturing, or leave them to argue that the LDP rate plus the market price they are able to get is less than the loan rate. The problems are exacerbated by the current system county loan rates. Before the decisions related to the 1996 and 1998 crops were made at time when the coming year's prices were projected to be relatively high.
So the level of county loan rates for wheat and feed grains was not expected to be significantly problematic. Things have changed. Local prices were then expected to well above the county loan rates. Also the changing of the existing set of county loan rates for wheat and feed grains, also change in the existing set of county loan rates for wheat and feed grains to be more reflective of what were then the more current spatial price relationships appeared at the time to be an action that would be opposed, to be opposed by producers in those counties likely to experience a decline in the county loan rate.
Finally, there was some, albeit limited, hope when the 1998 crop decision was made that possible Congressional action may be able to uncap national average loan rates for 1999 and subsequent crops of wheat, corn and oilseeds, which would make it more plausible to change the system of county loan rates of wheat and feed grains. That is a decline in the loan rates for some counties would be partially offset by an increase associated with the consequent rise in national average loan rates. That did not occur.
Page 14 PREV PAGE TOP OF DOC We, working closely Mr. Chairman with your subcommittee and with the full committee, need to deal with the basic issues of how to deal with county loan rates. How to set county loan repayment rates. And how often to determine county loan repayment rates in there for LDP's. Related to county loan rates, in addition to what we are presently doing, we are looking at other possibilities and we can discuss this during the question period.
We are working very hard to try and simplify this as much as possible and we would like to exchange some ideas with you. Quite possibly, for example, we could establish 1999 county loan rates using updated price and production data in the calculations, limiting any increase or decrease after adjusting for changes in national average loan rates.
Another idea is to restrict county loan rates to not less than 95 percent of the current year national average loan rate. Or calculate loan rates, county loan rates with a formula that places no restrictions on levels of county loans. So there is a number of things we are thinking about and we certainly would like to exchange these ideas with you and get your thoughts on some of these.
Some of these we can do administratively, some of course have to be done in statute. We are also exploring simpler and easier to understand procedures for applying the LDP's and marketing assistance rates. Not only to simplify the burden on farmers, but to simplify the paperwork for our hard-pressed county offices.
We plan to also do what we can to better inform and educate producers on the programs as well. Because certainly in 1999, with prices where they are, we are anticipating almost a doubling, nearly a doubling of the application for the LDP's compared to last year.
In closing, I think it is useful to remind ourselves of the overall objective that we would like to satisfy as we search for solutions. We certainly need to minimize the potential for forfeitures and their related storage and program costs. We would like to mirror the market as closely as possible avoiding any market distortion. We must make sure to avoid procedures that may lead to fraud and abuse by program participants and by those who deal with program participants.
Page 15 PREV PAGE TOP OF DOC The Inspector General is just above me on the 4th floor, so I ride up and down on the elevator with some of his staff after getting coffee early in the morning. And they always say, we are looking forward to working with you closely, Mr. Schumacher, in the coming year. And I said, thank you, sir. But they are certainly monitoring us, Mr. Chairman, very, very closely as we administer these. So we are quite aware of the need on the compliance and to make sure what we do minimizes any cause for the Inspector General to be looking even more closely at us than they are at the moment.
And then finally we need to be aware of our trade obligations as they relate to complying with the Uruguay Round Agreement on agriculture. We will definitely work to provide a farmer-friendly program that ensures we protect producers when prices are relatively low. These are complex and these options, this variety of options, many are inter-related and they are complicated.
We are, we need to address and simplify these to meet the concerns that have surfaced as we meet the unanticipated, tremendous increase in demand for some of the programs that we did not anticipate when the budget was put together for 1999, nearly 18 months ago.
Thank you very, very much for having me up here, Mr. Chairman. My colleagues and I look forward to answering, as best we can, all of your questions. And then following up with additional hearings as we work through this difficult time.
[The prepared statement of Mr. Schumacher appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you very much again just for being here and being with us. The Chair failed to recognize the emergence of the ranking member of the full Agriculture Committee. Mr. Stenholm, would you have an opening comment?
Mr. STENHOLM. Gus, share with the subcommittee, if you will, my concern about justifying 630 more employees in the Forest Service? And then, of course, a reduction of what, 752 I believe the number was in
Page 16 PREV PAGE TOP OF DOC Mr. SCHUMACHER. Yes, that the administration has proposed does include a reduction of 752 full-time employees for the year 2000. When this budget was prepared, 18 months ago, clearly the price projections at that time indicated that things would be a lot better in the countryside than they are now. We did not anticipate all the LDP's, the loan servicing, the credit demand.
We also didn't anticipate at the time all the, in terms of preparation of the budget, that all the workers do now. We basically now have $10 billion more in programs to administer than we did as this budget was going through preparation. So I think we need to work together on this. The Secretary has stated that we would maybe have to revisit this in light of the economic realities that are facing American family farmers.
We have the $40 million that came through in the emergency last year. And we proposed $42.9 million, so we put jointly together, certainly proposed $82.9 million to help alleviate this on the temporary side and look forward to working with you to get this resolved.
Mr. STENHOLM. Why didn't the Department recognize earlier that the LDP payments were not going to subside, probably increase? What attention was given? Give us some indication of why, what happened?
Mr. SHACKELFORD. If you don't mind, initially at this time last year, I don't think anyone anticipated the level of fall in all commodity prices that we have faced. The Secretary has testified a number of times in recent weeks, a combination of 3 years of very good crops worldwide, combined with what has happened to the world economy, particularly in Asia, the Pacific Rim, have combined to really hammer our commodity prices.
And we were fortunate that we had had training on this program. We were trying to be as prepared as we could, but I don't believe Congress or the administration of economists or anyone projected what was going to happen to agriculture in a very short period of time.
Page 17 PREV PAGE TOP OF DOC Mr. SCHUMACHER. I think too, if we look at 1997, I think we run about $160 million in LDP's and market loan gains. Now when you add 1998, if my memory serves me, we are going to be, we already have done, Mr. Chairman, over $2 billion. And I think we are anticipating another billion. So $3 billion in LDP's and MLG's and in 1999, we may nearly go substantially higher than that in terms of our best, trying to anticipate, and that is why we put the supplemental up to try, because this has sort of crept up on us very, very swiftly.
And we want to be as helpful to family farmers to get the staffing in place so we can service it and to simplify the procedures so it is a little more simple. So we have work to do on this one.
Mr. BARRETT. I recognize too that farmers have more options out there now that their LDP's with wet corn and the cracked and the rolled and all that sort of thing, which compounds, I am sure, the problems out there with additional forums and applications and so forth. Now they are using, as I understand it, Form 709 which is a little longer form, to process the LDP's. Is that basically correct?
Mr. SHACKELFORD. Actually there are two ways a producer can request a loan deficiency payment. They can request that a loan deficiency payment be made automatically at the time of harvest or time of delivery. In the case of cotton, it is at the time of ginning of the crop. For producers who may be losing beneficial interest at the time of harvest or at the time of delivery, a producer can request, on a 709 Form, to have the LDP in effect on the date when that commodity is delivered.
If producers want to maintain their flexibility to pick the date that they receive the LDP or to take the option to put the crop under loan, that producer can use what we call a CCC 666 Form. One of the things I think you made a very good point, that many of the things we have done to provide flexibility to producers in this program, which is very important in their marketing, make the program more complicated. But we do that to try to assist the producers and give them as many options as possible.
Page 18 PREV PAGE TOP OF DOC Mr. BARRETT. Well, that leads to my, basically my question. Some of the offices in my area are as much as 30 to 90 plus days behind in the processing. The 666 form is a little less complicated, as I understand it. Is there something to be said for combining, collaborating, going only to the shorter form?
Mr. SHACKELFORD. We are going to look at a number of options. I think we run into some potential problems when we combine those two forms, because they are very different intent. We have, in some regions of the country, some complaints from other members that producers didn't understand and did not want to be locked in to the rate in effect on the date they delivered or the date they harvested.
So we are going to try to figure out if there are ways we can simplify the program, reduce the spot checks. At the same time, we need to make sure we maintain the program integrity. Because producers have to have the commodity available to pledge as collateral for a loan to be eligible for the payment. But we are going to look both at the process, I guess I would call it the microprocess, of the work in the county office.
Both the paperwork for the producer and for the county office and also the bigger issues that Mr. Minge referred to in terms of setting the repayment rates and timing and those options.
Mr. BARRETT. Thank you. Mr. Minge.
Mr. MINGE. I had an opportunity to visit the office in Kansas City that administers the Loan Deficiency Payment Program. And in talking with the staff, it is my understanding that this program has occasionally run into similar problems over the last couple of decades. And that each time this happens there is a flurry of activity, perhaps like a hearing such as the one we are having today and the determination to make some changes in the program.
And by the time the staffing resources are allocated to develop those changes and then bring them to the Hill, some other crises come and the LDP no longer is the focus of much attention. And so they are put to one side to gather dust and then we here in the Agriculture Committee and perhaps some of the leadership of the Department forget about that or where there is a change in personnel, and 5 or 8 years later it comes up again.
Page 19 PREV PAGE TOP OF DOC And I am wondering if there is anything that is going on now at the Department where you are trying to go back and dust off the analysis that has been done on prior occasions and synthesize this so that we could hopefully try to move on this, these problems, these criticisms that are out there, here in 1999, before something else strikes and we just kind of lose track of this and it languishes yet again.
Mr. SCHUMACHER. There is a lot of work going on, Mr. Minge, on this right now. I am going to ask Parks to clarify it and explain where we are in trying to simplify this. But I am afraid this, I would hope this wouldn't happen, but I think we are going to be in the heavy LDP business right through calendar 1999, and unfortunately maybe a little bit into the year 2000, until the Asian market pops back up.
We did sell 50,000 tons of soybeans yesterday, I understand, to China. The rumors are, and that might be helpful. But that is not going to cure it overnight.
Mr. SHACKELFORD. I think I need to address a couple of things you said. And first of all, I would like to thank you for the efforts you have made to come down, meet with our staff down at the South Building, see the people who do the work on the programs and to go see the things that go on in Kansas City. There have not been previous proposals like this on the Loan Deficiency Payment Program.
For wheat and feed grains this option has only been available since the 1990 farm bill and actually became even later than that, actually used. This is the first year we have ever had significant activity in wheat and feed grains and soybeans. On cotton and rice, we have been working with this program since the 1985 farm bill. And it has been very successful. Some of the things we have done in that may be options for this.
We are certainly willing to look at any of the proposals. We have an extensive review underway which began last fall during the crop year. Now we wanted to avoid making changes during the crop year, because that can always result in a disparity of treatment between producers in different regions. But we would like to consider some serious options to put in effect before this crop year begins. Which means in the next few months.
Page 20 PREV PAGE TOP OF DOC Mr. MINGE. How long do you figure you have, if you could be more precise, before you would have to put those changes into effect?
Mr. SHACKELFORD. They have to be in effect in time for the beginning of the wheat harvest that should begin, I believe, in May.
Mr. MINGE. So we have about 60 days here if we are actually going to get this done?
Mr. SHACKELFORD. We are very close to having the economic analysis done. We have had a lot of proposals of ideas to look at. Of course as you change, when you have three different options you are looking at, that turns into nine options. But we should have a very good idea of the direction we would like to go and can talk to you about that in the next few weeks.
Mr. MINGE. Now as I understand it, Price Waterhouse Coopers did a study or was awarded a contract at least, about a year and a half ago, a little more than a year ago, on the staffing and organization at the county level at USDA. And I am sort of shifting from LDP here to more just general staffing issues. Has that report come in and if so, have you been able to utilize any of that analysis in trying to design what you do here with a loan deficiency payment?
Not that it is directed particularly at this program, but more at how USDA has dealt with farm programs and some of the complaints about complexity and paperwork and ways that you might simplify that.
Mr. SCHUMACHER. Yes, Mr. Minge, that report has been submitted and it is now being thoroughly reviewed by USDA and particularly by the Secretary and the Secretary's Office. I think we are going to look at some of the recommendations in that report on administrative convergence as an initial step. But I think that there are a lot of good recommendations in that report. And we are still really digging into and looking at what we can do with that report.
Page 21 PREV PAGE TOP OF DOC I think a very important issue is we would like to discuss some of the recommendations with this committee and Congress as we look forward to moving on some of those recommendations.
Mr. MINGE. Do you have any projection, Gus, when that might be, that we would be able to get together on it?
Mr. SCHUMACHER. I need to go back and talk to the Secretary, Mr. Minge, because it is sort of being handled, because it covers not only just our mission area but a number of areas throughout the Department. I think that is being reviewed as we speak and we will get back to you on that, if we could.
Mr. MINGE. There has been some talk here about the staffing at the Forest Service compared to the Farm Service Agency and so on. I take it that USDA is comfortable if the committees here on the Hill make some reallocation of your budget request so that if we need to do something more with the Farm Service Agency we can do that with your blessing?
Mr. SCHUMACHER. Well, we support the President's budget, Mr. Minge. We look forward to working with you. I am certain the Secretary will work with you on that, but I think, for the record, we support the President's budget.
Mr. BARRETT. Thank you, Mr. Minge. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman. Are you planning on closing any FSA offices in the next year?
Mr. SCHUMACHER. We are going to look atbecause of the tremendous problem in workload, what we want to do is provide service and maintain as much staffing as we can to provide services to farmers. There may be, here and there, places we need to consolidate offices to maintain staffing levels because of the tremendous increase in the workload.
Page 22 PREV PAGE TOP OF DOC But whatever we do, we are going to work very closely with Congress, on any office closures or any office consolidations. There may be some.
Mr. SMITH. Are you saying there are no plans underway now to close the smaller offices?
Mr. SCHUMACHER. We are looking at that, and I will be very honest with you, we are looking at that as an option to maintain staffing levels so we can deal with these LDP's in several States. And we are going to be consulting closely with Congress if we do need to consolidate or if shared management, or any of these issues to maintain staffing levels. We want to maintain efficiency.
Mr. SMITH. And I would just hope, Mr. Secretary, that maybe instead of after the fact, you would consider talking to us and so we are abreast of what you are thinking in terms of the political dynamics of farmers that are already very frustrated having seen their office disappear. Let me, I don't understand why do we require sign ups for LDP's. Why can't that be automatic?
Mr. SHACKELFORD. Well sir, it is a marketing decision by the producer. There is a real misconception and misunderstanding of the Loan Deficiency Payment Program. A loan deficiency payment is a payment a producer has the option to accept in lieu of pledging his or her collateral for a price, well they are now called Marketing Assistance Loans.
So the producer can either take the loan and repay that at principle plus interest if the price is above, but in cases where the prices are below the loan rate, the producer can repay that loan at a lower rate at the market price.
Mr. SMITH. Yeah, I understand it, but it seems, look at the possibility of making it automatic and the decision of the farmer. And maybe we can talk about this more later, but it is an automatic approval once the form is signed. It is automatically accepted if the farmer says I want to go ahead and get a warehouse receipt and I want you to own the grain, then it is automatically accepted.
Page 23 PREV PAGE TOP OF DOC So it seems to me that could be simplified. It seems to me also that I think, as Mr. Minge suggested, that maybe it is realistic to have one or two dates after the start of harvest of something where the farmer could say, look, these are my dates that I want the LDP calculated. Because that would tremendously reduce the burden as we have talked, on both the farmer and the county office to somehow simplify the dates of selection that the LDP could be calculated.
Let me, has there been any economic evaluation or study of the effects of the LDP on prices paid to farmers by the grain elevators? In other words, if the farmer is always going to receive the same price because the LDP is going to kick in. Is there any tendency for those, for the elevator not to be as aggressive pushing that price up? Have we done any economic studies of that?
Mr. SHACKELFORD. There is no direct link between the loan deficiency payment and the actual price received by producers. One of the concerns we have, some of the suggestions that we have received, one was in the press the other day, suggesting that producers receive the LDP based on the price they receive for their individual marketing of grain.
The problem there is we create an incentive to producers. It is a disincentive to use good marketing and try to reach a higher price, because under this program the producer receives a larger payment for a lower price. We certainly want to continue to urge producers to attempt to market their grain in a way where they receive the highest level of payment from the market.
Mr. SMITH. Well, and that brings up another point of course. But here again, if the farmer can receive that same price, but again the LDP is now one of the very serious market considerations as we face low commodity prices this year as farmers consider shifting away, for example, in our Midwest area in Michigan, away from corn and to a lower cost production of soybeans, looking at the guaranteed price, if you will, through the loan deficiency program or through the loan, non-recourse loan program, either one.
Page 24 PREV PAGE TOP OF DOC It seems to me with that, with that extra market consideration there needs to be an economic re-evaluation of the effects of the LDP on the decisions to, of what crop to plant. And I just haven't thought that through. And I was wondering if USDA has looked into that. Are you seeing, when does the market reports come out? Is there going to be a significant shift? Are you looking at shifts in crops strictly because of the LDP payment being a better financial advantage to some farmers for some crops?
Mr. SHACKELFORD. No, sir. Actually, the loan rates are, economists consider those more significant what the level of the loan rate is. The LDP rate of course varies by market prices. There have been some people who have argued that the loan rate for soybeans, which I think will calculate out to the maximum level of $5.26, is an incentive to producers to plant soybeans.
At the same time, we can point out that the projections on soy bean plantings may be as much due to the fact that soybeans are one of the lowest cost alternative crops to plant and produce at a time when credit is very limited and producers are looking to lower their input cost. They are also probably the crop that is most tolerant of inclement weather.
So there are a number of factors that are contributing to that. And of course, yes, the Under Secretary who testified on biotechnology yesterday points out that there are a number of options now with soybeans that make them even more productive or a more desirable option.
Mr. SCHUMACHER. I think we are going to do about nearly half the soy bean crop, some people estimate, will be planted with these new varieties of seeds that makes it, improves the, reduces costs and weed control and has been, particularly I think, beneficial because the less weeds there may be less dockage and farmers are going to fight at the elevators because there is less dockage.
Page 25 PREV PAGE TOP OF DOC They should fight less, maybe it might be a little higher price when they take it to the elevator. There is quite a tension between the elevators. I think it is more, comes in with cleaner beans, there will be some, little premiums paid for that as well. So it is attractive to plant beans.
Mr. SMITH. Well, Mr. Secretary, everybody, thank you for being here. Thank you, Mr. Chairman.
Mr. BARRETT. Thank you. Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman. A few comments I think that need to be placed in the record in this hearing at this time. And first, I thought the question Mr. Smith asked concerning the effectiveness of the LDP's is something that is warranted further study from this committee and others as we look at how we do affect the current market price situation.
Not only now, as the Secretary pointed out a moment ago. No one anticipated the southeast Asia collapse and the resulting market losses that we have had. At the time we wrote the 199596 farm bill, it is a well established fact that this committee had very little input. Those are the kinds of questions that we ought to have been asking and answering in writing the farm bill, but we didn't do that.
And that is hindsight 20/20. I think it is also important for us to realize now, and I know the tremendous frustration that we have out in our county offices. It is not our county office personnel's fault that this is. First off, we have to recognize that when Congress wrote this program that we have asked the administration to administer, we wrote less than 20 pages to carry out this program, with a page and a half of report language.
The 1998 drought bill had 39 pages of legislative instructions and 50 pages of report language. And it is awful easy for us in this committee to criticize the administration for not doing that which again we did not do last year. And again the record is very clear of what happened. This is one of the things that I hope we can avoid in the future and I certainly believe that we will.
Page 26 PREV PAGE TOP OF DOC This committee is now going to begin functioning again as a committee under the leadership of Chairman Combest. And I think we need to remember that as we try now to help deal with some very serious problems. We have got a demoralized county office staff. They are the lowest that I have ever seen. And along that line, is it possible, under the law, to pay overtime to our county office personnel? Is that legal?
Mr. SCHUMACHER. Yes, sir. We are paying overtime.
Mr. STENHOLM. We are paying overtime? And we are encouraging them, are we encouraging them to work overtime or is that up to them?
Mr. SCHUMACHER. Well part of the problem, Mr. Chairman, is that we are paying overtime. We also, there is some issue on volunteers, but we can address that in writing. But one of our concerns, and I want to get it on the record, our county office employees live in the communities in which they are servicing these farmers. They see the farmers at church. They see them socially.
And we have to sometimes take keys away because they are being so stressed by this. So we have a real problem. And I just want to commend again the enormous dedication of our county offices who are putting in overtime. Who are volunteering and who are coming in on weekends when their own doctor is saying the stress levels are very, very high.
So we have an enormous amount of work to do to get this stuff done. And it is going to get worse, Mr. Chairman, Mr. Stenholm, rather than less worse this year.
Mr. STENHOLM. Well I certainly am very supportive of doing what is necessary to see that our dedicated county employees are adequately compensated and do have the help they need. I have had expressed to me concern about the value of temporary employees, but just as we in our Congressional office can use interns for temporary help, I think that perhaps might be a remedy.
I also must say again, and I will be very brief in this. Mr. Minge asked the question, but a lot of the problems that we are now dealing with in our county offices have come because we have not fully administered the USDA Reorganization Act of 1992. Price Waterhouse made recommendations, it has not been public as yet. Mr. Chairman, I hope the appropriate subcommittee or full committee will hold a hearing soon as we look to the future.
Page 27 PREV PAGE TOP OF DOC This doesn't help us through where we are today. But Mr. Secretary, you and Secretary Glickman have not been well served by those who sit behind you. The folks, the unnamed bureaucrats that work at USDA that were quoted as saying in 1992, when we passed the USDA Reorganization Act, oh, Charlie and Bob Smith just think they are going to reorganize USDA. We were here before he got here and we will be here after he leaves.
Now that attitude that has been prevalent back in the bowels of the USDA has helped get us in the position we are in today. Because we have refused to do what, again, a study has told us we need to do. And that is something that I hope is, and I believe now based on what I believe is coming from USDA now, that we are finally going to recognize that we do have to make some changes.
And I hope this time when the Secretary comes forward with a recommendation, which he did to this committee in 1994, that we should look at closing and consolidating county offices. That we should take a look at how we can bring service to our farmers into the next century. That this committee will not do as we did in '94, saying oh, no, you can't do that.
Every county office in every State and many of my colleagues came and said, we can't do that. We have got to have the service to our employees. We have got to maintain every county office in every district in every place and this. And this is what this committee did, both sides of the aisle. And yet now we want to blame the administration. Well, I wanted to put in the record a balanced statement this morning, as saying, Mr. Chairman, your leadership now and the fact we are looking at this in other hearings in which we are beginning to honestly look at the budget pressures, you asked a very good question.
Why do we have in a budget 600 new Forestry employees when we are short in areas in which you yourself would say we need to have? And I realize that was in the Interior Committee. But that is something you could have and you still can make some adjustments in the budget and suggest that maybe, just maybe, we can have less employees in one area in order to do that which we do without having to go into the Social Security Trust Fund to get additional funds.
Page 28 PREV PAGE TOP OF DOC You know, my final comment, Mr. Chairman, for all of us there has been a lot of rhetoric about Social Security. It is not just rhetoric, it is real. Every single dime, every single dime of emergency supplemental spending will come from the Social Security Trust Fund. And that is why those of us who are prepared to that which is necessary to compensate our employees, to recognize this, it is a pretty tough decision for us to make.
It is a pretty tough decision. And there is a lot of my colleagues that keep talking about, you know, we have got to have tax cuts, we got to have additional spending here. We got to eventually focus. And that is why I hope that you will get a little more help behind you, Mr. Secretary, to do the things that I know you and those at the table are wanting to do, that you will get help of showing how we can do it. Not reasons why we can't do it.
And I hope we will pursue the question of the LDP's in depth. I guess one other thing, Mr. Chairman, begging your indulgence. A question was asked about marketing and I fully agree, Gus, with your answer, or Parks, of what we are trying to do as to build income. If you happen to notice Monday in the Washington Post there was an article on this.
One little line in that caught my attention. Kellogg's company increased the cereal prices in December by 2.7 percent in order to pay for their increased advertising costs and marketing costs.
Mr. Chairman, I believe the farmers in Nebraska, Texas, Minnesota and Indiana would love to see the dedication of folks through LDP's or what have you of increasing the price to the consumer in order to pay the farmer a fairer price.
We have got to change that mentality. Somehow, some way looking and pretty darn quick. But why is it that everything we seem to do is dedicated in order to price it cheaper in order to sell more when we don't have any substantive information that shows that we are actually accomplishing one bushel of additional sales.
I think we are, I think we are selling more. But is that really the way that farmers in the world are going to be best benefited? Well, our LDP is the best way to go, Mr. Chairman. I am going to depend on your wisdom and Mr. Minge's and this committee to answer that question.
Page 29 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you. That is a heavy load, Mr. Stenholm. Thank you.
The gentleman from Georgia, Mr. Bishop.
Mr. BISHOP. Thank you very much and let me thank you for coming and really discussing an issue that is of real concern to some of our folks down in Georgia. One of the key legislative leaders in our Georgia Legislature, who also happens to be a farmer, has buttonholed me, I guess at least three times in the last 3 weeks, on the problem in loan deficiency payments to Georgia farmers.
And they believe that it is a workload issue and that they just don't have enough people to do the work. And what I would really like to explore is whether or not there is some temporary, stop-gap measures that can be put in place to relieve the overworked offices and leave this particular crisis-stressed time.
We have had a lot of people that are in real bad shape because of the multiple disasters and a lot of crises that we have experienced in our area. And is there some way that you can shuffle some people around or bring in some temporary help to deal with the crisis?
Mr. SCHUMACHER. Yes, Mr. Bishop, and again I very much enjoyed coming down and working with you and your farmers. And one of those farmers, as you recall, we met that young farmer, 28 years old, is so depending on our joint work to get that supplemental through so he can get his emergency loan. And I just keep remembering him and we sometimes get kind of macro and I always remember Mr. Otum, the young farmer who is going to be with us for many long years, an excellent farmer, he is depending on us.
Mr. BISHOP. We hope he is going to be with us.
Mr. SCHUMACHER. But on the specific question, first of all the Secretary is addressing the Georgia Legislature today on many of these issues. We are taking a number of temporary steps. We are moving staff from low workload areas to higher workload areas. That also is a bit expensive because we have to pay the hotel and food. We are also doing more temporary employees.
Page 30 PREV PAGE TOP OF DOC Now we can pay overtime and we have been paying overtime. But then, you know, the stress levels when you continue to pay overtime, you are really, really working people very, very hard and it is difficult. So we have got a combination of moving people from low to high workload areas. The paying overtime and also hiring temporary employees, those are all in place and we are working hard on those. We still are going to be short
Mr. BISHOP. Mr. Secretary, I guess I, and I appreciate what you are saying, but it is little consolation to some folks that are really, really stressed out. And I just wish that there was some way that we could beef up the work force out there. I think USDA was perhaps the first Department to reorganize and to get that reorganization. And they have streamlined very efficiently some of the instructions from the Vice President and the Re-inventing Government Initiative.
They did a great job, except that with the unexpected crises and disasters that have been faced in our area, the streamlined work force just is not able to carry the load and they need some help.
Mr. SCHUMACHER. Well, we hope that the supplemental would go through expeditiously that we submitted. That certainly will give us some relief for hiring more temporary employees. So we are hoping that the Congress will act expeditiously on that.
Mr. BISHOP. Is the amount in the supplemental adequate to deal with all the concerns that we have got?
Mr. SCHUMACHER. Well, certainly the temporary
Mr. BISHOP. The amount that is being asked for?
Mr. SCHUMACHER. Right, we hope that that will get us through the temporary side and then we have to look at the more permanent as we go forward in the appropriations process.
Mr. BISHOP. Thank you, Mr. Chairman. Thank you, Mr. Secretary.
Page 31 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you.
Mrs. CLAYTON. Thank you, Mr. Chairman. Thank you also for having a hearing on the Loan Deficiency Payment Program. I want to enter into the record a more extensive testimony, if I may.
Mr. BARRETT. Without objection.
Mrs. CLAYTON. To say that, as has been already articulated by others, that North Carolina is certainly not unlike those others that are suffering. In fact, I received from my State Director of FSA, that as of January 5, 1999, the county offices had processed 19,800 LDP's for 1998. Which compares with only 268 in 1997. OK. And there were zero LDP's both in 1996 and 1995. So nothing in 1995 and 1996. In 1997, 268. But yet, as of January, 1999, there were 19,800.
And they said, this increase has resulted in county office's backlog averaging approximately 3 weeks of getting it processed. Not only are they doing more, but slower and some people not getting at all. But even more importantly said that at present they estimate an additional 2,500 LDP's will be processed in the coming months. So unless we do get that emergency funds, and I think this is what we want to put in the record, this is an emergency.
And the emergency is that farmers will not be able to use the credit that is in that emergency loan if we don't get to them very soon. Because indeed they will have teetered beyond the point where additional credit would make any sense. And the AMTA contracts have increased because we just have so many small farmers who are having to renegotiate their contracts. And my State, as you well know, has tobacco. And the prices in tobacco are causing them to have to renegotiate with the people they are leasing land from.
So all of these things are compounding at the very same time the commodity prices are low. So the institution of last resort is the institution of very limited response. So I just want to say to you, as well as my colleagues, we need to make the point that our farmers are really in a crisis situation. And we ought to be committed to try to make that abundantly clear and get some action out of Congress. I thank you for being here and Mr. Chairman, I thank you for having this hearing.
Page 32 PREV PAGE TOP OF DOC [The prepared statement of Mrs. Clayton follows:]
PREPARED STATEMENT OF HON. EVA M. CLAYTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mr. Chairman, I commend you for having this hearing on the Loan Deficiency Payment Program and the workload associated with it. It is imperative that we critically examine the workload increases that have occurred and the working conditions that FSA employees must cope with due to the reduction in previous workforce levels. The resulting staff and budget shortfalls have left FSA employees frustrated, disheartened and demoralized.
My State's FSA workload has experienced dramatic increases, over a wide range of programs having considerable producer activity, while our personnel ceiling has been reduced. In 1993 North Carolina FSA had 510 county office employees and today we have 373a reduction of 25 percent. With the increased responsibilities, which I will outline momentarily, they simply cannot offer the services North Carolina farmers expect and deserve! According to official records, North Carolina is the most understaffed state in the Nation based on workload. At present we are understaffed by 56 employees.
A proper perspective of the increased responsibilities of county office employees in North Carolina must begin with an explanation of the unique nature of our state's agriculture. Clearly, states that administer quota crops spend an inordinate amount of personnel resources on these programs. North Carolina is unique in that most of our counties have either tobacco (flue-cured or burley) or peanuts or, in many cases, both. The wide range of responsibilities necessary to administer these programs spans almost the entire year and requires attention from almost every employee in these county offices.
While many employee functions are not directly related to the administration of these quota crops, they are no less necessary to carry out FSA's responsibilities. For example, most tobacco counties receive large numbers of requests for farm reconstitutions each year, many involve several if not a dozen or more separate ownership tracts. These complex divisions and combinations each require many hours of work to complete. On average, North Carolina processes over 25,000 reconstitutions each year. Without exception, when the national tobacco quota is reduced, requests for reconstitutions increase. We will no doubt see substantial increases in this administrative responsibility in 1999 due to the large decrease in tobacco quota.
Page 33 PREV PAGE TOP OF DOC Measurement service is a considerable responsibility in most North Carolina County Offices, especially those with quota crops. A random sample of four counties indicated that in 1998 they accommodated: 1,108 requests for measurement of 2,537 separate fields; 500 requests with 1,100 separate fields; 300 requests with 1,000 fields and 250 requests 800 fields. This work is directly attributable to the administration of the tobacco program. As you know, statute mandates the acreage determination of every tobacco farm annually.
County offices recently completed the processing of fall lease and transfer of 43.5 million pounds of flue-cured tobacco. From September through November, this work required the attention of several employees who normally work on other programs. An average of 800 separate transactions were necessary in each of our larger tobacco counties to complete this task, each requiring at least 30 minutes.
Increases in employee responsibilities have occurred across most of our programs. Loan Deficiency Payment (LDPs) are a good example. The flood gate opened on LDPs in April 1998 for 1997 crop cotton and continued thereafter on 1998 crop wheat, barley, oats, corn, sorghum, silage and hay crops, soybeans and cotton. As of January 5, 1999 our county offices have processed more than 19,800 LDPs for 1998 which compares with only 268 LDPs in 1997, zero LDPs in both 1996 and 1995. This increase has resulted in county office backlogs, averaging approximately three weeks, for getting LDPs processed and disbursed. At present FSA estimates that an additional 2,500 LDPs will be processed in the coming months.
As you know, one of the purported benefits of the Agricultural Marketing Transition Act (AMTA) was to decrease the number of times a producer visits a FSA office since it was thought that producers would enroll for the entire 7 years of the contract. This has not been true in North Carolina where most producers have annual contracts. This results in an annual sign-up with substantial increases in workload to administer this program. Furthermore, the participation increased from 40 percent of the 1995 crop base to 98 percent of the 1996 crop base.
Page 34 PREV PAGE TOP OF DOC In addition to the astronomical increase in workloads of the aforementioned programs, North Carolina FSA offices have also had substantial increases in the following activities:
tract level data maintenance on all farms (November 1997 through September 1998 )
guaranteed and direct farm loan applications; approximately 10 percent increase over 1997
cross training of all county office employees with special emphasis on farm loan programs
implementation and administration of the new Livestock Assistance Program; 55 counties approved with sign-up from November 23, 1998February 5, 1999 .
a number of requests for NAP due to the severe weather conditions in 1998
additional and early AMTA payments (fall 1998 ) CRP18 sign-up (fall 1998) plus the ongoing continuous CRP sign-up
Service Center Training of all employees (maximum activity from June through November) with over 300 employees being trained for 3 consecutive days each)
Many county employees are reviewing written directives, handbook amendments and other information on their personal time just to stay abreast since producer activity in their office has been so high during much of the year.
Due to the constant level of program activity in county offices many employees did not take annual leave until the end of the year. This reluctance to take annual leave during busy times throughout 1998 caused a larger number of employees to be on leave during December resulting in increased backlogs in some program areas. Despite these conditions, the State FSA Director tells me that all of his county office employees have been going well beyond what is considered normal in order to achieve the high level of work completion that has occurred to date.
Page 35 PREV PAGE TOP OF DOC He also tells me that the foreseeable future hold additional increases in work activities for area such as:
premeasurement service for tobacco and peanut farmers. Direct relationship to number of reconstitutions and changes in quota crop allotments.
implementation of the massive new disaster program Note: one county in eastern North Carolina has estimated that the approximate 2,500 producers who will apply for this program will have to be processed in the county office at the rate of 100 producers a day. This amount of activity will enlist the work of all 10 employees all day long for the entire sign-up period .
common Computing Environment implementation and training.
ongoing normal office activities which are a factor in the workload include:
burley tobacco marketing reconciliation
final AMTA payment (January through June)
spring lease and transfer of burley tobacco and peanuts
outreach initiatives, including producer meetings, mailings and personal interviews
preparation of tobacco and peanut quota and allotment notifications
administrative activities, such as payroll, travel, purchasing, and automation.
Automation is a subject which should be addressed. Over the past year we have been installing LAN/WAN/Voice (L/W/V) in many county offices which has required a substantial investment of time by employees. Many hours went into planning, coordinating, implementing and trouble shooting problems relative to L/W/V.
Page 36 PREV PAGE TOP OF DOC These demands exacerbate the shortage of time available for other work activities. We look forward to the updated automation that will be following L/W/V installation, as we have been struggling with the obsolete ADD equipment currently used. In order to increase the efficiency of our operation, we desperately need the completion of automation upgrading for county offices.
The substantial increase in workload coupled with a severe shortage of qualified personnel has resulted in a severe backlog in many counties. County and State offices are short handed. Any further deliberations regarding staffing levels should give great consideration to the North Carolina's increased activities and current need for additional personnel. Overall, program activities in my State are running from 3 to 4 weeks behind due to workload demands.
Mr. BARRETT. Let me ask you about a directive that apparently has been forward to utilize the services of volunteer workers including retired employees.
And I guess the question, I was always under the impression that that was impossible to hire or rehire employees that had been around for a while. Is something changing there? Or is this true that this directive is on its way.
Mr. SCHUMACHER. Mr. Springer, would you want to address this one? Because it is a little confusing to us as well and we want to check again the law on what authority we have to hire. Well, first there is the issue of volunteers of retired employees. And then there is a second issue, can we legally hire and pay retired employees to come back and work in county offices.
Mr. BARRETT. Now that was my question. Mr. Springer?
Mr. SPRINGER. To my knowledge there has not been any direction to hire previously employed employees back on the payroll at this point. If there is a directive in process, I have not seen that. As far as the ability to use previous employees as volunteers, strictly volunteers, we realize that our ability to be able to legally use volunteers is somewhat limited. And I think that is under review as far as, as the Secretary has said, there are legal ramifications there.
Page 37 PREV PAGE TOP OF DOC Mr. BARRETT. Once you have the answer to that question, would you advise me?
Mr. SCHUMACHER. Could I come back to you on that?
Mr. BARRETT. Certainly.
Mr. SCHUMACHER. I would like to address both of those. People in the counties and neighbors to farmers who have experience want to volunteer. Do we have the legal right to allow people to volunteer? I do not know that right now. And I would like to come back to you on that. And the second is our authority to hire retirees, and come back to that as well.
Mr. BARRETT. Thank you.
Mr. SCHUMACHER. It is an important question and if we can do it, I would like to do both because we need them.
Mr. BARRETT. Absolutely.
Mr. SCHUMACHER. But I also, I uphold the law.
Mr. BARRETT. That is where I am going with the question. Thank you very much, Mr. Secretary, and also to the members of your staff. We appreciate you being with us again.
Mr. SCHUMACHER. Thank you very much, sir.
Mr. BARRETT. We look forward to seeing you next time.
Mr. SCHUMACHER. I look forward to it, thank you.
Mr. BARRETT. I would like to recognize our second panel, Mr. John Monson, national legislative chairman, National Association of FSA County Office Employees. He is our second panel and once Mr. Monson is in place I would like to ask the gentleman from Minnesota, Mr. Gutknecht, to introduce our witness.
Mr. GUTKNECHT. Mr. Chairman, as John comes up to the podium, John, I am privileged to have him working in an office about 30 miles from our office and in my district in Minnesota. And John has been a very valuable employee, he and his team have been very valuable in terms of working with our office, with working with farmers. I am delighted that he is here today.
Page 38 PREV PAGE TOP OF DOC He is an articulate voice for agriculture and I think he really recognizes and understands the difficulties that the employees in the FSA offices have, especially with the budget pressures that are being placed upon them today. And apparently within, I am just coming from a Budget Committee meeting, so I am balancing between both.
And in fact, that is one of the issues we are pursuing in the Budget Committee with regards to how much money is actually being allocated for the legitimate needs of operating these offices. I might just say, too, and I didn't get a chance to question the previous witnesses, but I did want to at least make a comment. And it strikes me as ironic that while the, at our hearing out in Grand Island, NE, Mr. Chairman, we heard from the lead economist for the USDA that they are looking at potentially significant increases in the LDP Program this year, at the very time the administration is requesting significant cuts in staffing levels for FSA.
And I think that is something that needs to be noted. We need to be aware of this. This is something that I think members of the Budget Committee, I am doing my best to share that information with folks from the Budget Committee. We have got some very serious problems and we are going to have to get some cooperation and help from the administration. But I want to welcome John to be with us today.
I apologize, I can't stay for the whole testimony because I think what is going on in the Budget Committee today may be at least as important as what is going on in this committee.
So we welcome Mr. Monson today and I am delighted to have him here to present some testimony on behalf of some of those people who actually do the real work out there in the FSA offices around the country.
STATEMENT OF JOHN MONSON, NATIONAL LEGISLATIVE CHAIRMAN, NATIONAL ASSOCIATION OF FSA COUNTY OFFICE EMPLOYEES
Page 39 PREV PAGE TOP OF DOC
Mr. MONSON. Thank you, Representative Gutknecht, I appreciate those comments. Thank you, Chairman Barrett, for the opportunity to testify. I bring greetings from the country and from the farmers that we are working with out in the country and from the States that I represent as well. I am John Monson, national legislative chairman for the National Association of Farm Service Agency County Office Employees Association. And we are known as NASCOE.
And NASCOE represents the FSA County Office employees on issues related to the administration of farm programs. I am also presenting the views of the National Association of the National Farmer Elected Committee Association, known as NAFEC. And those are our county committees that work with us every day in our offices to oversee the operations.
NASCOE and NAFEC work cooperatively to support and maintain the field delivery system and the local control through the elected county committees. And I am also a county executive director for the Dodge County Farm Service Agency in the State of Minnesota in Representative Gutknecht's congressional district.
Our county employees work with USDA farm programs every day and a lot of them are farmers themselves. And we have a real front line perspective when you work with these folks every single day and see these issues and these programs every day and we really appreciate the opportunity to speak to those issues here.
My goal in this hearing is to provide this committee with our experience, common sense and front line perspective on the LDP workload and the resulting staff and budget shortfalls. The LDP Program workload has created a substantial stress on some county offices. Combined Disaster Program workload, Farm Loan Program increases and recurring annual workload and it is clear that FSA employees have been tested to meet workload demands. The Farm Service Agency Workload Data projects for fiscal year 1999, the Commodity Program workload will be similar to that of 1995.
Page 40 PREV PAGE TOP OF DOC The reason I use 1995, is because I am not privy to the same data that some of the folks that sat here before me are. I just get what is faxed to me or someone gives me a call or whatever and I use that information to help me determine where we are at. But in looking at what I have got, it is similar to that of 1995.
Well, in 1995, the county FSA commodity program staff was about 20 percent greater than it is today. Currently we have about 10,700 non-Federal county committee employees funded. In 1995, FSA commodity staff was funded at 13,432. FSA Officials are estimating that a staffing shortage for county office Federal and county committee staff to be about 1,800 short.
Regardless of the methodology for determining workload in resulting staff years, it has been forecast by nearly every market expert that crop prices are going to remain low for another year or two at least.
Now considering the fact that LDP Program is projected to increase from the current 1.7 million LDP's that we have done to this point on the 1998 graph, to 2.4 million that are estimated for 1999, according to the March 1 data that we have, our staff year ceiling should be increased to meet those demands.
Now realizing that the LDP Program is actively serviced a year and a half after the harvest, it is clear that LDP workload will likely extend to at least the spring of 2001. The way these LDP's work is they have a year and a half to bring their production evidence. For this year, they don't have to bring their production evidence to us until March or May 2000 for the 1998 crop. So we service through that period of time.
Now adding to this staffing shortage is the President's proposal to reduce FSA staff an additional 752 staff years, of which 652 are for sure going to come from the county. It appears that customers will see increased payment delays while county staffs are increasingly stressed. Therefore, NASCOE maintains that county offices be allowed to make permanent hires.
The loan deficiency payment processing is varied according to the requests. But on the average, work measurement offices in my area estimate it takes about an hour and three-quarters to process an LDP from the very beginning to the very end.
Page 41 PREV PAGE TOP OF DOC Steps included in that process are like taking the application, calculating the bushels, filling out internal paperwork, loading the information into the computer, making the payment, mailing the payment information, gathering the production evidence, loading the production evidence into the computer, mailing out a letter.
And some of these situations are far greater in confusion and complexity and others are far simpler. Based on the FSA Budget Division, LDP's alone will result in at least 1,300 in staff years of workload in fiscal year 1999. The President's supplemental will add only 562 staff years through temporary hires. You asked the question earlier, are we paying overtime?
In the State of Minnesota, we are not authorized to pay overtime to our employees, and we could use it. It is not authorized and it hasn't been authorized since December. I can't pay overtime to my staff to complete LDP workload and the States around me, as I understand, don't have any authorization to do it. If we are forced to stay after, yes, we can pay overtime. But we can't do it for the expressed purpose of getting LDP workload done.
One of the primary shortfalls of the Loan Deficiency Program is the workload it creates and the lack of funding for staffing. One possible solution to the problem is to incorporate a fund for FSA to utilize in times that the 1996 Farm Program Emergency Provisions trigger, like LDP's. So when LDP's trigger, a fund would trigger to provide the administrative resources.
Because FSA is an agency which provides disaster and emergency programs, funding mechanisms need to be created which trigger along with those programs. One other possible solution is to use CCC Funds for the purpose of giving us the administrative resources we need. Utilizing the FSA methodology to determine the 1999 staffing shortage of 1,800 employees, it is estimated the Agency requires an additional $75 million.
In my written testimony it states $50 million. The information that we have just received and I was writing this quickly without a lot of good information, but what I received was that it would take about $75 million to bring us up to the level we are going to need to get at the backlog. In fact there is a letter from NFU along with other commodity organizations supporting 75 million in requests.
Page 42 PREV PAGE TOP OF DOC The Secretary has publicly stated that he will request $42.8 million to meet LDP workload volume. This will only allow the hiring of temporary employees. NASCOE again restates, this isn't a temporary problem. The ability to pay overtime and hire permanent employees will allow us to deliver more timely and we need that ability. This is a situation that requires permanent hires capable of working closely with complex program rules and customers in the next few years.
More disconcerting, however, is this fiscal year 2000 budget which will result in 652 cuts in the county office. Workload projections dictate staffing to be increased in fiscal year 2000, not decreased. The agency and OMB know that LDP's will work in the fiscal year 2000. They stated earlier that they didn't realize the LDP workload for 1999, therefore we are doing a supplemental.
For 2000, we know. And the projections should reflect that. We request an explanation on what basis staffing reductions are proposed. The ultimate result of staffing decrease in 2000 or a shift from permanent to temporary staff may very well result in possible program failure in a lot of counties.
It doesn't matter if you are in a small office or a large office, LDP's have stretched staff very thin. In my own office I have lost a third of my staff. We have processed over 1,500 LDP's and I am a small to average size office. Some other offices are at 3,500. Renville County, it doesn't matter where you are at. In a national survey I compiled last December, staffs expressed serious morale problems, stress, delays in payments and a tremendous amount of time worked without pay.
Most county FSA staffs have a difficult time dealing with inadequate service. Therefore what they do is they take their work home and they work time without pay or compensation for time. And in the end, they felt that their reward would just be another threat of job loss. However, they take pride in their jobs and it has kept them from saying, the heck with it.
Page 43 PREV PAGE TOP OF DOC A few of us believed the President's budget could possibly call for more cuts. Despite the new Honey and Mohair Loan Programs, the Disaster Programs, the Small Hog Operation Payments, the LDP's, the normal workload, the CRP activity, proposed facility loans and likely increases in the commodity loans, it just seems inconceivable that staffing would be proposed to be reduced.
Any increase in supplemental programs should contain administrative dollars to carry out the program. As we have learned, OMB has got a 5-year plan to downsize FSA County staff, regardless of workload or the state of agriculture. FSA County non-Federal staff will take a 32.8 percent reduction in staff from '93, to 2000. Our FSA Civil Service counterparts, including our Headquarters staff here in Washington, will take a 14.8 percent cut over the same period of time, less than half the cuts were taken in the counties.
Since the inception of Freedom to Farm Act, county non-Federal employees will have experienced a reduction of 1,351 employees or 12 percent since the beginning of fiscal year 1997, when the budget process was impacted by the 1996 farm bill. Through 2000, Civil Service employees will be reduced 123 employees or 2 percent. OMB's approval of the supplemental is very encouraging.
Perhaps it is time to have hearings on the proposal to meet workload demands and service delivery system. Fiscal year 2000 budget requires an additional $82 million to meet staffing shortages. NASCOE respectfully requests increased permanent staffing to meet workload demands. What we are talking about is administrative dollars to deliver programs your committee and Congress has passed into law.
Some program changes and systematic changes may improve efficiencies, but ultimately it takes money and staff to carry out the job. I would be very remiss if I didn't take this opportunity to say what I hear county employees say most often. And I have waited for this opportunity for quite some time to be able to say it. Washington needs to better understand what is happening out in the country first hand.
Page 44 PREV PAGE TOP OF DOC We need you to come to our offices. We need you to see what it is like. And that county office employees have been downsized, rightsized and reorganized to the point of diminishing returns. It is difficult to squeeze blood from a turnip, but that is the way we feel. County staffs have given all that they have to meet workload demands. We are now asking for you to support us in getting our job done.
For the administration and Congress to allow us this service to service our customers without continued threats of cuts, closings and rightsizing. Farmers depend our service and we depend on your support. We look forward to servicing our USDA customers. It is a privilege and it is an honor for us to do that in carrying out the programs and the resulting changes.
And we look forward to working with you in making changes necessary in our programs administration, while ensuring accountability of staffing and workload information. At the close of the hearing we would like to submit some questions to the committee. Finally, I just want to say that employees should be allow input into these changes and we appreciate this opportunity very much to do so.
You have bright and very talented and able resources out in the counties and I will promise you that their input will be straightforward, honest and very helpful. Again, I want to thank you for this opportunity to testify.
[The prepared statement of Mr. Monson appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mr. Monson. That was an excellent, as you suggest, front line perspective.
Let me ask you, would you be willing, if we could make the necessary arrangements, to visit with the appropriators and share with them some of this testimony?
Mr. MONSON. Absolutely. That is our goal.
Page 45 PREV PAGE TOP OF DOC Mr. BARRETT. All right, our staffs are in the process now of trying to make arrangements with the chairman of the Agriculture Appropriations Subcommittee and the ranking member, hopefully.
Mr. MONSON. Absolutely. I would be privileged, thank you.
Mr. BARRETT. You suggest, you mentioned overtime. You are not paying overtime. You are not allowed to pay overtime. You suggested further that some of your adjoining States are not paying overtime. Who makes that decision whether overtime is paid or not?
Mr. MONSON. Our State Executive Directors ultimately have the authority to determine that. But I believe they receive direction from Washington on when overtime can be paid and authorized. I want to be clear that when we are forced into a position of having to service our farmers after the closing time, that we do pay overtime for what we call, suffered overtime situations.
But to authorize up front, in advance for the purpose of accomplishing LDP workload, we currently do not have that authorization.
Mr. BARRETT. Have you any idea how many States do or do not pay overtime?
Mr. MONSON. Most States did pay overtime previously, a few months ago. But I believe that authorization in most States ended probably in December.
Mr. BARRETT. Have you any, do you have an answer to the question I asked the Secretary about the use of retired personnel?
Mr. MONSON. Well certainly they are very able. I would love to take back a couple of my retired folks and have them help me out. If they could volunteer and be able to do that
Mr. BARRETT. You don't know
Mr. MONSON. I don't know if they would come back, knowing what they are getting into. But they might be willing and I would sure give them a call, I will tell you that, if I had the option.
Page 46 PREV PAGE TOP OF DOC Mr. BARRETT. Well, once we get the answer to that question, we will advise you.
Mr. MONSON. Thank you. An excellent suggestion.
Mr. BARRETT. Do you think that the use of temporary employees is a good management tool?
Mr. MONSON. It can be when it fits a temporary situation. But I don't believe this situation is a temporary one and I think you have heard USDA Chief Economist Keith Collins state that the commodity prices are expected to remain low for the next year, possibly two. With our LDP carryover servicing workload of about a year and a half, that is not a real temporary situation. That is going to extend well beyond a year.
A temporary situation in USDA is being able to hire them up to a year, not longer. We are going to need staffing beyond a year right now to accomplish this workload. So the permanent staffing ceilings may need to be raised for that purpose.
Mr. BARRETT. Do you agree with that 1-year limitation and do you have any employees that have been on staff beyond that one year?
Mr. MONSON. No, sir. We have a, we just had to eliminate our temporary staff person here just recently. She was on for about 120 days, not quite 120 days.
Mr. BARRETT. It is our understanding that you have county office people, or not you necessarily but there are county office people out there that have completed some training, some examinations, but they can't receive loan approval authority. Is that correct?
Mr. MONSON. That is correct.
Mr. BARRETT. And if so, why? What can be done?
Mr. MONSON. That is a big problem, one we have been working hard to change. There is a number of us that are trained out here, ready and willing to receive loan approval authority and it has been difficult to receive it. We are non-Federal employees, we are considered non-Federal employees. We like to call ourselves county committee employees, so to speak, but we don't have that Civil Service ability.
Page 47 PREV PAGE TOP OF DOC As I understand, part of the problem is the 90-day rule where we can go back and receive monies from farmers only up to 90 days. And this rule apparently creates some problem with our approval authority that it may directly, somehow it determines how we are included in this approval authority issue. But we do believe that we have the capability and the understanding and know how to be able to do it.
I work with cash flows and other things and farmers every day to be able to determine these things. I am certainly capable and others are as well. And it is a resource we could provide, but when we are working on these LDP's it is a tough shift to be able to provide the staffing necessary to accomplish their heavy workload as well. We are both facing kind of the same situation today.
Mr. BARRETT. Do you have any county employees right now with that loan approval authority?
Mr. MONSON. In my office, no sir, I do not.
Mr. BARRETT. Could you give us some idea, in the order of flexibility, ways to improve manning a county office? Think of it in terms of flexibility. What is a better way, what are better ways to man your office, offices of your colleagues?
Mr. MONSON. Well, now you are asking John Monson.
Mr. BARRETT. Yes.
Mr. MONSON. Speaking off the record, I guess so to speak, I, my opinion would be that we may need to look seriously at the possibility of consolidating core functions, core program functions that are somewhat duplicated between offices. Right now we have NRCS Extension, Rural Development Offices, FSA Offices, Soil and Water Conservation Districts all working the same setting with the same people, to a certain extent doing similar types of things with similar levels of understanding.
And we use those resources informally, regardless of whether we are instructed to or not. I use it all the time. And I think we really need to seriously consider looking at the possible consolidation of some of these core functions that we do that duplicate methods of providing service to farmers. We could eliminate paper work. We could make it better for the farmer.
Page 48 PREV PAGE TOP OF DOC I should be able to answer for some of things that my counterparts at NRCS do. When I am gone, they should be able to answer for some of the things that I do. And it just seems like a good use of people. And the Cooper Lybrand study brings out a number of these different issues and some of those things are good and others we need to look at more closely. But I know I have looked at them fairly closely and think there are a number of recommendations we should take a good solid look at.
Mr. BARRETT. You would support then further consolidation of what had been going on supposedly for the last several years, which became very controversial and continues to be controversial? I am not disagreeing with you, but you are agreeing, you are supporting that?
Mr. MONSON. I am not necessarily stating that we should go out wholesale and start closing offices and combining offices and combining staffs. What I am saying is I sincerely think we need to look at some of the program consolidated, the core functions that we have that are similar between agencies. And look at how we can provide those services with less duplication, better to the producer.
I think we really need to look at that programmatic streamlining. And I think that our resources are there to be able to provide it. Closing offices and consolidating offices is a related but separate issue too.
Mr. BARRETT. Thank you very much, I appreciate those personal comments. Mr. Minge.
Mr. MINGE. Thank you. Mr. Monson, I am very pleased that you are here today. A week and a half ago we were attempting to determine who would be best suited to testify before this committee with respect to the problems with the loan deficiency payment and staffing. And my recommendation was that we try to find someone that is on the front line. And when we made that effort, your name came right to the top and I am very pleased that you are here.
Page 49 PREV PAGE TOP OF DOC Mr. MONSON. Thank you.
Mr. MINGE. There are a couple of things that I would like to take up. First, I think it is regrettable that the USDA folks are no longer in the hearing room. There is a great deal I think they could learn from your testimony and I hope that a record of this testimony is preserved and we will make sure that it is furnished to them.
Second, there is a great deal of concern about funding of the operations of FSA and the need for prompt action here at the Congressional level. While you were testifying I was very disappointed to note that the House Appropriations Committee has been told by the Republican leadership that they cannot proceed with a consideration of the supplemental appropriation until they find offsetting spending cuts and this is notwithstanding the fact that the leadership on the Senate side is proceeding.
And I would hope that the leadership on this side would be able to deal with the extingenices that we face, the true nature of this emergency and that this not get caught up in politics as some of the supplementals have in the past couple of years. We face obvious problems that you have covered with respect to staffing. And I am not going to try to go through those again.
Except I would like to ask you are the staffing needs at all addressed in any way by closing some of the county offices and consolidating work into area or regional offices or is it the same amount of work that needs to be done, it is just that the farmers would have to drive further? I mean I am wondering what is the, is there an economy of scale, so to speak, you can achieve by putting 1,000 LDP's through one office as opposed to 250 through four of them?
Mr. MONSON. That is a good question. The way I would answer it is this. This question has been asked before. There are certain systematic, programmatic changes we could make to help improve the efficiency of the program. In fact I thought initially this hearing was going to be about that and we made a number of options and recommendations in my testimony. And then we scrapped that testimony and went to this.
Page 50 PREV PAGE TOP OF DOC Mr. MINGE. And that is why I asked the question, because I was hoping we would focus a little bit more on this question and a couple of others that I have.
Mr. MONSON. Right, well I would be willing to provide you some of the ideas that we have in that testimony from the front line perspective of what options exist to make this more efficient. But the problem is when we take an application, you still have to put it in the computer. You still have to talk to the farmer. You still have to send out his payment sheet.
You still have to discuss his production evidence. And you have to divide his over-disbursement or under-disbursement between all the LDP's or market gains that he has. And it takes time and it takes people. And consolidating offices would be more of an impact on the farmer than anything else. They would just have to drive further to have that same function accomplished.
Mr. MINGE. One thing I would like to emphasize that we need your help and that of your counterparts in working through is where there are efficiencies they are achieved through consolidation and where we simply are providing a poorer quality of service to the farmers in our country. Another question that I have goes to the nature of the program as you have to administer it. And I recognize that you are not the ones in the county offices that design the forms.
You are not the ones that decide how much information has to be in the form before you can proceed. And you are not the ones that decide how refunds or other changes that are made as the farmer gets into the program are undertaken. And the number of visits that have to be made, what needs to be signed, what can be done by a telephone or fax machine and things like that. What we need in this committee is assistance from you and your counterparts in helping us make sure that the people here in Washington design these programs and administer these programs so that you can efficiently deliver them.
Page 51 PREV PAGE TOP OF DOC And we have had a very dramatic example here in Washington about what can be done with simplification and the Small Business Administration. And if we can't do it at USDA downtown, some of us are beginning to think we should turn some of these functions over to the Small Business Administration and then you could administer it with the forms that they come up with.
And so we would like to know how can we make this program easier for you to administer and still not run the risk that some of the integrity that, not some, the integrity that is essential to a program is not lost? You have 30 seconds.
Mr. MONSON. Well, let me say this. That it seems very clear that the county committees and local county committees' authority and input is valuable in that effort. We have front line folks sitting there that are farmers that oversee these offices and know these programs that are better suited and more understanding of this situation to help you develop a system that will be better.
We are working, as NASCOE, and will provide some ideas about how to reorganize and streamline programs and administration. We want to be able to do that with you. And this is a great opportunity to be able to start that type of dialogue and we hope this continues, these same hearings.
Mr. MINGE. Can you provide us with that information? If you have a list of 5 or 50 recommendations on LDP's. And we can start with LDP because that is what this hearing is about. But move to marketing loans, we can move to CRP, and whatever else it is that you are running through the office. And we would like to make sure that these programs are administered in a fashion that is efficient and accurate and one that preserves the integrity of the fundamental program itself.
And I think that we can do it, we can do it in a better way. I would like to also ask if you could help us identify what changes would be needed in order to qualify you as a county committee employee, supposedly, to complete any of the other work that you have indicated you could do on loans or other areas of activity and parallel any legislative changes that would be needed to enable other USDA staff people to help you and fill in if you are on vacation or not in the office on a particular day?
Page 52 PREV PAGE TOP OF DOC Because I think that your comment about the informal cooperation that exists, but yet the barriers that exist to completing this task is very refreshing. And I think it is right in line with what we would like to do here and this is not a party deal. I think that everybody in Congress would like to see these programs administered in a new 21st century fashion. Thank you very much.
Mr. MONSON. Thank you.
Mr. BARRETT. Thank you, Mr. Minge. The gentleman from Tennessee, Mr. Jenkins.
Mr. JENKINS. Thank you, Mr. Chairman. And let me add my complements to Mr. Monson for the presentation he made. It was very cogent. You issued an invitation for us to visit and let me tell you, I have visited with Farm Service Agencies. We have farms registered with the Farm Service Agency.
During high school and college I was a reporter. Spent 8 years there as an employee of a predecessor agency. My mother retired from Farm Services. So I have been to, I have been into the Farm Service Agency offices and know what you are all about. I think it was an excellent suggestion that the chairman made that if you have time that the appropriators should hear.
This is a story that needs to be told. It is a story that is very believable and they are calling you a front line soldier and that is what you are. And the folks up here who appropriate this money need to hear it from people who are on the front lines. Now one, I know that as an employee you are not, it is not your job to talk about what is going on in the highest levels of the U.S. Department of Agriculture.
But you mentioned something, you mentioned that we are already short in employees and that there is a proposal, I guess you characterized it as the President's proposal to reduce another 750 Farm Service Agency's employees.
Page 53 PREV PAGE TOP OF DOC Mr. MONSON. That is correct.
Mr. JENKINS. Now you can't comment, but I am a newcomer to this Congress and I have noticed that there seems to be, everywhere we turn, more and more reduction in those people who are involved in production agriculture. And USDA itself siphoning off resources and getting into other activities.
Now you shouldn't even nod as an employee about whether that is the case or not. But let me tell you, the appropriators need to hear this. This country needs to hear this. We need to get our own Department of Agriculture on the right track, on the right road. It has an illustrious history. It has been, I think, one of the greatest Departments in the Government of the United States.
But I hope that even if you have to reschedule your travel back to Minnesota that you will take the chairman up on his invitation to talk to the appropriators. Because I think that is very important and I think it will avoid the used of reams of paper that normally any such information would be accompanied by in this city.
And you can go straight to the horse's mouth and let them hear your story. And it may be, Mr. Chairman, it will do some good. Thank you very much.
Mr. MONSON. Thank you.
Mr. BARRETT. Thank you, Mr. Jenkins. Mr. Pomeroy.
Mr. POMEROY. I thank the chairman for this hearing. I would note that since the USDA overhaul that we brought forward in the 103rd Congress has been enacted, we have lost 170 positions in North Dakota alone, 150 of those right out of county offices. I think, if I remember nationally what number we are expecting in terms of reduction in employees, it was something in the thousands, something like 7,000, if I recall correctly. So I am not at all surprised by the focus of today's meetings that there is total chaos in the office as you are trying to execute your responsibilities with a dramatically reduced work force.
Page 54 PREV PAGE TOP OF DOC And that is not even addressing the fact that we have also had a good deal of program consolidation involving now new people doing new functions. And that is, of course, on top of yet additional activities with the Disaster Implementation Program falling concurrent with the normal accelerated workload that comes with any springtime.
I hope that the Office of Management and Budget is listening to the testimony you have brought forward today. Quite frankly, I think that the problem within the administration, if it is to find a home, would probably be more with the OMB people than the USDA people. But they have been utterly unrealistic about what they are expecting in terms of program administration.
Yes, we changed dramatically the relationship of the individual farmer to the U.S. Department of Agriculture with the last farm bill. And allow much more planting flexibility and therefore maybe in certain respects a little less of a paperwork burden with the local county office. But there is still a heck of a lot of relationship that continues and a lot of responsibility in the administrative burden.
Because you have spoken so well on the concerns from the county office perspective, I want to direct my question really to what I think is an even more imminent topic than the workload issue. And that is the availability of loan money for people to get their crop in the spring. The chairman held a hearing 2 weeks ago on this very important topic. If I would say, Mr. Chairman, this subcommittee is trying to rank its priorities, it first ought to be doing everything we can to make certain that adequate loan money is available. And dealing then secondarily with that in terms of the ability of the programs to get the loan money out.
On the availability of loans, do you see in your particular county offices or through the association, some indication that there will be people that won't be able to farm this year if Congress doesn't quickly act on the administration's supplemental request?
Mr. MONSON. In my area, I am in southeast Minnesota, so we don't have a lot of requests right now for direct loans. We do have some requests and we do have an increased number of bankruptcies and some marginal operations are in more difficult straights. I am, I have talked to some lenders in the guaranty program and I do understand that lending is tight, as I understand it.
Page 55 PREV PAGE TOP OF DOC It is more difficult to come by. You have really got to have a good marketing and risk management plan in place to be able to get those funds. So I think there are quite a few constraints placed on those funds right now.
Mr. POMEROY. I have been told by North Dakota bankers that there will be a number of farmers not able to get operating loan money without the guaranteed program replenished and that they are already stockpiling loans. Which means they are already oversubscribed with existing loan programs. And the ultimate, they may be, without quick action on the supplemental, they may have $35 million more in loan requests than they have loan money available.
And that is a heck of an impact in the State of North Dakota. In addition, you have other operators that may be will be able to get in the field, but they face the choice, but they are called equity financing, which means that they expect that the cash flow that they will receive from their farming operations won't cover their operating expenses. It is just a matter of how much they want to reduce their net worth to farm another year.
And they only, one of the alternatives in a terrible price environment is to restructure your finances, stretch out the payment schedules a little bit, get the monthly payment burden down so maybe you can cash flow. Without the guaranteed money they can't do that either. So you are going to have people out of business and other people losing money guaranteed without quick action on the supplemental. I think it would be a tragedy if in addition to the weather disasters, in addition to international market commodity price collapse, it is the inaction of Congress that ultimately would put these farmers out of business.
That, in my opinion, would be inexcusable. Mr. Chairman, I look forward to working with you in doing everything we can to quickly get this supplemental out. We have to take action and the total supplemental bill is now over a billion. The agriculture piece is 100 million of it. Maybe we can separate that out and more quickly identify the offsets to move it.
Page 56 PREV PAGE TOP OF DOC But if it is held up even a matter of weeks, it is simply going to be too late.
Mr. BARRETT. I thank you, Mr. Pomeroy.
Mr. Gutknecht, would you care to make a comment or two or have a question for your witness.
Mr. GUTKNECHT. Mr. Chairman, I appreciate the opportunity. I think many of the important comments and questions have already been raised. I do want to just touch base, though, on the emergency supplemental. And I will say this, and I agree with the last comment my colleague from North Dakota. That I would hope that perhaps there was a way that we can separate out the agricultural portion.
But I do want to make it clear that as John Kennedy said, success has many fathers, but defeat is an orphan. And it seems to me that everybody today wants to take credit for balancing the budget. But part of the reason we have been able to do that is we have set a policy in this Congress the last 4 years that supplementals would be offset.
And as my colleague noted, 90 percent of this supplemental, $1 billion supplemental bill is essentially foreign aid. And I told our leadership through the Whip organization, that it would be very difficult to get the votes for essentially a foreign aid bill that was not offset.
And so I do believe that it is important of us, both in the Appropriations Committee and other Members of Congress to work with the appropriators to try to find those offsets so that we can move this bill as quickly as possible. Let me also note though that I think it is important and it is unfortunate again and I think Mr. Minge was correct. It is unfortunate that some of the people from USDA did not stick around to hear some of the points that have been raised.
Mr. POMEROY. Will the gentleman yield on the offset question?
Page 57 PREV PAGE TOP OF DOC Mr. GUTKNECHT. Yes, certainly.
Mr. POMEROY. Are there any discussions proceeding, are you aware, as to the potential of breaking out the agriculture piece and moving it separately?
Mr. GUTKNECHT. At this point I am not aware of that, but I think it is a great idea and I hope, I will certainly try to share it with some of the people from the Appropriations Committee. I think it is a good idea.
Mr. POMEROY. I think that in light of the timing urgency of it, anything the member can do as well as the chairman and we can work in bipartisan fashion. If the supplemental bill at large is hung up, we have to move the agriculture piece separately or our farmers are going to lose out. I appreciate the comment.
Mr. GUTKNECHT. I have a sneaky suspicion that foreign aid bills are tough enough to pass anyway and my suspicion is that part of the reason the agricultural portion is included in the bill is to help get enough folks to pass it. But we can only speculate on that. Let me just say, though, back to one of the concerns that I have had.
One of the other unwritten rules of Washington is that no good deed goes unpunished. And it seems to me that the FSA people have done yeomen's work over the last year, certainly, and probably longer than that. And it seems to me that at the very time they are being asked to shoulder even more of a burden, it strikes me that the administration is requesting additional positions, significant additional positions for the Forest Service.
Now the General Accounting Office who does our audit work for us, has been extremely critical over the last several years of the way the Forest Service manages its activities and its budgets. In fact I think, I don't want to misquote the GAO, but it strikes me that I recall them saying that in some respects their books weren't even auditable.
I may be overstating that, but only slightly. The other thing that bothers me about this and we see this happening, not only at the Federal level, but it happens at the State and local level as well. And it is what I call the firemen-first strategy. And that is every time it is time to cut the budget somewhere, they go after essential services like the firemen-first. The Pentagon is certainly not exempt from this. I understand we have more Generals in the Pentagon today than we had at the peak of World War II.
Page 58 PREV PAGE TOP OF DOC Wherever there are cuts it is down in the people who are actually getting the work done where the cuts are made. And I think what I really want to bring focus to is that for too long I think Washington has had this top down approach to management. And I hope, Mr. Chairman, that this won't be the last time that we will try to bring people in from the field.
And I think Mr. Monson's suggestion that people like us ought to get out and actually go to some of these offices. I know that I have gone to several in my district and actually talked to the people who were on the firing line. And I do hope that we will begin this process of trying to get to the people who actually do the work, listening to their concerns, and most importantly, listening to some of the suggestions they may have in terms of reforms.
It strikes me, for example, with the loan deficiency payments, if in fact that it takes 11 percent of an FSA employee's work day to complete a single LDP application and process it, it strikes me that that is an awful long time. And there has got to be a simpler way to do that. And it also strikes me that in the private sector, we would be looking for more efficient ways to process these things.
And I would hope that we can work with the FSA employees and see if we can't find a simpler way. I do have one question. I really want to make sure we get this on the record. And that is, we had significant problems last fall in Minnesota about cross-county lines and different prices in Iowa and you probably remember, we got into a little bit of a crunch over that.
Has that been satisfactorily resolved? Can we look forward to more of that this fall? Or what is the story on the various prices from one county and one State to another?
Mr. MONSON. Well, our posted county prices in Minnesota are pretty uniform. But it was between the States, when we were paying more in Minnesota as opposed to Iowa. We have what we call a formula to determine our posted county price and it is a specific thing called the differential that we use that was changed.
Page 59 PREV PAGE TOP OF DOC So for Minnesota, Minnesota farmers ended up having to pay for this inequity so that Iowans and Wisconsin folks were able to get a similar or equitable amounts of dollars under the LDP Program. Since then, there has been more uniformity and LDP rates paid between States around Minnesota, so we are not finding a lot of problem with that.
Mr. GUTKNECHT. OK. Well again, thank you Mr. Chairman and thank you, John, for coming out today and I hope this will be the first of many hearings where we will discuss the problems with the people who actually have to deal with them. Rather than talking to people who may not know what time zone Dodge Center, MN is really in. Thank you very much.
Mr. MONSON. I thank you. Just one last thing if I may. I do need to correct the record. I do understand that the GS or Civil Service staff has been reduced not 14.8 percent, but it has been pointed out, 24.8 percent since 1993, as I understand.
Mr. BARRETT. Your correction is noted.
Mr. MONSON. Thank you.
Mr. BARRETT. Thank you. Thank you so much for being with us today. You have talked about sharing ideas and the subcommittee has talked about sharing ideas. I think it is very obvious that ideas have been shared. With reference to my earlier comment, are you in a position to change your airline time to a little later point in time?
Mr. MONSON. If I have to, I certainly will.
Mr. BARRETT. Our very efficient staffs have just advised me that you do have a 4:30 meeting with some staff of the House Appropriations Committee. And our staff is now working on the possibility of your sharing with some appropriators on the Senate side as well.
Mr. MONSON. Very good. I can certainly move that back another day and we will take care of that. Thank you.
Mr. BARRETT. And again we thank you.
Page 60 PREV PAGE TOP OF DOC The Chair would seek unanimous consent to allow the record of today's hearing to remain open for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member of the panel. Without objection, so ordered. This hearing of the Subcommittee on General Farm Commodities, Resource Conservation, and Credit is adjourned.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of August Schumacher, Jr.
Mr. Chairman and members of the subcommittee, I am pleased to appear before you to discuss the marketing assistance loan program. What I would like to do today is review what has happened with the 1997 and 1998 crops, and what is expected to happen for the 1999 crops. I would like also to discuss with you some of the problem areas that have been identified, and offer a few possible options for consideration to address these problems.
WHAT HAPPENED IN 19961998?
The marketing assistance loan programs for the 19962002 crops of rice, cotton, oilseeds, wheat and feed grains are authorized by the Federal Agricultural Improvement and Reform Act of 1996 (1996 Act), which permitted repayment of commodity loans at less than the loan rate whenever prices drop below the loan levels. At the time of enactment of the 1996 Act, little loan deficiency payment (LDP) or marketing loan gain (MLG) activity was expected to occur during the 19962002 timeperiod. With record harvests here and abroad, a strong dollar, and a significant downtime in export markets, we were soon faced with unexpected and sharp declines in major crop prices.
With this increasing importance of LDP's and MLG's to farmers, and the complexity of setting marketing assistance loan and repayment rates, some problems have developed. That is why we are here today. We need to work together to address these problems, so that the marketing loan program operates in a farmer friendly manner in all regions of the country.
Page 61 PREV PAGE TOP OF DOCCOMMODITY HIGHLIGHTS-1997 AND 1998 CROPS
Total 1997 and 1998 crop MLG and LDP outlays reported through late January continue to rise, standing at $2,188.4 million with $159.8 million and $2,028.6 million going to the 1997 and 1998 crops, respectively.
Corn outlays represent the biggest share of the cumulative total. As of January 30, cumulative corn outlays stood at $788.9 million, or 36 percent of the total. Soybeans were $505.9 million, or 23.1 percent of the total; wheat at $434.4 million, or 19.8 percent; and upland cotton was at $298.6 million, or 13.6 percent, followed with other commodities having much smaller shares of the total.
Estimated 1998-crop corn production is 9.761 billion bushels. Of this quantity, producers received an LDP or pledged as collateral for a CCC loan with respect to 4.8 billion bushels by January 20. Soybean production is estimated to be a record 2.757 billion bushels, producers have received an LDP or marketing assistance loan with respect to 1.582 billion bushels, or 57.4 percent of this quantity. The 1.582-billion-bushel level is a record for the number of soybean bushels covered by the loan/LDP program, so far more than tripling the prior, 1985-crop record of 517.7 million bushels.
As of January 20, wheat loan placements for the 1998 crop stood at 320.9 million bushels, and LDPs have been made on another 1,344.3 million bushels. At the same time last year, loan placements stood at 227.7 million bushels and no LDP payments had been made, so the total 1998-crop bushels covered by the loan/LDP program at 1,665.2 million bushels is more than 7 times the year-earlier level, and more than 6 times the entire 1997-crop quantity. Moreover, the 1,665.2 million bushel level is 98 percent higher than the previous record for total bushels covered by the loan/LDP program of 841.5 million bushels in 1985, and now represents 65 percent of the 1998 crop estimated production of 2,550 million bushels.
Through January, the list of crops for which there have been no 1997 crop or 1998 crop MLGs or LDPs included only one major croprice. Other such crops are limited to four minor oilseeds for which there is relatively small planted acreage, i.e., other-type sunflower seed, rapeseed, safflower seed, and mustard seed.
Page 62 PREV PAGE TOP OF DOC Year-to-date activity for most crops is large and reflects a heavy county office workload for the Farm Service Agency (FSA). The agency faces increased workload as a result of the price drops and natural disasters that have impacted agriculture in all regions of the country. To help with this situation, the President submitted a supplemental of $42 million to help ease the FSA workload situation.
The total number of transactions expected from loans made, loans repaid and LDP's, during 1998 and 1999, is expected to be close to 6.4 million. The ratio of current to-date loan and LDP quantity activity (i.e. quantity on which loans have been made plus LDP's which have been paid)versus last year's to-date activity is 5 for corn, 19 for grain sorghum, 10 for barley, 43 for oats, 7 for soybeans, and 4 for upland cotton. There is no question that we face very serious workload challenges as we strive to get LDP's to American farmers.
WHAT ARE THE PROBLEM AREAS?
USDA has received complaints from producers, producer groups, Members of Congress, including some of you, and a few state Governors regarding what are considered as inequitable rates across counties and over time. There is also a common misconception that the posted county price (PCP) pricing system was designed to ensure that all producers of a higher LDP rate county. Similarly, higher loan rates in a neighboring county will result in the storing of grain in that county by producers who obtain marketing assistance loans. It should LDP's are generally made in the county where the commodity is stored. Thus, grain warehouse operators have indicated that the loan and LDP program is disrupting the market by leading producers to store and market their production in areas where the producers would not otherwise have stored or marketed it.
To a lesser extent, persons have also complained that the loan repayment rates have been set at levels that are higher than the local market prices, thereby giving producers an incentive to forfeit, if their loans are maturing, or leading them to argue that the LDP rate plus the market price they are able to get is less than the loan rate. However, because of the relatively small amount of forfeitures of 1997-crop loan quantities, it appears that the latter complaint is less problematic although the true impact of this situation won't be known for 1998 until the loans begin to mature.
Page 63 PREV PAGE TOP OF DOC The current method used for setting loan repayment rates is designed to avoid the forfeiture of loan collateral, which it succeeds fairly well at doing since its inception in 1986, as a part of the certificate exchange process, the PCP system was not designed to guarantee a PCP that always accurately reflect local market prices. This has caused complaints that current procedures result in an inequitable LDP rate determinations across county lines and over time.
This problem is exacerbated by the current system of county loan rates. Annual decisions have been made beginning with the 1996 crops of wheat and feed grains to continue with the county loan rates of the preceding year, with per unit adjustments in the case of grain sorghum, barley, and oats reflecting the per-unit change in the national average loan rates for each relative to the previous year's national rate. Hence, the county loan rates in place for the 1998 crops are essentially the same as those in place for the 1995 crops, which were already deemed to be in need of substantial revision to better reflect local market prices.
POINTS TO KEEP IN MIND
The internal decisions related to the 19961998 crops were made at times when the coming year's prices were projected to be relatively high, so the level of county loan rates for wheat and feed grains was not expected to be significantly problematic. Local prices were expected to be well above county loan rates. Also, changing the existing set of county loan rates for wheat and feed grains to be more reflective of what were then the more current spatial price relationships appeared at the time to be an action that would be opposed by producers in those counties likely to experience a decline in the county loan rates.
Finally, within FSA, there was some, albeit limited, hope when the 1998-crop decision was made that possible Congressional action to uncap national average loan rates for the 1999 and subsequent crops of wheat, corn, and oilseeds would make it more plausible to change the system of county loan rates for wheat and feed grains. That is, a methodology-enticed decline in the loan rates for some counties would be at least partially offset by an increase associated with the consequent rise in the national average loan rates.
Page 64 PREV PAGE TOP OF DOC Regardless, rigid loan rates for wheat and feed grains combined with dynamically changing market price relationships have likely caused LDP rates to be less uniform across counties than they would have been had county loan rates been updated annually without any restrictions on their levels. Thus, rigidity in one part of the LDP rate equation (loan rates), combined with dynamic spatial relationships in the other part of the equation (loan repayment rates as set by posted county prices), result in disparate LDP rates. However, unless a decision is made to establish a single, national LDP rate to apply all counties, as is done for cotton, simply updating and unrestricting county loan rates for wheat and feed grains will not result in equal LDP rates.
In the case of wheat, the disparate LDP rate problem is exacerbated by the fact that there is only an all-wheat loan rate, established at national and county levels. However, loan repayment rates are determined and announced daily for the five classes of wheat. The all-wheat county loan rates, whether they reflect those of 1995 or are updated to reflect more recent relationships, are based for the most part on a weighted average of historical price relationships among the classes of wheat produced and/or stored in each county.
For instance, the all-wheat loan rate in a county having both typically high-priced durum and relatively low-priced soft white wheat is likely to have a higher loan rate than a neighboring county that only has low-priced soft white wheat. Therefore, the LDP rate received by a white wheat producer in the durum/white wheat county is likely to be higher than the LDP rate of a durum producer in the same county and higher than that of a white wheat producer in the neighboring white-wheat-only county.
Neither the general nature or specifics of the current method for determining loan repayment rates for wheat, feed grains, and oilseeds is statutorily required. In fact, section 134(a)of the 1996 Act, gives the Secretary fairly wide latitude as to how loan repayment rates may be established. A marketing loan can be repaid at a rate lower than the loan rate established for the commodity plus interest, or at a rate determined by the Secretary that minimizes forfeitures, the accumulation of stocks, the costs incurred by the government, and market distortions.
Page 65 PREV PAGE TOP OF DOCEXPECTATIONS FOR THE 1999 CROPS: WHERE DO WE FROM HERE?
Considering the above points, we need to deal with the basic issues of how to determine county loan rates, how to set county loan repayment rates, and how often to determine county loan repayment rates, and thereby LDP's. The first part of this discussion revolves around what to do with county loan rates. We could continue to do what we are presently doing and not adjust loan rate for 1999. Or, we could establish 1999 county loan rates using updated price and production data in the calculations, limiting any increase or decrease after adjusting for changes in the national average loan rates. Another option might be to restrict county loan rates to not less than 95 percent of the current-year national average loan rate or calculate county loan rates with a formula that places no restrictions on county loan rates.
There is the question of whether the Commodity Credit Corporation (CCC) should implement a uniform LDP rate for all counties for a given interval of time for a given commodity, or whether we should continue with the current system or some other option that generally results in disparate LDP rates across counties at a given point in time. Another part of the issue is to determine the period of time for which loan repayment rates and, in turn, LDP rates, are effective, e.g., a day, a week, or a month. Depending on the option selected for either issue, CCC could end up implementing an option that may alleviate complaints about disparate LDP rates across counties and over time, but end up with a risk of greater outlays or greater forfeitures of commodity loan collateral to CCC or increased market distortions.
We are also exploring simpler and easier to understand procedures for applying for LDP's and marketing assistance loans. We plan to do what we can to better inform and educate producers on the programs as well.
In closing, it is useful to remind ourselves of the overall objectives that we would like to satisfy as we reach for solutions. We certainly need to minimize the potential for forfeitures and the related storage and other program costs. We would like to mirror the market as closely as possible avoiding any market distortions. We must make sure to avoid procedures that may lead to fraud and abuse by program participants and by those who deal with program participants. We need to be aware of our trade obligations as they relate to complying with the Uruguay Round Agreement on Agriculture. And, we will definitely need to provide a farmer friendly program that ensures we protect producers when prices are relatively low.
Page 66 PREV PAGE TOP OF DOC As you can appreciate, we have a complex set of objectives and options, many interrelated, that we are addressing to help meet the concerns that have surfaced as we administer the marketing assistance loan programs.
Mr. Chairman, that concludes my statement. We will be glad to answer any questions you may have for us.
ATTACHMENT: BACKGROUND ON POSTED COUNTY PRICES
There is a common misconception that the PCP pricing system was designed to ensure that all producers of a commodity have the potential of earning the same marketing loan gain (MLG) or loan deficiency payment (LDP). In actuality, the primary objective of the Posted County Price (PCP) is to determine a value as close as possible to the local cash market price in any given area, and as it is used for the marketing assistance loan program, to provide producers with equitable, but not necessarily equal, value for their commodity.
PCP's were originally formulated in the 1980's as a pricing mechanism used in disposing of government-owned inventories, and they continue to be primarily used by merchandisers in the Farm Service Agency's (FSA's) Kansas City Commodity Office (KCCO) to construct bid acceptance criteria for FSA's merchandising activities. In addition to these merchandising activities, PCP's are also used by county FSA offices to calculate marketing assistance loan repayments and LDP's, and they factor into the calculation of county loan rates. Finally, they are also often used by USDA as a representative price when localized valuations are needed for basic commodities.
FSA provides daily PCP's for wheat, feed grains and soybeans and weekly Regional Constructed Prices (RCP's) for minor oilseeds, in approximately 3,000 counties for 17 commodities. The three key components that make up the PCP pricing system are terminal markets, differentials, and terminal market prices. A discussion of each of these elements follows:
Page 67 PREV PAGE TOP OF DOC Terminal Markets: For all applicable commodities, each county is assigned one or two terminal markets. The assigned terminal markets are the predominant price determining markets that most often influence local pricing for each location. If two markets are assigned, one generally represents a domestic market and the other represents an export market.
The assignment of a terminal market to a county does not necessarily indicate that the majority of the commodity grown in that region is marketed through the terminal location. Rather, terminal markets have been determined on the basis of those markets that affect the price of the commodity and are based on their ability to measure local demand on the local prices, even though the grain may not actually be shipped to or marketed through the assigned terminal location.
Differentials: Differentials are based on historic relationships between actual market prices at local storage locations and assigned terminal markets. These relationships reflect actual cash price information that was obtained from local merchants during a specified time period (January 1985 through January 1986), and are based on yearly averages rather than daily absolutes. Transportation is an integral part of developing a location differential, however, the degree of its influence can be dependent on other factors. For example, feed lots may assert more influence on local feed grain pricing than transportation costs to export terminals.
Terminal Market Prices: The terminal market prices are based on the closing spot cash prices from the previous day at 19 terminal locations, however, not all terminal locations are used for all commodities. Terminal markets are used to establish daily prices because they have actual cash trades on most trading days, are less subject to nominal quotes, and more readily reflect some volume of trading.
The daily PCP is calculated by subtracting or adding the assigned differential as well as any temporary adjustments, from the terminal market prices that are applicable to the county. The results are compared, and the higher of the two prices is selected. That price is the effective PCP, and remains in effect until the following business day.
Page 68 PREV PAGE TOP OF DOC An example of a PCP calculation for corn would be as follows:
Terminal Markets: Decatur, IL Gulf
Terminal Market Price: $1.92$2.19
Differential: 17 cents46 cents
Differential Adjustment: 5 cents
Select the highest calculated value ($1.75) for the daily PCP.
To determine a county's LDP rate, the PCP, which in this case is $1.75, would then be subtracted from the county loan rate, which we will assume is $1.89, for a LDP payment of 14 cents per bushel.
Commodity merchandisers in FSA's KCCO monitor PCP versus cash relationships on a weekly basis through formal industry surveys. The merchandisers contact 187 stations throughout the United States to obtain actual and nominal cash bids for barley, corn, sorghum, soybeans, and wheat. The survey concentrates primarily on the major production areas for each commodity. While merchandisers continuously monitor prices throughout major production areas through the use of market surveys, the continued communication between FSA's commodity merchandisers and FSA offices, producers and the grain trade industry is vital to the success of this pricing system.
If discrepancies in the PCP system are identified, adjustments are made, as needed, to ensure that PCP's continue to reflect a value as close as possible to the local cash market price in any given area. Some common factors affecting these adjustments are transportation, old crop/new crop spreads, weather, and other temporary supply/demand abnormalities. Generally, if an adjustment stays in place for more than a year, a permanent change in differentials will be made.
Page 69 PREV PAGE TOP OF DOC
Testimony of John Monson
Thank you Chairman Barrett for the opportunity to testifiscal year. I am John Monson, national legislative chairman for the National Association of Farm Service Agency County Office Employees Association, known as NASCOE. NASCOE represents FSA County Office employees on issues related to administration of farm programs. I am also presenting views of the National Association of Farmer Elected Committees (NAFEC) with this testimony. NASCOE and NAFEC work cooperatively to support and maintain the field delivery system and local control through elected County Committees. I am also a County Executive Director for the Dodge County Farm Service Agency in Dodge County Minnesota. Our County employees work with USDA farm programs every day, and many are farmers themselves. In tough economic times, county employees are depended upon by farmers to meet service demands. When rural America suffers in times of agricultural downturns, our employees have a vested interest in providing service that makes a difference. My goal in this hearing is to provide the Subcommittee with our experience, common sense and front-line perspective on Loan Deficiency Payment workload, and resulting staff and budget shortfalls.
Loan Deficiency Payment Program workload has created substantial stress on county offices. Combine disaster program workload, farm loan program increases and recurring annual workload, and it is clear that County FSA employees are being severely tested to meet workload demands. Farm Service Agency workload data projects fiscal year 1999 commodity program workload levels to be similar to that of 1995. In 1995, County FSA commodity program staff which carries out such programs as LDP's, disaster, conservation, price support and farm program workload, was 20 percent greater than it is today. Currently, FSA has 10,700 (non-Federal/County Committee) staff years funded. In 1995, FSA commodity staff was funded at 13,432 staff years. FSA officials estimate the staffing shortage for all County Office Federal and County Committee staff to be about 1,800. Regardless of the methodology for determining workload and resulting staff years, it has been forecast by nearly all market experts that crop prices will remain low for at least another year or two. Considering the fact that the LDP program is projected to increase from 1.3 million LDP's on the 1998 crop to two million in 1999, staff year ceilings should be increased to meet these demands. Realizing that the LDP Program is actively serviced a year and a half after the harvest, it is clear that LDP workload will likely extend to at least the spring of 2001. Considering the fact that FSA County staffs have already been reduced 20 percent since 1995, and workload is increasing, it appears the situation is not temporary. Add to this staffing shortage the President's proposal to reduce FSA staff an additional 752 staff years, of which 652 are county staff, it appears that customers will see increased payment delays, while county staffs are increasingly stressed. Therefore, NASCOE maintains that county offices be allowed to make permanent hires.
Page 70 PREV PAGE TOP OF DOC Loan Deficiency Payment processing is varied according to the request, but on the average, work measurement offices in my area estimate it takes about 1 3/4 hours to process an LDP from beginning to end. Steps included in processing an LDP are taking the application, calculating bushels, filling out internal paperwork, loading the information into the computer, making the payment, mailing the payment information, gathering the production evidence, loading the production evidence, and mailing out a final letter. Training, publicizing, spot-checking and handling appeals is not included in the 1 3/4 hour. Some applications are simple and take no more than 45 minutes total. Others can take hours, especially if they are livestock producers that grind feed and have multiple applications. Silage LDP's also resulted in a great deal of time in gathering information from the producer.
Based on FSA Budget Division, LDP's alone will result in at least 1,307 staff years of workload in fiscal year 1999. The President's supplemental request will add 562 staff years through the temporary hires.
One of the primary shortfalls of the Loan Deficiency Program is the workload it creates, and the lack of funding for staffing. One possible solution to this problem is to incorporate a fund for FSA to utilize in times that 1996 farm program emergency provisions trigger, like LDP's. Because FSA is an agency which provides disaster and emergency programs, funding mechanisms need to be created which trigger along with the programs. One other possible solution is to allow CCC funds to be used to meet additional workload demands, at the discretion of the Secretary.
Utilizing the FSA methodology to determine the 1999 staffing shortage of 1,800 employees, it is estimated the agency requires an additional $50 million. The Secretary has publicly stated that he will request $42.8 million to meet LDP workload volume. This will expressly require the hiring of only temporary employees. NASCOE again restates that this is not a temporary problem. This is a situation that requires permanent hires capable of working closely with complex program rules and customers in the next few years. More disconcerting, however, is the fiscal year 2000 USDA budget proposal which will result in 652 reductions in county staff years. Workload projections dictate that staffing be increased in fiscal year 2000, not decreased. NASCOE requests an explanation on what basis staffing reductions are proposed. The ultimate result of a staffing decrease in 2000, or a shift from permanent staff to temporary staff, will result in possible program failure.
Page 71 PREV PAGE TOP OF DOC In my own experience, LDP's have caused undue stress on staff and customers. My staff, like most, has been reduced by one-third, and they have been hard-pressed to service 1,500 LDP's over the last 5 months. It doesn't matter if you're in a small office or a large office, LDP's have stretched staff very thin. In a national survey I compiled last December, staff's expressed serious morale problem's, stress, delays in payments, and a tremendous amount of time worked without pay. Most FSA county staffs have a difficult time dealing with inadequate service. Therefore, they took work home, or worked overtime without pay or compensation for time. In the end, they felt that their reward would be another threat of job loss. However, the pride they take in doing their jobs kept them from saying to heck with it. What did result was extreme stress, interoffice communication problems and tense moments between staff. Few of us believed the President's fiscal year 2000 budget proposal could possibly call for more cuts. Despite new honey and mohair loan programs, disaster programs, Small Hog Operation Payments, LDP's, normal workload, CRP activity, proposed facility loans and a likely increase in commodity loan activity, it seemed completely inconceivable that staffing would be reduced. As we have learned there is a 5-year plan for downsizing FSA County staff, regardless of workload or the state of agriculture. FSA county non-Federal staff will take a 32.8 percent reduction in staff from 1993 to 2000. FSA Civil Service employees, including Headquarters staff, will have been reduced 14.8 percent over the same period. Since the inception of the Freedom to Farm Act, county non-Federal employees will have experienced a reduction of 1,351 employees, or 12 percent, beginning fiscal year 97' (which is the first year the budget process would have impacted staffing due to Freedom to Farm) through fiscal year 2000. Civil Service employees will be reduced 123 employees, or 2 percent over the same period. OMB's approval of a supplemental is encouraging. Perhaps it is time to have hearings on the proposal to meet workload demands and the service delivery system. fiscal year 2000 budget requires an additional $82 million to meet staffing shortages. NASCOE respectfully requests increased permanent staffing to meet workload demands. What we are talking about is administrative dollars to deliver the programs your committee and Congress have passed into law.
Page 72 PREV PAGE TOP OF DOC Farmers have experienced delays in payments of up to three months in some cases. Despite the amazing display of patience and understanding by our customers, and the best efforts of our employees, customers are suffering undue delays and hardship. NASCOE believes additional staffing would alleviate most of the delays and problems. Some program changes and systematic changes may improve efficiencies, but ultimately, it takes money and staff to carry out additional programs.
I would be remiss if I did not take this opportunity to say what I hear county employees say most often; that Washington needs to better understand what is happening out in the country first-hand, and that county FSA employees have been downsized, right sized and reorganized to the point of diminishing returns. You can't squeeze blood from a turnip. County staffs have given all that they have to meet workload demands. We are now asking for support in getting the job done and for the Administration and Congress to allow us to service our customers without continued threats of cuts, closings and right sizing. Farmers depend on our service. We depend on your support.
We look forward to servicing our USDA customers, carrying out the programs and the resulting changes, and we look forward to working with Congress in making necessary changes in programs and administration, while ensuring accountability of staffing and workload information.
Note: County Committee employees are termed non-Federal employees. Non-Federal employees are actually Federal employees, paid by Federal tax dollars, with the same Federal benefits. FSA budget is separate for Federal civil service employees and County Committee non-Federal employees. Non-Federal employees are easier to RIF because of no civil service status.