AGRICULTURE, RURAL DEVELOPMENT, AND

RELATED AGENCIES APPROPRIATIONS FOR

FISCAL YEAR 2007
THURSDAY, MARCH 9, 2006

U.S. SENATE,
APPROPRIATIONS,
Washington, DC.
The subcommittee met at 8:34 a.m., in room SD192, Dirksen
Senate Office Building, Hon. Robert F. Bennett (chairman) presiding.
Present: Senators Bennett, Bond, Burns, Craig, Kohl, and Dorgan.
SUBCOMMITTEE

OF THE

COMMITTEE

ON

DEPARTMENT OF AGRICULTURE
OFFICE

OF THE

SECRETARY

STATEMENT OF HON. MIKE JOHANNS, SECRETARY

ACCOMPANIED BY:
CHARLES CONNER, DEPUTY SECRETARY
KEITH COLLINS, CHIEF ECONOMIST
W. SCOTT STEELE, BUDGET OFFICER
OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

Senator BENNETT. The subcommittee will come to order.

I will tell our witnesses and spectators, as well as senators, that
the full committee has a meeting scheduled at 9:30 to hear Secretary Rumsfeld and Secretary Rice discuss the appropriations
with respect to Katrina. So we will do our best to be finished with
this hearing in time to go to the full committee for that hearing.
And we are grateful to Secretary Johanns for his willingness to
appear at this hour in the morning. There are some senators who
say it isnt even light yet at 8:30, and what are we doing convening
this early? But we are grateful, Mr. Secretary, that you would meet
our schedule with respect to that, and we welcome you before the
subcommittee.
This is the Secretarys second appearance before the subcommittee, and we understand you celebrated your 1-year anniversary as the Secretary in January.
And with you, we welcome Mr. Conner, Dr. Collins, and Mr.
Steele.
Before I speak about the specifics of USDAs budget request, I
would like, Mr. Secretary, to take the opportunity to thank you and
your Department for your efforts in the wake of Hurricane Katrina.
(1)

2
Secretary JOHANNS. Thank you.
Senator BENNETT. We have heard a great deal of criticism about
Katrina with respect to a number of other agencies, but the work
that was done by USDA employees in feeding and housing thousands of people has gone unnoticed and unremarked upon in the
national media. So I want to take this occasion to congratulate
them through you for the work that all of your employees did.
The Natural Resources Conservation Service and the Farm Service Agency are working to restore watersheds and farms and
ranches throughout the region, which is vitally important.
On a personal note, I would also like to thank you for your departments help in Utah, when we had a natural disaster. January
of 2005, just a little over a year ago, Washington County experienced some of the worst flooding in its history. And NRCS rose to
the challenge. It has helped restore the damage caused by those
floods.
And then, particularly, I want to recognize the efforts of Sylvia
Gillen, one of your employees. She is the Utah State Conservationist. And she has been creative and helpful and responsive, and
she does a great job for you, and she has done a great job for the
people of Utah. And we want to recognize that.
Now the USDA request for the subcommittee is approximately
$15.6 billion, and this represents a 7 percent or $1.263 billion decrease from last year. We dont usually deal with decreases around
here, and these are the OMB numbers. We are awaiting more information from CBO that might change these numbers a little up
or down, but basically, they will stay in the same ballpark.
And quite frankly, Mr. Secretary, this is a fairly significant hole
that this subcommittee is going to have to try to climb out of. The
Presidents budget eliminates approximately $378 million of Federal support for agriculture research at the Nations land grant colleges and universities, as well as USDAs own in-house research
agency. That is something that concerns me. I am a strong supporter of research and the value that we get for that long term.
Another $176 million is eliminated for conservation and watershed projects throughout the country. And one of the unfortunately
standard budget tricks that every OMB, regardless of who is President or regardless of which party controls it, is in this budget. The
budget includes $182 million in new user fees, which are not likely
to be enacted by the Congress, which means we have got to find
another $182 million in cuts to offset that projected revenue increase.
Finally, funding is eliminated for the Grazing Lands Conservation Initiative, housing for very low-income families, and the Commodity Supplemental Food Program, among others. And I am sure
members of the subcommittee will raise these issues with you this
morning and give you the opportunity to talk about that.
Now the budget does put an added emphasis on the Food and
Agriculture Defense Initiative and activities related to avian flu,
the highly pathogenic possible pandemic that we may be facing.
So I will now turn to Senator Kohl, the Ranking Member. Members will be able to submit questions for the record if they are not
here. And I will tell members through their staffs who are here; we
hope that all questions to the subcommittee can be submitted by

3
the close of business on Friday, March 17. And then we will forward those to you, Mr. Secretary.
Senator Kohl.
Senator KOHL. I thank you, Mr. Chairman.
Secretary Johanns, we welcome you, and it is good to see you
again. Mr. Conner, Dr. Collins, and Mr. Steele, we also extend our
welcome to you.
Mr. Secretary, at the outset, I think it is important that we recognize some of the very good work that you and the Department
have done this last year. By all reports, the USDA response to the
terrible storms in the Gulf Coast, especially from your nutrition
and rural development programs, was among the very best in the
Government.
Your quick action meant lives saved and families placed firmly
on the path toward recovery. So we congratulate you on your good
work. But we all know that there have been some missteps at the
Department over the past several months, which have too often
crowded out the good work that you have done.
Chairman Bennett and I face a tremendous challenge to craft a
bill under the current budget constraints. The Presidents budget
assumes too many unrealistic or unacceptable deficit reduction
measures. It assumes more than $300 million in unauthorized user
fees that Congress has rejected time and time again, and it calls
for the elimination of a small, but vital feeding program for the elderly.
And although this is in the authorizing arena, the Presidents
proposal to tax dairy farmers in order to offset tax breaks for
multi-millionaires is not acceptable.
These are all topics we are likely to visit today, and I look forward to your statement.
Mr. Chairman, I want to thank you and publicly state how grateful I am for the relationship that you and I have developed over
the past 2 years on this subcommittee, and I look forward to working with you.
Senator BENNETT. Thank you very much.
I will echo the comments about the working relationship. You
and your staff have been a joy to work with, and we dont have any
partisan differences here. Wish the rest of the Congress could get
along as well as we do.
Normally, we do not have additional opening statements. But
since there is only one other member of the subcommittee here,
Senator Craig, do you have something you would like to say before
we hear from the Secretary?
Senator CRAIG. Well, Mr. Chairman, thank you very much.
I guess I was under some odd illusion that this was the Ag Committee, and at this hour, you were probably going to serve breakfast.
But that doesnt appear to be the case.
Senator BENNETT. That is an illusion, sir.
Senator CRAIG. All right. All right. Well, it is possible that the
Secretary could have brought examples of products of a variety of
States.
Anyway, let me echo what both our Chairman and our Ranking
Member have said about the performance of the Department over

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the last year and during, Mr. Secretary, some of these most difficult times. I am always amazed that one agency that was not designed to do what the press expected it to do, be a first responder,
largely got criticism while so many others did so very well.
The Chairman and the Ranking Member have expressed how
USDA performed in Katrina. I chair the authorizing committee of
Veterans Affairs, another unbelievable example of true heroism.
Thousands of people rescued. No one lost their lives. We evacuated
3 hospitals and the pharmaceuticals and the families of the employees and the pets.
And yet that has made no headlines as, once again, another
agency of our Federal Government in a time of tremendous difficulty responded very gallantly, with its staff refusing to leave the
hospitals in care of their patients. Concerned about their families,
obviously, but not leaving.
So there are great stories out there, and it is important that we
recognize them because somehow they dont rise to the level of attention on the part of others.
We are on the eve of a 2007 Farm Bill. It is looming large on
the horizon, Mr. Secretary, at a time when the Chairman has already expressed the cuts that are proposed in this budget. And I
think he was modest in saying a hole in which one will attempt to
dig ourselves out. It is a hole, and we will see how we can handle
it.
At the same time, I think you and I were expressing the oddity
this morning of a record snow storm in western Oregon and range
fires in Kansas, all on the same morning, reported on the same
news clip. Record drought in northern Texas and Oklahoma and
Arizona and parts of Kansas, and it doesnt appear to be alleviating
at this moment. There will probably be some extraordinary needs
there that my guess is not in this budget.
So with that, let us get to your testimony and the beginning of
a very positive working relationship on this budget to resolve our
differences and serve American agriculture.
Thank you. Thank you, Mr. Chairman.
PREPARED STATEMENTS

The subcommittee has received statements from Senators Cochran and Durbin which will be placed in the record.
[The statements follow:]
PREPARED STATEMENT

OF

SENATOR THAD COCHRAN

Mr. Chairman, thank you for holding this hearing on the fiscal year 2007 United
States Department of Agriculture budget. I welcome Secretary Johanns back to the
Committee.
I want to thank Secretary Johanns and his staff for their work throughout the
Gulf Coast region for their assistance in the effort to recover from the devastating
impact of Hurricanes Katrina and Rita. The Department has a large presence in the
hurricane affected region which is an important asset to the communities of the
Gulf Coast.
The employees of the National Forest Service, Natural Resource Conservation
Service, Rural Development, and Farm Service Agency were all ready to assist immediately following the hurricanes. These agencies are to be commended for their
swift action and ability to not let red tape get in the way of providing immediate
help to thousands of Mississippi residents devastated by Hurricanes Katrina and
Rita. The efficient manner in which USDA was able to respond after the Hurricane
Katrina should be an example for all agencies during times of crisis.

5
All of Mississippis agriculture industries were hurt by the hurricanes last summer. Producers and the residents of the rural areas of Mississippi appreciate the
continued support USDA has provided for hurricane related losses. But, much more
help is needed to get the disaster victims back on their feet. I look forward to continuing to work with USDA to further assist these family farms and ranches.
An important aspect of the Agriculture Appropriations bill is the funding it provides for agriculture research. This research is a critical part of ensuring that U.S.
producers remain the leaders in food and fiber production. The funding this bill invests in agriculture research is a small sum compared to the economic benefit it has
on a farmers bottom line. I thank Chairman Bennett and the Ranking Member Senator Kohl for their continued leadership to assist Americas farmers and ranchers.
Mr. Chairman, I thank you for holding this hearing and I look forward to the testimony.

PREPARED STATEMENT

OF

SENATOR RICHARD J. DURBIN

Mr. Chairman, I thank you for holding this hearing on the Presidents fiscal year
2007 Budget. I thank Secretary Johanns for giving his testimony and agreeing to
be here.
I see two main problems with the administrations budget proposal for programs
within the jurisdiction of the U.S. Department of Agriculture (USDA). First, the
budget does not give farmers the certainty they need from the Federal Government.
Farmers and ranchers are engaged in a risky industry, and they do their best to
mitigate these risks. Irregular weather systems, crop and livestock diseases that can
travel across a continent in a matter of months, and crop and energy prices are
among the variables that are out of the hands of individual producers. Farmers understand these risks and build them into their plans by purchasing crop insurance,
planting more than one variety of a crop, and keeping up with advances in technology that make them more profitable. However, theres one source of uncertainty
that should not tamper with the viability of farming: the Federal Governments
spending priorities.
We passed a Farm Bill in 2002 that made a commitment to farmers through 2007
when the bill expires. Now we all understand the need to reduce the deficit. However, farmers and the programs within the jurisdiction of the USDA are bearing the
brunt of budget savings plans. Last year, mandatory programs within the mandate
of the USDA took a $2.7 billion hit over 5 years. This cut amounted to 7 percent
of the budget reconciliation savings, even though spending on USDA programs accounted for far less of a share of the Federal Governments budget. In addition, its
important to note that the Farm Bill has been far less expensive than its original
price tag.
On top of these cuts, the administration is now asking for a 5 percent across-theboard cut in direct payments, counter-cyclical payments, and marketing loans. By
my estimations, a 5 percent cut will mean that producers in the State of Illinois
stand to take a hit of $65 million. This cut would follow a crop year in which Illinois
suffered from one of the worst droughts in the 100 years since modern records have
been kept. With all the uncertainty surrounding the expiration of the Farm Bill in
2007, I cant understand why the administration is focusing so much of its budgetsavings plans on agricultural producers that already have to be thinking constantly
of their risks.
Second, I believe that this budget demonstrates the administrations failure to
support rural America. One of the most promising developments for rural America
in recent years is the momentum behind biofuels and alternative energy sources.
With soaring gasoline and diesel prices and an increasing acceptance of the fact that
dependence on Middle Eastern oil is not a good thing, it has become clear to us all
that we must develop alternative fuel sources. More E85 pumps and more plants
processing biofuels mean more jobs and development for rural areas. However, at
this historic time, Im afraid to say that the administrations budget actually cuts
funding for the Clean Cities Program, a program that partners with local governments to encourage the use of clean non-petroleum fuels and alternative fuel vehicles. This type of program provides incentives to local communities to expand biofuel
infrastructure, and, in doing so, increases demand for the production and processing
of alternative energy sources.
I thank the Chairman again for holding this hearing and hope that this subcommittee will consider giving farmers greater certainty and committing to true
rural development in this years appropriations bill.

6
Senator BENNETT. Mr. Secretary, we will be pleased to hear your
statement.
STATEMENT OF SECRETARY MIKE JOHANNS

Secretary JOHANNS. Well, thank you very much, Mr. Chairman,

and I do appreciate the opportunity to be here in front of this subcommittee.
I also appreciate the compliments relative to the Katrina response. I want to assure each of you that those compliments will
be passed on to our employees, who were the ones who were truly
at the front lines. And we always accept the criticism of missteps
and see that as a challenge to get better.
It has been a year since I became Secretary, and it has been
quite a year. We have expanded farm exports. We have worked on
new trade agreements. We have reopened beef markets, and we
have witnessed strength throughout the farm economy.
During 2005, we have also confronted some very serious issues
hurricanes, natural disasters, AI pandemic, and rising energy costs.
USDA has played a significant role in responding to these challenges.
President Bush and I are very proud of the efforts of our employees relative to the hurricanes in the Gulf Coast region. They provided food and shelter, protection, emergency assistance rapidly,
and did so very professionally. And those are just a few of the ways
that we assisted in that region.
There does remain a great deal yet to be done to normalize their
lives. People are struggling to get their homes back, their farms
and ranches, and their communities. That is why I am pleased to
announce that on January 26, 2006, based upon congressional action and the use of existing authorities, USDA made available $2.8
billion to assist those impacted by hurricanes. This additional funding brings our effort at USDA to $4.5 billion.
On February 16, the President submitted a supplemental that includes $55 million for the USDA to recover additional costs of operating the National Finance Center, which is there in New Orleans,
restore the ARS research lab in New Orleans, and to fund floodplain easements. A second supplemental submitted the same date
includes $350 million for Public Law 480, Title II, international
food assistance to meet emergency food needs.
The Presidents 2007 budget for USDA does meet important priorities while exercising fiscal discipline in order to deal with the
Federal deficit. Reducing the deficit is a critical part of the Presidents economic plan. It strengthens the economy and creates jobs.
Farmers and ranchers know the importance of a healthy economy. It raises income, and it increases demand for the products
that they raise. Farmers and ranchers also know that the deficit
and resulting burden of debt have a profound impact on their way
of life and the ability of future generations to participate in agriculture.
Because of the overriding need to reduce the Federal deficit,
USDA is sharing in the governmentwide effort. There are proposals
in the budget that will produce real savings in both mandatory and
discretionary spending. The Presidents 2007 budget, which was re-

7
leased about a month ago, indicates that USDA expenditures are
expected to decrease about $3 billion.
The decrease in 2007 is due to CCC reductions from program
changes, the legislative proposals, and because one-time supplemental funding is not continued. The discretionary appropriation
request pending before this subcommittee which does not include
Forest Service, as you knowis for $15.6 billion.
Some of the highlights, if I could just quickly run through those.
Avian influenza. We have been closely monitoring the alarming
spread of highly pathogenic AI around the world. I do want to assure you that USDA is a full partner in dealing with this potential
pandemic.
In response to the Presidents request, Congress provided over
$91 million in 2006 emergency supplemental funding for USDA,
and we thank you for that. That money will be used for our AI efforts. We are using those funds for international efforts, domestic
surveillance of poultry and migratory birds, diagnostics, emergency
preparedness and response, and research.
The 2007 budget includes $82 million for avian influenza. Setting
aside that one-time emergency supplemental, the $82 million represents an increase of $66 million over 2006 funding levels.
The budget proposes $322 million in USDA funding for the
multi-agency Food and Agriculture Defense Initiative, which is
funded now at nearly $540 million governmentwide. The USDA
portion represents a $127 million increase over 2006. That figure
does not include last years one-time funding for the construction
project in Ames, Iowa, for the National Centers for Animal Health
because that project has been funded.
But funding increases do exist. There is $23 million in increases
to strengthen the Food Emergency Response Network and Regional
Diagnostic Network. Theres also $42 million in increases for research to ensure food safety, identify pathogens, develop improved
animal vaccines, and better understand the genes that provide disease resistance. And then theres $62 million in increases to enhance surveillance and monitoring activities. That helps us detect
pest and disease threats to improve response capabilities.
Moving on to another priority, energy. I recently announced a
comprehensive energy strategy. As I talked to farmers all across
the country, they emphasized the high cost of energy, and so we
went to work on that. I am pleased that this budget continues to
provide tools that help producers with energy costs. It also funds
the development of renewable energy resources and new energy-efficient technology.
In 2007, we will have at least $345 million available for loans,
grants, and other support for energy projects. Within this total,
USDAs core investment in energy-related projects increases to $85
million from $67 million in 2006. This includes resources available
to support renewable energy research and demonstration projects,
as well as additional efforts to support energy development.
In addition, we are targeting renewable energy and energy efficiency projects through our rural development loan and grant programs. We anticipate investments in excess of about $250 million
each year in fiscal years 2006 and 2007.

8
Throughout 2007, USDA will continue its many successful partnerships with the Energy Department, Department of the Interior,
and the EPA. USDAs efforts will be coordinated by a newly created Energy Policy Council.
In a related matter, I am pleased to be before this subcommittee
today to make an announcement. I am pleased to announce the
issuance of the final rule designating the first six items under the
Federal Biobased Products Preferred Procurement Program. This
rule is available for viewing at the Federal Register today. It will
be published tomorrow.
Under the biobased program, all Federal agencies will have to
give the designated items preference in their procurement. We believe the designation of these six biobased items initiates a new,
economic opportunity for farmers and ranchers. Increased Federal
procurement will lead to greater acceptance of biobased products,
lower prices, and more variety of products in the market.
The final rule is the first of a series of rules that we expect to
publish in 2006 that will designate biobased items consisting of
hundreds of branded products. If I might just take a little personal
privilege and thank Senator Tom Harkin. He worked very hard on
this. When I sat down with him a year ago or more to talk about
the biobased program, it was at the top of his list.
We thank everybody who has been a part of this effort. If you
will remember, this came out of the 2002 Farm Bill. So there has
been a lot of effort to finalize the rule. We thank Congress for
pushing this forward. I think it is really a good item.
In terms of farm programs, last year, as we released the budget,
there was an expectation by some that the Farm Bill expenditures
would end up below 2002 projections. That is what we heard last
year. This is not the case.
In 2007, even with the proposed reductions, we expect to spend
nearly $7 billion more than was projected in the 2002 Farm Bill.
And the Reconciliation Act passed weeks ago delays, but it does not
reduce farm commodity programs. The one exception is the Step 2
program, which is the cotton program.
We acknowledge that there are real reductions in Reconciliation,
but they affect other programs, such as rural development, research, conservation. Thus, the administration is reproposing
changes to reduce farm program spending. They include reducing
commodity payments by 5 percent; reducing the payment limit, implementing small marketing assessments on sugar and milk; and
operating the Dairy Price Support Program at minimum cost.
In order to improve the effectiveness of providing good service to
farmers, USDA also continues to work with Congress to modernize
the field office structure of FSA. Although improvements have been
made in modernizing a portion of the computer system, such as
Web-based computing systems and the GIS, further investments
are needed to replace the remaining outdated and obsolete legacy
systems.
This will also permit the full use of Web-based Common Computing Environment. This subcommittee has supported and funded
that initiative, and I want you to know how much we appreciate
that.

9
FSA will also work with farmers and ranchers at the local level
and with Congress to identify how to consolidate offices where appropriate and ensure that future investments are prudent and done
so in a manner that uses tax dollars wisely.
In reference to crop insurance, net expenditures for crop insurance are expected to grow since the reform of 2000 by about 50 percent between 2001 to 2007. At the same time, producers have continued to receive disaster payments, as you know, in ad hoc disaster programs. From 2001 to 2007, when crop insurance payouts
did start to rise dramatically, we also delivered about $9 billion to
producers in ad hoc actions.
The budget again includes proposals to enhance crop insurance
and reduce costs to deliver the program in order to reduce dependence on ad hoc disaster programs. The budget also requests such
sums as necessary for mandatory costs associated with the program and includes funding for additional staffing that would focus
on reducing fraud, waste, and any abuse that may exist in this program.
In reference to trade, expanding access to global markets is important for agriculture. Trade plays a critical role. Our budget proposals for 2007 support our continued commitment to trade expansion. Increased funding is provided for the Foreign Agricultural
Service to maintain its overseas office presence and continue its
representation on behalf of American agriculture.
The new FAS Trade Capacity Building initiative is funded for
technical assistance and training activities to assist developing
countries. The goal is to strengthen their agricultural policy-making and regulatory systems so they can become better trading partners in other parts of the world.
For the foreign food assistance programs, the budget places increased emphasis on meeting the highest priority emergency and
economic development needs, including maintaining funding for the
McGovern-Dole International Food for Education and Child Nutrition Program.
Regarding food safety, in order to continue the protection of the
Nations supply of meat, poultry, and egg products, the budget requests funds needed to maintain Federal support of inspection systems. The budget also requests funding to expand the Food Emergency Response Network to support the Food and Agriculture Defense Initiative. With this funding, FSIS will increase the capability of State and local laboratories to handle large volumes of
testing.
The budget proposes over $4 billion in mandatory funding to continue implementation of conservation programs arising out of the
2002 Farm Bill. Within the conservation total, $83 million in additional resources are requested to extend the Conservation Security
Program into additional watersheds and to service prior year contracts. I would like to mention that the 2006 CSP sign-ups began
on February 13. They will continue through the end of March.
To help meet the Presidents commitment to create, improve, and
protect at least 3 million wetland acres over a 5-year period, beginning in 2004, the budget includes over $400 million for Wetlands
Reserve Program. This will allow for an additional 250,000 acres
to be enrolled in the program in 2007. That is 100,000 more acres

10
than estimated for 2006 and the largest 1-year enrollment since
the program started in 1992.
In the aggregate, funding in the budget will support enrollment
of an additional 23 million acres in conservation programs, largely
in EQIP. This brings total enrollment to about 197 million acres.
That is the highest enrollment in conservation programs in our Nations history. The budget also includes discretionary funding for
ongoing conservation work to meet high-priority natural resources
concerns.
For rural development, that part of the budget includes $14.4 billion in direct loans, loan guarantees, and grants to improve economic opportunities in rural areas. This assistance could be used
for everything from financing rural businesses, electric and telecommunications facilities, water and waste disposal projects, and
other community facilities. It will also provide home ownership opportunities and assist in revitalizing our multi-family housing
projects.
The 2007 budget maintains the administrations commitment to
revitalize multi-family housing and provides rent protection for tenants of projects that are withdrawn from the program.
Senator, you mentioned research. In the research area, the 2007
budget funds the highest-priority research facing American agriculture. It also increases the use of competition to improve the
quality of research.
The budget includes a $66 million increase for the National Research Initiative. The budget also includes $107 million in increases for high-priority research conducted by ARS scientists in
areas such as food and agriculture defense, bioenergy, plant and
animal genomics and genetics, and human nutrition and obesity
prevention.
Speaking of nutrition, we fully fund the expected requirements
of the 3 major nutrition assistance programsWIC, Food Stamps,
and Child Nutrition. For WIC, which is the Departments largest
discretionary program, the budget proposes $5.4 billion in program
level to support the estimated level of WIC participation. Included
in the budget is a $125 million contingency fund.
For the Food Stamp Program, the budget includes resources to
totally fund estimated participation and also provides a $3 billion
contingency fund should costs exceed what we are estimating. We
expect an increased level of school lunch participation of about 2
percent, so the budget includes a $700 million increase for that.
There is also a new proposal for a $300 million contingency fund
for the Child Nutrition Programs.
PREPARED STATEMENTS

I just want to wrap up and say we are deeply committed to working on this deficit. We recognize that that is your challenge also.
We look forward to working with this Subcommittee in that endeavor.
Mr. Chairman, thank you.
[The statements follow:]

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PREPARED STATEMENT

OF

MIKE JOHANNS

Mr. Chairman and distinguished members of this Committee, I am pleased to appear before you to discuss the fiscal year 2007 budget for the Department of Agriculture (USDA).
I am joined today by Deputy Secretary Chuck Conner; Scott Steele, our Budget
Officer; and Keith Collins, our Chief Economist.
It has been a year since I was given the honor to serve our country as Secretary
of Agriculture. It has been an eventful and challenging year. We have expanded
farm export opportunities through new trade agreements; re-opened beef export
markets that were closed after finding Bovine Spongiform Encephalopathy (BSE);
responded immediately to severe natural disasters; and witnessed continued
strength in the farm economy.
A major priority has been working to achieve growth in the farm economy through
trade. We continue to open foreign markets to U.S. agricultural exports. Since 2001,
the administration completed free trade agreements with 15 countries, including the
recently completed agreements with Peru, Colombia, and Oman and the Central
America-Dominican Republic Free Trade Agreement (CAFTADR). The agriculture
industry estimates that CAFTADR could boost our farm exports by $1.5 billion.
Negotiations for free trade agreements with a host of other important markets are
continuing, and we look forward to initiating free trade negotiations with Korea, our
sixth largest agricultural export market, in the near future.
During the past year, we also have increased our efforts to reform agricultural
trading practices. The United States presented an ambitious proposal to advance
the World Trade Organization (WTO) agriculture negotiations and unleash the full
potential of the Doha Development Agenda. Reforming global agriculture trade will
create new jobs and promote economic development. Our goal is to open new markets by reducing or eliminating unfair competition from production and trade distorting agricultural subsidies and import barriers. We are now working very hard
to reach agreement on the terms of an agricultural agreement by the end of April,
as agreed to by WTO Members at the recent Hong Kong Ministerial.
Another priority has been our efforts to re-open overseas markets for U.S. beef
and beef products. We have achieved a great deal of progress. We have regained at
least partial access to 28 markets. As you know, recently a shipment to Japan did
not comply with the terms of our export agreement. We are working aggressively
to secure a resumption of trade in the near future.
During 2005, we also had to confront other serious issues, such as hurricanes and
other natural disasters, the threat of an avian influenza pandemic, and rising energy costs. USDA has played a significant role in responding to these challenges and
has made a tangible and positive difference in American lives.
President Bush and I are very proud of the efforts USDA employees have made
to provide assistance throughout the Gulf Coast Region in the immediate aftermath
of recent hurricanes. These employees helped to rescue more than 600 survivors in
Louisiana. We made available more than 22 million pounds of food and 2 million
pounds of baby formula for use by the Red Cross, Salvation Army, and other organizations. USDA assisted over 10,000 evacuees obtain temporary housing in 45 States.
USDA also aided in the transport of over 13,000 evacuees and our employees fanned
out across the region to clear debris from farms, ranches and other watersheds. During the initial days and weeks following the storm, USDA worked closely with the
Federal Emergency Management Agency to set up and support 80 disaster recovery
centers in Louisiana and Mississippi. The Forest Service played a critical role by
utilizing its incident management abilities, managing evacuation centers and base
camps, providing logistical support, clearing roadways, helping with search and rescue operations, and operating mobilization centers and trailer staging areas.
These are just a few of the ways that USDA was able to provide immediate assistance to that region. But there still remains a great deal to be done to normalize
life for those struggling to take back their homes, their farms or ranches, and their
communities. That is why I was pleased to announce on January 26, 2006, that
based on Congressional action and the use of existing authorities, USDA has made
available $2.8 billion to assist those impacted by the hurricanes. Of this amount,
$1.2 billion will be made available to agricultural producers through various programs. In addition, $1.6 billion will be used to restore homes and rural communities. This additional funding brings total USDA aid to hurricane disaster victims
to more than $4.5 billion since September 2005. Finally, the supplemental request
submitted on February 16 includes $55 million in funding to cover additional costs
of operating the National Finance Center, repair damages to the Agricultural Research Service (ARS) laboratory in New Orleans and fund floodplain easements.

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2007 BUDGET

The Presidents 2007 budget for USDA meets our most important priorities, while
exercising the kind of fiscal discipline that is absolutely necessary to reduce the Federal deficit. Reducing the deficit is a critical part of the Presidents economic plan.
It will strengthen the economy and create more jobs. Farmers, ranchers, and rural
citizens know the importance of a healthy economy, which raises household incomes
and increases demand for their products.
Farmers, ranchers, and rural citizens also know that the deficit and resulting burden of debt have a profound impact on the economy and, thus, on their way of life
and the ability of future generations to participate in agriculture. In the past few
months, I had the opportunity to participate in over 20 Farm Bill forums. It provided me the opportunity to meet many producers and hear their ideas on farm policies and the economy. One aspect of the Farm Bill forums focused on the development of farm policy that supports future generations of farmers and ranchers. During these forums, I discussed with producers and community leaders how deficits
increase the national debt and debt service costs and displace private consumption
and investment, which can be roadblocks to future generations trying to enter agriculture. Producers across the country applauded us for that focus and encouraged
us to take down roadblocks that stand in the way of young people. We cannoton
one handclose our eyes to the deficitwhile on the other hand claim to be supporting future generations of producers.
USDA recognizes the overriding need to reduce the Federal deficit, and shares the
responsibility of controlling Federal spending. There are proposals in the budget for
USDA that will produce real savings in both mandatory and discretionary spending.
With that said, the Presidents 2007 budget request for USDA does meet the Nations priorities by growing the farm economy through trade; protecting Americas
food and agriculture; supporting sound land management practices and conservation; providing nutrition assistance to the needy at home and abroad; and creating
economic opportunity in rural America. It also makes Government more effective by
improving management and accountability and by eliminating, reforming, or phasing out programs that are not cost-effective or do not show measurable results.
The Presidents 2007 budget, which was released on February 6, indicates that
USDA expenditures are estimated to decrease from about $96 billion in 2006 to
nearly $93 billion in 2007. For the Departments discretionary budget, the overall
budget authority request is $19.7 billion. This compares to $21.9 billion provided in
2006. There are two main reasons for these reductions. One is that we assume we
will not need the emergency disaster assistance funding and other emergency supplemental funding that was needed in 2006. The second reason is proposed program
reductions, which include some legislative changes. The discretionary appropriation
request pending before this Committee, which does not include the Forest Service,
is $15.6 billion.
I would now like to focus on some specific program highlights.
PATHOGENIC AVIAN INFLUENZA (AI)

For more than two decades, USDA has worked to prepare for and prevent an outbreak of dangerous strains of AI in our country. The greatest concern is the potential for highly pathogenic AI to develop into a human pandemic. We appreciate the
$91.4 million in emergency supplemental funding provided in December 2005. Those
funds are being used for specific one-time activities aimed at controlling the disease
abroad and keeping it away from U.S. borders; enhancing surveillance of wildlife
and domestic poultry; improving diagnostics; and enhancing preparedness.
The 2006 Appropriations Act made $16 million available for on-going programs
to deal with low pathogenic AI and other AI research. Low pathogenic AI is of concern for its potential costs to the poultry industry and potential ability to mutate
into highly pathogenic AI. The 2007 budget requests a total of $82 million for AI,
an increase of $66 million over the amount appropriated in 2006. Of this amount,
$57 million is related to highly pathogenic activities, including: surveillance and
diagnostics work; preparedness and response efforts; and international veterinary
capacity building. An additional increase of more than $6 million is requested for
the development of methods to detect AI in the environment and further AI research, including development of poultry vaccines. An increase of $3 million is requested to expand activities related to the program for on-going low pathogenic AI.
FOOD AND AGRICULTURE DEFENSE INITIATIVE

In order to protect American agriculture and the food supply from intentional terrorist threats and unintentional introductions, the budget proposes $322 million for

13
USDAs part of the Presidents Food and Agriculture Defense Initiative, which is 60
percent of total governmentwide funding for the initiative. Funding for ongoing programs includes a $127 million increase, or 65 percent above 2006. This does not include funding for construction of the Ames, Iowa facility for animal research and
diagnostics, which was fully funded in 2006. Of the total amount, an increase of
about $30 million for Food Defense would enhance the Food Safety and Inspection
Services (FSIS) ability to detect and respond to food emergencies and for USDA research agencies to conduct related research. For Agriculture Defense, the budget includes an increase of about $97 million to improve the Animal and Plant Health Inspection Services (APHIS) ability to safeguard the agricultural sector through enhanced monitoring and surveillance of plant and animal health, including wildlife;
improve response capabilities, including provisions for the National Veterinary
Stockpile; and further research on emerging and exotic diseases.
ENERGY

I have heard from farmers and ranchers as I traveled around the Nation about
the burden of the high cost of energy. We are taking action to help farmers, ranchers, and rural businesses reduce their energy consumption and make alternative
fuels more available. USDA is providing technical assistance and incentives for conservation practices that can result in substantial energy savings. The Natural Resources Conservation Service has recently provided an online tool that clearly demonstrates how costs can be reduced by using alternative tillage practices. In addition, I have directed the Farm Service Agency (FSA) to maximize the use of our
guaranteed and direct farm loan programs to help eligible producers who face credit
challenges due to increased energy-related operating costs. Because it is likely that
energy prices will continue to remain high and fluctuate in the future, the Risk
Management Agency will also examine risk management tools that can help farmers
limit the negative impact of energy cost increases. To make sure that USDA is effectively using its resources to address energy issues confronting U.S. agriculture, I
have recently announced a comprehensive energy strategy to help producers with
high energy costs and to coordinate USDAs energy initiatives.
These investments include: research and development, farmer and rancher education programs and using public lands to facilitate the generation and transmission
of energy. We are seeking increases in research and development (R&D) and farmer
and rancher education programs. We are also targeting renewable energy investments in Rural Development programs where we anticipate making loans and
grants of $250 million or more depending on specific proposals received. USDA is
continuing its successful biomass research and development partnership with the
Department of Energy in 2007. Past projects funded through this collaborative effort
have focused on improving the conversion of switchgrass and other cellulosic materials to ethanol as a replacement for gasoline. These R&D investments will pay off
as the efficiency and cost effectiveness of using switchgrass increases.
FARM COMMODITY PROGRAM SPENDING

As part of the Presidents program to exercise fiscal discipline and reduce the deficit, the budget proposes, once again, that the farm commodity programs funded
through the Commodity Credit Corporation (CCC) contribute to the governmentwide
deficit reduction effort. Despite record levels of net cash farm income and record agricultural exports, commodity subsidies are significant and near record highs. Payments are at the highest since the enactment of the 2002 Farm Bill. Compared to
the original 2002 Farm Bill estimate, lower than expected expenditures from 2003
to 2004 are estimated to be offset by much higher net outlays during 2005 through
2007. Government farm support from 2005 to 2007 is at historically high levels.
This recent trend reflects higher than expected program costs that are raising the
deficit.
Since the recent Reconciliation Act achieved only very limited savings in CCC programs, the 2007 budget proposes legislative changes similar to the ones included in
the 2006 budget. The proposals, which are spread across commodity sectors, include:
reducing farm program payments across the board by 5 percent; reducing the payment limitation to $250,000; operating the dairy price support program at the least
cost; and applying small marketing assessments to sugar and dairy.
Similar to last year, these proposals are designed to work within the existing
structure of the 2002 Farm Bill to achieve savings of about $1 billion in 2007 and
about $7.7 billion over 10 years. Even with the proposed reductions, CCC expenditures in 2007 are projected to remain $7 billion above the estimates made when the
Farm Bill was enacted.

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FARM PROGRAM DELIVERY

Recognizing the importance of our farm programs to the livelihood and ongoing
operations of farmers and ranchers throughout the Nation, we are continuing to review the farm program delivery system to ensure we are providing the highest level
of customer service. In addition to the funding needed to support an adequate level
of staffing to deliver program benefits in a timely manner, our budget proposes resources to make the IT investments that are critical to modernizing the delivery of
these programs. I appreciate the Committees support for efforts that have been
made in recent years to design and implement a common computing environment
(CCE) that allows the service center agencies to communicate via the internet and
take advantage of shared services. However, critical needs remain in updating the
so-called legacy farm program delivery systems that are currently operated with
decades-old software and hardware that is no longer produced. It is imperative that
these systems be updated so they can also take advantage of the CCE, a modern
web-based system, and make the fullest use of investments being made to improve
geographic information systems and data. The budget proposes $14 million to continue an effort to enhance the efficiency of program delivery by redesigning business
processes and developing the IT systems to carry out those processes. I would appreciate the Committees favorable consideration of this proposal.
CROP INSURANCE

Crop insurance is designed to be the primary Federal risk management tool for
farmers and ranchers. Crop insurance expenditures are expected to grow by more
than 50 percent between 2001 and 2007 with the implementation of crop insurance
reforms in 2000, the expansion of the program to new crops, and the development
of new types of coverage. Despite this growth, since 2000, four ad hoc disaster programs have been authorized, covering 6 crop years. These ad hoc payments add up
to over $9 billion. The continued reliance on disaster assistance stems, in part, from
the low coverage level of catastrophic crop insurance (CAT), which provides a maximum of 27.5 percent of the crop value for a total crop loss. When natural disasters
occur, that low level of protection creates the demand for additional disaster assistance.
In continuing the administrations efforts to more effectively budget and administer crop disaster programs, the 2007 budget reproposes changes included in the
2006 budget to encourage producers to purchase more adequate crop insurance coverage by tying the receipt of direct payments or any other Federal payment for crops
to the purchase of higher levels of crop insurance. This change would ensure that
the farmers revenue loss would not be greater than 50 percent. Other changes include making catastrophic coverage more equitable in its treatment of both large
and small farms, restructuring premium rates to better reflect historical losses, and
reducing delivery costs. The combination of changes is expected to significantly improve the program and save the Government approximately $140 million per year,
beginning in 2008. In total, this change should ensure that the majority of producers
have crop insurance and that the minimum coverage level is sufficient to sustain
the producer in times of loss.
The 2007 budget includes about $81 million in discretionary funding to administer
the Federal Crop Insurance Program, compared to about $76 million for 2006. In
support of our efforts to strengthen oversight and improve management efficiency,
the budget includes funding for the replacement of a decade old IT system that has
reached the end of its useful life. Funding is also included for additional staffing
needed to reduce fraud, waste and abuse in the crop insurance program. Additionally, a legislative proposal will be submitted to collect a participation fee from insurance companies to help share in the cost of modernizing the existing IT system beginning in fiscal year 2008.
TRADE

As I mentioned, a top priority has been to restore access to the Japanese and
other markets for American beef overseas. Having achieved positive results, we are
disappointed that the Japanese market has temporarily closed again. The failure to
meet all of the requirements of our export agreement with Japan is unacceptable.
We are taking this matter seriously, recognizing the importance of our beef export
market, and we have taken swift and firm action to address the situation.
Last January after this incident occurred, I announced a series of follow-up actions we are taking to address this situation and outlined those actions in discussions with Japanese officials, including the Minister of Agriculture, Forestry, and
Fisheries. Since then, the Department has conducted two detailed investigations of

15
the incident, and we have provided the results to the Japanese Government for their
review.
We look forward to an expedited review of the situation by the Japanese Government and the resumption of beef trade in the near future. It is also worth noting
that, despite the problems we have encountered with Japan, we are making
progress in reopening other markets. Hong Kong, Taiwan, and Singapore have reopened their markets while Korea formally announced its plans to resume imports
by March.
Expanding access to global markets is important for all U.S. food and agricultural
products, and plays a critical role in our efforts to ensure a prosperous future for
Americas farmers and ranchers. Our budget proposals for 2007 support our continued commitment to trade expansion activities. Increased funding is provided for the
Foreign Agricultural Service (FAS) to maintain its overseas office presence and continue its representation and advocacy activities on behalf of American agriculture.
A new FAS Trade Capacity Building initiative is funded for technical assistance
and training activities that will assist developing countries to strengthen their agricultural policy-making and regulatory systems and become better trading partners.
By assisting these countries to adopt policies that meet World Trade Organization
standards and adopt regulatory systems that are transparent and science-based, we
will improve access for U.S. products to their markets. Also, by enhancing their ability to benefit from trade, we encourage them to become more forthcoming and supportive in market access negotiations. These activities would complement the steps
APHIS will take to open offices in strategic foreign locations to address technical
sanitary and phytosanitary issues that can impede trade between the United States
and other countries.
For the foreign food assistance programs, the budget places increased emphasis
on meeting the highest priority emergency and economic development needs. Funding for the McGovern-Dole International Food for Education and Child Nutrition
Program is maintained at this years level, with a modest increase in participation
expected. The program is helping children in countries with severe needs in education and nutrition, such as Afghanistan. Over a 5-year period, USDA is providing
over $50 million of assistance through the McGovern-Dole Program to Afghanistan
where it is helping to build schools, improve attendance, and feed about 60,000 students each year.
Food for Progress programming carried out with CCC funding is projected to increase slightly in 2007. The program provides assistance to developing countries and
emerging democracies that have made commitments and are taking steps to introduce and expand free enterprise in their agricultural economies.
To address emergency needs this year, the supplemental appropriations request
submitted by the President on February 16 includes an additional $350 million for
Public Law 480 title II food aid donations, which is needed to bolster our response
to urgent food needs in several regions of Africa. With this funding, the United
States will be able to meet our target of providing 50 percent of the identified food
needs in Darfur and other regions of Sudan. It will also help us to respond to what
appears to be a burgeoning food crisis in East and Central Africa, which has been
brought on by disappointing rains and other problems.
The budget further enhances our ability to respond to emergency situations overseas in which food aid is critical to preventing famine and saving lives. In light of
a heightened demand for emergency food aid in recent years, all funding for Public
Law 480 food assistance in 2007 is requested for the Title II donations program
which is increased by $80 million. To help improve the timeliness, efficiency, and
effectiveness of the U.S. Governments response to emergency situations, increased
flexibility is requested in the purchasing of Title II commodities. The budget proposes that the Administrator of the Agency for International Development (AID)
have the authority to use up to 25 percent of Title II funding to purchase commodities in locations closer to where they are needed, such as neighboring countries.
FOOD SAFETY

The Nations current food safety inspection system has demonstrated that our
food supply is among the safest in the world. Recent data released by the Centers
for Disease Control and Prevention continues to show improvements based on historical reductions in the incidence of foodborne illness. The continued reduction in
illnesses from pathogens like E. coli O157:H7 is a tremendous success story and
USDA is committed to continuing this positive trend in the future. These results
demonstrate that we are moving in the right direction. We have increased the focus
of our policies on the goal to reduce human foodborne illness by measuring the prevalence and types of food safety failures and using this knowledge to focus resources

16
and attention where the risks are the greatest. Through these actions, we are protecting the publics health through a safer food supply.
The 2007 budget provides for continued protection of the Nations supply of meat,
poultry and egg products and includes a program level of $987 million for FSIS.
This is an increase of $35 million over 2006. Approximately half of the increase in
funds is for pay, including monies required to maintain Federal support of State inspection programs to meet the demand for inspection services. The remaining
amount is for program changes, including funding to allow FSIS to move towards
a more robust risk-based inspection system.
In order to take further steps towards a more enhanced risk-based inspection system, funds are requested to develop risk-based verification and enforcement strategies that take into account the hazards posed by products and how well establishments are controlling those hazards. This would include additional microbiological
sampling, inspector training, and the creation of an establishment database. Information from these initiatives will enable FSIS to wisely allocate resources to priority areas and provide increased understanding of which food safety systems prevent foodborne illness and promote the publics health. In addition, funding is requested to increase the speed at which the agency collects, analyzes, and reports
Salmonella testing data, which will improve the agencys response to outbreaks of
foodborne illness.
The budget also requests funding to expand the Food Emergency Response Network (FERN) in support of the Food and Agriculture Defense Initiative. With this
funding FSIS will continue to develop the network of food laboratories and the result will be an increase in the capability of a network of coordinated Federal, State
and local laboratories to handle large volumes of testing that would be needed for
biosurveillance or in the event of a widespread food emergency.
For FSIS, the budget requests an appropriation of $863 million and $124 million
in existing fees. In addition, the budget includes $105 million that would be derived
from new user fees to recover the cost of providing inspection services beyond an
approved 8-hour-primary shift.
CONSERVATION

The 2002 Farm Bill represented an unprecedented commitment to conservation.

The 2007 budget continues to support this commitment with a record level $4 billion
request in mandatory funding to expand enrollment in these programs by an additional 23 million acres. Under the proposal, USDA would provide conservation assistance on 197 million acres, the greatest amount of conservation assistance in history.
Within the total amount, the budget proposes over $400 million for the Wetlands
Reserve Program (WRP), an increase of $153 million, or 61 percent over 2006. The
projected WRP enrollment for 2007 would be the largest ever, involving 250,000
acres, and will bring the total acreage enrolled in the program to over 2.2 million
acres. The WRP is the principal supporter of the Presidents goal to restore, protect,
and enhance 3 million acres of wetlands over 5 years beginning in 2004.
Funding for the Conservation Security Program would be increased by $83 million, or 32 percent, to continue to extend the program to additional watersheds in
2007. Finally, the 2007 budget supports a net increase in enrollment of 2.7 million
acres in the Conservation Reserve Program (CRP), which would bring total program
enrollment to 38.9 million acres by the end of 2007, a 7 percent increase in coverage. CRP funding represents more than one-half of the total for all Farm Bill conservation programs.
The 2007 budget also includes $788 million in discretionary funding for on-going
conservation work. This is a decrease of $207 million below the 2006 enacted level
and reflects the realignment of the administrations priorities to direct limited conservation funding to the highest priority natural resource concerns. USDA will be
able to deliver high quality and timely technical assistance to farmers and ranchers
to address natural resource concerns on their operations. The budget does not request funding for watershed operations and planning, Grazing Lands Conservation
Initiative, and earmarked projects. The budget also proposes to reduce the number
of Federal coordinator positions funded under the Resource Conservation and Development (RC&D) program, for a savings of $25 million. Under this proposal, the
number of authorized RC&D areas would be maintained at the current level of 375
but coordinators will be responsible for providing assistance to multiple areas.
RURAL DEVELOPMENT

The 2007 budget includes $14.4 billion in direct loans, loan guarantees and grants
to improve the economic opportunities and quality of life in rural America. This as-

17
sistance will be used to finance rural businesses, electric and telecommunications
facilities, water and waste disposal projects and other community facilities; provide
homeownership opportunities; and revitalize USDAs portfolio of multi-family housing projects. Most of the on-going rural development programs are maintained at
current levels. There is a $3.6 billion reduction in 2007, which is due primarily to
the exclusion of $1.6 billion in 2006 supplemental emergency funding for the Gulf
Coast hurricanes and $1.5 billion for a 2002 Farm Bill program to guarantee notes
of private sector electric and telephone borrowers.
The on-going electric and telecommunications programs are funded at the anticipated level of demand, over $4.9 billion in direct loans. About $200 million of this
amount is expected to be used for new power supply projects for renewable energy
that will support the Presidents energy policy.
The community facilities program provides direct loans, guarantees, and grants
to finance essential community facilities, with priority given to health and safety facilities. The 2007 budget provides $297 million in direct loans, $208 million in guarantees, and $17 million in grants for this programthe same as was available for
2006. This level of funding will support over 560 new or improved health care facilities, child care, fire and emergency services and other facilities lacking in rural
America.
The proposed budget for the water and waste disposal programs would support
almost $1.1 billion in direct loans. The program would be supported through loan
subsidies and grants at about the same level in 2006$514 million for 2007 compared to $525 million for 2006. However, a greater portion of the subsidy would be
applied to reducing interest rates charged to borrowers rather than providing
grants. For most communities, which normally receive a combination of loan and
grant assistance, the reduction in interest rates would be of greater benefit in terms
of lowering the overall debt servicing costs of their projects, than they would otherwise receive from an equivalent amount of grant.
The 2007 budget would support $4.8 billion in direct and guaranteed loans for single-family housing, about the same level as available for 2006. This level of assistance will provide homeownership opportunities for nearly 41,000 rural families.
The business and industry program is maintained at a level of about $1 billion
in loan guarantees. The value-added program is also maintained at its current level
of $19 million in grants. Overall, the rural development business programs are expected to create or save over 56,000 rural jobs.
The 2007 budget reproposes the administrations initiative to revitalize its portfolio of multi-family housing projects, which are home to close to half a million lowincome families. A recent Supreme Court decision allows project sponsors to prepay
their loans and convert their projects to uses other than low-income housing, putting tenants at risk of higher rents and potential loss of housing. A priority under
the administrations initiative will be on providing housing vouchers to protect the
rents of tenants of projects that are withdrawn from the portfolio. The administration will also pursue enactment of legislation it has already submitted to Congress
to authorize debt restructuring and other incentives for project sponsors to remain
in the program and make necessary repairs.
RESEARCH

The 2007 budget funds the highest priority research issues facing American agriculture and increases the use of competition to improve the quality of research. The
budget includes a $66 million increase for the National Research Initiative, the Nations premier competitive, peer-reviewed research program for fundamental and applied sciences in agriculture. The increase includes funding for high priority initiatives in food and agricultural security, gene mapping, the ecology and economics of
biological invasions, plant biotechnology and water security. The budget also includes $107 million in increases for high priority research conducted by ARS scientists in areas such as food and agricultural defense, bioenergy, plant and animal
genomics and genetics, and human nutrition and obesity prevention. These lines of
investigation have great potential to benefit producers and consumers; assure an
abundant, safe, and inexpensive supply of food; and ensure the preservation of our
natural resource base.
While the 2007 budget continues overall funding for both the Hatch and McIntireStennis programs at the 2006 appropriated level, the budget proposes an increase
in the use of competition to improve the quality of USDA supported research. The
2007 budget includes a proposal to modify the Hatch and McIntire-Stennis formula
programs so that over half of the funds would be competitively awarded by 2011.
Under the proposal, the Hatch formula program would be modified by expanding
the multi-State research component from the current base of 25 percent to about

18
55 percent of total Hatch funding. In 2007, 35 percent of Hatch funds will be awarded competitively to multi-State/multi-institutional projects. Over the course of the
next 4 years, the remaining multi-State formula funds would be phased into competitive funding through an additional 5 percent increase each year as existing
projects are completed. Therefore, by 2011, about 55 percent of funding under the
Hatch program will be for competitively awarded multi-State projects and about 45
percent would be allocated as formula funds.
The 2007 budget also modifies the McIntire-Stennis formula program by creating
a multi-State research program that will comprise 59 percent of program funding.
The proposal calls for all McIntire-Stennis multi-State funds to be distributed
through competitively awarded grants in 2007. These proposals take into account
the expressed concerns of USDA partners in the land grant community, including
smaller institutions, regarding the proposal in the 2006 budget. As a result, this
new approach would sustain the use of Federal funds to leverage non-Federal resources, maintain program continuity, facilitate responsiveness to State and local
issues, and leverage and sustain partnerships across institutions and States. Our
intention is to craft the details of the programs in consultations with our land grant
and forestry college partners.
NUTRITION ASSISTANCE

The budget contains sufficient resources to fully fund expected participation, food
cost inflation and contingency funds for the Departments three major nutrition assistance programs: Food Stamps; Women, Infants and Children (WIC); and Child
Nutrition. Participation levels fluctuate with economic conditions and the budget
keeps pace. WIC participation is expected to grow slowly in 2007 to a total of 8.2
million participants. Food Stamp participation is expected to decrease about 4 percent from the 2006 projection to about 25.9 million in 2007 as people affected by
the hurricanes in the Gulf States get back on their feet. School Lunch participation
is estimated to grow about 2 percent to keep pace with the growing student population, as it has in recent years, to a new record level of 30.9 million children per
day.
For Food Stamps, legislation will be proposed that would exclude all qualified retirement savings accounts from eligibility determinations regardless of how other
programs treat them. By 2009, this would allow about 100,000 additional people to
participate who otherwise would have been ineligible unless they spent down their
retirement savings. This would add an estimated $48 million in costs for 2007 and
about $146 million in 2009 when fully implemented. The 2007 budget also reproposes legislation to restrict participation among certain households with incomes or
resources above normal eligibility thresholds. Affected households are those that do
not receive cash Temporary Assistance for Needy Families (TANF) benefits, but become categorically eligible for food stamps because they receive a TANF-funded
service, including one-time information and referral. This change would reduce costs
by an estimated $71 million in 2007, with additional savings in subsequent years.
The WIC request provides full funding for all those estimated to be eligible and
seeking services. At the same time, the Department will work with stakeholders to
contain costs and continue to improve the programs performance. WIC legislative
proposals include limiting administrative funding to 25 percent of total program
costs, and limiting categorical eligibility to those with incomes under 250 percent
of poverty. Also, the budget proposes legislation to require 20 percent State matching for WIC administrative costs. The proposal would take effect in 2008, after State
legislatures have had time to appropriate the matching funds. WIC is one of the few
Federal programs that does not require States to provide matching funds for administrative costs.
The 2007 budget does not request funding for the Commodity Supplemental Food
Program (CSFP), which is not available nationwide and duplicates two of the Nations largest Federal nutrition assistance programsFood Stamps and WIC. Eligible women, infants and children participating in CSFP will be encouraged to migrate to the WIC Program. Eligible elderly CSFP recipients will be encouraged to
migrate to the Food Stamp Program, where most are believed to be eligible. The
budget includes temporary transitional benefits for CSFP participants 60 years of
age or older equaling $20 per month for the lesser of 6 months or until the recipient
starts participating in the Food Stamp Program.
DEPARTMENT MANAGEMENT

The 2007 budget builds upon our progress in improving overall management of
the Department. Increased funding is being sought for selected key priorities:

19
Beginning the acquisition of a modern core financial system to replace USDAs
outdated system, which is no longer supported by a vendor. The current system
relies on software that no longer meets financial management standards. The
adoption of technology that meets these standards will increase the efficiency
of the system, allow for less costly updates and strengthen internal controls.
Completing the expansion of the successful Equal Employment Opportunity
complaints processing system to include complaints of discrimination levied by
participants in the Departments programs.
Continuing renovations of USDA facilities in order to ensure that employees
and customers have a safe and modern working environment.
Over the course of the past year, USDA has continued to achieve success in implementing the Presidents Management Agenda (PMA). The PMA focuses our efforts
on those things that are most critical to good management, including sound financial systems, innovative uses of IT, and ensuring the effective use of human resources. A major part of this effort has been the use of Program Assessment Rating
Tool (PART) to inform funding and management decisions. Under PART, USDA has
evaluated 70 programs and developed plans to improve their performance. These
improvement plans are available to the public on the recently released
ExpectMore.gov website. The website provides the public with easily accessible information about Federal programs, their performance, and actions the administration is taking to improve performance in the coming year. The website is a new tool
to help increase transparency and accountability in Federal programs.
In summary, I want to emphasize that the President is serious about reducing
the deficit to help maintain strong economic growth. This budget sets clear priorities
for U.S. agriculture, conservation, and nutrition while responsibly restraining
spending. This budget puts us in the right direction for reducing the deficit and protecting future generations of American producers by establishing the foundation for
a strong economy.
That concludes my statement. I look forward to working with members and staff
of the Committee and will be glad to answer questions you may have on our budget
proposals.
PREPARED STATEMENT OF ANNABELLE ROMERO, DEPUTY ASSISTANT SECRETARY
CIVIL RIGHTS, OFFICE OF ASSISTANT SECRETARY FOR CIVIL RIGHTS

FOR

Mr. Chairman and members of the Subcommittee, thank you for the opportunity
to submit this statement supporting the Presidents fiscal year 2007 budget proposal
for the United States Department of Agricultures (USDA) Office of the Assistant
Secretary for Civil Rights (ASCR).
The Office of the ASCR provides policy guidance, leadership, outreach, coordination, training, and complaint prevention and processing for USDA. Our mission is
to provide equal opportunity, equal access and fair treatment for all USDA customers and employees.
The Office of Civil Rights has made significant progress in addressing major civil
rights challenges at USDA since the establishment of the ASCR position. The Office
of Civil Rights began fiscal year 2005 with 1,331 pending EEO complaints and
ended fiscal year 2005 with 1,402 EEO complaints. During fiscal year 2005, 662 new
EEO complaints were received, and a total of 591 EEO complaints were closed. The
Office started the fiscal year 2005 year with 363 pending program complaints and
ended fiscal year 2005 with 404 program complaints.
FISCAL YEAR 2007 OBJECTIVES

The Office of Civil Rights has the following four overarching strategic objectives
for fiscal year 2007 that contributes to the Departments success. They are to:
Ensure equal opportunities for employees and applicants and equal access for
USDA customers.
Ensure that equal employment opportunity and civil rights complaints are processed timely, efficiently, and in a cost effective manner.
Increase USDA-wide awareness and use of Alternative Disputes Resolution
(ADR) for early resolution of civil rights complaints and non-civil rights disputes.
Establish effective outreach programs in USDA.
FISCAL YEAR 2007 KEY OUTCOMES

The Office of Civil Rights plans to achieve the following key outcomes in fiscal
year 2007: (1.) A reduced number of equal employment opportunity and civil rights

20
program complaints. Increasing the education and awareness of civil rights is likely
to decrease the number of EEO and civil rights program complaints filed. (2.) Efficient and cost effective processing of equal employment opportunity and civil rights
program complaints within the regulatory timeframes. (3.) Timely and effective resolution of a larger number of civil rights and non-civil rights complaints through increased awareness and use of Alternative Dispute Resolution. (4.) Effective outreach
programs in every agency. Strengthening the agencies outreach efforts, developing
outreach policies, and providing training on best outreach practices to ensure timely
access to all customers, thereby improving minority and underserved population
participation in USDA programs.
FISCAL YEAR 2007 BUDGET REQUEST

The fiscal year 2007 Appropriation request for the Office of Civil Rights is $22.7
million. This is an increase of $2.7 million over fiscal year 2006. The funding request includes increases for the following:
Civil Rights Enterprise System Improvement$1.987 million.Funds for the
Civil Rights Enterprise System are requested to continue the expansion of the
complaints processing system. USDA agencies will be able to interface on a
web-based system that will provide customers and employees real-time data regarding their discrimination complaints.
Compliance Monitoring Activities $0.354 million.The Office of Civil Rights is
mandated to conduct compliance reviews in the employment and program division. However, funding is needed to meet new requirements designed to meet
the affirmative employment goals of the Equal Employment Opportunity Commissions Management Directive 715. Compliance reviews will result in civil
rights complaint prevention and reduction.
Pay cost $0.401 million.The request for pay cost is for the anticipated fiscal
year pay raise.
I would like to emphasize the importance of the Committees approval of the
Presidents $22.7 million budget for USDAs Office of Civil Rights. The proposed
budget will help ensure that USDA continues progress in providing fair and equitable delivery of its services and programs to our customers and also protects the
civil rights of USDA employees.

PREPARED STATEMENT OF PETER J. THOMAS, DEPUTY ASSISTANT SECRETARY,

DEPARTMENT OF ADMINISTRATION
Mr. Chairman and members of the Subcommittee, I want to thank you for the
opportunity to submit this statement supporting the Presidents budget proposal for
fiscal year 2007 for the Department of Agricultures (USDA) Departmental Administration.
Departmental Administration (DA) is responsible for a wide range of activities.
Our mission is to promulgate Department-wide policies in areas such as Human Resources, Procurement, Property Management, Ethics, Security, and similar key administrative areas. DA also provides comprehensive facilities support services for
the owned and leased offices that USDA has throughout the National Capital Area.
Furthermore, DA directly provides the Secretary, his Subcabinet, and the principal
staff offices with a full suite of administrative support. Because of DAs direct responsibilities over USDAs headquarters operations, and its policy oversight of
USDAs vast property and human assets, it is also responsible for providing security
both for worksites and, more importantly, for the employees housed in those worksites. Since September 11, 2001, DA has, largely using funds provided in the 2002
homeland security supplemental appropriations, greatly enhanced its protection of
USDAs staff and its critical infrastructure.
My statement covers three appropriations: The Departmental Administration Direct Appropriation, which funds most of our offices; the Agriculture Buildings and
Facilities and Rental Payments Appropriation for the National Capital Area facilities and rental payments to the General Services Administration (GSA) for space
occupied nationwide by USDA agencies except the Forest Service; and the Hazardous Materials Management Appropriation which funds clean-up activities under
the Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA). I would like to address the Agriculture Buildings portion first since our
South Building renovation project, a key priority, is funded from this source.

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AGRICULTURE BUILDINGS AND FACILITIES

The fiscal year 2007 budget request for Agriculture Buildings and Facilities and
Rental Payments of $209.8 million includes $155.9 million for rental payments to
GSA and, $53.9 million for operations, maintenance, repair, and security of our existing four-building headquarters facilities, including $14.1 million towards repairing and renovating the aging South Building.
Consistent with our goal to ensure a safe and functional USDA workplace, the
$14.1 million funding to continue the repair and renovation of the South Building
is critical. Funding for this project was not available in fiscal years 20042006 and
it is important to resume funding for these renovations. This is a massive, multiyear project, and every year that we lose lengthens the period during which 6,500
employees and thousands of visitors per year are exposed to health and safety hazards. The project began in 1998 and was designed to be accomplished in eight
phases. Three phases have been completed and are occupied. Design of Phase 4A
and construction of the new mail center facility began in September 2004. Among
other things, critical work is being done on fire protection systems, abatement of
hazardous materials and replacement of aged, unreliable and inefficient utility systems. The requested fiscal year 2007 funding will allow USDA to conclude construction of Phase 4 and to design Phase 5.
DEPARTMENTAL ADMINISTRATION DIRECT APPROPRIATION

The fiscal year 2007 request for the Departmental Administration (DA) Direct Appropriation is $28.3 million. We have made significant progress in a number of
areas funded by the Departmental Administration Direct Appropriation, and I
would like to outline some of them here and explain our proposals for continued improvement in fiscal year 2007.
PHYSICAL SECURITY

As previously discussed, physical security in the National Capital Region is addressed within the Agriculture Building and Facilities Appropriation. DA also has
responsibility for physical security policy for USDA owned and leased facilities
worldwide. USDA conducts its programs in approximately 25,000 structures at more
than 7,000 sites around the world. The Office of Procurement and Property Management within DA provides overall leadership and direction to USDA agencies in the
management and coordination of security for these facilities. Major activities include
policy development, education and training, and security assessments of facilities.
After September 11, USDA understood there was a need to rethink the way it had
historically approached physical security enhancements at its facilities. Given the
number of buildings and sites at which USDA conducts its business and the finite
resources available, we needed to find a process that would link available resources
to our most critical needs and priorities. Partnering with each of our agencies, we
developed an inventory of mission critical facilities where we should first focus our
security efforts. Among the sites reviewed were labs conducting research involving
biohazardous materials; labs responsible for protecting the Nations food supply; facilities housing valuable germplasm collections; labs in foreign countries; USDA
computer centers processing payroll, vendor, and program payments; and facilities
housing aircraft. We hired a small staff of physical security specialists and retained
contractors to perform security assessments at our critical facilities using a riskmanagement approach advocated by the Government Accountability Office. We also
retained contractors to install security enhancements and develop a database, the
Geographic Security Information System, to help us manage and track the progress
in enhancing security to our mission critical facilities at the various locations. Following the guidance within Homeland Security Presidential Directive (HSPD) 7, this
database was integrated into a Geographical Information System. To date we have
completed security assessments at approximately 90 percent of mission critical facilities. We have also developed a comprehensive manual that provides our agencies
with standards and guidelines as we continue to assess and improve our security
posture with regard to: chemical, biological and radiological agents; information
technology; food safety; animal and plant research; water resources; and aviation assets.
In accordance with HSPD 7 (facility security assessment required) and HSPD 9
(facility security assessment conducted every 2 years), USDA is developing a selfassessment tool to be used by facility managers at any USDA location. This tool will
serve as standard guidance for managers of smaller offices and facilities across the
country. The site directors at these smaller facilities will have the capability to remotely provide critical site-specific security information to a security analyst in one

22
central office and then be provided security guidance for their site. This guidance
will enhance the protection of their facility and mission critical assets.
In late 2005, DA began implementing HSPD12 (Smart Card), following OMB and
USDA guidance, for Personal Identification Verification (PIV). Under PIV, all new
employees and new contractors must have a successful fingerprint processed by the
FBI and a successful National Agency Check with Inquiries (NACI) by Office of
Personnel Management (OPM), in order to receive a permanent badge with access
rights to Federal facilities. In fiscal year 2006, the Office of Operations within DA
provided guidance to all USDA agencies in the National Capital Region on issuing
identification badges for new employees and contractors. DA will be determining
which current USDA employees need to have a NACI processed in order to receive
their permanent badge. This will be completed following a set schedule over the
next 2 years. DA procedures are in full compliance with HSPD12 PIV Stage I.
CONTINUITY OF OPERATIONS PLANNING

DA continues to be an active participant in the Continuity of Government (COG)

and Continuity of Operations (COOP) programs in the Department. One of our primary functions is to review the Departments and USDA agencies COOP Plans on
a regular basis to ensure responsiveness to current threat situations. To ensure plan
viability, formal revision of all USDA COOP Plans will continue as a biennial requirement. In order to maintain readiness, USDA continues to conduct functional
exercises and planning workshops. In fiscal year 2005, revisions to the USDA Headquarters COOP Plan were based on the updated Federal Preparedness Circular 65
requirements to develop devolution, reconstitution, and human capital plans. A
functional exercise was conducted in June 2005 to disseminate lessons learned from
the previous planning cycle. USDA had a robust participation in an interdepartmental exercise conducted in late June 2005. In fiscal year 2006, the USDA Headquarters plan will be revised to include pandemic influenza planning, refinement of
devolution, reconstitution and human capital plans will continue, functional exercises will consist of a major interagency COOP exercise, evaluation of agency-sponsored exercises and COOP activities, Department-wide COOP awareness training,
and the beginning of a formal revision of the HQ COOP Plan and agencies supplements. In addition, support to the National Emergency Management Team will continue. In fiscal year 2007, agency supplement COOP plans will be formally reviewed; functional exercises will consist of testing pandemic influenza planning and
participation in a major interagency COOP exercise, evaluation of agency-sponsored
exercises and COOP activities, and the continuation of Department-wide COOP
awareness training. Our fiscal year 2007 request includes $760,000 to ensure USDA
is compliant with Executive Orders and Presidential Directives dealing with Emergency Preparedness and the requirements for Federal Executive Branch Continuity
of Operations. With this increase, DA will have the funding needed to maintain the
COOP for the Office of the Secretary, provide guidance and training to mission
areas, and provide support and training to USDAs National Emergency Preparedness Team.
PERSONNEL AND INFORMATION SECURITY

USDA will continue to improve the personnel security program in fiscal year 2007
through re-engineering and modernization efforts. The fiscal year 2005 in-house adjudication and processing time averaged 22 workdays after receipt of the final background investigation report. These efforts are closely aligned with the Presidents
Management Agenda eGovernment Initiative e-QIP (electronic processing of security questionnaires). Key Departmental personnel are now fully trained and capable
of using the e-QIP system to electronically submit investigative requests. This system has resulted in further improvements in staff efficiency and additional reductions in processing and handling time for personnel security cases. Restoring our
personnel security program has increased the reliability of public trust positions and
ensures that staff members are cleared for national security classified information
in positions needing such access. Annually, the Department requires approximately
2,400 investigations and reinvestigations each year to maintain the currency of its
employees.
USDA revitalized an information security assurance program intended to safeguard national security information. The post-September 11 environment has made
it clear that all Federal agencies have to make sure that national security information is properly safeguarded. Adding further importance, the USDA has been granted original classification authority to classify national security information to the secret level. To implement an effective program to safeguard this information, USDA
has added information security specialists to the staff, launched an information se-

23
curity web site, drafted a security classification guide, briefed senior leadership on
national security classification, and provided supplemental training to managers
and front line staff. Finally, USDA established an inter-agency work group that includes nine additional Departments/agencies to address common issues, including
development of an automated on-line security awareness refresher briefing for government-wide use
The fiscal year 2007 request includes an increase of $1,840,000 to provide funds
to ensure the Personnel and Document Security Program is operational and compliant with the Executive Orders and Presidential mandates. USDA plans include: development of training programs for employees who have security clearances; meeting the requirement that adjudicative results are furnished to the Office of Personnel Management within 90 days of receipt of a closed background investigations;
and operating and maintaining an enterprise data base on national security clearances issued by the Department.
HUMAN CAPITAL MANAGEMENT

The Office of Human Capital Management (OHCM) in DA provides policy guidance to USDA agencies on human capital management, one of the five initiatives
of the Presidents Management Agenda. USDA faces a number of human resources
challenges. Over the next few years, it is anticipated that an unprecedented number
of executives and managers will retire, as will many of our cadre of researchers, veterinarians, and other critical professionals. Our workforce must be competent, reliable and dedicated to new business and scientific challenges in research, food safety,
trade, and agricultural production and conservation. During fiscal year 2005, this
office published the Strategic Human Capital Plan that set direction and frameworks for measuring accomplishments achieved in workforce planning, employee
and leadership development, recruitment and retention, and performance management. USDA agency plans provide workforce assessments and strategies to narrow
skill gaps in agency mission critical occupations, and link them to recruitment, hiring, and retention strategies to help meet succession plans. OHCM and other USDA
agencies are developing an annual Recruiting Plan, including an evaluation process
for cost-effectiveness to improve hiring and recruitment strategies. OHCM is leading
USDA to strengthen its performance appraisal programs by aligning individual employee performance expectations with agency goals. As of the fourth quarter of fiscal
year 2005, over 60 percent of USDAs employee performance plans are aligned with
agency goals, as reflected in the PMA scorecard for human capital.
Departmental Administration is requesting an increase of $2,348,000 for providing support to policies and technical guidance for enhancements to HR performance programs. DA plans to review the current performance systems in USDA and
evaluate possible alternatives that are available to Federal employees. More emphasis will be placed on contemporary performance-based solutions rather than historic
processes.
ENTERPRISE HUMAN RESOURCES SYSTEM

In order to secure the benefits of improved human resources management programs and to capture the data needed for workforce planning and organizational restructuring, DA has committed to building a Department-wide Human Resources
Enterprise System (HRES). The system holds great promise to unify the manner in
which agencies process personnel transactions, provide more timely and consistent
workforce information, and enable improved management of USDAs Human Capital. In our commitment to building a Department-wide HRES, DA is actively engaged in the Department-wide implementation and deployment of Automated Recruitment Web-based Systems to streamline the hiring process to meet the 45 day
hiring model set forth by OPM in order to meet the requirements of the Recruitment
One-Stop initiative under the Presidential Management Agenda for eGovernment.
DA is actively participating in other OPM Presidential Management Agenda initiatives including the Human Resources Line of Business to fulfill the vision of an HR
shared service center complete with common solutions to standardized HR business
processes, and the implementation of the Enterprise Human Resources Integration
suite of products. DA is also collaborating with mission areas and staff agencies on
the feasibility of a Department-wide web-based Workers Compensation system with
a direct link to the Department of Labor in an effort to meet the requirements of
the Presidents Safety, Health and Return to Work initiative.
GOVERNMENT ETHICS PROGRAM

The Office of Ethics succeeded in reviewing virtually all of the nearly 1,000 financial disclosure reports submitted by USDA officials in a timely manner. We have

24
implemented a web-based ethics training program that is used throughout the Department and in several Executive Branch organizations outside USDA. The majority of these training modules were migrated to AgLearn in fiscal year 2005. The Office of Ethics has developed an Ethics Orientation module for new USDA employees.
The module is in a final testing phase and will be available in 2006. Also in final
stages of testing is a self-service walk through guide to post-employment. More
than 98 percent of the USDA employees required to submit financial disclosure reports completed ethics training in 2005.
PROCUREMENT POLICY

DA continues to lead the implementation of the Integrated Acquisition System

(IAS). IAS is a web-based commercial off-the-shelf procurement and contract management generation and administration tool. It provides USDA with an enterprise
solution for requisitioning, automated workflow, commitment accounting, funds control, and contract closeout functions used by the procurement and financial communities. Additionally, it provides real-time interface to the Departments financial system in accordance with the Joint Financial Management Improvement Program.
IAS supports e-Government legislation, Presidential Initiatives to improve the operation of government, and complements the Federal Integrated Acquisition Environment. Several USDA agencies have been implemented and we are working toward
full deployment across the Department by the end of fiscal year 2006.
USE OF BIOFUELS

The Departments continuing commitment to biofuels resulted in an estimated

207,600 gasoline gallon equivalents of biofuels (ethanol and biodiesel) used in USDA
fleet vehicles, equipment, and facilities in fiscal year 2005 an increase of 72 percent
over fiscal year 2004. Use of E85 ethanol fuel reached a new high in fiscal year
2005, to 179,625 gallons. This continued increase is a successful result of the E85
promotion program USDA initiated in fiscal year 2003, which included awareness
training for Departmental headquarters and field fleet managers, providing them
with E85 bumper stickers and other materials for use with USDAs ethanol-gasoline
flexible fuel vehicles. USDAs flex-fuel E85 fleet inventory grew from 3,079 vehicles
in fiscal year 2004 TO 3,267 vehicles in fiscal year 2005. In fiscal year 2006, USDA
is focusing on further increasing the use of B20 biodiesel and E85 ethanol as a
prime strategy to meet the new alternative fuel use requirements of the Energy Policy Act of 2005 and the Executive Order 13149 of 20 percent petroleum reduction
target for fleet vehicles.
FEDERAL BIOBASED PRODUCTS PROCUREMENT PREFERENCE PROGRAM

Section 9002 of the 2002 Farm Security and Rural Investment Act of 2002 (Public
Law 107171) directed the USDA to develop and implement a procurement preference program for biobased products. DA is leading the design, development, testing, and USDA implementation of what is now known as the Federal Biobased
Product Preferred Procurement Program (FB4P). The FB4P will consist of:
a biobased product preference program; and
a biobased product procurement promotion program. Section 9002 of the 2002
Farm Security and Rural Investment Act of 2002 (Farm Bill) (Public Law 107
171) mandates Federal agencies to have a biobased product procurement preference program in place within 1 year after guidelines pertaining to procurement preferences for these products are published. These guidelines were published as a final rule in the Federal Register on January 11, 2005.
On January 10, 2006, USDA completed its Affirmative Procurement Program
(APP) and posted it on its biobased website at http://www.usda.gov/biobased. The
APP formally establishes USDAs Biobased Procurement Program for USDA-designated biobased items and provides agency-wide guidance for implementing an effective program. USDAs Biobased APP ensures items composed of biobased material will be purchased to the maximum extent practicable and meets the requirements of the final rule. The APP will also serve as the government-wide model to
achieve the Section 9002 goals of the 2002 Farm Bill. Early in fiscal year 2006,
USDA conducted a 3-month Biobased Pilot Project designed to test biobased/biodegradable food-service products such as cups, plates, cutlery, etc. During the pilot,
over 33,000 patrons were served and cafeteria operations and services were not adversely impacted by the change to biobased products. The full-cycle approach of the
pilot project: (1) replaced 100 percent of current Styrofoam and plastic food service
items with biobased products wherever possible; (2) provided training to patrons on
how to dispose of waste to prevent contamination with non-compostables and to
compost the cafeteria residuals; (3) diverted cafeteria-derived organic recyclables

25
from landfill disposal to a beneficial horticultural use; and (4) resulted in the production of over 44 cubic yards of compost to be used in the Whitten Building gardens. Overall USDA considers the pilot a success and will continue to promote
biobased products in the future.
REAL PROPERTY ASSET MANAGEMENT

USDA is proactively implementing Executive Order 13327, Federal Real Property

Asset Management, which establishes a Presidential Management Initiative promoting the efficient and economical use of Americas real property assets to assure
management accountability for implementing Federal real property management reforms. USDA will focus on six major areas as the foundation for future efforts and
compliance: real property management organization; real property planning and
budgeting activities; utilization of inventory data in decision-making; performance
measures and continuous monitoring asset inspection and condition index; and divesting ourselves of un-needed real property.
In fiscal year 2004, USDA designated a Senior Real Property Officer (SRPO) to
oversee implementation of this Executive Order. The SRPO established a Real Property Council within USDA to assist with this effort. By the end of fiscal year 2006,
USDA will have an Asset Management Plan, incorporating final guidance provided
by the Federal Real Property Council, in place and will have established a strategy
for implementation of the performance measurements to achieve the goals and objectives outlined in the Asset Management Plan. USDAs goal is to achieve a yellow
rating on the Presidents Management Agenda Asset Management scorecard in fiscal year 2006.
USDA initiated a major corporate project to implement the first department-wide
real property automated information system to improve management controls and
accountability. This new department-wide system, Corporate Property Automated
Information System (CPAIS), which was implemented in May 2004, provides an integrated solution, which standardizes USDA real property accounting (subsidiary
ledger to the Foundation Financial Information System (FFIS)), real property business processes and provides management of the entire real property portfolio including owned real property, commercial leases, and General Services Administration
assignments. In fiscal year 2006 and 2007, USDA will integrate personal property
into CPAIS, thereby eliminating old legacy systems, and managing its assets to
make maximum use of resources provided.
EXCESS PERSONAL PROPERTY PROGRAM

Section 923 of the Federal Agriculture Improvement and Reform Act of 1996, authorized the Secretary of Agriculture to transfer excess Federal personal property
to any of the 1994 Tribal Institutions, Hispanic-Serving Institutions, and the 1890
colleges and universities, including Tuskegee University. In fiscal year 2005, USDA
transferred $2.3 million worth of excess personal property under the program, bringing the total to greater than $20.9 million since the program began in fiscal year
1998. This program provides much needed property and equipment to institutions
that otherwise would not be able to acquire property due to limited funds and will
improve the institutions capability in the areas of research, education, and technical
and scientific activities.
SMALL & DISADVANTAGED BUSINESS UTILIZATION

USDA is a leader in the Federal Government in achieving small business program

contracting goals. The Office of Small and Disadvantaged Business Utilization
(OSDBU) utilizes an active outreach program to identify available small, small and
disadvantaged, Historically Underutilized Business Zone (HUB Zone), service disabled veteran-owned, and women-owned businesses; to expand the number of small
businesses securing contracts with USDA; to identify and provide assistance to underserved areas; and to identify and eliminate contracting barriers that prevent or
restrict small business access to USDA procurements. During fiscal year 2005,
OSDBU was the winner of two prestigious awards from the Small Business Administration: the Federal Gold Star Award and the Agency Goaling Award of Excellence. These awards recognize the exemplary performance of USDA agencies for attaining or exceeding the federally mandated small business goals that grow small
business capacity and create jobs.
OSDBU is aggressively taking steps to significantly increase contracting and subcontracting opportunities for Service Disabled Veteran-Owned Small Businesses and
to carry out the requirements of Executive Order 13360 and Public Law 108183
The Veterans Benefits Act of 2003. OSDBU is tracking the Service Disabled Veteran-Owned Small Business goal achievement for all USDA agencies. OSDBU con-

26
tinues to work with USDA agencies to secure contracts for Service Disabled Veteran-Owned Small Businesses.
In addition, OSDBU continues its rural small business outreach efforts to increase
small business opportunities and create jobs in rural areas. Small firms are paired
in mentor-protege relationships with experienced Federal contractors to engage in
USDA and other Federal Departments contracting opportunities. OSDBU reviews
contract opportunities to locate those suitable for directing to Tribal 8(a)s and other
categories of small firms in rural America.
Another important aspect of OSDBUs work is our support for people with severe
disabilities working through the Javits-Wagner-ODay (JWOD) program. The JWOD
Program helps to meet Federal procurement needs while generating employment
and providing training opportunities for Americans who are blind or have other severe disabilities. USDAs demand for JWOD products has grown over the past several years to include packaged food products that support USDA food programs inc
HAZARDOUS MATERIALS MANAGEMENT

The purpose of the Hazardous Materials Management Program is to clean up and

restore USDA-managed lands, and sites contaminated from past USDA activities;
to enhance USDAs environmental performance in current operations; and to participate in Federal, State, and local efforts to plan for and respond to hazardous materials incidents. Since the Hazardous Materials Management Appropriation was established in 1988, USDA has cleaned up over 2,250 sites. Many of these were underground storage tanks that did not meet current standards. On average, the program
is completing about 30 site cleanups a year through a combination of Hazardous
Materials Management Appropriation and agency funding.
We currently estimate that uncontrolled releases of hazardous substances have occurred or may have occurred at more than 2,000 additional sites. Many of these contaminated sites threaten human health or the environment, and make valuable resources unavailable for public use. Addressing these sites will, in general, be more
complex and costly than those we have cleaned up so far.
Program activities are aligned with USDAs Strategic Goal 6: to protect and enhance the Nations natural resource base and environment. In addition, the program
directly supports three USDA Objectives: (1) homeland security, through efforts to
improve hazardous materials management and by representing USDA on the National Response Team for oil spills and hazardous material releases, and participating in the National Response Plans Emergency Support Function 10 and 11, (2)
management of natural resources, and (3) the quality of life in rural America by coordinating USDA efforts for the Presidents Brownfields program. This year our performance focus will shift from the number of cleanups we complete to the significance of the public benefits the cleanups create and the impact they have in relation
to USDA and agency missions, goals, and program initiatives. The fiscal year 2007
budget seeks $12.0 million to continue this program.
CONCLUSION

Although administrative programs such as those conducted within DA are frequently not thought of by themselves usually considered, high visibility or high priority, Mission-area programs, cannot effectively meet the expectations of the Congress, the Administration or the public without a stable base of good administrative
systems, policies and support functions. DA is committed to achieving and maintaining a high quality of mission program support and asks your assistance in this effort. Mr. Chairman and members of the Subcommittee, this concludes my statement
on the Departmental Administration Budget for fiscal year 2007.
PREPARED STATEMENT OF NANCY C. PELLETT, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, FARM CREDIT ADMINISTRATION
Mr. Chairman, Members of the Subcommittee, I am Nancy C. Pellett, Chairman
and Chief Executive Officer of the Farm Credit Administration (FCA or Agency). On
behalf of my colleagues on the FCA Board, Doug Flory of Virginia and Dallas
Tonsager of South Dakota, and all the dedicated men and women of the Farm Credit Administration, I am pleased and honored to provide this testimony to the Subcommittee.
At the FCA we are focused on ensuring a dependable source of credit and related
services for agriculture and rural America as we maintain a flexible regulatory environment that allows the cooperative Farm Credit System to meet the credit needs
of all eligible borrowers while ensuring safety and soundness.

27
I would like to thank the subcommittee staff for its ongoing assistance during the
budget process, and before I discuss the role and responsibility of the Farm Credit
Administration and our budget request, I would respectfully bring to the Subcommittees attention that the FCAs administrative expenses are paid for by the
institutions that we regulate and examine. Said differently, the FCA does not receive a Federal appropriation, but is funded through annual assessments on Farm
Credit System (System) institutions and the Federal Agricultural Mortgage Corporation (Farmer Mac). We fully support the proposed 2007 Budget Submission of the
President.
Mr. Chairman and Members of the Subcommittee, I will highlight the FCAs accomplishments during the past year; report to you briefly on the System, as well
as Farmer Macthe other Government-Sponsored Enterprise (GSE) that we regulate which serves agricultural lenders in the secondary market; and, in conclusion,
I will present our fiscal year 2007 budget request.
MISSION OF THE FARM CREDIT ADMINISTRATION

As directed by Congress, the FCAs mission is to ensure a safe, sound, and dependable source of credit and related services for agriculture and rural America.
The Agency accomplishes its mission in two important ways. First, FCA ensures
that the System and Farmer Mac remain safe and sound and that they comply with
the applicable law and regulations. Specifically, our risk-based examinations and supervisory strategies focus on an institutions financial condition and any material
existing or potential risk, as well as its boards and managements abilities to direct
its operations. Supervisory strategies also evaluate each institutions efforts to serve
all eligible borrowers, including young, beginning, and small farmers and ranchers.
Secondly, the FCA approves corporate charter changes, and researches, develops,
and adopts regulations, policies, and other guidelines that govern how System institutions conduct their business and interact with their customers. If a System institution violates a law or regulation, or operates in an unsafe or unsound manner,
we can use our enforcement authorities to ensure appropriate corrective action.
We constantly strive to maintain a regulatory environment that enables System
institutions and Farmer Mac to remain financially strong so they can meet the
changing demands of agriculture and rural America for credit and related services.
In doing so, our primary focus is to ensure the long-term safety and soundness of
the two GSEs that serve rural America and to develop rules and policies that reflect
changing market forces.
Finally, the FCA Board is committed to maintaining the publics trust and confidence in the Agency, the System, and Farmer Mac. The public is invited to attend
the FCA Board Meetings, and we are committed to following the requirements of
the Government in the Sunshine Act.
The public can read on our Web site the comments received on current proposed
rules and notices published in the Federal Register. Comments on regulations can
also be submitted to the Agency electronically or through regular mail.
FISCAL YEAR 2005 ACCOMPLISHMENTS

In 2005 we continued our efforts to achieve our Agency strategic goals through:
(1) responsible regulation and public policy, and (2) effective risk identification and
corrective action. The FCA has worked hard to maintain the Systems safety and
soundness and is continually exploring options to reduce regulatory burden on the
FCS and ensure that System institutions provide agriculture and rural America continuous access to credit and related services.
To ensure that the FCA is appropriately focused on economic and agricultural
issues that are relevant to rural America, as well as to ensure that the Agency is
operating in an effective and efficient manner, the FCA contracted with an independent consulting firm to conduct an extensive strategic study of the Agency. Of
particular interest was the need to identify potential challenges that may arise in
agriculture, the Farm Credit System, or the marketplace over the next 5 to 7 years
and to realign the Agency where appropriate to enable it to proactively address
these issues. The major outcomes of the study have been a realignment of the examination structure, a new team-oriented approach in the regulatory development office, and a merging of the major support functions of the Agency including technology, financial, and human resource functions.
EXAMINATION PROGRAMS FOR FCS BANKS AND ASSOCIATIONS

One of the Agencys highest priorities is the development and implementation of

efficient and effective risk-based examination and oversight programs that meet the
high standards and expectations of the Congress, investors in System debt obliga-

28
tions, the farmers, ranchers, and cooperatives that own System banks and associations, and the public at large. Our examination programs and practices have worked
well over the years and have contributed to the present safe and sound overall condition of the System, but the results of our strategic study are clearwe must
evolve and prepare for the increasingly complex nature of agricultural and rural
America lending and financing. The FCA Board adopted a new policy statement reaffirming its commitment to risk-based supervision. This policy statement directs
the maintenance of a risk-based approach to oversight and examination for System
institutions, which will maximize our effectiveness and allow us to strategically address the Systems safety and soundness and compliance with laws and regulations.
We have taken initial steps to implement the new policy statement through realignment of our organizational structure. We believe the changes in the System
coupled with pending retirements and normal attrition of staff necessitates a flexible organizational structure but also provides a unique opportunity to prepare for
the future. Toward this goal, the Agencys Office of Examination (OE) is shifting its
regionally based field office structure to division examination teams that are organized on a national basis. In the new structure, existing office locations will be retained, but the examination programs will be managed nationally to better match
examiner skills to risks presented by institutions.
On a national level, we actively monitor risks that may affect groups of System
institutions or even the entire System, including risks that may arise from the agricultural, financial, and economic environment in which the System institutions operate. Our job is not to forecast specific events, but to understand the environment
so that we can take steps in advance to help System institutions take pre-emptive
actions before adverse trends develop.
The FCA uses a risk-based examination and supervision program to differentiate
the risks and special oversight needs of FCS institutions. We set the scope and frequency of each examination based on the level of risk in the institution. We continuously identify, evaluate, and proactively address these risks. The Farm Credit Act
requires the Agency to examine each FCS institution at least once every 18 months.
However, we monitor the performance of all FCS institutions on an ongoing basis
and conduct interim examination activities as risk and circumstances warrant in
each institution.
As part of our ongoing efforts, we monitor each institutions risk profile. The Financial Institution Rating System (FIRS) is the primary risk delegation used by the
Agency to indicate the safety and soundness threats in an institution. The rating
system is similar to other Federal financial regulators CAMELS (capital, assets,
management, earnings, liquidity, and sensitivity) rating scale. FIRS ratings range
from 1 (for a sound institution) to 5 (for an institution that is likely to fail). Beginning in 2006, in addition to FIRS, examiners will use a new set of assessment criteria that focus on risk areas including credit, interest rate, liquidity, operational,
compliance, strategic, and reputation.
Throughout fiscal year 2005, FIRS ratings as a whole continued to reflect the stable financial condition of the FCS. The overall trend in FIRS ratings continued to
be positive, with nearly 4 times as many 1-rated institutions (79 percent) as 2-rated
institutions (21 percent). Significantly, there were no 3-, 4-, or 5-rated institutions.
In addition, no FCS institutions were under enforcement action at the end of fiscal
year 2005 or during the previous 3 years and no FCS institutions are in receivership. The overall financial strength maintained by the System reduces the risk to
investors in FCS debt, the Farm Credit System Insurance Corporation (FCSIC), and
FCS institution stockholders.
Risks are inherent in lending, and managing risks associated with a single sector
of the economy, such as agriculture, is particularly challenging for lenders. If the
FCA discovers unwarranted risks, it works with an institutions board and management to establish a plan of action to mitigate or eliminate those risks. Appropriate
actions may include reducing risk exposures, diversifying its portfolio of risks, increasing capital, or strengthening risk management. In those cases where the board
and management are unable or unwilling to take appropriate action, the Agency has
the authority to take a variety of actions including supervisory letters, written
agreements, and cease and desist orders. In extreme cases, we also can remove
management, issue civil money penalties, and/or liquidate the institution.
During fiscal year 2005, FCA also performed various examination, training, and
other services for the Small Business Administration (SBA), the United States Department of Agriculture (USDA), FCSIC, and the National Cooperative Bank (NCB).
Each of these entities reimburses the FCA for its services. The safety and soundness
of the System and Farmer Mac remain our primary objectives. However, we believe
the continuing use of FCA examination resources by other agencies is a positive reflection on the expertise of FCA examiners and serves to broaden their examination

29
skills while increasing job satisfaction and employee retention. It also helps us defray some of the costs of our operations while providing a valuable service.
REGULATORY ACTIVITY

Congress has given the FCA Board statutory authority to establish policy and prescribe regulations necessary to ensure that FCS institutions comply with the law
and operate in a safe and sound manner. The Agencys regulatory philosophy articulates our commitment to establishing a flexible regulatory environment that enables
the System to offer high quality, reasonably priced credit to farmers and ranchers,
their cooperatives, rural residents, and other entities on which farming operations
depend. This translates into developing balanced, well-reasoned, flexible, and legally
sound regulations. We strive to ensure that the benefits of regulations outweigh the
costs; to maintain the Systems relevance in the marketplace and rural America;
and ensure that FCAs policy actions encourage member-borrowers to participate in
the management, control, and ownership of their GSE institutions.
For 2005 and early 2006, the Agencys regulatory and policy projects included the
following:
A rule to allow a qualified lender to obtain a waiver of borrower rights when
a loan is part of a loan syndication with non-System lenders that are otherwise
not required by the Farm Credit Act to provide borrower rights.
A capital adequacy preferred stock rule to amend the Agencys preferred stock
regulations, which are designed to ensure the stability and quality of capital at
System institutions, to ensure the fair and equitable treatment of all shareholders of FCS preferred stock, and to minimize the potential for insider abuse.
A capital adequacy risk weighting final rule to more closely match the Agencys
risk-based capital requirements with FCS institutions credit exposures. The
changes make the FCAs regulatory capital treatment more consistent with that
of the other financial regulatory agencies and address financial structures and
transactions developed by the market.
A liquidity rule to amend the Agencys previous liquidity reserve requirements
for System banks. The purpose of the rule is to ensure that System banks have
adequate liquidity in the case of market disruptions or other extraordinary situations, as well as to improve the flexibility of Farm Credit banks to meet liquidity reserve requirements and provide credit in all economic conditions.
A receivership repudiation final rule, specifying the conditions under which the
FCSIC will not attempt to pull back specific assets into the conservatorship or
receivership estate if a transaction meets certain conditions.
A bookletter issued by the Agency to all System institutions providing guidance
on how they can utilize the Tobacco Buyout Program to meet their borrowers
financial needs by offering them the option to immediately receive Tobacco
Buyout contract payments.
A bookletter on bank director compensation limits that makes a one-time adjustment to the bank director compensation limit to allow System banks to pay
fair and reasonable director compensation for 2006.
A final rule on governance of FCS institutions providing for enhanced oversight
of management and operations by strengthening the independence of System institution boards and incorporating best governance practices. The rule also supports borrowers participation in the management, control, and ownership of
their respective FCS institutions.
In addition, relative to Farmer Mac, the Agency finalized a rule governing its investments and setting a liquidity standard and has undertaken a proposed regulatory project to update the Farmer Mac Risk-Based Capital Stress Test. The regulatory project is intended to incorporate a more accurate reflection of risk in the
model in order to improve the models outputFarmer Macs regulatory minimum
capital level.
The Agency has also adopted an ambitious regulatory and policy agenda for 2006
and anticipates pursuing a number of issues, including:
Evaluating regulatory options for assessment and apportionment of FCA administrative expenses.
Continuing a pilot program that allows System institutions to make investments that further support their mission of providing credit to agriculture and
rural America.
Continuing to review current regulatory requirements governing eligibility and
scope of lending to determine if these requirements are reasonable in light of
agricultures changing landscape. Agency staff will identify issues and explore
options for the Boards consideration.

30
Evaluating comments on a proposed termination rule that would amend and
update the existing regulations that govern the termination of System status.
Issues such as costs, timing, communication, voter quorums, tax implications,
directors rights, equitable treatment of dissenting stockholders, and overall effect on the System are considered in the proposal.
Considering regulatory changes for disclosure and reporting requirements for
System institutions. We approved a proposed rule that is designed to improve
the transparency of public disclosures, strengthen board and management accountability and auditor independence, and increase shareholder and investor
confidence in the System. The proposed changes reflect the cooperative nature
and unique structure of the System, while incorporating the best industry practices of public companies and recent changes in the reporting requirements of
other Federal financial regulators, provisions in the Sarbanes-Oxley Act of 2002,
and the Securities and Exchange Commission regulations.
Continuing the Agencys effort to streamline its regulations so the System can
more efficiently fulfill its mission to provide a dependable source of credit to
Americas farmers, ranchers, aquatic producers, cooperatives, and rural residents. We approved a proposed rule to be published in March 2006 to reduce
regulatory burden on System institutions by repealing, clarifying or updating
current regulations.
Continuing a study on loan syndications and assignment markets that will help
determine whether the Agencys approach to these issues should be modified.
CORPORATE ACTIVITIES

The pace of System restructuring remained slow in fiscal year 2005. The number
of corporate applications submitted for FCA Board review and approval during fiscal
year 2005 declined to four applications, compared with seven applications the prior
year. As of January 1, 2006, there were 109 Farm Credit System institutions, including 96 associations, five banks, and eight service corporations and special purpose entities. Through mergers, the number of FCS associations has declined by 28
percent over the previous 5 years (37 associations) and the number of FCS banks
has dropped by 29 percent (2 banks). Generally, these mergers have brought larger,
more cost efficient, and better capitalized institutions with a broader, more diversified asset base, both by geography and commodity. The Agency estimates that within the next 5 years, the process of expansions and mergers will result in an increase
in the size and complexity of System entities, with the average association exceeding
$1 billion in assets.
STRATEGIC PLANNING AND PERFORMANCE PLANS

The FCA Strategic Plan for fiscal years 2004 through 2009 guides the Agencys
long range efforts. The FCA Board adopted the strategic plan unanimously and believes that it is vital to achieving the Agencys mission and goals by providing all
staff with a clear focus and direction as well as prioritizing the issues, functions,
and programs that require an investment of resources.
During fiscal year 2005, our work focused on implementing initiatives to accomplish FCAs three strategic goals and on measuring the Agencys performance. Goal
1 is our public mission of ensuring that the FCS and Farmer Mac fulfill their public
mission for agriculture and rural areas. Goal 2 is evaluating risk and providing
timely and proactive oversight to ensure the safety and soundness of the FCS and
Farmer Mac. Goal 3 is implementing the Presidents Management Agenda. In order
to meet the goals of the strategic plan, the Agency continues to comply with the
Government Performance and Results Act of 1993 by integrating the budgeting
process into the planning and performance management process. We link performance goals with resource needs, so that we are in a better position to use the strategic plan to align the organization and budget structures with our mission, goals,
and objectives. Other Activities and Accomplishments
I would also like to note a few other Agency activities and accomplishments for
2005. First, an audit of the FCAs fiscal year 2005 financial statements has been
completed and I am pleased to report thatfor the 12 year in a rowwe have received an unqualified audit opinion.
Second, for the fifth consecutive year, FCAs annual Federal Information System
Management Act review reported no significant weaknesses in our information security program. We have, in the past year, taken several measures to strengthen our
information security program. These measures include ensuring secure transmission
of sensitive information over the Internet by providing our staff with an option to
encrypt sensitive e-mail sent over the Internet. We also provided our computer users

31
the capability to encrypt a portion of their portable storage devices for protection
of sensitive stored information.
Third, we continue to improve our ability to ensure continuity of our operations
through refining our business continuity plan and through testing our disaster recovery plan. We also focused on business continuity and disaster recovery planning
with the Farm Credit System through a series of visits to FCS banks and data centers. During these visits we encouraged membership in the Financial Services Information Sharing and Analysis Center (FS/ISAC) and sponsored FCS institutions
membership in the Government Emergency Telecommunications System (GETS).
The FS/ISAC is an organization that provides information security and threat assessment information across the financial sector. The GETS provides priority access
to landline telecommunications to support response in the event of an emergency.
Fourth, we continue to develop our e-government capabilities. Our accomplishments in the area of e-government include:
A redesign of our Web site to be more user-friendly and more easily navigable.
Implementation of the use of electronic signature to facilitate the approval process among geographicallydispersed staff.
Enhancement of the ability of Farm Credit System institutions to easily and securely transfer examination-related information to FCA examination staff.
During fiscal year 2005 we:
Implemented a machine-readable privacy policy on our Web site.
Enhanced the FCA Exam Manual on our Web site by adding a section on Information Technology.
Established a process for collecting survey data from FCS institutions on our
Web site.
Established a process to begin sending bookletters and informational memorandums via electronic means to System institutions.
CONDITION OF THE FARM CREDIT SYSTEM

I will now turn to the condition of the Farm Credit System. I am pleased to report
that the Systems overall condition and performance was solid and steady during
2005. Capital levels continued to increase, mostly through retained earnings and
stock sales. Asset quality remained high, loan volume growth was strong, and favorable credit quality enabled the System to achieve $2.096 billion in earnings for the
12 months ended December 31, 2005. By and large, the System has knowledgeable
and experienced managers at all levels.
The FCS is fundamentally sound in all material respects, and it continues to be
a financially strong, reliable source of affordable credit to agriculture and rural
America. The quality of loan assets, risk-bearing capacity, stable earnings, and capital levels collectively reflect a healthy Farm Credit System.
Loan volume continued to grow during 2005 while loan quality remained high.
Gross loans increased by 10.3 percent to $106.3 billion. The level of nonperforming
loans, including nonaccrual loans, decreased to 0.56 percent of gross loans. Delinquencies also remained minimal.
Since 1993, the System has steadily earned more than $1 billion each year. This
has resulted in a capital position that is at an all-time high. We believe this level
of capital should enable the System to remain a viable and dependable lender to
agriculture and rural America during any near term downturns in the agricultural
economy.
Despite an increase in total capital, the amount of total capital as a percentage
of total assets declined from 17.1 percent to 16.3 percent as of December 31, 2005.
This was due to the substantial increase in loan volume. However, despite the increased loan volume, all institutions continued to exceed their minimum regulatory
capital requirements, remaining well-capitalized. Permanent capital ratios at System banks and associations ranged from a low of 11.1 percent to a high of 28.9 percentall well above the 7.0 percent minimum regulatory capital requirement.
While the overall condition of the System continued to improve during 2005 and
remains strong, I also must offer a cautionary note regarding several risks that
could adversely affect borrower repayment capacity in the future:
Two major cost riskshigh and volatile energy costs and rising interest rates
reduce borrower incomes and increase lender credit risks.
Government payments to agricultural producers have accounted for between 16
percent and 40 percent of net cash farm income in recent years. Reductions in
farm subsidy payments could have a significant impact on farm incomes and on
farmland values, especially in areas dependent on farm program crops.

32
Outbreaks of animal and plant diseases, especially Avian Influenza, and concerns over possible terrorist attacks on the food supply could increase costs and
reduce access to export markets.
The structure of agriculture and rural America is changing in many ways and
thus so is the nature of the Systems market place. While the Systems financial
health is not threatened, it will be challenged as it adjusts to serving the changing needs of customers whose livelihood is increasingly dependent on the offfarm economy.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION

The FCA also has oversight, examination, and regulatory responsibility for the
Federal Agricultural Mortgage Corporation, which is commonly known as Farmer
Mac. Congress established Farmer Mac in 1988 to provide secondary market arrangements for agricultural mortgage and rural home loans. In this capacity, Farmer Mac creates and guarantees securities and other secondary market products that
are backed by mortgages on farms and rural homes. Through a separate office required by statute (Office of Secondary Market Oversight), the Agency examines, regulates and monitors Farmer Macs disclosures, financial condition, and operations
on an ongoing basis and provides periodic reports to Congress.
Like the Farm Credit System, Farmer Mac is a Government-Sponsored Enterprise
devoted to agriculture and rural America. The FCA and the financial markets recognize Farmer Mac as a separate GSE from the Systems banks and associations.
Farmer Mac is not subject to any intra-System agreements or to the joint and several liability of the FCS banks, nor does the Farm Credit System Insurance Fund
back Farmer Macs securities. However, by statute, in extreme circumstances Farmer Mac may issue obligations to the U.S. Treasury Department to fulfill the guarantee obligations of Farmer Mac Guaranteed Securities.
The majority of Farmer Macs common stock is publicly traded on the New York
Stock Exchange. (In contrast, the cooperative Farm Credit System institutions are
owned by their member-borrowers and their common stock is not publicly traded.)
Accordingly, Farmer Mac is subject to certain Securities and Exchange Commission
regulatory requirements and must file comprehensive disclosures that are available
to its shareholders and the general public.
Generally, secondary market GSEs, including Farmer Mac, operate at lower capital ratios than primary market lenders in recognition of differences in their risk
profiles, as their business is targeted to specific types and quality of loans. Accordingly, regulating and monitoring Farmer Macs capital and risk management are
central components of FCAs oversight activities.
In conclusion, FCA is proud of its efforts and accomplishments in promoting a
constructive and dependable source of credit to farmers, ranchers, and their cooperatives. We will remain vigilant in our efforts to ensure that the Farm Credit System
and Farmer Mac remain financially strong and focused on serving agriculture and
rural America.
FISCAL YEAR 2007 BUDGET REQUEST

Earlier this fiscal year, the Agency submitted a proposed total budget request of
$45,500,000 for fiscal year 2007, which is the same as our fiscal year 2006 total
budget request. The Agencys proposed budget includes an assessment on System
institutions for fiscal year 2007 of $40,500,000, the same as the fiscal year 2006 assessment. The total amount of assessments collected from the FCS and Farmer Mac
with carryover funds equals $44,250,000. Since approximately 83 percent of the
Agencys budget goes for salaries, wages, and related costs, almost all of the total
budget amount will be used for these purposes.
While the budget presented to you today is our best estimate of our future needs,
it is just thatan estimate. Agriculture and rural America are undergoing rapid
change, as is the Farm Credit System. It is such changes, along with administrative
challenges, such as recruiting and maintaining a well-trained and motivated workforce, that the Farm Credit Administration is striving to keep up with. We appreciate the committees past assistance and we ask for your continued help in the future.
It is our intent to stay within the constraints of our fiscal year 2007 budget as
presented and we continue our efforts to be good stewards of the resources entrusted to us in order to meet our responsibilities. The Agency has worked hard to
hold down the assessment to the System for our operations, and I believe we have
achieved that objective over the past several years. Incidentally, the cost of FCAs
operations to System borrowers is approximately 2.6 basis points, or about 2.6 cents
for every $100 of assets, the lowest relative cost to the FCS in decades. The FCS

33
is financially healthy and is poised to serve agriculture and rural America for years
to come.
While we are proud of our record and accomplishments, I assure you that the
Agency will continue its commitment to excellence, effectiveness, and cost efficiency
and remain focused on our mission of ensuring a safe, sound and dependable source
of credit for agriculture and rural America.
On behalf of my colleagues on the FCA Board and the Agency, this concludes my
statement and I thank you for the opportunity to share this information.
PREPARED STATEMENT

OF

ROGER J. KLURFELD, NATIONAL APPEALS DIVISION

INTRODUCTION

The National Appeals Division (NAD) was established by the Secretary of Agriculture pursuant to the Reorganization Act of 1994. The act consolidated the appellate functions and staffs of several USDA agencies under a single administrative appeals organization. NAD appeals involve program decisions of the Commodity Credit
Corporation, the Farm Service Agency, the Risk Management Agency, the Natural
Resources Conservation Service, and Rural Development agencies. In States within
the jurisdiction of the United States Court of Appeals for the Eighth Circuit, NAD
Hearing Officers adjudicate and the Director makes final determinations on applications for fees under the Equal Access to Justice Act (EAJA). NAD is headquartered
in Alexandria, Virginia, and has regional offices located in Indianapolis, Indiana;
Memphis, Tennessee; and Lakewood, Colorado. NADs staff of 108 includes 64 Hearing and Appeals Officers.
MISSION

NADs mission is to conduct evidentiary administrative appeals hearings and reviews arising out of program decisions of certain USDA agencies. Our strategic goal
is to conduct independent evidentiary hearings and issue timely and well-reasoned
determinations that correctly apply USDA laws and regulations. NADs mission is
statutorily specific, but its operation is dynamic and challenging, given the complexities of changing laws, regulations and policies affecting USDA program decisions.
NADs budget request for fiscal year 2007 is $14.8 million, which is $416 thousand
above the fiscal year 2006 appropriation. The increase is for increases in pay costs.
That concludes my statement, and I look forward to working with the Committee
on the 2007 National Appeals Division budget.
PREPARED STATEMENT OF R. RONALD BOSECKER, ADMINISTRATOR, NATIONAL
AGRICULTURAL STATISTICS SERVICE
Mr. Chairman and members of the Committee, I appreciate the opportunity to
submit a statement for this Committees consideration in support of the fiscal year
2007 budget request for the National Agricultural Statistics Service (NASS). This
agency administers the U.S. agricultural statistics program, which began in USDA
in 1863. Since 1997, NASS has conducted the U.S. Census of Agriculture, first collected by the Department of Commerce in 1840. Both programs are aligned with the
basic mission of NASS to provide timely, accurate, and useful statistics in service
to U.S. agriculture.
FISCAL YEAR 2007 BUDGET

The agencys fiscal year 2007 budget request is $152.6 million. This is a net increase of $13.3 million from the fiscal year 2006 adjusted appropriations. The fiscal
year 2007 request includes programmatic increases to continue the restoration and
modernization of the NASS core survey and estimation program ($3.9 million), and
to fund cyclical activities associated with preparing and conducting the Census of
Agriculture ($7.3 million).
AGRICULTURAL ESTIMATES

NASS statistical reports are critically important to assess the current supply and
demand in agricultural commodities. They are also extremely valuable to producers,
agribusinesses, farm organizations, commodity groups, economists, public officials,
and others who use the data for decision-making. The statistics disseminated by
NASS support fairness in markets where buyers and sellers have access to the same
official statistics at the same pre-announced time. This prevents markets from being
unduly influenced by inside information, which might unfairly affect market prices

34
for the gain of an individual market participant. The efficiency of commodity markets is enhanced by the free flow of information, which minimizes price fluctuations
for U.S. producers. Statistical measures relating to the competitiveness of our Nations agricultural industry have become increasingly important as producers rely
more on world markets for their sales.
In fiscal year 2007, NASS is requesting an increase of $3.9 million and 6 staff
years to fund the continuation of the restoration and modernization of the NASS
core survey and estimation program. This increase is directed to continuing the
modernization of the core survey and estimation program for NASS to meet the
needs of data users at professionally acceptable levels of precision for State, regional, and National estimates. Decisions affecting billions of dollars in the U.S. food
and agricultural sectors are facilitated in both public and private venues through
access to reliable statistical information. The USDANASS statistical program
serves most agricultural commodity data needs in the United States, as well as supplies important economic, environmental, and demographic data that are used for
policy that will impact the livelihood and quality of life of rural residents. Funding
received in the fiscal year 2004 through fiscal year 2006 appropriations have been
used to successfully improve the precision level from commodity surveys conducted
by NASS for State, regional, and National estimates through sample size increases
and better survey response. Funding requested in fiscal year 2007 promotes data
quality by encouraging voluntary response through increased respondent awareness
of market and policy reliance upon USDA-NASS statistical measures and by improving the data collection capabilities by local interviewers throughout the Nation.
CENSUS OF AGRICULTURE

NASS is currently preparing for the 2007 Census of Agriculture scheduled to be

mailed to the Nations farmers and ranchers in December 2007. The Census of Agriculture is taken every 5 years and provides comprehensive data at the national,
State, and county level on the agricultural sector. The Census of Agriculture is the
only source for this information on a local level, which is extremely important to
the agricultural community. Detailed information at the county level helps agricultural organizations, suppliers, handlers, processors, and wholesalers and retailers
better plan their operations. Demographic information supplied by the Census of
Agriculture also provides a very valuable database for developing public policy for
rural areas. The 2007 Census of Agriculture is the first time respondents have the
option of reporting electronically through the Internet. It also includes improved
coverage of American Indians and expanded data on organic agriculture. Many additional improvements are being implemented to enhance the data from this comprehensive data source. Census of Agriculture programs are also conducted in Puerto Rico, Guam, and the Commonwealth of the Northern Mariana Islands as part of
the census cycle. Results from all of the censuses are made available on the NASS
website.
NASS is requesting a cyclical increase of $7.3 million and 10 staff-years for the
Census of Agriculture. The total Census of Agriculture budget request is $36.6 million. The available funding includes monies to continue preparations for the 2007
Census of Agriculture. The increase will be used to collect data to measure coverage
of the census mail list, prepare census mail packages, and prepare for data collection activities in fiscal year 2008. This increase is comparable to a $10.0 million increase required during the same period in the 2002 Census cycle.
MAJOR ACTIVITIES OF THE NATIONAL AGRICULTURAL STATISTICS SERVICE (NASS)

The ongoing expansion of global markets for U.S. goods and services continues to
increase the need for modern and reliable statistical information. The periodic surveys and censuses conducted by NASS contribute significantly to economic decisions
made by policymakers, agricultural producers, lenders, transporters, processors,
wholesalers, retailers and, ultimately, consumers. Lack of relevant, timely, and accurate data contributes to wasteful inefficiencies throughout the entire production
and marketing system.
The need for timely, accurate, and useful statistics on U.S. agriculture has been
highlighted in recent years due to several natural disasters. The catastrophic hurricanes which moved through Florida during the end of 2004 heavily impacted the
citrus industry. The degree of this impact was measured by NASS through a special
November forecast of citrus production. Normal processes do not include a November forecast. The special forecast allowed for a timely unbiased assessment of the
damage resulting from the hurricanes. Likewise, the discovery of Asian Soybean
rust in the United States resulted in heightened speculation of how growers would
react to the fast-spreading, yield-reducing disease. Data collected by NASS allowed

35
for an early assessment of farmer awareness of soybean rust and how its discovery
would affect planting decisions for the 2005 crop. Results were published in the
2005 Prospective Plantings report.
NASS works cooperatively with each State Department of Agriculture throughout
the year to provide commodity, environmental, economic, and demographic statistics
for agriculture. This cooperative program, which began in 1917, has served the agricultural industry well and is recognized as an excellent model of successful StateFederal cooperation. Working together helps meet both State and national data
needs while minimizing overall costs by consolidating staff and resources, eliminating duplication of effort, and reducing the reporting burden on the Nations farm
and ranch operators. The forty-six field offices in NASS, covering all fifty States and
Puerto Rico, provide statistical information that serves national, State, and local
data needs.
NASS has been a leader among Federal agencies in providing electronic access to
information. All reports issued by NASSs Agricultural Statistics Board are made
available to the public at a previously announced release time to ensure that everyone is given equal access to the information. All national statistical reports and data
products, including graphics, are available on the Internet, as well as in printed
form, at the time they are released. Customers are able to electronically subscribe
to NASS reports and can download any of these reports in a format easily accessible
by standard software. A summary of NASS and other USDA statistical data are produced annually in USDAs Agricultural Statistics, available on the Internet through
the NASS home page, on CDROM disc, or in hard copy. All forty-six NASS field
offices have home pages on the Internet, which provide access to special statistical
reports and information on current local commodity conditions and production.
NASSs Statistical research program is conducted to improve methods and techniques used for collecting, processing, and disseminating agricultural data. This research is directed toward achieving higher quality census and survey data with less
burden on respondents, producing more accurate and timely statistics for data
users, and increasing the efficiency of the entire process. For example, NASS has
developed and released a new interactive mapping tool on the Internet. Data users
can now customize maps using various data items from the Census of Agriculture.
The growing diversity and specialization of the Nations farm operations have greatly complicated procedures for producing accurate agricultural statistics. Developing
new sampling and survey methodology, expanding modes of data collection, including electronic data reporting, and exploiting computer intensive processing technology enables NASS to keep pace with an increasingly complex agricultural industry.
The primary activity of NASS is to provide reliable data for decision-making
based on unbiased surveys each year, and the Census of Agriculture every 5 years,
to meet the current data needs of the agricultural industry. Farmers, ranchers, and
agribusinesses voluntarily respond to a series of nationwide surveys about crops,
livestock, prices, chemical use and other agricultural activities each year. Periodic
surveys are conducted during the growing season to measure the impact of weather,
pests, and other factors on crop production. Many crop surveys are supplemented
by actual field observations in which various plant counts and measurements are
made.
Administrative data from other State and USDA agencies, as well as data on imports and exports, are thoroughly analyzed and utilized as appropriate. NASS prepares estimates for over 120 crops and 45 livestock items which are published annually in more than 400 separate reports.
Approximately 60 percent of the NASS staff are located in the 46 field offices; 21
of these offices are collocated with State Departments of Agriculture or land-grant
universities. NASS field offices issue approximately 9,000 different reports each year
and maintain Internet pages to electronically provide their State information to the
public.
NASS has developed a broad environmental statistics program under the Departments water quality and food safety programs. Until 1991, there was a serious void
in the availability of reliable pesticide usage data. Therefore, beginning in 1991
NASS cooperated with other USDA agencies, the Environmental Protection Agency
(EPA), and the Food and Drug Administration, to implement comprehensive chemical usage surveys that collect data on certain crops in specified States. NASS data
allows EPA to use actual chemical data from scientific surveys, rather than worst
case scenarios, in the quantitative usage analysis for a chemical products risk assessment. Beginning in fiscal year 1997, NASS also instituted survey programs to
acquire more information on the post-harvest application of pesticides and other
chemicals applied to commodities after leaving the farm. These programs have resulted in significant new chemical use data to help fill the void of reliable pesticide

36
usage data. Surveys conducted in cooperation with the Economic Research Service
(ERS) collect detailed economic and farming practice information to analyze the productivity and the profitability of different levels of chemical use. American farms
and ranches manage nearly half the land mass in the United States, underscoring
the value of complete and accurate statistics on chemical use and farming practices
to effectively address public concerns about the environmental effects of agricultural
production.
NASS conducts a number of special surveys, as well as provides consulting services for many USDA agencies, other Federal or State agencies, universities, and agricultural organizations on a cost-reimbursable basis. Consulting services include assistance with survey methodology, questionnaire and sample design, information resource management, and statistical analysis. NASS has been very active in assisting
USDA agencies in programs that monitor nutrition, food safety, environmental quality, and customer satisfaction. In cooperation with State Departments of Agriculture, land-grant universities, and industry groups, NASS conducted 151 special
surveys in fiscal year 2005 covering a wide range of issues such as farm injury,
nursery and horticulture, farm finance, fruits and nuts, vegetables, and cropping
practices. All results from these reimbursable efforts are made publicly available.
NASS provides technical assistance and training to improve agricultural survey
programs in other countries in cooperation with other government agencies on a
cost-reimbursable basis. The NASS international program focuses on the developing
and emerging market countries in Asia, Africa, Central and South America, and
Eastern Europe. Accurate foreign country information is essential for the orderly
marketing of U.S. farm products throughout the world. NASS works directly with
countries by assisting in the application of modern statistical methodology, including sample survey techniques. This past year, NASS provided assistance to Armenia, Belize, Brazil, China, El Salvador, Georgia, Guatemala, Honduras, Mexico,
Nicaragua, Panama, Russia, Sudan, and the Ukraine. In addition, NASS conducted
training programs in the United States for 220 visitors representing 30 countries.
These assistance and training activities promote better United States access to quality data from other countries.
NASS annually seeks input on improvements and priorities from the public
through the Secretary of Agricultures Advisory Committee on Agriculture Statistics,
interaction with producers at major commodity meetings, data user meetings with
representatives from agribusinesses and commodity groups, special briefings for agricultural leaders during the release of major reports, and through numerous individual contacts. As a result of these activities, the agency has made adjustments to
its agricultural statistics program, published reports, and expanded electronic access
capabilities to better meet the statistical needs of customers and stakeholders.
This concludes my statement, Mr. Chairman. Thank you for the opportunity to
submit the statement for the record.
PREPARED STATEMENT

OF CHARLES CHRISTOPHERSON, CHIEF

OFFICE OF THE FINANCIAL OFFICER

FINANCIAL OFFICER,

Mr. Chairman and members of the Subcommittee, I am pleased to present the fiscal year 2007 budget request for the United States Department of Agriculture
(USDA), Office of the Chief Financial Officer (OCFO) and the Departments Working
Capital Fund (WCF).
My remarks today address:
Results we have achieved recently;
Results on which we are currently focused;Our fiscal year 2007 budget request; and
The Department of Agricultures Working Capital Fund.
The Office of the Chief Financial Officer is responsible for the financial leadership
of an enterprise, which if it were in the private sector would be one of the largest
companies in the United States with almost $95 billion in annual spending, almost
110,000 full time equivalents (Staff Years) and over $132 billion in assets.
These responsibilities are fulfilled by a headquarters staff in Washington, DC,
with accounting operations support provided by USDAs Controller Operations Division in New Orleans, Louisiana.
The National Finance Center (NFC), also located in New Orleans, provides payroll
processing and related services for approximately 31 percent of the Federal civilian
workforce in more than 130 government entities. In fiscal year 2005, the NFC processed $32 billion in payroll for more than 565,000 Federal employees. NFC also
services the Office of Personnel Management performing health benefit reconciliations and health care premium processing on a Government-wide level.

37
RESULTS ACHIEVED RECENTLY

In fiscal year 2005, OCFO continued to make substantial progress in improving

financial management, financial information, and financial/corporate systems
throughout USDA. OCFO also actively worked on government-wide financial management issues affecting USDA to ensure we could achieve substantive and sustainable results. Some of the significant results USDA achieved in financial management, financial systems and related areas in fiscal year 2005 include:
Attained another clean financial audit opinion. Our ability to sustain this critical performance benchmark is powerful evidence of the Departments improved
accountability, internal control and data integrity.
This year Hurricane Katrina had a major impact on the NFC and OCFO functions located in the New Orleans area. Thanks to the well-practiced continuity
of operations plan (COOP), NFC and the other OCFO operations in New Orleans were able to recover operations quickly and to meet commitments to their
customers without interruption. Critical information technology services were
recovered within 24 hours; other essential operations were recovered as planned
over the next 10 days. We are most proud that NFC was able to pay 565,000
employees accurately and on time from their alternate locations. More noteworthy, NFC converted two new customers, Transportation Safety Administration and U.S. Coast Guard to its payroll system during the 2 weeks following
the storm and paid these new payroll employees on time. The swiftness and accomplishment of the recovery is a tribute to the employees of the NFC and
OCFO who deployed to remote locations, some leaving their families behind,
worked extended hours and assumed non-traditional jobs to get the job done.
The NFC and OCFO are now reconstituting operations back to the New Orleans
location. Due to the personal impact on the employees homes and the New Orleans infrastructure, the reconstituting is proving to be as difficult as the deployment. More than 96 percent of the 1,250 employees of the NFC and OCFO
have returned to New Orleans with some 400 of the employees located in trailers in a trailer park or at their homes. The overall productivity of the New Orleans-based operations have been impacted by the loss of a large number of experienced employees due to separations and retirements (13-percent of the workforce has retired or separated after Katrina to work on their homes or relocate
from the area). OCFO operations have also been impacted by (1) the Postal
Service releasing mail from three different Katrina storage facilities which contain potentially thousands of undelivered invoices each; (the first warehouse
was released in February 2006) and (2) the loss of knowledgeable employees
from earlier reductions in force. The payroll and human resources serviced by
the NFC has been impacted by a doubling in the volume of retirements and separation transactions of its customer base and the loss of knowledge through
staff adjustments in repeated reduction-in-force actions in 2005. Although they
have difficult personal lives, the New Orleans staff is determined to eliminate
the workload backlog through extensive overtime. OCFO in Washington D.C.
continues to assist the operation and believes that the backlog will be cured in
the coming months.
Met OMB interim and year-end accelerated deadlines for preparing the financial statements. Year-end statements were provided 45 days after the close of
the fiscal year, that is, by November 15. USDA met these ambitious dates while
sustaining data quality and provided USDA executives and program managers
with financial results information more timely than ever before;
Reduced existing material internal control weaknesses from 32, 4 years ago, to
2 existing deficiencies at the end of fiscal year 2004. Although one new material
weakness was reported in the fiscal year 2005 Performance and Accountability
Report, for a total of three remaining for fiscal year 2006, we continue to aggressively work to resolve the underlying internal control and system issues. We
will continue to work diligently to eliminating material weaknesses;
Improved quality assurance of financial data by continuing to focus on fixing
root causes of data flow and accuracy problems. Regularly monitored a set of
metrics to ensure data is timely and accurate and useful to USDA managers;
Closed 102 of 164 audits in fiscal year 2005 as compared to 96 in fiscal year
2004, a 6 percent increase in audit closures;Successfully consolidated and
standardized departmental travel procedures and policies;
Continued to monitor for travel card misuse, these efforts resulted in lowering
the Department-wide individually billed accounts delinquency average of 4.68
percent in fiscal year 2004, to 4.06 percent in fiscal year 2005, representing a
13 percent improvement;

38
During fiscal year 2005, the Forest Service submitted a competitive sourcing
plan to OMB for approval. In addition, USDA completed 2 competitive sourcing
studies with results estimated to avoid costs of $8.1 million over a 5-year period
with annualized amounts of over $1.62 million.
Implemented the real-time interface between the financial system and procurement system, integrating the financial and procurement systems for the first
time and enhancing internal funds control and streamlining operations; and
Enhanced through a technology modernization the data warehouse reporting to
provide more timely and useable financial and performance information to
USDA executives and managers to manage daily operations.
In addition to the above, during fiscal year 2005, USDA collected $1.1 billion of
delinquent debt, $862 million through agencies using our internal tools and $238
million through the Department of Treasury Administrative Offset Program and
other Debt Collection Improvement Act (DCIA) techniques. Since 1996, annual collections of delinquent USDA debt using DCIA tools have increased more than 276.6
percent from $63.2 million in fiscal year 1996 to $238 million in fiscal year 2005.
As of September 30, 2005, USDA had referred to the Treasury Offset Program 96
percent of the $1.2 billion of eligible receivables and 97 percent of loans eligible for
cross servicing compared to only 14 percent in 2001.
Results on which we are Currently Focused
We continue to be focused on delivering valuable results in fiscal year 2006 as
a context for consideration of our fiscal year 2007 budget request. Three areas of
focus are: internal control and management information; support and develop
shared services to the Departments of the Federal Government; and the Presidents
Management Agenda.
In the area of internal control and management information, we are committed
to:
Continuing to enhance USDAs system of internal controls and data integrity
as reflected in sustaining in fiscal year 2006 USDAs unqualified clean opinions on the consolidated financial statements and component agency financial
statements;
Meeting OMBs interim and year-end deadlines for financial statement and the
Performance and Accountability Report;
Eliminating material weaknesses in internal controls and systems nonconformances with the requirements of the Federal Financial Management Improvement Act (FFMIA);
Implementing an online USDA corporate financial and performance reporting,
system that the Secretary of Agriculture and his senior executives will use to
drive program results;
Continuing to develop financial management and accounting operations leadership talent in-depth throughout all our agencies so as to enhance further
USDAs culture of sound financial management and to sustain management results already achieved; and
Expanding the use of data warehousing technology to improve data integrity
and timely availability of financial and performance information to USDAs executives and managers for the management of their daily operations.
To support and develop shared services to the Departments of the Federal Government, we are focused on:
Completing the reconstitution and rebuilding the OCFO operations and the
NFC operations in New Orleans to support the functions of the Federal Government and the USDA;
Structuring a Human Resources Line of Business (HR LoB) venture for the
NFC while continuing to implement new customers into ePayroll. The HR LoB
will provide a new business growth opportunity for NFC in providing human
resources systems and services to all civilian Federal agencies;
Completing the transfer of the accounting and paralegal functions of the Thrift
Savings Plan to the Federal Retirement Thrift Investment Plan;
Securing a location for the alternate worksite and computing center, which reduces the operational risk through continuous improvement of and practice in
recovery operations for NFC and accounting operations;
Working with Office of Personnel Management (OPM) on retaining employees
in critical positions with long-term learning curves and cycles at the NFC; and
Reviewing additional USDA sponsored financial services that can create savings
in the Federal Government through a consolidated service center. These services include a Financial Management Line of Business.
For Presidents Management Agenda (PMA) initiatives, we are:

39
Implementing the eTravel initiative throughout USDA to consolidate travel
processes at the Department level and centrally manage them through a customer-centric, self-service, web-based environment providing end-to-end travel
services;
Adding the personal property components to the Corporate Property Automated
Information System (CPAIS). CPAIS was implemented in fiscal year 2004 and
currently tracks all USDA real property whether owned or leased. Incorporating
personal property into CPAIS will allow USDA, in one place, to have a full view
and accounting of our property assets;
Taking aggressive action to implement the Improper Payments Information Act
(IPIA), Public Law 107300 by establishing measurements for programs that
meet the required payment criteria. We strengthened guidance to agencies requiring detailed plans with key milestones and quality deliverables. We are
monitoring accomplishments through monthly workgroup meetings, assessment
of deliverables, evaluation of risk assessments, and agency scorecards for executives and managers;
Conducting Independent Verification and Validation (IV&V) review activities for
the following: Feasibility studies conducted and submitted by USDA Agencies
and Offices in support of the USDA Competitive Sourcing Green Plan; post-competition assessments for completed performance reviews along with the cost
comparison; and independent validation verification of prior year achieved savings;
Collaborating with Departmental Administration to use competitive sourcing,
where appropriate, to address core competency and skills gaps;
Sponsoring training sessions for USDA Agencies and Offices on various A76
related topics including: FAIR Act Inventory; Feasibility Studies; Performance
Work Statements; and Most Efficient Organizations; and
Facilitating departmental-wide collaboration efforts and working group sessions
to develop standards for FAIR Act Inventory coding process: FAIR Act Inventory function code definitions are being standardized and Reason Code Justifications and Analyses are being evaluated to ensure compliance with OMB regulations.
Fiscal Year 2007 Budget Request
I would like to thank the Committee for your confidence in entrusting us with the
basic resources required to provide stewardship over USDA financial processes.
USDAs excellent results in sustaining and enhancing financial accountability in fiscal year 2005 were only possible because of your support. I would now like to focus
on our fiscal year 2007 operating budget request, which is for $19,931,000, an increase of $14,116,000 or 242.8 percent more than the fiscal year 2006 budget of
$5,815,000. Approximately 90 percent of the Office of the Chief Financial Officers
current obligations are for the salaries and benefits of the OCFO employees. As part
of this increase request, of $176,000 is to fund pay costs. The pay-related increases
requested are necessary for us to accomplish key outcomes and to successfully meet
our goals for fiscal year 2007. The remaining $13,940,000 of the request is for procurement of hardware and software to improve the financial management performance through implementation of a new core financial management system. OCFO
is pursuing significant modernization of its technically outdated corporate financial,
administrative payments and program general ledger systems. These outdated systems are no longer supported by the vendor and pose an unacceptable risk for
USDA. Due to the current transaction services offered to other Federal Government
entities, USDA has discussed with OMB the opportunity to offer a full financial solution to smaller agencies in the Federal Government.
USDA Working Capital Fund
The Working Capital Fund (WCF) serves as the Departments principal investment engine to achieve progress in developing and implementing new corporate systems. Last year, we again made use of authority granted to us by the Committee
in the appropriations language to use unobligated balances as part of this developmental effort. In 2005, our plan for use of these resources was reviewed by Congressas required under appropriations languageand executed to continue our
progress in implementing an enterprise human resources information system, an integrated acquisition system, and a management information tracking tool. For 2006,
we have prepared a plan to Congress to obligate funds in pursuit of further efforts
in development of an integrated procurement system and an enterprise human resources system. That plan will be delivered to the Committees on Appropriations
shortly. We are grateful for the support and look forward to working with the Committee as our efforts to improve corporate systems proceed.

40
In addition to the investments in corporate systems, the WCF supports services
in the areas of financial management, information technology, communications, administration, as well as record keeping and item processing. It is our objective to
use this financing mechanism to provide to agencies of the Department, the most
effective cost-efficient centrally managed services available.
The Presidents fiscal year 2007 budget estimates that total operating costs for the
WCF in fiscal year 2007 will be $515.1 millionnet of intrafund transfers between
WCF activitiesa $13.0 million increase, or 2.6 percent over the fiscal year 2006
estimate. Costs to USDA agencies will increase more slowly, about 2.4 percent from
fiscal year 2006 to fiscal year 2007.
The increases in cost estimates reflect the fact that the WCF recovers costs on
the basis of user demand for services with the objective of lowering total costs
through centrally-managed services. Historically, the largest of the USDA-wide services has been the National Finance Center. However, its menu of services has been
changing to reflect the changing needs of customers both inside and outside USDA.
Information Technology Services will be the largest WCF activity in terms of cost
in fiscal year 2006. Examples of other services supported by the WCF include mainframe computing and information technology services at the National Information
Technology Center in the Office of the Chief Information Officer, and video and teleconferencing production services provided by the Broadcast and Media Technology
Center in the Office of Communications. Departmental Administration provides a
wide variety of personal property, mail, and duplicating services to USDA and nonUSDA customers. Among the corporate systems activities supported by the WCF include: Corporate Financial Management Systems and Integrated Procurement Systems. The source of funds for these investments in systems includes direct billings,
purchase card rebates, and the use of unobligated balances.
I would like to point out that the WCF financing mechanism, as a reimbursement
for goods and services provided, gives us an opportunity to refine our estimates as
newer and better information becomes available regarding customer demand and
costs. Our office is currently engaged in reviewing fiscal year 2007 estimates with
the goal of reducing estimates wherever possible in costs for core services to USDA
agencies. It was with this objective in mind that we were able to submit an operating estimate for fiscal year 2007 that is consistent with expected inflation. I think
it is important to note that costs for core servicesthose corporate services in which
all agencies sharewill see cost increases of only 1.2 percent from fiscal year 2006
to fiscal year 2007. As we begin development of the fiscal year 2008 budget this
spring, we will be reexamining fiscal year 2007 estimates for more economies and
savings. As we did last year, we will establish spending targets for WCF activities
that take into account the Departments spending priorities among its agencies reflected in the Presidents budget.
I would also like to express my appreciation to the Committee for all of the assistance and support provided to the Department in the wake of Hurricane Katrina.
Specifically, the resources provided to us to address disaster recovery and resumption of business operations were essential to our success in bringing the National
Finance Center and other activities in New Orleans back on line. The story of our
recovery in New Orleans is primarily a story of peoplededicated workers who
through their long hours of effort ensured that operations were resumed as quickly
as possible. That we have been able to resume payrolling and financial operations
activity to the extent we have is a reflection on their efforts and the support we
have received from the Congress.
Thank you, Mr. Chairman, for the opportunity to share the results we have
achieved and our fiscal year 2007 budget request with the Committee. We especially
look forward to working together with you and the Committee in fulfilling the vision
for financial management we all have for the United States Department of Agriculture.
PREPARED STATEMENT

OF

TERRI TEUBER MOORE, DIRECTOR

OFFICE OF COMMUNICATIONS

OF

COMMUNICATIONS,

Mr. Chairman and members of the Subcommittee, I am pleased to discuss the fiscal year 2007 budget request for the Department of Agricultures Office of Communications (OC).
When Congress wrote the law establishing the U.S. Department of Agriculture in
1862, it said the departments . . . general designs and duties shall be to acquire
and to diffuse among the people of the United States useful information on subjects
connected with agriculture in the most general and comprehensive sense of the
word. OC coordinates the implementation of that original mandate.

41
OC coordinates communications with the public about USDAs programs, functions, and initiatives, providing vital information to the customers and constituency
groups who depend on the Departments services for their well-being. For example,
OC is coordinating the Departments communications efforts relating to the threat
of avian influenza and is prepared to activate a Joint Information Center (JIC),
which would support the Department in meeting its obligations in the event of an
avian influenza outbreak. In addition, OC also coordinates the communications activities of USDAs seven major mission areas and provides leadership for communications within the Department to USDAs employees.
OC is adopting new technologies to meet the increased demands for the dissemination of accurate information in a timely manner. Using the internet, radio, television and teleconference facilities, we are able to ensure that the millions of Americans whose lives are affected by USDAs programs receive the latest and most complete information. As the continuing concern over avian influenza demonstrates,
these technologies are a critical resource used by the Secretary and the agencies to
provide timely information, which helps to maintain consumer confidence and stabilize agricultural markets.
OCs 5-year strategic goal is to support the Department in creating full awareness
among the American public about USDAs major initiatives and services. This is essential to providing effective customer services and efficient program delivery. As
a result, we expect more citizens, especially those in underserved communities and
geographic areas, to access helpful USDA services and information.
A central element of this support is OCs active participation in the Departments
eGovernment initiative. OC plays a key role in ensuring that the Departments
eGovernment implementation results in the publics improved access to more current, accurate, relevant, and organized USDA products, services, and information.
The USDA.gov portal, managed by OC, is customer- or citizen-centric, allowing OC
to target information by audience preference, subject and personalization. On average, the USDA.gov portal reaches 1.5 million citizens weekly. The demand by citizens and other constituencies for information, via the USDA.gov portal, web casting,
electronic mail distribution, teleconferences, and publications, is expected to continue to increase.
OC will continue to take an active part in policy and program management discussions by coordinating the public communication of USDA initiatives. We will continue to provide centralized operations for the production, review, and distribution
of USDA information to its customers and the general public. Also, we will monitor
and evaluate the results of these communications. Our staff is instructed to use the
most effective and efficient communications technology, methods, and standards in
carrying out communications plans.
Also, we are focusing on improved communications with USDA employees, especially those away from headquarters. This will enhance their understanding of
USDAs general goals and policy priorities, programs and services, and cross-cutting
initiatives.
Our office will continue to work hard to meet our performance goals and objectives. We will work to communicate updated USDA regulations and guidelines, conduct regular training sessions for USDA communications staff about using communication technologies and processes to enhance public service, foster accountability
for communications management performance throughout USDA, and continue to
work to create a more efficient, effective and centralized OC. Increasing availability
of USDA information and products to underserved communities and geographic
areas through USDAs outreach efforts is integral to our performance efforts. OC
will also provide equal opportunity for employment and promote an atmosphere that
values individuals.
FISCAL YEAR 2007 BUDGET REQUEST

OC is requesting a budget of $9.7 million. This is a net increase of $0.28 million

for the annualization of the fiscal year 2006 pay increase and the anticipated fiscal
year 2007 pay increase.
As more than 88 percent of OCs obligations are for salaries and benefits, the requested increase is vital to support and maintain staffing levels for current and projected demands for our products and services. While OC has realized some cost savings by replacing high grade employees who have retired with lower grade employees, our current budget leaves little flexibility for absorbing increased costs. In fact,
OC would not be able to absorb the increased salary costs in fiscal year 2007 without placing considerable constraints on daily operations or impacting staff size and
therefore the timely delivery of information to the public.

42
Our central task is to ensure the development of communications strategies,
which are vital to the overall formation, awareness and acceptance of USDA programs and policies. The World Wide Web is firmly established as an effective means
by which the Department can provide information and receive comments on the
whole range of agricultural programs, functions and issues of interest to the public
here or around the world.
OC will continue to strive to make the most effective use of this medium. OC has
led the adoption of content management software which speeds the addition of new
material, improves our quality control measures to ensure the accuracy of the information available through the USDA.gov portal, and reduces the staff time required
for overall maintenance of the site.
This improved control greatly reduces the time necessary to post important information to the media and the public while providing a greater ability to ensure the
accuracy of the information. This allows OC to use a large document and web repository, sharing resources and information with mission areas and agencies as well
as the public.
OC looks forward to continuing our commitment to the American public by providing timely, accurate information about our programs and services.
This concludes my statement, Mr. Chairman. I will be pleased to respond to any
questions.

PREPARED STATEMENT

OF DAVID M. COMBS, CHIEF INFORMATION

OF THE CHIEF INFORMATION CENTER

OFFICER, OFFICE

INTRODUCTION

Mr. Chairman and members of the Subcommittee, thank you for the opportunity
to share with you our progress on using information technology (IT) to improve service delivery to the customers of the Department of Agriculture (USDA), while at the
same time implementing Enterprise Architecture (EA) principles and eGovernment
with IT.
The Office of the Chief Information Officer (OCIO) is changing how USDA invests
in and uses IT. Instead of single agency-centric systems, we are investing in common government-wide and Department-wide IT solutions. OCIO is leading USDA
participation in 21 of the 25 government-wide Presidential Electronic Government
(eGovernment) initiatives. At the same time, under the framework of the Departments Enterprise Architecture, we are managing USDA IT investments to promote
collaboration across common lines-of-business, reduce duplication with our internal
Smart Choices, and finding savings by leveraging the USDAs size/economies-ofscale in Department-wide IT acquisitions.
The Presidents fiscal year 2007 budget request for OCIO totals about $16.9 million. We are requesting an increase of approximately $639,000 to cover pay costs.
USDAS FISCAL YEAR 2007 INFORMATION TECHNOLOGY BUDGET SUMMARY

During the fiscal year 2007 USDA budget preparation process, OCIO staff scrutinized agency IT investment plans to ensure alignment with USDA program delivery
plans as well as the USDA Enterprise Architecture. In fiscal year 2007, the Department is requesting about $2.1 billion for IT. Components of the IT budget include:
37 percent of fiscal year 2007 IT spendingestimated at $783 million, is transferred to the States for the development and maintenance of automated systems
to support Food Stamps, WIC, and related programs
The following is a breakdown of the remaining $1.4 billion in IT discretionary
funding:
35 percentestimated at $483 millionwill be used for advisory services (e.g.
consultants)
27 percentestimated at $372 millionwill be used for Federal IT personnel
costs
18 percentestimated at $242 millionwill be used for equipment
12 percentestimated at $167 millionwill be used for advisory services (e.g.
telecommunications)
8 percentestimated at $95 millionwill be used for software.
Overall, the IT related proposals in the USDA request represent about 3 percent
of the total $64 billion proposed for IT investments for the Federal Government in
fiscal year 2007.

43
SERVICE CENTER MODERNIZATION INITIATIVE(SCMI)

Mr. Chairman, the modernization of our Service Center Agencies (SCA) technology infrastructure continues to be one of USDAs highest IT priorities. The Common Computing Environment (CCE) initiative is managed by OCIO working in collaboration with the SCA. CCE supports over 45,000 SCA employees, volunteers and
partners in the delivery of over $55 billion in programs through our field office delivery system. The new infrastructure is flexible and built around maximizing information sharing both within USDA and with other Federal, State and Local agencies, the private sector, and USDA customers.
I would like to take a few minutes to update you on the status of the CCE technology, as well as our progress in merging the three SCA IT support staffs into a
single organization under OCIO.
The OCIO selected Information Technology Services (ITS) as the name of the converged organization, which came into being on November 28, 2004. There were 785
full time equivalents transferred to the new ITS organization264 were transferred
from the Farm Service Agency, 351 from the Natural Resources Conservation Service, 164 from the Rural Development mission area, and 6 from other OCIO organizational elements. A total of 684 personnel were transferred out from the SCA.
ITS was established under the Departments Working Capital Fund to process
revenue and obligations for ITS. The CCE appropriated dollars are to be utilized for
capital expenditures, while the WCF will be used to pay ITS operating expenses for
the CCE. Notifications to OMB and Congress were made to address the expansion
of existing activities in our Working Capital Fund.
The purpose of creating ITS was to have one unified organization dedicated to
supporting both the shared and the diverse IT requirements of the SCA and their
partner organizations. On the one hand, the agencies were already sharing and investing in a common computing environment (and its infrastructure, network systems, and associated hardware, software, and training); on the other hand, each
agency had to manage its own distinct computing systems, software, and IT support
teams.
By converging both technology resources and skilled IT staff into one organization, ITS can efficiently focus a broad range of technology investment and diverse
support, planning, and management services, spread equitably back to the agencies
and replacing what might be considered triplicate efforts.
The fiscal year 2007 CCE budget request is for $108,900,000. A net decrease of
$1,172,000, comprising:
An increase of $5,212,000 for the CCE Basic Infrastructure, the increase will restore CCE basic infrastructure funding to a level needed to provide a stable level
of service, while increasing Web Farm capacity.
A net decrease of $4,504,500 in the Farm Service Agency (FSA) Specific Funds.
FSA is in the middle of a multi-year modernization project to reengineer its legacy
application systems. The goals of modernization are twofold: (1) to eliminate FSAs
dependency on a proprietary and restrictive operating environment by developing
applications that are platform independent; and (2) to achieve a customer-centric
focus, providing ease of access and convenience to FSA customers. As these applications are developed, they will be hosted on the CCE infrastructure. In fiscal year
2007, FSA is requesting a decrease of $4,504,500 in IT support to the $73,260,000
CCE fiscal year 2006 base for agency specific needs. This decrease has occurred due
to contract efficiencies realized with several of our support services contracts for infrastructure support. In addition, this decrease has occurred due to the completion
of business modernization efforts in the Farm Loan Program area.
An increase of $1,845,000 for the Natural Resources Conservation Service
(NRCS). This increase will pay for increased telecommunications and related costs.
A decrease of $2,277,000 in the Rural Development mission area. Now that ITS
is operational, all the Web Farms are part of the ITS organization. The RD agency
specific funds supports activities including the telecommunications support associated with Service Center modernization activities and the continued development
and operation of the ITS Web Farms. RD has moved all of its major applications
to the Web. A common infrastructure integrates Web services for RD customers, employees, and trading partners, making the Web a main stream for doing RD business. The public will be able to access more information and services online. The
funds for this initiative will provide the continued support, enhancement of the common infrastructure hosting all applications for RD, regular software and hardware
maintenance and the daily costs for operations and security.
A net decrease of $347,000 in the OCIO Interagency e-Gov Funds. More of the
interagency e-Gov costs are becoming operational in nature and less infrastructure
related. Therefore, the amount of interagency e-Gov costs borne by the SCMI is de-

44
creasing. The e-Gov operational costs will be part of the service level agreements
between the ITS and the Service Center Agencies.
An offsetting decrease of $1,101,000 to reflect the permanent reduction of the fiscal year 2006 rescission from budget authority in fiscal year 2007.
Congressional support for the CCE initiative has been key to its success. As we
move forward with ITS, Congressional support will remain critical.
INFORMATION SECURITY

Mr. Chairman, for many years USDA has been remiss in its responsibility to meet
all Federal information security requirements. To address this situation, we have
significantly improved the posture of our security program. FISMA and OMB Circular A130 require all Federal agencies, including USDA, to certify and accredit
(C&A) their systems. This effort has improved our security plans, updated and corrected our security documentation, tested our networks and applications for security
weaknesses, and successfully engaged our business organizations in the discipline
of security management.
USDA IT security staffs are now in the process of addressing security issues that
arose through our C&A activities. Action plans have been establish to mitigate specific security weaknesses and implement improved controls, and to meet the FISMA
performance measures designed by OMB. Within the OCIO, we have established a
rigorous process to track these corrective actions and ensure they are completed in
a timely and efficient manner.
As USDAs information security program matures, automated tools are necessary
to quickly and efficiently address cyber risks. We continue to provide our agency security staffs with monitoring devices and automated patching processes that assist
in preventing disruption by intrusion or the introduction of malicious programs.
During fiscal year 2006, we will deploy an improved incident tracking systems help
us better manage and report detected breaches and we will continue to maintain
a rigorous security training and awareness program which requires annual participation by all USDA and contract personnel.
Through good preventative planning, such as system C&A combined with improving the Departments overall operational response to security Challenges, we are reducing the risk associated with the electronic use and delivery of USDA information
and services.
ELECTRONIC GOVERNMENT

Mr. Chairman, we continue to move aggressively to implement interagency and

interdepartmental services to support common needs. The primary goals of our approach are to reduce costs and improve the quality of interactions with our customers.
USDA, along with our partners in the other Federal agencies, has worked hard
over the past 5 years to simplify citizens access and interaction with their government. The results of these efforts are remarkable. Our efforts reduced the burden
on citizens, partners, and employees by simplifying access to the Departments information and services and streamlining internal processes. For example:
USDA helped citizens determine their eligibility for USDA benefits by incorporating
pre-eligibility
surveys
onto
a
government-wide
Web
site,
www.govbenefits.gov. Citizens are able to save time at a government office by completing the online survey in advance. They can learn ahead of time if they do not
have go to the office, thereby saving unnecessary travel time. USDA provides access
to 34 benefits programs on GovBenefits.gov. For the 12-month period ending August
2005, the site generated over 140,000 referrals to USDA State and Federal programs Web sites for more information.
USDA simplified citizens access to government recreational facilities through its
leadership in developing www.recreation.gov. The governments online service provides a single point of access to accurate information about Federal recreation destinations. Citizens using www.recreation.gov can access information from the Forest
Service, such as cabin/campsite materials, maps, facts and figures, and permit
forms. Soon, advance reservations for Forest Service facilities can be made online
through the National Recreation Reservation Service.
USDA gives businesses easy, online access to resources that help them understand how to meet the compliance requirements for regulations affecting them. Currently, 13 USDA agencies are using www.business.gov to provide businesses with
access to over 500 guidance resources and forms, plus compliance and regulatory information and relevant links.
We worked with our Federal partners at www.regulations.gov to make it easier
for the public to comment online about Federal regulations. The

45
www.regulations.gov currently allows citizens to search and provide comments online on all regulations open for comment. USDA employees benefit from streamlined
and consistent internal processes to review and process public comments. Currently,
four USDA agencies have successfully moved from paper-based processes to the Federal Docket Management System (FDMS). USDAs other rule-making agencies are
preparing to move to the online service in the near future.
USDA is a major geospatial data producer and contributor to the Federal Governments www.geodata.gov. The Geospatial One-Stop site provides online access to
geospatial data collected by the FSA, the Natural Resources Conservation Service,
and the Forest Service. This online access enables the public and other Federal
agencies to both avoid costs and realize cost savings. Recently, USDA added a link
to the National Agricultural Imagery Programs vast library so that researchers,
businesses, and the general public can now directly order data sets thus greatly improving the availability of this in-demand data.
We streamlined the process of locating grant opportunities and applying for
grants by working with our Federal partners to deploy a single, online access point
for over 900 grant programs across the Federal Government on www.grants.gov.
Citizens and business benefit through a simplified application process and reduced
paperwork as the result of using the online service. As of December 2005, USDA
had posted 404 funding opportunities and 57 application packages on
www.grants.gov. USDA has received 340 electronic applications from the grants
community via www.grants.gov.
We have adopted the tools and services provided by the Federal Governments Integrated Acquisition Environment (IAE). This improves our ability to make informed and efficient purchasing decisions across USDA and helped us eliminate
paper-based and labor-intensive processes. IAE allows us to avoid the cost of building and maintaining separate systems to post procurement opportunities and to
record vendor and contract information. Our purchasing officials have access to
databases from other Federal agencies on vendor performance.
USDA consolidated its disaster relief information by posting it on
www.disasterhelp.gov with similar information from agencies across the Federal
Government. First responders can search for assistance from across the government
in one place. USDAs disaster designations are prominently available on the site.
This makes it easy for citizens and businesses to locate this critical information.
The USDA eAuthentication Service currently protects more than 160 of our applications. USDA employees and customers use a secure, single sign-on to access these
applications, thereby reducing our customer support needs through improved security and usability. Every USDA employee that needs access to any of these integrated systems has a credential. USDAs eAuthentication Service was recently certified to be compliant with the government-wide standard for interoperability and
was approved as a government-wide service provider. We integrated our
eAuthentication Service with Exports.gov in December 2005.
Our National Finance Center (NFC) is one of four Payroll Partner Providers selected by the Office of Personnel Management. NFC has a 30-year track record providing payroll services to more than 130 Federal organizations, representing all
three branches of the government. Through the ePayroll Initiative, NFC is
partnered with the Department of Interiors National Business Center to provide
payroll services to approximately 50 percent of Federal employees.
NFC was selected as a Federal Government human resources service provider for
the Human Resources Management Line of Business. We provide services to the Department of Homeland Security, Library of Congress, and Government Accountability Office.
USDA proudly implemented a newly designed USDA Web site that presents the
Departments information and services by topic rather than on an organizational
basis (www.usda.gov). As part of our support of the Presidents Management Agendas promise of easy access to the government, customers may now easily locate
USDAs online information and services. No longer do they have to traverse multiple
agency Web sites to track down what they need. In addition, MyUSDA permits
visitors to customize USDAs site to provide immediate access to the information
they regularly want to see. Our visitors are pleased that our agencies are rapidly
adopting the USDA look and feel. Currently, 24 Web sites have moved to the Departments Web standards, and another 36 agency sites are in the process of doing
so.
USDA provided its employees with expanded educational opportunities by deploying AgLearn, www.aglearn.usda.gov, in partnership with the Office of Personnel
Managements, USALearningpart of the E-Training Presidential Initiative.
AgLearn provides employees around the world with access to a robust, competencybased library of courses. Geographically disparate offices are now able to easily col-

46
laborate in developing learning services to meet common needs and reduce costs.
Employees and managers have constant access to their training curriculum and
training records. In an average month, 20,348 employees completed 4,599 courses.
AgLearn currently offers more than 2,300 agency-specific courses.
Our enterprise approach prevented USDA agencies from making independent investments in multiple systems for each of these services and numerous others. In
addition, it greatly simplified the delivery of services to the public, unifying information from services from across the government.
ENTERPRISE ARCHITECTURE

Mr. Chairman, USDA is managing its enterprise architecture as an enterprisewide roadmap to achieve our mission within an efficient information technology environment. USDAs Enterprise Architecture Program identifies similar processes
and opportunities to unify IT solutions across our agencies. A Budget and Performance integration conceptual data model has been created to improve consistency
across Departmental systems. Information on Federal and USDA e-Gov architectures is being collected for easy dissemination throughout the Department. We are
also assembling the data needed, at both the Departmental level and within individual agencies, to better organize and analyze all our business processes, information needs, and supporting technologies. Through the Enterprise Architecture Repository, a shared view of the Departments current and future business and IT environment are available for USDA decision-makers to leverage IT services, avoid redundant IT investments, improve information security, and align technology and
business processes more closely to the Federal Enterprise Architecture.
The USDA Enterprise Architecture Program complements the Departments IT
Capital Planning and Investment Control (CPIC) process. USDAs central CPIC
body reviews, monitors and approves all major IT investments to ensure alignment
with the Departments strategic goals and objectives. The enterprise architecture
provides a formal basis for evaluating a single investment against other investments
in terms of its contribution to enhanced delivery of customer services and opportunities for collaboration and reuse. In addition to strengthening the CPIC process, the
EA will enable USDA to improve key Department-wide enterprise hardware, software, and service agreements. In addition, USDAs E-Board reviews and makes
final approval decisions regarding the Departments IT investment decisions. This
board is comprised of the Under-Secretaries of the various Mission Areas. It is
chaired by the Deputy Secretary.
IT MANAGEMENT

Mr. Chairman, we at USDA understand our responsibility to manage our IT assets and to ensure that major IT investments are completed on time, and within
scope and budget. To support these responsibilities, USDA established an IT Investment and Project Management training program. This program provides project
managers and project staff with the skills and competencies needed to ensure that
all projects have a strong business case, meet organizational goals and are completed within their established cost and schedule goals. This training covers Federal
best practices such as capital planning and investment control, information assurance, project management (PM), enterprise architecture, acquisition, eGovernment,
and telecommunications issues as well as the nine knowledge areas specified by the
Project Management Institute (PMI) in the Project Management Body of Knowledge,
the industry standard for project management training. At the end of the training,
participants are eligible to take the examination administered by PMI for certification as a Project Management Professional (PMP). This training has provided us
with a growing number of PMI-certified project managers. Currently, USDA has 200
PMPs.
To supplement the 5-week PM training, we have identified and delivered shorter
classes to address more specific needs including: Earned Value Management, the
Project Management Lifecycle (a high-level PM introduction) and PerformanceBased Acquisition. These classes expand the level of understanding of PM concepts
and ensure that the skills of our trained PMs are kept up to date.
We believe that all agencies can benefit from this training and that USDA staff
benefit from understanding other agencies experiences. In addition to USDA employees, we have trained staff from the Environmental Protection Agency, the Department of Treasury, the Department of Homeland Security and the Department
of Education.

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CONCLUSION

Mr. Chairman, as I mentioned earlier, we are working hard to use technology to

transform service delivery to USDA customers while reducing costs. With the continued support of the Congress, I am confident that we will continue to be successful
in achieving these objectives.
PREPARED STATEMENT OF JAMES MICHAEL KELLY, DEPUTY GENERAL COUNSEL,
OFFICE OF THE GENERAL COUNSEL
INTRODUCTION

Mr. Chairman and members of the Subcommittee, I am pleased to have this opportunity to present our fiscal year 2007 budget request, provide you with an overview of our agency, and address some of the current activities and issues facing the
Department.
The Office of the General Counsel (OGC) is the law office for the Department. As
an independent, central agency within the Department, OGC determines legal policy
and provides legal advice and services to the Secretary of Agriculture and other officials of the Department of Agriculture with respect to all USDA programs and activities.
OGC(s services are provided through 14 Divisions in Washington, D.C. and 17
field locations. The headquarters for OGC is located in Washington, D.C. The Office
is directed by a General Counsel, a Deputy General Counsel, a Director for Administration and Resource Management, and six Associate General Counsels. The attorneys located in headquarters are generally grouped in relation to the agency or
agencies served. Our field structure consists of four regional offices, each headed by
a Regional Attorney, and 13 branch offices. The field offices typically provide legal
services to USDA officials in regional, State, or local offices.
CURRENT ACTIVITIES AND ISSUES
INTERNATIONAL AFFAIRS AND COMMODITY PROGRAMS DIVISION

During this past year, OGC has provided a significant amount of assistance in
connection with USDAs international activities. With respect to World Trade Organization (WTO) matters, OGC worked extensively with the Office of the United
States Trade Representative (USTR) to prepare the United States brief in support
of its claims challenging the European Communities (EC) suspension of approvals
of all applications for biotech products. This action is being brought under the WTO
Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). The United States also challenged nine safeguard measures that have been
enacted by six EC member States banning several biotech products that were already approved for sale in the European Union (EU) prior to 1998. The United
States contended that the EU has imposed undue delay in connection with product
approvals in violation of Article 8 of the SPS Agreement; has not made decisions
based on risk assessments as required under Article 5.1; and has violated Article
5.5 which prohibits Members from adopting arbitrary or unjustifiable distinctions in
their level of protection in different but comparable situations. A confidential interim report was issued by the WTO in this case on February 7, 2006. OGC attorneys have also continued to provide support to the USTR in connection with the
challenge brought in the WTO by the Government of Brazil against virtually all aspects of the Departments domestic and export-related cotton programs. This case
has major implications for the manner in which these programs are administered
regarding cotton, and the legal principles at stake may also affect other commodity
programs.
In other WTO matters, OGC attorneys have provided advice to Departmental officials, primarily those in the Foreign Agricultural Service (FAS), with respect to various sanitary and phytosanitary issues, including reviewing responses to WTO notifications of proposed regulatory changes. These attorneys also advised FAS personnel in the review of various proposed changes to existing WTO agricultural provisions that would be the framework for future WTO negotiations.
During the past year, OGC has also been involved in the implementation of a
large number of foreign assistance agreements under which agricultural commodities acquired by the Commodity Credit Corporation (CCC) are donated overseas.
This includes involvement in relief efforts addressing the humanitarian needs in
Iraq and the Darfur region of Sudan. This work has involved extensive review of
draft agreements, commodity procurement agreements, ocean transportation issues,
and cargo loss and damage claims. OGC has also provided legal advice to FAS in

48
relation to the operation of the Bill Emerson Humanitarian Trust through which reserves of commodities may be made available to meet unanticipated emergency
needs and has assisted CCCs Kansas City Commodity Office in reviewing the commodity procurement processes under which agricultural commodities are acquired
for their donation overseas. In the area of international food assistance, OGC reviewed and helped draft numerous agreements with private voluntary relief organizations, the World Food Program of the United Nations, and various foreign governments. This assistance included a combination of donations and concessional credit
sales of grains, oilseeds, and other U.S. agricultural commodities.
The Trade Adjustment Assistance Program for Farmers has also continued to require a significant amount of assistance from OGC attorneys. In general, this program assists agricultural producers who have incurred reductions in commodity
prices due to increased imports of agricultural products into the United States as
the result of trade agreements. At this point, a substantial number of appeals have
been filed with the U.S. Court of International Trade challenging FASs decisions
on applications for payment. OGC attorneys are providing assistance to the Department of Justice (DOJ) in responding to these appeals.
OGC also provides advice to FAS concerning cost-reimbursable agreements entered into by FAS and other USDA agencies with foreign governments or other U.S.
government agencies that are engaged in international agricultural activities.
During the past year, OGC attorneys provided extensive assistance with respect
to the numerous commodity and conservation programs implemented by the Department under various statutes, including the Agricultural Adjustment Act of 1938, the
CCC Charter Act, the Food Security Act of 1985, and the Farm Security and Rural
Investment Act of 2002. Most notably, with respect to 2004 hurricanes, OGC provided major support to the efforts of the President to provide assistance to agricultural producers affected by the unprecedented damage in Florida caused by the occurrence of 3 successive hurricanes. Working with senior Departmental officials and
representatives of the Executive Office of the President, OGC attorneys were able
to provide the legal framework under Section 32 of the Act of August 24, 1935 (Section 32) so that payments could be made to producers within weeks of the hurricane
damage. Similarly, OGC has provided legal advice to the Farm Service Agency
(FSA) in the development of regulations and program documents needed to deliver
several billion dollars of disaster assistance payments to producers under the Military Construction Appropriations and Emergency Hurricane Supplemental Appropriations Act, 2005, and under Section 32 with respect to Hurricanes Ophelia, Dennis, Katrina, Rita, and Wilma. OGC also continues to expend considerable time in
providing assistance on legal issues involving the sugar, peanut, and dairy programs.
Title VI of the America Jobs Creation Act sets forth amendments to existing statutes to terminate the Tobacco Price Support and Marketing Quota Programs. In addition, this act establishes a 10-year, $10 billion program to provide payments to
tobacco quota holders and tobacco producers with the funds coming from assessments on tobacco product manufacturers and importers. Implementation of this very
complex and important program is requiring the substantial devotion of assistance
by OGC.
FOOD AND NUTRITION DIVISION

With respect to USDAs nutrition assistance programs, OGC has been heavily involved in: (1) the development, drafting and review of legislative reports and congressional testimony; (2) the implementation and enforcement of new legislation
aimed at welfare reform and other program improvements; and (3) the ongoing program integrity and compliance initiatives. We expect the demand for legal services
in connection with these and other activities to remain constant in fiscal years 2006
and 2007.
More specifically, during this past year, OGC attorneys provided formal and informal advice on a number of issues affecting the administration of the nutrition assistance programs. OGC provided assistance in the drafting and subsequent enactment of section 780 of the Consolidated Appropriations Act, 2005, which prohibits
the use of funds appropriated under that act to reimburse the administrative costs
of States under the Special Supplemental Nutrition Program for Women, Infants
and Children (WIC) for stores that receive more than 50 percent of their revenue
from WIC transactions. This prohibition represents a significant cost savings for the
WIC Program. OGC also worked effectively in the development of legislative proposals to limit categorical eligibility for the Food Stamp Program (FSP) to persons
who receive actual cash benefits under the Temporary Assistance for Needy Families program and to authorize access, for program verification purposes, to the Na-

49
tional Directory of New Hires. These legislative proposals supported the budgetary
objectives of the administration. OGC also provided advice to the Center for Nutrition Policy and Promotion in connection with roll-out activities with respect to 2005
Dietary Guidelines for Americans and the associated MyPyramid.
During the past year, OGC assisted in the defense of several legal challenges to
the nutrition assistance programs. Among other issues, OGC worked closely with
the DOJ Antitrust Division in the preparation of a lawsuit to challenge the merger
of two dairy companies which would have severely restricted competition in the procurement of milk contracts for the National School Lunch Program in Arkansas and
substantially contributed to the successful defense against allegations of denial of
due process raised by a Child and Adult Care Food Program sponsor.
OGC participated in the preparation and review of numerous significant documents, memoranda, rules, notices, and correspondence during this past year. As examples, OGC reviewed a substantial number of proposed and final Federal Register
publications, including: (1) interim and final rules establishing new standards for
the approval and operation of FSP electronic benefit transfer systems; (2) a proposed
rule to amend the FSP regulations to implement the discretionary quality control
provisions of Title IV of Public Law 107171; (3) a proposed rule to revise regulations governing WIC food packages; and (4) a final rule to amend WIC regulations
to address issues raised by WIC State agencies, members of the WIC community
and the U.S. Government Accountability Office. Similarly, OGC provided legal review of the documentary basis for the Departments nutrition assistance response
to disaster conditions caused by hurricanes Katrina, Rita, and Wilma along the Gulf
Coast.
OGC also provided advice on a number of issues affecting the efficient administration of the nutrition assistance programs. OGC provided valuable assistance and advice to Department officials regarding the preparation of a joint letter signed by the
Secretaries of Agriculture and Health and Human Services issuing guidance to
State Governors regarding the eligibility of faith-based drug and alcohol abuse treatment programs to act as retail food stores under the FSP. This effort required close
coordination with the White House Counsels Office and Office of Faith-Based and
Community Initiatives, as well as the Office of Management and Budget. OGC provided legal advice to FNS in connection with the denial by FNS of the request of
a State school district to impose gender-specific seating requirements in cafeterias
operated under the National School Lunch Program. OGC also worked closely with
Department officials in the review of a State proposal for the fundamental restructuring of the FSP application process with a focus on improved efficiency and effectiveness of the delivery of program benefits. This review required careful analysis
of authorities related to electronic signatures and record-keeping and to authorities
regarding merit pay requirements for State officials involved in the certification of
applicants. OGC continues to work closely with Department officials engaged in
evaluating and sanctioning States for their performance in administering the FSP
under the quality control system.
MARKETING, REGULATORY AND FOOD SAFETY PROGRAMS

OGC staff are providing the strongest possible legal support to the Food Safety
and Inspection Service (FSIS) to ensure the safety of the Nations meat, poultry, and
egg products. We participate fully in the agencys work to enhance the effectiveness
of the Hazard Analysis and Critical Control Points (HACCP)/Pathogen Reduction
regulations, to support effectively the agencys compliance and enforcement program, and to defend FSIS in legal challenges to the implementation of its statutory
authorities and regulations.
OGC attorneys continue to work with DOJ attorneys in defending civil actions
that have been initiated in Federal court against the Department involving FSIS
food safety programs. One such case involves a Bivens complaint filed by Nebraska
Beef in the District Court for the District of Nebraska alleging that FSIS employees
improperly suspended inspection services. Nebraska Beef has also filed a related
lawsuit in Federal court challenging FSIS enforcement actions. A second case involves a Bivens complaint filed by Montana Quality Foods in the District Court for
the District of Columbia alleging that FSIS employees took retaliatory action in enforcing FSIS policy regarding E. coli O157:H7 contamination.
OGC also provides assistance to FSIS in connection with its rule making activities. Our attorneys work with FSIS staff from the early stages of the agencys policy
development activities, and participate in an array of agency working groups and
regulation development teams. OGC has assisted FSIS in connection with ongoing
rule making to strengthen protections against exposure to the bovine spongiform
encephalopathy (BSE) agent. The interim rules require the removal of certain ani-

50
mals and specified risk materials from the human food chain, mandate additional
process controls for establishments that use advanced meat recovery systems, require establishments to hold meat from cattle that have been tested for BSE until
the test has been confirmed negative, and prohibit the air-injection stunning of cattle. We are working with the agency in developing a final rule that will encompass
a careful evaluation of the comments submitted in response to the interim rule.
OGC also assisted FSIS on an array of rules, notices and directives aimed at improving the Departments food safety program. The issues involved included safe
food handling practices, food security plans, and emergency preparedness, and revisions to the agencys recall procedures to improve the dissemination of recall information. We also worked with FSIS and the Food and Drug Administration (FDA)
to amend food standards and regulatory requirements to provide a more coherent
approach to food safety.
OGC devotes substantial resources to FSIS field operations activities and its critical compliance and enforcement programs. Our attorneys work on a daily basis
with the agencys compliance and enforcement staff officials, with the Office of Inspector General (OIG), and with DOJ to achieve successful prosecution of criminal,
civil and administrative cases involving violations of the meat, poultry, and egg
products inspection laws, and to prevent the distribution of adulterated, misbranded, or uninspected products.
In the past year, OGC handled numerous criminal, civil, and administrative cases
in this area. The criminal cases involve not only violations of the Federal Meat Inspection Act (FMIA) and Poultry Products Inspection Act (PPIA), but also violations
of provisions of U.S. criminal laws relating to false statements, bribery, conspiracy,
and mail and wire fraud. The civil cases involved injunctions, seizure actions, bankruptcy and claims collections actions and the defense of civil lawsuits brought
against the Department and its officials. Typically, OGC prepares proposed indictments, information and complaints, and provide whatever assistance is necessary
for the successful prosecution or defense of the cases.
OGC attorneys are responsible for prosecuting administrative actions initiated by
FSIS to withdraw, suspend or deny Federal meat and poultry inspection or custom
exemption services under the FMIA and PPIA based on criminal convictions, as well
as on serious HACCP and Standard Sanitation Operating Procedures (SSOP) regulation violations.
The Departments programs for safeguarding the animal and plant health of the
United States is a matter of utmost importance to American agriculture and to the
public as a whole. OGC works very closely with the Animal and Plant Health Inspection Service (APHIS) in carrying out that agencys program responsibilities.
APHISs program and regulatory activities continue to increase substantially. The
focus of our work with APHIS remains the development and implementation of legally supportable measures to prevent the introduction and dissemination of animal
diseases and plant pests, to ensure the safe entry of people and goods into the
United States, and the facilitation of agricultural trade in compliance with our
international obligations. The demands on OGC staff for timely and effective legal
support continue to increase proportionately.
During the past year, APHIS regulatory activities involving BSE have placed extraordinary demands on our attorney resources. Among the many challenging issues
requiring extensive assistance was the agencys regulatory response to BSE in North
America, particularly the litigation that followed on the publication of the rule to
establish BSE minimal-risk regions. In addition, we assisted APHIS in its work on
Asian longhorned beetle, emerald ashborer, grasshopper control, sudden oak death
syndrome (SOD), control programs for low-pathogenic avian influenza, bovine tuberculosis, chronic wasting disease, and exotic Newcastle disease.
In addition, requests for OGCs assistance in connection with APHIS regulation
of biotechnology has continued to increase, and we have devoted substantial resources to the biotechnology regulatory programs and the implementation and enforcement of agency regulations. This includes defending litigation challenging the
agencys regulation of genetically modified turf grasses.
OGC also handles a very substantial caseload of administrative cases on behalf
of APHIS to enforce the agencys regulations. OGC attorneys have also continued
our strong support for APHIS Wildlife Services activities and programs and have
defended these programs in a variety of litigation settings in the Federal courts.
In the past year, OGC attorneys reviewed over 150 dockets, as well as many other
documents relating to marketing orders, and provided daily legal advice to client
agencies in connection with a wide variety of matters arising under both the fruit
and vegetable and the milk marketing order programs. Substantial legal services
were devoted to both formal and informal rulemakings. Formal rulemaking proceedings presented complex and substantial amendments and revision to a number

51
of marketing order programs. Significant legal services were provided in connection
with enforcement and defense of these programs. There is one administrative challenge to the legality of the California Raisin marketing order which is pending. In
addition, OGC has filed numerous administrative complaints to enforce the terms
of marketing orders which require regulated entities to pay their assessments and
to comply with the requirements in the order. Significant legal services were provided in connection with an administrative challenge to classification determinations concerning Class I and Class II milk. There are also a number of complaints
pending in the Federal courts filed by DOJ in order to obtain payments from milk
handlers into the producer-settlement fund.
An extensive amount of legal services was provided in the drafting of regulatory
language in various rulemaking proceedings. OGC continued to provide legal assistance to the Agricultural Marketing Service (AMS) Dairy Programs on several rulemaking proceedings in the Mideast, Upper Midwest and Central Orders which provided for changes to the milk pooling standards and related issues. OGC continued
work on the ongoing rulemaking proceeding involving potential changes in the producer-handler definition in the Pacific Northwest and Arizona-Las Vegas Orders including review of the recommended decision. OGC completed work on the amendment of the Appalachian, Florida, and Southeast Florida Orders to implement a
temporary supplemental charge on Class I milk to be paid to handlers who incurred
extraordinary transportation charges for moving milk to supply those markets because of the hurricanes in August and September 2005. OGC also completed work
on changes to all the orders to reclassify milk used to produce evaporated milk and
sweetened condensed milk in consumer-type packages from Class III to Class IV.
OGC provided legal services on a rulemaking proceeding to amend the Class I fluid
milk product definition in all milk marketing orders.
OGC continued to provide legal assistance to DOJ and the client agencies in numerous administrative and Federal court cases involving challenges to the constitutionality of generic advertising funded by mandatory assessments in research and
promotion programs. Since the United States Supreme Court May 2005 ruling upholding the constitutionality of the Beef Promotion and Research Act, in Veneman
v. Livestock Marketing Association, USDA is advancing those same arguments in
defense of the other challenged research and promotion programs. All research and
promotion programs continue to receive legal services in the intervening period. For
example, OGC expended substantial resources litigating more than 100 administrative and Federal court First Amendment cases arising under research and promotion programs. These cases involve some of the most important, complex, and
controversial legal and public policy issues in constitutional and agricultural law.
Research and promotion programs cumulatively collect and spend over $700 million
a year on commodity promotions. OGC also provided extensive legal analysis for a
proposed implementation of a new research and promotion program for mangos.
OGC expended substantial resources in connection with the Animal Welfare Act
and Horse Protection Act Programs. OGC attorneys serve as agency counsel in administrative enforcement actions brought under these two statutes, and in fiscal
year 2005, OGC initiated 46 enforcement cases, and 49 decisions were issued in ongoing cases. In addition, OGC reviewed and provided drafting assistance to APHIS
in a number of rulemaking actions for publication in the Federal Register.
OGC reviewed a variety of rulemaking and other documents in connection with
this program. OGC continued to work with and advise the agency concerning program changes to better serve the grain industry in a more cost effective and efficient
manner. OGC attorneys provided substantial advice and guidance in connection
with a number of issues, including reauthorization of the program, use of contracting authority to provide inspection and weighing services and exemption of speciality grain from inspection and weighing requirements.
In the Trade Practices area, we provide legal services under the Packers and
Stockyards Act (P&S Act), the Perishable Agricultural Commodities Act (PACA),
and the Capper-Volstead Act and provide the liaison for the Department under the
Memorandum of Understanding between the Department, the Federal Trade Commission and the DOJ on competition issues. Under the P&S Act, the attorneys of
the Trade Practices Division file administrative complaints to enforce the provisions
of the statute, requiring prompt payment for livestock and poultry and ensuring
that livestock auction markets and dealers are solvent, provide accurate weights
and measures, and account accurately to sellers and producers of livestock.
In 2005, OIG conducted an audit of the competition investigations and cases conducted by the Packers and Stockyards Program (P&SP). After several months, OIG
issued a report finding that P&SP had difficulties defining and tracking investigations, planning and conducting competition and complex investigations, and making
agency policy decisions. As a result, the report found that P&SPs tracking system

52
was not reliable, competition and complex investigations were not being performed,
and timely action was not being taken on issues that impact day-to-day activities.
The report also found that P&SP should increase its communication and cooperation
with OGC. As a result of the reports findings, GIPSA has requested OGCs assistance in streamlining procedures and in training its staff, and P&SP is seeking oral
opinions and legal guidance on a more frequent basis.
OGC has provided extensive legal services in support of the GIPSA program in
a case against Valley Pride Pack, Inc., (Valley Pride), a beef slaughter and meat
processing company with its corporate headquarters and principal place of business
in Norwalk, Wisconsin. Valley Pride shut down, leaving cattle sellers unpaid for
roughly $3.5 million worth of livestock purchases from late July and early August
2001. Following Valley Prides financial collapse, OGC assisted in preparing an
analysis of unpaid livestock sellers claims pursuant to the P&S Act trust, which requires meat packers to hold inventories, receivables and proceeds from the sale of
meat or livestock derived products in trust for the benefit of livestock sellers. The
analysis found $3.4 million in apparently valid, timely claims by cattle sellers.
These claims were subsequently paid by Valley Prides primary pre-petition lender,
GE Capital, which held a security interest in Valley Prides inventory and receivables. Cattle sellers received additional funds from Valley Prides packer bond. Following the trust and bond payouts, approximately sixty-five cattle sellers remained
unpaid for roughly $50,000 worth of cattle purchased by Valley Pride. On behalf of
GIPSA, OGC filed an administrative, disciplinary complaint against Valley Pride alleging failures to make timely payment for cattle purchases, and naming the companys sole owner and chief executive officer, as a respondent, alleging that the violations of the P&S Act occurred while the company was under his direction, management and control. After GE Capital made allegations of fraud, OGC amended the
complaint against Valley Pride and the companys sole owner, alleging that the respondents had engaged in unfair and deceptive practices by creating false records,
including invoices and payment receipts, evidencing cattle and/or meat sales by Valley Pride to third parties for which no sales actually occurred. Millions of dollars
in fictitious assets had been used to offset real liabilities in Valley Prides financial
reports, thereby disguising the companys insolvency. At the end of the fiscal year,
the parties were seeking resolution of the complaint through an agreement that
would result in the full payment to all livestock sellers. On January 30, 2006, just
prior to the scheduled hearing for GIPSAs administrative complaint against Valley
Pride and the companys owner, the case was resolved by a negotiated consent decision. Respondents, Valley Pride and the companys owner, agreed to cease and desist from further violations of the Packers and Stockyards Acts prompt payment
provisions and agreed to keep records that fully and correctly disclosed all transactions in their business. Valley Pride and the companys owner were also jointly
and severally assessed a civil penalty of $80,000. By agreement between the parties,
GIPSA agreed to hold $55,000 of the civil penalty in abeyance to facilitate payments
by respondents to cattle sellers who still remained unpaid for cattle purchases by
Valley Pride.
OGC has also provided legal services to GIPSA in the review of the plan and data
request for the Livestock and Meat Marketing Study (LMMS), a study requested by
Congress to review the impact of long term contracting and use of captive supply
by slaughtering packers. Captive supply is defined by P&S Programs as livestock
that are committed to a packer more than 14 days prior to slaughter. The study
was to review the question of whether such longer term commitment impacts the
spot or cash market for livestock. OGC assisted P&S in the preparation of the information collection request for Departmental and OMB clearance, meeting with
OMB officials on a number of occasions to address OMBs concerns regarding the
agencys plans for the study and the treatment of confidential data.
Trade Practices attorneys prepared and filed administrative enforcement actions
under the PACA. Of particular significance, the Trade Practices Division has continued to litigate administrative disciplinary cases arising out of the criminal convictions of eight USDA inspectors and 12 individuals who were owners and/or employees of PACA licensed produce firms located on the market. Fruit and Vegetable Programs of AMS filed eight disciplinary complaints against nine produce companies
located on the Hunts Point market: (1) Post & Taback, Inc., (2) M. Trombetta &
Sons, Inc., (3) Coosemans Specialties, Inc., (4) KOAM Produce, Inc., (5) King Sol
Produce, (6) BT Produce Co., Inc., (7) Kleiman & Hochberg, Inc., (8) G&T Terminal
Packaging Co., Inc. and (9) Tray Wrap, Inc. The complaints alleged that the companies, which by statute are held to an identity of action with their employees or
agents, had violated section 2(4) of the PACA by making illegal payments to Federal
produce inspectors. Seven of the complaints sought a sanction of revocation of the
companys PACA license. One complaint sought a sanction of a finding of the com-

53
mission of flagrant or repeated violations of section 2(4) of the PACA, rather than
a revocation, because the company no longer had a PACA license. The sanctions
sought also include employment sanctions against the principals of the nine produce
firms.
One of the eight cases, King Sol Produce, was decided by default. The remaining
seven cases went to hearing before the Departments Administrative Law Judges
(ALJs), who have issued decisions in all seven cases (though the Respondent in BT
Produce Co., Inc., has asked the Chief ALJ for reconsideration). Six of the ALJ decisions were appealed to the Departments Judicial Officer (JO), who has decided four
of them (Post & Taback, Inc.; G&T Terminal Packaging Co. Inc.; Tray Wrap, Inc.;
and M. Trombetta & Sons, Inc.), finding that the companies committed the alleged
violations and issuing the sanctions requested by Fruit and Vegetable Programs.
G&T Terminal Packaging Co., Inc., and Tray Wrap, Inc., has been appealed to the
2nd Circuit Court of Appeals. One case, Post & Taback, Inc., was appealed to the
U.S. Court of Appeals for the D.C. Circuit, which upheld the JOs decision (Post &
Taback, Inc. v. Department of Agric., 123 Fed Appx. 406 (D.C. Cir. 2005).
Also in support of the PACA Program, OGC and DOJ continued to defend against
a challenge to an amendment of a PACA regulation that added coating or battering
to the list of operations that do not alter the character of a fresh fruit or fresh vegetable so that it is no longer a perishable agricultural commodity. The lawsuit, filed
by a bankrupt wholesale grocer and retailer, argues that the regulatory amendment
conflicts with the language and purpose of the PACA, and that the rulemaking process was inadequate. On June 7, 2004, a judge in the U.S. District Court for the
Eastern District of Texas granted USDAs Motion for Summary Judgment. The
judge found that the PACA ambiguously states that fresh fruits and vegetables of
every kind and character are perishable agricultural commodities and that, where
legislative language is ambiguous, the Secretary is granted the authority to issue
regulations to determine what may be classified as fresh fruits and vegetables for
the purposes of the PACA. The judge also found that USDA followed the appropriate
procedural requirements in amending the regulation. Therefore, the court found
that the amendment to the regulation is valid. The grocer/retailer appealed the decision to the 5th Circuit Court of Appeals. Oral argument was held in New Orleans,
Louisiana, on April 5, 2005. On February 1, 2006, the 5th Circuit Court of Appeals
issued an unpublished decision affirming the decision of the U.S. District Court for
the Eastern District of Texas upholding the validity of the amendment to the regulation. In its brief decision, the 5th Circuit affirmed, finding the regulation to be
valid for the reasons articulated by the district court in its comprehensive opinion.
RURAL DEVELOPMENT

OGC also provides legal services to USDA agencies which manage some of Americas largest loan portfolios. OGC continues to be heavily involved in debt collection,
foreclosure, and bankruptcy matters for FSA, Farm Loan Programs and the Rural
Development (RD) mission area. OGC is assisting these agencies implementation of
provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of
2005 that became effective on October 17, 2005, and greatly affected USDA as a
creditor. OGC also has provided significant assistance in identifying and utilizing
existing and new emergency authorities, responding to claims, and coordinating benefits in response to the many disasters that have recently impacted the southern
United States including Hurricanes Katrina and Rita. OGC also has supported the
agencies efforts to implement eGovernment initiatives and move towards web-based
credit application, servicing, and notification procedures.
OGC continues to defend approximately 300 existing and newly filed lawsuits involving approximately 800 RD multi-family housing projects whose owners want to
prepay their loans and, thereby, remove a significant number of low-income housing
units from rural America. OGC has devoted significant time and resources to working closely with DOJ to support litigation efforts, particularly in providing information and analysis in the context of settlement negotiations.
OGC is working extensively with the Rural Housing Service (RHS) on implementing several new programs. The Multi-Family Housing Preservation and Revitalization Restructuring Demonstration Program (Revitalization Program) will revitalize selected Rural Rental Housing (RRH) properties throughout the Nation. The
Revitalization Program allows for loan servicing tools previously unavailable to RHS
such as grants and subordinates section 515 loans with all principal and interest
deferred as a balloon payment at the end of the loan term.. OGC is currently working with RHS on drafting the Notice of Funding Availability and the legal documents necessary for restructuring the owners loans. The Multi-Family Housing
Voucher Demonstration Program (Voucher Program) will provide continued rental

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assistance to low-income households in prepaid RRH projects. RHS is providing continued rental assistance in the form of 1-year portable vouchers. OGC is working
with the Department of Housing and Urban Development and RHS in drafting a
Notice of Funding Availability and Interagency Agreement for the Voucher Program.
OGC also assisted RHS in developing its Preservation Revolving Loan Fund program which was authorized as a demonstration program under the Agriculture,
Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2005.
OGC also has assisted the Rural Business-Cooperative Service (RBS) on various
new and continuing initiatives. OGC reviewed RBS final rules implementing the
new Energy Systems and Energy Efficiency Improvements Program and the Biomass Research and Development Program under the Farm Security and Rural Investment Act of 2002. OGC also provided RBS legal assistance in revising its Business and Industry loan regulations. RBS has needed increased support on secondary
market issues and its Rural Business Investment Program that funds rural area
venture capital investment activities. In addition, OGC is providing significant support on several major defaults on guaranteed Business and Industry loans and negligent servicing by guaranteed lenders. OGC continues to experience a significant
increase in requests for advice regarding various grant and cooperative agreement
issues, and is assisting RBS and RHS implementation of the Presidents FaithBased and Community Initiative to ensure that faith-based and community organizations have equal access to USDA programs.
The need for legal services supporting the programs of the Rural Utilities Service
(RUS) continued to grow significantly in fiscal year 2005 as a result of sustained
increased funding for RUS programs, increased responsibilities for RUS resulting
from the passage of the Farm Security and Rural Investment Act of 2002, and the
impact of continuing changes in the electric and telecommunications program structures and policies.
The RUS Electric Program is the largest of these programs. Several of these loans
involved large-scale generation and transmission projects. OGC furnishes the legal
services necessary for RUS to document and secure these obligations, thereby enabling these programs to be delivered. OGC is providing a full range of legal services
to RUS to enable successful administration of these programs, including the servicing of a direct and guaranteed loan portfolio.
The 2002 Farm Bill amended the Rural Electrification Act of 1936 by adding a
new Title VI which established a Broadband Direct and Guarantee Loan Program
(Broadband Program) in RUS. The RUS Broadband Program plays a critical role in
implementing the Presidents initiative to make access to broadband technology
available to every American by 2007. OGC furnishes all legal services necessary to
establish and maintain this program. Since the beginning of this program in February 2003, OGC has furnished all legal assistance needed by RUS in approval of
all loans. During fiscal year 2005, OGC improved the legal documentation packages
necessary to protect the governments financial interests in these transactions. During fiscal year 2005, OGC began assisting RUS and DOJ in collecting obligations
from telecommunications borrowers aggregating approximately $50 million. The
bulk of these obligations to the Broadband and Internet Services Programs were established as pilot programs in 2001. The volume of pilot projects in legal collection
is expected to continue growing in fiscal year 2006 and carry over into fiscal year
2007 as an increasing number of pilot projects default.
The 2002 Farm Bill also established a new guarantee program under Section
313A of the Rural Electrification Act which provides for RUS to issue guarantees
of bonds and notes issued by lenders to electric cooperatives. OGC assisted RUS in
developing the regulations to implement this new program. OGC provided substantial legal assistance to RUS in developing the legal documentation that enabled
RUS to deliver its first guarantee. OGC efforts to provide legal support to RUS for
administering these guarantee agreements will continue into fiscal year 2007.
In addition to the new Broadband Program, OGC is providing legal services to
support several other new RUS initiatives. OGC also supports the RUS mission by
providing legal services to RUS that enable the agencys participation in the Rural
Telephone Bank (RTB). During fiscal year 2005, RTBs demand for OGC legal services to support the process of dissolving the public/private RTB rose dramatically.
As proposed in the 2007 Presidents budget, RTB is expected to be dissolved by fiscal year 2007. However, the complex process of winding up the affairs of RTB is
expected to continue to place significant demands on OGC legal resources beyond
the dissolution and distribution of RTB stock proceeds to the shareholders that is
scheduled to occur during fiscal year 2006.
Congress recently amended the Rural Electrification Act of 1936 to add new authority for RUS, in collaboration with the Department of the Treasury, to extend

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the maturities for outstanding loans associated with power plants and transmission
lines which have been determined to have longer useful lives, e.g. in the case of a
nuclear plant whose license has been extended by the Nuclear Regulatory Commission (NRC) for an additional 20-year term. The documentation and procedures for
implementing this new authority, which also involves assessing a fee for this service, will need to be developed. OGC anticipates this program will be used extensively during fiscal year 2007.
OGC continues to provide significant assistance in the area of Federal crop insurance. OGC supports DOJ in defending several multi-million dollar lawsuits brought
by insured farmers and companies reinsured by the Federal Crop Insurance Corporation (FCIC). These suits involve a wide variety of issues government committed
an error or omission as to its 2000 sugar beet policy. OGC also is providing a great
deal of support to the Risk Management Agency (RMA) with regard to the financial
collapse and liquidation of one of its largest insurance providers, implementation of
new risk management programs developed by the private industry, and responding
to new and emerging diseases and the spread of existing diseases. OGC also is assisting RMAs development of a new combo policy that incorporates the provisions
of the actual production history and various revenue plans of insurance into a single
policy, and updates of numerous other crop insurance policies.
Implementation of the Agriculture Risk Protection Act of 2000 continues to increase the responsibilities of RMA and OGC. Compliance efforts have included the
development of administrative disqualification, suspension, and debarment actions
against producers, agents, loss adjusters, reinsured companies and the update of associated regulations. OGC also is assisting RMAs development of conflict of interest
requirements for reinsured companies, agents and loss adjusters and reviewing administrative actions to alleviate fraud, waste and abuse in the program.
OGC continues to work with Department officials to reduce regulatory burdens
and eliminate obsolete and unnecessary regulatory requirements, particularly in the
areas of rural development, farm, and utility lending. Increased OGC assistance has
been required in the defense of several significant civil rights actions against FSA
and RHS and the continued implementation of the Pigford consent decree. We are
assisting RHS and FSA in streamlining and rewriting loan-making and servicing
regulations for the Guaranteed Single Family Housing Loan Programs, the Community Facilities Loan and Grant Programs, and the Farm Loan Programs. Our efforts
on these long-range projects will continue into fiscal year 2007.
NATURAL RESOURCES

OGC continues to provide substantial legal assistance related to Forest Service

(FS) land management planning and program area compliance with environmental
and administrative laws and regulations. Litigation involving agency compliance
with the National Environmental Policy Act (NEPA), the National Forest Management Act (NFMA) and the Endangered Species Act (ESA) continues apace, with approximately 170 cases pending at the end of fiscal year 2005, the same level as the
previous year. OGC anticipates this level of litigation to continue or increase. Examples of litigation regarding program matters and regulatory actions include litigation related to the National Fire Plan, the State Petition Rule regarding roadless
areas, the Planning Rule, the Northwest Forest Plan, the Sierra Nevada Framework
and the Healthy Forest Restoration Act. Project level litigation involves among other
things, timber sales, grazing permits, and special use authorizations.
OGC has provided extensive assistance regarding the preparation and defense of
the FSs 125 Land and Resource Management Plans. Significant legal services were
provided in association with development of interim direction and other guidance respecting the agencys revised NFMA planning regulation. The implementation of the
revised NFMA planning regulations is underway in forest plan revisions, requiring
a heavy investment of OGC legal services. OGC continues to devote substantial time
and resources to assisting the FS with large-scale planning initiatives and project
preparation.
USDA and FS efforts regarding the Presidents Healthy Forests Initiative and the
Healthy Forests Restoration Act have also required significant assistance from
OGC. This initiative will continue to require a substantial investment of OGC time
and effort in defending agency reforms associated with this initiative. Numerous
lawsuits are ongoing that challenge these reforms.
OGC continues to provide legal advice to ensure FS and Natural Resources Conservation Service (NRCS) compliance with Federal administrative laws, such as the
Administrative Procedure Act, the Data Quality Act, the Federal Advisory Committee Act, the Freedom of Information Act, the Paperwork Reduction Act, the Pri-

56
vacy Act, Executive Orders, and other authorities governing Federal decisionmaking, which can and do arise in a variety of legal and factual settings.
In the recreation area, OGC drafted several FS directives implementing a new
regulation governing management of off-highway vehicle use on National Forest
System (NFS) lands. OGC provided significant legal advice regarding a final rule
providing for cost recovery for processing special use applications and monitoring
compliance with special use authorizations. OGC drafted a memorandum of understanding (MOU) among 5 Federal agencies and 31 shooting sports organizations regarding shooting sports activities on Federal lands. OGC created and updated
standard special use authorization forms. Additionally, OGC developed FS accessibility guidelines for outdoor developed recreation areas and trails on NFS lands.
OGC drafted a directive that extended the maximum term for FS outfitting and
guiding permits from 5 to 10 years. OGC assisted with implementation of interagency recreation fee legislation that supplants the recreation fee authority in the
Land and Water Conservation Fund Act and the Recreational Fee Demonstration
Program statute. OGC defended a legal challenge to the FSs national trail classification system. OGC also provided assistance to the FS in requiring States and
other non-Federal governmental entities that hold FS special use permits to insure
and indemnify the United States under those permits.
In the forest management program area, OGC continued to provide litigation support to DOJ in collecting millions of dollars in damages owed the government by
defaulting timber sale purchasers. OGC continued to provide assistance to DOJ in
on-going settlement negotiations of several consolidated cases, at one time numbering twenty, concerning the collection of tens of millions of dollars in principal
damages plus interest owed the government pursuant to orders issued in two of the
representative consolidated cases. To date, the government has collected more than
$16 million in damages from the consolidated cases.
OGC provided legal assistance on the defense of approximately 25 lawsuits challenging timber sale suspensions, modifications and cancellations, and alleging
breach of contract for unlawful suspensions, modifications and cancellations seeking
tens of millions of dollars. Additionally, OGC provided legal assistance in drafting
contract provisions to limit liability for contractual damages and to clarify the obligations of the parties to the timber sale contract. OGC continued to revise and
present, twice annually, a 3-day course on Contract Law to train FS contracting officers on various aspects of contract law as it relates to their daily program activities.
OGC continues to provide legal advice and assistance to FS regarding implementation of stewardship contracts and other forms of agreement which allow the agency to achieve forest resource management objectives in exchange for forest products.
Under these stewardship contracts, timber is harvested while contractors perform
services, such as road and trail maintenance, watershed restoration and restoration
of wildlife habitat. OGC has reviewed and provided advice on the standard contract
form and is working with the agency to adapt other instruments for use in a stewardship setting.
As the FS continues to implement OMB circular A76 on competitive outsourcing,
OGC has continued to serve as its legal advisor in this effort. OGC anticipates committing significant time and resources to the provision of advice and assistance in
this area.
In congressional matters, the Natural Resources Division (NRD) provided extensive assistance in drafting various legislative proposals, including the FSs partnership initiative and reauthorization of the Secure Rural Schools and Community SelfDetermination Act of 2000, and various FS appropriations provisions. NRD continued to provide assistance in addressing legal issues concerning implementation of
the administrations Healthy Forest Initiative and related matters. NRD assisted
the FS Legislative Affairs staff in preparation for numerous Congressional hearings.
The Conservation and Environment Division provided similar assistance to the
NRCS on legislative proposals affecting the agencys programs and activities.
OGC has continued to work closely with the FS and the NRCS on real property
matters. For example, OGC provided legal services to both agencies for the acquisition of lands and conservation easements under various programs, almost 500 easements under the Farm and Ranch Lands Protection Program for NRCS alone in fiscal year 2005. Numerous land transactions requiring the preparation of contracts,
environmental compliance documents, land titles, and closing documents have occurred during the last year. OGC also provides legal services regarding access and
rights of way to public lands, title claims and disputes, treaty rights, land appraisals and surveys, and other issues incident to the ownership and management of real
property assets of the government. The agencys real estate practice is divided
among its Washington DC office, which primarily handles legislative, regulatory,

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and policy matters, and the regional and field offices which conduct most of the
transactional work.
OGC has provided legal services on a number of significant issues concerning tribal relations. OGC assisted DOJ in the successful defense of suits alleging violations
of the Religious Freedom Restoration Act and the Establishment Clause regarding
land management activities in Arizona and Nevada. OGC provided substantial legal
assistance regarding Federal laws, such as those concerning American Indian treaty
rights and religious freedom, and historic and archaeological resource protection.
OGC drafted legislation that would enhance FS tribal relations in areas involving
access, use of forest products, and reburials of Indian remains. OGC assisted the
FS in drafting regulations and guidelines to implement the Tribal Forest Protection
Act of 2004. OGC also participated on FS sacred sites team, which is developing policy to protect tribal sacred sites on NFS land, as required under Executive Order
13007. OGC conducted trainings for FS employees in the field and Washington D.C.
office regarding Indian law and tribal issues. OGC has provided legal services on
a number of significant issues concerning tribal relations.
OGC counseled FS on a number of wilderness and wild and scenic river management issues, including representation in litigation and issuance of opinions involving commercial outfitter operations, placement of structures and installations, and
management plan and protection requirements. OGC provided analysis of revisions
to an agreement between the FS and a fish and wildlife organization representing
States, addressing jurisdictional issues and agency decision-making authorities.
OGC assisted with drafting and review of revisions to Forest Service Handbook
(FSH) provisions pertaining to wilderness management and wild and scenic river
evaluation procedures. OGC assisted with drafting and implementation of an appeal
decision involving fishing and boating user conflicts on a designated river in South
Carolina.
OGC has provided the FS extensive assistance regarding its cooperative authorities. In support of the FSs new Partnership Office, OGC drafted sections of the FS
Partnership guide on ethics and conflict of interest. OGC also assisted the FS in
drafting revisions to its FSH direction regarding the payment of overhead costs by
FS cooperators. In addition, OGC advised the FS on drafting of numerous MOUs
and cooperative agreements.
In the minerals area, OGC provided extensive assistance to the FS in promulgating a final rule clarifying when authorization is required before a person can
commence mining on NFS lands under the United States mining laws. OGC has experienced an increase in demand for legal services as the FS undertakes program
reviews and issues instructions due to the passage of the Energy Policy Act of 2005.
OGC also provided significant assistance to the FS and DOJ in defending precedential litigation challenging minerals projects on NFS lands. OGC helped the FS by
analyzing the implication of numerous legislative proposals on the disposal of minerals on NFS lands.
OGC provided extensive assistance to FS regarding hydroelectric licensing
projects on NFS lands, including counseling FS regarding conditions on licenses,
cost accounting requirements, and compliance with Federal Energy Regulatory Commissions (FERC) licensing procedures. OGC worked with counsel from the Departments of the Interior and Commerce to draft regulations in 90 days providing for
expedited hearings involving challenges to conditions placed on hydropower licenses,
as required under the Energy Policy Act of 2005. OGC provided guidance to the FS
regarding the implications of the Energy legislation on the FSs conditioning authority, the information required to support filing of such conditions, and the hearing
process that will occur before the Department of Agricultures administrative law
judges.
The Conservation and Environment Division (CED) provided legal advice and
services to the NRCS regarding its programs for natural resource conservation on
private or other non-Federal farm, range, pasture and nonindustrial forest lands, including programs authorized by the Food Security Act of 1985 and other statutory
authorities. The 1985 Act, as amended in 2004, authorizes approximately $17 billion
in conservation funding for the 20022014 period. In total, NRCS received more
than $2.8 3.2 billion for natural resource conservation programs in fiscal year
20054, leading to an increase in requests for program related legal services. OGC
provided legal counsel to the agency in developing new or revised regulations, standard form documents, and internal guidance needed to administer several conservation program authorities, such as the Conservation Security Program and the Farm
and Ranch Lands Protection Conservation Program Technical Service Provider initiative. In addition, the administration of the Healthy Forest Reserve Program was
transferred to NRCS from the FS in fiscal year 2005. OGC provided assistance in
reviewing and drafting the regulation implementing that program. The following are

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examples of natural resource conservation program areas where legal advice and
services were provided by OGC to NRCS and the Department in fiscal year 20054:
(1) publishing revised regulations for the Conservation Security Program which is
authorized at $6 billion in program funding through 2015; (2) negotiating and reviewing of cooperative agreements, conservation easements, and restoration agreements and/or providing title review across the easement programs and the purchase
of several hundred conservation easements under the Grassland Reserve Program,
the Emergency Watershed Protection Program, the Farm and Ranch Lands Protection Program, and the Wetland Reserve Program (WRP). As an example of the scope
of thisis work, OGC has assisted NRCS in enrolling 146,111 1,633,3 acres into the
Wetland Reserve Program through 907 easements or agreements. OGC provides
title review for easement acquisitions as well as reviewing restoration contracts. It
is anticipated that this program will continue to grow at an additional acreage increase of 150,000200,000 acres per year; (3) assisting with enrolling 384,794 acres
through 1,219 agreements in the Grassland Reserve Program, and 86,209 acres
through 507 easement in the Farm and Ranch Lands Protection Program; and (4)
providing training sessions for NRCS employees related to easement program implementation at two national meetings.
OGC also assisted the Department in reviewing and commenting on regulations
promulgated by the Environmental Protection Agency (EPA) under the Clean Water
Act for oil spill prevention and for point source pollution control as they relate to
farms, and regulations under the Clean Air Act for the particulate matter. In addition, OGC assisted the Department in reviewing the Air Quality Compliance Agreement developed by EPA for animal feeding operations.
The CED Pollution Control Team (PCT) provided legal services and advice for all
USDA agency matters related to the Resource Conservation and Recovery Act
(RCRA) and Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA). During the most recent fiscal year, the PCT negotiated with responsible parties to obtain substantial contributions to cleanup costs or cleanup work
performed by responsible parties of more than $24 million. OGC also provided advice on compliance with pollution control standards concerning USDA programs and
facilities, and provided advice on hazardous materials liability in real property
transactions. Specific PCT efforts on behalf of USDA on pollution control matters
include the following: (1) OGC is continuing to provide legal support to the FS as
the lead agency for the cleanup of 9 phosphate mine sites contaminated with selenium in Southeastern Idaho where total response costs to address selenium contamination are projected to run as high as $225450 million. This support includes
negotiating Administrative Settlement Agreements and Orders on Consent and Consent Decrees with potentially responsible parties that conducted the phosphate mining under the Mineral Leasing Act; and (2) OGC continues to defend against claims
concerning potential groundwater contamination by carbon tetrachloride used to fumigate grain at multiple former CCC grain storage facilities. OGC will continue to
represent CCC in negotiating cleanup action at these affected sites. Such settlements will ensure appropriate response actions are taken to remediate aquifer contamination.
With the passage of the Forest Service Facilities Realignment and Enhancement
Act of 2005 (FSFREA), OGC anticipates a significant increase in requests for advice
from the FS on the disposal of surplus facilities as the FS reduces its operations
and maintenance costs on surplus facilities by selling them. This new authority,
which provides that an unlimited number of administrative sites may be conveyed,
will require greater OGC allocation of effort to ensure that the facilities are transferred from Federal ownership in accordance with the necessary CERCLA Section
120(h) requirements.
GENERAL LAW DIVISION

The General Law Division (GLD) provides legal services to all agencies of the Department concerning those areas of law that apply generally to all agencies of the
Federal Government. These services include, but are not limited to, the determination of claims filed under the Federal Tort Claims Act, personnel and labor matters,
procurement, grants, fiscal law issues, and reviewing annually hundreds of Freedom
of Information Act (FOIA) and Privacy Act appeals, each involving hundreds of
pages of documents, in order to insure that the various agencies of the Department
do not release or withhold documents inconsistent with applicable law. In addition,
GLD attorneys assist DOJ with any litigation that arises in these and other areas,
and represent the Department before the USDA Board of Contract Appeals and the
Merit Systems Protection Board.

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GLD also serves as legal counsel on program matters to specific client agencies
in the Research, Education, and Economics (REE) mission area as well as Departmental Administration and staff offices such as the Office of the Chief Financial Officer (OCFO), Office of the Chief Information Officer (OCIO), the Office of the Chief
Economist (OCE), and the National Appeals Division. As program counsel to the
REE mission area, GLD commits significant resources to the interpretation of REE
program authorities, review of proposed agreements, and counsel regarding the special relationship of the Department with land-grant colleges and universities. As an
example of work for staff offices, GLD has worked closely with in drafting item designation and labeling rules for the Federal Biobased Products Preferred Procurement Program that will be published in 2006.
During the past fiscal year, GLD worked closely with employees and officials of
APHIS and other Departmental officials regarding the confidentiality and releasability issues posed by the creation of a National Animal Identification System
(NAIS). Since the Secretary announced that the NAIS should be maintained as a
private system that can be accessed by State and Federal officials, we continue to
be involved in advising APHIS regarding the potential applicability of FOIA to
records in a privately maintained system. In connection with the BSE surveillance
program, GLD also provided APHIS with extensive support with respect to interpretation of agreements and procurement contracts for equipment and sample collection, including defense in protest litigation.
Also during the past fiscal year, GLD attorneys provided significant legal resources advising policy officials on election reform for FSA County Committees pursuant to section 10708 of the Farm Security and Rural Investment Act of 2002. GLD
continues to advise FSA regarding various issues related to the county committee
election process, as well as proposed regulations implementing the process.
GLD provided extensive advice to OCFO in the past year with respect employment matters related to the reduction in Thrift Savings Plan work and with respect
to the evacuation of the National Finance Center from New Orleans due to Hurricane Katrina. GLD also worked closely with the Office of Procurement and Property
Management and other agencies in providing support for procurement and other response and recovery actions taken in response to Hurricanes Katrina.
GLD continues to provide legal advice, and contract protest litigation defense, for
the consolidation of Federal agency recreational reservation systems into the USDA
FS and United States Army Corps of Engineers National Recreation Reservation
Service as part of the Recreation One Stop Initiative. GLD also defended multiple
protests against the FS award of 5-year national contracts for catering services for
firefighters.
LITIGATION DIVISION

Litigation Division attorneys, in cooperation with attorneys from DOJ and other
divisions in OGC, presented USDAs position in appellate courts. These efforts included providing assistance to the Office of the Solicitor General and DOJ counsel,
who represented USDA before the Supreme Court in Veneman v. Livestock Marketing Association, arguing that Congressionally-mandated assessments for generic
advertising for beef research and promotion programs do not violate the First
Amendment speech rights of cattle producers who disagree with the content of the
advertisements. The Supreme Court issued an opinion which agreed with the position taken by the Department. In addition, our attorneys assisted DOJ attorneys in
presenting, in the Courts of Appeals and the Supreme Court, arguments in cases
addressing similar programs for pork and dairy products, which also have now been
successfully resolved.
The Litigation Division assisted DOJ attorneys in winning a reversal by the Sixth
Circuit of an adverse district court decision invalidating the Attorney Generals decision pursuant to the Westfall Act, 28 U.S.C. 2679(d)(1), to certify that a FS employee was acting within the scope of his employment when the employee denied
that the allegations of the plaintiffs claim were true; and also assisted DOJ in representing the Secretary before the District of Columbia Circuit in a case addressing
whether a party can receive attorneys fees and costs under the Equal Access to Justice Act when the party has won a preliminary injunction against the United States,
but not a final decision on the merits of the lawsuit. Litigation Division attorneys
also assisted DOJ in representing the Secretary before the Federal Circuit in a case
addressing the basis for a contract default termination and the subsequent award
of damages to the contractor; and assisted DOJ in defending before the First Circuit
the Secretarys National Organic Final Rule, 7 C.F.R. Part 205, promulgated pursuant to the Organic Foods Production Act of 1990, 7 U.S.C. 65016523. In addition, actions on other cases handled by Litigation Division attorneys include: (a) the

60
District of Columbia Circuit upheld the authority of the Department to interpret
legislation and set interest rates for sugar loans; (b) the District of Columbia Circuit
upheld the Secretarys adverse administrative action against a company licensed
under the PACA after an employee of the company was convicted of criminal
charges related to inspections of the companys produce; and (c) the Sixth Circuit
upheld the Secretarys administrative action against a horse trainer found to have
violated the Horse Protection Act, 15 U.S.C. 18211831.
LEGISLATION DIVISION

During fiscal year 2005, OGC reviewed approximately 260 legislative reports on
bills introduced in Congress or proposed by the Administration, and cleared for legal
sufficiency written testimony of approximately 380 witnesses testifying on behalf of
the administration before Congressional committees. The Division provided extensive assistance to USDA policy officials in drafting and analyzing legislative proposals and amendments, and coordinated the legal review for USDA in the clearance of legislation and ancillary legislative materials. The Division drafted or provided technical assistance in the preparation of bills and amendments for the Secretary, members of Congress, Congressional committees, Senate and House Offices
of Legislative Counsel, and agencies within USDA, including the: (1) Agriculture,
Rural Development, Food and Drug Administration and Related Agencies Appropriations Act for fiscal year 2006, Public Law 10997; (2) Emergency Supplemental
Appropriations to Address Hurricanes in the Gulf of Mexico and Pandemic Influenza, 2006, Division B, Department of Defense Appropriations Act for fiscal year
2006, H.R. 2863; (3) Deficit Reduction Act of 2005, S.1932, H.R. 4241; and (4) legislation to protect the confidentiality of information collected in the developing Livestock Identification System.
CIVIL RIGHTS

For over 8 years, USDA has engaged in massive efforts to reform its civil rights
performance. Critical to the achievement of these goals was the creation, in 1998,
of the Civil Rights Division (CRD) within OGC. Recently, the Civil Rights Division
reorganized into two distinct divisions; the Civil Rights Litigation Division (CRLD)
and the Civil Rights Policy, Compliance and Counsel Division (CRPCCD). Staffed
with attorneys with specialized expertise in civil rights and Equal Employment Opportunity (EEO) law, CRLD and CRPCCD maintain an extraordinarily diverse
workload servicing the civil rights needs of the Secretary and USDAs agencies and
staff offices.
CRLDs litigation duties include 5 active program class actions in Federal District
Court and 8 active employment class actions, most of which are pending before the
Equal Employment Opportunity Commission (EEOC). The requested damages in
these class actions total over $45 billion. In addition, CRLD anticipates adding at
least 1 new employment class action in the coming year to its litigation workload.
USDA continues to implement the April 14, 1999, consent decree in Pigford v.
Johanns, orginally, Pigford v. Glickman (Pigford). The Pigford complaint was filed
in 1997 on behalf of African American farmers alleging racial discrimination in farm
lending and benefit programs. The consent decree provided a framework which assigned tasks and time frames to specific parties to resolve the claims. Under the
Consent Decree framework, claimants determined by the Facilitator to be members
of the class could choose one of two tracks for processing their claims.
Most claimants have chosen the more streamlined Track A which allows the
claimant to submit a claim form upon which the Adjudicator issues a decision. A
successful Track A claimant may receive a blanket payment of $50,000, plus loan
forgiveness. Under Track B, those who believe they have evidence of extreme wrongdoing go before an Arbitrator to seek larger damages.
As of January 31, 2006, 64 percent of the 22,244 Track A claims submitted to the
Adjudicator were decided in favor of claimants. The government has paid approximately $685 million to 14,297 prevailing Track A claimants. In addition, USDA has
provided approximately $22 million in debt relief to over 1,341 prevailing claimants.
CRLD has taken the lead in ensuring that USDA meets its commitments under
the consent decree, by coordinating the production of relevant documents, providing
necessary legal analyses, and ensuring USDAs compliance with Adjudicator and Arbitrator decisions. CRLD is working with FSA and the DOJ to develop timely and
appropriate government responses to claims filed by eligible farmers. CRLD also
plays a major role in the appeals process, which allows petitions to a Monitor to
reevaluate claims.
Key to settlement of the Pigford action was the 1998 enactment of the waiver of
the Equal Credit Opportunity Acts statute of limitations that allows farmers with

61
long-standing discrimination complaints to have their claims finally heard. CRLD
and OGC field offices have represented USDA in over 130 cases in which a hearing
was requested; the vast majority were dismissed on motions filed by OGC. With respect to farmer discrimination claims not covered by the Pigford settlement, CRLD
works with the USDA Office of Civil Rights (CR) to ensure that all claims receive
expeditious and fair consideration, within the bounds set by applicable law.
CRLD also coordinates USDAs defense in 4 other program class actions in Federal District Court. These cases include 3 class actions, Keepseagle v. Johanns, Garcia v. Johanns, and Love v. Johanns, all originally filed by the same attorneys that
initiated the Pigford litigation. To date, the Keepseagle case is furthest along in litigation and may be the best predictor for the outcome of the other cases. Despite
a vigorous defense, District Judge Emmet G. Sullivan certified the Keepseagle class
to include all Native American farmers or ranchers, who (1) farmed or ranched between January 1, 1981 and November 24, 1999; (2) applied to the USDA for participation in a Federal program during that time period; and (3) filed a discrimination
complaint with the USDA individually or through a representative during the time
period. The Keepseagle case is proceeding through lengthy and comprehensive discovery on the merits which has, to date, resulted in the production of nearly 400,000
pages of documents to the Plaintiffs.
The Garcia and Love class actions were brought on behalf of Hispanic farmers
and female farmers respectively, alleging discrimination in the administration of
farm credit and disaster benefit programs. In September 2004, the D.C. District
Court denied class certification in both cases. However, in December 2004, the U.S.
Court of Appeals, D.C. Circuit, granted Plaintiffs petitions to file appeals. In July
2005, the Circuit Court issued a consolidated briefing schedule for both cases that
concluded in November 2005. Oral argument was held on February 6, 2006. On
March 3, 2006, the Court of Appeals for the D.C. Circuit affirmed the District
Courts denial of class certification in Love.
The remaining program class action is Chiang v. Johanns, filed on behalf of all
black citizens or qualified aliens who reside in the U.S. Virgin Islands alleging discrimination in the access to and participation in RD programs for credit, assistance,
training, educational opportunities, housing, or home ownership. The Chiang class
was certified by the District Court in the Virgin Islands and is proceeding on the
merits. In response to the governments appeal of class certification, the Third Circuit limited the class definition to Virgin Islanders. In September 2005, the parties
participated in mandatory mediation but were unable to resolve the litigation. The
parties are now proceeding through discovery on the merits.
CRLD provides primary litigation defense services in all employment class actions
pending before EEOC. Since August of 2000, as a result of CRLDs vigorous defense,
EEOC has dismissed over 20 class action employment complaints for failing to meet
the legal standards for class certification.
Currently, CRLD is involved in 8 active employment class actions. To date, CRLD
is actively litigating 4 of these complaints. CRLD seeks to resolve those matters
that, upon careful review, indicate a need to address apparent underrepresentation
or policies that may have an adverse impact on a particular group of employees. For
example, CRLD has assisted DOJ in negotiating settlements in 2 major class actions
filed by employees of the FS Region 5, Donnelly and Regional Hispanic Working
Group (RHWG)/Brionez. The Donnelly consent decree expired in January 2006.
There was a contempt hearing in RHWG/Brionez on February 10, 2006. The Court
issued a brief order the next day, to be followed by a comprehensive opinion, which
extended the Settlement Agreement for one year.
CRLD also carries a full docket of over 50 complex and politically sensitive individual Equal Employment Opportunity (EEO) cases involving either issues of first
impression or disputes over positions at the highest levels within USDA. CRLD litigates these cases on behalf of USDA without the assistance of DOJ. Moreover, recent years have seen a dramatic increase in the demand for CRLDs litigation services in a number of formal individual EEO complaints previously defended by nonattorney agency personnel staff. CRLDs litigation responsibilities also have expanded as a result of several changes in the law, including a 1999 Supreme Court
decision holding that EEOC possesses the legal authority to require Federal agencies to pay compensatory damages in EEO cases.
In addition to its primary litigation responsibilities, CRLD currently assists DOJ
in the litigation of over 50 additional individual civil rights cases in both the employment and program areas pending in Federal district court. Although the Assistant U.S. Attorneys (AUSAs) and/or DOJ attorneys serve as lead counsel, CRLD is
receiving an increasing number of requests for comprehensive litigation support, including drafting answers, dispositive motions, discovery responses; deposition participation; and witness preparation.

62
The newly created CRPCCD provides advice and counsel to agency components
on civil rights issues, including: (1) completing an impressive number of legal sufficiency reviews and legal opinions each year; (2) providing daily, informal legal advice to the client agencies; and (3) providing periodic training on civil rights issues.
CRPCCD is also responsible for providing advice and assisting in the early resolution of informal EEO matters.
In an average month, CRPCCD staff write at least 25 formal and informal opinions in response to, or in anticipation of, inquiries on a wide variety of civil rights
topics. This advice is an essential element in CRPCCDs proactive relationship with
its client agencies. CRPCCD anticipates that the demand for these services will only
intensify. For example, CRPCCD continues to receive an increasing number of requests for advice on reasonable accommodation for employees with disabilities and
program accessibility for customers with disabilities. In addition, CRPCCD receives
numerous inquiries regarding the proper interpretation and application of Executive
Order 13166 requiring agencies to ensure that customers with limited English proficiency have access to USDA programs. CRPCCDs formal policy responsibilities are
on the rise as well. CRPCCD has been working with the Assistant Secretary for
Civil Rights to develop a Departmental Regulation on alternative dispute resolution
(ADR). In addition, CRPCCD reviews civil rights impact analyses of all major reorganizations throughout the Department.
In recent months, CRPCCD has also received an increasing number of requests
for training presentations. CRPCCD has provided training to numerous agencies on
issues such as reprisal, ADR, and reasonable accommodations.
FISCAL YEAR 2007 BUDGET REQUEST

For fiscal year 2007, the budget proposes a total of $40,647,000 for OGC salaries
and expenses. This is an increase of $1,690,000 over the adjusted base for fiscal year
2006. This amount includes $515,000 to maintain staffing levels and $791,000 for
pay costs. This critically important increase is needed to support and maintain current staffing levels to meet the current and projected increased demand in delivering predecisional legal advice, training, and litigation legal services to agencies.
Approximately 92 percent of OGCs budget is in support of personnel compensation,
which leaves no flexibility for absorbing promotions, within-grade and pay cost increases.
An increase of $384,000 and 5 staff years is requested to support significant workload increases in several areas of the office. Attorney staff years are needed to assist
APHIS in addressing major animal health and food safety issues of the Department.
There is a strong demand to add an additional attorney to support the farm loan
and crop insurance programs, as well as an additional attorney to face the challenges in the areas of contracts, procurement, and outsourcing of Federal functions.
Additional legal resources are also needed in OGCs Kansas City office in the areas
of farm and loan programs, bankruptcy, risk management and contract law and also
in OGCs San Francisco office to handle class action EEO complaints arising out of
the activities of the FS Region 5 headquartered in Vallejo, California.
CLOSING

That concludes my statement. We very much appreciate the support the Subcommittee has given us in the past. Thank you.

Senator BENNETT. Thank you very much, Mr. Secretary.

We have been joined by Senator Burns, who has another commitment that is going to take him out of here in about 3 minutes. So
if there is no objection, I would yield my time to Senator Burns before we turn to Senator Kohl. Then we will go to Senator Craig,
and I will come in at the end, rather than the beginning.
Senator BURNS. Did you ask Senator Kohl about that?
Senator BENNETT. Well, I said if there is no objection, and I
didnt hear a grunt from him.
Senator BURNS. I am not going to upstage my Ranking Member,
I will tell you that. I know where I am on the pecking order.
So I have just got a couple of comments. And Mr. Secretary,
thank you very much and all the work that you have done. And
I think you know out of this $97 billion, or whatever it is number
that we got, I was interested in how much of that money goes out

63
in direct payments to farmers in subsidies, and only around $25
billion.
We do a lot of things that they said, well, you spend $97 billion
on farmers. Well, we dont spend $97 billion on farmers. There are
a lot of programs that are very, very important, and conservation
being one of those and a lot of things. And some of those dollars
do make it down to agriculture that is not counted directly to the
commodity support.
Mr. Secretary, we are still concerned about the Japanese beef
thing. I know you continue to work on that, and any good news
that you give us would be welcome. If you have got bad news, well,
we will just let that slide. But I would want some comment on that.
And then the second question, we are having difficulties with
high energy prices, and we cant get our arm around our production
costs. Energy being one of those, both in our fuels, in our fertilizer
with natural gas being high and being the feed stock, the fertilizer.
We see another increase coming in fertilizer. We hear our producers are cutting back about a third of the fertilizer that is going
on the ground this year because they just cant afford it, and that
concerns me.
And your move to be a producer kind of advocate, the EPA again
over thereI wish you would have somebody to take a lookbecause by changing definitions of what is happening that the EPA
changes has a huge impact on our producers, especially in confined
feeding and the way we handle chemicals and the way we do
things.
A change of definitions has a huge impact on the costs we are
having on the farm and ranch. And that appears to be happening
over there, and we have got to take note of that and to work very
closely with those groups that the impact on agriculture and our
ability to produce food and fiber of this country is very, very important. You might want to comment on that.
And then the third one is that with the new technologies, I think
we are going to put agriculture in the energy business. That was
the drive in 2002. It was the drive in 2005, when we passed the
energy bill because of renewables and alternative fuels, and it
seems to be working. And I think we are going to have to have a
strong title in the 2007, especially with the advances we have made
in technology, in plant residue, in the biomass area.
We know that the production of ethanol and biodiesel is going to
be very important. So agriculture is going to be in the energy business. And it needs to be because we need to increase our independence away from foreign oil, and if we can get our capacity of those
alternative fuels up, we can deal with that along.
And the other night, we were on a television show on RFDTV
with Secretary Dorr. We continue in the rural communities, the
cornerstone to their growth is still broadband deployment and telecommunications because we cannot compete in the national economy or the international economy unless we can move massive
amounts of information from our smaller towns and rural villages.
So you might want to comment on that, and the Japanese situation, and then also the situation of working with the EPA to make
sure that these definitions dont have a high impact on us.

64
BEEF EXPORTS TO JAPAN

Secretary JOHANNS. In reference to Japan, I can assure you I

dont have any bad news. So I can start there.
Let me also say, Senator, how much we appreciate your tenacity
relative to this issue. We can explain that to the Japanese, but it
speaks volumes when House Members and Senators publicly explain how important this market is and the need to have it reopened. So we appreciate that.
The report, regarding the ineligible shipment of veal to Japan is
done. We did a very thorough investigation. We even went the
extra step and invited the inspector general to take a look at the
findings in the report. There were actually two investigation reports submitted to Japan. We have been receiving questions from
Japan. About half of those questions are answered already. We are
not taking any extra time. We are getting those questions answered and back on their desk.
This weekend, I will have an opportunity to meet with Minister
Nakagawa, who is my equivalent in Japan. I am very anxious to
sit down with him. Our report has 475 pages. There was a lot of
work put into it and I can assure you what we found out was that
there was no attempt to hide anything here. There was just simply
confusion on both sides.
We had an e-mail trail that showed that the person making the
order from Japan was confused about what was authorized. It is
listed right there in the e-mail. And the plant was confused also.
Now I dont offer that as an excuse, but we have a rather complicated agreement with Japan. So I am optimistic. They are probably going to have some additional inspection requirements. That
is not a big issue for us. We will facilitate their requirements and
get them in plants. My goal is to get this beef market reopened
again just as quickly as we can.
I dont really see any reason for extensive delay. We have got the
investigation done. We can answer their questions. We will meet
their requirements, and I think it is time to get beef moving back
to Japan again.
RENEWABLE ENERGY

In terms of renewable energy, I agree with your assessment. I do

believe that as we think about farm policy for the future, a strong
energy component for agriculture is critical. The news is very good.
We estimate 22 percent of corn crops will be processed into ethanol by 2010. It is currently 14 percent. So we just continue to see
dramatic increases there.
Biodiesel, soybeans to biodiesel. Again, we just continue to see
very dramatic growth in that area. There are also other biomass
products that arent as far along. And then there are still other
areas, like wind energy to be developed.
In terms of your comments about working with the EPA, we have
got a good working relationship with them. I will pass on to them
whatever issues you have on your mind, and I would be happy to
facilitate a meeting, too, where we can sit down with you or other
members of this subcommittee and deal with those issues.

65
ENERGY COSTS

Energy costs are a big issue among farmers and ranchers. We

heard about it in our Farm Bill forums. We do have some really
promising things going on out there. We designed an energy strategy, and we have had a good response to it. It is an online system
in part, so producers can figure out how they might save some energy costs, some nitrogen application costs, and then I directed the
USDA to do everything we can to move money that we have available into this area of energy assistance and provide grants and
loans to try to help with projects related to energy.
I wish I could tell you that I could bring the price of a barrel of
oil down to $35, but I probably cant. But everything we can do at
the USDA we have been doing to provide energy assistance.
Senator BURNS. If we could get a bushel of wheat to $6, you
could offset it on that end, too.
Secretary JOHANNS. That solves the problem, too, doesnt it?
Senator BURNS. You know, there are a lot of ways to offset this.
I thank the Chairman for his courtesy, and thank you, Senator
Kohl. I appreciate that very much.
Senator BENNETT. Senator Kohl? No, you go ahead. I will take
Senator Burns spot.
Senator KOHL. All right. Thank you, Mr. Chairman.
DAIRY POLICY

Mr. Secretary, dairy annually generates over half of Wisconsins

cash farm receipts, and last year about $20.5 billion of economic activity in our State. So anything that disproportionately affects
dairy and cheese disproportionately affects our entire State.
I am sure you can appreciate then my profound disappointment
that the Presidents budget seems to have it in for dairy. First, it
seeks a 5 percent across the board reduction of all commodity payments to farmers. Second, it re-proposes a statutory mechanism for
adjusting the butter/powder tilt in the dairy support program, the
practical effect of which will reduce value to producers. And third,
it recommends a 3 cent per hundredweight farmer assessment on
all milk, which would have totaled about $7 million for Wisconsin
producers last year.
Earlier this week, a bipartisan group of senators joined me in a
letter to the Senate Budget Committee urging rejection of this attack on dairy farmers.
Now I know you do not put together the entire budget, but does
it make sense, Mr. Johanns, to you in a budget that includes billions of dollars in tax cuts for investors that you are being asked
to fight for a tax increase on dairy farmers? And is that really the
policy that you are asking us to support?
Secretary JOHANNS. I support the Presidents budget, as you
might expect, Senator. And that probably comes as no surprise to
anybody in this room.
But let me, if I may, just try to identify some of the things that
have stood out for me as I have worked on what is really my first
opportunity to be involved in the budget process from start to finish.

66
I hear your comments about the tax decreases, and what I would
offer is that if you look at the revenue situation, revenues actually
increased for the United States. What you are seeing is that those
tax decreases, which really did apply across the board, improve the
economy.
I have worked around government budgets long enough to know
that there are number of factors that you consider in trying to put
a budget together and trying to decide what level of taxation you
should place upon your citizens. If the level of taxation placed upon
citizens is too high, you are going to depress the economy, whether
that is a State economy or a national economy. What we saw is
revenues actually increased, and our budget people can give you
specific numbers on that.
[The information follows:]
As a direct result of this strong economic growth, receipts to the Treasury have
returned to healthy growth in the past 2 years, with increases of 5.5 percent in 2004
and an extraordinary 14.5 percent in 2005, more than 5 percentage points above the
projection in last years Budget. Growth in corporate receipts in 2005 was an astounding 47 percent. Total receipts reached 17.5 percent of GDP, up from a low of
16.3 percent of GDP in 2004. The administration projects that receipts will increase
6.1 percent in 2006 and an average of 5.9 percent annually through 2011. This cautious forecast is far slower than the 14.5 percent growth experienced in 2005, but
still faster than the projected rate of economic growth.
REDUCING THE FEDERAL DEFICIT

Secretary JOHANNS. Now in reference to the situation relative to

dairy, what we were trying to do is figure out a way to make these
adjustments, whether it is a commodity program or the dairy program, recognizing that we have to deal with the Federal deficit, not
in a way that picked on dairy, but in a way that we thought was
fair to commodity programs whether you are a dairy farmer or a
corn farmer or a soybean farmer.
That is how we came up with this approach and this formula basically implies that in every area, we are going to make some adjustments to deal with the situation of having to reduce the deficit.
So that is the philosophy behind it, Senator, and we may disagree on the approach. I hope we share the same goal of recognizing that somehow, some way we have got to deal with the Federal deficit.
Senator KOHL. One other question, and then I will defer to our
Chairman.
COMMODITY SUPPLEMENTAL FOOD PROGRAM

Mr. Secretary, in Wisconsin alone, nearly 700 senior citizens are

being turned away from the Commodity Supplemental Food Program this year, and well over 5,000 people are going to lose these
food packages if we eliminate the program, which is what the budget proposes. Nationwide, the budget proposes to stop the CSFP food
packages that are being delivered to 470,000 people, most of whom
are seniors.
Many seniors, estimates go as high as 25 percent participating
in CSFP, also participate in the Food Stamp Program because their
Food Stamp benefit is too low to live on. I keep hearing about $10
a month. So, Mr. Secretary, do you have some advice for these people?

67
Secretary JOHANNS. I have some thoughts on the CSFP program.
It is an interesting program to study, Senator, from this standpoint. This is not a national program. It is a program that exists
only in 32 States. Two Native American tribes, I believe, have the
program also. But, it is not even national in terms of the tribes,
and I believe we also have the program in the District of Columbia.
The other interesting thing about the program is that even in the
32 States, it is not a statewide program. It is literally identified for
certain areas, with certain States left out and certain parts of
States that are left out. We have included in our budget request
$2 million for the transition from CSFP to the Food Stamp Program.
It is our belief that the people that receive the benefits of this
food box will qualify for some other part of our nutrition programsFood Stamps, maybe even WIC. We know who these people
are. Our goal is to reach out and identify them and get them signed
up for another nutrition program that we have.
But again, as you study this program, it is a very interesting program. I am not arguing that people who receive these benefits dont
enjoy them, but it is a program that never even got implemented
statewide in the 32 States where it currently operates. We believe
that with the $2 million transition money, that we can serve these
people with nutrition programs that we actually have in existence
across the entire country.
Senator KOHL. As you can imagine, I am not satisfied with your
answer, but
Secretary JOHANNS. I understand.
Senator KOHL [continuing]. I appreciate that very much. And Mr.
Chairman, it is up to you.
Senator BENNETT. Thank you very much.
Senator Craig. Then I will take Senator Burns slot.
Senator CRAIG. Okay. Thank you. Thank you for that courtesy.
I have several questions here. I will ask some, Mr. Chairman,
and submit others for the record.
MILK INCOME LOSS CONTRACT

Senator Kohl, Mr. Secretary, expressed concern about dairy. As

you know, Congress recently passed the $1 billion 2-year extension
of the Milk Income Loss Contract, or milk program, in the budget
deficit reduction act.
The administration backed the extension of this subsidy program
during the budget reconciliation debate this past year. Your 2007
budget seeks an assessment of 3 cents per hundredweight on milk
produced by our dairymen in order to save $578 million over 10.
Additionally, the 2007 budget seeks to reduce milk subsidy payments to dairy producers by 5 percent and to better manage the
Dairy Price Support Program.
So the administration backed a billion dollar extension of a discriminatory milk subsidy program. That is how my producers in
Idaho see it. By law was intended to sunset in 2005. But you know,
once you create these things, dependency hangs in there, and we
now believe it is causing overproduction.

68
The milk program encourages overproduction. It certainly doesnt
encourage movement with the market. So what doesnt add up
here?
Secretary JOHANNS. Well, in the last few months, we have started to pay out again under the MILC program. That is a reflection
of production up, prices down. I mean, that is, in effect, what kicks
in with the MILC program when you hit a certain price level.
We have supported the MILC program. The thought I would
offer, in terms of that extension, is that the extension tied the program to the life of the Farm Bill and, in effect, joined it with other
commodity programs that were out there.
Next year, it is my hope that we will have a debate on farm policy and what farm policy should look like because 2007 is the year
that we reauthorize the Farm Bill. And I believe it is an opportunity for us to look at all of our programs and make a decision
about how best to approach them.
As I explained or offered to Senator Kohl, we have made adjustments to the MILC program. As we looked at the need to deal with
the deficit, we did not feel that we could leave any program out.
And so, this was a way of making adjustments in that program
that we hoped, at least, would reflect the changes that we are making in other commodity programs.
The wheat growers in the Western part of the United States, for
example, are going to get 5 percent less if the Presidents budget
is approved. So we basically looked at the MILC program and said
how do we make an adjustment there that at least reflects what
we are doing in the other commodity programs?
But just to summarize, Senator, the thought about the MILC
program extension was along the lines of if you extend it for the
life of the Farm Bill, you join it with the other commodity programs in the Farm Bill, and it is in the Farm Bill, where you decide what you want to do with the whole commodity title and farm
programs in general.
Senator CRAIG. Mr. Chairman, one last question. And thank you
for that answer, Mr. Secretary.
RENEWABLE ENERGY

Section 9006 of the 2002 Farm Bill provides for loans, loan guarantees, and grants to farmers and small businesses for projects
that use renewable resources to create energy. This provision has
gotten a lot of attention in Idaho. Some of those loans and guarantees have been provided, and it is working.
And I think we are all quite impressed with the challenges farmers are stepping up to dealing with animal waste and crop refuse.
You heard the senator from Montana talk about a variety of aspects of it. You have talked about biodiesel. Cellulose ethanol is
something that is being looked at now. The President has spoken
to it in his State of the Union.
Even though this program is a win-win for agriculture, the environment, and the production of energy at a time when energy production is not adequateand we all really do believe that a decade
from now or two or three, American agriculture is going to be a sizable producer of energy for our countrywhy did you cut that
budget? It was small to begin with. You cut it from $23 million to

69
$10 million. It just doesnt seem to fit the arguments you have
placed before this committee.
Secretary JOHANNS. Senator, let me, if I could, quickly walk you
through what we have for renewable energy in the budget. The
2007 budget provides funding to support about $35 million for
guaranteed renewable energy loans. The estimate for 2006 is $177
million in loans. However, it is unlikely that that amount will be
made.
The 2007 budget provides nearly $8 million to award grants for
use on renewable energy. This funding is about $3 million less, and
we acknowledge that. However, the 2007 budget provides about a
billion dollars in guaranteed loans under the Rural Business-Cooperative Services business and industry program. This program can
be used for financing renewable energy projects.
So when you pull together the constellation of authority we have
to assist through loans, guaranteed loans, and grants, it is a substantial, renewable energy package that we submitted to Congress.
Also, when I was governor of Nebraska, I was the vice chair of
the Governors Ethanol Coalition, and I was the chairman of the
Governors Ethanol Coalition following Governor Tom Vilsack from
Iowa. One of the things that I talked about during that period of
time was that the standard of success in renewable energy is when
it becomes economically self-sufficient, and we should celebrate
that day.
Now there is probably a debate about whether we are far enough
along here. But I will tell you that in the ethanol industry, corn
to ethanol, it has been a remarkable 12 to 24 months. I mean truly
remarkable.
As a governor, I worked on financing for a number of ethanol
plants, and we just never would have predicted the return on investment that I think you are seeing in some of these areas. Every
plant is different. Every area is different. But the goal should be
that we work toward energy production or we work toward economic independence in these projects. In some areas, like I said, it
has been a remarkable few years.
When you put all of that together, and you identify and pull together the constellation of what we have available, we think we
can do some very, very exciting things in the renewable energy
area, and we look forward to working with your staff and with you,
sir, to make that happen.
Senator CRAIG. Well, thank you very much. I think you recognize
as well as I because you have obviously worked in that field at a
time when it was almost considered an experimental start-up industry.
One of the great difficulties we have in agriculture todayor
anywhere, but especially agricultureis when a new technology
comes along, trying to put some capital behind it, to get it out on
the ground and working so that from there grows changes and evolutions that make it increasingly more efficient.
Frankly, if Government hadnt come along and subsidized ethanol when it did, we would not be where we are. And as a result
of that, while I am not too excited about subsidies, it appears that
is one that is probably going to work. It is on its own now, and you

70
are right. It is all but standing alone, and it gets increasingly efficient and more productive and, therefore, profitable.
Thank you.
Secretary JOHANNS. The energy policies of Congress worked. Let
me just be very clear about that. Sometimes I think we wonder, is
this going to make a difference? This made a huge difference.
What you are now seeing across the country is that Wall Street
has discovered rural America.
Senator CRAIG. Yes.
Secretary JOHANNS. There is big debate about that. But quite
honestly, Wall Street is beginning to realize this is a sound investment. But I will submit that through the efforts of the President
and Congress, that is what led the way.
Senator CRAIG. Thank you.
Thank you, Mr. Chairman.
Senator BENNETT. Thank you.
AVIAN INFLUENZA

Mr. Secretary, in your opening statement, you talked about avian

flu. I would like to focus on that just a little more because I think
that is one of the things that people who are watching are concerned about.
In your opinion, how prepared is the United States agriculture
for an avian flu outbreak?
Secretary JOHANNS. My opinion, I believe we are well prepared.
I say that for a number of reasons. One is that the funding, which
Congress approved, which the President sought, is there, and that
is helping us do a lot of really good things.
But the other thing that I will share with you from our standpoint at the USDA, first of all, it is important to remind everyone
that low path avian influenza is nothing new to the United States.
It has been here 100 years. Birds have a flu season much like humans do. They pass through it every year. Typically, you dont even
notice it.
High path avian influenza, we have dealt with that, in fact, on
three occasions. The most recent occasion was in 2004.
We have a plan in place. We have surveillance in place. We have
testing in place. As we have worked to expand testing capabilities,
I can now tell you that we have those capabilities in 32 States,
with 39 labs approved for AI testing. So we can identify where AI
is domestically.
But we feel ready. The other thing I will mention to you, is that
we are not taking anything for granted. The President has led a
Government-wide effort in AI. And more specifically at USDA, just
within the last week, we have tabletopped our response to identify
any areas where we see weaknesses. We are preparing like avian
influenza is going to be here.
Senator BENNETT. Have you used the $91 million in the supplemental?
Secretary JOHANNS. Yes, we are using those funds in a number
of ways. One is we are assisting overseas. When foreign governments ask for technical assistance, part of that money helps us do
that. We send people out to offer technical assistance. We work
with our international partners.

71
As you might expect, some countries are better prepared than
others. It is just simply a case where some countries dont have the
infrastructure or the resources to be very well prepared. That is
not true in other countries. So it is a little bit of a mixed bag.
We are also using that money for additional surveillance and research to enhance our capability to respond to avian influenza. We
can give you a very detailed summary of how the money is being
allocated.
[The information follows:]
PLANNED USE

OF

PANDEMIC INFLUENZA FUNDS

With $71.5 million appropriated to it and an additional $8.8 million from the Office of the Secretary, APHIS plans to devote funds to both international and domestic efforts. These include:
$17.8 million for overseas in-country technical training and veterinary capacity
building;
$16.4 million for domestic wildlife surveillance in migratory flyways and wildfowl;
$26.8 million for domestic surveillance and diagnostics (e.g., State cooperative
agreements for surveillance in live bird markets, upland game and waterfowl,
commercial poultry operations; laboratory support; anti-smuggling efforts; training; outreach; other activities);
$19.3 million for domestic emergency preparedness (e.g., supplies and animal
vaccines for the National Veterinary Stockpile (NVS); development of scenario
models to direct efficient NVS acquisitions; preparedness training for State Incident Management Teams and the Veterinary Reserve Corps; related efforts).
With $7 million appropriated to it, ARS plans to conduct research as follows:
$3 million for improved vaccines and mass immunization in domestic and wild
birds;
$1 million for environmental surveillance methodology of avian influenza (AI)
in commercial and wild birds;
$2 million for complete genome sequencing of outbreak AI viruses; and,
$1 million for biosecurity against virus transmission between and within farms.
With $1.5 million appropriated to it, CSREES plans to conduct expanded AI surveillance in the Pacific flyway and associated activities.
The following funds from the Office of the Secretary will be used for other needs:
$1.8 million for FAS to support the FAO, provide complementary overseas foreign surveillance, diagnostic, and other support;
$0.5 million for the Office of Communications to develop a variety of brochures,
posters, videos, and for other initiatives to effectively communicate with the
public;
$0.2 million for FSIS to develop a highly pathogenic AI module for its Non-routine Incident Management System to enable the agency to respond to an AI detection effectively and in a timely manner; and,
$0.1 million for Departmental Administration to revise its Continuity of Operations Plan to help ensure the Department maintains essential functions and
services in the event of significant and sustained absenteeism.

Secretary JOHANNS. So we have identified the key areas, and we

have allocated those funds in a way that will boost our response
in those areas.
Senator BENNETT. Very good. This is a nitpick, but it is the kind
of thing that people pick up. I will use the inflammatory language,
and then let you get to the more specifics. But this is the kind of
thing that makes for headlines.
CENTRAL ADMINISTRATION FUNDING

You have cut discretionary funding for rural development by 13

percent. You have cut conservation by 20 percent. You cut research
by 14 percent. But the spending for central administration has
gone up by 12 percent. Now when I look at the chart with all of
that on it, I realize that that is the smallest base. So adding $63

72
million to central administration is, percentage wise, a pretty big
jump.
But I hope you can explain to the committee why you need to go
up in central administration and how the taxpayer is going to get
a return for that over the long term in view of the other cuts that
you have recommended?
Secretary JOHANNS. Mr. Chairman, that is a really excellent
question, and I must admit I did not analyze the individual areas
that way in terms of central administration.
Senator BENNETT. Neither did I, but I have a very eagle-eyed
staff.
Secretary JOHANNS. And I have got a very eagle-eyed budget director, and I am going to let him offer a few thoughts on why you
are seeing that impact.
Mr. STEELE. Thank you, Mr. Secretary.
Mr. Chairman, we have included in our budget pay costs for all
of our agencies, according to what the President is going to request.
I think it is a 2.2 percent increase in pay costs across the board
for all agencies.
The other area in administrative costs that we are dealing with
is IT expenditures. Throughout the Department of Agriculture, we
have a number of systems in the Department that need enhanced
funding. We really appreciate the funding that the Committee has
provided us in the past to help modernize these systems. But there
is still a large number of systems that we are asking for increased
funding to get them up to standard.
One of these areas is in the Farm Service Agency. The Common
Computing Environment (CCE) has received substantial funding,
but there are a lot of legacy systems that we have out in the field
that utilize old software systems. We need to update those and migrate them onto this new Common Computing Environment so we
can all use them efficiently.
Throughout the department, we can give other examples of those
kinds of issues. We also have some issues in the financial area. We
have to start looking at our foundation financial systems that we
have. Some of those are outdated, and we have some money requested in the budget to start looking at ways of upgrading these
financial systems and other operating systems.
Some of these IT systems were put in place in the 1980s and
1990s, and you have to refresh them every so often to get them up
to standard. And there are a number of requests for those types of
systems throughout the budget as well.
Senator BENNETT. Give me an example of a financial system.
Mr. STEELE. Well, we have a central accounting system called
the Foundation Financial Information System (FFIS).
Senator BENNETT. Are we talking about Food Stamps, WIC?
Mr. STEELE. I wouldnt say that. It is more of a Department-wide
accounting system, that we use through the National Finance Center in New Orleans. This is where our agencies do procurement and
other kinds of financial transactions and where accounting records
are maintained.
Some of those systems were put in place in the 1990s, and now
we have new Government-wide standards that the OMB has put in
place to achieve certain accountability in those accounting systems.

73
Our Chief Financial Officer now is investigating ways of upgrading
our financial systems so that they are up to the Government-wide
standard.
Now we are making progress, but we need to augment our funding. There is a request in the budgetI think $14 million or $15
millionto look into developing a better financial system at the
Department.
Senator BENNETT. All right. Senator Dorgan.
Senator DORGAN. Mr. Chairman, thank you very much.
Mr. Secretary, welcome.
Secretary JOHANNS. Thank you.
WEATHER-RELATED DISASTER ASSISTANCE

Senator DORGAN. Mr. Secretary, last November or December,

when we finished the emergency supplemental, I was one of the
conferees. And I offered to the Senate conferees a $1.2 billion disaster aid package, which the Senate conferees accepted. The House
conferees rejected it, and so we did not accomplish a disaster aid
package.
You, in your statement, said that USDA has made available $2.8
billion to assist those impacted by the hurricanes of which $1.2 billion will be made available to agricultural producers through various programs and so on. I fully support all of that, and a hurricane is devastating to the agricultural producers of that region.
One community received one-third of its annual rainfall in 24
hours in the northern part of North Dakota last year, and we had
a million acres that couldnt be planted. I was up there recently,
and the question they asked is why could there not be some sort
of disaster program for the weather-related disaster that occurred
there? Illinois has its third-driest year last year since 1895.
So the question is, we came close to getting it in the conference.
We did not get it because I was told that the House conferees, at
the request of the Speaker, rejected it because the administration
did not support it.
What is the administrations positionbecause we will attempt
to do this again on the next supplemental, emergency supplemental. What is the administrations position on a disaster package
for farmers and ranchers outside of the Gulf Coast who suffered a
weather-related disaster?
Secretary JOHANNS. I would offer a couple of thoughts, if I could,
on that issue. This first thing we would have to see is what is being
proposed in the bill. But historically, as you know, pre-dating me,
when disaster bills have come forward, the administration has
taken a position of providing offsets.
And as I understand the policy behind that, when the Farm Bill
was created in 2002 and debate was occurring on what was going
to be the allocation of funding into that Farm Bill, I think there
was a look to the history of direct payments made to farmers. And
the allocation was based upon not only emergency disaster payments that had been made, but in addition, some other ad hoc supplemental assistance payments.
That is what has led to the issue of offsets. If there is going to
be a disaster program, it has to be found within the budget of the
Farm Bill.

74
A couple of other things I would offer. In 2000, there was a very
major reform of crop insurance. Interestingly enough, as we conducted our Farm Bill forums, we did hear from farmers that they
thought as we went to work on another Farm Bill, there should be
some effort put into crop insurance and how that process is working.
And then the other thing I would mention, and again, interestingly enoughand Keith Collins can probably offer some thoughts
on thisFCIC has actually paid out more in the Northern Plains
for prevented planting than we have paid out for hurricane assistance. So those are some thoughts.
When there is a bill that asks for disaster assistance, of course,
we will look at it. But I can tell you historically at least that has
been the position of the administration that offsets in the Farm Bill
would have to be sought to support disaster assistance payments.
Senator DORGAN. And Mr. Secretary, you would understand producers in one part of the country that suffer a weather-related disaster, lose their entire crop, they would probably look at this and
say, well, I dont understand the difference in we provide disaster
aid in one part without an offset, but you say in order to provide
disaster aid in another part, even to consider whether you would
support it, you have to have an offset.
I am sure you understand how producers would look at that and
say that really probably isnt fair. But at any rate, we will grapple
with that because we dont have a disaster piece in the Farm Bill
that we now have. We have got to do that year by year, and the
Congress has actually, in most cases, stepped up. Last year, it did
not.
FSA STAFFING LEVELS

I would like to ask also about the staffing at the Farm Services
Agency. The other thing I keep hearing in North Dakota from
farmers and producers is that our county FSA offices we are losing
a fourth of the people or 10 percent or 30 percent of the people in
certain offices and they are not replaced. And it is interesting.
Farmers are the ones that are coming, complaining, saying you
need to have adequate staffing in these offices.
What is the recommendation from the USDA on staffing for the
Farm Service offices, the FSA offices?
Secretary JOHANNS. We have a specific recommendation. The
2007 budget provides resources to maintain permanent, non-Federal county staff levels at about 8,775 staff-years, which is about
the same as the estimated 2006 level. The temporary, non-Federal
county staff-years will remain at the 2006 level of 650 staff-years.
These levels reflect reductions made in early 2006 in response to
the tobacco program budget. So there has been some shifting there.
Scott, do you have anything more specific to offer on that?
Mr. STEELE. Well, there have been some changes in staffing in
the Farm Service Agency due to changes in temporary employment.
Every time you institute a new Farm Bill, you bring in a lot of temporary employees to implement the Farm Bill. And then as the
workload tapers off, when you get the systems in place and get the
payment structure set up, you find that you may not need as many
temporary employees.

75
We still are maintaining temporary employees but at a reduced
level. We are also trying to maintain permanent, full-time staff at
a modestly reduced level. There is no dramatic reduction here
across the country in FSA staffing, but there could be some local
areas where there could be some staffing shortages.
There are a lot of small offices in FSA. I dont know the exact
number, but there are a number of offices that have three or fewer
people. We have situations where there are some offices where people retire, and they havent been replaced. There has been some
discussion that maybe there should be some consolidation of these
small offices.
Now we are working with the Congress dealing with how to go
about consolidating offices, and there is report language in last
years appropriations bill as to how USDA should go about determining what the staffing should be and how offices should be handled in these various localities. We are working through these
issues now with Committee staff and staff in your offices.
Senator DORGAN. I am going to send you some questions about
that.
BEEF EXPORTS TO JAPAN

Mr. Chairman, if I might make one additional comment? A few

moments ago, about an hour ago, the administration released the
last months trade deficit numbers. It was the highest in history,
$68.5 billion for the most recent month, which, of course, is a complete disaster for our country. And both the President and the Congress have had their head in the sand on trade for a long while.
On the issue of trade with Japan, because one Canadian cow
found in the United States with BSE occurred, Japan has shut off,
then started, then shut off again beef shipments to Japan.
Obviously, you are working to try to open that market, and my
own feeling is that if Japan doesnt open their market, they should
ship all their goods to Kenya and see how quick they get rid of
their exports. But I just want to say that when that market is
openlet us say it is fully open tomorrownot many know it, but
15 or 17 years after the beef agreement with Japan, every pound
of beef that we do get into Japan will have a 50 percent tariff attached to it.
At the end of the beef agreement, you would have thought both
sides won the Olympics back in the late 1980s because they celebrated and thought it was wonderful, what a great agreement this
is. Almost 17 years after the agreement, there would remain a 50
percent tariff because they have tariff reductions with a snapback
on increased quantity.
It is unbelievable to me that even if you get that back openand
it should be open tomorrow, the beef market in Japan for U.S.
beefeven if it is reopened, there will remain a 50 percent tariff
on every pound of beef going to Japan. That is a colossal failure.
And I simply wanted to mention one more demonstration that in
the area of trade, all kinds of trade, our country lacks backbone
and will to say to other countries, we insist on reciprocal treatment
and fair treatment. It is not fair 17 years after a beef agreement
that they would continue to impose a 50 percent tariff.

76
Now that is not the most important thing. The most important
thing at the moment is prying open that market. I know you are
working on that. I know the administration is working on it. I
think it is unbelievable the trade deficit we have with Japan. Last
year, I believe close to $70 billion or over $70 billion.
And because one Canadian cow was found in the State of Washington with BSE, Japan has shut its market to U.S. producers. It
is unbelievable to me. So keep working, and you cant be tough
enough for my tastes. Whatever you do, the tougher you get, the
more I will support it.
Secretary JOHANNS. Thank you. I appreciate that. Thank you.
Senator BENNETT. Senator Bond.
Senator BOND. Thank you very much, Mr. Chairman. And welcome, Mr. Secretary.
Following up on the comments by colleague from the Dakotas,
foreign trade is extremely important. And in agriculture, our surplus has been as high as $30 billion that our exporters can generate from exporting farm goods.
And your budget officer talked about the need for 21st century
IT for the central administration of USDA, and that sounds good.
But farmers in the Midwest are telling me they need 21st century
transportation if they are to get their goods to the world market.
MISSISSIPPI RIVER TRANSPORTATION INFRASTRUCTURE

And on the issue of having a competitive Mississippi River transportation and the Illinois system that serves the 21st century, as
our 75-year-old system has served the previous century, I understand from news reports that you have reconfirmed that the administration does not oppose modernizing our aging locks on the Mississippi and Illinois Rivers. Is that correct?
Secretary JOHANNS. Correct.
Senator BOND. Thank you.
Deputy Secretary Conner, I was very much encouraged by the
comments you made in response to questions from my colleague
Jim Talent in your confirmation hearing when you said Mississippi
River commerce is absolutely essential and that we would be absolutely dead in the water without it and that you would be an advocate within the administration in helping that reality become understood.
Does that remain your point of view?
Mr. CONNER. Absolutely, Senator.
Senator BOND. Havent lost any of your enthusiasm for it?
Mr. CONNER. No. No, those were not statements made as a result
of my confirmation. We continue to believe strongly in those, Senator Bond.
I dont think you need to look any further than the impact that
Hurricane Katrina had on grain prices in the Midwest during that
short period of time when the ports were closed to know just how
essential this river transportation is to our farmers in the Midwest.
Senator BOND. I was pleased that I even saw some mention in
the national media that there was something coming down the
river going through the port of New Orleans called grain. And this
may have been the first recognition by the national media that we

77
do export grain, and that it is very important for our rural economies and as well as our balance of trade.
GRAIN EXPORTS FORECASTING

Dr. Collins, it is good to see you again. I remember very well, I

believe it was 2 years ago, you told this subcommittee when asked
about the requirement that the Corps come up with a 50-year projection, you said that you could make a 10-year projection that our
exports in corn are projected to rise about 45 percent with about
70 percent of that expected to go out through the Gulf. And by extension, that means significantly down the Mississippi and Illinois
Rivers.
When I asked you why you didnt try to make a 50-year, 50,
forecast as some people had charged the Corps of Engineers for
doing, I believe you said that doing it for 10 is heroic enough. Is
that a fair representation, and would you like to explain that?
Mr. COLLINS. Senator Bond, I would still stand by that last comment. I think that 50-year projections are highly speculative. Our
own 10-year projections, which we do every year to support the estimates in the Presidents budget, are also speculative.
Nevertheless, those projections do show that, over time, we
would expect to increase our grain exports, particularly our corn
exports. However, the increase is not quite as high in our current
set of forecasts, as you just mentioned. Nevertheless, it is still a
substantial increase over the next decade.
One of the reasons we lowered it was because of the increase in
corn use for ethanol, which might compete a little bit in the export
market. But even so, we show a strong increase in corn exports expected over the next decade. And we expect that roughly three
quarters of those exports would move down the Mississippi River.
Senator BOND. And they are trying to go beyond that with all of
the variables, not only uses, but exchange rates. Perhaps even
transportation. That becomes beyond the realm of the realistic?
Mr. COLLINS. It is beyond what we normally try to forecast. Nevertheless, you can look out over the next 20, 30, 40, 50 years, and
you can look at the economic growth that is occurring in the world.
The increase in incomes in developing countries, higher income developing countries, and we know they are going to change their
diets. We know they are going to move more toward meat, and they
are going to be demanding feed grains and oil seeds to grow livestock and poultry products.
So we do think there is a good long-term market for grains and
oil seeds in the world, and we think that the United States can
compete successfully in that market. And I think having efficient
infrastructure will help make that possible.
Senator BOND. Thank you, Doctor. That is very important, and
I certainly appreciate it.
And I would ask Secretary Johanns picture of some of the
jammed up barges, on maybe even bringing some grain across from
Nebraska to try to go into the world market. Do you agree that the
system built 75 years ago with a 50-year projected life span that
moves 80 million tons of commerce annually and two thirds of our
exported grain has proved to be an important and wise investment?
Secretary JOHANNS. Yes.

78
Senator BOND. It is interesting that sometimes people are naysayers, and I would like to introduce you to a person, unfortunately, a dedicated man, well intentioned, bright, honorable. This
is Major Charles L. Hall, the Rock Island engineer from 1927 to
1930.
He advised President Hoover at the time that the proposed system that currently exists, that we have now, was not economically
feasible. He argued that limited barge traffic did not indicate that
a viable barge industry would develop.
Fortunately, President Hoover and the Congress ignored the advice, and President Hoover said modernization would put the Nations rivers back as great arteries of commerce after half a century
of paralysis.
Now I suspect that Major Hall may have some grandchildren or
great-grandchildren working dutifully over at OMB.
Senator BOND. But I ask that you let not just a positive vision
of the future, but this history help inform you, the internal discussion on whether we should be trying to predict the future or shape
the future, whether we want to compete or surrender.
And I was very much encouraged by Dr. Collinss comments, and
I think that shows that if we are willing to build the future, if we
are willing to provide the infrastructure, we can and will see it
grow. If we say, hey, the 75-year-old system is good enough, it is
going to break down, and so are our exports.
And I know that you are reluctant, Mr. Secretary, to comment
in public about other agencies budgets. But I think we all understand that there is absolutely no voice, nobody speaking up for agriculture at DOD, at CEQ, or at the Office of Management and
Budget.
At DOD, wonderful folks to work with, but they are afraid that
they are going to get beaten down if they try to step out of line.
If you and your colleagues, well-informed at the United States Department of Agriculture, dont fight for agriculture, agriculture will
be without a voice.
And I join with my colleagues in saying that voice not only needs
to be for efficient, effective transportation, it needs to be for new
technology, and we need to continue to develop the biotechnology
and the other things that are significant.
And we need to continue to fight to make sure that agriculture
has a seat and a prominent place in lowering tariff barriers so that
we can realize the potential of American agriculture in feeding the
hungry of the world and assuring not only solid rural communities,
but good incomes for farmers.
Secretary JOHANNS. Thank you.
Senator BOND. Thank you very much. Thank you, Mr. Chairman,
Mr. Secretary.
ADDITIONAL COMMITTEE QUESTIONS

Senator BENNETT. Thank you very much, Senator Bond.

With the eye on the clock and the recognition that the full committee is meeting, we will submit additional questions to you, Mr.
Secretary, in writing. And as I said in the opening statement, I
hope that all Senators have those questions to the subcommittee
staff by Friday, March 17.

79
[The following questions were not asked at the hearing, but were
submitted to the Department for response subsequent to the hearing:]
QUESTIONS SUBMITTED

BY

SENATOR ROBERT F. BENNETT

USDA SHARE OF BUDGET CUTS

Question. Congressional Quarterly analyzed the administrations budget request

by appropriations subcommittee. The analysis shows that overall discretionary funding for this subcommittee, as proposed by the administration, is down 7 percent.
Since the budget for the Food and Drug Administration is up 5 percent, we know
all of the cuts come from the budget of USDA. No other department has taken such
a large decrease.
Why has USDA taken such a disproportionate share of the cuts to the non-defense, non-homeland security, portion of the discretionary budget?
Answer. The Presidents budget for 2007 continues to support the priorities of the
United States Department of Agriculture (USDA). USDA is committed to the Presidents plans to reduce the deficit which will strengthen the economy and create jobs.
The reduction in USDA discretionary funding is largely the result of the following
changes. First, the budget does not propose continuation of the one-time supplemental funding provided in 2006. Second, funding for selected programs, including
earmarked research grants and watershed projects, is reduced or eliminated in the
budget. Further, certain one-time funding, such as construction projects, is not continued in the budget. These reductions allow us to propose increases in high priority
areas, including food and agriculture defense, avian influenza and food safety.
LEGISLATIVE PROPOSALS IN THE BUDGET

Question. Historically, the Congress has not enacted new user fees for the Food
Safety and Inspection Service. The 2007 budget request includes a legislative proposal that would generate an additional $105 million.
If the Congress does not agree to new user fee proposals, how do you propose we
make up the difference?
Answer. In 2007, the Presidents budget includes and requests the full amount of
budget authority needed to operate FSIS inspection services. We are requesting authority to charge user fees, deposit the fees into special receipt accounts, and use
the fees subject to appropriations. We fully support the fee proposal as presented
in the budget, which will shift the responsibility for funding these programs to those
who most directly benefit.
Question. Will you submit a budget amendment?
Answer. No, the Presidents current budget includes and requests the full amount
of budget authority needed to operate FSIS inspection services.
Question. Have you submitted the text of your legislative proposals?
Answer. The proposal is currently being finalized and will be sent to Congress
shortly.
WIC LEGISLATIVE PROPOSAL

Question. In addition, the budget proposes another legislative proposal to limit nutrition services and administration grants in the Women, Infants, and Children
(WIC) program, which reduces the program by $152 million.
If the Congress does not agree to this proposal, how do you propose we make up
the difference? Will you submit a budget amendment?
Answer. The WIC Program will continue to serve as many eligible persons as possible with the funding level provided by the Congress, including use of the $125 million contingency fund as needed. We do not plan to submit a budget amendment.
ANIMAL IDENTIFICATION

Question. Mr. Secretary, the Congress has provided over $66 million for the implementation of an animal identification system. This level of funding does not include
an additional $18.7 million that was transferred from the Commodity Credit Corporation. With that in mind, the budget request for fiscal year 2007 proposes another $33 million to continue this animal identification exercise.
Please provide us with an update on the status of animal identification and when
you expect a national program to be fully implemented.
Answer. Premises registration has been implemented in all 50 States and 2 Territories. Several Tribes are also registering their premises. The animal identification
phase, in which APHIS will begin allocating animal identification numbers, is being

80
implemented in March 2006. We anticipate the remaining systems elements will be
operational in early 2007, but private entities will need to supply information to fill
the private databases.
Question. To be more specific, infrastructure items such as ear tags, scanners, and
private databases must be available for such a program to operate. Who will fund
this infrastructure, the private sector or USDA?
Answer. USDA will continue to provide funding to the States to carry out their
responsibilities at the local level. In addition, USDA will continue to support the
premises registration and animal identification numbering systems, the data system
necessary to support and integrate multiple data systems held by private industry
and State sectors, and public outreach and education efforts. The private sector will
be assuming costs associated with scanners, private databases, and animal identification devices.
OFFICE OF THE UNDER SECRETARY FOR MARKETING AND REGULATORY PROGRAMS

Question. Mr. Secretary, the Under Secretary position for Marketing and Regulatory programs is currently vacant. This position is one that is very significant
based on current issues that the Department of Agriculture continues to monitor.
For instance, this office provides oversight and management of Department actions
related to avian influenza, pest eradication programs, marketing and grading of
commodities, and animal disease surveillance. Please provide us with an update on
this Under Secretary position. Also, how long do you expect this position to be vacant?
Answer. I appointed Dr. Charles Chuck Lambert as the Acting Under Secretary
for Marketing and Regulatory Programs on November 14, 2005. Dr. Lambert served
as Deputy Under Secretary for Marketing and Regulatory Programs since December
2, 2002. I anticipate that the President will nominate someone for this position in
the very near future.
FARM SERVICE AGENCY (FSA)COUNTY OFFICE REALIGNMENT

Question. Mr. Secretary, the Farm Service Agency continues to review the current
county office structure to determine how to better manage the agencys day-to-day
operations. Any action taken by the agency will most likely include a number of office closures and relocation of current employees.
Please provide us with an update of the current review process. Also, please take
a moment to explain how altering the current office structure will impact productivity and customer service.
Answer. Consistent with Congressional guidance provided in the 2006 Appropriations Act, I have asked FSAs State Executive Directors (SED) to conduct independent reviews of the efficiency and effectiveness of FSA offices in their States.
The SED and State committees will form review committees to identify what the
optimum network of FSA facilities, staffing, training, and technology should be in
each State within existing budgetary resources and staffing ceilings. Consistent with
guidelines set out by Congress, the agency will notify Congressional delegations and
conduct public hearings on proposals for closure or consolidation. There are no targets for office consolidations specified at the national level, but as you well know
there is an urgent need to optimize the network of offices given the current number
of inefficient offices.
We are encouraging the SED to explore joint opportunities with the Natural Resources Conservation Service (NRCS) and other agencies utilizing the State Food
and Agriculture Councils. The agencies are being asked to work cooperatively in this
effort.
We are committed to a continued dialogue with State and Congressional leaders
to discuss how best to modernize the FSA county office system and the necessary
steps required to improve its information technology (IT) infrastructure. As you
know this budget contains a request for funding to develop a modern, web-based,
program delivery IT infrastructure called MIDAS. The ultimate goal of the modernization/office consolidation process is to increase the effectiveness of FSAs local
offices by upgrading equipment, investing in technology and providing personnel
with critical training. IT modernization along with office consolidation is absolutely
essential to ensure that Americas farmers and ranchers continue to receive excellent service long into the future.
CLASSICAL CHINESE GARDEN

Question. Mr. Secretary, your budget requests approximately $8.4 million for the
construction of a Classical Chinese Garden at the National Arboretum. I understand
this is a joint project between China and the United States. In previous years, the

81
Congress was unable to fully fund the administrations request in a number of priority research programs such as the National Research Initiative (NRI), food safety,
nutrition, obesity, and emerging plant and animal diseases. It is almost certain that
we will not be able to fund all of your priorities again this year. What is the Classical Chinese Gardens priority with respect to these other research objectives? Answer. Although the construction of the Classical Chinese Garden is a joint project
between China and the United States, it is essentially a gift from China to the
United States. The Chinese will provide all the structures, rockeries, plants, furniture and art objects which are valued at over $50 million. The $8.4 million requested in the fiscal year 2007 budget is for infrastructure preparation including,
excavation of the lakes, and building a story palace for the Garden. The Department
has ranked this project as the highest priority facility project for ARS in the fiscal
year 2007 budget.
NATIONAL FINANCE CENTERSTATUS

Question. USDAs National Finance Center (NFC), located in New Orleans, operates a centralized payroll, personnel, administrative payment, and central accounting system that serves more than 40 departments, independent agencies, and congressional entities. NFC employs more than 1,400 staff in New Orleans to carry out
this mission. Because of the devastation Hurricane Katrina wrought on the New Orleans area, NFC was forced to evacuate and initiate its Continuity of Operations
Plan. NFC was not able to return to its New Orleans office for several months.
The Hurricane supplemental that was passed in December provided $35 million
to support temporary space for NFC employees, equipment, and refurbishment of
the New Orleans office. The most recent supplemental request seeks an additional
$25 million for continued support of recovery efforts at the National Finance Center.
Can you provide us with an update on the status of the National Finance Center
and explain how these funds are being used?
Answer. With the help of the $35 million appropriated to the Department, the National Finance Center is returning to normal operating conditions utilizing its New
Orleans facility. Service levels to client agencies are continuing to improve. The staff
remains committed to the continued uninterrupted delivery of services for financial
reporting and human resource and payroll clients. The National Finance Center
pays approximately 565,000 civilian Federal employees in over 140 Federal agencies, provides human resource services for several USDA, DHS, and other agencies,
and host the financial management system for USDA.
The National Finance Center and activities collocated with the Center incurred
expenses for redeployment of personnel, for equipment and related technology to resume business operations as quickly as possible, for rental payments and contract
costs associated with administering the emergency facility and for housing for personnel, and for emergency overtime for personnel working toward establishing operations. We are continuing to utilize and operate an interim computing facility in
Philadelphia with a small on-site staff; all other employees are now operating out
of the New Orleans facility.
The additional $25,000,000 in supplemental funds represents funding to support
recovery and continuity of operations efforts during the deployment and to continue supporting the operation of the interim computing facility in Philadelphia.
Specifically, supplemental funds are to be applied in the following areas:
Extraordinary Personnel and Related Expenses.Covers overtime and employee
travel between New Orleans and the various alternate worksites. Additionally,
provides continuing coverage of overtime and employee travel for staffing of the
interim computing facility.
Rental Charges.Covers the residential rental expenditures incurred for deployed employees.
Contracts.Covers various contracts in support of the operation of the interim
computing facility, backup facilities and the alternate worksites. Also includes
space rental of the various alternate worksites.
Temporary Labor.Covers the additional costs incurred to temporarily replace
expertise lost due to the dislocation and/or loss of employees.
Other Services.Covers essential support costs incurred and future costs needed to replace, refurbish, or rehabilitate facilities at the New Orleans site and
the interim/backup computing facilities. This includes hardware leases and software licenses for the interim computing facility, replacement of destroyed furniture, office equipment, telecommunications infrastructure and support, and
supplies.
Temporary Facilities.NFC expects to be done with temporary buildings by
early summer.

82
NATIONAL FINANCE CENTERDATA CENTER OPERATIONS

Question. I understand that under the Continuity of Operations Plan the NFCs
data center, meaning the main computer servers and equipment, was moved to a
temporary site in Philadelphia. Six months after Hurricane Katrina, NFCs data
center is still located in this temporary space.
Can you provide us with an update on USDAs efforts to find a permanent site
for NFCs data center?
Answer. On February 8, 2006, the USDA sent out a facility requirements package
to Department of Defense organizations and the General Service Administration requesting information on existing Federal facilities that could satisfy NFCs requirements. This package included a copy of NFCs current facility requirements (i.e.
floor space, power, pricing, security, etc.). As of March 21, 2006, information on 17
available facilities has been received. NFC is currently evaluating those responses
to determine the best alternatives. Once the best alternatives are determined, NFC
will conduct visits to those sites to complete the assessment process. NFC is working to complete the assessment and site selection process as quickly as possible.
This effort should be completed this spring.
Question. Can the NFC use USDAs National Information Technology Center in
Kansas City as a permanent site?
Answer. NFC explored the possible use of USDAs National Information Technology Center (NITC) in Kansas City as a permanent site. However, it was determined that the pressing program needs of the Department at the Kansas City site
would have resulted in implementation and operational costs that were incompatible
with the current rate structure employed with NFC customers. On February 8,
2006, the USDA sent out a facility requirements package to Department of Defense
organizations and the General Service Administration requesting information on
other existing Federal facilities that could satisfy NFCs requirements. Once responses are received and assessment and comparison of all acceptable alternatives
are completed, a decision of where to locate NFCs permanent site will be made.
515 HOUSING PROGRAM

Question. Mr. Secretary, the fiscal year 2007 budget request eliminates funding
for the 515 Rural Rental Housing Program. The 515 housing program provides funding for construction and revitalization of affordable rental housing for rural families
who have very low to moderate incomes.
If the Congress does not provide funding for the 515 housing program, will low
income citizens have any other option when it comes to affordable housing?
Answer. We stress that the Section 538 program, like the 515 program, provides
housing for very low income citizens. The 2007 budget includes almost $200 million
for Section 538 guaranteed loans for rural rental housingdouble the amount available for 2006. These guaranteed loans may be used for either new construction or
repairs and rehabilitation. In most cases, they are used in conjunction with other
sources of financial assistance. These guaranteed loans help increase the supply of
rental housing in rural areas.
As for the Section 515 program, the administration proposes to focus on the critical needs of the existing multi-family projects that have been financed under this
program, primarily in the 1980s. Almost half a million rural people reside in these
projects. A study completed in 2004 demonstrated that most of the projects are still
viable for low-income housing; however, a substantial portion of these projects are
in need of revitalization. Moreover, there is a risk that some projects will be prepaid
and leave the program. This would put the tenants of those projects at risk of substantial rent increases and possible loss of their housing. The 2007 budget includes
$74 million for housing vouchers to assist these tenants. The administration has
also submitted a legislative proposal to Congress that authorizes debt restructuring
and other incentives to encourage revitalization coupled with a long-term commitment from project sponsors to remain in the program. Further, the 2007 budget reflects the administrations commitment to fully funding the renewal of all expiring
rental assistance contracts, which is vital to keeping the projects affordable to low
income people.
Also, opportunities need to be provided for low-income people to own their own
homes. The 2007 budget supports about $1.2 billion in direct loans and $3.5 billion
in guaranteed loans for single-family housingabout the same as available for 2006,
except for emergency funding for the Gulf Coast hurricanes. This level of funding
is expected to provide over 40,000 homeownership opportunities. All of the direct
loans and about a third of the guaranteed loans are expected to go to low-income
families with incomes below 80 percent of median income.

83
NATIONAL VETERINARY MEDICAL SERVICES ACT

Question. In fiscal year 2006, Senator Kohl and I provided funding to implement
the National Veterinary Medical Services Act (NVMSA), to help get more vets into
underserved areas. No funds are requested by USDA to continue this program in
fiscal year 2007. A March 2005 Government Accountability Office report about
agroterrorism states that : USDA officials told us they intend to increase the number of veterinarians entering public service by making new efforts to increase veterinary students awareness of potential careers in public service. This appears to be
inconsistent.
Why the inconsistency?
Answer. The $500,000 appropriated in fiscal year 2006 has not been obligated.
Therefore, there was no need to request funds in the fiscal year 2007 budget. As
no-year funds, they will be obligated when the program is developed and incur costs.
CSREES is currently working with other agencies in the Department and informally
discussing implementation options with program constituents to determine how best
to design and deliver a full loan subsidy program. A critical initial task will be to
determine criteria for demonstrating, measuring, and monitoring need for veterinarians across fields of service, geographic locations, and national service needs. Once
these criteria and program guidance have been developed and made available for
public comment, specific needs for the program can be estimated.
Question. These vets will be extremely important as first responders in the case
of an outbreak of a foreign animal disease.
What is USDA doing to make sure that there will be enough vets familiar with
foreign animal diseases to help protect U.S. agriculture?
Answer. Veterinary Services, part of the U.S. Department of Agricultures Animal
and Plant Health Inspection Service (APHIS), administers the National Veterinary
Accreditation Program. This voluntary program certifies private veterinary practitioners to work cooperatively with Federal veterinarians and State animal health
officials. Accredited veterinarians are instrumental in increasing our capability to
perform competent health certifications, maintain extensive disease surveillance and
monitoring, and provide valuable veterinary service during national emergencies.
Producers that export animals interstate and internationally rely on the expertise
of accredited veterinarians to help ensure that exported animals will not introduce
diseases into another State or country. The accreditation program has served the
animal industry well for many years and remains integral to their future growth.
There are currently over 60,000 active accredited veterinarians in the national database.
The Presidents budget requests $2.4 million to enhance the National Veterinary
Accreditation Program to develop web-based certification and training modules for
veterinarians. This will provide a method for veterinarians to expand their knowledge of, and vigilance for foreign animal diseases.
MANDATORY COMMODITY PROGRAMS

Question. Mr. Secretary, the administrations fiscal year 2007 budget includes a
legislative proposal to reduce farm program spending by approximately $1 billion in
fiscal year 2007. This proposal would include a number of changes to the current
farm law that would decrease commodity support.
Please take a moment to describe this legislative proposal and the cost savings
that will be achieved should it become law.
Answer. The fiscal year 2007 Budget again proposes some changes in farm programs designed to save about $1.1 billion in fiscal year 2007 and about $5 billion
over a 5 year period. Key changes proposed include: a 5 percent reduction in all
farm program payments; a reduction in the payment limit from $360,000 to
$250,000 per natural person; a 1.2 percent assessment on all sugar marketed; a
three cent per hundredweight assessed on milk marketed; cost minimizing adjustments for the dairy price support program, and some moderate changes in the crop
insurance program, including modest reductions in premium subsidies and in administrative expenses paid to crop insurance companies.
FOREST SERVICE FUNDING

Question. Please give us details on any funding provided by this subcommittee

that benefits the United States Forest Service. Include agencies and amounts.
Answer. The Forest Service receives a small amount of funding provided by the
Agriculture Subcommittee to the Hazardous Materials Management (HMM) account. Funds are used to address environmental contaminations on Federal land.
More details are provided for the record.

84
[The information follows:]
The appropriation language for the HMM account provides for the necessary expenses of the Department of Agriculture to comply with the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the Resource
Conservation and Recovery Act (RCRA). The funds remain available until expended
and may be transferred to any agency of the Department for its use in meeting requirements pursuant to CERCLA and RCRA on Federal and non-Federal lands.
Agencies compete for HMM funding by submitting proposals explaining the RCRA
or CERCLA work that is needed, the strategic impact of that work, and the public
benefits that will be realized. Funding priorities reflect those planned impacts and
benefits. The following table shows actual amounts for fiscal year 2005, estimated
fiscal year 2006, and requested fiscal year 2007 HMM budgets for USDA agencies:

USDA HMM BUDGETS FOR FISCAL YEARS 2005, 2006, AND 2007
[In thousands of dollars]
Fiscal year
Agency
2005 actual

2006 estimate

2007 request

Agricultural Research Service ....................................................................

Food Safety and Inspection Service ..........................................................
Forest Service .............................................................................................
Departmental Administration 1 ..................................................................
Office of the General Counsel ...................................................................

2,259
17
5,645
2,580
1,484

3,770
........................
4,900
1,533
1,677

2,027
........................
6,593
1,700
1,700

Total ..............................................................................................

11,985

11,880

12,020

1 Actual

reflects amounts under DAs Office of Procurement and Property Management, as well as for agencies not in the FFIS system, CCC,
FSA, and Rural Development.

The HMM funding the Forest Service receives in this process supplements the
$1015 million of annual Forest Service funding in support of USDAs Hazardous
Materials Management Program. The Forest Service is not required to reimburse
the account, except when cleanup costs are recovered from other responsible parties.
It is estimated that HMM funding helped to leverage the estimated $22 million of
environmental cleanup work responsible parties performed in lieu of cash payments
in fiscal year 2005.
FINANCIAL MANAGEMENT SYSTEM

Question. The budget request includes an increase of $13.9 million to begin planning for the implementation of a new financial system. I understand that these
funds will be used for hardware and software procurement.
What, specifically, does USDA plan to purchase with this funding?
Answer. USDA is pursuing modernization of its core financial management system and associated business practices. It is critical that this modernization be advanced now to ensure a sound financial management system to support the Departments large and diverse portfolio of programs. The new, web-based system will replace outdated technology that is costly to maintain and not fully compliant with
current financial management standards. Further, the new system will allow full integration of existing and new eGovernment initiatives and provide efficiency
through shared services. Funds requested for 2007 are needed to begin the process
of designing and implementing the new system. Specifically, the funds will support
a contract to begin acquiring hardware and software. Implementation is expected
to continue for approximately 5 years beginning with a 1-year planning and startup phased during 2007.
Question. What is the status of the planning and implementation effort for the
new financial system?
Answer. The new financial management system, called the Financial Management
Modernization Initiative (FMMI), is in the early stages of procurement. A Request
for Information was released in August, 2005. The information USDA received was
used to further refine USDAs plans. A Request for Proposals was issued in late December, 2005 to solicit contractors to provide planning and integration services for
the financial management system. USDA prefers to contract with one entity for both
the hardware and software. It is expected that a contract will be awarded in the
fourth quarter of fiscal year 2006 so that integration planning and implementation
can begin and continue during fiscal year 2007.

85
Question. Does USDA have an estimate for how much it will cost to fully implement the financial system?
Answer. Until USDA receives and evaluates proposals, we will not know the total
cost or schedule for implementing FMMI.
Question. How does USDA plan to pay for this system? Will all of the funding
come through the CFO account or will each USDA agency be asked to provide funding for the system?
Answer. USDA will determine the funding approach after we receive and evaluate
proposals for FMMI. The funding requested for fiscal year 2007 is critical to permit
the project to continue to move forward.
PROVINCIAL RECONSTRUCTION TEAM

Question. Please provide detailed information on USDAs past participation in the

Provincial Reconstruction Teams, including total funding obligated. Please give specific examples of the results achieved and the number of individuals who served as
advisors and their employing agency.
Answer. USDA agricultural advisors on Provincial Reconstruction Teams (PRTs)
in Afghanistan provide technical guidance to PRT commanders, local and international non-governmental organizations, and individual farmers and herders. Advisors also provide training and information for local offices and staff of Afghanistans
Ministry of Agriculture, Animal Husbandry and Food, and the Ministry of
Reconstruction and Rural Development. Additional information is provided for the
record below.
[The information follows:]
Total funding obligated for these activities, including State Department International Cooperative Administrative Support Services (ICASS) costs, is shown below
by fiscal year:
Fiscal year

2004
2005
2006
2007

.....................................................................................................................................................................
.....................................................................................................................................................................
(projected) 1 ................................................................................................................................................
(projected) ...................................................................................................................................................

Amount

$940,000
2,628,000
3,909,000
5,012,000

1Includes $1 million transferred to USDA from the U.S. Agency for International Development to help defray an unanticipated increase in
security and other support costs.

From 2003 through 2006, 39 USDA staff served on PRTs in Afghanistan. Currently, USDA has six advisors in Afghanistan, including an area agronomist for the
Natural Resources Conservation Service from Brice, Utah, who serves on the Farah
PRT.
USDA agencies and the number of their staff participating over the years are as
follows:
Natural Resources Conservation Service17
Food Safety and Inspection Service6 Farm Service Agency4
Rural Business Cooperative Service3
Animal and Plant Health Inspection Service3
Cooperative State Research, Education, and Extension Service2
Foreign Agricultural Service2
Agricultural Marketing Service1
Forest Service1
Below are some specific examples of results achieved:
USDA advisors guided their Afghan counterparts in organizing the protection
of the endangered Koli-Kashman watershed. More than 2,500 trees were planted to stabilize the watershed; other conservation plant materials were incorporated; and erosion control and other protective structures were established.
More than 2,570 paid labor days were generated to benefit Afghan participants.
Disarmed and demobilized combatants were trained and employed for this activity, as well as unemployed youth, women, the elderly, and disabled. The program is being replicated in 28 other provinces.
USDA advisors serving on PRTs in the Kandahar area designed, secured funding, and worked with their military counterparts to install 15 windmills to
pump water for irrigation and livestock. The advisors established a distribution
network and water user associations to operate and maintain the systems. Alternative sources of energy are extremely important in this country which has
negligible reserves of fossil fuels.
A USDA veterinarian designed, secured funding, constructed, and trained Afghans to staff two veterinary clinics in Parwan and Kapisa Provinces. These

86
clinics provide access to professional animal health care and herd improvement
information for Afghanistans livestock producers. Approximately 85 percent of
Afghanistans families own livestock; therefore, this is a critically important
service.
A USDA advisor serving on the Kondoz PRT trained local non-governmental organizations to provide credit programs to farmers and rural businesses. Credit
cooperatives were established throughout northeast Afghanistan, and they have
remained functional and financially solvent for nearly 3 years. These credit programs have provided the first access to credit in decades for farmers in this region of Afghanistan, and have resulted in increased agricultural production and
incomes.
USDA advisors provided training to faculty at the agricultural colleges in
Jalalabad, Herat, Kandahar, and Kabul. Curricula were developed for new
courses and new training materials were developed and shared with other agricultural training institutions. Training was provided in veterinary sciences, natural resources management, horticultural production, and farm management.
This training provided these faculties with their first exposure in decades to
modern course materials and technical information on current agricultural practices.
The USDA advisor serving on the Kandahar PRT established a province-wide
poultry project that provided eggs to more than 400 families, for consumption
and sales. This project provided direct benefits to women and children through
increased family incomes and improved nutrition.
Question. How will the $5,000,000 requested in the budget to continue USDAs
participation in the PRT be used, (e.g. salaries, training, equipment, logistical support)? How much will go to the Department of State or any other department?
Answer. Approximately $3,400,000 is for salaries, benefits, and allowances and
$830,000 is for travel, equipment, program costs, and other support. Approximately
$782,000 is budgeted to go to the Department of State for projected ICASS and security costs.
FOREIGN SERVICE PERFORMANCE PAY

Question. The budget requests $990,000 for foreign service performance pay. Why
is this funding needed? How was this figure arrived at? What criteria will be used
to award such funding? Why was this requested in the Office of the Secretary?
Answer. The requested funding supports the first step of transition to a performance-based pay system and global rate of pay for Foreign Service personnel grade
FS01 and below. The forthcoming Foreign Service Modernization legislative proposal linked to this funding would amend Section 406 of the Foreign Service Act
(22 USC 3966) to eliminate longevity-based pay increases and institute a strictly
pay-for-performance system similar to that instituted for the Senior Foreign Service
in Public Law 108447.
The proposal would also establish a global rate of pay for the Foreign Service to
attract and retain a labor market for worldwide-available personnel, based on the
needs of the Service, consistent with other pay systems with similar worldwide
availability requirements. This global rate also addresses the increasing pay disincentive to overseas service, due to the frequent rotation of assignments, influenced
by 5 USC 5304.
The Modernization proposal would equalize the Foreign Service global rate at the
Washington, DC, rate, including locality pay, over 2 years. The requested funding
supports the first step of this transition. Additional funding will be required in fiscal
year 2008 and fiscal year 2009 to fully close the gap, in order to begin a new payfor-performance system effective April 2008, under a uniform global rate pay system. Funds are requested in the Office of the Secretary so that further allocations
can be made to the agencies within USDA that have Foreign Service personnel.
CROSS CUTTING TRADE NEGOTIATIONS AND BIOTECHNOLOGY RESOURCES

Question. How has the fiscal year 2006 funding for this been used (please be specific and give examples of the results achieved)? What agencies are involved in the
utilization of this funding? What will the proposed increase of $366,000 achieve?
Answer. Funding in the Office of the Secretary to support cross-cutting trade negotiation and biotechnology issues allows critical coordination of efforts that span
several agencies within USDA. In addition to supporting the Senior Advisor to the
Secretary, the agencies involved in the biotechnology funding are: the Animal and
Plant Health Inspection Service; the Cooperative State Research, Education, and
Extension Service; and the Foreign Agricultural Service. Their use of the money is
described below.

87
The proposed increase of $366,000 would enable the Department to more effectively address:
Quantitative analyses and studies needed to support increasingly complex compliance activities;
Expansion of a project to develop a regulatory and trade strategy for specialty
crops;
Increased activity in the area of transgenic animalsdomestically, in international markets, and in international standard setting organizations; and
Increasing need for communication materials for both domestic and international markets.
[The information follows:]
APHIS has used the fiscal year 2006 funding for a number of small to medium
size projects that together will strengthen and improve the biotechnology regulatory
process:
Extended an existing agreement with the National Plant Board to continue the
collection of information from the States and stakeholders on key aspects of the
agencys regulatory system and items that APHIS should consider during State
evaluations. These efforts will help APHIS to improve the biotechnology regulatory process.
Extended our current agreement with the National Association of State Departments of Agriculture (NASDA) to coordinate and conduct the pilot program for
State personnel to perform notification inspections. Once the pilot project is
complete, a task group consisting of NASDA and APHIS personnel will conduct
a full joint review of the program.
Continued work with Iowa State University to prepare additional chapters for
the APHISBiotechnology Regulatory Services equipment inspection manual to
be used to train third-party inspectors (State and other APHIS employees) on
proper techniques and procedures for cleaning and inspecting equipment for
contaminated materials.
Supported the agencys efforts to procure a geographical information system to
assist in managing and analyzing program data. Examples include the production of large and small maps of regulated States, counties and sites to improve
compliance, risk analysis, and program management functions; the ability to
geo-identify sites that may have been affected by weather events such as hurricanes or tornados in order to respond appropriately to these events to evaluate
the potential spread of regulated genetic materials; and the ability to layer a
number of data sets on a single map to provide the APHIS biotechnology regulatory program with an enhanced data analysis capability.
The fiscal year 2006 funding for Cooperative State Research, Education, and Extension Service has been used to begin the development of an
implementation/business plan by a contractor to deal with biotechnology regulatory issues associated with specialty crops. To date, a Scope of Work was prepared,
and proposals were received by the Specialty Crops Regulatory Initiative (SCRI)
Steering Committee. The Steering Committee is composed of representatives of technology developers, including USDA, 1890 and 1862 land-grant universities, other
universities, a spectrum of private sector companies, and commodity groups.It is anticipated that a consultant will be hired in May 2006, through an award to Arkansas State University. A draft business plan is anticipated by the end of the year,
to include proposals for the structure and function of the SCRI, and implementation
plans including mechanisms to fund the finalization of the operation of the SCRI.
The Foreign Agricultural Service has applied the fiscal year 2006 funds to address
global market access issues, capacity building, and technical assistance needs associated with agricultural biotechnology. In collaboration with other Federal agencies,
funds have been targeted to sustain and expand a number of ongoing bilateral and
multilateral activities aimed at advancing the development of science and rule-based
regulatory systems for the products of agricultural biotechnology and adherence to
World Trade Organization principles. This in turn has helped foster global market
access for U.S. agricultural products that, increasingly, are produced using modern
biotechnology.
Specifically, policy and technical engagement with Japan, China, Canada, and
Mexico, as well as within the Asia Pacific Economic Cooperation (APEC) and other
international fora, has helped maintain open access to these key markets for U.S.
agricultural products, including those produced through modern biotechnology. A
notable success of the engagement has been the continued market access for U.S.
corn exports to Japan after an unapproved biotechnology corn product was found in
the United States. Bilateral and multilateral efforts have been undertaken with
countries in the Western Hemisphere, as well as China and Japan, which have
helped guide implementation of the Cartagena Protocol on Biosafety in a practical

88
and predictable manner that will maintain access to global markets for U.S. agricultural products. Numerous technical assistance and educational activities have been
undertaken aimed at promoting adoption and acceptance of biotechnology. These
have included outreach to farmers in Africa and efforts to promote farmer adoption
of plum pox resistant plum production in Europe. Targeted technical assistance and
policy dialogues on biotechnology have also been undertaken with numerous countries with which the United States is engaged in FTA negotiations.
OFFICE OF CIVIL RIGHTS

Question. Please generally describe the Civil Rights Enterprise System and provide the following information: How much funding has been provided for this system
through fiscal year 2006? What is the total anticipated cost of the system? How has
this system helped improve the processing and resolution of discrimination complaints?
Answer. The Civil Rights Enterprise System (CRES) is a web-based USDA enterprise-wide complaint tracking system used for tracking, processing and reporting
employment and program complaints. The system is being implemented in two
phases: Phase 1Employment Complaints Tracking System in fiscal year 2004 and
2005, and Phase 2Program Complaints Tracking System in fiscal year 2006 and
fiscal year 2007.
The CRES project is on schedule and within budget. Phase 1, the Employment
Complaints Tracking System component, has been fully implemented and is currently operational. The employment complaint legacy systems have been shut down.
Phase 2, the Program Complaints Tracking System is under development with testing scheduled for the summer.
One of USDAs most significant achievements is the implementation of a webbased, Department-wide discrimination complaint tracking system in fiscal year
2004 to track, process and report on employment and program complaint activity.
The Civil Rights Enterprise System is being implemented in two phases:
Phase 1Employment complaint tracking system was implemented on time
and within budget during fiscal year 2005.
Phase 2Program complaint tracking system will be implemented in fiscal
years 2006 and 2007.
Additional information is provided for the record.
[The information follows:]
CRES planned budgeted cost is as follows:
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal

year
year
year
year
year

2003
2004
2005
2006
2007

.................................................
.................................................
.................................................
.................................................
.................................................

TOTAL ....................................................

System
System
System
System
System

Planning ................................................
Acquisition & Implementation Costs ....
Acquisition & Implementation Costs ....
Acquisition & Implementation Costs ....
Acquisition & Implementation Costs ....

$0.1 million, completed

1.6 million, completed
1.5 million, completed
1.8 million, planned
1.987 million, planned

.............................................................................

6.987 million, planned

The Civil Rights Enterprise System has improved efficiency through:

Standardization and elimination of duplicative systems.
Real time access to EEO complaint data.
Support of a paperless environment.
Ability to track, process and report informal and formal employment complaint
activity.
Implementation of accurate performance based reports.
In fiscal year 2006, USDA is enhancing the Civil Rights Enterprise System, including eFiling and an online docketing system that will allow complainants and
agency representatives to access real time complaint status information. These initiatives are currently in the development and testing phase.
This includes the ability to respond to mandatory reporting requirements, including:
Annual Federal Equal Employment Opportunity Statistical Report of
Discrimination Complaints (EEOC Form 462).
Notification and Federal Employee Antidiscrimination and Retaliation Act of
2002 (the No FEAR Act).
EEOC Management Directive 715.
Question. What are the specific activities and their associated funding in the fiscal
year 2007 budget that are targeted to the prevention of equal employment opportunity and program complaints?

89
Answer. As Secretary of Agriculture, I am firmly committed to ensuring the civil
rights of all USDAs customers and employees. The Office of the Assistant Secretary
for Civil Rights was reorganized in July 2005 to facilitate the fair and equitable
treatment of USDA customers and employees while ensuring the delivery and enforcement of civil rights programs and activities. This includes processing complaints in a time and cost effective manner and implementing initiatives to prevent
EEO and program complaints. Additional information on prevention activities is
provided for the record.
[The information follows:]
OFFICE OF CIVIL RIGHTS PROGRAM FUNDING

Conflict Prevention Resolution

The Conflict Prevention and Resolution Center (CPRC) was established to lead
and coordinate conflict management and ADR efforts throughout USDA. ADR programs exist in all USDA agencies and mission areas, and vary in both scope and
level of activity. ADR itself is applicable, in a variety of forms, to workplace disputes, EEO complaints, USDA program disputes, including civil rights complaints,
and group interventions. Reorganization and subsequent inclusion of CPRC in Civil
Rights maintains the USDA-wide focus on conflict resolution, with additional emphasis in support of the Assistant Secretary for Civil Rights.
Outreach
The USDA Office of Outreach strengthens USDA outreach efforts to limited-resource farmers and ranchers and under-represented customers, coordinates program
delivery outreach throughout USDA, and assists underserved customer groups in
collaboration with the Agency Outreach Coordinators and State Outreach Councils.
Outreach develops policy, thereby enhancing the building of partnerships with universities/colleges, community/faith-based organizations and other groups, associations and organizations. Outreach provides leadership through policy guidance,
high-level strategic planning and goal setting, performance measurement and feedback to USDA national, State and local outreach coordinators and councils. Outreach monitors, analyzes, and evaluates trends related to USDA programs and activities through mission area outreach plans, outreach coordinators, and State outreach councils. Outreach develops and provides training and education in outreach
function models, best practices, policies, environmental justice, strategic plans and
goals to USDA employees and stakeholders to provide an effective educational resource and linkage to internal and external customers regarding USDA-wide programs.
Fiscal year 2005
funding actual

Program

Fiscal year
2005 FTEs

Fiscal year 2006

funding estimate

Fiscal year
2006 FTEs

Fiscal year 2007

funding estimate

Fiscal year
2007 FTEs

Outreach .........................
Conflict Prevention &
Resolution Center .......

$1,338,387

$981,000

$1,001,000

706,700

736,000

751,000

Totals ................

2,045,087

14

1,717,000

14

1,752,000

14

QUESTIONS SUBMITTED

BY

SENATOR ARLEN SPECTER

DAIRY ASSISTANCE

Question. Agriculture is the largest industry in Pennsylvania, producing over $45

billion annually and providing approximately 1 in 6 jobs in agriculture and related
businesses. Of this industry, dairy is the number one sector in the State and ranks
number 4 in overall milk production in the entire Nation. Milk prices for dairy farmers have been on a down trend since January and economists project that the price
of milk will continue to fall. The proposed 3 cent per cwt. assessment in the fiscal
year 2007 Budget on all milk production will only compound the severity of this situation. Although the Milk Income Loss Contract (MILC) program, that I worked
very hard on to be extended to October 2007, will provide the safety-net needed for
our dairy farmers, the falling prices of milk and the continued high costs of fuel will
make it more difficult for dairy farmers across America to survive.
What does the Department plan on doing to help our Nations dairy farmers when
they need you the most?
Answer. We share your concern about the rising cost-price pressures faced by
dairy farmers and for that matter most farmers. In addition to the credit and other

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programs the Department has available to help producers when financial stress
rises, our dairy programs are by design geared to provide support when prices decline. The dairy price support program puts a floor under milk prices to provide
some protection in that way. And as you mentioned, the Milk Income Loss Contract
(MILC) program will provide some counter-cycle protection by providing payments
to eligible dairy producers when prices decline. As you will recall the President had
proposed that this program be extended through the end of the 2002 Farm Bill and
Congress did enact that extension in the recent Deficit Reduction Act. The Department is now implementing the newly extended program.
COMMODITY SUPPLEMENTAL FOOD PROGRAM

Question. The Commodity Supplemental Food Program (CSFP) provides 6.4 million food packages to over 400,000 mothers, infants, children, and primarily low-income seniorsin fiscal year 2005, 15,575 households in PA received CSFP packages.
CSFP food packages are delivered monthly, and provide $50 worth of food including
cheese, milk, and canned fruits and vegetables. The President eliminated this program in his fiscal year 2007 budget, stating Food Stamps and the WIC program
could meet the needs of CSFP recipients. However, seniors, who represent 90 percent of CSFP recipients, are not eligible for the WIC program, and many of these
seniors are also not eligible for food stamps, or are eligible to receive only $10 per
month in food stamp benefits. An additional benefit of the CSFP program to seniors
with disabilities is that they do not have to leave their home to receive the CSFP
food package.
How does the Department plan to meet the needs of many of these seniors who
depend on the CSFP program and who will not be eligible to receive any benefits,
or will receive reduced benefits, from the Food Stamp program?
Answer. Elderly participants who are leaving the CSFP upon the termination of
its funding and who are not already receiving Food Stamp Program (FSP) benefits
will be eligible to receive a transitional benefit worth $20 per month ending in the
first month following enrollment in the FSP under normal program rules, or 6
months, whichever occurs first. We estimate that most elderly CSFP participants
will be eligible to participate in the regular Food Stamp Program.
Based on the information we have about the characteristics of all elderly food
stamp participants, the average monthly food stamp benefit for an elderly person
living alone was $65 per month in 2004. The percentage of food stamp households
with elderly that received the maximum benefit (14 percent) was nearly as large as
the percentage that received the minimum benefit of $10 (17 percent). Thus, most
elderly food stamp participants receive more than the $10. We expect that this pattern would extend to new FSP participants leaving the CSFP as well.
LIVESTOCK PROTECTION PROGRAM

Question. The Livestock Protection Program (LPP), implemented by the Pennsylvania Department of Agriculture, in conjunction with the U.S. Department of Agricultures (USDA) Animal and Plant Health Inspection Service (APHIS) Wildlife
Service (WS), the Pennsylvania Game Commission, and the Pennsylvania State University is a crucial pilot program that provides technical and operational assistance
to help Pennsylvanian agriculture producers control wildlife damage to their crops
and property. Started in 2005, this program is fully implemented in eight counties,
while on a limited basis across the rest of the Commonwealth of Pennsylvania. The
goal of the LPP is to expand fully to other counties in order to protect dairy farmers
from feed loss due to starlings, protect sheep farmers from coyotes, and protect property from geese damage. On an annual basis, dairy farmers lose about $2,000 from
feed loss due to starlings. I, along with U.S. Senators Bennett and Santorum, and
U.S. Representatives Sherwood, Holden, Shuster, English, Platts, Kanjorksi, Murphy, and Murtha sent you a letter on January 24th requesting that you direct any
additional fiscal year 2006 Agricultural Appropriations funding for APHIS Wildlife
Services to the LPP in order to keep this important program in existence.
What is the status of this request? Does the Department plan on redirecting extra
funds to the Livestock Protection Program?
Answer. The Department recognizes the vital role of agriculture and the LPP to
Pennsylvanias economy. APHIS allocated $70,000 in fiscal year 2006 to support this
program.

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QUESTIONS SUBMITTED

BY

SENATOR CHRISTOPHER S. BOND

NATIONAL AGRO-FORESTRY CENTER

Question. When USDA National Agro-forestry Center, a partnership between the

Forest Service and NRCS, in Lincoln, NE, was affected by the NRCS re-organization, the USDA provided assurances that the center would be supported by NRCS
at a funding level of $655,000.
What was the actual NRCS funding for the above mentioned partnership in Lincoln, NE in 2006? How much is the NRCS funding for the above mentioned partnership in Lincoln, NE for 2007?
Answer. NRCS continues a close collaboration with the National Agroforestry
Center. A NRCS Lead Agroforester position was reestablished and filled at the beginning of fiscal year 2006 and additional direct support totals $140,000. This position serves as a liaison with the Center. Further support is provided from the three
foresters at NRCS new National Technology Support Centers. Salaries and support
total an estimated $360,000. The total support cost in fiscal year 2006 is $500,000.
Specifics for the fiscal year 2007 Budget have not been developed.
NATIONAL INSTITUTE FOR FOOD AND AGRICULTURE

Question. The President announced a major initiative as part of the State of the
Union address to enhance Americas competitive standing in the global marketplace.
The American Competitiveness Initiative proposes to significantly boost the Federal
Governments investment in basic research for the physical sciences acknowledging
the vital importance of basic research to future discovery and eventual economic
growth.
How much basic research does USDA perform? Over the last two decades has that
amount grown? Would the establishment of a National Institute for Food and Agriculture-similar to other National scientific institutes like the NIH or NSF enhance
the future competitiveness of our farm and food sectors? If so, will you endorse its
creation?
Answer. While the distinction between basic and applied research is not clear cut,
it is estimated that slightly less than half of the USDA research budget supports
basic research.
The National Institute for Food and Agriculture is one of several initiatives that
have been proposed to strengthen the Nations agricultural research system, with
the ultimate goal of strengthening the competitive position of the U.S. farm and food
sector. NIFA, among other proposals, has generated useful discussion among the diverse stakeholders of the food and agriculture research community that enrich future consideration of options for strengthening the research component of the farm
and food sector.
Question. The National Institutes of Health spends nearly $15 on research for
every dollar spent by the USDA. In competitive, merit based, peer-reviewed
grantslong considered the best way to achieve advances in fundamental science
the NIH outspends the USDA by more than 100 to 1.
What is the cause for this funding imbalance? Do you believe the competitive interests of our farmers are being met with such a funding disparity?
Answer. The administration continues to show strong support for the National Research Initiative (NRI), the competitive, merit-based, peer-reviewed grant program
within USDA. Funding for the NRI has increased in recent years, and the administration has requested an increase of $66.3 million in fiscal year 2007. The NRI is
a critical component of a balanced research portfolio of intramural and extramural
research that is effectively serving the competitive interests of farmers.
Question. In USDAs budget proposal for fiscal year 2007, your administration
lists six strategic goals that describe the Departments major objectives which include enhancing international competitiveness, enhancing the competitiveness and
sustainability of rural economies, enhancing food safety, improving the Nations nutrition and health, protecting our natural environment, establishing energy independence and improving the quality of life in Rural America. Similar objectives were
listed by the 2002 USDA Research, Education and Economics Task Force which
called for the creation of a National Institute for Food and Agriculture to achieve
these goals.
Has the Department taken any steps to meet the objectives outlined in this task
force report? My thought would be that if NIFA were in place for the last 15 years
we probably would be producing at least 20 percent of our energy needs from cellulose sources and other renewable fuels. Would you agree with that?
Answer. The Departments fiscal year 2007 strategic goals are similar to those
identified by the 2002 USDA task force report. This suggests that the Departments

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research agencies and programs are focused on achieving the same goals and objectives as those outlined in the task force report.
Question. Mr. Secretary, since this administration financially supports joint research with major overseas competitors like India to improve farming technology as
part of an Agricultural Knowledge Initiative, will this administration support an agricultural knowledge initiative here at home known as the National Institute for
Food and Agriculture? It seems to me, Mr. Secretary that we ought to reinvest in
our research infrastructure here at home before going overseas. I think my farmers
would support a major U.S. Agricultural Initiative before they would support a U.S.India Agriculture Initiative. Lets fix our own research problems before fixing those
of our competitors.
Answer. The Department has a strong agricultural research program that is generating new knowledge and technology that will enhance American farmers ability
to be competitive in global markets. In particular, the administration continues to
support the National Research Initiative, USDAs flagship competitive research program. In the fiscal year 2007 Budget the President once again recommends increasing the investment in the NRI to help address the critical issues facing our Nations
farmers.
EPA REGULATIONS

Question. Specific provisions of concern to Ag retailers and distributors regards

the proposed EPA rules relating to secondary containment requirements covered
under Scope and ApplicabilitySection 165.141 (This defines facilities covered by
these sections of the rule) through Administrative StandardsSection 165.157.
Included in these sections are new Federal requirements that relate to bulk pesticide containment only. For example, General Requirements for Containment
StructuresSec. 165.146(a)(1)(2) and Specific Requirements for Liquid Bulk Containment StructuresSection 165.148(a) discuss types of containment structure Ag
retailers would need to comply with.
Will the above mentioned specific provisions be applied in a fair and even manner
for the entire Ag sector? If not, then will these provisions be dropped from any final
EPA rule and continue to allow the States to regulate this area as they have been
doing for the past several decades without EPA oversight?
Answer. EPA administers pesticide regulations under the Federal Insecticide,
Fungicide and Rodenticide Act (FIFRA), and is responsible for their implementation
and interpretation. USDA and EPA actively work together to ensure unnecessary
regulatory burdens are not imposed on the agricultural sector. We will work with
EPA to encourage them to adopt provisions in the rulemaking that can be applied
in a fair and even manner for the entire Ag sector.
QUESTIONS SUBMITTED

BY

SENATOR CONRAD BURNS

RESUMING BEEF EXPORTS TO JAPAN

Question. Mr. Secretary, many of my producers in Montana are frustrated that

you dont appear to be taking a more firm stance with Japan regarding beef exports.
Can you tell me what USDA is doing to get the borders back open?
Answer. On January 20, when we announced that a U.S. exporter sent a shipment of veal to Japan that did not comply with the terms of the Export Verification
Program, we made very clear that we take this matter very seriously. We immediately set about to implement follow-up actions that would prevent such an incident from occurring again and would help get exports to Japan resumed as soon
as possible. To help in this effort, we made clear in a series of meetings with senior
Japanese officials that this is a top priority and that our investigation of the incident would be thorough.
On February 17, the results of the Departments investigation into the ineligible
shipment of veal were announced. In conjunction with that announcement, a comprehensive USDA report was released that details the findings of the investigation
and actions taken by USDA. At that time, it was announced that additional actions
beyond those announced January 20 would be taken in response to findings in the
report. These actions go beyond the circumstances of the incident to incorporate further efficiencies and protections into the U.S. export system.
This information was submitted to Japanese authorities for their review. The document contained two distinct reports: an investigation by the Food Safety and Inspection Service and an audit by the Office of the Inspector General. Japanese authorities reviewed the two reports and transmitted questions to USDA about the report. USDA has responded to all of Japans official questions and delivered them

93
to the Ministry of Agriculture. In addition, a technical team will be traveling to
Japan in late March for meetings to provide any necessary clarifications as well as
respond to any remaining questions. Department of Agriculture officials, as well as
those from other Executive Branch agencies, have pressed upon Japan the importance of resolving this matter and the need to provide a timeline for reestablishing
trade. We have stated on a number of occasions that time is of the essence and that
we need to have assurances that this process will not be drawn out. We have also
made clear that Japan may be inviting a complication in our bilateral trade relationship if this matter is not resolved quickly.
PESTICIDES

Question. Mr. Secretary, you and I have often talked about the need for USDA
to serve as an advocate for agriculture at EPA. I am concerned that rules relating
to Superfund and pesticide containment are treating agriculture unfairly, and I believe that you need to step up on behalf of Americas farmers and ranchers.
Can you share with the Committee your thoughts on the relationship between
EPA and USDA?
Answer. The Department normally reviews proposed rules that EPA promulgates
to evaluate their impact on USDA activities, and on production agriculture. We
work cooperatively with EPA, and often provide comments, both informally and formally, in order to attain key environmental objectives without unduly penalizing
farmers and ranchers.
Representatives of USDA regularly meet with EPA personnel in a series of bimonthly meetings to share progress on conservation programs, and look for opportunities to assist producers in proactively meeting regulatory constraints. These meetings also inform EPA staff so that they can tailor regulatory programs to achieve
protection of the environment while allowing producers to have flexibility in achieving the desired results.
For example, USDA has been working with EPA during their efforts to promulgate regulations on the containment of pesticides at storage facilities to achieve a
final regulation that will not be unfairly burdensome to agricultural producers. The
draft final rule would establish standards for removal of pesticides from containers
and for rinsing containers; facilitate the safe use, refill, reuse, and disposal of pesticide containers by establishing standards for container design, labeling and refilling; and establish requirements for containment of large, stationary pesticide containers and for containment of pesticide dispensing areas. These regulations do not
directly impact farm containers. Since this effort is not yet finalized, I am not at
liberty to discuss any further details of the pending regulatory language, but we
continue to evaluate proposed changes and will provide EPA with comments on
their draft final rule.
RENEWABLE FUELS

Question. Renewable fuel development holds tremendous potential for rural States
like Montana, particularly the development of cellulose ethanol and biodiesel. I understand this is a top priority for USDA.
Can you update the Committee on USDAs activities in implementing the Energy
title of the Farm Bill and in making producers aware of the resources that USDA
has available?
Answer. Renewable fuel and bioenergy development remains a top priority for
USDA. The Energy Title of the Farm Security and Rural Investment Act of 2002
(Farm Bill) authorized various renewable fuels programs. Section 9010 of the Farm
Bill continued support for the bioenergy program to support increased production
of bioenergy. Since fiscal year 2002, USDA has awarded over $450 million in payments to bioenergy producers through this program. Section 9004 established the
Biodiesel Fuel Education Program through which USDA awards grants to educate
governmental and private entities and the public about the benefits of biodiesel.
USDA also continues to team with the Department of Energy on the Biomass Research and Development Initiative with authorized funding from section 9008. This
initiative supports the development of new bioenergy technologies and biobased
products.
USDA conducts outreach to producers in many ways. Service Center Agencies provide information at their individual locations. USDA participates in many conferences each year that are designed to reach producers and potential producers.

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BEGINNING FARMERS AND RANCHERS

Question. I believe one of the most important things we can be debating, especially in light of Farm Bill reauthorization, is role the Federal Government can play
in encouraging young farmers and ranchers to get into production agriculture.
Is USDA considering incentives and/or elimination of barriers for young farmers
and ranchers, and how will that play into Farm Bill proposals?
Answer. I recently completed a series of Farm Bill listening sessions around the
country. A recurring theme at these sessions was the need to help young farmers
and ranchers to get into production agriculture. A number of comments and suggestions were received which warrant consideration during the upcoming Farm Bill debate. Further, the USDA Beginning Farmer and Rancher Advisory Committee will
be meeting later this year. In the past, this committee has provided valuable guidance in framing Farm Bill debate pertaining to assistance to beginning farmers and
ranchers.
NATIONAL ANIMAL IDENTIFICATION SYSTEM

Question. Producers in Montana continue to be concerned about the development

of a national animal ID system. I hear concerns relating to cost, confidentiality, and
liability.
Can you please share what is being done to address these concerns?
Answer. The size and scope of the National Animal Identification System (NAIS)
demand that it be a cooperative program, with industry and government sharing the
cost of the necessary elements. By the end of fiscal year 2006, USDA will have invested $84.8 million into developing NAIS in terms of premises registration, information technology development, education and outreach, and staffing. The animal
identification component is USDAs next implementation priority, along with the information-technology architecture to support multiple tracking databases. The animal tracking databases themselves will be developed and maintained by industry
and States, and the cost of capturing animal movement data will be their responsibility.
USDA recognizes that some producers have concerns about misuse of the data
that will be collected and how the information will be maintained. We are working
with industry to establish an information technology solution for animal movement
data to be maintained in animal tracking databases managed by the industry and
States. As proposed, USDA will only be able to access the information through a
querying mechanism initiated when a disease of concern has been reported. As industry develops data collection systems and this process moves forward, USDA will
continue to keep producers informed. The NAIS will not expose producers to any
unwarranted or additional liability.
QUESTIONS SUBMITTED

BY

SENATOR SAM BROWNBACK

NEW USES EXPO FOR BIOBASED PRODUCTS

Question. I recently sent a letter to you concerning the biobased products component of the Department of Agricultures Research, Education and Economics Strategic Vision of 20052008. I offered Kansas City as a site for the USDA to host
a New Uses Expo to highlight new, non-food, non-feed uses for agricultural products. Your office was kind to reply to my letter by saying that the USDA hopes
to sponsor, as resources allow, a National Biobased Products Conference to highlight
new biobased products in 2007.
Mr. Secretary, what resources does your department need in order to make this
New Uses Expo happen?
Answer. At this time, the Department has not committed to holding a Biobased
Products Conference in 2007. If we decide to hold a conference, we will coordinate
with other Federal agencies.
HORSE SLAUGHTER

Question. Last year the Senate passed an amendment that sought to de-fund
USDA inspections of horse packing plants. I believe this policy to be extremely
short-sighted. Now horse packing plants are required to pay user fees for inspectors to certify the quality of the meat. This is essentially an extra tax on packing
plants that will lead to a loss of jobs here in America. Plus, if we outlaw the slaughter of horses, I believe this will lead to less humane treatment of unwanted horses.
Experts estimate 7080,000 horses each year are disposed of because they are no
longer viable, are old, infirm, unmanageable or unwanted. These same experts esti-

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mate this number will approach 100,000 unwanted animals a year very shortly and
could double within a few years. While most horses are sold, an unknown number
are abandoned. When sold, approximately 55,000 animals will move to USDA-regulated and inspected processing plants, transported under USDA regulations, promulgated under the Commercial Transport of Equine for Slaughter provisions of the
1996 Farm Bill. Once they reach the processing plant, these animals are euthanized
humanely under the Federal Humane Slaughter Act, and the meat is inspected and
certified by USDAs Food Safety & Inspection Service (FSIS). While some meat is
sold in the United States to satisfy cultural markets, the majority is exported. Some
argue these unwanted animals can be easily moved to existing adoption facilities.
The capacities of such facilities range from 5 horses to, in rare instances, a maximum of 1,000 horses. The average capacity of one of these facilities, however, is
30 animals. In the first year of a Federal ban on horse processing, nearly 2,700 additional facilities would be needed, according the American Association of Equine
Practitioners (AAEP), the professional organization of equine veterinarians. This is
PETAs first salvo in the war against meat. Whats next, the outlawing of slaughtering cattle? I intend to undo this mistake we made last year.
What is the administrations position on the Horse Slaughter amendment as
passed last year?
Answer. USDA has abided by the prohibition of federally-funded USDA inspections of horses presented for slaughter at official establishments. The fiscal year
2006 Agriculture, Rural Development, Food and Drug Administration and Related
Agencies Appropriations Act included a section prohibiting the use of appropriated
funds to pay the salaries or expenses of personnel to inspect horses (ante-mortem
inspection) after March 10. Conference report language for the act recognized FSIS
obligation under existing statutes to provide for the inspection of meat intended for
human consumption (domestic and exported).
While the appropriations bill prohibited appropriated funds from being used to
pay for ante-mortem inspection, it does not eliminate FSIS responsibility under the
FMIA to carry out post-mortem inspection of carcasses and meat at official establishments that slaughter horses. In response to a petition, FSIS established a feefor-service program under which establishments can apply and pay for ante-mortem
inspection of horses. The interim final rule became effective March 10, 2006.
LAND GRANT UNIVERSITY FUNDING

Question. As a Senator from a State with a first class land-grant university and
a graduate of that same university, I am very proud of the legacy the land grant
university system has in our country. As you know the land grant university system
makes up the infrastructure which is the basis of our countrys agriculture research,
teaching, and extension programs. These are programs that support our farmers,
ranchers, youth, families, and rural residents. Without the base funds that our Land
Grants schools receive for Hatch Act, McIntire-Stennis Cooperative Forestry, and
the Animal Health programs many schools would be in dire straits to continue to
offer programs that support our constituents. The Presidents budget proposes to cut
55 percent of Hatch Act funds, 50 percent of the McIntire-Stennis funds, that our
Land Grant Universities currently get and make them available only to multi-state
projects and eliminate the Animal Health funding. Some Universities would very
likely have to terminate many of their Agriculture programs. Some may have to go
as far as not offering agriculture as part of a curriculum. A University like Kansas
State might suffer a loss of $1.6 million. Kansas State is an institution that would
compete very well for those funds if in a multi-state pool. However, there would be
major disruption in current programs while we had to go through the motions of
competing. They would have to lay off faculty, stop on-going research projects, and
undertake other disruptive measures. And then there would be no guarantee that
my institution would get back to even. Without these funds the Land Grants system
would be in disarray.
In making this proposal, did you consider the financial and programmatic impacts
there would be on each Land Grant institution and the other stakeholders who depend on these programs?
If YEScan you please provide the Committee with a copy of your analysis of
these impacts?
If NoHow can you expect us to embrace such a major change in program administration without a detailed analysis of how these changes will affect the Land
Grant institutions in our State?
Answer. Yes, we did consider the impact on eligible institutions. The analysis is
provided for the record.
[The information follows:]

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REVIEW OF STAKEHOLDER RESPONSE TO THE FISCAL YEAR 2006 BUDGET AS BACKGROUND FOR COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE
(CSREES) FISCAL YEAR 2007 BUDGET PROPOSAL

Key Elements of the Presidents Fiscal Year 2006 Budget for CSREES
The fiscal year 2006 budget expanded the NRI to $250 million; established a new,
SAES Competitive Grants Program at $75 million; cut the Hatch and McIntire-Stennis research formulas by 50 percent in 2006, and 100 percent in 2007; cut the Animal Health (Section 1433) research formula by 100 percent, starting in 2006; and
moved six competitive grants programs currently funded under Section 406, Integrated Competitive Grants programs, to the integrated programs area of the NRI
initially provided through Congressional appropriations actions beginning in 2004.
The proposal also called for full indirect cost recovery on all competitively award
grants, up from the current level of 20 percent of direct costs, and an increase in
integrated grants authority from 20 to 30 percent.
Congressional Response
In questions to the Agency during the hearing, and more intensively in post hearing, written questions, the House sought accomplishment information for formula
based programs and asked the agency about stakeholder input and the administrations analyses leading to the recommendations to redirect formula funded research
programs to competitive grants.
The Senate committee is very unlikely to adopt the administrations proposal to
redirect formula funds to competitive programs, and may be reticent to consolidate
the 406 programs with the NRI, particularly if this action limits the integrated programs in the NRI which began in 2004.
University Response
Agricultural Research and Extension Administrators, Land-Grant Universities
(LGUs): The collective response of these administrators has been extraordinarily
negative to the formula-competitive conversion. Initial analysis of the university directors response to the initial proposals in the Presidents fiscal year 2006 budget
indicate that the primary concerns are: (1) lack of consultation with affected universities and stakeholders; (2) loss of matching funds; (3) program continuity and
length of awards; (4) sustaining breadth of capacity in agricultural science and education nationwide; (5) providing responsiveness to State and local issues; and (6)
leveraging and sustaining partnerships across institutions.
Directors particularly have cited consequences for employment (estimating as
many as 2000 scientists and equal numbers of technicians and graduate students will lose their jobs; see CRIS tables on employment by Hatch projects for
actual numbers.); concerns about program infrastructure; loss of matching
funds; and continuity of efforts. In addition, agricultural research directors have
expressed concern about a net decline in total research effort, if funds are diverted from direct scientific effort to covering indirect administrative expenses.
They also are concerned by the speed with which these changes would be implemented especially given that they argue there was no consultation on the proposal. In 2005, LGU agriculture deans and directors have declined the offer of
CSREES to participate in a joint planning team to examine alternate strategies
to implement fiscal year 2006 proposed, competitive research programs.
Central Administrators at LGUs: Chancellors, Presidents and Vice Presidents
for Research, particularly, though not exclusively, those at larger institutions,
have expressed support for the proposals in the administrations fiscal year
2006 budget proposal. Their support appears predicated not only on the need
for agricultural research grants to carry indirect cost recovery to the degree consistent with other Federal grants, but also to help bring agricultural science
into the broader foldand statureof peer reviewed research on campus.
Scientific Societies
Individual organizations and consortia of scientific societies have supported
growth in competitive research programs, and have been either fully supportive of
the fiscal year 2006 administration budget, or supportive of the growth the NRI and
other competitive programs while silent on the formula-related provisions. For example, the American Phytopathology Society has focused its lobbying efforts on
seeking to expand competitive grants, as included in the fiscal year 2006 proposal.
Co-Farm, the Coalition for Funding Agricultural Research Missions, is seeking overall growth in funding for agricultural science, thus emphasizes programs with higher numbers than previous appropriations. Episodic reports from individual scientists
have varied from concern about loss of start-up funds and preliminary studies needed to test approaches prior to developing proposals for grant funding provided by

97
some institutions through formula programs to supporting increases in available
funds for competitive grants especially to increase the average size and duration of
awards.
Public Citizens and Associations of Producers, Processors, Consumers and other Interests
Few citizens or public stakeholder groups have expressed views to the Agency regarding funding mechanisms employed by CSREES. CARET, the Council for Agricultural Research, Extension and Teaching, collectively has called for the restoration
of formula funds, although individual members have expressed an interest in developing alternative funding approaches. Major commodity groups have not expressed
views on this issue.
HATCH ACT

Recipients of Hatch Act funds have the flexibility to distribute funds among research projects, infrastructure, and personnel as they wish to meet the needs of
their university. The distribution of these dollars varies from State to State. The
latest data on personnel supported with Hatch funds as reported into the Current
Research Information System (CRIS) by recipients of Hatch Act Funds is for fiscal
year 2004. The recipient institutions do not assemble the data until the close of the
fiscal year and then the reporting process requires approximately 6 months. The fiscal year 2005 data is being collected now but not all institutions have made their
reports available yet. Therefore, we do not have complete data for fiscal year 2005
at this point. The recipient institutions do not report estimates to CSREES so estimates for fiscal year 2006 and 2007 are not available.
The information is submitted for the record.

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SUMMARY OF PERSONNEL SUPPORTED WITH HATCH ACT FUNDS IN FISCAL YEAR 2004

MCINTIRE-STENNIS FORESTRY GRANTS

Recipients of McIntire-Stennis funds have the flexibility to distribute funds among

research projects, infrastructure, and personnel as they wish to meet the needs of
their university. The distribution of these dollars varies from State to State. The
latest data on personnel supported with McIntire-Stennis funds as reported into the
Current Research Information System (CRIS) by recipients of McIntire-Stennis
Funds is for fiscal year 2004. The recipient institutions do not assemble the data
until the close of the fiscal year and then the reporting process requires approximately 6 months. The fiscal year 2005 data is being collected now but not all institutions have made their reports available yet. Therefore, we do not have complete

99
data for fiscal year 2005 at this point. The recipient institutions do not report estimates to CSREES so estimates for fiscal years 2006 and 2007 are not available.
The information is submitted for the record.
[The information follows:]
SUMMARY OF PERSONNEL SUPPORTED WITH MCINTIRE-STENNIS FUNDS

ANIMAL HEALTH AND DISEASE RESEARCH

Recipients of Animal Health and Disease Research funds have the flexibility to
distribute funds among research projects, infrastructure, and personnel as they wish

100
to meet the needs of their university. The distribution of these dollars varies from
State to State. The latest data on personnel supported with Animal Health and Disease funds as reported into the Current Research Information System (CRIS) by recipients of Animal Health and Disease Funds is for fiscal year 2004. The recipient
institutions do not assemble the data until the close of the fiscal year and then reporting process requires approximately 6 months. The fiscal year 2005 data is being
collected now but not all institutions have made their reports available yet. Therefore, we do not have complete data for fiscal year 2005 at this point. The recipient
institutions do not report estimates to CSREES so estimates for fiscal years 2006
and 2007 are not available.
The information is submitted for the record.
[The information follows:]

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SUMMARY OF PERSONNEL SUPPORTED WITH ANIMAL HEALTH AND DISEASE RESEARCH
PROGRAM FUNDS IN FISCAL YEAR 2004

The Land Grant University System is supported through a broad portfolio of funding mechanisms at the Federal, State, and in the case of Cooperative Extension, the
local level. The proposal in the fiscal year 2007 Presidents budget for CSREES
seeks to expand the proportion of Federal funding flowing to agricultural research
through credible, competitive processes, while building on the strengths of land
grant universities to work together to solve research-based problems. University and
USDA staff members currently are working together to design a multi-state pro-

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gram implementation plan such that universities could address issues of great importance locally, which collectively achieve regional or national goals in agriculture.
The plan recognizes the value of expanding the capacity at smaller institutions
through joint and collaborative work, addressing issues on local and State agendas
to assure matching funds for the programs, and recognizing the geographically diverse nature of agriculture and natural resources.
Issues which could be addressed through expanded multi-state and institutional
collaboration include animal and plant disease, including current issues such as citrus greening and Asian soybean rust; water availability and management; best
practices for small-sized agricultural producers. In addition, the multi-institutional
research program has been used to expand access to subject matter colleagues
across State lines, rapidly respond to emerging issues, and sustain national research
support efforts, such as pesticide clearance.
By sustaining funding through the Hatch and McIntire-Stennis programs, the
Presidents budget proposal responds to concerns expressed by universities in previous years about retaining matching requirements, allowing planning and management of programs to remain in the context of the Agricultural Experiment Stations
(AES) and Cooperative Forest Research programs, and proving continuity and planning through a full, 5 year award cycle to AES directors and Administrative Technical Representatives (McIntire-Stennis managers) for each multi-state project in
which a State participates.
Question. The Land Grant University System is currently undertaking a comprehensive review of all of these programs and how they might be changed in the
context of the 2007 Farm Bill to meet the 21st century challenges facing agriculture,
rural communities, and our entire food and fiber system through research, extension
and teaching. Do you agree that such changes can best be considered through a collaborative process with an eye toward the 2007 Farm Bill as opposed to the implementation of drastic changes imposed unilaterally by USDA?
Answer. Although revising the Farm Bill to restructure the research agencies at
the U.S. Department of Agriculture could address some of the issues regarding sustainability of funding for science, other concerns such as competitiveness, quality
and coordination of programs and projects, and linkage to other Federal Science programs also can be addressed through budget allocations and mechanisms.
Question. Rather than imposing these drastic changes now, would you be willing
to continue engage the Land Grant System in their efforts to review and build consensus for changes in our collaborative research, extension and teaching efforts?
Answer. Currently, University and USDA staff members are working together to
design a multi-state program implementation plan such that universities could address issues of great importance locally, which collectively achieve regional or national goals in agriculture.
FARM PROGRAM FUNDING

Question. I applaud President Bushs proposal to reduce the payment limit from
its current $360,000 level to $250,000. Ive voted for lowering this limit in the past
and I continuing to believe the payment limit should be lowered from its current
level. Obviously, this could help play a role in reining in government spending. I
also believe tougher enforcement on those who circumvent the payment limits could
help us spend less money in commodity payments.
What commitment level does this administration give to lowering payment limits,
strengthening enforcement when loopholes are found and developing a measurable
standard to determine who should and should not be receiving farm subsidies?
Answer. The Presidents Budget for fiscal year 2007 includes a package of proposed farm program changes for the purpose of reducing spending in these programs
as part of the effort to reduce the budget deficit. One of these proposals would reduce payment limits and significantly reform current payment limitation law.
Among other things the proposal would reduce the overall payment limit from
$360,000 to $250,000 per natural person. It would establish a form of direct attribution and strengthen provisions for enforcement against loopholes. These proposals
would apply to the remainder of the 2002 Farm Bill.
NATIONAL ANIMAL IDENTIFICATION SYSTEM (NAIS)

Question. If States and private industry were to contribute the same amount of
funding as the Federal Government for the implementation of the NAIS$33 million per year in this budget request and in the previous 2 yearswould it be possible to maintain the implementation timeline outlined in the Departments May
2005 Draft Strategic Plan (i.e., full program implementation by January 2009)? If
not, what percentage of the total funding would have to come from outside the Fed-

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eral Government in order to have an animal ID system fully operational by January
2009would States and private industry be responsible for two-thirds of the funding, or three-fourths, or more?
Answer. NAIS will be a fully operational system in early 2007 and consist of three
main components: premises registration, animal identification, and animal tracking.
Premises registration has been implemented in all 50 States and 2 Territories. Several Tribes are also registering their premises. In March, APHIS will begin distributing animal identification numbers. We anticipate the remaining systems elements
will be operational in early 2007, but private entities will need to supply information to fill the private databases.
Question. Does USDA have the authority under the Animal Health Protection Act,
or any other statute, to require a mandatory animal identification program? Does
the transfer of the animal-tracking database to the private sector affect the Departments ability to mandate participation as originally envisioned in the May 2005
Draft Strategic Plan?
Answer. The Animal Health Protection Act provides authority to issue regulations
establishing a mandatory National Animal Identification System. The inclusion of
State or private animal movement tracking systems within the NAIS would not
alter the Departments authority to mandate participation.
SERICEA LESPEDEZA

Question. Sericea lespedeza is an important Federal field crop in the southeastern

United States, but it is an invasive species in the central plains States, including
my home State of Kansas, as it destroys the ecological balance of tallgrass prairie
lands. Currently, conservation efforts in Kansas tallgrass prairie cannot sequester
USDAs assistance to find ecologically/economically compatible controls for Sericea
lespedeza because of its status as a Federal field crop through APHIS. However, we
need to address this critically important issue affecting our prairie before its too
late.
How can we find a way to ascertain USDAs help in controlling this destructive
invasive species in Kansas while ensuring that these methods of control do not compromise Sericeas production in the southeastern United States? Would APHIS be
open to providing varying regional statuses for Sericea lespedeza?
Answer. There is no formal definition of a Federal field crop. APHIS focus is
on quarantine pests. The offending pest must be new to the United States, or
present but not known to be widely distributed in the United States and currently
under an active control program. S. lespedeza has been in the country for more than
a century and is in at least 60 percent of the States. Consequently, it does not meet
the requirements of a quarantine pest.
However, regional effort is an option that could be pursued using State statutes.
Currently, Kansas is the only State that regulates S. lespedeza as a State noxious
weed.
QUESTIONS SUBMITTED

BY

SENATOR HERB KOHL

HORSE SLAUGHTER/USER FEES

Question. Meat inspection user fees have been proposed many times, but have ultimately been rejected by Congress because the general assumption was that statutory authorization was required before the Department could collect fees. However,
based on your recently announced rule for fee inspection, and the subsequent court
ruling, USDA apparently CAN collect user fees without explicit statutory language.
Now that USDA lawyers assert that these fees can be collected, it seems this dramatically changes the dynamic.
Can Congress assume that USDA still believes it has legal authority to collect
these fees?
Answer. User fees have been proposed for inspection under the Federal Meat Inspection Act (FMIA), the Poultry Products Inspection Act (PPIA), and the Egg Products Inspection Act (EPIA), because these statutes only authorize user fees for overtime and holidays. The Agricultural Marketing Act of 1946 provides USDA the legislative authority to collect user fees for ante-mortem inspection of horses. This authority also authorizes the collection of fees for other types of voluntary meat and
poultry inspection activities, including inspection of species not covered by the
FMIA.
Question. Since USDA prevailed in court on the question of fees for horse inspection, does that same legal theory apply to other meat and poultry inspections, including those activities for which user fees are proposed in the budget?

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Answer. Under the Agricultural Marketing Act of 1946 (AMA), USDA is directed
and authorized to provide, when requested, inspection of eligible species on a feefor-service basis. Such fee-for-service inspections have long been provided by FSIS
inspection program personnel for other species not eligible for inspection or not eligible to receive certain types of services under the FMIA. The AMA does not provide
the authority necessary to recover the costs of providing inspection services under
the FMIA, PPIA, or the EPIA.
Question. Is USDA still in favor of user fees as a way to pay for meat and poultry
overtime inspections?
Answer. Yes. USDA will continue to recover the costs of providing overtime and
holiday inspection through user fees. In addition, legislation will be submitted to
Congress to authorize fees to recover the costs of providing inspection beyond a single approved primary shift.
Question. Since the Presidents budget simply asks us to provide $757 million for
FSIS, can Congress assume that you will be able to support all FSIS activities
through the new user fees you propose whether or not the authorization committee
takes action? If not, what is your contingency planwhats going to get cut?
Answer. The Presidents 2007 budget requests $863 million, the full amount of
budget authority needed to operate FSIS inspection services. We are requesting authority to charge user fees, deposit the fees into special receipt accounts, and use
the fees subject to appropriations.
FOOD SAFETY BUDGET TRENDS

Question. According to an OMB document published on January 23rd, fiscal year

2008 budget for FSIS decreases by $27 million from the fiscal year 2007 proposed
level, and that trend continues.
Should we be prepared for a trend in requesting fewer dollars for food safety activities? If these decreases on this OMB document actually occur over the next 5
yearsone analysis maintains that it will equal a 17 percent cutwhat activities
are going to suffer?
Answer. The fiscal year 2007 budget documents include estimates for fiscal year
2008 and beyond that reflect the Presidents commitment to reduce the Federal deficit in half by fiscal year 2009. These out-year estimates are computer generated
using set formulae that do not reflect policy decisions. No conclusion on the administrations priorities for food safety or other USDA activities should be drawn from
these numbers.
COMMODITY SUPPLEMENTAL FOOD PROGRAM

Question. How much carryover did CSFP have at the end of fiscal year 2005?
Answer. At the end of fiscal year 2005, the Commodity Assistance Food Program
(CSFP) had a carryover amount of $118,000.
Question. How much will be used to help fund the fiscal year 2006 Shortfall? If
this will not occur, please explain the reasoning, especially since the budget proposes to eliminate the program next year, making carryover into 2007 unnecessary.
Answer. All of the fiscal year 2005 carryover funds will be used in 2006. We plan
to use all of the fiscal year 2005 funds in 2006.
Question. What is the status of the $4 million additional funding provided for
CSFP in the last supplemental? Could this be used to help the fiscal year 2006
shortfall? If not, why?
Answer. The supplemental assistance will be offered to the three Gulf-area CSFP
States that were directly affected by the hurricanes (Louisiana, Mississippi and
Texas). These three CSFP States have the vast majority (over 93 percent) of all disaster assistance applicants. The assistance will be provided in the form of caseload,
administrative funds, and commodities.
The supplemental funding cannot be used to make up the fiscal year 2006 shortfall. The legislation that provided the supplemental funding to CSFP requires that
the supplemental funding be used for necessary expenses related to the consequences of Hurricane Katrina . . . . Therefore, these funds cannot be used to restore caseload to all CSFP States.
Question. Has there ever been a full evaluation of the CSFP, other than the administrations PART review, which stated that CSFP was a good alternative to the
Food Stamp Program for senior citizens? If not, why wasnt one planned or carried
out before this elimination?
Answer. There is very limited information on the impact of the CSFP on participants nutrition and health status, and no evaluation of which we are aware that
characterized the program as a good alternative to the Food Stamp Program. A 1982
evaluation examined administrative and medical records data from 3 CSFP sites

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and found positive impacts for pregnant women and suggestive evidence of positive
impacts for children. However, the program has changed substantially since this
study was done. In particular, it did not include the elderly, who now account for
about three-fourths of program participants.
In 2005, the Economic Research Service began a study to examine participation
and administrative issues related to the CSFP, including how CSFP fits into States
overall designs to address food insecurity among target populations, why some
States choose not to participate, and who among those eligible tends to participate.
The study will be published in early 2007.
Though questions have been raised about the effectiveness of CSFP, other important factors influenced the administrations decision to eliminate program funding.
The key consideration influencing this decision is that the program is not available
nationally and is substantially redundant of other nutrition assistance programs
that are available nationally.
In the administrations view, ensuring adequate funding for programs that have
the scope and reach necessary to provide access to eligible people wherever they
may reside is a better and more equitable use of scarce resources than to allocate
them to programs that cannot provide access to many areas of the country. For this
reason, the administration has placed a priority on funding the Food Stamp, WIC,
and other nationally-available programs that provide benefits to eligible people
wherever they may live.
Question. How many senior citizens do you estimate will be ineligible for the Food
Stamp Program, or may choose not to participate for other reasons?
Answer. Based on the best-available national information on the circumstances of
all low-income elderly, we estimate that about 101,000 elderly CSFP participants
will not be eligible for food stamps, largely because they hold countable assets that
put them over the Food Stamp Programs resource limit. Our budget request assumes that 88,000 CSFP participants will make the transition to food stamps and
that about 118,000 will choose not to even though they are eligible. We are prepared, however, to use the requested food stamp benefit reserve if necessary to support participation by all who are eligible. We have also requested $2 million for outreach to encourage elderly CSFP participants to participate in Food Stamps.
Question. What is the average market value of the food boxes received in the
CSFP program by seniors, and how does that compare to the $20 in temporary assistance you are offering to provide?
Answer. We estimate that a CSFP food package for elderly participants would
have a retail value of approximately $42.35, on average, if purchased at retail prices
in 2005. However, this cost could vary greatly depending on type, brand, etc. of
foods in the package. In comparison, the average food stamp benefit for a senior living alone was $65 per month in 2004.
GIPSA OIG AUDIT

Question. I know that USDA is taking specific actions to try to fix all of the problems identified in a recent OIG audit of GIPSA. However, in 1997 and in 2000
GIPSA was reviewed and changes were suggested, but problems werent fixed.
Why will this time be different? How will you regain the confidence of the markets GIPSA is supposed to protect?
Answer. GIPSA intends to restore confidence by implementing all recommendations in the OIG report. GIPSA has already issued policy directives in response to
several of the recommendations and is initiating a review process to ensure that the
directives are being followed and implemented properly.
However, GIPSA has gone further than just the OIG recommendations. For example, the agency has requested a full scale organizational review to provide recommendations on how to improve the agencys operational effectiveness. Also, the
new GIPSA Administrator recently ordered an Office of Personnel Management-administered Organizational Assessment Survey. The survey gives employees an anonymous opportunity to let the Administrator know what they think about the organization on a range of topics. Results will be used to make decisions about work environment improvements in the program and enhance its organizational effectiveness.
The Administrator is also working to develop an organizational culture to ensure
at all levels a recommitment to OIG and GAO recommendations and to redirect resources to achieve mission-critical activities.
Question. On January 24th, I sent a letter to the Justice Departments Special
Counsel for Agriculture, with a copy to USDA, encouraging them to work with you
to prevent anti-competitive market conditionsespecially while GIPSA is still working to improve its efforts. Have you, or anyone from USDA, been in touch with the
Justice Department? Do you plan to work with them?

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Answer. USDA has undertaken a number of initiatives related to working with
the Department of Justice (DOJ). First, an economist from GIPSAs Industry Analysis Division, has been detailed to work at DOJ for 4 months on a case. GIPSA is
also currently working in collaboration with DOJ on an anti-competitive investigation. Finally, GIPSA has a memorandum of understanding between the Office of
General Counsel (OGC) at USDA and DOJ in place. Already DOJ and OGC are coordinating on relevant issues where warranted.
Question. Since this report came out after the budget was written, do you now
think you need additional resources in order to implement all of OIGs recommendations?
Answer. GIPSA is conducting an evaluation of program resources. If changes to
resources are needed, they will be taken into consideration for the 2008 budget request.
SMALL FARM/DIRECT MARKETING

Question. Can you point to any actions USDA has taken recently to help small
producers work through regulatory problems that might stifle their ingenuity? Last
year we provided funds for a new program to help promote farmers markets and
other outlets for small producers, but they are not included in your budget.
Answer. USDA has many programs that enhance the reliability and economic
livelihood of small farmers and ranchers across America. Through these programs
we actively encourage the growth and continuation of small, limited-resource, and
minority farmers and ranchers, as well as local communities. Through outreach, research, market development, financial support, and technical assistance we are
helping them compete.
In January 2006, USDA issued its third progress and achievement report entitled
Making a Difference for Americas Small Farmers and Ranchers in the 21st Century. This report highlights USDAs continuing efforts to assist the Nations small
farmers, ranchers, and farm workers. It identifies the major achievements and continuing actions taken by USDA in response to the 8-policy goals and 146 recommendations included in the USDA National Commission on Small Farms report,
A Time to Act.
The Farmers Market Promotion Program is included in USDAs fiscal year 2007
budget. Following Congressional approval of funds for the administration of the
Farmers Market Promotion Program for fiscal year 2006, USDA has been rapidly
implementing this grants program through the Agricultural Marketing Service. The
program is designed to facilitate and promote farmers markets and other direct-toconsumer marketing channels for farm products. By the end of fiscal year 2006,
AMS will administer approximately $1 million in grants, with a statutory maximum
of $75,000 per grant, to eligible entities. A Notice of Funds Availability for the
Farmers Market Promotion Program was published in the Federal Register on
March 15, 2006. The Notice invites eligible entities to submit project proposals to
AMS by May 1, 2006. Eligible entities include agricultural cooperatives, local governments, non-profit corporations, public benefit corporations, economic development
corporations, regional farmers market authorities, and Tribal governments. Grants
will be awarded on a competitive basis following a comprehensive internal review.
Question. What initiatives have you proposed to assist small farmers, to encourage their creativity, and to help American farmers remain independent?
Answer. USDAs budget for fiscal year 2007 proposes to continue the Farmers
Market Promotion Program, which is designed to facilitate and promote farmers
markets and other direct-to-consumer marketing channels for farm products. In addition, AMS offers technical assistance useful to small farmers through its ongoing
Wholesale, Farmers, and Alternative Markets and Transportation Services programs. Examples of recent initiatives include the creation of a Farmers Market Consortium in November 2005, bringing together Federal agencies and private foundations that support development of farmers markets which has already produced and
released a Farmers Market Resource Guide in March 2006. Also, the Federal-State
Marketing Improvement Program offers grants that encourage creative solutions to
local and regional agricultural marketing challenges.
BSEJAPANESE EXPORTS

Question. One of the things USDA is doing in response to the recent shipment
of banned material to Japan is re-training the FSIS inspectors to make sure this
never happens again.
What is the status of that training, and what, exactly does it entail?
Answer. On January 23, 2006, USDAs Food Safety and Inspection Service (FSIS)
conducted interactive web-based training for its inspection program personnel at Ex-

107
port Verification (EV)-approved establishments. All FSIS inspection program personnel currently assigned to an establishment with an approved EV program completed the on-line training course by March 21, 2006.
FSIS inspection personnel are provided computer-based follow-up and supplemental training. Inspectors who rotate into any establishment that produces product
that is subject to EV requirements will also undergo training. All new employees
hired after March 2006 will receive training.
FSIS EV training reviews policies pertaining to Export Certification, Re-Inspection of Product intended for Export, and Certifying Beef Products under the EV Programs and all pertinent Export Directives.
To be certain that FSIS inspection program personnel are fully aware of specific
products approved for export to countries participating in EV programs, the Agricultural Marketing Service (AMS) will maintain a list of specific products approved for
export to each country on an internal Web site accessible to FSIS-trained inspection
program personnel. AMS will also notify FSIS each time establishments are audited, listed or delisted for EV programs.
NON-AMBULATORY DISABLED CATTLE

Question. A recent OIG report on BSE surveillance notes that there has been
some confusion regarding what constitutes a downer animal. I understand that
the number of times this happened is extremely lowless than 50, I believe, out
of all of the animals processed during the time of enhanced surveillance. However,
I also understand the effect that even one case of BSE can have on our markets.
What steps is the Department taking in order to provide a more clear description
of what animals are to be considered downers?
Answer. On January 12, 2004, USDA issued an interim final rule which includes
requirements for the disposition of non-ambulatory disabled cattle. The preamble to
the rule States, FSIS is requiring that all non-ambulatory disabled cattle presented
for slaughter be condemned (Docket No. 03025IF, Federal Register, January 12,
2004). The rule has not changed. However, in those extremely rare instances when
a cow suffers an acute injury after passing ante mortem inspection and becomes
non-ambulatory, the cow is not automatically condemned.
Under an FSIS notice issued January 18, 2006, the animal is tagged as U.S. Suspect (FSIS Notice 0506). The U.S. Suspect designation was not created for this
rare situation, but is a long-standing practice. Inspection program personnel conduct
careful ante mortem reinspection of animals so designated. Pursuant to the notice,
Public Health Veterinarians (PHVs) perform an examination on these animals to ensure that the injury is acute and not the result of a chronic condition. If there is
any evidence of a chronic condition, or if the PHV cannot be sure the injury was
not caused by a chronic condition, the notice provides that the animal is to be condemned.
A previous notice, issued on January 12, 2004, addressed this rare situation but
did not provide for tagging. The application of a U.S. Suspect tag will help the
Agency to better track occurrences in which acute injuries occur after ante mortem
inspection at the slaughter plant.
All cattle tagged U.S. Suspect are eligible to go to slaughter. The U.S. Suspect
designation indicates that the animal needs closer postmortem examination, and
consequently the PHV makes the final postmortem disposition of every U.S. Suspect animal. All cattle designated as U.S. Condemned are banned from entering
the slaughter establishment.
Question. Is additional training or information being provided to your inspectors
in this regard?
Answer. Public Health Veterinarians (PHVs) have the requisite veterinary medical education to distinguish between chronic conditions and acute injuries. A significant part of PHV training is dedicated to determining acute versus chronic conditions. A chronic disposition often leads to condemnation because the condition is
ongoing, whereas an acute condition would likely lead to condemnation of part of
the animal.
BSEJAPANESE EXPORTS

Question. I understand that as part of the verification program set up to ship

beef to Japan, two signatures are required to ensure that the shipment does indeed
meet Japanese requirements.
Are both of these signatures from FSIS employees?
Answer. As the result of the January 20, 2006, discovery of three boxes of veal
with vertebral column shipped from the United States, in violation of the terms of
our Export Verification (EV) agreement with Japan, I announced 15 Action Steps,

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including the requirement of an additional signature during the EV process. Both
the Agricultural Marketing Service (AMS) and the Food Safety and Inspection Service (FSIS) share the responsibility to confirm shipments for the EV program and
employees from both agencies sign the documentation.
Question. Do both verification form signatories physically check to make sure the
shipment meets the proper standards?
Answer. FSIS and AMS both have specific responsibilities for confirming that
shipments meet the appropriate EV standards. These responsibilities do not require
the signatories to physically check the shipment.
AMS confirms that both the establishment and products are approved for export
to the importing country.
FSIS certifies and signs that all food safety requirements have been met. When
signing an export certificate, an FSIS certifying official should receive the following
from an establishment: (1) the original FSIS Form 90605, Meat and Poultry Export
Certificate of Wholesomeness; (2) any other certificates required by the importing
country; and (3) a copy of the letter from AMS that confirms that AMS conducted
a review and that AMS has determined the items listed are approved for export to
the country listed on the certificate and from the facilities listed.
If all documents are acceptable, the FSIS certifying official will sign all certifications and maintain a copy of the AMS letter in the government file along with
the certifications.
Question. What steps is USDA taking to try to make the regulatory market more
streamlined, as opposed to wide variety of requirements for each country to which
we export?
Answer. Most market openings (with the exception of Japan, where the terms of
the market opening were negotiated in October 2004) have been for boneless beef
from cattle under 30 months of age. The terms of these market openings were guided largely by international guidelines as maintained by the World Organization for
Animal Health (OIE) and by precedents set by major importers, including the terms
that the United States applies to imports from other countries that have experienced BSE. While these openings have resulted in a number of different import requirements by country, these requirements were negotiated with the full cooperation and knowledge of the U.S. industry with the intention of getting back into the
market as quickly as possible with at least some product and the understanding
that greater access would be negotiated at a later date. In our current negotiations
USDA is pushing for broader access for U.S. beef overseas, arguing that OIE guidelines permit more favorable access than boneless/under 30 months.
Question. I also understand that in this recent case of banned veal being sent to
Japan, the inspector was an online inspector who was, according to FSIS regulations, not authorized to do the final inspection on this beef. Is this accurate?
Answer. No, this is not accurate, because the inspector was authorized to do the
final inspection of this beef. The problem arose from USDA inspection program personnel and the Japanese importer lacked familiarity with USDAs bovine export
verification (EV) requirements for Japan.
Question. What steps are you taking to prevent this from happening again, and
to ensure that there are a sufficient number of offline inspectors to prevent online
inspectors from having to perform duties they are not officially authorized to do?
Answer. The problems have been identified and appropriate actions have been
taken. The problem was not related to an online inspector conducting activities that
person was not authorized to perform. Rather, the problem was related to USDA
inspection program personnel and the Japanese importer lacking familiarity with
USDAs bovine EV requirements for Japan. In response to this incident, the establishments involved were immediately removed from the approved list, and extensive
training has been conducted with all involved FSIS inspection program personnel.
AMS and FSIS also have strengthened coordination between their personnel. Eligibility of both the establishment and the products for export must be confirmed by
AMS prior to FSIS certifying export documents.
ALTERNATIVE FUELS

Question. Mr. Secretary, I believe you agree that American Agriculture has a
strong role to play in energy development, so please explain why USDAs investments in this area are going down instead of up.
Answer. The fiscal year 2007 Budget supports an estimated $345 million in loans,
grants, research and other support for energy projects. These funds will support investments to encourage additional biofuels production, develop improved feedstocks
and efficient conversion technologies and increase energy efficiency. The bioenergy
incentives program, funded at $60 million in 2006, expires at the end of 2006.

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Question. What is the status of new technology and knowledge about feed stocks
that U.S. farmers and rural business people can use to provide new, cleaner, and
less costly, sources of energy for this country?
Answer. Progress is being made on the development of technologies for converting
cellulosic biomass to useable energy. Commercial pilot facilities for fermenting agricultural residues such as wheat straw and corn stover to ethanol are either operational (IogenOntario, CA) or under construction (AbengoaYork, Nebraska).
Companies are also scaling up new technologies for gasifying biomass and producing methane. For instance, Frontline Bioenergy (Ames, Iowa) and Chippewa Valley Ethanol Corporation (CVECBenson, Minnesota) announced that construction
will begin this year on a facility to gasify distillers dried grains, and eventually corn
stover. Their gasification unit will eventually displace over 90 percent of the natural
gas now used at CVECs Benson site. And Viresco Energy (Riverside, California)
plans to build a pilot plant to gasify a mixture of coal and wood. Technology also
exists to convert the product gas from biomass gasification to methanol or diesel
fuel.
Technology is also being developed to pyrolyze biomass at or near the farm and
produce an energy-dense bio-oil. The bio-oil could then be transported to a central
refinery for conversion into hydrogen, diesel fuel or even gasoline.
In spite of this progress, however, significant technology development is needed
before a sizable industry for producing energy from agricultural and/or woody biomass can be realized.
Question. What are USDA research and development programs doing to assist
that effort?
Answer. The Agricultural Research Service (ARS) has a number of programs to
develop technologies that will enable the growth of a sizable industry for producing
energy from agricultural and/or woody biomass.
ARS-Peoria, IL has a number of projects for improving the efficiency of fermenting cellulosic biomass to ethanol.
ARS-Lincoln, NE and a number of other ARS facilities are involved in a critical
project to understand the long-term impact of harvesting crop residues, such as
corn stover, on farm soils.
ARS-Albany, CA is working to sequence the genome of switchgrass, and to develop genetic tools for breeding new varieties of switchgrass with superior traits
as an energy feedstock.
ARS-Corvallis, OR and ARS-Wyndmoor, PA have partnered with the Western
Research Institute to develop a portable gasifier for converting wheat and grassseed straw into methane, rather than burning these residues in the field as is
currently practiced.
ARS-Wyndmoor, PA and ARS-University Park, PA are field-testing a portable
gasifier for switchgrass.
ARS-Florence, NC is developing a proposed program to gasify manure wastes
into methane, thereby eliminating effluent lagoons and, at the same time, generating useful fuel.
ARS-Albany, CA is developing a proposed program to investigate the fundamental, biological mechanisms involved in the production of cell walls, the component of plants that is the basis of all ligno-cellulosic biomass. This research
is necessary to enable the breeding of new plants that will significantly lower
the cost of biomass-derived energy.
Additionally, CSREES, through the National Research Initiatives Biobased Products and Bioenergy Production Research Program, supports activities which expand
science-based knowledge and technologies that support the efficient, economical and
environmentally friendly conversion of agricultural residuals into value-added industrial products and biofuels.

QUESTIONS SUBMITTED

BY

SENATOR TOM HARKIN

USDA SERVICE CENTERS

Question. Since 1993, the county-based agencies have been implementing streamlining plans to cut red tape and co-locate offices in the same county, with the goal
of providing one-stop service for USDA customers. However, we have also witnessed
the erosion of this customer service objective, first with the replacement of local
USDA Rural Development offices with area offices that serve multiple counties and
more recently with the Farm Service Agency directive to State offices to identify offices that can be closed and consolidated.

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If it is necessary to consider consolidating local offices, isnt it appropriate to consider the convenience of keeping together all agency services related to customer
needs in any specific Service Center?
Answer. USDA utilizes the State Food and Agriculture Councils (SFACs) to provide a cross-agency, decision-making and communication forum for administering
programs at the local level. We are encouraging FSA, NRCS, RD and all other agencies to work together in a spirit of cooperation to work with the SFACs to achieve
the optimum network of local offices, staffing, training and technology.
USDA is committed to delivering farm program services through the Service Center model and is exploring all shared space opportunities where multiple USDA
agencies can share space, supplies, mailroom, printing, conference room, common
computer facilities, and basic office equipment.
USDA is committed to a continued dialogue with State and congressional leaders
to discuss how best to modernize the FSA county office system and the necessary
steps required to improve its information technology (IT) infrastructure. The ultimate goal of this process is to increase the effectiveness of FSAs local offices by upgrading equipment, investing in technology and providing personnel with critical
training. We are committed to working with our partners to ensure that Americas
farmers and ranchers continue to receive excellent service long into the future.
Question. Why hasnt USDA approached this as a Service Center issue rather
than a decision by just one of USDAs agencies?
Answer. Each USDA agency is faced with individual resource concerns as well as
infrastructure problems. Although many p our customers are the same, each agency
also has distinctly different clientele. As you note, the Service Center Agencies already maintain different office structures. For example, in your State of Iowa, Rural
Development maintains a network of 10 area offices while FSA maintains a presence in all 99 counties of the State.
However, USDA is committed to delivering farm program services through the
Service Center model and is exploring all shared space opportunities where multiple USDA agencies can share space, supplies, mailroom, printing, conference room,
common computer facilities, and basic office equipment.
Question. How is the Department coordinating the multiple mission areas of local
Service Centers?
Answer. State Food and Agriculture Councils (SFACs) are the primary vehicles
for administering programs at the local level. SFACs provide a policy-level, crossagency, decision-making and communication forum to achieve USDAs goals and objectives.
Furthermore, the Farm Service Agency (FSA) State Executive Directors (SEDs)
are currently conducting local-level reviews of the efficiency and effectiveness of
FSA offices in each State. The SEDs and State committees are forming review committees to better identify what the optimum network of FSA facilities, staffing,
training and technology should be for each State within existing budgetary resources and staffing ceilings. Each SED is also exploring potential joint-effort opportunities with the Natural Resources Conservation Service and other USDA agencies.
COMMON COMPUTING ENVIRONMENT

Question. The objective of the Service Center Modernization Initiative is to create

an environment of one-stop quality service for customers of the Farm Service Agency, the Natural Resources Conservation Service, and the Rural Development agencies. The Common Computing Environment (CCE) is intended to enable the 3 agencies to share information technology to improve customer service. Since fiscal year
1996, USDA has been planning and deploying an integrated information system to
replace several old systems in Service Center Agencies that could not share data.
In March 2000, the Office of Chief Information Officer was given direct management
responsibility for the CCE.
Given that this effort has been underway for 10 years, has USDA made sufficient
progress in reaching the objective number of shared information technology and
ability to share and transfer data?
Answer. USDA has made significant progress in reaching the shared information
technology objectives. The shared technology platform, the Common Computing Environment (CCE), is in place. The platform allows USDA to maintain one standardized environment for use by the Service Center Agencies (SCAs). The platform is
the foundation for on-going efforts to modernize individual SCA systems and business processes. Despite the fact that full modernization has yet to be achieved, the
platform has provided several administrative and technological benefits. Examples
of the benefits have been provided.
[The information follows:]

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Common Administrative Functions
Common computer technology on each of 50,000 agency and contributing partner
desks, including shared software;
Shared networks, making higher speed connectivity affordable for the SCAs; and
Common IT security with the capability to manage from a single operation nationwide.
Centralized Computing Technology
Shared Storage Area Network (SAN) technology (5 locations) for tabular and
geospatial data and backup/disaster recovery (full redundancy);
Common eAuthentication portal for user validation in the SCAs; and
Web Farm Technology (consolidated IT locations) developed and deployed to support Web access for employees and customers.
Telecommunications Architecture and Operations
Maintenance for phones and network routers and upgrades to data network and
technology to meet future demands; and
Transition to the Departments Universal Telecommunications Network (UTN)
component of the USDA Enterprise Architecture in fiscal year 2006.
USDA Data Center
Data acquisition for Geographic Information Systems (GIS)examples: Common
Land Use (CLU) data for FSA, Soils data for NRCS; and
Data acquisition for aerial/high altitude imagery for mapping and compliance reviewexample: NAIP photography.
Question. How has the cost of the common computing environment been allocated
among program areas?
Answer. The cost of the Common Computing Environment (CCE) is allocated
across the three Service Center Agencies. A formula based on the number of computers an agency has connected to the CCE network was derived for the allocation
of $19,538,000 for base infrastructure. For fiscal year 2006, FSA has 40 percent of
the computers, NRCS has 39 percent, and RD has 21 percent. Agency-specific and
interagency funds account for the remainder of the CCE costs. These funds are:
$73,260,000 (FSA-specific), $11,025,000 (NRCS-specific), $3,960,000 (RD-specific),
and $1,188,000 (Interagency eGoverment).
Question. Is there any evidence that producers have begun to embrace the webbased system of program delivery?
Answer. The Service Center Agencies (SCAs) have begun to see increased producer interest in Web-based program delivery. Examples of this interest have been
provided.
[The information follows:]
As of March 1, 2006, over 32,000 producers have obtained an eAuthentication
Level 2 ID. This credential is required to access, sign, and electronically submit loan
applications and to review the combined customer statement that uses data from
each of the SCAs.
For the 2005 crop year, Service Centers used the Web-based Electronic Loan Deficiency Payment (eLDP) system to process about 87 percent of the LDPs. As of
March 23, 2006, over 1.287 million applications have been processed, resulting in
the payment of over $4.258 billion. Of these, 16,630 eLDP applications were submitted directly from producers resulting in the payment of $75.9 million.
Nearly 5,800 producers self-enrolled for the Electronic Direct and Counter Cyclical
Payment Program (eDCP) for the 2005 crop year. As of March 21, 2006, FSA has
enrolled over 1.35 million contracts for the 2006 crop year with nearly 10,000 producers enrolling electronically.
Over 1,700 FSA customers regularly conduct business via the eForms Web portal.
Electronic forms submission has grown from 54 in fiscal year 2002 to 2,965 in fiscal
year 2005.
The NRCS Soil Data Mart is averaging 12,000 downloaded soil surveys and
17,800 online reports viewed per month. In addition, about 1,400 users per day are
using the Web Soil Survey, saving staff time at the Service Centers.
CROP INSURANCE

Question. The Group Risk Insurance Plan (GRIP) has grown by leaps and bounds
over the past 2 years because of the perception held by farmers that they have a
better chance of collecting an indemnity with a GRIP policy than a standard yield
or revenue product. Many critics of GRIP claim that the product, in its present form,
does not work like insurance but like a lottery. They allege that, under this pro-

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gram, a farmer could experience a significant loss but not be due an indemnity payment. The exact opposite scenario could also be truethe policy could pay farmers
an indemnity even though they have a bumper crop. I am told that these situations
have already occurred.
Has RMA looked into the question of how common these overpayments or underpayments relative to actual crop losses on a specific farm actually are, and if so,
what has the Agency found?
Answer. The Group Risk Income Protection (GRIP) plan of insurance, as with
Revenue Assurance (RA) and Crop Revenue Coverage (CRC), is designed to protect
growers against an unexpected decline in revenue, not merely against a yield shortfall. GRIP indemnities are triggered by the declining value of the harvest not the
quantity harvested. This is important because indemnities can be triggered by large
price declines even as the producer harvests a bumper crop. Likewise, a producer
could have significantly reduced yields but not receive an indemnity if a large price
increase moderates the loss of revenue.
RMA has not specifically studied the performance of the GRIP plan of insurance;
however, the agency contracted for an outside study of a related product, the Group
Risk Protection (GRP) program. This review addressed the question about GRPs effectiveness in reducing a growers risk. The results are relevant for GRIP because
it uses the same yield data for determining guarantees and indemnities. The external review found that:
GRP, on average, provides substantial risk reduction to growers.
GRP tends to be more effective where individual yields are more homogenous
across the county.
GRP tends to be more effective in the major production regions.
Question. Could the problem be addressed by re-rating the policies or acquiring
more accurate information about county-level yields?
Answer. The potential for a grower to receive an indemnity when he or she did
not suffer a loss, or vice-versa, is inherent to a group based policy. This cannot be
changed by re-rating. However, accurate information about county level yields is important to the performance of GRP and GRIP. Consequently, GRP and GRIP is limited to those counties with at least 30 years of NASS yield history and a minimum
threshold for number of growers. NASS county yield estimates are likely to be the
most accurate in these counties.
To ensure that the GRIP program is functioning as intended, an outside review
will be conducted during this year.
Question. Should USDA or Congress consider revoking the authority to offer this
type of insurance coverage?
Answer. No, the authority to offer group products should not be revoked. Groupbased coverage offers a reasonable alternative to the individual-based policies. In
some cases, such as for pasture and rangeland, group coverage is the only viable
method for offering meaningful crop insurance. Many growers find that group-based
products provide effective risk management protection at a significant cost savings
relative to individual plans of insurance.
Question. In both 2005 and 2006, the Presidents budget proposed to cut funds for
the Federal crop insurance program to the tune of $130 million annually, cutting
both to the premium subsidies provided to farmers who buy crop insurance and payments to the private companies that deliver crop insurance to farmers.
Has USDA or any other government agency ever conducted an analysis of the effect on the crop insurance program were those cuts to be implemented?
Answer. Yes, the administrations 2007 budget proposal would link the purchase
of crop insurance to the participation in farm programs, such as the direct and
counter-cyclical payment programs. This proposal would require farm program participants to purchase crop insurance protection for 50 percent, or higher, of their expected market value or lose their farm program benefits. Currently participation in
crop insurance is voluntary; however, producers are encouraged to participate
through premium subsidies, which currently average about 59 percent of the total
premium. By linking crop insurance to other farm programs, we anticipate that an
estimated 20 million additional acres would be brought into the crop insurance program. We also anticipate that insurance companies would benefit from this feature
via increased business and potential underwriting gains. I will provide additional
details.
[The information follows:]
To offset the increased costs stemming from the increased crop insurance program
participation, several proposals are made for garnering savings. One proposal is to
reduce premium subsidies by 5 percentage points for coverage levels of 70 percent
or below and 2 percentage points for coverage levels of 75 percent or higher. The

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primary impact of this feature falls on producers who would be required to pay a
larger share of the premium. It is expected that a small number of producers would
move to a lower level of coverage to offset the higher costs. Another change being
proposed is to reduce the delivery expense reimbursement rate by 2 percentage
points for all policies above the CAT level of coverage. The proposal would also adjust the administrative fees required to obtain CAT coverage to make the fee more
equitable between small and large producers. Lastly, the proposal would increase
net book quota share to 22 percent (from the current 5 percent). This proposal would
require the participating companies to reinsure 22 percent of their retained premium with the Federal Government rather than with commercial reinsurers. As an
offset, the companies would receive a 2 percent ceding commission. In recent years,
the companies have been retaining about 80 percent of the premium, for which they
received almost $3.6 billion in aggregate underwriting gains between 1996 and
2005. Over this period, the companies have sustained an underwriting loss in only
1 year (2002), and that underwriting loss was less than $45 million. In 2005 alone,
the companies are expected to receive an underwriting gain of approximately $900
million. Conversely, the Federal Government has experienced underwriting losses of
about $1.6 billion over this period on the remaining 20 percent of business the companies have ceded back to USDA.
Question. Has any outside consultant been hired to conduct such an analysis?
Answer. RMA has not contracted with any outside consultants for a study of the
potential impacts of the proposed program changes.
Question. If there is such an analysis, I would like to be provided a copy of it.
If no such analysis has been conducted, how does USDA know that these cuts would
not be deleterious to the crop insurance program?
Answer. The proposed reductions in premium subsidies to producers and payments to companies are relatively small. The anticipated cost savings are shared equitably among producers and companies and are necessary to offset the additional
costs of increased participation in an era of ever-tightening budgets. For purposes
of the proposal, the linkage requirement was assumed to increase total acreage in
the Federal crop insurance program by an estimated 20 million acres, for a participation rate of about 84 percent. This is essentially the same level of participation
achieved in 1995. However, the structure of the current farm program is substantially different from that which existed in 1995, in particular because of the availability of direct payments. It is likely that the availability of direct payments could
result in participation that is somewhat greater than that assumed and experienced
with the previous linkage effort.
If enacted, the administrations proposal should result in a substantial increase
in total premium volume due to (1) CAT policyholders moving to a buy-up level of
coverage, and (2) the addition of an estimated 20 million currently uninsured acres
to the program. With this increase in premium volume, companies should experience greater economies of scale, thereby lowering their per-policy costs of delivering
the program. At the same time, delivery expense reimbursements on the larger premium volume will offset much of the impact of the reduction in the reimbursement
rate. Similarly, larger overall underwriting gains (on the higher premium volume)
will offset much of the increase in the net book quota share. Further, if more than
20 million acres are added to the program, it is possible that total payments to companies could in fact increase under this proposal.
TRADE

Question. Last year, the U.S. agricultural trade surplus (exports minus imports)
was only $3.5 billion, the lowest figure since 1959. However, the Presidents fiscal
2007 budget proposes to cut the main USDA trade promotion program, the Market
Access Program (MAP), by 50 percent from its Farm Bill level.
In light of the disappearing trade surplus, how can you justify such a cut?
Answer. The proposal to limit funding for the Market Access Program in 2007 reflects the administrations efforts to reduce the Federal deficit. Reducing the deficit
is a key component of the Presidents economic plan and will help to strengthen the
economy and create more jobs. Farmers, ranchers, and other residents of rural
America understand the importance of a healthy economy, which raises incomes and
increases demand for their products. This and other deficit reduction measures will
contribute to a more prosperous future for our citizens.
It should be noted that, even if the program is limited to $100 million in 2007,
that level is still higher than the $90 million program level that was authorized for
MAP prior to the last Farm Bill. Also, limiting the program will result in better targeting of the assistance to those products and organizations that have the greatest
need for it and can use it most effectively.

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With regard to the balance of trade, U.S. agricultural exports are expected to
reach a record high of $64.5 billion in 2006 and have grown 22 percent since 2001.
During the same period, agricultural imports have also grown. However, import
growth over the past decade has been in processed foods and beverages, not farm
products. As such, a lower agricultural trade surplus does not signal reduced export
competitiveness of the farm sector, but rather American consumer preference for a
wide variety of foods and vegetables, including those from foreign suppliers.
Question. If that proposed cut to MAP were to be adopted by Congress, how would
USDA plan to implement it by cutting equally from all U.S. cooperators in MAP,
or by dropping some participants from the program?
Answer. USDA would not be required to implement any changes to the current
funding allocation process if the proposed limitation on MAP funds were adopted by
Congress. MAP funds are allocated to program applicants using a competitive process involving quantitative, performance-based criteria that are published in the Federal Register each year. Changes in program participation would reflect the results
of that competitive process and cannot be predicted accurately in advance.
FOOD AID

Question. If the Presidents proposal to zero out funding for the Public Law 480
Title I concessional loan program were to be enacted, that would mean that a portion of those funds are no longer available to transfer to the Food for Progress program.
For each of the past 5 years, how much money has been transferred from Title
I to the Food for Progress program?
Answer. We will submit for the record a table that provides the amount of annual
Public Law 480 Title I funding that was allocated to Food for Progress programming
during each of the past 5 years.
[The information follows:]
Fiscal year

2001
2002
2003
2004
2005

.....................................................................................................................................................................
.....................................................................................................................................................................
.....................................................................................................................................................................
.....................................................................................................................................................................
.....................................................................................................................................................................

Millions of dollars

77.7
........................
88.6
86.3
67.9

Question. What would the loss of those funds mean in terms of lost or cut-back
programs on the ground in developing countries, particularly in terms of numbers
of targeted recipients?
Answer. The impact of the reduction in Title I funding for Food for Progress programming would be mixed. USDA would need to reduce the number of Food for
Progress programs by 510 projects. Up to 50,000 beneficiaries could lose the benefits of the agricultural development projects. However, the increase in funding proposed for Public Law 480 Title II would offset that reduction. The additional funding
for Title II would increase the number of beneficiaries under that program, who suffer from critical food aid needs. The additional recipients under the Title II program
would likely exceed 50,000 in number and thereby fully offset the reduced number
under Title I-funded Food for Progress.
AVIAN INFLUENZA

Question. The Department of Agriculture (USDA) has requested a total of $82 million to prepare for and prevent outbreaks of avian influenza in the United States.
These resources include various domestic activities, such as wildlife surveillance,
diagnostics, and emergency preparedness. I am concerned about providing adequate
support and resources to State and local entities, such as State departments of agriculture and animal health care workers, to be used to prepare for a potential large
scale avian influenza outbreak.
What is the total amount of funds from USDA that will go to States to plan and
prepare for an avian influenza outbreak?
Answer. Currently, APHIS is working with other Federal agencies, States, and industry to prevent and control H5 and H7 avian influenza (AI) in U.S. commercial
broilers, layers and turkeys, their respective breeders, and the live bird marketing
system. Of the amount requested in the low-pathogenicity avian influenza line item
in the APHIS fiscal year 2007 budget, approximately $8.1 million has been set aside
for cooperative agreements with the States to support H5 and H7 AI surveillance

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activities. Of the amount requested in the high-pathogenicity avian influenza line
item in fiscal year 2007, APHIS has set aside approximately $9.2 million for cooperative agreements with the States to further enhance our AI surveillance activities.
Question. Will some of the funding for avian flu be available for interstate coordination during an avian flu outbreak which would include State officials and poultry
producers?
Answer. The high-pathogenicity avian influenza (HPAI) line item request does not
include funding for an avian influenza outbreak. The HPAI program is for avian influenza preparedness. In the event of an outbreak, we would work closely with State
officials.
FOOD SAFETY

Question. The Food Safety and Inspection Service (FSIS) recently announced an
initiative to reduce Salmonella levels in poultry. However, USDA currently does not
have the authority to enforce Salmonella performance standards nor does it have
authority to require recalls of contaminated meat and poultry.
Will USDA implement deterrents or incentives for industry to make lowering Salmonella levels in poultry a priority? If not, how will USDA require industry to decrease Salmonella levels decrease?
Answer. USDAs Salmonella initiative does provide incentives to industry to improve Salmonella controls.
Under the initiative, FSIS will provide the results of its Salmonella performance
standard testing to establishments on a sample-by-sample basis as soon as they become available. The more rapid disclosure of testing results under the initiative will
allow establishments to identify promptly any need for improved process controls in
slaughter or dressing operations and respond effectively.
In addition, FSIS will post quarterly nationwide data for Salmonella on its Web
site, as compared to the current practice of posting annually; conduct follow-up sampling sets as needed; and provide new compliance guidelines for the poultry industry. If a facility does not meet the performance standards on two consecutive sets,
a food safety assessment will be conducted. Categorization of establishments based
on Salmonella positive samples will allow the Agency to pursue a comprehensive
strategy for combating the pathogen and provide the industry incentives to control
the prevalence of Salmonella.
After that year of review, FSIS will reassess its policy. FSIS will consider whether
there are further actions that should be taken to ensure that establishments improve their control of Salmonella and further enhance public health protection. For
example, FSIS would consider actions that would provide an incentive to industry
to improve controls for Salmonella, such as posting on the Agency Web site the completed Salmonella sample sets for each establishment. FSIS would consider allowing
establishments producing product classes with superior performance to conduct pilot
studies testing whether line speeds could be increased above the current regulatory
limits.
RESOURCE, CONSERVATION, AND DEVELOPMENT PROGRAM

Question. The Presidents budget would cut the Resource Conservation and Development Program budget in half to $26 million. This cut is done by eliminating over
225 coordinator positions and requiring the remaining 150 coordinators to serve
multiple RC&D areas. In Iowa, this program has had widespread benefits in achieving such important activities as reducing erosion in the Loess Hills, installing dry
hydrants for rural firefighters, and providing companies with seed money to start
up rural companies that create jobs for rural communities.
Why did the Presidents budget target this program which involves local leaders
at the grassroots to solve critical needs for rural communities and which has leveraged large additional investments beyond the modest investment from the Federal
Government?
Answer. The administration recognizes that the RC&D coordinators and councils
play an important role in protecting the environment in a way that improves the
local economy and living standards. However, the Department of Agriculture, like
every Federal agency, must share in the government-wide effort to control Federal
spending. The RC&D program received a Results Not Demonstrated evaluation in
the Administrations Program Assessment Rating Tool results last year and as a result, the administration is proposing program streamlining and cost-cutting measures. The Presidents fiscal year 2007 budget proposal will save $25 million by reducing the number of coordinator positions while maintaining the current number
of authorized RC&D Areas nationwide.

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QUESTIONS SUBMITTED

BY

SENATOR BYRON L. DORGAN

RESEARCH BUDGET

Question. In your testimony this morning, you said reducing the deficit is a critical part of the Presidents economic plan-Farmers, ranchers, and rural citizens
know the deficit and burden of debt have a profound impact on the economy and
the ability of future generations to participate in agriculture.
I agree with you. Thats why Im deeply disappointed that the administration has
chosen to support tax cuts for the wealthiest of Americans over agricultural research and programs that benefit Americas family farmers. The administration proposes to cut USDA discretionary spending by 6.5 percent over last years funding
levels. And last years funding levels were themselves $500 million lower than the
year before.
In the past few weeks, I have met with dozens of farmers, ranchers, researchers,
and community leaders who depend on USDAs research and programs and who believe agricultural research is an investment in the future of our farm economy. They
ask me: How does the President expect us to get by without this research?
So I would ask you that same question: how does USDA expect Americas farm
economy to remain competitive in the face of these deep cuts in vitally important
agricultural research?
Answer. Research is necessary for the farm economy to remain competitive and
a vital part of the American economy. The USDA recognizes that a strong economy
based on sound Federal investments and reduced public debt is also vital to the
American farm economy. In this light, the USDA has presented budget requests
that focus on the highest priority issues and greatest opportunities. We are proposing new research to protect crops and livestock so that the United States will
be a reliable trading partner and a competitive producer of food. We have proposed
new animal protection research on the vexing problem of bovine spongiform
encephalopathies and other transmissible spongiform encephalopathies. We are supporting new research to greatly enhance the production of bioenergy from cellulosic
materials by modifying cell walls of plants. We propose to address the national crisis
of obesity through new research. In these financially challenging times, we plan to
pay for these initiatives by having focused and efficient research programs that address high priority needs.
DISASTER ASSISTANCE

Question. In your testimony today, you said that USDA has made available $2.8
billion to assist those impacted by the hurricanes, of which $1.2 billion will be made
available to agricultural producers through various programs . . . Total USDA aid
to hurricane disaster victims comes to more than $4.5 billion.
I support emergency relief for those in the Gulf States who were hit by Hurricanes Katrina and Rita. When people fall on tough times, we have an obligation to
help them. But what I do not support picking and choosing which producers who
suffered a weather-related disaster will get help, and which will not.
North Dakota had over 1 million prevented plant acres last year, due to excessive
moisture. Parts of Bottineau County along the Canadian border received one-third
their annual rainfall in just 1 day. Every county in North Dakota has been named
a Primary or Contiguous Disaster Area. But there has been no support from this
administration for a disaster assistance package that would help those producers.
USDAs own prediction is that net farm income will drop nearly 25 percent this
year because of record high energy costs. I think that is optimistic. North Dakota
State University estimates that average farm income in my State will fall 88 percent in 2006.
Outside North Dakota, farmers and ranchers in the Midwest experienced one of
their worst droughts in decades in 2005. Last year, Illinois experienced its thirddriest year since records first started being kept in 1895. Parts of Missouri, Iowa,
Wisconsin, Indiana, and Arkansas were nearly as bad. USDAs own estimate last
summer was that agriculture losses from Hurricane Katrina would be $900 million,
but that losses from drought will be over $2 billion.
My office gets phone calls every day from producers who are barely hanging on.
They are meeting with their banker to see if they can squeeze out another year on
the farm, or if they will have to abandon the farming lifestyle and the farm they
grew up with. These farmers who call me do not understand why Congress has not
acted to help them. I dont understand, either.
My question to you is, do you support an agricultural disaster package for farmers
and ranchers outside of the Gulf Coast? If not, why not?

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Answer. This administration has been, and continues to be, a strong supporter of
the Federal crop insurance program. Crop insurance should be our first line of defense against the financial impact of natural disasters. Farmers and rancher should
be encouraged to protect themselves through the purchase of crop insurance rather
than expecting ad hoc disaster assistance from the Federal Government.
Nation-wide, 2005 crop losses were not as severe as originally expected. The loss
ratio for crop insurance currently stands at about 0.54, meaning that producers
have received 54 cents in indemnities for each dollar of premium. This is a historically low level which reflects stronger than expected yields and prices.
Furthermore, we would note that the hurricane damage in the Gulf Coast differs
markedly from the modest production losses sustained nation-wide. Gulf Coast producers lost productive capacity through the destruction of poultry houses, nurseries,
and green houses and environmental degradation of farm lands. The disaster assistance provided to the Gulf States reflects this and is largely intended to restore the
productive capacity of this region.
VALUE-ADDED PRODUCER GRANTS

Question. The 2002 Farm Bill authorized the Value-Added Producer Grant Program to receive $40 million in mandatory spending annually for the life of the farm
bill. In fiscal year 2004 and 2005, the program request and the final appropriations
was $15 million, a cut of roughly 60 percent each year. The USDA request for fiscal
year 2006 was again $15 million, but in the final appropriations bill we were able
to increase that amount to $20 million, still just half of the mandated farm bill
amount, but moving in the right direction.
What is USDA doing to ensure that this program is administered in a manner
consistent with Congressional intent expressed in the managers report language in
the Farm Bill, which states that the program should: fund a broad diversity of
projects, projects likely to increase the profitability and viability of small and medium-sized farms and ranches, projects likely to create self-employment opportunities in farming and ranching, and project likely to contribute to conserving and enhancing the quality of land, water and other natural resources?
Answer. USDA published regulations for the Value-Added Producer Grant program in 2004 and publishes an annual notice soliciting applications. These documents provide detailed information on how the program is administered, including
how applications are processed and scored. Lists of grant recipients and brief descriptions of their projects are available on-line at the USDA Rural Development
website. The descriptions demonstrate that the program has funded projects with
a wide variety of agricultural commodities combined with innovative ways to add
value. In 2004, USDA Rural Development put program performance measures into
place, and preliminary data on these measures is now being reported and collected.
This data indicates that many grant recipients have experienced increased revenue
and an expanded customer base for their value-added products, which is consistent
with the Congressional intent that is expressed in the Conference Report on the
2002 Farm Bill.
Question. Over the life of the existence of the VAPG program, how many total
project proposals has USDA received?
Answer. The Value-Added Producer Grant program was initially authorized by
the Agriculture Risk Protection Act of 2000. Since this authorization, there have
been 2,919 applications between 2001 and 2005.
Question. What was the total value of requested funds? Of these, how many proposals were funded, and what were the actual funding amounts?
Answer. The total value of funds requested in the 2,919 applications is
$363,439,756. A total of 756 applications received $116,272,496 in funding.
NATIONAL VETERINARY MEDICAL SERVICES ACT

Question. Many rural areas of this country face a severe shortage of veterinarians.
I understand that there are one-half as many veterinarians available to respond in
the event of an animal disease outbreak as there were 20 years ago. The National
Veterinary Medical Service Act would help solve this shortage by providing loan repayments to veterinarians who agree to practice in areas with a serious veterinary
shortage. Why is the National Veterinary Medical Services Act not a functioning
program within your department despite the appropriation it received for fiscal year
2006?
What steps are necessary to begin this program?
Answer. USDA is exploring potential financial management strategies both within
the Department and in collaboration with other Federal agencies in order to effectively run a loan repayment program. To evaluate these and other programmatic

118
issues presented by the National Veterinary Medical Services Act, CSREES has constituted the National Veterinary Medical Services Act working group to develop potential program management strategies. The working group has met on four occasions and is exploring alternative strategies for managing National Veterinary Medical Services Act. We are working to ensure a well thought out program plan which
includes collaborations with veterinary schools and other stakeholders to develop
consensus regarding the candidate eligibility requirements, and metrics to support
prioritized and weighted needs within the veterinary need areas identified within
the Act. A draft program management proposal is presently being reviewed.
Question. How long do you anticipate it will take to begin this program?
Answer. CSREES anticipates that the processes required to begin this program
will be completed in approximately 18 months.
APHIS BLACKBIRD CONTROL

Question. Various species of blackbirds cause an estimated $200 million in direct

agricultural damage to a host of crops, including sunflower in my State of ND.
Many urban areas and airports have serious problems as well.
Please describe efforts in the Department to deal with this increasingly serious
problem of what appears to be an accelerating population.
Answer. We are undertaking a variety of actions to deal with blackbird damages.
Scientists at APHIS National Wildlife Research Center (NWRC) are studying ways
to refine damage abatement methods and develop new methods to reduce blackbird
damage to sunflower crops in the northern Great Plains. Of note, NWRC discovered
two promising chemical compounds that might discourage blackbirds from feeding
on sunflower. APHIS also conducts an annual cattail management program in North
Dakota and South Dakota to disperse large concentrations of blackbirds from sunflower production areas. In addition, APHIS helps farmers, homeowners, and municipalities nationwide with blackbird-related problems. The agency develops sitespecific management plans for airports to address several wildlife hazard issues, including those associated with blackbirds.
Question. Damage to ripening sunflower in the Dakotas and Minnesota is as high
as $20 million annually. Through this Subcommittee, I have been successful in adding funding to enhance blackbird control efforts in North Dakota. Yet APHIS has
confirmed to my office that the agency is spending less than 50 percent of what it
did just 2 years ago on this problem despite my efforts to provide direct funding for
this purpose.
What is the rationalization for diverting funds away from this important purpose?
Answer. In 2003, Congress earmarked $368,000 for blackbird control plus
$240,000 to conduct an environmental impact study (EIS) and $100,000 for cattail
management activities. In 2005, Congress earmarked $368,000 for blackbird control
efforts. In addition, APHIS provided $77,000 net in 2005 to ensure the highest level
of service to sunflower producers with blackbird problems. APHIS has not diverted
earmarked funds from this program and will continue to work with the National
Sunflower Association to address all concerns. Earmarked funding for the continuation of these efforts in 2006 is $377,000.
2007 FARM BILL

Question. A number of farm and commodity organizations have endorsed proposals to extend the 2002 Farm Bill until after the completion of the latest round
of WTO trade negotiations.
Do you support extending the 2002 Farm Bill? If not, why not?
Answer. I believe the appropriate approach under current circumstances is to proceed to develop a new 2007 farm bill which addresses the best interests of our producers and taxpayers. An extension of the 2002 Farm Bill until after WTO negotiations are complete would put us in a more reactionary rather than proactive stance.
Question. I understand you have participated in a number of Farm Bill listening
sessions all over the United States. When will you issue a final report on those listening sessions?
Answer. A series of issue papers that summarize information and comments received in the Farm Bill forums around the country have been completed and were
made available on March 29, 2006. We did obtain a great deal of input and a diverse range of ideas and comments which will merit further study as we attempt
to focus on what are the most critical concerns to address in fashioning a new Farm
Bill. As part of that process, I have asked Dr. Keith Collins, our Chief Economist,
to develop a number of documents based on various themes that will provide a
straight forward, unbiased analysis. We will post these documents on the USDA
website and share them with all stakeholders.

119
STATE MEAT INSPECTION PROGRAM

Question. The 2002 Farm Bill directed USDA to conduct a comprehensive review
of State meat and poultry inspection programs and to report to Congress on these
activities by the Food Safety and Inspection Service.
What is the status of this report?
Answer. USDA provided written interim updates on the Agencys review of State
meat and poultry inspection programs to the House and Senate Agriculture Committees in September 2004, and again in July 2005.
On-site reviews of State Meat and Poultry Inspection programs have been completed for 20 of the 28 States. Fourteen of those States have been determined at
least equal to the Federal inspection program, with Wyoming and Utah currently
on deferred status. On February 7, 2006, FSIS completed on-site reviews of New
Mexico, North Carolina, Oklahoma, and South Carolina, but final reports for these
four States have not yet been completed. The 8 remaining on-site reviews will take
place in 2006. In April, on-site reviews are scheduled for Indiana, Louisiana, Maine,
and West Virginia.
Question. I understand that all 28 State programs have had annual record reviews and that the majority of them have had on-site reviews. Is there a preliminary assessment on, and recommendations for, Congress on State meat and poultry
inspection programs?
Answer. At this time, we have not conducted on-site reviews in 8 States. USDA
will not make recommendations to Congress on State meat and poultry inspection
programs until all on-site reviews have been completed and evaluated.
BEEF IMPORTS AND BSE

Question. I have heard from cattle producers in North Dakota who are concerned
about USDAs approval of beef imports from Japan. As you know, the prevalence
of BSE in Japan is many times greater than that in the United States.
Many U.S. consumers believe that, because Japan requires testing for BSE of all
meat intended for domestic consumption, meat exported from Japan to the United
States will be also tested for BSE. However, the final rule adopted by USDA does
not require such testing.
How much, if any, Japanese beef coming into the United States is being tested
for BSE, either by Japan or by the United States?
Answer. The final rule, published in the Federal Register on December 14, 2005,
established the conditions under which certain types of beef may be imported from
Japan. The regulations do not require that the boneless beef be derived from animals that were tested for BSE. It is important to note that the available tests for
BSE are not appropriate as food safety indicators.
Question. Based on USDAs actions relative to importing beef from Canada, there
is a presumption by the American public that meat coming from a country with a
BSE-infected herd will be from younger cattle. However, USDAs final rule governing the importation of Japanese beef appears to put no such age limits on the
beef imported from Japan, despite the fact that Japan restricted U.S. beef imports
to cattle 20 months of age and younger. This suggests that we should have more
stringent rules regarding Japanese beef coming into the United States than we currently have.
Does USDA consider it necessary to impose an age restriction on imports of Japanese beef similar to the restrictions previously placed on American beef exports to
Japan?
Answer. USDA did not include an age restriction in the import requirements for
whole cuts of boneless beef from Japan. APHIS established the requirements for allowing the import of whole cuts of boneless beef from Japan based on a thorough
risk analysis. BSE studies in cattle have not detected infectivity in boneless beef,
which is what is eligible for import, regardless of the age of the animal. For these
reasons, we consider whole cuts of boneless beef to be inherently low-risk for BSE
and determined that they can be safely traded provided that measures are taken
to prevent cross-contamination during processing.
Question. What is USDAs position on allowing private testing of beef for BSE by
U.S. producers and processors?
Answer. Given the consequences and governmental actions that can result from
BSE testing of animals, USDA believes that such testing is an inherently governmental function that must be conducted by Federal and State laboratories. We
would also like to clarify that BSE tests are not conducted on cuts of beef. Rather,
the tests are performed on brain tissue taken from dead or slaughtered cattle to diagnose the presence of BSE in that animal.

120
Question. Why are the BSE importation rules not being changed to better reflect
the current status of nations the U.S. imports beef from?
Answer. The APHIS regulations concerning BSE-related restrictions have been
changed over the past year to reflect both the status of certain countries regarding
BSE and the currently accepted scientific guidelines for appropriate risk mitigations
on various products. Further, APHIS regulations are consistent with international
guidelines on BSE.
GIPSA

Question. There have been very disturbing reports about the failure of USDAs
Grain Inspection, Packers, and Stockyards Administration to properly investigate
claims of wrongdoing.
Please tell me the steps you are taking to restore rural Americas confidence in
GIPSA and how you intend to make sure this agency fulfills its proper oversight
role.
Answer. GIPSA intends to implement all recommendations in the OIG report.
GIPSA has already issued policy directives in response to several of the recommendations and is initiating a review process to ensure that the directives are
being followed and implemented properly.
However, GIPSA has gone further than just the OIG recommendations. For example, the agency has requested a full scale organizational review to provide recommendations on how to improve the agencys operational effectiveness. Also, the
new GIPSA Administrator recently ordered an Office of Personnel Management-administered Organizational Assessment Survey. The survey gives employees an anonymous opportunity to let the Administrator know what they think about the organization on a range of topics. Results will be used to make decisions about work environment improvements in the program and enhance its organizational effectiveness.
The Administrator is also working to develop an organizational culture to ensure
at all levels a recommitment to OIG and GAO recommendations and to redirect resources to achieve mission-critical activities.

QUESTIONS SUBMITTED

BY

SENATOR RICHARD J. DURBIN

DISASTER ASSISTANCE

Question. My first question pertains to the budgets assumption that there will be
no ad hoc disaster relief spending for farmers this year. On January 26, 2006, your
office announced that it would distribute $1.2 billion to producers that sustained
losses due to Hurricane Katrina. This spending will go to producers in Mississippi,
Florida, Louisiana, and other Gulf Coast States. However, as you know, there were
natural disasters in many parts of the country that hurt producers significantly. In
my home State of Illinois and many other parts of the Corn Belt, producers experienced one of the worst droughts since modern records have been kept. Almost every
county in Illinois was declared a primary disaster area. According to crop indemnity
statistics, Illinois yields were down significantly and indemnities rose.
I would like an answer as to why emergency funds have not been directed to producers in my State, and I would like the relevant branch of the USDA to provide
an estimate of the amount of losses sustained State-by-State due to natural disasters this past year.
Answer. Yields in Illinois were down in 2005 when compared to the record production of 2004. However, when compared to historical averages, crop losses in Illinois
were not as severe as expected. Current crop insurance data indicates that the loss
ratio for Illinois is about 0.50. By contrast, the loss ratio in Florida stands at nearly
3.0, the highest in the Nation. The difference in losses becomes even more apparent
when you consider that nearly 85 percent of Illinois crops are insured at a 70 percent or higher coverage level meaning that the majority of producers needed a loss
of just 10 to 30 percent to qualify for an indemnity. By contrast, less than 18 percent of Florida crops are insured at such high coverage levels. In fact, over 63 percent of Florida crops are insured at the catastrophic level meaning they needed to
sustain losses in excess of 50 percent to qualify for an indemnity.
At the present time we do not have a break-down of losses sustained State-byState due to natural disasters. However, the Risk Management Agency does have
a break-down of losses sustained State-by-State due to all causes of loss; which may
include losses stemming from price declines.
[The information follows:]

ALABAMA ......................................................................
ALASKA .........................................................................
ARIZONA .......................................................................
ARKANSAS ....................................................................
CALIFORNIA ..................................................................
COLORADO ....................................................................
CONNECTICUT ...............................................................
DELAWARE ....................................................................
FLORIDA ........................................................................
GEORGIA .......................................................................
HAWAII ..........................................................................
IDAHO ...........................................................................
ILLINOIS ........................................................................
INDIANA ........................................................................
IOWA .............................................................................
KANSAS .........................................................................
KENTUCKY ....................................................................
LOUISIANA ....................................................................
MAINE ...........................................................................
MARYLAND ....................................................................
MASSACHUSETTS ..........................................................
MICHIGAN .....................................................................
MINNESOTA ...................................................................
MISSISSIPPI ..................................................................
MISSOURI .....................................................................
MONTANA ......................................................................
NEBRASKA ....................................................................
NEVADA ........................................................................
NEW HAMPSHIRE ..........................................................
NEW JERSEY .................................................................
NEW MEXICO ................................................................
NEW YORK ....................................................................
NORTH CAROLINA .........................................................
NORTH DAKOTA ............................................................

State

13,358
37
2,109
33,456
32,945
36,022
411
1,629
17,886
34,796
140
11,150
135,200
51,866
151,329
237,020
21,908
24,268
670
5,563
800
28,560
123,856
16,405
76,164
39,785
159,011
152
118
1,521
3,615
6,329
35,045
170,987

Policies Sold

6,175
22
973
17,706
24,939
17,140
296
1,170
14,491
14,321
138
6,321
110,759
41,996
127,408
123,906
12,410
9,471
518
4,179
604
20,759
82,367
7,265
46,459
22,567
95,153
115
98
1,067
1,763
4,340
19,037
74,758

Policies Earning
Premium

1,275
........................
72
3,730
3,140
10,117
40
426
3,612
3,467
5
1,426
23,902
6,900
12,734
33,215
2,242
1,739
160
804
104
2,815
14,838
1,194
13,414
3,326
21,766
32
17
129
229
658
4,783
26,596

Policies Indemnified

1,037,905
5,864
381,969
4,564,203
3,817,389
3,928,423
22,152
263,145
1,373,469
2,449,745
26,506
1,849,657
15,916,643
7,703,368
19,909,552
16,403,797
1,848,103
2,645,190
100,357
750,124
26,829
3,571,061
16,248,086
3,200,937
7,039,822
33,915,723
14,121,474
38,102
8,121
156,939
551,108
714,682
3,101,172
20,393,248

Net Acres Insured

[Nationwide SummaryBy State]

266,638,428
419,584
150,917,945
489,344,042
3,322,510,070
579,414,985
70,382,422
45,150,127
2,978,645,459
727,871,287
77,903,217
536,046,499
3,939,276,514
2,002,619,812
4,513,906,738
1,894,187,392
399,460,535
386,339,172
60,150,179
175,680,023
47,248,511
923,476,088
3,137,522,415
423,650,399
970,677,140
672,585,090
2,726,193,994
13,967,262
9,515,182
87,457,732
80,983,767
233,205,271
906,615,258
2,032,938,321

Liabilities

30,294,966
53,432
8,497,319
45,621,410
169,072,162
84,784,549
3,517,559
4,576,175
106,546,097
78,312,292
913,243
42,134,361
277,222,446
163,300,587
310,561,169
261,253,464
34,702,791
33,641,733
5,087,398
15,024,802
2,454,178
74,022,000
284,883,602
37,416,582
111,472,976
96,239,181
253,899,361
1,023,211
381,105
3,486,846
10,635,155
17,854,230
77,458,243
308,384,516

Total Premium

FEDERAL CROP INSURANCE CORPORATION CROP YEAR STATISTICS FOR 2005 AS OF 3/20/2006

18,286,761
45,525
5,256,239
33,525,853
120,901,931
48,770,711
2,376,180
2,967,234
77,499,714
48,135,009
625,013
24,522,855
149,641,601
87,078,250
166,880,925
150,721,768
20,523,436
23,162,354
3,530,434
9,883,561
1,715,709
44,997,976
159,009,913
24,606,293
69,187,614
56,274,382
141,880,921
595,975
275,311
2,854,527
6,990,003
12,421,731
46,861,372
178,545,676

Premium Subsidy

14,719,917
........................
1,877,860
27,975,089
79,763,804
96,305,825
622,699
2,695,938
310,683,797
56,789,355
387,341
23,595,390
137,614,012
25,001,170
67,947,493
117,836,089
16,478,773
16,250,621
5,573,387
4,266,926
2,239,041
15,860,243
131,820,332
16,611,379
74,237,351
24,573,063
79,564,839
763,228
490,792
1,413,404
2,430,038
12,031,267
63,726,912
222,427,856

Indemnity

.49
................
.22
.61
.47
1.14
.18
.59
2.92
.73
.42
.56
.50
.15
.22
.45
.47
.48
1.10
.28
.91
.21
.46
.44
.67
.26
.31
.75
1.29
.41
.23
.67
.82
.72

Loss Ratio

121

51,177
36,002
6,082
15,281
57
10,142
112,973
16,646
172,730
1,172
596
12,238
16,260
942
37,485
6,371
1,970,265

Grand Total .....................................................

Policies Sold

OHIO .............................................................................
OKLAHOMA ....................................................................
OREGON ........................................................................
PENNSYLVANIA .............................................................
RHODE ISLAND .............................................................
SOUTH CAROLINA .........................................................
SOUTH DAKOTA .............................................................
TENNESSEE ...................................................................
TEXAS ...........................................................................
UTAH .............................................................................
VERMONT ......................................................................
VIRGINIA .......................................................................
WASHINGTON ................................................................
WEST VIRGINIA .............................................................
WISCONSIN ...................................................................
WYOMING ......................................................................

State

1,190,322

40,288
19,698
3,506
11,410
36
5,404
62,641
9,217
74,337
847
509
6,745
11,823
494
28,708
3,968

Policies Earning
Premium

269,101

11,083
6,453
1,080
2,383
6
1,312
19,023
1,179
16,955
173
43
2,008
2,072
84
5,471
869

Policies Indemnified

245,811,341

5,742,109
4,668,500
878,217
1,117,322
1,529
1,057,078
13,583,329
1,865,720
13,604,810
173,209
72,085
970,105
2,403,707
45,381
4,053,136
7,490,239

Net Acres Insured

[Nationwide SummaryBy State]

44,276,302,992

1,336,152,625
408,355,429
544,055,132
249,867,340
840,333
273,512,449
1,618,226,090
651,254,289
1,988,774,231
21,421,230
16,753,118
271,737,055
1,050,845,453
11,247,813
857,353,335
93,006,210

Liabilities

3,948,109,914

109,260,601
60,183,880
18,199,764
29,841,007
60,232
28,391,120
230,818,186
32,535,870
315,743,910
2,625,837
1,201,826
23,357,692
48,835,523
1,285,520
80,504,835
10,534,970

Total Premium

2,343,189,425

59,310,152
36,530,873
11,366,471
19,260,202
45,452
17,924,781
134,592,001
22,291,662
198,748,630
1,650,607
837,124
14,259,115
31,421,700
870,190
47,060,824
6,466,884

Premium Subsidy

FEDERAL CROP INSURANCE CORPORATION CROP YEAR STATISTICS FOR 2005 AS OF 3/20/2006Continued

2,141,258,534

44,364,624
26,770,647
25,330,774
14,811,482
55,859
18,181,566
116,288,325
12,693,138
146,587,572
2,846,260
329,444
14,251,573
21,611,628
641,063
35,885,299
6,034,049

Indemnity

.54

.41
.44
1.39
.50
.93
.64
.50
.39
.46
1.08
.27
.61
.44
.50
.45
.57

Loss Ratio

122

123
The issue of rural development is of serious concern to me. I just dont see how
this budget demonstrates a commitment to the needs of rural America. Heres one
item that jumps out at me: consolidation of Farm Service Agency (FSA) offices. I
continue to be concerned that there are signals going out to State FSA directors that
they will be able to shutter FSA offices.
Consolidating these offices would mean that farmers have to spend more time
driving around to access the essential services provided by FSA offices, and would
result in a direct decrease in these services.
FSA OFFICE CLOSURES

Question. The issue of rural development is of serious concern to me. I just dont
see how this budget demonstrates a commitment to the needs of rural America.
Heres one item that jumps out at me: consolidation of Farm Service Agency (FSA)
offices. I continue to be concerned that there are signals going out to State FSA directors that they will be able to shutter FSA offices.
Consolidating these offices would mean that farmers have to spend more time
driving around to access the essential services provided by FSA offices, and would
result in a direct decrease in these services.
First, I would like to know what mechanism the Secretary proposes for State authorities to be given discretion to close FSA offices. Also, I would like the Secretary
to respond in unequivocal terms that should State or Federal authorities choose to
consolidate FSA offices, that Members of Congress be consulted. I would like to
know what plans the Secretary has for keeping Members in the loop fully through
the process.
Answer. The Department and the Farm Service Agency (FSA) is committed to
meeting the needs of farmers and ranchers in the 21st Century, and wisely investing in our employees, technology and equipment will only improve customer service
delivery. We are also committed to coordinating with Congress, stakeholders, local
groups and customers to ensure the Agency offers the best service possible.
FSA is working with the State Executive Directors (SEDS) for each State. FSA
is asking each SED to conduct an independent local-level review of the efficiency
and effectiveness of FSA offices in their State. SEDs and State Committees will
form a review committee to identify what the optimum network of FSA facilities,
staffing, training and technology should be for your State within existing budgetary
and staffing resources. Further, SEDs will explore potential joint-effort opportunities with the Natural Resources Conservation Service and other USDA agencies.
There is no comprehensive national plan or formula for identifying the optimum
network of FSA offices. Each State will review its own county office system before
submitting recommendations for technology upgrades, staffing, training and facilities.
As recommendations are received from each State, FSA will hold public hearings
and coordinate communications efforts with area farmers, ranchers, and stakeholders. If the office closure or consolidation moves forward, FSA will notify the appropriate members of Congress, including those on the Appropriations Subcommittees.
The Department is committed to a continued dialogue with State and congressional leaders to discuss how best to modernize the FSA county office system and
the necessary steps required to improve its information technology (IT) infrastructure. The ultimate goal of this process is to increase the effectiveness of FSAs local
offices by upgrading equipment, investing in technology and providing personnel
with critical training. Optimizing the county office structure consistent with IT modernization is absolutely essential if the Agencys tradition of excellent customer service is to be maintained.

QUESTIONS SUBMITTED

BY

SENATOR TIM JOHNSON

IMPORTS OF JAPANESE BEEF

Question. When Japan opened its market to U.S. exports of beef from animals
under 20 months of age, the U.S. simultaneously opened up its market to a broad
range of beef from Japan, including beef from animals over 30 months of age. Japan
implemented its ruminant-to-ruminant feed ban in 2001, and has had more than 20
cases of Bovine Spongiform Encephalopathy (BSE).
Can you explain how the U.S. import standard for beef from Japan meets the
standards of the World Organization for Animal Health (OIE) for mitigating the risk
of spread of BSE?

124
Answer. The OIE guidelines provide for three possible BSE classifications for an
exporting country: negligible risk, controlled risk, and undetermined risk, with export conditions increasingly stringent as the status of a region moves from negligible
risk through controlled risk to undetermined risk. The import conditions for whole
cuts of boneless beef from Japan, including the requirements for specified risk material removal and restrictions on stunning and pithing, are consistent with OIEs criteria for meat exported from controlled-risk regions.
Question. How does this import standard take into account the fact that science
is still evolving regarding the question of whether or not the prions responsible for
BSE infection may be found in sciatic nerve tissue and muscle cuts of meat?
Answer. APHIS recognizes that ongoing research with increasingly sensitive detection measures may find the presence of abnormal prions in different tissues. This
does not negate the previous research studies nor the years of epidemiological evidence that demonstrate the lack of infectivity in muscle meat. The incidence of BSE
worldwide continues to decrease, providing evidence that the established control
measures are working. These control measures are based on previous research and
epidemiological evidence, and demonstrate that this research has identified those
tissues that contain essentially all of the relevant infectivity in cattle tissues.
Question. Does this opening to beef from a country with a feed ban since 2001
comply with USDAs earlier position that risk mitigation required the existence of
a feed ban for a minimum of 7 years?
Answer. A feed ban in relation to the definition of a BSE-minimal risk region
which is not relevant to the import of boneless beef from Japanrequires that a
minimal-risk region should maintain risk mitigation measures adequate to prevent
widespread exposure and/or establishment of disease, including the fact that a ruminant-to-ruminant feed ban is in place and is effectively enforced. There is no time
frame specified.
Question. Why did the United States agree to impose less stringent import standards for meat from a country with BSE problems than that country agreed to impose on our exports?
Answer. Japan requested that the USDA consider allowing the resumption of beef
imports from Japan based on the safeguards they had implemented to prevent and
control BSE. APHIS conducted a thorough risk analysis to evaluate this request,
and determined that the importation of whole cuts of boneless beef could be allowed
while continuing to protect the United States against the introduction of BSE.
IMPORTS FROM CANADA

Question. In January of this year, Canada confirmed the detection of another animal infected with BSE in Alberta. The animal in question was born 3 years after
Canada imposed its ruminant-to-ruminant feed ban. In addition, in December of last
year, USDAs Inspector General confirmed that Canadian beef inspection officials
were still not enforcing certain measures required of them in order to qualify for
equivalence to the U.S. inspection system, despite the fact that USDA originally
identified these problems in the Canadian system as early as 2003. Yet FSIS is only
now developing and implementing protocols to evaluate deficiencies in the Canadian
system.
In light of these developments, is USDA considering re-evaluating its Canadian
import policy?
Answer. USDA remains confident in the animal and public health measures that
Canada has in place to prevent BSE, combined with existing U.S. domestic safeguards and additional safeguards outlined in the final rule recognizing Canada as
a minimal-risk region for BSE.
Question. Do you feel there are any additional safeguards that may be needed in
our import regulations to account for the discovery of an infected animal Canadian
born after the feed ban, and the continued deficiencies in Canadas meat inspection
system?
Answer. USDA feels that the safeguards currently in place are sufficient to protect public health against BSE. USDA requires that all foreign countries that export
meat and poultry to the United States must have an inspection system equivalent
to the one in this country. This means that all of our trading partners must meet
our domestic regulatory standards, including the ban on specified risk materials
(SRMs) and the prohibition of non-ambulatory disabled cattle from the human food
supply.
Canada has SRM removal requirements that are virtually identical to the current
U.S. regulations. The only difference is that Canada does not consider tonsils to be
SRMs in cattle less than 30 months of age. However, all meat exported from Canada
to the United States must have the tonsils removed, pursuant to U.S. regulations.

125
Question. If you dont believe any modifications in our import regulations are
needed, why not?
Answer. USDA remains confident in the animal and public health measures in
place in both Canada and the United States. With respect to BSE, risk mitigation
is not tied to the success or failure of one individual measure. It relies on an interlocking sequence of risk mitigation measures that provide an overall measure of risk
protection. The Canadian BSE risk assessment evaluated the total effect of all of
these measures, and was not based on one individual measure.
COUNTRY OF ORIGIN LABELING

Question. American cattle producers often argue that one of the most important
steps that could boost their competitiveness at home and abroad would be to differentiate their product to consumers as meat exclusively from animals born and
raised in the United States. In fact, customers in some of our most important export
markets are also demanding source verification of U.S. meat exports. Yet country
of origin labeling is still not mandatory for U.S. meat products, and there is no way
for consumers to distinguish whether meat packed in the United States is from U.S.
animals or foreign animals.
Does USDA see mandatory country of origin labeling for meat, including information on animal origin, as a competitive advantage for U.S. producers?
Answer. Evidence from the marketplace suggests that the willingness of consumers to pay for information about the origin of their food is not high. If market
premiums for country of origin information were available, there would be strong
incentives for the industry supply chain to provide that information voluntarily to
consumers. Since the level of voluntary labeling for country of origin of U.S. foods
is minimal, the willingness of consumers to pay for the information appears to be
small. That being the case, there most likely would be minimal competitive advantage for U.S. producers under a mandatory program.
Question. If export customers are demanding such information, shouldnt U.S. consumers have access to the same information about the food they eat?
Answer. Many groups, including consumers and industry associations, have expressed an interest in country of origin labeling. In general, providing more information to consumers to make informed purchase decisions is better than less or no information. If the costs of providing the additional information exceed the benefits,
however, then there is no economic rationale for providing it.
Question. What can USDA do to help ensure that U.S. producers can differentiate
their product in the market?
Answer. There are existing user-fee programs administered by USDA that address this issue, such as the Process Verified Program. Under this program, individuals can request that USDA verify live animal or product attributes, including the
source of their animals. USDAs voluntary marketing programs are currently assisting U.S. producers in differentiating their products in domestic and international
marketplaces.
RESOURCE, CONSERVATION, AND DEVELOPMENT PROGRAM

Question. I am concerned for the Presidents budget request for the Resource, Conservation, & Development program. RC&D leverages $8 in my community for every
$1 the Federal Government invests. What other programs in your agency budget
bring this type of return on investment to rural areas?
Answer. USDA delivers a variety of rural economic development, farm support,
research, conservation, and forestry programs that collaborate closely with local
communities and landowners to address their locally identified priorities. Many of
these programs cost share the financial and technical assistance costs with State
and local governments, and the private sector, to more cost effectively deliver benefits for local communities.
Question. It is my understanding that while we level funded RC&D that the following States lost funds in your new resource based allocations. Can you tell us
what factors you used to determine the resource allocations? I note that States
served by Members of this Subcommittee like Missouri, Kentucky, Kansas, California, Iowa, Illinois, and North Dakota lost funding under this process.
Answer. State RC&D allocations are now based on 19 resource concern factors
which reflect the four program statute purposes of Land Conservation, Land Management, Water Management, and Community Development; and State specific factors which reflect the cost of doing business within the State. In fiscal year 2006
the resource concern factors reflected 90 percent of the allocation and State specific
factors reflected 10 percent. The new approach was designed so that no State received a reduction in allocation greater than 5 percent. Additional information, in-

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cluding a list of fiscal year 2006 allocation factors and weights used is provided for
the record.
[The information follows:]

This new targeted allocation approach addresses Program Assessment Rating Tool
(PART) concerns about the need for targeting resources to address the highest priority needs. It uses weighted state and local-level data elements collected through
the Natural Resources Inventory (NRI), National Agricultural Statistics Service
(NASS), U.S. Census Bureau, Economic Research Service and other reliable and statistically sound sources to highlight the resource needs in the States. The targeted
allocations reflect national NRCS priorities and tie to long-term program goals.
Question. Can you give us an update on management issues within the RC&D
program including long term program goals and the status of the new POINTS
database?
Answer. There are a number of improvements underway for the program that address operating deficiencies highlighted through the PART results and through the
national evaluation conducted in conjunction with RC&D councils in fiscal year
20042005.

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By the end of April, NRCS will have a new RC&D program performance reporting
system, POINTS, in place that will enable more effective management of program
performance and more closely link performance with budget requests. In addition,
NRCS has recently developed new national long-term, outcome-oriented program
performance measures and goals that meaningfully reflect the programs purpose.
The new long-term performance measures, reflecting the core of activities undertaken by RC&D Councils, were developed using information provided by the National Association of RC&D Councils (NARC&DC).
NRCS is working with RC&D Councils to develop Area Plans and annual plans
of work that tie more closely to the new targeted approach to addressing the highest
priority needs and be more accountable for showing program performance.
NRCS is also taking steps with the National Association of RC&D Councils
(NARC&DC) to increase program participation with Indian Tribes, an item of concern reported in the national program evaluation. Hands-on training is being provided to RC&D councils and coordinators on working more effectively with Tribes.
In addition, a useful handbook has been developed to aid local councils in their daily
interaction and outreach activities with Tribes.
Question. RC&D was originally intended to be administered by NRCS yet bring
to bear the resources of all USDA programs in a community. We hear from constituents that conservation and implementation of Farm Bill programs are the priority
for NRCS employees associated with the program.
What are you doing to maintain the integrity of the RC&D area planning process
and ensure that in areas where rural development is a priority that council can still
receive assistance from the Federal coordinator?
Answer. All program improvements being implemented for the RC&D program
are designed to maintain the integrity and authorities of the program. Under longstanding NRCS policy, the RC&D Area Plan developed by each council must address
all four statutory components of the program: land conservation, water management, community development and land management. Rural development activities
fall within these components. The technical assistance provided through RC&D coordinators and other NRCS employees address the high priority concerns outlined
in the RC&D area plans to the extent that RC&D appropriations are available.
Question. We hear that States no longer have full time coordinators and that part
time program assistant positions have been eliminated in most States.
The program was level funded. How has this happened?
Answer. Despite continued increased costs relating to salaries, rent, equipment,
supplies, fuel, etc., program efficiencies and more effective leveraging of Federal
funds allow the program to deliver the high level of service in 2006 as in prior
years.
Question. Can you detail the level of support provided to each State?
Answer. In fiscal year 2006 the following funds were provided to each State:
State

Alabama ...............................................................................................................................................................
Alaska ...................................................................................................................................................................
Arizona ..................................................................................................................................................................
Arkansas ...............................................................................................................................................................
California ..............................................................................................................................................................
Colorado ...............................................................................................................................................................
Connecticut ..........................................................................................................................................................
Delaware ...............................................................................................................................................................
Florida ..................................................................................................................................................................
Georgia .................................................................................................................................................................
Hawaii ..................................................................................................................................................................
Idaho ....................................................................................................................................................................
Illinois ...................................................................................................................................................................
Indiana .................................................................................................................................................................
Iowa ......................................................................................................................................................................
Kansas ..................................................................................................................................................................
Kentucky ...............................................................................................................................................................
Louisiana ..............................................................................................................................................................
Maine ....................................................................................................................................................................
Maryland ...............................................................................................................................................................
Massachusetts .....................................................................................................................................................
Michigan ...............................................................................................................................................................
Minnesota .............................................................................................................................................................

Total fiscal year

2006 allocation

$1,095,450
984,616
801,550
856,767
1,465,350
973,733
274,083
134,417
940,917
1,343,633
549,694
1,075,333
1,221,917
1,095,450
1,947,467
1,096,716
1,704,033
940,917
672,083
403,250
403,250
940,917
1,075,333

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State

Total fiscal year

2006 allocation

Mississippi ...........................................................................................................................................................
Missouri ................................................................................................................................................................
Montana ...............................................................................................................................................................
Nebraska ..............................................................................................................................................................
Nevada .................................................................................................................................................................
New Hampshire ....................................................................................................................................................
New Jersey ............................................................................................................................................................
New Mexico ...........................................................................................................................................................
New York ..............................................................................................................................................................
North Carolina ......................................................................................................................................................
North Dakota ........................................................................................................................................................
Ohio ......................................................................................................................................................................
Oklahoma .............................................................................................................................................................
Oregon ..................................................................................................................................................................
Pennsylvania ........................................................................................................................................................
Rhode Island ........................................................................................................................................................
South Carolina .....................................................................................................................................................
South Dakota ........................................................................................................................................................
Tennessee .............................................................................................................................................................
Texas ....................................................................................................................................................................
Utah ......................................................................................................................................................................
Vermont ................................................................................................................................................................
Virginia .................................................................................................................................................................
Washington ...........................................................................................................................................................
West Virginia ........................................................................................................................................................
Wisconsin .............................................................................................................................................................
Wyoming ...............................................................................................................................................................
Pacific Basin ........................................................................................................................................................
Puerto Rico ...........................................................................................................................................................

940,917
1,009,897
1,075,333
1,460,600
403,250
268,833
268,833
979,469
1,023,728
1,217,167
998,832
1,095,450
1,095,450
672,083
1,095,450
134,417
940,917
940,917
1,217,167
2,677,767
940,917
268,833
940,917
940,917
735,050
940,917
672,083
280,863
403,250

Total Allocated to States ........................................................................................................................

47,637,100

Question. RC&D coordinators are being pulled from their program responsibilities
to implement Farm bill programs. What is the average amount of time a coordinator
spends on RC&D program activities nationally?
Answer. RC&D coordinators are spending at least 75 percent of their time on
RC&D program activities.
Question. Is this time charged to the TA portion of Farm bill programs?
Answer. NRCS time charges are directly connected to the benefiting program. If
an RC&D Coordinator works on a Farm Bill related program their time is charged
directly to those programs on a case-by-case basis. Only RC&D work is charged to
the RC&D program.
Question. Anecdotal evidence indicates that RC&D councils are taking on more
and more of NRCS overhead and administrative costs.
Can you provide a comparison by State of the administrative costs assessed to
RC&D in proportion to other Federal programs in your agencies jurisdiction?
Answer. The comparison by State for fiscal year 2006 is provided for the record.
[The information follows:]

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Question. The House bill included report language that the Committee expects the
NRCS to promptly fill RC&D coordinator vacancies. The Committee expects support
provided under this act to be allocated equitably among the 375 existing councils
and that priority be given to providing every council a full-time coordinator.
What States returned funds to headquarters at the end of the fiscal year?
Answer. Eight States, Alaska, Arizona, Florida, Illinois, Nevada, North Carolina,
Utah, and Washington had unused funds at the end of fiscal year 2005 in amounts
ranging from $10,000 to $101,000. There were 20 other States that had unused
funds of less than $10,000; they were Alabama, Arkansas, Georgia, Hawaii, Indiana,
Maine, Massachusetts, Michigan, Mississippi, Montana, New Jersey, New York,
North Dakota, Oregon, Rhode Island, Tennessee, Texas, Virginia, Wisconsin, and
Wyoming. The Funds were then redistributed using the allocation formula.
Question. Please provide a chart of coordinator vacancies that took place in fiscal
year 2006 and the length of time it took to fill the position with a permanent employee?
Answer. Since the beginning of fiscal year 2006 there are 10 vacancies.

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State

Florida ........................................................................................................
Georgia .......................................................................................................
Kentucky .....................................................................................................
Louisiana ....................................................................................................
Massachusetts ...........................................................................................
Michigan ....................................................................................................
North Carolina ............................................................................................
Ohio ............................................................................................................
Oklahoma ...................................................................................................
South Dakota .............................................................................................

Number of
vancancies

Vacant since est.

1
1
1
1
1
1
1
1
1
1

10/05
2/06
1/06
2/06
1/06
1/06
1/06
1/06
1/06
3/06

Length vacant

6 months
2 months
3 months
2 months
3 months
3 months
3 months
3 months
3 months
1 month

Question. Include an explanation of how appropriated funds were used while there
were extended vacancies. Will vacancies that occur in fiscal year 2006 be promptly
filled?
Answer. Funds are allocated to the States to support RC&D activities within the
State. In most cases when there is a vacancy, appropriated funds are used for another NRCS employee to serve in an acting capacity for the Coordinator. If that is
not possible, the funds are not used until the position is filled. When the positions
are filled, the funds are used to cover salary and relocation costs incurred in filling
the position. In some cases relocation costs can exceed $100,000. In situations where
funds are limited, filling vacancies is deferred until the employee relocation costs
and salary can be absorbed. Vacancies that occur in fiscal year 2006 are being filled
as funding permits.
Question. Why has no input been asked for or taken from local RC&D councils
in regard to the fiscal year 2006 Goaled Performance Measures in accordance with
Public Law 107171 and NRCSs own Programs Manual part 513 on RC&D program
(May, 2002) section a, b, and c?
Answer. In fiscal year 2005, NRCS established goaled performance measures for
all programs covering a two-year period, fiscal year 2005 and fiscal year 2006. However, information provided by the NARC&DC, representing the 375 councils nationwide, was used in the development of the new annual, long-term and efficiency
measures for the program being implemented for fiscal year 2006 and 2007. The
NARC&DC, through a cooperative agreement with NRCS, provided eight long term
program performance measures, and four program priorities based on their research
of local RC&D council area plans.
Question. Why should local RC&D Council Members who are volunteers continue
to spend their time on RC&D goals which are decided at the Washington DC level,
rather than at the local, grassroots community level which was the intent of the
RC&D legislation?
Answer. Performance goals established for the RC&D program are required by the
Government Performance and Results Act of 1993. The goaled performance measures established for the RC&D program relate to the statutory elements outlined
in the authorizing legislation and reflect program benefits that RC&D councils have
been reporting for many years. Participation in the RC&D program is voluntary and
not limited to goaled performance measures. However, the goaled performance
measures are tied to program budget requests and the types of activities for the
Federal coordinator.
Question. How can the Office of Management and Budget ignore the statutory
mission established for the RC&D program?
Answer. The Office of Management and Budget does not ignore the statutory mission established for the RC&D program. Performance goals relate to the four statutory elements in the authorizing legislation of the program.
Question. Are there any other programs that have the ability to bring together
grassroots community vision and mission based on local needs and leverage the dollars to local communities at 6:110:1?
Answer. USDA delivers a variety of rural economic development, farm support,
research, conservation, and forestry programs that provide technical and financial
assistance to address local needs.
Question. Why has the NRCS abandoned grassroots priority-setting for the RC&D
program in response to the PART review conducted by OMB?
Answer. NRCS has not abandoned grassroots priority setting for the RC&D program. RC&D Councils can set their priorities as they relate to the four statutory
elements in the authorizing legislation.

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COMMODITY SUPPLEMENTAL FOOD PROGRAM

Question. In relation to the Commodity Supplemental Food Program, why would

you eliminate a Federal program that provides a $50 retail value of food each
month, at a cost of just $16 a month to the tax payers, with $20 worth of food
stamps? This would equate to a loss of $30 in benefits to our Nations elderly at
a time of rising medical and utility costs. Isnt this an example of a judicious use
of the tax payers dollars being discarded?
Answer. The CSFP is a relatively small program that operates in limited areas
of 32 States, two Indian reservations, and the District of Columbia. Its benefits are
to a great extent redundant of those available through other nutrition assistance
programs. In an era of fiscal constraint, we must ensure that limited resources are
targeted to those programs that are available to needy individuals and families, regardless of the communities in which they reside. The populations served by CSFP
are eligible to receive similar benefits through other Federal nutrition assistance
programs that offer them flexibility to meet their individual nutritional needs and
preferences. The administration has proposed this change to better target limited
resources to those major programs that are available nationwide, promoting equity
and effectiveness. If Congress adopts the budget request, we will work closely with
CSFP State agencies to ensure that any negative effects on program participants
are minimized and that they are transitioned as rapidly as possible to other nutrition assistance programs for which they are eligible.
Elderly participants who are leaving the CSFP upon the termination of its funding and who are not already receiving FSP benefits will be eligible to receive a transitional benefit worth $20 per month ending in the first month following enrollment
in the FSP under normal program rules, or 6 months, whichever occurs first. The
average food stamp benefit for an elderly person living alone was $65 per month
in 2004. The percentage of food stamp households with elderly that received the
maximum benefit (14 percent) was nearly as large as the percentage that received
the minimum benefit of $10 (17 percent). Thus, most elderly food stamp participants
receive more than $10 per month, and we expect that this pattern would extend to
new FSP participants leaving CSFP as well.
Question. Why would you consider eliminating the CSFP, unlike any other, that
receives donations of goods, services and volunteer hours with a value nearly equal
to the administrative reimbursement by USDA? Besides providing a critical food
supplement to our low income seniors, CSFP also provides a $1 donation for every
$1 of administrative costs.
Answer. We greatly appreciate our CSFP partners at the State and local level who
have worked on behalf of this program and hope that their efforts can be directed
toward volunteer opportunities in other USDA commodity programs, including the
Emergency Food Assistance Program (TEFAP). Under TEFAP, local nonprofit organizations that are staffed mainly by volunteers, including many faith-based and
community organizations, provide USDA commodities to the needy, either as prepared meals in soup kitchens, or through food pantries as commodities to be used
by households. In addition, many TEFAP local organizations actively seek donations
of commodities from other sources, including local grocery stores.
Question. What will you do for the 25 percent of the CSFP participants who are
already enrolled in the food stamp program and would be losing a critical benefit?
Answer. CSFP recipients who are already enrolled in the FSP will continue to receive monthly food assistance benefits and have access to nutrition education services.
Question. Isnt it true that the FSP and CSFP are supplemental programs that
are meant to work with each other to ease the burden upon our low income seniors?
Answer. The Food Stamp Program is the cornerstone of the national nutrition
safety net, and the largest elderly nutrition assistance program, serving nearly 2
million seniors in an average month. Because the CSFP operates in limited areas,
some low-income elderly have access to nutrition assistance through commodities
and/or Food Stamps, while most others must rely exclusively on Food Stamps for
such help. In the administrations view, ensuring adequate funding for programs
that have the scope and reach necessary to provide access to eligible people wherever they may reside is a better and more equitable use of scarce resources than
to allocate them to programs that cannot provide access to many areas of the country. For this reason, the administration has placed a priority on funding Food
Stamps, WIC, and other nationally-available programs that provide benefits to eligible people wherever they may live, including communities currently served by
CSFP. Many elderly CSFP participants are expected to be eligible for, and to make
use of the FSP, from which they may receive benefits that can be more flexibly used
to avoid conflicts with their individual dietary needs and preferences.

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Question. Why would you consider eliminating a program that has grown by 15
States since 2000, has 5 States on a waiting list and has current participating
States asking for thousands of additional caseload slots?
Answer. We face difficult challenges and decisions with regard to discretionary
budget resources and have chosen to not request funding for this program for several reasons. Resources are not available to permit CSFP to operate nationwide. In
an era of fiscal constraint, we must ensure that limited resources are targeted to
those programs that are available to needy individuals and families, regardless of
the communities in which they reside. The priority of the administration is to ensure the continued integrity of the national nutrition assistance safety net, including the Food Stamp Program and WIC.
Question. Some seniors have spoken that they prefer commodities to food stamps
as was shown during your pilot program, of commodities in lieu of food stamps, in
Connecticut and North Carolina. What do you say to those seniors?
Answer. We recognize that some seniors prefer commodity packages to food
stamps. However, the Food Stamp Program is the Nations primary domestic nutrition assistance program for low-income households. Because the CSFP operates in
limited areas, some low-income elderly have access to nutrition assistance through
commodities and/or FSP, while most others must rely exclusively on Food Stamps
for such help.
In the administrations view, ensuring adequate funding for programs that have
the scope and reach necessary to provide access to eligible people wherever they
may reside is a better and more equitable use of scarce resources than to allocate
them to programs that cannot provide access to many areas of the country. For this
reason, the administration has placed a priority on funding the Food Stamp, WIC,
and other nationally-available programs that provide benefits to eligible people
wherever they may live and offer flexibility in benefits to meet their individual nutritional needs and preferences.
SUBCOMMITTEE RECESS

Senator BENNETT. We thank you for your testimony, sir, and for
the expertise that you bring here. The next hearing of the subcommittee will be with the Food and Drug Administration on Tuesday, March 14 at 10 a.m., and the subcommittee is recessed.
[Whereupon, at 9:54 a.m., Thursday, March 9, the subcommittee
was recessed, to reconvene at 10 a.m., Tuesday, March 14.]