[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                  AGRICULTURE, RURAL DEVELOPMENT, FOOD
                  AND DRUG ADMINISTRATION, AND RELATED
                    AGENCIES APPROPRIATIONS FOR 1998

========================================================================

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                              FIRST SESSION
                                ________

     SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG 
                  ADMINISTRATION, AND RELATED AGENCIES

                     JOE SKEEN, New Mexico, Chairman

JAMES T. WALSH, New York               MARCY KAPTUR, Ohio
JAY DICKEY, Arkansas                   VIC FAZIO, California
JACK KINGSTON, Georgia                 JOSE E. SERRANO, New York
GEORGE R. NETHERCUTT, Jr., Washington  ROSA L. DeLAURO, Connecticut
HENRY BONILLA, Texas                   
TOM LATHAM, Iowa                       

 NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full 
Committee, and Mr. Obey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.

Timothy K. Sanders, Carol Murphy, John J. Ziolkowski, and Joanne L. Orndorff,
                            Staff Assistants
                                ________

                                 PART 6

 Rural Economic and Community Development Programs and Food 
Nutrition and Consumer Services:
                                                                   Page
   Rural Economic and Community Development.......................    1
 Rural Utilities Service, Rural Housing Service, and Rural 
Business Cooperative Service:
   Food Nutrition and Consumer Services...........................  417

                              

                                ________

         Printed for the use of the Committee on Appropriations
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                       COMMITTEE ON APPROPRIATIONS                      

                   BOB LIVINGSTON, Louisiana, Chairman                  

JOSEPH M. McDADE, Pennsylvania         DAVID R. OBEY, Wisconsin            
C. W. BILL YOUNG, Florida              SIDNEY R. YATES, Illinois           
RALPH REGULA, Ohio                     LOUIS STOKES, Ohio                  
JERRY LEWIS, California                JOHN P. MURTHA, Pennsylvania        
JOHN EDWARD PORTER, Illinois           NORMAN D. DICKS, Washington         
HAROLD ROGERS, Kentucky                MARTIN OLAV SABO, Minnesota         
JOE SKEEN, New Mexico                  JULIAN C. DIXON, California         
FRANK R. WOLF, Virginia                VIC FAZIO, California               
TOM DeLAY, Texas                       W. G. (BILL) HEFNER, North Carolina 
JIM KOLBE, Arizona                     STENY H. HOYER, Maryland            
RON PACKARD, California                ALAN B. MOLLOHAN, West Virginia     
SONNY CALLAHAN, Alabama                MARCY KAPTUR, Ohio                  
JAMES T. WALSH, New York               DAVID E. SKAGGS, Colorado           
CHARLES H. TAYLOR, North Carolina      NANCY PELOSI, California            
DAVID L. HOBSON, Ohio                  PETER J. VISCLOSKY, Indiana         
ERNEST J. ISTOOK, Jr., Oklahoma        THOMAS M. FOGLIETTA, Pennsylvania   
HENRY BONILLA, Texas                   ESTEBAN EDWARD TORRES, California   
JOE KNOLLENBERG, Michigan              NITA M. LOWEY, New York             
DAN MILLER, Florida                    JOSE E. SERRANO, New York           
JAY DICKEY, Arkansas                   ROSA L. DeLAURO, Connecticut        
JACK KINGSTON, Georgia                 JAMES P. MORAN, Virginia            
MIKE PARKER, Mississippi               JOHN W. OLVER, Massachusetts        
RODNEY P. FRELINGHUYSEN, New Jersey    ED PASTOR, Arizona                  
ROGER F. WICKER, Mississippi           CARRIE P. MEEK, Florida             
MICHAEL P. FORBES, New York            DAVID E. PRICE, North Carolina      
GEORGE R. NETHERCUTT, Jr., Washington  CHET EDWARDS, Texas                 
MARK W. NEUMANN, Wisconsin             
RANDY ``DUKE'' CUNNINGHAM, California  
TODD TIAHRT, Kansas                    
ZACH WAMP, Tennessee                   
TOM LATHAM, Iowa                       
ANNE M. NORTHUP, Kentucky              
ROBERT B. ADERHOLT, Alabama            

                 James W. Dyer, Clerk and Staff Director




AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND RELATED AGENCIES APPROPRIATIONS FOR 1998

                              ----------                              

                                          Thursday, March 13, 1997.

                       RURAL DEVELOPMENT PROGRAMS

                               WITNESSES

JILL LONG THOMPSON, UNDER SECRETARY
WALLY BEYER, ADMINISTRATOR, RURAL UTILITIES SERVICE
JAN E. SHADBURN, ACTING ADMINISTRATOR, RURAL HOUSING SERVICE
DAYTON J. WATKINS, ADMINISTRATOR, RURAL BUSINESS-COOPERATIVE SERVICE
W. BRUCE CRAIN, EXECUTIVE DIRECTOR, ALTERNATIVE AGRICULTURAL RESEARCH 
    AND COMMERCIALIZATION CORPORATION
STEPHEN B. DEWHURST, BUDGET OFFICER, DEPARTMENT OF AGRICULTURE

                              Introduction

    Mr. Skeen.  We will come to order. We're on the record.
    This afternoon we welcome the Honorable Jill Long Thompson, 
the Under Secretary for Rural Development and a former Member 
of this body. Glad to see you again. Everything going chipper?
    Ms. Thompson.  I think so.
    Mr. Skeen. You are not only a colleague, but a good friend 
of this subcommittee and a good friend of rural America. So, 
Madam Under Secretary, your testimony is very timely this year. 
We've had a few press conferences recently by some well-meaning 
but misinformed folks who believe that we should terminate 
Rural Development programs because they are no longer needed. I 
guess rural America has disappeared somewhere in the line.
    As you know, I've personally seen the good results of most 
of these programs at home in New Mexico and Rural Development 
has always received strong bipartisan support in this 
subcommittee and in the full committee and we want that to 
continue.
    We look forward to your testimony and that of your 
colleagues to set the record straight on Rural Development. I 
do have to warn you that the increases requested by the 
Administration, especially the $400 million for WIC puts us in 
an extremely difficult situation because there is really 
nowhere else to go in the discretionary budget to get that kind 
of money except Rural Development. It's always been a target 
when we were shifting funding around, as you well know. We do 
that toe dance regularly.
    We want to work with you and make sure that the programs 
deliver maximum service for the minimum in dollar outlays. 
Madam Under Secretary, please introduce your team and proceed 
with your testimony. We're delighted to see you again.
    Ms. Thompson.  Thank you, Mr. Chairman.
    Mr. Skeen.  Sorry about being a little bit late. But I had 
the idea that we were starting at 1:30 p.m.
    Ms. Thompson.  I'm glad to wait for you any time.
    Mr. Skeen.  Well, thank you.

                 statement of under secretary thompson

    Ms. Thompson.  Thank you. It's a pleasure to be here. And 
let me introduce Steve Dewhurst from the Department budget 
office; Wally Beyer on my immediate left, is the Administrator 
of the Rural Utilities Service; Jan Shadburn, immediately to my 
right, is the Acting Administrator of the Rural Housing 
Service; Dayton Watkins, is the Administrator of the Rural 
Business-Cooperative Service; and Bruce Crain from the 
Alternative Agricultural Research and Commercialization 
Corporation.
    Mr. Skeen.  Welcome to all of you.
    Ms. Thompson.  If it will please the Chairman, I will 
summarize my remarks and submit the complete testimony for the 
record.
    Mr. Skeen.  It will please us all. But the full written 
testimony will be entered in the record as you know. So, go 
ahead and proceed.
    Ms. Thompson.  Thank you. I'm pleased to be here today and 
to present for your consideration the 1998 budget for the Rural 
Development Mission Area. Before I discuss the specifics of the 
budget request, I would like to thank this Subcommittee and 
your staff for the assistance that you have provided to the 
Mission Area and to the Department during the past year.
    With your assistance and your leadership, we were able to 
enact some of the reforms needed in the Multi-Family Housing 
Program. Also with your assistance we were able to conduct a 
very successful Voluntary Separation Program which mitigated 
the need for a large Reduction-in-Force.
    The Voluntary Separation Program has assisted us in meeting 
other commitments such as the implementation of our Centralized 
Servicing System and has also permitted us to maintain a staff 
that will be with us for years to come.
    This past year has been a rewarding one for the Mission 
Area. We've enjoyed a number of successes beyond delivering our 
program funds that you've provided by this Subcommittee.
    We began the implementation of the Dedicated Loan 
Origination and Servicing System which will save the taxpayers 
$250 million over the next five years, and $100 million 
annually thereafter. We've also completed the streamlining of a 
number of our major regulations in single family housing, 
business and industry loan guarantees, and water and waste 
disposal loans. We are also working on others.
    Since the early days of this Administration, it has been 
evident that one of the President's highest priorities is to 
continue, and where possible strengthen, the investment in 
rural America. While we have seen some improvements in rural 
communities over the past few years, rural household incomes 
have actually declined and poverty rates are still alarmingly 
high.
    The majority of rural poor families are working poor. 
Incomes are not sufficient to lift families above the poverty 
level in many cases. The poverty rate in rural America still 
stands at about 17 percent and even more disturbing is the fact 
that 25 percent of rural children under the age of 18 live in 
families with incomes below the poverty level. Among African 
American children the level is about 54 percent.
    Neither the programs of this Mission Area nor any other 
government program can ensure the economic success of any 
individual, but we can help to eliminate some of the obstacles. 
Empowering people in communities to build the capacity to 
control their destinies, while partnering withthe private 
sector to build new economic opportunities is a charge that I am very 
committed to.
    And it is the foundation of this budget request. The budget 
reflects the President's belief that jobs create opportunity 
and long-term community stability. We recognize that it is 
primarily the responsibility of the private sector to create 
the needed jobs. However, in many rural areas the private 
sector alone cannot accomplish that task.
    These are the areas where we need to focus our efforts and 
help the residents and the private sector create opportunity. 
The Administration stands behind the principle that if 
sustainable economic development is to occur, rural communities 
themselves must develop the structures that enable them to 
respond to rapidly changing economic conditions and forces in 
order to become competitive and to remain competitive.
    As you know, one of the requirements of the 1996 Farm Bill 
is that our State directors, working in concert with local 
communities and also with the states, prepare a plan for the 
expenditure of the funds through these programs. Each state 
office has now submitted those plans. Those were due at the 
beginning of this month.
    We are in the process of going through them. I expect them 
to be like business plans, articulating where a particular 
state hopes to be five or ten years from now and set forth very 
concrete steps, which we call benchmarks, to get there.
    Bench marking is one of the more useful tools to come out 
of the Empowerment Zone/Enterprise Community's (EZ/EC) 
experience. In fact, one of our champion communities, an 
applicant that did not receive designation as an EZ or EC did 
not wait around for the Federal Government to act but, based on 
the plan that they developed in their application, they have 
brought in $100 million in investments without government 
assistance.
    That is the result of their strategic planning and their 
working together.
    I very much appreciate the willingness of this subcommittee 
to appropriate funds under the Rural Housing Assistance 
Program, the Rural Business Assistance Program, and the Rural 
Utilities Assistance Program for fiscal year 1997.
    However, I do remain convinced that the additional 
flexibility that we requested which is the authority to 
transfer up to 10 percent nationally from one funding stream to 
another is a tool that we need to improve the use of the 
programs as development tools.
    For that reason we have, again, submitted the budget under 
the terms of the Rural Community Advancement Program as enacted 
in the 1996 Farm Bill. The budget for RCAP totals $2.5 billion 
in program level and $689 million in budget authority. As a 
former Member of Congress, I fully understand and share the 
committee's concerns regarding accountability for sums of money 
of this magnitude and the ability to track the expenditures.
    I want to assure the committee that I would not approve any 
transfer until a system has been developed to track the amounts 
of funding transferred, nor would any transfer be approved 
unless the Administrators of the respective agencies agreed to 
it. We have developed such a tracking system and can implement 
it quickly should we be given that authority.
    I will briefly go through the summary numbers of the budget 
request. For the Rural Housing Service, we are requesting an 
amount that totals $921 million in budget authority, which 
would support a loan and grant program level of $5.4 billion.
    As you know, over 60 percent of the budget authority is for 
the Rental Assistance Program which is the rental subsidy that 
makes it possible for very low income families to live in the 
Multi-Family Projects that USDA finances. The request also 
includes a transfer from HUD of $52 million for us to assume 
the responsibility of administering the HUD Section Eight 
assistance in some of our housing projects.
    With regard to the Rural Utilities Service, we are 
requesting a total of $734 million in budget authority which 
will support a $3 billion level in loans and grants. Over 80 
percent of the budget authority is to support the Water and 
Waste Disposal Loan and Grant Programs. The request for these 
two programs is essentially the same as the subcommittee 
provided last year.
    And this level would enable us to continue our commitment 
to the Water 2000 Initiative, as well as meet some of the other 
increasing demand for these programs. The most significant 
change from last year's budget in the Rural Utilities Service 
involves the Distance Learning and Tele-Medicine Program. We're 
requesting $21 million in grant funds compared to the $7.5 
million that this subcommittee made available in 1997.
    The reason for an increase of this magnitude is actually 
pretty simple. I believe that this program will, in the long-
term, generate a greater return to the American public and the 
Federal Government than virtually any other program. And I 
think it is a prime example of why we should view these 
programs as investments in rural America rather than simply 
expenditures.
    For the Rural Business Cooperative Service we are 
requesting a total of $70 million in budget authority. And that 
will support a Loan and Grant Program level of $780 million. As 
I have stated earlier, I firmly believe that the private sector 
is the key to sustainable economic development in rural areas.
    While the private sector has worked very well in most 
areas, there are still some rural areas in which the private 
sector does not participate as well as we would like them to. 
And our programs in the Rural Business Cooperative Service can 
be of great assistance.
    The budget request for the Alternative Agricultural 
Research and Commercialization Corporation is $10 million, a $3 
million increase over the current fiscal year. AARC's 
investments have lead to the creation of 5,000 new jobs, all in 
rural areas, and each one related to value-added agricultural 
products.
    AARC's equity investments are a part of the safety net for 
farmers, providing a vital link between the development of new 
products based on agricultural commodities and successful 
commercialization that is now even more critical with the 
gradual phase out of commodity support payments.
    On to salaries and expenses. I am very pleased with the 
progress that we have made in meeting our objectives in 
streamlining and reinvention and I pledge that we will continue 
to do our share in changing how we conduct business. I think 
the changes are long overdue. And had they been made when 
needed, they probably would not be as costly as they are today.
    The improvements that we are making such as DLOS can be 
achieved only if up-front investments are made. We 
haveimplemented improvements without significant negative consequences 
on employees. And we thank the subcommittee for helping us to 
accomplish that.
    Mr. Chairman, for salaries and expenses I have requested 
$516 million. This is a reduction from 1997. I think it is 
exactly the figure that we need to continue to administer the 
programs and to carry out our other responsibilities without 
having to impose further Reductions-in-Force. With that, I 
thank you for the opportunity to make my presentation. The 
Administrators and I will be happy to try to answer any 
questions that you or other Members of the subcommittee might 
have. Thank you.
    [Clerk's note.--Ms. Thompson's written testimony appears on 
pages 162 through 176. Mr. Beyer's written testimony appears on 
pages 177 through 191. Mr. Shadburn's written testimony appears 
on pages 192 through 210. Mr. Watkins' written testimony 
appears on pages 211 through 228. Mr. Crain's written testimony 
appears on pages 229 through 234. Ms. Thompson's, Mr. Beyer's, 
Mr. Shadburn's, Mr. Watkin's, and Mr. Crain's biographical 
sketches appear on pages 235 through 240. The Rural Development 
Mission Area's budget justification appears on pages 241 
through 267. The Rural Utilities Service's budget justification 
appears on pages 268 through 307. The Rural Housing Service's 
budget justification appears on pages 308 through 366. The 
Rural Business Cooperative Service's budget justification 
appears on pages 367 through 405. The Alternative Agricultural 
Research and Commercialization Corporation's budget 
justification appears on pages 406 through 416.]

                  rural community advancement program

    Mr. Skeen.  Thank you. Let's begin with the Rural Community 
Advancement Program or RCAP as it is known. This is a program 
created in the Farm Bill. It combines a number of Rural 
Development accounts and includes grants to States. They're set 
asides for Indian Tribes.
    Madam Secretary, we have a particular problem with the 
proposal for grants for States, as the Inspector General has 
informed us several times that in another program involving 
grants to a State or State organizations when they tried to 
investigate the allegations of waste, fraud, and abuse, the 
I.G. was denied access to the program records by the State 
Attorney General.
    This denial has come even though States must agree to allow 
the IG to have access to such records as a condition of 
receiving the federal money. Several States have now taken this 
position. With the Rural Community Advancement Program up to 
$57 million, which can be transferred to the States in fiscal 
year 1998, my question is this.
    How do we, the committee and the Department, go about 
making sure that if these grants are made, we can give a full 
accounting to the taxpayers on how the money was spent?
    Ms. Thompson.  Well, I would simply make that a condition 
and we would do that in the Mission Area, that as a condition 
of receiving the 5 percent, that they would have to make those 
records available.
    Mr. Skeen.  Sort of like decertification.
    Ms. Thompson.  It's kind of like what?
    Mr. Skeen.  Decertification, like the President is doing 
with Columbia and New Mexico, only we're going to do it here at 
home.
    Ms. Thompson.  I certainly could do that. And we would do 
that.
    Mr. Skeen.  They are agreeing now to give open access to 
the records where you have a transfer of federal money to the 
State and local communities.
    Ms. Thompson.  We would simply make that a requirement; 
make it a condition; absolutely.
    Mr. Skeen.  Very good. I think that's at least some 
progress. The RCAP Program also provides for a set aside of 3 
percent for federally recognized Indian Tribes. Some Tribes 
have told me that they need help in filing applications for 
these grants. What's the process involved and how will you go 
about allocating this money among the many federally recognized 
Native American Tribes or Indian Tribes?
    Ms. Thompson.  I want to make sure I have the exact answer 
for you on that. The money would be held here in the National 
Headquarters, but the applications would be filed through the 
State offices to the National Office.

                             subsidy rates

    Mr. Skeen.  The number of eligible tribes is what, 554, I 
believe. I thought we had them all in New Mexico, but we don't 
have quite that many.
    The increase in interest rates in this past year has caused 
a serious problem in the loan programs. And we've provided 
enough subsidy to maintain Section 502 housing at the previous 
year's level. But the OMB subsidy rate turned out to be much 
too low.
    We provided the Administration the option of using the WIC 
carry over money, but that's not been acted on. How can we 
protect these very important programs from any other subsidy 
miscalculations such as we had last year?
    Ms. Thompson.  Greater funding levels.
    Mr. Skeen.  Well, that's one way.
    Ms. Thompson.  That's one way. I think that projecting 
interest rates over the long-term is difficult because of the 
fluctuations I've seen in the economy. But I think that the 
assumptions that we are using for fiscal year 1998 are pretty 
reasonable. In fact, the long-term Treasury rate that's used 
for the fiscal year 1998 budget, the Treasury rate assumption, 
was only 50 basis points below the current rate at the end of 
February.
    And so that indicates to me that it's probably pretty 
accurate. At the same time, there is always uncertainty when 
you're projecting into the future. So, we have some concerns. 
But I believe these are pretty realistic assumptions.
    Mr. Skeen.  At least you're keeping within some bounds.
    Ms. Thompson.  Yes.
    Mr. Skeen.  Hopefully.
    Ms. Thompson.  Yes.

                    section 515 rural rental housing

    Mr. Skeen.  On Section 515 rental housing, what's the 
situation with the reforms that we initiated in the fiscal year 
1997 Bill? Is the money now available for new construction?
    Ms. Thompson.  I'm going to ask Jan Shadburn, the Acting 
Administrator of the Rural Housing Service, to answer that 
question. But, yes, we are.
    Mr. Skeen.  Certainly; thank you.
    Mr. Shadburn.  Thank you, Mr. Chairman. The reforms that 
this committee asked us to implement are in the clearance 
process now. As far as the new construction money, we were 
directed to hold that funding until the new reforms were in 
place.
    The regulations are in the clearance process now. We 
appreciate the Under Secretary's help with that so that she 
could help us with some emergency interim final rules so that 
we can process these reforms.We hope to have those out the 
first of April.
    Mr. Skeen.  While we have you there, how do you plan to 
divide the Section 515 money between rehabilitation and new 
construction in 1997/1998?
    Mr. Shadburn.  Well, in 1997, sir, there is approximately 
$56 million in rehab money which we are using to fund those 
projects right now. With the new construction money for fiscal 
year 1997, we have begun training out into the field. We 
started with a down link video to our staff last month.
    As soon as we get the training done and get the regulations 
finished, we will begin using the new construction money. Next 
year we've asked for that funding to be combined so that we can 
move the funding from new construction to rehabilitation, 
depending on where the need is the greatest.

                        rural utilities service

    Mr. Skeen.  Let's go to the Rural Utilities area. How much 
debt did we have to write-off or reschedule in fiscal year 
1997? What are the prospects for fiscal year 1998? Can you tell 
us what the debt write-offs will do to the subsidy rate?
    Ms. Thompson.  I'm going to ask Wally Beyer, the 
Administrator for the Rural Utilities Service to answer your 
questions. But in general I want to make the point that we've 
been working very hard with troubled borrowers who had problem 
loans that were already on the books and really not addressed 
for a number of years.
    In trying to work with them, we have a number of 
objectives, but two of the major objectives are that we want 
rural consumers to have reasonable electric rates and we want 
to recover as much as is possible in the best interest of the 
taxpayer. It has been a real challenge, but we have worked very 
hard on this issue. We are committed to getting these issues 
resolved expeditiously, but also in a way that is fair to 
consumers and also to the taxpayer.
    Mr. Skeen.  Well, at least we recognize it as a problem.
    Ms. Thompson.  Yes.
    Mr. Skeen.  And you're doing something to try to reduce the 
exposure to that. Am I correct?
    Ms. Thompson.  Yes.

                        telecommunications bill

    Mr. Skeen.  I've heard from Chairman Smith and from the 
Rural Telephone Representatives who are concerned about the way 
FCC rulings on the new Telecommunications Bill will affect 
rural telephone users and the companies involved. Can you 
outline the specific ways in which the bill or subsequent 
rulings are affecting rural telephone service and what the 
Department is doing in its discussions with the FCC?
    Ms. Thompson.  Yes. We can do that. Actually the best 
person to do that would be either Wally Beyer, the 
Administrator, or Adam Goladner who is here from the Rural 
Utilities Service.
    Mr. Skeen.  We're giving your company a lot of exercise 
over there today. We appreciate that. You've got a good team 
working with you.
    Ms. Thompson.  Thank you. You have a good team also.
    Mr. Skeen.  Thank you, ma'am. Don't let them know. They'll 
want a raise.
    Mr. Beyer.  Thank you, Mr. Chairman and Members of the 
Subcommittee. We are very concerned about the deregulation, 
open access, competitive environment that the rural 
telecommunications infrastructure and electric infrastructure 
are entering into.
    We're working very closely with the FCC in their 
responsibility of rulemaking to ensure that there is a rural 
safety net for rural areas and to speak out for the influence 
of deregulation and competition in the rural areas. We're doing 
what we can in that area with the FCC folks and that process.
    Mr. Skeen.  Are they pretty forthcoming with you from the 
FCC or are they trying to help you resolve your set of 
problems?
    Mr. Beyer.  Yes. They are. And we appreciate that. The 
rural telecommunications segment is about 10 percent of the 
telecommunication infrastructure sector of the economy which is 
about $200 billion. So, we find it difficult at times to get 
any attention to that small 10 percent. However the 10 percent 
of the rural infrastructure serves about between 70 to 80 
percent of the land mass.
    So, it's a very, very critical part of any deregulation 
process, particularly in the basic infrastructure. They have 
invited us in. We're working with them very regularly and 
speaking out on behalf of rural issues.
    Mr. Skeen.  We appreciate that. I have a community of 
fairly large size in New Mexico that doesn't even have the 
fiber optics possibility yet.
    Mr. Beyer.  Mr. Chairman, there are a lot of areas in rural 
America that still have party lines.
    Mr. Skeen.  Best communication network in the world.
    Mr. Beyer.  But it's limited to the continental--
    Mr. Skeen.  Just in the local community.
    Mr. Beyer.  We can't go international with something like 
that. We must have higher technology available to all 
Americans. That's really where we're coming from and working 
hard at it.
    Mr. Skeen.  Well, we appreciate that help.
    Mr. Beyer.  Thank you.
    Mr. Skeen.  Ms. Kaptur.

        rural development coordination with other usda agencies

    Ms. Kaptur.  Thank you, Mr. Chairman, very much. And we 
welcome the Under Secretary. So happy to have you with us 
today. I'm going to ask a question that I think I asked last 
year, just for the record. And it had to do with how 
effectively the other divisions of the Department of 
Agriculture work with you in your Rural Development capacity.
    For example, we had the nutrition programs before us. And 
your objective is to try to help the economic growth of rural 
communities. I asked the Department how closely they were 
working in their purchasing practices directly or through the 
states to encourage the direct acquisition of product from 
either co-ops or farm enterprises.
    And you always get a real fudgy answer from the other parts 
of the Department, but they do comprise two-thirds of our 
budget. My question is, from a management standpoint how 
closely does the Secretary, and I didn't have the opportunity 
to hear his testimony this year, provide you the opportunity to 
work with the other segments of the Department of Agriculture 
to encourage that the purchasing that is done more directly 
benefit Rural Development?
    Ms. Thompson.  We actually have done a number of things. 
Secretary Glickman does push us to do even more. But among 
different things that we have done with regard to delivering 
our services out in the field, we have worked with NRCS, 
Natural Resources, and FSA, the Farm Services Agency, in the 
process of developing our new field 6structure.
    We also have an agreement between Rural Development, 
Research, and NRCS where we have--it's like an ad hoc committee 
that meets periodically for the purposes--it's called REDAT--
for the purpose of discussing the different programs that have 
potential for overlap, coordination and consolidation. I think 
that there is more that we can do. And I think that we will 
continue. Those are two examples of areas.
    Another example on something that just recently came up was 
with the disaster in Florida, some of the Southern counties in 
Florida where we worked directly with Food and Nutrition on 
trying to address the needs of some of the same families 
affected by housing issues, as well as food and nutrition 
issues. And how can we tie together the resources of the 
Department to come together to address some of the needs in 
that particular situation. So, we do that. As a manager, I 
believe there is more that we can do. But I know that we are 
exploring other ways as well.
    Ms. Kaptur.  There are just so many commodity purchases 
that are made around the country. States can be encouraged to 
do more through the dollars that they receive. When you look at 
the Food Stamp Program, one of the witnesses from the 
Department, talked about the Farmers Market Program. That is 
true. That is helping move product directly to consumers.
    But my own judgment is that it's still rather ad hoc, and 
the Department could be doing lots more to help you if the 
Nutrition part of the Department communicated with the Rural 
Development side. I just wanted to know from your perspective 
if you were getting that kind of cooperation and encouragement, 
because there is just billions spent by the taxpayers of this 
country that don't necessarily directly benefit farmers and it 
would help you a lot in your capacity.
    I wanted to also ask in the last Farm Bill there was a 
small section dealing with farm land preservation. Though the 
title of your office is Rural Development, there is a counter 
interest lodged in the Farm Bill for the protection of prime 
arable lands.
    I'm wondering to what extent you are at all involved in 
working with others in the Department on these quality of life 
issues where we're talking about the preservation of prime 
soils, the creation of transfer development rights, the 
additional training for Farm Service Agents and Coop Agents to 
work with the trustees and so forth in rural communities to 
trade off development in agriculture.
    I'm just wondering if you have given much thought to that. 
Are they mutually exclusive in your mind? Because here you're 
trying to create income in some form for rural communities. 
There is this counter drive to also protect the land itself.
    Ms. Thompson.  Actually, the agreement that I mentioned, 
the agreement between Research, Rural Development, and Natural 
Resources, provides the opportunity for us to actually look at 
these issues in a multi-dimensional kind of way. So, that 
instead of one of the agencies addressing it this way and 
another addressing it that way, we come together and work 
together so that there is cooperation and consistency in how we 
are administering our various programs.
    I can get you--I don't have it with me today--but I can 
provide for you, if you would like, any information regarding 
how they have worked together on this particular issue.
    Ms. Kaptur.  I am curious whether the Farmland Trust has 
been in touch with your office because I think it provides some 
very interesting opportunities for some models to be developed 
around the country. I was thinking about where responsibilities 
are in relation to what was incorporated in the Farm Bill 
itself. But any information you could provide on that would be 
appreciated.
    [The information follows:]

    Memorandum of Understanding between the Under Secretary for 
Rural Economic and Community Development, the Under Secretary 
for Research, Education, and Economics and the Under Secretary 
for Natural Resources and Environment.

[Pages 11 - 17--The official Committee record contains additional material here.]


                        Rural Utilities Service

              backlog of water and sewer funding requests

    Ms. Kaptur.  In the utilities area, there are two 
questions. One is, how large a backlog of requests are there 
for water? My impression is that it's pretty big.
    Ms. Thompson.  It's over $4 billion for water and sewer.
    Ms. Kaptur.  $4 billion. And if we were to provide the 
amount in this year's budget for several succeeding years, how 
many years would it take us to accommodate that $4 billion?
    Ms. Thompson.  What we're asking for this year of the 
budget authority would allow us to address slightly over about 
$1 billion in program level is my understanding. Is that 
correct, Wally?
    Mr. Beyer.  Mr. Chairman and Representative Kaptur, I think 
the budget is $1.4 billion. Our expert, Mr. Skeen's expert, 
back here, says it's going to take four years to do that at 
that rate. The problem is however, the aging antiquity of 
treatment facilities in particular in small communities.
    So, the problem is really a health issue. And the problem 
grows as we go along in time. Our Water 2000 Initiative is 
addressing some of that. And we're targeting it to the 
situations where it really becomes a health hazard, in addition 
to the unserved. But it really is a dilemma for rural America.
    Our program, as you know, is targeted to low income,poverty 
areas that certainly do not have the strength to access the capital 
market. So, there is very little private capital going into water and 
waste water in rural America. That's one of the dilemmas that we have.
    Ms. Thompson. I might also add that the $4 billion is 
actually misrepresentative, because that's a $4 billion in 
backlog based on applications that have been received by the 
Department. There are many small towns and communities that 
have not made application for one reason or another, maybe 
because they know that there is the backlog.
    So, the $4 billion backlog that I'm referencing is just a 
backlog based on applications coming into the Department. We 
conducted a needs assessment about two years ago for water and 
waste needs in rural communities across the country and it's 
huge.
    Ms. Kaptur. Are you saying that $4 billion does not include 
many of the antiquated facilities that you were talking about?
    Mr. Beyer. That's correct. What Under Secretary Long is 
talking about is actually applications that we have on hand 
totaling about $4 billion. That is a real live backlog that 
we're dealing with.
    Ms. Thompson. There are 400,000 households in rural America 
that do not have running water at all. And that translates to 
about a million people living in those households. And then 
there are many, many more that have substandard water and 
sewage disposal.

                        Rural Electric Utilities

    Ms. Kaptur. Now, let me follow on the other part of the 
utilities and that is the electricity and ask you a question I 
was asked by some farmers in my region. In looking for money 
for water and other purposes in rural America today, haven't we 
taken care of most of the electricity needs of the nation? And 
couldn't we transfer some of those resources elsewhere? How 
would you answer their questions?
    Ms. Thompson. I probably might want to answer more 
specifically and definitely, but as a nation we subsidize 
virtually all electricity. We subsidize investor-owned and 
MUNIs through tax law. And in fact, the subsidy per consumer 
for the rural electric member is less than it is for either the 
investor-owned or the MUNI customer.
    Mr. Skeen. Are there numbers the Department could provide 
for the record in that regard?
    Ms. Thompson. Yes.
    [The information follows:]

[Pages 20 - 21--The official Committee record contains additional material here.]


    Mr. Beyer. There is a continuing need to modernize and 
replace electric infrastructure in rural America as it ages. 
And the demands for capital are really awesome in the rural 
infrastructure. There is about--with the telecommunication and 
electric, I have the figures here someplace, there is about $5 
billion in capital investment dollars going into electric and 
telecommunications infrastructure.
    The Rural Utilities Service is a very, very small part of 
that at this time. The Rural Utilities Service has just gone 
through what I call an evolution of leveraging capital. It's 
really a wonderful success story. Starting out, historically in 
the 1930s, 1940s, and 1950s and in our area, Mr. Chairman, of 
developing this infrastructure, but in 1971 we introduced the 
concurrent loan process by which thirty percent of the majority 
of the loans, comes from private capital. In the 1980s there 
was another Congressional action to eliminate--the old 2 
percent loans were basically gone in the 1970s.
    In 1993 the Rural Electric Loan Restructuring Act created a 
hardship program of 5 percent which is in this budget, a small 
amount. It created a municipal rate line item and it created a 
loan guarantee, which is at the Treasury rate.
    This budget call for a $34 million subsidy for the electric 
and telecommunications infrastructure. That subsidy will 
generate about $1.4 billion in program level. In the 
telecommunications programs there is one federal dollar to 4.5 
capital dollars. And in the electric program one federal dollar 
leverages three private capital dollars. In the 1998 fiscal 
year there will be about $5 million invested in rural America 
generated by this small amount of budget authority. It's a 
classic example of a federal partnership that's evolved as a 
result of leveraging.
    Ms. Kaptur. What would happen if the federal dollars 
weren't there?
    Mr. Beyer. In my judgment, if the federal dollars were not 
there, the private dollars would evaporate over time because it 
simply costs more money to provide quality, and I emphasize 
quality, rural infrastructure. And it costs more money to 
maintain and operate rural infrastructure.
    So, the risk is much higher in rural America. If the 
federal program was removed, probably the most significant 
thing that would happen is the deterioration of security 
interests in the private sector would just diminish. So, for $3 
or $4 million in this fiscal year 1998 request, we're 
generating about $5 billion in capital investment in electric 
and telecommunications infrastructure.

                  Rural Business--Cooperative Service

    Ms. Kaptur. Thank you. I have a question regarding a 
statement made by Mr. Watkins on page three of the testimony 
that talks about working with Treasury and a newly created NAD 
Bank to carry out a memorandum of understanding under NAFTA.
    I'm just curious whether that memorandum will include 
assistance to parts of the United States that the legislation 
allows that are not necessarily at the border, but which have 
been negatively impacted; many of which are rural areas in 
Alabama, Tennessee, Michigan and others. To what extent will 
the memorandum deal with non-U.S./Mexico border communities in 
the United States that are rural.
    Mr. Watkins. Thank you, Ms. Kaptur. I can provide you with 
the specific answer with regard to the communities that will be 
assisted. But I can assure you that my review of the memorandum 
and my working with the NAD Bank and officials from Treasury, 
and with the Deputy Under Secretary of Rural Development Policy 
and Planning, Art Campbell, we are going to assist those 
communities that are impacted by the NAFTA Agreement.
    Those that are along the border, and clearly those that are 
outside of that immediate vicinity that are further away and 
within the interior of the United States away from the Mexican 
border.
    Ms. Kaptur. Have you been approached by tomato interests in 
Florida at all?
    Mr. Watkins. We have not been approached by anyone other 
than the officials of NAD Bank and the officials of Treasury. 
We've just been working internally.
    It is my understanding that the officials from NAD Bank 
have in fact been out in the community. And they've been 
working in the community to market and promote this opportunity 
for those communities. And they may very well have had that 
contact. I don't know.
    Ms. Kaptur. Well, I would certainly appreciate it if you 
could keep us apprised on what is happening with that 
memorandum.
    Ms. Thompson. We can provide you with a list of the states 
that would have communities that would be impacted.
    [Clerk's note.--The Department subsequently informed the 
Committee that the list of states could not be provided.]

                              cooperatives

    Ms. Kaptur. All right. That would be greatly appreciated. I 
did want to ask another question on the Rural Business 
Cooperative Service. In the budget that is being submitted this 
year, in terms of the development and expansion of 
cooperatives, is it your intention to expand what you are 
already doing in that area? And if so, could you discuss that a 
bit?
    Ms. Thompson. The answer is yes. Dayton can answer more 
specifically. But there is tremendous potential for cooperative 
development, both agriculture and non-agriculture in rural 
communities. But with regard to production agriculture, as well 
as value added, and other industries. There is considerable 
potential. And we are in the process of exploring ways that 
cooperatives can be expanded. Dayton may want to add something 
to that.
    Mr. Watkins. Yes. Ms. Kaptur, we have I guess over the past 
year and a half been pursuing an opportunity to expand our coop 
services into non-agricultural areas. We are looking at 
opportunities to form cooperatives in the business side such as 
purchasing cooperatives; in the community side, housing 
cooperatives or transportation cooperatives.
    Wherever there is some economies that can be brought to 
rural Americans who organize themselves in a cooperative, we 
would like to have the opportunity to provide the same 
technical assistance and expertise as we provide on the 
cultural side.
    Now, what that means is, that we are, in fact, going to 
expand our customer base and the clientele that we are going to 
serve. In addition to that though, within the agricultural 
side, we are now beginning to focus more attention on the small 
farmer.
    We believe that with the restructuring that's occurring in 
the agricultural industry in the United States with the 
consolidations and the mergers that the small farmer is going 
to have a very difficult time, much more so than he did in the 
past, surviving.
    But we think that, if small farmers organize themselves 
into cooperatives, they have a better opportunity to, one, 
share the cost of running a business; and, two, also to benefit 
from the economies of operating as a single entity.
    Thirdly, this work that we will do with the small farmer 
will enable us to assist them in identifying additional markets 
for their products.
    Ms. Kaptur. Well, we have a group in the Ninth District of 
Ohio, the Fayette Meat Packing Task Force. And what they want 
to do is they want to produce 5,000 hogs, I think a day, but 
they need an economic structure under which to do it because 
they have no slaughter facilities right now.
    And their problem is business organization to get them to 
the point where they can be market ready. And I know they're 
not the only ones. You've probably got them all over the United 
States. But to the extent that a group like this could be given 
assistance, technical assistance, and have some place to go 
where they would get the best advice, there is no question 
about the quality of their product.
    Their problem is capital and the business structure itself. 
And I think what you said about the mergers and the mega 
businesses coming in and so forth, our poultry producers and 
many other aspects, just on the agricultural side, certainly do 
need a great deal of attention.
    So, I'm very excited about your efforts in this area and 
would look forward to working with you on them and commend you 
for saying more about it than you did last year.
    Ms. Thompson. Let me also add that in the Fund For Rural 
America $1.7 million was allocated for value added coop 
development. So, this group of producers that you're talking 
about may want to contact us that we can provide some 
information, technical assistance, whatever, regarding that.
    Also, you did not mention the B&I Loan Guarantee. You may 
want to mention that as well.

           business and industry guarantees and cooperatives

    Mr. Watkins. Ms. Kaptur, the other thing that we're doing 
that was authorized through the 1996 Farm Bill--the authority 
to guarantee the stock purchase of cooperative members who form 
new cooperatives. So, if this entity that you speak of, if they 
have not already organized into a cooperative, we are able to 
use the B&I Guarantee Program to guarantee the financing to the 
individual coop members.
    Now, this is pretty significant because heretofore, the 
farmer had to put up his own personal collateral; his farm, his 
land, whatever else. And now he can pledge the stock from the 
cooperative that he's going to purchase as collateral.
    But by using the B&I Guarantee, it encourages the financial 
institution to provide the financing, the cash that's necessary 
to make this transaction work. When before if the farmer didn't 
want to pledge his own land, then he couldn't join the 
cooperative.
    Ms. Kaptur. For value added.
    Mr. Watkins. For value added; right.
    Ms. Kaptur. Well, this will be very interesting for us to 
explore. We have another problem in Ohio with egg production 
where a big German company has come, AG General. And they're 
just wiping out all of these small producers whohad a right to 
compete in that market, but they don't have the economic structure to 
position themselves.
    And so, we'd be very interested in providing you 
information on both of those.
    Mr. Watkins.  Thank you.
    Ms. Kaptur.  Mr. Chairman, I'll withhold remaining 
questions in deference to the other Members who've been 
waiting.
    Mr. Skeen.  Thank you, Ms. Kaptur. Mr. Nethercutt.

                        rural utilities service

    Mr. Nethercutt.  Thank you, Mr. Chairman. Madam Secretary, 
Gentlemen, welcome. I'll follow this discussion on rural 
initiatives in assisting small farmers. Maybe, Mr. Beyer, I 
heard you say a moment ago--did you testify about $5 billion in 
electrical and telecommunications accounts that are available 
to small farmers? Did I understand that correctly?
    Mr. Beyer.  Yes, sir. Congressman Nethercutt, I was 
referring to the leveraging of capital that we expect will be 
invested in electric and telecommunications infrastructure 
facilities; right up to the meter.

                telecommunications and the small farmer

    Mr. Nethercutt.  I understand. I know that with the new 
Farm Bill, there is more freedom to engage in more direct 
marketing. I'm wondering if in your budget or in any of your 
programs you've thought about the value of telecommunications 
in that effort? And to what extent can you assist small farmers 
and small counties to get involved in the Internet and computer 
technology and so on? We have smart farmers all over this 
country, and they are turning to computers. I'm wondering how 
your budget impacts that concern that I have.
    Ms. Thompson.  The request for the increase in 
telemedicine, distance learning, grant money is to do precisely 
some of what you're talking about. And you're talking about 
marketing. We're talking about distance learning and 
telemedicine. But they're all very much tied together.
    I feel very strongly that what rural electrification did 
for rural communities of my grandparents and parents' time, 
getting rural families on the Internet as we go into the next 
century, we need to do the same kind of thing to make sure 
that, that happens; to work with the communities and the 
private sector.
    We have a number of projects across the country. The big 
challenge is the funding. But we work to leverage our capital, 
for example, a company in Indiana, a private company provided 
wire, at absolutely no charge to get schools wired in one of 
our southern states. We are always looking for cast off 
hardware from other departments and agencies in the Federal 
Government that we can make donations to various communities.
    The challenge is coming up with the resources. But we are 
trying to be as creative and innovative as we can, and partner 
the resources that we have with resources in the private 
sector, as well as resources that state and local governments 
have.

               distance learning and telemedicine program

    Mr. Nethercutt.  Do you know of any programs that duplicate 
this distance learning, tele-medicine program that you have 
that may be present in the Department of Education or any other 
agencies that might overlap or be duplicative of what you're 
attempting to do?
    Ms. Thompson.  I don't think there is anything that is 
duplicative. The Department of Education, Department of 
Commerce, Health and Human Services, they also have distance 
learning and/or telemedicine kinds of programs. But these 
pretty much were created by Congress to address specific 
issues.
    So, while there are programs being administered in the 
various agencies and departments, there is very little overlap 
in the needs that we are addressing in the program delivery.

               private financing of water and sewer loans

    Mr. Nethercutt.  I think the more you can do to encourage 
small farmers to become computer literate and join this so-
called information age, and for a lot of different reasons it 
will be to everyone's advantage.
    Let me just ask you about a finding that the Inspector 
General made that recommended that the Rural Utilities Service 
revise its current instructions to require future applicants to 
submit a proposal from at least one investment lender capable 
of financing water and waste loans and that state and district 
personnel discuss investment lenders nationwide with future 
applicants. I'm wondering if you're aware of that definition by 
the IG and to what extent have you followed that 
recommendation?
    Ms. Thompson.  I'm aware of it, but Wally Beyer is even 
more aware of it than I. So, I will let him address that one.
    Mr. Beyer.  Mr. Chairman and Representative Nethercutt, we 
are aware of it. And, in fact, we are launching a pilot project 
to address that very issue. It's an annual issue for us. And 
one we don't agree with because most of our projects are put 
together on a significant amount of grant funds.
    And, in fact, we encourage and beg for private capital. 
Private capital is not going to take the risk. You know, there 
is not any money in rural water systems in these small 
communities. We target our funds to communities of under 5,000.
    You give us the authority to loan to communities of 10,000 
and less. We actually target the monies to communities of 5,000 
or less and provide additional points for communities of 2,500 
or less. Because it's the real small, poverty, low income folks 
that really need the money. We're very aware of the OIG report. 
It's a continuing thing.
    This year, we're going to launch a pilot project with 
private lenders and hopefully develop projects including 
private capital.

                             wic carryover

    Mr. Nethercutt.  Before I got this job, I dealt with 
representatives from small towns in rural areas and in the farm 
country. And that was when the state got whatever grant money 
they could and some loan money. But it seems to me that it is 
hard to get that private funding capital.
    One final question. For the record now and for all of us, 
could you kindly let us know where you've been able to allocate 
any WIC carryover that's been usable by you. I notice there has 
been some reference to it in your testimony. Could you, for the 
record in your testimony, identify what it is?
    Ms. Thompson.  Last year we were able to utilize, I believe 
it was $36 million. And it was for Water 2000 Projects which 
are projects in the most needy communities.

                               water 2000

    Mr. Nethercutt.  Are you able to coordinate with EPA? 
Isthere a conflict at all with EPA with regard to the Water 2000 
Program and your allocation of funds for the development of this water 
system?
    Ms. Thompson. There is no conflict.
    Mr. Beyer. May I follow that up? May I followup the $36 
million of WIC money that Congress authorized. I don't know 
what it was. We leveraged that. That was a wonderful 
opportunity to provide more capital to small communities. We 
actually leveraged that $36 million to $70 million in 
investment in water and waste water system to, 54 water 
projects in 35 states.
    Mr. Nethercutt. It came right out of this subcommittee and 
we thought it made sense. We're going to fight the battle, as 
the Chairman and everybody else knows, this year in terms of 
WIC requests in the budget. I'm speaking as one Member. I'm 
happy to see that money go to the kind of benefit that you're 
talking about.
    Mr. Beyer. I think if you're going to move it anyplace, it 
really is a health issue. Quality, safe drinking water is 
certainly a health issue. So, it fits in the WIC parameters.
    Mr. Nethercutt. Thank you, Mr. Chairman.
    Mr. Skeen. We do a great deal of authorization that is 
discretionary.
    Mr. Beyer. We thank you for that, Mr. Chairman.
    Mr. Skeen. Mr. Fazio.
    Mr. Fazio. I want to support all you want to do in the 
future, too, Mr. Chairman. I want to welcome you all, 
particularly my former colleague and friend, Jill Long 
Thompson, and to say simply to you, Jill, and to Wally 
particularly, how much I have appreciated the cooperation RDA 
has given us in trying to improve some crumbling water system, 
you know old logging towns that have lost their employer and no 
longer have a real source of income. A little town in Tehama 
County, the Town of Tehama actually, where we've got a gas line 
in order to make up for people dependent on firewood and 
propane for greater cost over a long period of time. These are 
the important things for our people.
    We really do understand how much we're just touching the 
surface really of some of the problems that exist out in rural 
America. And I have some questions for the Rural Utilities 
service that I'll put in the record.

                   Rural Business-Cooperative Service

    Mr. Fazio. Somebody might think I was being parochial, 
otherwise. But I want to talk a bit about the Rural Business 
Service as well. Has there been an increased attention to this 
program in light of welfare reform and the fact that so much of 
our discussion has been focused on the small entrepreneur, the 
small farmer in rural communities where the welfare rate has 
often been seen as a good deal higher; certainly the 
unemployment rate a good deal higher than the average.
    Are we finding any additional funds available to try to be 
a part of the President's initiative to create some new jobs 
for people who have been theoretically on Welfare?
    Ms. Thompson. Yes, we are, and Dayton can elaborate. We are 
also working to be more creative, more innovative, use the 
dollars that we have to leverage with other dollars that are 
available because it's difficult to make the transition from 
Welfare to work if there are no jobs available.
    As I indicated in my opening remarks, rural communities 
have been the last to feel the improvements in the economy. We 
still have some rural communities across the country that have 
some very serious needs; high unemployment rates and 
significant poverty rates. But Dayton can answer some of those 
questions or elaborate more.
    Mr. Watkins. Mr. Fazio, thank you very much for the 
question. I will focus primarily on what I consider to be our 
flag ship program, the Business and Industry Program.
    In 1997, we have a Business and Industry Program level of 
up to $688 million and a budget authority of $6.4 million. Now, 
that tells me a lot about what this Administration is trying to 
do with regard to addressing the welfare issue because we are 
making business financing possible in rural communities where 
that business financing is necessary.
    The financial institutions in rural communities are clearly 
not going to put themselves at risk in business and commerce 
financing unless there is some credit enhancement; some 
government guarantee that improves their risk situation.
    Today, we're about 110 percent above last year's 
performance in terms of the demand on the program. So, we're 
beginning to see more businesses expanding. They are beginning 
to employ and hire more people. Now, the Welfare reform 
initiatives are fairly new. And we need to maintain our 
ability--because most of those people from Welfare are going to 
have to be trained.
    They're going to have to be educated in the particular 
industry that they're going to go in. So, we need to maintain 
our ability to continue growing, expanding, and financing 
businesses in rural America if we are going to make a 
significant contribution to that effort.
    I believe that through the business activity that we do, 
not just in Rural Business, but throughout the Department of 
Agriculture, we can have a significant impact on that.
    Mr. Fazio. How much backlog in the pipeline do we have for 
loans? I understand, for example, in my State there may be some 
$90 million in applications pending. I'm wondering what the 
national picture is.
    Mr. Watkins. I'll have to give you in writing what the 
picture is.
    [The information follows:]

       Backlog of Applications and Preapplications for B&I Loans

    As of March 26, 1997, there were $626,438,058 of unfunded 
Business and Industry Guaranteed Loan applications and 
preapplications on hand with only $355,370,472 of funding 
authority available.

    Mr. Watkins.  We don't consider it to be a backlog though. 
What we like to have businesses do is to submit 
preapplications. Then we can assist them in determining whether 
or not that is an eligible purpose and whether or not we can 
then provide them other technical assistance in preparing their 
overall application.
    We do in fact have, about $90 million in business 
transactions in California. And that's an increase over last 
year where we had about $45 million. But we're seeing this 
increase all across the United States.
    I was just given a note that our applications in backlog is 
in the neighborhood of $500 million. It's interesting, when we 
began fiscal year 1997, we actually had preapplications on-hand 
of about $100 million. It is significantly different than any 
other period that we've had in the most recent times.
    Mr. Fazio.  It seems like there is a good deal of hope and 
optimism out there among potential entrepreneurs.
    Mr. Watkins.  There is a tremendous amount. And not only 
that, you know, a lot of the responsibility for identifying 
entrepreneurs and lenders has been put in the hands of our 
state employees. And I always like to tell this little story if 
I could.
    The Gateway Corporation, the gentleman who started Gateway, 
started Gateway in his barn, which tells me he was a rural 
American.
    Mr. Fazio.  If it had been his garage, he wouldn't even 
have qualified.
    Mr. Watkins.  Right. He wouldn't have qualified. But I 
don't think he came to the Department of Agriculture through 
the Rural Business Program to get any financing. He could have. 
And we would have loved to have had him as an example we could 
show. But what our staffs are doing now out in rural America is 
at night, they're riding by farms and they're looking at barns.
    And they're determining whether or not there are lights on. 
And if there are, there is probably some entrepreneurial 
activity going on in there. They go back and they tell the 
entrepreneur about our program.
    Mr. Fazio.  It used to be corn liquor, but now it's 
different.
    Ms. Thompson.  If I could add just a couple of things too. 
Through our Communities Facilities Funding, we are financing 
some day care centers in rural communities.
    Mr. Fazio.  I'm glad to hear it. That ties right in.
    Ms. Thompson.  Yes. It does. And then with our distance 
learning, we are working with our training and retraining in 
lifetime learning. So, we have some of those projects as well.
    Mr. Fazio.  Well, I appreciate that, and I'll get some 
additional questions into the record on this. But one thing I 
noted a few years ago and I wonder if it's still in effect. Do 
we prevent any loans on businesses related to tourism? I 
remember at some point there was some concern about putting RDA 
loans into tourist activities. Has that been repealed?
    Mr. Watkins.  Recently, we revised the Business and 
Industry Loan Guarantee Program regulations to make tourism, 
hotel, motel, bed and breakfast eligible purposes in rural 
America. There was a study done by GAO not many years ago 
criticizing us for not making them eligible.
    That study indicated that tourism and recreation was going 
to be the fastest growing industry in rural America. Though it 
hasn't surpassed other industries yet, we expect that it is 
going to.

               Self-Help Housing and Farm Worker Housing

    Mr. Fazio.  I appreciate that. I think the word used to go 
out because there are probably some people out there, who maybe 
even in the 1990s who have tried and found that, that wasn't 
acceptable. I'm pleased to see that you have taken note of what 
I think has been a trend for quite awhile now.
    My last area of questioning relates to programs I have a 
high regard for and have a lot of experience with in Northern 
California and that's self-help housing and farm worker 
housing. I've had a long interest in this. I carried the Farm 
Worker Housing and Grant Program at the state level when I was 
in the Assembly.
    There is some talk of a grant, a block grant, that would go 
by formula, I gather, to the states that would blend several of 
these programs together. I'm troubled by the combination of 
what have been formula type programs like home repair and 
preservation with programs that have been allocated based on 
demand.
    I think the Farm Worker Housing Program and the Self-Help 
Housing Program have been in that category. To be very honest, 
I think you're going to end up reducing the amount of funds 
available to the places where those programs have done the most 
good, where there has been the most cost-sharing and interest 
at the state and local level. Could you comment on that 
proposal or have I mischaracterized it? I wouldn't mind if I 
have.
    Ms. Thompson.  I'm sure you haven't mischaracterized 
anything. I think you're referring to the 5 percent on the 
Rural Community Advancement Program that could be block granted 
to the states.
    Mr. Fazio.  The Rural Housing Assistance Grant Program, as 
I understand it, is up for revision.
    Ms. Thompson.  Yes.
    Mr. Fazio.  Reoperation; a new formula for distribution.
    Ms. Thompson.  Okay.
    Mr. Fazio.  I'm troubled by that.
    Ms. Thompson.  I'm going to ask Jan to answer that question 
because it's not the question I thought you were asking.
    Mr. Shadburn.  What I think you're referring to is the 
Rural Housing Action and Grant Program which would include the 
Self-Help and Farm Labor Housing, as well as other housing 
grant programs, all of our housing grant programs in there. 
Obviously the Farm Labor Program has never been allocated out 
to the states. We hold that at the national office because not 
all States utilized the program.
    Mr. Fazio.  About 11 states I'm told have generally used 
that program.
    Mr. Shadburn.  Yes, sir. In California it's very large. At 
the same time, the Mutual Self-Help Technical Assistance 
Program is another one that is in there that this committee has 
funded at $26 million in technical assistance. And we've 
committed $130 million in the 502 Program to that.
    So, obviously what we would be is very focused on the 
Mutual Self-Help Program. It is a quality program that allows 
very low income individuals for sweat equity to 
havehomeownership that wouldn't otherwise have housing. So, we would be 
very careful in looking at that program and making sure that it still 
supports that level of need.
    Mr. Fazio.  Well, I'm very supportive. I've seen those 
programs operate in my district. I've seen people working after 
work, weekends, off season, doing everything they can to 
develop.
    Mr. Shadburn. About a month ago, I saw a self-help housing 
project out there. They had about 15 houses that were going in 
and I met one of the families that was actually going to be 
moving into those houses. It is a tremendous program. It 
improves self-esteem. It improves housing, again, that 
otherwise individuals would not have.
    It's a great training program. And as I've said, we're very 
supportive of the Self-Help and Farm Labor Housing Program and 
are focused on that to make sure those dollars go as far as 
they can.
    Ms. Thompson.  We do understand your concerns.
    Mr. Fazio.  Yes.
    Ms. Thompson.  I want to assure you that we do understand 
what your concerns are.
    Mr. Fazio.  Okay. Well, I'll be more than happy to work 
with you on this. I'm just afraid we're going to end up in a 
redistribution that might actually reduce the amount of funds 
available for these two programs that I mentioned in areas 
where they historically have made the most impact.
    And frankly these are areas where we have large Hispanic 
populations becoming citizens, becoming permanent residents and 
taking some ownership in their communities. And I really don't 
want to see that program fall off the side because it will be a 
tremendous set back to those rural communities they're becoming 
a part of. Thank you.
    Mr. Skeen. Mr. Latham, we appreciate your patience.
    Mr. Latham. Thank you, Mr. Chairman.
    Mr. Skeen. It's all yours.
    Mr. Latham. Being new on the committee, it's always very 
educational to sit here and listen to the profound statements 
of the Chairman.
    Mr. Skeen. That's just about where I started out in the 
same place over there. Look what patience will get you.

                      business and industry loans

    Mr. Latham. Thank you. I guess first of all I'm kind of on 
the same track that we've been on here with Ms. Kaptur and Mr. 
Fazio. In the area of business and industry loans, your 
statements, would lead one to believe that there is 
considerable increases and more emphasis here.
    But in fact, there is a reduction in the business, direct 
business and industry loans. There is a decrease in the 
guarantee business industry loans; a decrease of Rural Business 
Enterprise Grants; a decrease for the Rural Business 
Opportunity Grants. The only accompanying increase with all of 
these decreases in program dollars, is in staff.
    There is a $4 million increase in that. But all of the 
program funding is going down in your budget. Can you justify 
or maybe clarify for us what you're doing?

                         salaries and expenses

    Ms. Thompson. Well, we would certainly welcome funding 
levels beyond what we are requesting for our programs. We are 
bound by the same kinds of budget constraints and are simply 
trying to be realistic with regard to funding levels that might 
be available.
    With regard to your question on personnel, our salaries and 
expenses budget overall's request is less than for fiscal year 
1997. And we are reducing our FTEs; have reduced and are 
continuing to reduce our FTEs substantially. But the real 
challenge is trying to put together a budget that's workable 
that will reach rural communities through the programs that we 
have, and at the same time meet the constraints of the budget.
    Mr. Latham. But you don't disagree that you are reducing 
everything. The only thing that there is an increase there is 
in the $4 million from 26 to----
    Ms. Thompson. Within the Rural Business Cooperative 
Service?
    Mr. Latham. No. I mean every other line is reduced. Why 
would you need more employees if you're doing less?
    Ms. Thompson. In fact we have fewer employees. Steve 
Dewhurst can probably answer your questions more completely. 
But in fact we have a fewer number of employees.
    Mr. Latham. Two less. You have about a 20, almost a 20 
percent increase.
    Mr. Dewhurst. Let me just make two points about the 
salaries and expenses account. One is that personnel over a 
period of years is coming down in this agency. It is true that 
the number in 1997 is 347 staff years. And the number in 1998 
is 345 staff years.
    In 1994 it was 425 staff years. And by the year 2002 it 
will be 305 staff years. So, it's coming down by almost 30 
percent over the long-term period of the budget.
    Mr. Latham. By which year?
    Mr. Dewhurst. We're tracking our streamlining plans. So, we 
tracked form 1994 to the year 2002.
    Mr. Latham. How much of that would be in the last two years 
as far as reduction?
    Mr. Dewhurst. Well, in 1994 they had 425 staff years. In 
1995 they had 398 staff years. In 1996 they actually came down 
below their ceiling of 338 staff years. And they're up a little 
bit from that this year.
    There are some proposals in their salaries and expenses 
account that don't directly relate to hiring more people. There 
is money for technical assistance through cooperatives; a 
matter that has been discussed previously here. There is some 
other money in the budget that translates into work that we 
would do either with universities or by contract to assist 
people who benefit from our programs. But that money, even 
though it's housed in a salaries and expenses account is not 
for the purpose of increasing the staffing levels in this 
agency. It just happens to be where the money is put because of 
the account structure.
    Mr. Latham. Okay. I don't want anyone here to get the false 
impression that you are doing more; that you are going to spend 
more money for salaries, but we have less money in each of the 
lines in the program.
    Ms. Thompson. Again, we will take more.

  alternative agricultural research and commercialization corporation

    Mr. Latham. I'm not surprised to hear that. I have some 
questions about the AARC Program. The Inspector General 
highlighted some problems I guess or one in particular with the 
Argyle Fibers Company; where there was about $800,000 involved. 
Apparently, the facility ended up burning down and is gone.
    Supposedly they had assets of $1.1 million. When they 
actually looked into it, they had $100 in assets. Is there an 
update on that particular case?
    Mr. Crain. Mr. Latham, I'll be glad to address that. We 
asked the IG to look at that particular company in September of 
1994. As to-date, we're still waiting on a final resolution of 
this. We had concerns that there was a double billing of the 
government in that particular case. That was our major concern.
    During the course of this investigation which has now gone 
two and a half years. They were concerned. They said there were 
some bookkeeping discrepancies, whether something that we 
considered to be equity was not actually debt. So, we've worked 
closely with them. We're as anxious as you are to have this 
issue resolved.
    This is one of the first companies, the first investments 
made by AARC. And it quite frankly has been a headache for a 
lot of us. But it is an isolated case, I'm happy to report.
    Mr. Latham. They identified also some problems on the 
Board. Apparently there are some conflicts of interest, I guess 
you could call it, with individuals on the Board and whether 
the grants were going to them. They had failed to complete 
financial disclosures. They were staying on the Board longer 
than what their terms were. Have those problems been resolved?
    Mr. Crain. They were resolved two years ago.
    Mr. Latham. Okay. As far as the Revolving Fund, how much 
has been paid back?
    Mr. Crain. The way we set-up our agreements, Mr. Latham, is 
that we basically operate AARC as a venture capital 
organization. We make an equity investment. And we negotiate a 
return on our investment over a 5- to 8-year period. So, we 
didn't make our first investments until 1993. The first pay 
backs are not even scheduled really until 1998.
    But however, we have about $150,000 that has come back in 
to the Revolving Fund. Most of that, as I pointed out early, is 
a credit to the investment decisions by the Board. We have had 
several investment banking firms in New York, Los Angeles, and 
Houston look at how our operation operates.
    They have gone through our operations from start to finish 
and fully concur with how we are structuring our deals. In the 
private sector, they generally structure repayment to occur in 
the third to the fifth year. Since we're a government, we're a 
little bit more patient. We require payback to come in the 
fifth to the eighth year.
    They may require a 50 percent return. We're looking at a 20 
percent compounded annual return, which is still considerable. 
But because we are government and we're looking at other 
variables like value added, job creation, and rural areas, and 
things like that. We have to take those under consideration as 
well.
    Mr. Latham. If you could give me the names of the banks 
that, I'm being facetious here I guess, that don't require any 
payback in the private sector for three to five years, I'd like 
to be in touch with.
    Mr. Crain. Well, these are not debt financing deals. These 
are equity. We do have something unique that does require an 
income stream coming back earlier. We will negotiate a stock 
royalty split. Meaning, we'll take an equity position in the 
company and negotiate a deal where we'll have an income stream 
coming back in, say, the third year. We'll credit that royalty 
stream toward our split option in the fifth through the eighth 
year.

                  rural community advancement program

    Mr. Latham. Okay. In the Rural Community Advancement 
Program, after you've broken up the money by the individual 
accounts, how is the money then distributed to the states? On 
each of the five parts is there a formula? How is that 
determined? By the applications or how?
    Ms. Thompson. There is a formula. The formula for each 
program is based on rural population and rural poverty. If you 
would like a briefing possibly or your staff to have a briefing 
on how that's done we would be glad to provide that for you.
    Mr. Latham. Yes. Okay.
    Mr. Latham. How did you go about setting the priorities in 
dividing up the funds between the accounts to begin with? And 
then inside each of those accounts, what kind of rationale did 
you go through?
    Ms. Thompson. Generally speaking, it's based on unmet needs 
out in the communities, in rural communities, as well as 
variability as you go from one community to another. Because 
the greater the variability as you go from one community to 
another, the greater the need for flexibility in program 
delivery.
    Mr. Latham. Some of them are determined under law as far as 
how they're broken down. But then inside each of them where you 
have decreases or increases, like we talked about earlier----
    Ms. Thompson. Are you asking for how we are doing it in 
fiscal year 1997 or what we're asking for in fiscal year 1998?
    Mr. Latham. How you decided where your priorities were, I 
guess, in 1998 for 1998.
    Ms. Thompson. Okay. I'm not sure what else I can provide 
beyond--we looked at the needs in the communities and the 
variability so that there would be an opportunity for 
flexibility in administering the program dollars.

                        salaries and staff years

    Mr. Latham. I guess I'm still concerned about the help for 
small businesses out in the rural areas as far as those not 
being a priority that was increased. It is troubling I guess to 
see that much more money go into about a 20 percent increase in 
salaries in that section and it declined in all of the 
services. I don't know why you need more people, more money; 20 
percent more money with a decline of the services.
    Ms. Thompson. What we would be glad to provide would be 
information, very complete information on each of the areas 
where the money is being spent. Because it's not for more 
staff. In fact, it's fewer FTEs.
    Mr. Latham. It's only two in reduction.
    Ms. Thompson. Yes, but over time it's a considerably 
greater reduction than that. But we would be glad to provide 
for you, however complete information you would like.
    Mr. Latham. And I think I asked before, I'm not sure if I 
got the answer. How much of the reductions in the year 2001 and 
2002 compared to the year 2000?
    Mr. Dewhurst. Well in the Rural Business-Cooperative 
Service that we've been talking about, the way the numbers 
work, the year 2002--at the end of this process is 305. I don't 
have every single year. In 1998 the number is 345. So, the 
reduction between 1998 and 2002 is 40 staff years. That 
compares to a reduction in 1994 when they started this process 
they were 425. So, the reduction for 1994 to 1998 is 55 and 25.
    Mr. Latham. Do you have it broken down by year though?
    Mr. Dewhurst. Yes, the budget shows everything through 1998 
and then it shows 2002.
    Mr. Latham. Okay. Thank you very much, Mr. Chairman.

  alternative agricultural research and commercialization corporation

    Mr. Skeen. Let's go back to Bruce Crain. Bruce I want to 
tell you that you've done an amazing job turning that situation 
we had with AARC around. I wanted to ask you a question. It 
appears that you are attracting some larger investors in some 
of your enterprises. Can you give us an update on what AARC's 
projects are now.
    Mr. Crain. Yes, sir. Thank you very much, Mr. Chairman. I 
appreciate your confidence and your comments.
    Mr. Skeen. Prior to the picture we had some years back.
    Mr. Crain. I would fully concur. I have a lot more gray 
hair now more than I did two years ago.
    Mr. Skeen. I think it's been a lot of help. We appreciate 
the expertise.
    Mr. Crain. Thank you. With regard to your question, we 
require a one-to-one match for our investments in these 
companies. We're averaging a 4-to-1 match which basically means 
for an additional $3 million, we can retract on a total of $15 
million more in value added type businesses.
    But what we found is after we make our initial investment, 
we've been very successful in helping these companies attract 
follow-on financing; debt and equity financing for some very 
reputable companies, which really, as I point out is a tribute 
to the investment decisions made by the Board.
    Some of the companies that have invested behind AARC 
include Raytheon Engineering, the Mitsubichi Corporation, 
Warburg Pinkus which is a large investment banking operation, 
Nehon Cement in Japan, the largest cement company in Japan, 
Trans America, and even a soy bean cooperative in Minnesota 
that invested an additional $10 million in one of our companies 
there.
    Of the companies I've just mentioned, I've got five 
companies that I've just pulled some data on. Of those that 
we've invested, these five, we've got $3.7 million invested. 
And we've attracted $54.2 million in follow-on financing in 
those companies.
    Mr. Skeen. How about exchange.
    Mr. Crain. We're very happy with it. And as I pointed out 
to Mr. Latham, we are making inroads into the investment 
banking community and venture capital community in New York and 
others. They are quite pleased and anxious to come in behind 
the government as an investor. So, we're very thankful and look 
forward to having some good news for you again next year.
    Mr. Skeen. Very good. The Farm Bill created some federal 
set-asides or preferences for AARC products. How is that 
working out?
    Mr. Crain. We're working right now with several agencies to 
begin establishing set-asides and preferences for the purchases 
of AARC companies. The rationale being if the government is 
going to invest in it and they're buying similar products, they 
ought to at least take a look at it.
    Say, for instance, ethanol based windshield wiper fluid. 
USDA's procurement staff is working very hard with us right now 
to establish those set-asides. The Department of Defense has 
been very eager to work with us. The Post Office already is 
purchasing product from one of our companies----
    Mr. Skeen. Composite manufactures, composite materials. Soy 
beans have gotten themselves into the composite business, and 
that's where we're going material-wise.
    Mr. Crain. Absolutely. We have a company, Authentics Beau 
Composites, which is manufacturing a substance that looks like 
marble, but it's actually made out of soy bean, mill, and 
newspaper waste. It's probably going to be used in the 
refurbishing of a building in New York on 40 Wall Street that 
we're working with the contractor on right now.
    That product will be used all throughout the building as 
will three or four products made from other AARC funded 
companies, including compacted wheat straw, a concrete release 
agent made from cramby and rape seed and even the potting media 
will be purchased from a company called Earth Grow in 
Connecticut.
    Mr. Skeen. It is very interesting, we've been testing a new 
type rocket in New Mexico that is very small but has tremendous 
lifting ability, but it's made almost entirely of composite 
material. It can withstand a tremendous amount of heat, but it 
is very light with a lot of thrust. That's what it's all about 
these days.
    Mr. Crain. Absolutely. It's not actually a new way of doing 
things, but it's a better way. Henry Ford built a car body out 
of soy beans in the 1930s.
    Mr. Skeen. Not a bad idea.
    Mr. Crain. Absolutely, absolutely. We're here to help.
    Mr. Skeen. We have some questions we will submit in writing 
to you.

                               conclusion

    I just want to thank you for your patience and the 
responses. It is always a pleasure working with you folks. We 
appreciate the time that you've given us today. We will see if 
we can't put some money in to go with the time.
    Ms. Thompson. Thank you, Mr. Chairman. We really appreciate 
how much you have been supportive of our programs and all of 
the challenges that we're facing as we're restructuring and 
downsizing and trying to become more efficient and more cost 
effective. Thank you very much.
    Mr. Skeen. I think you're going in the right direction. 
You're giving great service to less and less people that are 
involved in the agricultural picture, which is kind of a 
disaster for us because fewer and fewer people are producing 
more and more because of what happens with the Department and 
the research programs and so forth.
    Ms. Thompson. Thank you. We can't do it without you.
    Mr. Skeen. We're trying to modernize it. You were talking 
about the upkeep on these water systems. I mean from the minute 
that you establish one of these water systems, you've got a 
maintenance problem from day one. And the money is not in the 
putting it together, it's in keeping it up.
    Mr. Beyer. It's a sustainability issue.
    Mr. Skeen. Absolutely. And with water like we have in New 
Mexico, you need to refurbish the system every year. That's why 
we're so well-preserved. We've got a lot of salt in us. We will 
adjourn on that note. Thank you.
    [The following questions were submitted to be answered for 
the record.]
                           Rural Development
    Mr. Skeen. Please list all the specially targeted areas such as 
Empowerment Zones/Enterprise Communities and Colonias which your 
programs serve and the states where they are located.
    [The information follows:]
                         ez/ec designated zones
Kentucky
Kentucky Highlands EZ--Clinton, Jackson, Wayne Counties
Jerry Rickett
Kentucky Highlands Investment Corporation
362 Old Whitley Rd.
London, KY 40741
Phone (606) 864-5175 Fax (606) 864-5194; [email protected]
Mississippi
Mid-Delta EZ--Bolivar, Holmes, Humphreys, Leflore, Sunflower, 
        Washington Counties
Harold Lethon
Mid-Delta Empowerment Zone Alliance (MDEZA)
819 Main St.
Greenville, MS 38701
Phone (601) 335-5291 Fax (601) 335-5295; [email protected]
Texas
Rio Grande Valley Empowerment Zone--Cameron, Hidalgo, Starr, Willacy 
        Counties
Bonnie Gonzalez
Rio Grande Valley Empowerment Zone
301 S. Texas
Mercedes, TX 78570
Phone (210) 514-4000 Fax (210) 514-4007; [email protected]
                      ez/ec designated communities
Alabama
Chambers County EC--Chambers County
David Shaw
East Alabama Regional Planning and Development Commission
1130 Quintard Ave., Ste. 300, P.O. Box 2186
Anniston, AL 36201
Phone (205) 237-6741 Fax (205) 237-6763; [email protected]

Greene and Sumter Counties Rural EC--Mississippi County
John Zippert
Federation of Southern Cooperatives/Land Assistance Fund
County Rd. 21, P.O. Box 95
Epes, AL 35460
Phone (205) 652-9676 Fax (205) 652-9678; [email protected]
Arkansas
Mississippi County EC--Cross, Lee, Monroe, St. Francis
Sam Scruggs
Greene, Sumter Counties, Arkansas EOC, Inc.
205 S. 2nd St. Former Eaker Airforce Base
Blytheville, AR 72316
Phone (501) 532-2348 Fax (501) 532-2625; [email protected]

East Central Arkansas EC--Mississippi County
Willette Romius
East Central Arkansas Economic Development Corp
125 N. Grant St.
Forrest City, AR 72335
Phone (501) 633-8294 Fax (501) 633-8815; [email protected]
Arizona
Arizona Border Region EC--Cochise, Santa Cruz, Yuma Counties
Joel Viers
AZ Border Region EC
118 Arizona St.
Bisbee, AZ 85603
Phone (520) 432-5301 Fax (520) 432-5858; [email protected]
California
Imperial County EC--Imperial County
Maria Matthews
Imperial County Community Economic Development
836 Main St.
El Centro, CA 92243
Phone (619) 337-7814 Fax (619) 337-8907; E-Mail--
        [email protected]

City of Watsonville/County of Santa Cruz EC--Santa Cruz County
Carlos Palacios
City of Watsonville 215 Union St. 2nd fl.
Watsonville, CA 95076
Phone (408) 728-6011 Fax (408) 761-0736; [email protected]
Florida
Jackson County, Florida EC--Jackson County
William Rimes
4288 Lafayette St., P.O. Box 130
Marianna, FL 32477
Phone (904) 526-4005 Fax (904) 526-4008; [email protected]
Georgia
Crisp Dooly EC--Crisp, Dooly, Counties
Elton Shauf (Executive Director)
Crisps/Dooly Partnership, Inc
118 B. 12 ave E.
Cordele, GA 31015
Phone (912) 273-9111 Fax (912) 273-9571; E-Mail--
        [email protected]

Central Savannah River Area EC--Burke, Hancock, Jefferson, McDuffie, 
        Tallafero, Warren Counties
Grady Sampson
CSRA Regional Development Center
P.O. 40 4729 Quaker Rd., Suite C
Keysville, GA 30816
Phone (706) 554-0342 Fax (706) 554-6626; [email protected]
Louisiana
Northeast Louisiana Delta EC--Madison County
Moses Junior Williams
400 E. Craig St. Suite B
Tallulah, LA 71282
Phone (318) 574-0995 Fax (18) 574-0995; [email protected]

Macon Ridge--Catahoula, Concordia, Franklim, Morehouse, Tensas Counties
Buddy Spillers and Chip Rogers
Macon Ridge Economic Development Region, Inc
903 Louisiana Avenue
P.O. Drawer 746
Ferriday, LA 71334
Phone (318) 757-3033 Fax (318) 757-4212; E-Mail--
        [email protected]
Michigan
Lake County--Lake County
Mary L. Trucks
FiveCap Inc.
302 N. Main St.
Scottville, MI 49454
Phone (616) 757-3785 Fax (616) 757-9669; [email protected]
Missouri
City of East Prarie, Mississippi County, MO EC--Mississippi County
Martha Ellen Black
Epworth Bootheel Family Learning Center
207 N. Washington St.
East Prairie, MO 63845
Phone (314) 649-3731 Fax (314) 649-5028; [email protected]
Mississippi
North-Delta EC--Panola, Quitman, Tallahatchie, Counties
Stuart Guernsy
North Delta Enterprise Community Development Corporation
P.O. Drawer 330
Sardis, MS 38666-0330
Phone (601) 487-1968 Fax (601) 487-3595; [email protected]
North Carolina
Halifax, Edgecombe, Wilson EC--Halifax, Edgecombe, Wilson Counties
Reuben Blackwell
Halifax/Edgecombe/Wilson Empowerment Alliance
P.O. Box 1180
Rocky Mount, NC 27802
Phone (919) 972-1609 Fax (919) 972-1232; [email protected]

Robeson County EC--Robeson County
Jim Perry (Temp)
4721 Fayetteville Rd.
Lumberton, NC 28358
Phone (910) 618-5533 Fax (910) 618-5576; [email protected]
New Mexico
Mora, Rio Arriba, and Taos County EC--Mora, Rio Arriba, Taos County
Ron Martinez
La Jicarita Ent. Comm c/o Helping Hands, Inc.
P.O. Box 546
Penasco, NM 87553
Phone (505) 587-0074 Fax (505) 587-1795; E-Mail--
        [email protected]
Ohio
Greater Portsmouth EC--Scioto County
Phyllis Hendricks
City of Portsmouth Community Development Department
1236 Gallia St., Box 1973
Portsmouth, OH 45662
Phone (614) 354-6223 Fax (614) 354-3110; E-Mail--
        [email protected]
Oklahoma
Southeast Oklahoma EC--Choctaw, McCurtain County
Bob Yandell
Little Dixie Community Action Agency, Inc.
502 West Duke St.
Hugo, OK 74743
Phone (405) 326-6441 Fax (405) 326-6655; [email protected]
Oregon
Josephine County EC--Josephine County
Teal Kinamun
Josephine County Community Service-Comm. Action Agency
317 Northwest ``B'' Street
Grants Pass, OR 97526
Phone (503) 474-5448 Fax (503) 474-5454; [email protected]
Pennsylvania
City of Lock Haven Federal EC--Clinton County
Maria Boileau
City of Lock Haven
20 E. Church St.
Lock Haven, PA 17745
Phone (717) 893-5907 Fax (717) 893-5905; [email protected]
South Carolina
Williamsburg-Lake City EC--Williamsburg, Florence County
Faith Rivers
Williamsburg Enterprise Community
128 Mill Street, P.O. Box 428
Kingstree, SC 28556
Phone (803) 354-9070 Fax (803) 354-3252; [email protected]
South Dakota
Beadle/Spink Dakota EC-Beadle, Spink Counties
Robert Hull
Northeast South Dakota Community Action Program
414 Third Avenue East
Sisseton, SD 57262
Phone (605) 698-7654 Fax (605) 698-3038; [email protected]
Tennessee
The Fayette County/Haywood County Enterprise Community--Fayette, 
        Haywood, Counties
John Sicola
The Fayette Haywood Enterprise Community Steering Committee
157 Poplar Rd., Rm. B150
Memphis, TN 38103
Phone (901) 576-4610 Fax (901) 576-3519; [email protected]
                rural enterprise area partnership (reap)
North Dakota
Everett McConnell
North Dakota REAP Coordinator
Federal Building, Room 208
220 East Rosser
P.O. Box 1737
Bismark, ND 58502
Phone (701) 250-4367 Fax (701) 250-4363; E-Mail--
        a07mcconnellattmail.com

    Center of North American Coalition (CONAC): Includes counties of 
McHenry, Bottineau, Rolette, Towner Pierce and Benson; and the Native 
American Reservations of the Turtle Mountain Chippewa and Devils Lake 
Sioux.
    Roosevelt-Custer Regional Council (Region 8): Includies counties of 
Dunn, Stark, Hettinger, Adams, Bowman, Slope, Golden Valley and 
Billings; and the Native American Reservation of Fort Berthold.
    [Note: This agreement commits the Administration to provide $10 
million in funding over a five-year period through existing programs.]
                Carryover for Rural Development Programs
    Mr. Skeen. Please provide a chart showing the carry over for each 
program in RDS at the end of fiscal year 1996. Please also show 
programs for which funding authority expired at the end of the year.
    Response. The General provision--section 706 of the FY 1996 
Appropriations Act, ``provides that no part of any appropriation 
contained in the Act shall remain available for obligation beyond the 
current fiscal year unless expressly so provided herein''. Essentially, 
every program other than the ones I will detail for the record will 
have expired funding authority.

Fiscal Year 1996 Carryover for Rural Development Programs

                                                        Budget Authority
Loan Programs:                                          Carryover Amount
    Sec. 502 Single family housing loans, Natural disaster....$4,958,654
    Sec. 504 Direct housing repair loans, Natural disaster.... 1,433,679
    Rural water and waste disposal loans......................     6,750
    Rural water and waste disposal loans, Natural disaster....   503,425
Grant Programs:
    Sec. 504 Very low-income housing repair grants............   132,806
    Sec. 504 Very low-income housing repair grants, Natural 
      disaster................................................   765,690
    Sec. 523 Mutual and self-help housing grants..............     9,872
    Sec. 516 Rural housing for domestic farm labor grants.....    64,125
    Sec. 509 Compensation for construction defects grants..... 1,894,376
    Sec. 525/509 Supervisory and technical assistance grants.. 1,731,394
    Rural water and waste disposal grants..................... 1,786,907
    Rural water and waste disposal grants, Natural disaster... 3,015,000
    Solid waste management grants.............................   129,100
    Emergency community water assistance grants, Natural 
      disaster................................................   940,100
           Definition of Rural for Rural Development Programs
    Mr. Skeen. Please provide the definition of ``rural'' in terms of 
eligibility for your programs.
    Response. Rural is generally defined in the 1996 Farm Bill as a 
city, town, or unincorporated area that has a population of 50,000 
inhabitants or less, other than an urbanized area immediately adjacent 
to a city, town or unincorporated area that has a population in excess 
of 50,000 inhabitants. The 1996 Farm Bill also provides that the 
highest priority will be given to communities with the lowest 
populations and lowest per capita incomes. However, the Act provided 
for other definitions for specific programs, such as:
    Water and Waste Disposal loan and grants.--The terms rural and 
rural area mean a city, town or unincorporated area that has a 
population of no more than 10,000 inhabitants.
    Housing loan and grant programs.--The definition for rural for the 
housing programs is found in section 520 of the Housing Act of 1949, as 
amended, 42 U.S.C. 1490, which states that the terms rural and rural 
area mean any open country, or any place, town, village, or city which 
is not part of or associated with an urban area and which (1) has a 
population not to excess of 2,500 inhabitants,or (2) has a population 
not in excess of 2,500 but not in excess of 10,000 if it is rural in 
character, or (3) has a population in excess of 10,000 but not in 
excess of 20,000, and (A) is not contained within a standard 
metropolitan statistical area, and (B) has a serious lack of mortgage 
credit for lower and moderate income families.
    The Housing Act also provides certain exceptions.

                       Rural Development Councils

    Mr. Skeen. What are the Rural Development Councils? What do they do 
and what is their budget for fiscal years 1997 and 1998?
    Response. Mr. Chairman, the Rural Development Councils are informal 
organizations within 39 States composed of representatives from Federal 
agencies within the State, State Government, local government, tribal 
organizations and others, including the private sector, with an 
interest in rural development issue with their state. The Councils were 
formed to provide a forum to discuss rural development problems and 
issues within the state and, where possible, develop a solution to the 
problems or issues. The Councils began as a pilot project with five 
states during the Bush Administration and presently there are Councils 
within 39 states. Other states have expressed interest in forming 
Councils.
    There is no set budget for the Councils. Generally the Federal 
government has contributed 75% of the cost of the Councils with the 
States contributing 25% either in cash, in-kind match or a combination 
of the two. In 1997 USDA is committing $1.8 million to Council support 
and expects to receive contributions from other Federal Departments and 
Agencies as well, including $500,000 from the Department of 
Transportation, and the Veterans Administration and $422,000 from HHS. 
USDA also provides staff and administrative support for the Councils at 
headquarters.
    Mr. Skeen. From what part of your budget does funding for Rural 
Development Councils come?
    Response. The Council support comes from the Salaries and Expense 
budget.
    Mr. Skeen. What is the statutory authority for establishing the 
Rural Development Councils? What is the authority to expend salaries 
and expenses funds for support of the Councils?
    Response. Mr. Chairman, there is no specific statutory authority 
establishing the Councils. The authority used to establish the Councils 
is the 1972 Rural Development Act, as amended in 1980, giving the 
Secretary the primary responsibility for coordinating the rural 
development activities of all Federal Departments and Agencies. The 
Consolidated Farm and Rural Development Act provides the authority for 
Rural Development and predecessors to enter into contracts and 
cooperative agreements to accomplish its statutory responsibilities.
    Mr. Skeen. Does not the role of the State Rural Development 
Councils duplicate the role of the State Directors, especially with the 
new authorities provided in the 1996 Farm Bill.
    Response. Legislation dating back to 1972 makes the Secretary of 
Agriculture responsible for coordinating rural development activities 
throughout the Federal government, and, within the States that 
responsibility is carried out by the Rural Development State Directors. 
The Councils were established as a tool to assist the State Directors 
in carrying out this responsibility. The Councils provide a forum for 
all parties, federal, state and local as well as the private sector to 
mutually resolve problems stemming from conflicts in Federal programs, 
statutes and regulations, and to work together to address the needs of 
rural areas. For example, the Councils are assisting the State 
Directors in preparing the strategic plans for the delivery of rural 
development programs mandated by the 1996 Farm Bill.

                         Write-offs and Losses

    Mr. Skeen. Please update the table on pp. 460-463 of last year's 
hearing record showing the latest information on defaults for all loan 
programs from FY 1987.
    [The information follows:]

[Pages 44 - 47--The official Committee record contains additional material here.]


    Mr. Skeen. Please provide staffing ratios showing the number of 
managers to supervisors in RDS.
    Response. There is one supervisor for every 8 employees in Rural 
Development.
                       Inspector General Reports
    Mr. Skeen. In his most recent report the Inspector General says 
that RUS loans are competing with the private sector. Are you revising 
your procedures, as the IG recommended, to allow the private sector 
more opportunity to compete?
    Response. We established a field task force following receipt of 
the Inspector General's report relative to the Water and Waste program. 
This group met last December to review the audit findings and the 
Agency's requirements governing credit available through the private 
sector. The task force met with three lenders, including two of those 
OIG consulted when conducting the audit. Based on review of the audit 
findings, discussions with the lenders, and review of current 
procedures, task force members concluded that basic RUS requirements 
are adequate. However, we believe that increasing the focus on 
consistent and thorough implementation of those requirements will help 
ensure that private sector sources of credit are given the maximum 
possible opportunity to finance projects for which RUS receives 
applications.
    We will be issuing revised ``streamlining'' regulations for our 
Water and Waste loan and grant programs in the near future. A Staff 
Instruction relating to other credit will be added to the revised 
regulation. The Staff Instruction will emphasize increased efforts to 
identify all possible sources of commercial credit and improved 
documentation on other credit sources in State Office files. It will 
require referral of applicants to other lenders unless they clearly 
would not meet the minimum requirements of any lender which has 
provided information on its lending policies to RUS. Applicants who are 
referred will have to submit meaningful documentation of their attempts 
to obtain financing. We believe this will result in lenders being 
contacted only by applicants for loans which they would seriously 
consider, and insure that interested private lenders have an 
opportunity to participate.
    The Water and Waste Program is committed to avoiding competition 
with private sector sources of credit. We recognize that it is 
particularly important that RUS refer applicants to private sector 
sources whenever they appear to qualify for financing from those 
sources so that we may continue to focus our resources on those groups 
who are unable to obtain water and waste financing from any other 
sources at reasonable rates and terms.
    Mr. Skeen. Has the Rural Housing Service recovered the $44,500 
mentioned in the IG report and debarred the management company involved 
in the rental housing projects?
    Response. We understand that the amount in question derives from an 
OIG audit of several Rural Rental Housing projects in Texas, dated May 
1996. The projects were managed by Summit Homestead Management 
Corporation. The Texas Rural Development State Office demanded payment 
of the amounts in question on August 6, 1996. However, the individual 
involved appealed the amount demanded. The appeal hearing was held on 
March 19, 1997. A final determination has not been issued. When the 
decision on the appeal is finalized, we will inform you and the 
Committee. Since a final decision has not been made on this case, the 
Texas Rural Development State office has not initiated the OIG 
recommended debarment of the management company, its officers, and 
directors from participation in the management, ownership, or vending 
or supplies, materials, or services to RRH projects.
    Mr. Skeen. The IG's report mentions a number of problems in the 
Rural Housing Service programs in Michigan. What actions have been 
taken as a result of the IG's findings?
    Response. There has been disagreement between Rural Development and 
OIG on issues central to resolution of the audits involving the W.S. 
Smith Company, the Alliance Management Company and the Lansing 
Management Company. All parties agreed that OIG would provide a 
spreadsheet which would break out the disputed items of the audits of 
these companies and to determine which of these items Rural Development 
should pursue for return to the respective RRH properties. OIG 
subsequently provided that spreadsheet, copies of which have been 
received by Rural Development. Rural Development is reviewing this 
information to determine what further action will be taken.
    Concerning the audit of the Cato Companies, RHS has proposed:
    1. To issue a letter no later than April 1, 1997 requiring Mr. Cato 
to respond with appropriate documentation funds within 45 days, i.e. by 
May 15, 1997. Upon receipt of Mr. Cato's response a determination would 
be made as to the specific dollar amount to be collected. At that time, 
the Rural Development would report to the OIG with regard to Rural 
Development's determination and, upon request by OIG, would make that 
documentation available to OIG.
    2. That the rural Department State Office complete their review of 
Mr. Cato's accounting system and assure that the system meets the 
Agency's requirements no later than June 1, 1997.
    3. RHS indicated that it had contracted for independent audit 
reviews of all of Mr. Cato's projects this past year and will be doing 
so for the current year. The State Office indicated that they will 
continue this monitoring until such time a determination is made that 
satisfactory compliance with Agency requirements is achieved.
                          Voluntary Separation
    Mr. Skeen. How many people have taken advantage of the voluntary 
separation program mentioned on page one of your testimony and what has 
been the cost so far?
    [The information follows:]

[Page 50--The official Committee record contains additional material here.]


              Assistance to Non-Agricultural Cooperatives

    Mr. Skeen. Your testimony mentions proposed legislation to 
allow the delivery of assistance to nonagricultural 
cooperatives. What type of assistance would be provided? Will 
this compete with commercial banks, the Farm Credit System and 
other lenders in rural America.
    Response. The purpose of the proposed legislation is to 
authorize Rural Business-Cooperative Services to deliver the 
same type of services to nonagricultural cooperatives as they 
currently provide to agricultural cooperatives. These include 
applied research, technical assistance to existing 
cooperatives, assistance to newly developing cooperatives, 
education and training, and statistical services. These 
activities are totally service oriented and will not involve 
lending authority. The proposed legislation therefore does not 
compete with commercial banks, the Farm Credit System and other 
lenders in rural America.

                  Rural Community Advancement Program

    Mr. Skeen. With the Rural Community Advancement Program, up 
to $57 million could be transferred to the states in FY 1998. 
Will the Department make sure that, if these grants are made, 
it can give a full accounting to the taxpayers of how the money 
was spent?
    Response. The provisions of the Farm Bill authorizing the 
Rural Community Advancement Program and, the grants of which 
you speak, require the Department to review and monitor 
compliance with the provisions and we can withhold future 
funding until we are satisfied that a State is complying with 
the law. The Act also provides that we can utilize other 
methods including recoupment of funds, if necessary.
    Mr. Skeen. The Rural Community Advancement Program also 
provides for a set aside of three percent for federally 
recognized Indian tribes. Some tribes have told the Committee 
they need help in filing applications for these grants. What is 
the process involved and how will you go about allocating this 
money among the many federally recognized tribes?
    Response. Mr. Chairman, given the fact that we will be 
dealing with a rather small sum of funds, 3 percent of the RCAP 
total, we will administer the funds from headquarters rather 
than allocating it to the States. Applications will continue to 
be accepted in our State Offices. In addition, our field office 
staffs are available to assist with filling out applications as 
well as providing other types of technical assistance.

                        Section 515 Rural Rental

    Mr. Skeen. How do you plan to divide the section 515 money 
between the rehabilitation and new construction in '97 and '98?
    Response. The estimated funding for rehabilitation and new 
construction projected for FY 97 and FY 98 is estimated. In FY 
1997, it is estimated that we will provide $56,000,000 for 
rehabilitation and $96,000,000 for new construction. In FY 
1998--$60,000,000 for rehabilitation and $90,000,000 for new 
construction.
                        Rural Utilities Service
    Mr. Skeen. In the rural utilities area, how much debt did you write 
off or reschedule in FY '97 and what are the prospects for FY '98? Can 
you tell us what the debt write offs will do to the subsidy rate?
    Response. Mr. Chairman, so far in fiscal year 1997 the Water and 
Waste Program has written off $580,880 and anticipates about $600,000 
in fiscal year 1998. No debt has been rescheduled in fiscal year 1997 
and we estimate three million will be rescheduled in fiscal year 1998. 
The change in the subsidy rate for water and waste due to write offs 
would be minimal because of the small amount of debt written off. From 
the inception of the Water and Waste program through September 30, 
1996, the total amount of principal and interest that has been written 
off was $14.3 million. This represents one-tenth of a percent of the 
total principal loaned from the inception of the program.
    There were no debt write offs in the Telecommunications Program.
    Regarding the Electric Program, the fundamental criterion for a 
debt write-off is that it must be in the best interests of the US 
taxpayer. At the same time, the Department of Justice (DOJ) and RUS are 
mindful of the purpose of the RE Act, that reliable electric service be 
provided to rural America at reasonable cost. Consequently, DOJ and RUS 
have attempted to fashion debt compromise resolutions which balance 
these two goals.
    In October 1996, a debt write-down of $501.7 million was approved 
for Deseret Generation and Transmission Cooperative of Sandy, Utah. 
Legal authority for the Deseret debt compromise was exercised by DOJ, 
not RUS. Deseret's contingent note, established as part of a 1989 debt 
restructure, was already recognized as having a high likelihood of not 
being repaid. Approximately 20 percent of Deseret's debt in 1996 was 
contingent debt.
    In November of 1996, the end to a 12-year bankruptcy for Wabash 
Power Association, Indianapolis, Indiana, was finally reached. RUS will 
be writing off approximately $240 million for this borrower in FY 97. 
Legal authority for this write-off was not exercised by RUS, but by 
DOJ.
    RUS has four other electric borrowers currently involved in 
bankruptcy proceedings. We anticipate debt write-offs as part of the 
overall outcome of these borrowers. We are unable to determine when 
these write-offs might occur. The make up of bankrupt borrower's plan 
of reorganization, including the dollar amount to be written off by 
creditors, is subject to bankruptcy court decision and is largely 
outside the Government's control.
    Since 1995, requests for write-downs have been received from two 
RUS borrowers--Allegheny Electric Cooperative, Harrisburg, 
Pennsylvania, and Wolverine Power Supply Cooperative, Cadillac, 
Michigan. Discussions with Allegheny and Wolverine are still in initial 
stages, and no decisions have been reached.
    The local writedowns have had minimal impact on the subsidy rate 
for electric programs. Most of the write-offs are related to nuclear 
power loans, which are no longer made. The default rate for electric 
programs has remained fairly constant over the last several years and 
as a result, the subsidy rate has not greatly fluctuated.
                         Telecommunications Act
    Mr. Skeen. Please outline the specific ways in which the 
telecommunications bill or subsequent FCC rulings are affecting rural 
telephone service and what the Department is doing in its discussions 
with the FCC?
    Response. Mr. Chairman, with the passage of the Telecommunications 
Act of 1996, the telecommunications industry will move from a tightly 
regulated monopoly structure to a competitive, deregulated environment. 
The provisions of the Telecommunications Act are being codified by the 
FCC's (Commission) rulemaking process. The Commission is focusing on 
the type of telecommunications service available to all US citizens 
(known as universal service) and the benefits as a nation we can derive 
from advanced services for schools, libraries and rural health care 
providers. The Telecommunications Act and the Commission's rulemaking 
have made clear that the need for continued and increased 
infrastructure investment in rural areas is greater today than ever 
before. The universal service provisions of the Telecommunications Act 
of 1996 mandate a certain level of service which will require a 
substantial amount of new infrastructure investment. To ensure the 
promise of universal service, RUS has been active in communicating with 
the Commission. During 1996 RUS made 8 separate filings and 
presentations before the Commission and Joint Board. Recently, RUS 
filed comments and met with the Commission to discuss the Joint Board's 
proposal to use proxy models to serve as a means for determining 
investment requirements. We believe these comments are useful and 
provide valuable insight to the needs of the rural telecommunications 
marketplace.
                   Deregulation of Electric Utilities
    Mr. Skeen. Legislation is now being proposed for deregulation of 
electric utilities. What stake do electric providers and users have in 
deregulation and what is the Department's role?
    Response. Various industry restructuring proposals could threaten 
the financial viability of rural electric providers and place at risk a 
significant share of the more than $32.9 billion in currently 
outstanding principal. These threats from wholesale and retail 
competition are of great concern to the Department.
    The customer loads served by RUS borrowers are, on average, more 
rural, dispersed and costly to serve than those of investor-owned and 
municipal utilities. RUS borrowers also tend to have a higher 
proportion of small residential loads and low income customers than 
other utilities. Furthermore, the vast majority of RUS borrowers are 
small businesses.
    At the wholesale level, RUS financed power supply systems face 
significant pressures from competitive suppliers with greatly expanded 
transmission access under FERC Order 888. Power supply borrowers with 
wholesale power costs that are higher than competing suppliers would 
have limited ability to offset any resulting losses of wholesale power 
sales in competitive markets.
    Wholesale market pressures are compounded by the potential impacts 
of retail competition. At the wholesale level, a loss in a distribution 
cooperative's retail load reduces revenues to its RUS financed power 
rates to all its members and their remaining retail customers, and 
threatens the ability of the power supplier to repay its RUS loans. 
Without adequate stranded cost recovery provisions, some power supply 
borrowers could be forced into default and the competitive losses could 
be shifted to the taxpayer.
    Under retail competition, distribution systems face the loss of 
retail electricity sales and the loss of retail customers that are able 
to bypass the distribution system and connect directly to lower cost 
competitive electric systems. High volume industrial and commercial 
customers bypassing an RUS borrower would be particularly harmful. The 
likely result would be higher costs for remaining customers and a 
strain on the utility's resources and its ability to maintain safe, 
reliable, and quality service. Some retail customers might benefit from 
access to lower cost power, but would do so at the expense of others in 
their communities.
    Among the most significant potentially stranded costs for RUS 
distribution borrowers are those associated with their liabilities 
under the adverse impacts on long-term all requirements wholesale power 
supply contracts between distribution borrowers and their G&T 
suppliers. These contracts are a condition of and security for RUS 
loans. Unlike investor-owned utilities, there are no shareholders to 
help absorb the financial losses from stranded costs in the typical 
consumer-owned cooperative system. The power supplier G&T is owned by 
its member distribution systems. Each distribution system is owned by 
its retail customers who would bear the full impacts of any competitive 
losses in the form of higher rates.
    Tax issues are another area of concern to stakeholders. Non profit 
cooperatives are now exempt from Federal income taxes. This tax 
exemption could be jeopardized if cooperatives are required to wield 
power, either at the wholesale or the retail level, to an extent that 
revenues exceed the 15 percent non member income test under the 
Internal Revenue Code.
    We can't predict with any certainty what will happen to USDA 
borrowers as a result of transitions in the electric industry. Much 
depends on how the regulatory environment is changed, how quickly the 
changes occur, the competitive market prices for electricity, how 
existing long-term wholesale and retail power contracts are affected, 
and provisions for stranded cost recovery.
                          Rural Telephone Bank
    Mr. Skeen. The testimony mentions privatization of the Rural 
Telephone Bank in FY '98. Is there a cost to this and what has to take 
place to achieve full privatization?
    Response. Mr. Chairman, the RTB was required by law (the RE Act) to 
begin privatization in FY 1996. To achieve full privatization, the Bank 
must retire 100 percent of its Class A stock. The total amount of Class 
A stock issued to the Bank was $592.1 million. The current amount of 
Class A stock outstanding is $574.1 million, since in FY 1996, the 
Board of Directors approved the retirement of $18 million of Class A 
stock. There is a cost to the Government in the form of lost receipts. 
When the RTB becomes a private entity, the roughly $50 million in 
annual net earnings currently paid into the liquidating account will no 
longer be accounted for by the Federal Government. There is no ``cost'' 
to the Government involved in retiring the Class A stock. Using its 
cash reserves, the Bank will be able to fully retire the Class A stock 
by the end of 1998. Retirement of the Class A stock is an inflow of 
capital to the Government, not an outflow. While retiring the A stock 
is all that is technically required to achieve privatization, USDA is 
considering amendments to the Bank's statutory authority which will 
make it a more useful lender in a post-Telecommunications Act 
environment.
                   Business and Industry Loan Program
    Mr. Skeen. What is the situation with delinquent business and 
industry loans? Last year, I believe you testified that delinquent 
loans had been reduced almost by half to $82,000,000 but that is still 
a lot of money. What can be done to further reduce this number?
    Response. We are continuing to emphasize the need for loan 
servicing through training, personal contact with field staff, Business 
Programs Assessment Reviews, and written guidance to the field staff. 
Loan servicing continues to be a priority. Close monitoring of problem 
loans continues to be a major training topic and one of the areas that 
our National staff continually reinforces in its monitoring efforts. 
Continued emphasis is placed on making good loans as a preventive 
measure. State Offices are continually revising strategic plans which 
include portfolio management.
    Mr. Skeen. The press reports that a group of farmers in Iowa got a 
business and industry loan for $7 million to buy a turkey processing 
plant. Department officials have told us that the average B&I loan is 
$1 million. What are the circumstances to justify such a large loan?
    Response. In 1995, when Oscar Mayer announced the closing of the 
Louis Rich turkey processing plant in West Liberty, Iowa, 45 turkey 
producers, whose livelihood depended on the facility to purchase their 
turkeys, banded together to form a cooperative to purchase the plant 
and is now called West Liberty Foods.
    About half of the State's annual production of 8 million turkeys 
are processed in this plant. The turkey industry's impact on the State 
economy is significant. The State's turkey producers use 7.7 million 
bushels of corn and 2.9 million bushels of soybean meal worth 
approximately $55 million a year to grow their turkeys. In addition, 
turkey growers spend $2.7 million on veterinary supplies, $12.3 million 
for utilities, and $5.4 million for operating expenses.
    Closing the plant would have been a tremendous loss for West 
Liberty, which has a population of nearly 3,000. The plant is the 
town's largest employer with an annual payroll of more than $20 million 
in wages and benefits. Approximately 425 jobs were retained at the 
plant.
    The following financial package was necessary to keep the plant 
from closing: The feed mill portion of the business was purchased for 
$1.5 million without a government guarantee. The growers put $2.4 
million cash equity into the business. The State of Iowa, through the 
Iowa Department of Economic Development, approved a $900,000 grant and 
loan package and $875,000 in forgivable loans through the Economic 
Development Set-Aside Program. The Iowa Corn Promotion Board gave the 
cooperative a $50,000 low-interest loan. Muscatine County loaned the 
cooperative $50,000, and the City of West Liberty loaned it $75,000. 
The Iowa Farm Bureau Federation provided a $1.25 million loan 
participation, and the Iowa Turkey Federation gave a $15,000 grant. 
Norwest Agriculture Credit loaned $8 million of which $1 million was 
without a B&I guarantee. The B&I Guaranteed Loan served as the catalyst 
without which the total package would not have been possible. As you 
indicated, the average B&I loan is about $1.1 million. However, 
numerous loans in excess of $5 million have been guaranteed when 
justifiable.
    Mr. Skeen. What is the situation with the bankrupt ethanol plant in 
Ohio? How much has the Department invested and how much will be lost?
    Response. The lender, Huntington National Bank of Columbus, Ohio, 
and the Agency agreed upon a liquidation plan which was implemented. 
The machinery and equipment sold for $4.2 million. The plant is located 
on a Superfund site, making sale of the plant and property highly 
questionable. The lender will retain a mortgage on the land. The total 
loss to the Government is $9.733 million, which will be reduced inthe 
event that the lender is able to sell the land. The Government is not 
in the chain of title and will not be exposed to any additional losses.
                             Reorganization
    Mr. Skeen. With reorganization of the rural development offices and 
the farm service agency, how do you make sure that employees in these 
offices, who might be borrowers or users of rural development programs, 
are not in the position of administering their own loans or those of 
their relatives?
    Response. With regard to reorganization, the agency has 
consolidated 16 regulations into one regulation (7 CFR Part 3550) and 
two employee handbooks. Both the regulation and the handbooks contain 
authorities on the processing, approval, servicing or review activity 
of Agency programs, to prevent employees from administering their own 
loans or loans to relatives.
                   Rural Community Assistance Program
    Mr. Skeen. To what state agencies would RCAP grants be made?
    Response. Mr. Chairman, the state office receiving the grants would 
have to be designated by the Governors, but I am sure in most cases it 
would be offices such as Community Affairs and Planning, Economic 
Development Offices, or others established to work in community 
development.
    Mr. Skeen. How many states have rural development offices?
    Response. I am not sure how many states have offices devoted 
specifically to rural development, but all states have offices that 
work with rural areas, as well as urban areas, in community development 
issues.
    Mr. Skeen. Could any of the proposed grants to states under RCAP be 
used for Salaries and Expenses?
    Response. Mr. Chairman, the Act contains language that prohibits 
the use of Federal funds for administrative expenses in carrying out 
these provisions.
    Mr. Skeen. Are there other rural development programs, such as 
housing programs, which the Department would recommend including in the 
RCAP program?
    Response. Mr. Chairman, that might be a consideration for some 
programs in the future, but most of the housing programs probably would 
not be included because they are loans to individuals as opposed to 
group loans or grants to communities, organizations, or businesses 
which are now included.
    Mr. Skeen. Will federally recognized Indian tribes be eligible for 
rural development programs not included in RCAP?
    Response. Indian tribes will continue to be eligible for the other 
programs in addition to the 3 percent set aside.
    Mr. Skeen. Are the grants to states and federally recognized Indian 
tribes calculated after the deduction of the funds for the Colonias, 
the circuit rider program and the National Reserve?
    Response. Yes, Mr. Chairman, the procedure you describe is correct.
    Mr. Skeen. For which program is the $1,614,600 in RCAP language on 
page 22-5?
    Response. The $1,614,600 EZ/EC earmark in the RCAP appropriation 
language is for the direct and guaranteed rural community facility loan 
programs and the community facility grants program.
                   Obligated and Unobligated Balances
    Mr. Skeen. How much in ``obligated and unobligated balances 
available from prior years'' mentioned on page 22-5 was available at 
the beginning of FY '97 and how much do you estimate will be available 
for FY '98?
    Response. Only the RUS water and waste disposal, the solid waste 
management, and emergency community water assistance programs had 
unobligated balances available from prior years at the beginning of FY 
1997. The total unobligated balance available at the start of FY 1997 
for these programs was $6,381,282. The break out is as follows: $6,750, 
for regular water and waste disposal direct loan subsidy, $503,425 for 
disaster supplemental water and waste disposal direct loan subsidy, 
$1,786,907 for regular water and waste disposal grants, $3,015,000 for 
disaster supplemental water and waste disposal grants, $129,100 for 
solid waste management grants, and $940,100 for disaster supplemental 
emergency community water assistance grants. Our plan is to obligate 
all the funds in FY 1997. However, the authority provides for the 
carryover of funds and would benefit the borrowers who's timing for 
loans did not work out in FY 1997.
    The requested appropriation language that would transfer both 
obligated and unobligated balances from prior years for all RCAP 
programs from their current accounts to the RCAP account would have no 
impact on loan making activity, it is only a change to simplify the 
accounting activities for carrying out these 21 rural development loan 
and grant programs under one program account. This change would 
expedite the process of making funds available from recovered 
unobligated balances and would reduce the cost of and expedite the 
process of changing the computer systems.
                   Rural Business Opportunity Grants
    Mr. Skeen. Why is there no program proposed for rural business 
opportunity grants in FY '98? How much was awarded in FY '96 and how 
much is estimated in FY '97?
    Response. No funds were available for this program in 1996. In 
1996, $1 million is available. We did not request funding in 1998 
because if an appropriation for RCAP is enacted, we could transfer 
funds into that program as necessary.
                               Repooling
    Mr. Skeen. Does the Department anticipate repooling of funds from 
the RCAP at the end of the fiscal year?
    Response. Mr. Chairman, all balances that are not obligated near 
the end of the fiscal year are subject to pooling, including RCAP. We 
do believe that RCAP would eliminate the need for much of the pooling 
that occurs presently, however, should funds be available they will be 
pooled.
                        National Reserve Account
    Mr. Skeen. How does the Department plan to allocate the National 
Reserve Account?
    Response. Mr. Chairman, we would not allocate the National Reserve 
Account, it will continue to be used just as we use the National 
Reserve presently. From the National Reserve, we fund applications that 
exceed the capacity of the state allocation, we increase the allocation 
of states should they expend all of their funds prior to the normal 
pooling date as, we fund applications associated with National 
disasters, and if there is funds remaining near the end of the fiscal 
year we include those in the pooling allocations.
                              Consolidation
    Mr. Skeen. Last year, Mr. Watkins, I believe you said the 
Department was considering the consolidation of loan programs. Is that 
done under the RCAP or are you planning to do it elsewhere?
    Response. Actually, Mr. Chairman, I was referring to a National 
Performance Review initiative that was ongoing at the time, the purpose 
of which was to examine possibilities for consolidating programs and 
authorities throughout the Federal government. During that process, 
there were recommendations to consolidate some programs.
                         Rural Housing Service
    Mr. Skeen. I understand that approximately $18 million was 
collected by the Department prior to the elimination of the occupancy 
surcharge. What plans do you have for this money?
    Response. As the occupancy surcharge was recently repealed, the 
Agency has not yet developed a plan for the funds collected. The Agency 
will develop a proposal after consultation with Congress, our 
Stakeholders, and with input from OGC.
    Mr. Skeen. I understand that under new regulations for Section 515, 
there are a number of applicants to build or develop who received 
initial approval under the old process but now have to start over 
again. Please tell us how many applications have been affected by this 
change. Do you have any information of the average cost invested in the 
applications that now need to be redone?
    Response. The final regulation has not been issued and the full 
impact of any changes cannot be determined at this time. We are still 
gathering final figures, but initially, our data show that we have 168 
applications that have been issued a conditional commitment subject to 
availability of funds (AD-622). RHS has a policy which requires the 
states to return applications if the waiting list exceed 150% of 
projected funding. Of those 168 applications, 33 were in excess of the 
150% limit and will be returned. From a precursory review of the 
remaining 135 applications, we would expect approximately 25% to be 
funded in areas designated for assistance under the proposed rules. 
Therefore, as the draft proposed rules stand, approximately 95 
applications will be affected. However, the cost for those affected is 
not known and the full impact cannot be determined until the final 
regulations are published.
    Mr. Skeen. What are the community eligibility criteria for Section 
515?
    Response. Eligible communities for the Section 515 housing must 
qualify as rural areas in accordance with 7 CFR 3550.10. Places may be 
incorporated population centers identified by the Census Bureau (known 
as Census Designated Places or CDPs). States must be consistent 
statewide in their use of place types that are included in the list of 
designated places.
    Factors outlined by statute to determine eligibility include: the 
incidence of poverty, measured by determining households below 60 
percent of the county rural median income; the existence of substandard 
housing, measured by determining the number of housing units that lack 
complete plumbing or have more than one occupant per room; and the lack 
of affordable housing, measures by determining households below 60 
percent of county rural medial income playing more than 30 percent of 
income in rent.
    Mr. Skeen. Who determines eligibility, the state directors or 
headquarters?
    Response. Most RHS services are provided directly through the field 
staff to the local communities. The RHS eligibility for 515 
applications is determined by the Rural Development field staff through 
an eligibility review. This review is based on the current regulations 
derived from our statutory eligibility.
    Mr. Skeen. Is there a market analysis to determine need?
    Response. The need for rental housing in a community is, by 
statute, determined by information from the U.S. Census Bureau. 
However, we do require a market analysis to determine the demand for 
rental housing in a community before as project is approved for 
obligation.
                  Transfer of HUD's Section 8 Program
    Ms. Kaptur. I understand that the Administration's budget envisions 
transfer of $52 million in multi-family housing rental assistance costs 
from the Department of Housing and Urban Development's section 8 
program to the Agriculture Department's rental assistance 
program.Please explain the rationale for this transfer. How would it be 
accomplished? Would legislation be needed to carry out the transfer?
    Response. RHS rental assistance is less expensive to administer 
than HUD unit based Section 8. Additionally, this transfer would reduce 
paperwork and operating costs from duplicate oversight activities. This 
transfer of 46,000 units of Section 8 to RHS rental assistance would 
generate significant cost savings to the taxpayer in addition to 
preserving this essential subsidy that is presently used in the RHS 
Section 515 projects. Beginning in FY 98, the President's Budget 
proposes the conversion will take eight years. By 2005, the President's 
request proposes all the HUD contracts will be converted to USDA 
contracts, provided that Congress approves the adjustments needed in 
the 602(b) allocations for both the Agriculture, Rural Development, 
(Food and Drug Administration, In-House letters) and Related Agencies 
and VA, HUD and Independent Agencies Subcommittees. For FY 1998, the 
HUD allocation should be reduced by the amount it would cost to renew 
the Section 8 contracts for one year, or $20 million, while the amount 
allocated for USDA 5-Year RA contracts would increase by $52 million. 
While the net budget authority required is greater than the near term, 
because 5-Year RA contracts are replacing 1-year Section 8 contracts, 
after three years there are significant savings in the budget authority 
needed to maintain these units with RA. Net savings from the conversion 
of all 46,000 units are $291 million over eight years (FY 98-05). 
Congress needs to approve this proposal and make the necessary 
allocation adjustments; no legislation is necessary.
    Ms. Kaptur. As you know the subcommittee has been concerned about 
possible abuses in the ``section 515'' rural rental housing program. 
Provisions addressing problems such as ``equity skimming'' were 
included in the fiscal year 1997 appropriation bill. Have these 
legislative reforms now been implemented by your agency? What 
regulatory steps and management reform are you undertaking in 
connection with the section 515 program?
    Response. As you know, the Equity Skimming provision is one of six 
specific reforms passed by this Committee last year. The regulations 
for these reforms are in final clearance within the Department and we 
expect to have the regulations published and in place at the end of 
April, 1997. RHS is conducting training on the new reforms that will 
include OIG personnel. This training is necessary for the field staff 
to implement these changes and provide an efficient transition for our 
customers. Additional reforms, including a provision on civil penalties 
for equity skimming, is under consideration within the Department and 
the final proposal will be transmitted to Congress this year as part of 
the Department's HRS FY 98 Legislative package.
                              Cooperatives
    Ms. Kaptur. Your written statement and that of Administrator 
Watkins seems to indicate an increasing reliance on cooperatives as an 
effective tool for economic development. If that is the case, why isn't 
the department asking for a significant increase in cooperative 
development grant funds?
    Response. As stated in our testimony, we do feel that 
cooperatively-owned businesses are an appropriate way for helping rural 
people to help themselves in serving their economic and social needs. 
Use of cooperative development grant funds represents one of the 
important means for providing cooperative development assistance. We 
have requested $1.7 million for this program in fiscal year 1998. 
Technical assistance is also provided to developing cooperatives by our 
national and state office staffs. We are mindful of the opportunities 
for assistance represented through university cooperative centers and 
those organized as non-profit associations. We hope to further 
cultivate these partnerships now that the FAIR Act as focused this 
program specifically on cooperative development.
                             1996 Farm Bill
    Ms. Kaptur. The USDA has not yet published proposed regulations 
implementing the FAIR Act provisions relating to the cooperative 
development grant program. What is USDA doing to improve the timeliness 
of issuing regulations? When can we expect the FY 97 grants?
    Response. The proposed rule for the Rural Cooperative Development 
Grant program was published in the Federal Register on March 26, 1997. 
The Department has had numerous program modifications to institute as a 
result of the 1996 Farm Bill. We are moving as expeditiously as 
possible in this regard, and hope to further streamline our regulation 
writing clearance procedures. We expect the fiscal year 1997 
application for grants to be announced in late spring and selections 
announced by August 1997.
                      Cooperatives Program Funding
    Ms. Kaptur. How much of your funding is used to develop small 
cooperatives versus large cooperatives?
    Response. The majority of Cooperative Services program monies 
assist small cooperatives. As you know, the marketing system is 
becoming more integrated, global and concentrated. Individual 
producers, both large and small, are at risk of becoming displaced by 
forces attempting to replace them with corporate farming systems. Our 
efforts are to help farm operators organize and maintain viable 
cooperatives that enhance their competitiveness in emerging food and 
fiber markets. Cooperatives are one of the few ways--perhaps even the 
only way--that farm operators can compete in a food and fiber system 
that is becoming even more industrialized and more global.
             Government Performance and Results Act (GPRA)
    Mr. Skeen. GPRA, known as the Results Act, requires each executive 
agency to issue, no later than September 30, 1997, a strategic plan 
covering at least five years. In addition to a mission statement 
grounded in legislative requirements, the plans are to contain general 
goals and objectives that are expected to be outcome or results 
oriented (such as to improve literacy) as opposed to output or activity 
oriented (such as to increase the number of education grants issued).
    What progress is the agency making in developing its strategic 
plan, including defining its mission and establishing appropriate 
goals?
    Response. A draft strategic plan has been developed in accordance 
with GPRA. The plan is for the mission area covering the 3 agencies in 
the mission area (Rural Business/Cooperative Service, Rural Housing 
Service, and Rural Utilities Service), and establishes a number of 
appropriate goals for the mission area.
    Mr. Skeen. Has the agency identified conflicting goals for any of 
its program efforts? If so, what are the performance consequences of 
these conflicting goals and what actions--including seeking legislative 
changes--is the agency taking to address these conflicts?
    Response. We have not discovered any conflicting goals within the 
various programs.
    Mr. Skeen. Strategic plans must be based on realistic assessments 
of the resources that will be available to the agency to accomplish its 
goals. As you are developing your strategic plan, how are you taking 
into account projected resources that likely will be available--
especially as we move to a balanced budget? What assumptions are you 
making? How are you ensuring that your goals are realistic in light of 
expected resources?
    Response. One of the assumptions of our strategic plan is that 
program and administrative resources will be reduced or, at best 
unchanged. We are countering this program by centralizing some services 
so that we can take advantage of advanced technology and let the 
automated systems do more of the work. The centralizing of servicing 
for the single family housing program is an example of this approach. 
We are also focusing on those areas of special concern to the customer 
and making a concerted effort to correct them. An example of this is 
the recent effort to simplify the loan origination process for the 
guaranteed business and loan program. Customers of this program have 
complained of the amount of paperwork required to apply and the time 
required for a loan decision. We reduced the paperwork and shortened 
the time to approval by streamlining the process. To date, the needed 
changes have been regulatory only and legislative changes have not been 
needed.
    Mr. Skeen. For Congress, the heart of the Results Act is the 
statutory link between agency plans, budget requests, and the reporting 
of results. Starting with fiscal year 1999, agencies are to develop 
annual performance plans that define performance goals and the measures 
that will be used to assess progress over the coming year. These annual 
goals are to measure agency progress toward meeting strategic goals and 
are to be based on the program activities as set forth in the 
President's budget.
    What progress have you made in establishing clear and direct 
linkages between the general goals in your strategic plan and the goals 
to be contained in your annual performance plans? OMB expressed concern 
last year that most agencies had not made sufficient progress in this 
critical area.
    Response. We have established performance measures for each program 
that support the general goals in the strategic plan, and these are the 
same measures that will be included in the annual performance plans. 
These measures are largely based on data in our existing systems. As a 
result they tend to be oriented towards inputs or outputs based on 
information available from accounting systems. We have found the 
development of results-oriented measures, which measure the impact of 
the program on the customer, to be difficult to define and generally 
requires the development of new data. We have been unable to find good 
data from alternative existing systems. To assess the impact of a 
program will generally require us to obtain additional data from each 
recipient, either during the loan origination process or during the 
life of the loan, or develop proxies for the data, all of which are 
difficult to quantify.
    Mr. Skeen. More specifically, how are you progressing in linking 
your strategic and annual performance goals to the program activity 
structure contained in the President's budget? Do you anticipate the 
need to change or modify the activity structure to be consistent with 
the agency's goals?
    Response. We do not anticipate requesting a change from the current 
structure used in the President's budget.
    Mr. Skeen. Overall, what progress has your agency made--and what 
challenges is it experiencing--defining results-oriented performance 
measures that will allow the agency and others to determine the extent 
to which goals are being met?
    Response. The development of results oriented performance measures 
is an ongoing process. Rural Development agencies now have had two 
years of experience developing performance measures for budget 
submissions. Over this time the agencies have had some success moving 
from input-based and output-based measures toward results oriented, 
outcome-based measures. However, the agencies are not yet completely 
satisfied. Additional changes will be made prior to the FY 1999 
submissions. The principal challenge is to identify measures that are 
results oriented and quantifiable. We are finding that many measures 
that would be useful in describing the ultimate results of the programs 
are not easily quantifiable.
    Mr. Skeen. If applicable, what lessons did the agency learn from 
its participation in the Results Act pilot phase and how are those 
lessons being applied to agency-wide Results Act efforts? What steps is 
the agency taking to build the capacity (information systems, personnel 
skills, etc.) necessary to implement the Results Act?
    Response. The Single Family Housing Program of the Rural Housing 
Service participated as a pilot under GPRA. Lessons learned focused on 
the difficulties in creating meaningful and useful outcome-based 
performance measures. It is clear that senior management must 
participate with program managers in the development of performance 
measures. It is also clear that outcome-based performance measures 
useful GPRA purposes are difficult to develop. They are often even more 
difficult to measure. The agencies will have to make significant 
commitments of resources to develop the automated reporting and 
tracking systems to incorporate their measures on more than an ad hoc 
basis. Since Rural Development has not finalized the set of performance 
measures for GPRA implementation, there has been no movement to date 
toward building automated systems necessary to monitor the performance 
measures.
    Mr. Skeen. The Results Act requires agencies to solicit and 
consider the views of stakeholders as they develop the strategic plans. 
Stakeholders can include state and local governments, interest groups, 
the private sector, and the general public, among others. Who do you 
consider to be your agency's primary stakeholders and how will you 
incorporate their views into the strategic plans?
    Response. Our primary stakeholders are the general public, local 
community leaders and the many organizations throughout the country, 
both public and private, who are interested in rural development. 
These, of course, vary by state. At the National-level they include for 
example, the Housing Assistance Council, Rural Housing Alliance, 
National Rural Electric Cooperatives Association, LISC, and the 
National Association of Counties. There are other stakeholders whose 
membership has a business interest in our programs such as the American 
Bankers Association, Independent Bankers Association, or National Home 
Builders Association. Prior to developing the strategic plan we asked 
our State Directors to gather input from the organized stakeholders and 
the general public. Thirty-nine listening forums were held in the 
states, followed by one listening forum held at the National-level. 
This information was summarized and provided to the participants 
drafting the strategic plan.
    Mr. Skeen. For the Results Act to be successful, agencies with 
similar missions, goals, or strategies will need to ensure that their 
efforts are coordinated. What other federal agencies are you working 
with to ensure that your strategic plans are coordinated? What steps 
have you taken to ensure that your efforts complement and do not 
unnecessarily duplicate other federal efforts?
    Response. We participated in a Departmental initiative to identify 
cross-cutting, potentially conflicting, issues by reviewing each 
others' strategic plans. Within USDA the primary agencies identified 
through this process, and which are the ones involved in rural 
development, are the Extension Service, Forest Service, and the Natural 
Resources and Conservation Service. We had previously established a 
Rural Economic Development Action Team (REDAT) which is charged with 
coordinating initiatives cutting across agency lines. We anticipate 
this Team will be useful in identifying and resolving potential 
duplications of effort.
    Mr. Skeen. The Results Act requires agencies to consult with 
Congress as they develop their strategic plans. Since these plans are 
due in September, now is the time for agencies to begin the required 
consultations. What are your plans for congressional consultation as 
you develop your strategic plan? Which Committees will you consult 
with? How will you resolve differing views?
    Response. All USDA Mission Areas/Agencies have prepared draft 
Strategic Plans which are currently being reviewed by an Under/
Assistant Secretary (or other relevant official), the Senior Policy 
Staff and the Secretary. Upon completion of the review, the Department 
plans to provide copies of the strategic Plan (including an overall 
Department wide Executive Summary and the strategic Plans for 
individual Mission areas/Agencies) to relevant Congressional 
Committees. Thereafter, we will look forward to meeting with Members or 
Staff to discuss our Strategic Plan and to solicit their input and 
advice on refinements to that Plan. We plan to provide copies of the 
Department Strategic Plan to the following Committees: House 
Agriculture Committee; House Appropriations Committee; House Economic 
and Educational Opportunities Committee; House Government Reform and 
Oversight Committee; House Resources Committee; Senate Agriculture, 
Nutrition; and Forestry Committee; Senate Appropriations Committee; 
Senate Energy and Natural Resources Committee; Senate Governmental 
Affairs Committee.
    Mr. Skeen. In passing the Results Act, Congress sought to 
fundamentally change the focus of federal management and decision 
making to be more results-oriented. Organizations that have 
successfully become results-oriented typically have found that making 
the transformation envisioned by the Results Act requires significant 
changes in what they do and how they do it.
    What changes in program policy, organization structure, program 
content, and work process has the agency made to become more results-
oriented?
    Response. The development of a strategic plan is a positive step 
for any organization as it requires it's managers to think about where 
the organization is headed and to determine, as a group, if that is the 
desired direction. As a result of the strategic planning effort, we in 
Rural Development determined we needed to transition from being 
predominately a lending organization to being one which promotes and 
supports comprehensive community development, and works more directly 
with the communities. To that end, our State Directors are utilizing 
some of the field positions freed of loan servicing responsibilities, 
as a result of the centralizing of the servicing of the single family 
housing portfolio, to work directly with local communities. Some of 
these communities may not need our funding but need the technical 
assistance we can provide them in obtaining assistance and funding from 
other organizations.
    The process of developing results oriented performance measures is 
also a positive process and makes the managers more aware of the impact 
of their programs on the customers it was established to serve. Two 
programs, business and industry and single family housing, have 
established customer-focused process improvement teams. These teams 
look at a process from the customer's perspective, identify problems 
which are adversely impacting the customer, and take responsibility for 
fixing them. The result is significant streamlining in our process.
    Mr. Skeen. How are managers held accountable for implementing the 
Results Act and improving performance?
    Response. Managers will be held accountable in the future through 
the use of the strategic plan as a management tool, through development 
of annual performance measures at the state level, and through the 
performance appraisal process.
    Mr. Skeen. How is the agency using Results Act performance goals 
and information to drive daily operations?
    Response. As indicated earlier, the development of performance 
goals is an ongoing process. The information developed to date is being 
utilized to inform managers and staff of the true results of the 
programs they administer, i.e., how the programs affect the lives of 
people.
                        Rural Utilities Service
                               Water 2000
    Mr. Skeen. Please explain the Water 2000 program and how it fits in 
with other programs in the rural utilities area.
    Response. Water 2000 is an Administration initiative which focuses 
attention on the importance of safe, affordable drinking water to the 
overall health of rural areas. The goal of the initiative is to target 
Federal investment in water projects to rural communities with the most 
serious needs. In FY 1995 and FY 1996, we used over $351 million in 
poverty rate loans and $195 million in associated grants in 535 Water 
2000 projects. However, based on the needs assessments conducted by out 
State Offices, this still leaves a gap of nearly $3 billion to address 
all of the identified needs.
    We have not set aside a specific amount of funds from our regular 
Water and Waste program appropriation for Water 2000 projects. However, 
we do designate additional funds, such as the amount transferred from 
the WIC program in FY 1996 and the amount received this year for the 
Fund for Rural America, specifically for Water 2000 projects.
                        Rural Utilities Programs
    Mr. Skeen. Please list the special targeted programs such as the 
Colonias, Empowerment Zones and Enterprise Communities that benefit 
from RUS programs. Please also give a brief description of how much 
funding is planned for each in fiscal year 1997.
    Response. Mr. Chairman, in fiscal year 1997, we plan to make 
available funding for several initiatives that are important to rural 
America. For Empowerment Zones/Enterprise Communities there will be 
$17,239,000 in water and waste loans and $17,145,000 for grants. In 
addition, there will be $18,700,000 in grant funds to help alleviate 
the health problems in Colonias. The economic problems faced by the 
rural residents of the Pacific Northwest are being assisted with 
$30,488,000 in water and waste loan funds and $21,140,000 in grants. 
Rural and Native villages in Alaska will receive $8,750,000 in grant 
funds for water and waste systems. This Administration also has an 
initiative called Water 2000 which focuses attention on the importance 
of safe, affordable drinking water to the overall health of rural 
people; no specific amount of funds have been set aside.
               Rural Electric & Telecommunications Loans
    Mr. Skeen. Please describe the differences in municipal rate, 
Treasury rate, five percent and Federal Financing Bank loans. Why are 
the different programs necessary? How do these loan programs compare in 
terms of risk and cost to the taxpayer?
    Response. In the Telecommunications Loan Program, the Cost of Money 
loans bear interest at a rate equal to the current cost of money to the 
Federal Government--Treasury rate. Hardship loans bear interest at the 
rate of 5 percent per annum for the duration of the loan. Federal 
Financing Bank loans bear interest at the current cost to the Federal 
Government plus \1/8\ of 1 percent. All of the above programs are used 
to make loans to finish and improve telecommunications service in rural 
areas. Hardship loans, at an interest rate of 5 percent, carry a 
subsidy cost to the Government and are targeted at borrowers 
experiencing financial hardship.
    In the Electric Program, the 1993 amendment to the RE Act 
established criteria that require different interests on direct loans 
to electric borrowers depending upon certain characteristics. The 
criteria used for eligibility relate to the demographics of the 
borrower's service area and the cost of serving the area.
    The 5 percent hardship rate loan program is a direct loan program 
targeted toward rural electric systems with significant retail rate 
disparity and whose consumers have income below their state averages. 
Hardship loans are also made to rural electric systems with extremely 
high rates.
    Municipal rate direct loans with an uncapped interest rate are 
targeted toward electric systems serving areas with smaller rate 
disparity and higher consumer income. The municipal rate may be capped 
at 7 percent if consumer income is moderately low, and costs of service 
are moderately high. There is a special provision that prohibits the 
use of hardship or capped loans for facilities in urban areas--this 
includes the so called ``resort areas'' served by rural electric 
systems.
    Cost of the programs to the taxpayers is dependent on the 
difference between the interest rate charged to borrowers and the cost 
of money to the Government. Consequently, 5 percent hardship loans 
carry the greatest cost and the cost varies as Treasury rates change. 
Municipal rate loans are tied to municipal bond rates and have a lower 
cost. Their cost tends to remain relatively constant because municipal 
bond rates tend to rise and fall with Treasury rates.
    The private market adjusts for risk by charging higher interest 
rate for higher risk loans. While we cannot do this, we do have to 
determine that a project is feasible before we can make a loan. Since 
our interest rates are based on criteria other than risk, the interest 
rate charged on a particular RUS loan is no indication of the relative 
risk of the loan. Whereas hardship loans might appear to be the most 
risky, these loans carry the lowest interest rate.
    RUS makes loan guarantees at a Treasury rate for generation and 
transmission projects. These loans are usually made by the Federal 
Financing Bank and guaranteed by RUS. They carry our highest interest 
rate. The guaranteed loan program has the least cost to the taxpayer 
because it is tied directly to Treasury rate plus one eighth of one 
percent.
                         Federal Financing Bank
    Mr. Skeen. What is the Federal Financing Bank and how does it 
operate?
    Response. The Federal Financing Bank, FFB, is an instrument of the 
Treasury Department that provides funding in the form of loans for 
various Government lending programs, including the RUS guaranteed 
program. The FFB is subject to the general supervision and direction of 
the Secretary of the Treasury. Functions include purchase and sale of 
obligations issued, sold, or guaranteed by Federal agencies.
    Loans made by FFB and guaranteed by RUS are made under terms and 
conditions that yield a return at a rate not less than a rate 
determined by the Secretary of the Treasury--taking into consideration 
the current average yield on outstanding marketable obligations of the 
US having a comparable maturity. While FFB makes the loan, all of the 
loan origination and servicing is done by RUS. RUS guarantees the loan. 
That is, if the borrower is late or does not make a payment, RUS makes 
the payment to Treasury. Because RUS's guarantee is Treasury's security 
on the loan, RUS is the holder of the mortgage on the borrower's 
system.
                Distance Learning/Medical Link Programs
    Mr. Skeen. What are the basic criteria for qualifying for distance 
learning/medical link grants and loans?
    Response. To be eligible to receive a loan and/or grant under the 
Distance Learning andTelemedicine Program, the applicant must meet 
certain criteria. I will provide them for the record. (The information 
follows:)
    Qualifying Criteria for Distance Learning/Medical Link Loans and 
Grants
    A. Be organized in one of the following corporate structures:
    1. An incorporated organization, partnership, Indian tribe and 
tribal organization as defined in 25 U.S.C. 450 (b) and (c) or other 
legal entity which operates or will operate a school, college, 
university, learning center, training facility, or other educational 
institution, including a regional educational laboratory, library, 
hospital, medical center, medical clinic or any rural community 
facility.
    2. A consortium; i.e., a combination or group of eligible entities 
formed to undertake the purposes for which the distance learning and 
telemedicine funding is provided.
    3. An incorporated organization, partnership, Indian tribe and 
tribal organization as defined in 25 U.S.C. 450(b) and (c) or other 
legal entity which is providing or proposes to provide telemedicine 
services or distance learning service to other legal entities or 
consortia at rates calculated to ensure that the economic value and 
other benefits of the distance learning or telemedicine grant is passed 
through to such other legal entities or consortia.
    B. At least one of the entities in a partnership or consortium must 
be eligible individually, and the partnership or consortium must 
provide written evidence of its legal capacity to contract with RUS.
    C. A borrower of an electric or telecommunications loan under the 
Rural Electrification Act of 1936 (U.S.C. 901 et seq.) is eligible for 
a cost of money loan only.
              Rural Electric and Telecommunications Loans
    Mr. Skeen. Please update for us the information provided last year 
which describes the difference in cost to the rural users for telephone 
and electric service and the rates urban users have.
    Response. Rural residents and business basic telephone service 
rates average approximately $11 and $18 per month, respectively; urban 
rates average $13 for residential and $33 for business. While average 
basic service rates for rural subscribers appear to be less than those 
of urban subscribers, they do not include other typical rural-oriented 
costs associated with providing service nor reflect the value of 
service. For example, urban subscribers can call an average 12,250 
subscribers without paying toll charges whereas rural subscribers can 
call an average of only 1,100 local subscribers.
    The Energy Information Administration (EIA) of the Department of 
Energy collects and publishes data on all electric utilities in the 
country. The most recent EIA data shows that the average revenue for 
electric cooperatives is about 6.92 cents per kWh, compared to 6.89 
cents per kWh for all utilities. However, the costs of generating power 
vary widely from utility to utility, leading to large variations in 
electric rates across the country. In 43 out of 45 states, the average 
revenue per kWh of RUS borrowers for all consumer classes is higher 
than the state average for all utilities.
                              Subsidy Rate
    Mr. Skeen. Please provide a table showing each of the RUS programs 
and what the OMB subsidy rate is calculated to be for the fiscal year 
1998 budget.
    [The information follows:]

Rural utilities programs subsidy rates

                                                             Fiscal year
Rural Electric Loans:es Loan Programs                        1998 budget
    Direct....................................................      7.46
    Municipal.................................................      4.22
    FFB.......................................................      0.92
Telephone Loans:
    Direct....................................................      3.92
    Treasury..................................................      0.02
    FFB.......................................................     -0.07
Rural Telephone Bank Loans....................................      2.12
Distance Learning:
    Direct 3%-5% Treasury.....................................      0.02
Direct Water and Waste Disp Loans.............................      9.76
Guar Water and Waste Disp Loans...............................     -1.90
                         Borrower's Eligibility
    Mr. Skeen. The Rural Electrification Loan Restructuring Act of 1993 
established the criteria which determines borrower's eligibility for 
hardship, municipal, and Treasury rate loans. For the record please 
provide the criteria for each loan type and provide a table showing the 
number of applications and total loan requests currently on hand for 
each category.
    [The information follows:]
                       Telecommunications Program
    Hardship--Density of not more than 4.0 subscribers per mile and a 
Times Interest Earned Ratio (TIER) of not less than 1.0 nor more than 
3.0. (State Telecommunications Modernization Plan.)
    Concurrent (Cost-of-Money and RTB)--Density of not more than 15.0 
subscribers per mile or TIER of not less than 1.0 nor more than 5.0. 
(State Telecommunications Modernization Plan.)
    Guaranteed--Density can be any ratio and TIER of at least 1.5. A 
borrower must elect to take a guaranteed loan.

              APPLICATIONS ON HAND AS OF FEBRUARY 28, 1997              
------------------------------------------------------------------------
                                              No. of                    
              Type of loan                 applications       Amount    
------------------------------------------------------------------------
Hardship................................              15     $86,800,000
Treasury Rate...........................              27     146,500,000
Rural Telephone Bank (RTB)..............              27      86,000,000
Direct, FFB.............................               3      36,700,000
                                         -------------------------------
      Total--Telecommunications*........              72  \1\ 356,000,00
                                                                       0
------------------------------------------------------------------------
\1\ Note.--This total does not include the $82.5 million in loans       
  already approved.                                                     

                            Electric Program
    In the electric program, direct loans are generally used to finance 
distribution and subtransmission facilities. Direct loans may be either 
hardship rate loans or municipal rate loans, with or without an 
interest rate cap. Qualifications for each are as follows:
    The borrower is eligible for a hardship rate loan if:
    (a) both average total revenue and average revenue per kWh for 
residential consumers are at least 120 percent of the state average, 
and either average per capita income or median household income of the 
consumers served is lower than for the state; or
    (b) residential revenue exceeds 15.0 cents per kWh; or
    (c) the Administrator determines that the borrower has suffered a 
severe hardship.
    The borrower is eligible for a municipal rate loan, with the rate 
capped at 7 percent if:
    (a) the system serves, on average, fewer than 5.50 consumers per 
mile, or
    (b) average total revenue per kWh is more than the state average, 
and either the average per capita income or the median household income 
of the consumers served is lower than for the state.
    Borrowers who do not qualify for hardship rate loans or for capped 
rate municipal rate loans, may qualify for uncapped municipal rate 
loans.
    Electric borrowers are eligible for loan guarantees at a Treasury 
rate to finance generation, transmission, or distribution facilities.
    A table showing the number of applications on hand and total 
amounts by category follows:

                APPLICATIONS ON HAND AS OF MARCH 18, 1997               
------------------------------------------------------------------------
                                              No. of                    
              Type of loan                 applications       Amount    
------------------------------------------------------------------------
Direct Loans:                                                           
    5 percent hardship..................              24     $95,637,550
    Municipal rate......................              97     646,916,820
Loan Guarantees:                                                        
    Treasury rate (FFB).................               4      94,260,500
                                         -------------------------------
      Total--Electric...................             125     836,814,870
------------------------------------------------------------------------

               Distance Learning and Medical Link Program
    Mr. Skeen. For the record, provide a list, by fiscal year, of all 
approved projects for the Distance Learning and Medical Link Program?
    [The information follows:]
fooset folios 118 to 122 insert here



                               Deferment

    Mr. Skeen. Please update the information provided last year 
on deferment of REA-scheduled debt service payments.
    Response. There were no telecommunications loan deferments 
last fiscal year and none to date this fiscal year.
    As of March 13, 1997, 13 electric borrowers have received 
approval for a total of $2,629,440 in deferments.

RUS loan deferments for rural development

                                                            Total amount
        Deferments approved                                 of deferment
Eastern Iowa Power & Light (IA9)--Wilton, Iowa................  $400,000
Monona County Rural Electric Cooperative (IA 16)--Onawa, Iowa.   150,000
Adams County Cooperative Electric Company (IA 19)--Corning, 
    Iowa......................................................   250,000
Nyman Electric Cooperative, Inc. (IA 75)--Stanton, Iowa.......    26,595
Corn Belt Power Cooperative, Inc. (IA 84)--Humbolt, Iowa......   125,000
Wright County Rural Electric Cooperative (IA 36)--Clarion, 
    Iowa......................................................    62,000
Slope Electric Cooperative, Inc. (ND 34)--New England, North 
    Dakota....................................................   340,000
Grundy County Rural Electric Cooperative (IA 31)--Grundy 
    Center, Iowa..............................................    75,000
Baker Electric Cooperative, Inc. (ND 8)--Cando, North Dakota..   400,000
Central Iowa Power Cooperative, Inc. (IA 83)--Cedar Rapids, 
    Iowa......................................................   250,845
Chariton Valley Electric Cooperative, Inc. (IA 82)--Albia, 
    Iowa......................................................   150,000
Northwest Iowa Power Cooperative, Inc. (IA 85)--Le Mars, Iowa.   125,000
Federated Rural Electric Association (MN 37)--Jackson, 
    Minnesota.................................................    25,000

    Mr. Skeen. Please provide us with a list of the recipients of those 
deferments for last year and so far for this year.
    Response. Four borrowers increased the amount of their deferments 
in FY 1996 and FY 1997. No requests are pending.

Recipients of deferments

        Borrower                                      Amount of increase
Adams County Cooperative Electric Company (IA 19).............  $200,000
Slope Electric Cooperative, Inc. (ND 34)......................   474,250
Chariton Valley Electric Cooperative, Inc. (IA 82)............   250,000
One borrower received first deferment in 1997:
Northwest Iowa Power Cooperative, Inc. (IA 85)................   125,000
                             Electric Loans
    Mr. Skeen. Please provide a table for the record showing, by state, 
the pending loan applications on hand for the electric loan program.
    [The information follows:]

             LOAN APPLICATIONS ON HAND AS OF MARCH 18, 1997             
------------------------------------------------------------------------
                      State                          No.       Amount   
------------------------------------------------------------------------
Alabama..........................................        1   $23,264,000
Alaska...........................................        1     6,304,000
Arkansas.........................................        7   101,760,000
Arizona..........................................        3    22,031,000
Colorado.........................................        6    27,394,360
Georgia..........................................        8    47,621,000
Illinois.........................................        2     8,000,000
Iowa.............................................       10    59,860,060
Kansas...........................................        6    13,450,900
Kentucy..........................................       10    77,423,000
Louisiana........................................        1    21,715,000
Maryland.........................................        1    12,810,000
Maine............................................        1       260,000
Michigan.........................................        5    49,235,000
Minnesota........................................        8    33,221,000
Mississippi......................................        1    13,069,000
Missouri.........................................        9    43,974,000
Montana..........................................        3     7,186,000
New Mexico.......................................        6    17,338,650
North Dakota.....................................        4    22,849,000
Ohio.............................................        2     5,129,000
Oklahoma.........................................        3    15,998,000
Oregon...........................................        1     5,268,000
Pennsylvania.....................................        2    25,582,000
South Carolina...................................        3    20,708,000
South Dakota.....................................        4     8,541,000
Tennessee........................................        3    24,191,000
Texas............................................        6    14,052,900
Virginia.........................................        6    39,395,000
Wisconin.........................................        2    69,184,000
Wyoming..........................................        0  ............
      Total......................................      125   836,814,870
------------------------------------------------------------------------

    Mr. Skeen. What is the number and dollar amount of electric loans 
that have been approved for fiscal years 1996 and 1997? Please indicate 
the amounts for direct, FFB, and bank guaranteed loans.
    Response. The number and dollar amount of electric loans that have 
been approved for fiscal years 1996 and 1997 are provided for the 
record.

                                             ELECTRIC LOANS APPROVED                                            
----------------------------------------------------------------------------------------------------------------
                                                      Hardship rate        Municipal rate      Guaranteed (FFB) 
                                                  --------------------------------------------------------------
                                                    No.      Amount      No.      Amount      No.      Amount   
----------------------------------------------------------------------------------------------------------------
Fiscal year 1996.................................     23   $90,577,663     99  $544,616,858     11  $187,239,000
Fiscal year 1997 (as of 3/18/97).................      9    26,903,000     55   286,387,000      4    44,052,000
                                                  --------------------------------------------------------------
      Total......................................     32   117,480,663    154   831,003,858     15   231,291,000
----------------------------------------------------------------------------------------------------------------

                            Telephone Loans
    Mr. Skeen. Please provide a table listing, by state, the pending 
telephone loan applications.
    [The information follows:]

                 TELECOMMUNICATIONS APPLICATIONS ON HAND                
------------------------------------------------------------------------
                   Type of loan                     No.       Amount    
------------------------------------------------------------------------
Alabama..........................................      1      $2,700,000
Georgia..........................................      3      42,500,000
Iowa.............................................      3       7,300,000
Kansas...........................................      1      11,600,000
Kentucky.........................................      1      31,700,000
Michigan.........................................      1       4,200,000
Minnesota........................................      5      31,300,000
Missouri.........................................      1       2,100,000
New Mexico.......................................      2      33,600,000
North Dakota.....................................      1       4,000,000
Pennsylvania.....................................      1       8,600,000
South Carolina...................................      1      35,900,000
South Dakota.....................................      5      71,300,000
Tennessee........................................      2      43,500,000
Texas............................................      2      12,200,000
Wisconsin........................................      3      13,500,000
      Total......................................  \1\ 3                
                                                       3  \2\ 356,000,00
                                                                       0
------------------------------------------------------------------------
\1\ For the purposes of this list, concurrent loans were counted as one;
  the actual total is 72.                                               
\2\ This total does not include the $82.5 million in loans already      
  approved.                                                             

    Mr. Skeen. What is the number and dollar value of telephone loans 
approved thus far in fiscal year 1997? Please indicate the amount for 
direct, FFB, and bank guarantees.
    [The information follows:]

         TELECOMMUNICATIONS LOANS APPROVED AS OF MARCH 18, 1997         
------------------------------------------------------------------------
                   Type of loan                     No.       Amount    
------------------------------------------------------------------------
Hardship.........................................      9     $51,700,000
Treasury Rate....................................      8      19,400,000
Rural Telephone Bank (RTB).......................      8      11,400,000
FFB Loan Guarantees..............................  .....  ..............
                                                  ----------------------
      Total--Telecommunications..................     25      82,500,000
------------------------------------------------------------------------

                                 Travel
    Mr. Skeen. Have any REA employees traveled outside the United 
States on RUS business during fiscal years 1996 or 1997? If so, please 
provide the details of such travel for the record.
    Response. RUS employees from the telecommunications and electric 
programs traveled outside the United States in fiscal years 1996 and 
1997 to provide technical assistance and training for borrowers, with 
the exception of Mr. Bowles--who traveled to Canada to attend a 
technical conference. I will provide the details of these trips for the 
record.

                 RUS EMPLOYEES TRAVELED OUTSIDE THE U.S.                
------------------------------------------------------------------------
             Name                  Date of travel        Destination    
------------------------------------------------------------------------
Robert Peters.................  8/23-9/1/1996......  Guam, Palau.       
                                2/8-12/1997........  St. Thomas, VI.    
Willie Williamson.............  11/4-15/1996.......  St. Thomas, VI.    
                                2/10-21/1996.......  St. Thomas, VI.    
Randall Brummit...............  2/10-19/1996.......  St. Thomas, VI.    
Loughton Sargeant.............  7/22-28/1996.......  St. Thomas, VI.    
Ken Chandler..................  8/19-9/7/1996......  Guam, Palau.       
Ken Kuchno....................  1/14-2/2/1996......  Guam, Palau.       
                                8/19-9/7/1996......  Guam, Palau.       
Alan Yost.....................  12/9-12/19/96......  Marshall Islands.  
Harvey Bowles.................  10/1-10/5/96.......  Canada.            
------------------------------------------------------------------------

            Water and Waste Disposal Loan and Grant Programs

    Mr. Skeen. Please provide a table that shows the budget request and 
appropriation for the past ten fiscal years for the water and waste 
disposal loan program. Also, provide the number of loans for each 
fiscal year.
    [The information follows:]

[Page 73--The official Committee record contains additional material here.]


    Mr. Skeen. How many applications are currently on hand for 
water and waste loans? What is the total amount pending?
    Response. Currently we have on hand 1,819 unfunded 
applications and preapplications totaling $2.72 billion for 
loans.
    Mr. Skeen. In fiscal year 1996, what percent of water and 
waste disposal loans were used for expansion of existing 
systems?
    Response. In fiscal year 1996, 60.7 percent of the water 
and waste disposal loan funds were used for expansion, 
replacement, and renovation.
    Mr. Skeen. Please provide a ten-year table showing the 
Administration's request, the amount appropriated, and the 
number and dollar amounts of water and sewer grants made.
    [The information follows:]

[Page 75--The official Committee record contains additional material here.]


    Mr. Skeen. How many applicants do you presently have on 
hand, both in terms of numbers of applications and dollar 
amounts?
    Response. As of March 1, we had on hand 1,173 unfunded 
applications and preapplications totaling $1.27 billion for 
grants.
    Mr. Skeen. Please provide a table listing these 
applications, by state. What is the total backlog of water and 
waste disposal grants as of the end of fiscal year 1996?
    Response. I will provide a table listing the loan and grant 
preapplications and unfunded applications by state. At the end 
of fiscal year 1996, we had on hand 1,179 unfunded applications 
and preapplications totaling $1.26 billion.
    [The information follows:]

[Pages 77 - 78--The official Committee record contains additional material here.]


                             Circuit Rider

    Mr. Skeen. How much is proposed for the fiscal year 1998 
circuit rider program? What does this program do? In which 
states does it work?
    Response. The proposal for the FY 1998 Circuit Rider 
Program is $5,150,000 to provide 55 circuit riders for the 
program from October 1, 1997 to September 30, 1998.
    Since 1980 we have contracted with the National Rural Water 
Association, NRWA, to provide circuit riders. Circuit riders 
are available to rural water systems to assist them with day-
to-day operational, financial, compliance, and management 
problems. Currently there are 55 circuit riders over the 48 
Continental States. Most states have one circuit rider, a few 
states have two circuit riders, and some states share a circuit 
rider. Circuit riders must average 35 technical assistance 
visits per month. The assistance may be requested by rural 
water systems or our field staff, and when they are not working 
on specific requests, they call on rural water systems to offer 
their assistance. Circuit riders report their accomplishments 
monthly to our State Rural Development offices. Helping rural 
water systems locate and correct leaks, assisting them in 
complying with the Safe Drinking Water Act requirements, and 
record keeping are just some examples of circuit rider work. 
The assistance helps to keep small rural water systems 
operating efficiently. Systems that are property operated and 
maintained are more likely to meet all the Federal and State 
health requirements as well as make their loan payments on 
time. The program compliments our loan ``supervision'' 
responsibilities.
    During FY 1996, over 24,500 contacts were made on systems 
providing service to several million rural people, including 9 
million people directly concerned with public health issues. We 
continue to get positive feedback on how valuable the program 
is to water systems throughout the Nation.
    The circuit rider program is valuable to the Government as 
well as to rural water systems. It reduces cost by ensuring 
proper operation and maintenance of the systems we finance.

                      Technical Assistance Grants

    Mr. Skeen. Please provide a list of all technical grants 
that were made in 1996 and so far in fiscal year 1997.
    Response. I will provide a list of technical assistance 
grants made in fiscal year 1996. No grants have been made so 
far in fiscal year 1997.
    [The information follows:]

Technical Assistance Grants Program Obligations--FY 1996

Grantee/Location:                                           Grant Amount
    Kodiak Island Village Council, Ouzinkie, AK...............   $87,830
    National Rural Water Association, Duncan, OK.............. 4,854,560
    Rural Community Assistance Program, Leesburg, VA.......... 3,133,310
    West Virginia University Research Corporation, Morgantown, 
      WV......................................................   924,470
    Yukon-Kuskokwim Health Corporation, Bethel, AK............    87,830
                    --------------------------------------------------------------
                    ____________________________________________________

      Total................................................... 9,088,000
                                Colonias
    Mr. Skeen. For the past few years, funds were earmarked for 
Colonias to assist with rural water and waste disposal problems along 
the Mexican border. Describe how the funds have been used in fiscal 
year 1996 and, so far, in fiscal year 1997.
    Response. In fiscal year 1996, we allocated $17.2 million of the 
$18.7 million available to the four States that border Mexico to 
finance the construction of community water and sewer facilities. In 
addition, we set aside $1.5 million in individual grants for connecting 
to a community water or sewer system and constructing bathroom 
facilities. Grants were made to 22 rural community water and sewer 
systems and 402 individual families. In fiscal year 1997, we have made 
6 grants to rural water and sewer systems and 230 individual families 
totaling $1,476,400. We anticipate that the balance of available funds 
will be obligated by most States over the next month.
    Mr. Skeen. How many grant applications and what dollar amount is 
currently pending for requests related strictly to Colonias?
    Response. As of March 1, we had 38 unfunded applications and 
preapplications on hand from rural communities for water and sewer 
improvements in Colonias totaling $42 million.
              Emergency Community Water Assistance Grants
    Mr. Skeen. Were any Emergency Community Water Assistance Grants 
made in fiscal year 1996? If so, please provide a table showing the 
distribution, by state.
    Response. Mr. Chairman, we made 14 Emergency Community Water 
Assistance Grants in fiscal year 1996. The distribution by state will 
be provided for the record.
    [The information follows:]

                               EMERGENCY COMMUNITY WATER ASSISTANCE GRANTS--FY 96                               
----------------------------------------------------------------------------------------------------------------
                    State                                             Project                            Grant  
----------------------------------------------------------------------------------------------------------------
FL...........................................  Graceville...........................................    $264,200
IA...........................................  Rathbun Reg. Water Assn..............................     500,000
ID...........................................  E. Shoshone County...................................     450,000
ID...........................................  City of St. Maries...................................     275,000
NM...........................................  Tecolotito Water.....................................     150,000
OR...........................................  Dodson Water.........................................     200,200
TX...........................................  Siesta Shores........................................      61,000
TX...........................................  Streamboat Mountain..................................     500,000
TX...........................................  Zapata...............................................     500,000
TX...........................................  Jim Hogg.............................................     404,500
VA...........................................  Rapidan Service Auth.................................     500,000
VA...........................................  Boones Mill..........................................     125,000
VA...........................................  Wythe Co. (Austonville)..............................     100,000
VA...........................................  Independence.........................................      30,000
                                                                                                     -----------
      Total..................................    ...................................................   4,059,900
----------------------------------------------------------------------------------------------------------------

    Mr. Skeen. Are there currently any unused funds in this account?
    Response. Yes, we currently have on hand $140,000 in Emergency 
Community Water Assistance grant funds in this account.
                     Solid Waste Management Grants
    Mr. Skeen. How many pending applications do you have for solid 
waste management grants and what is the total dollar amount?
    Response. We have 48 applications totaling $4,036,694 pending for 
the solid waste management grant program and $2,400,000 available for 
the program in fiscal year 1997.
                Water and Waste Loan and Grant Programs
    Mr. Skeen. What is the average loan size for water and sewer 
programs?
    Response. In fiscal year 1996, the average size loan for water 
improvements was $630,700 and $770,110 for sewer.
    Mr. Skeen. How much of the financing provided is for system repair 
and what is the average loan or grant provided?
    Response. In fiscal year 1996, 31 percent of our water and waste 
loan and grant funds was by rural communities to repair or renovate 
their systems. The average loan was $685,269 and the grant was 
$485,902.
    Mr. Skeen. Are there communities which are too small to make it 
through the RUS application process and, if so, what can the Department 
do to help them?
    Response. Mr. Chairman, there are communities that do not have 
enough people to afford their own central water or sewer system. In 
these situations we work with the communities to consider various 
options that could be used such as providing individual or cluster 
water or sewer service or extending service from an existing central 
system. In small sparsely settled communities individual wells and 
septic tanks are often the best solution. We have a Rural Development 
field staff with trained individuals who will work with the smallest 
communities to help them apply for assistance. We also have a network 
of technical assistance providers from the Rural Community Assistance 
Program who work at the grass roots level. The National Rural Water 
Circuit Riders also assist small communities with their applications. 
There are no communities too small to apply to RUS.
                         Telecommunications Act
    Mr. Skeen. What is the effect of the Telecommunications Act on the 
need for capital by rural telecommunications providers?
    Response. With the passage of the Telecommunications Act of 1996, 
the telecommunications industry will move from a tightly regulated, 
monopoly structure to a competitive, deregulated environment. As the 
provisions of the Telecommunications Act begin to be fleshed-out 
through the Federal Communications Commission's rulemaking process, the 
Commission is focusing on the type of telecommunications service 
available to all (universal service) and the benefits to all Americans 
from advanced services for schools, libraries, and rural health care 
providers. The Telecommunications Act and the Commission's rulemaking 
have made clear that the need for continued and increased 
infrastructure investment in rural areas is greater today than ever 
before. The universal service provisions of the Telecommunications Act 
mandate a level of service which will require increased infrastructure 
investment--investment that is needed to prepare students for the 
future, provide adequate health care to our citizens, and improve 
economic conditions in rural America.
    Mr. Skeen. How do RUS programs relate to the new telecommunications 
legislation?
    Response. RUS' Telecommunications Program provides the financing 
needed at reasonable costs, to build the infrastructure necessary to 
make available the services contemplated by the Telecommunications Act. 
The low cost financing provided by RUS serves as an added catalyst to 
promote universal service and to help meet the educational and health 
care needs of rural America utilizing advanced telecommunications 
technologies.
    Mr. Skeen. Will there be an increase in demand for loans?
    Response. We see a steady demand for loans as rural 
telecommunication providers implement the requirements of the 
Telecommunications Act. The Telecommunications Act envisions new 
service demands that will require modern and expanded 
telecommunications infrastructure in rural America. The infrastructure 
needed to meet the expected service demands will require steady capital 
expenditures by rural telecommunications providers.
                       Deregulation of Utilities
    Mr. Skeen. What role is the Department playing in the development 
of legislation for the deregulation of utilities?
    Mr. Response. The legislation deregulating the telecommunications 
industry passed with the Telecommunications Act of 1996 (P.L. 104-104). 
The implementation of that law is currently in the rulemaking process 
with the FCC. RUS has been an active participant in the FCC rulemaking 
process regarding universal service and have filed comments on all of 
the FCC notices affecting universal service. Additionally, RUS has 
analyzed and provided the results of our analysis on the costing models 
currently being considered by the FCC that will be used to determine 
compensation for providing universal service. We are also providing 
data to the FCC on those characteristics of rural America that 
distinguishes it from urban and suburban America.
    RUS has two fundamental goals in the development of legislation on 
electric utility restructuring. First, any proposals should help ensure 
the continued availability of reliable, high quality electric service 
at reasonable cost to rural consumers.
    Second, any proposals should protect the integrity of the 
Government's loan portfolio and avoid defaults and bankruptcies among 
rural utility system borrowers. Electric industry reforms should not 
harm the existing electric infrastructure in rural America.
    In advancing these principles, RUS has had a number of informal 
discussions with the Department of Energy (DOE) as it worked to develop 
its legislative proposals for electric industry restructuring. RUS will 
continue working with DOE to assess the impacts of various proposals on 
electric borrowers and rural customers. RUS is looking forward to 
participating constructively in the interagency review of 
administration proposals whenever that occurs.
    In addition, RUS is actively following and participating in 
regulatory developments at the Federal and state level. RUS has 
provided comments to the Federal Energy Regulatory Commission and to 
public utility commissions in two states on potential impacts of 
restructuring proposals on electric systems and consumers in rural 
areas.
    Mr. Skeen. What are the major concerns of rural America in electric 
utility deregulation.
    Response. Experience with deregulation in other industries has not 
been a positive one for many rural consumers. Too often, the 
unfortunate and unintended consequence of restructuring and competition 
has been a decline in the quality and availability of service and an 
increase in costs in rural areas. Airline deregulation is a prominent 
example. Rural cooperatives, their member owners, and other rural 
Americans are concerned that they will not share equitably in any 
savings from electric utility restructuring and that they may, in fact, 
be left to shoulder a disproportionate burden in the form of higher 
prices and reduced reliability.
    Many of the promised savings from electric utility restructuring 
are expected to come from lower prices resulting from competition among 
generating suppliers to serve customers. In many states, the threat of 
competition from self-generation or alternative suppliers has allowed 
industrial consumers to negotiate lower electricity rates from their 
local utilities. Retail choice proposals would offer potential savings 
to other customers by allowing them to choose from among competing 
generation suppliers.
    Many rural consumers, however, are concerned that their small, 
scattered, mostly residential loads will not attract enough competitive 
interest to produce significant savings to offset the transition costs 
incurred. Rural electric providers are concerned that retail 
competition could lead to a plum picking of their most attractive 
customers forcing them to raise rates for the remaining customers in 
order to pay their systemcosts, including long-term power contracts, 
and to meet their debt obligations.
    Rural consumers in areas that enjoy electric rates that are lower 
than the national average are concerned that deregulation and retail 
competition could, in fact, lead to higher prices for them as consumers 
from higher cost areas with newly won access to transmission services 
bid up the price of low cost power resources. There is also concern 
that heavy transmission line loading from increased interregional 
traffic could adversely affect reliability.

                   Electric Utility Loans Write-Offs

    Mr. Skeen. Please provide a description of electric utility loan 
writedowns or forgiveness in 1997 and what is expected in 1998?
    Response. The fundamental criterion for a debt write-off is that is 
must be in the best interests of the US taxpayer. At the same time, the 
Department of Justice (DOJ) and RUS are mindful of the purpose of the 
RE Act, that reliable electric service be provided to rural America at 
reasonable cost. Consequently, DOJ and RUS have attempted to fashion 
debt compromise resolutions which balance these two goals.
    In October 1996, a debt write-down of $501.7 million was approved 
for Deseret Generation and Transmission Cooperative of Sandy, Utah. 
Legal authority for the Deseret debt compromise was exercised by DOJ, 
not RUS. Deseret's contingent note, established as part of a 1989 debt 
restructure, was already recognized as having a high likelihood of not 
being repaid. Approximately 20 percent of Deseret's debt in 1996 was 
contingent debt.
    In November of 1996, the end to a 12-year bankruptcy for Wabash 
Power Association, Indianapolis, Indiana, was finally reached. RUS will 
be writing off approximately $240 million for this borrower in FY 97. 
Legal authority for this write-off was not exercised by RUS, but by 
DOJ.
    RUS has four other electric borrowers currently involved in 
bankruptcy proceedings. We anticipate debt write-offs as part of the 
overall outcome of these borrowers. We are unable to determine when 
these write-offs might occur. The make up a bankrupt borrower's plan of 
reorganization, including the dollar amount to be written off by 
creditors, is subject to bankruptcy court decision and is largely 
outside the Government's control.
    Since 1995, requests for write-downs have been received from two 
RUS borrowers--Allegheny Electric Cooperative, Harrisburg, 
Pennsylvania, and Wolverine Power Supply Cooperative, Cadillac, 
Michigan. Discussions with Allegheny and Wolverine are still in initial 
stages, and no decisions have been reached.
    Mr. Skeen. How have the loan writedowns affected the subsidy rate 
for appropriated funds?
    Response. The loan writedowns have had minimal impact on the 
subsidy rate for electric programs. Most of the write-offs are related 
to nuclear loans. The Agency no longer makes new loans for nuclear 
power. The default rate for electric programs has remained fairly 
constant over the last several years and as a result, the subsidy rate 
has not greatly fluctuated.
    Mr. Skeen. What is the latest situation with the bonuses paid to 
Soyland executives after the loan writeoff?
    Response. After extensive legal review by the Department of Justice 
and the office of General Counsel, it was determined that the payment 
of executive bonuses in excess of $400,000 was not in violation of any 
existing statutes, regulations, or applicable contracts. However, in 
March 1997, RUS received an unsolicited payment of $410,104 from 
Soyland. In an effort to avoid this type of executive compensation in 
the future, RUS added language to its recently published proposed rule 
on settlement of debt owed by electric borrowers, requiring borrowers 
requesting debt compromise to warrant that no bonuses or similar 
compensation has been or will be provided related to settlement of 
Government debt.
    Mr. Skeen. How much on average does RUS provide for loans and how 
much is provided by the private sector?
    Response. Over the past five years RUS has provided an average of 
$680 million a year for Water and Waste loans. These loans are made at 
one of three interest rates: poverty, intermediate, or market. Water 
and Waste lending avoids extending loans when credit is available for 
the private sector, and, accordingly, the vast majority of Water and 
Waste loans are at the provety or intermediate rate. In FY 1996, only 
6.5% of the loans made were at the market interest rate. Given the 
variety of sources of private sector funds, RUS does not have data on 
the total amount of loans made for similar purposes.
    RUS provides approximately 70 percent of the debt financing request 
of an electric borrower who receives a municipal rate loan. RUS 
provides 100 percent of the debt financing request of an electric 
borrower eligible for a hardship rate loan, and up to 100 percent of 
the debt financing request of a borrower who receives a loan guarantee.
    RUS studies have shown that for each $1.00 provided by RUS loan 
funds, electric borrowers add almost $3.00 worth of plant. RUS loan 
funds tend to make it easier for borrowers to obtain private sector 
financing. Since both the construction and sales in the electric 
industry are highly seasonal, RUS loan funds help borrowers to use 
their general funds more efficiently.
    Mr. Skeen. How does RUS define counties with ``high poverty and 
outmigration'' as described on page 23-2 of the budget justification?
    Response. USDA has devised two county based measures of rural 
economic hardship: persistent poverty and outmigration. A persistent 
poverty country is defined as a county whose average per capital income 
has been at least 20 percent below the national poverty level for the 
last four decades. A county suffering outmigration has experienced a 
population decline between 1980 and 1990. USDA has identified 540 non-
metro countries that suffer from persistent poverty, and 700 that have 
experienced outmigration. Moreover, 198 counties suffer from both 
persistent poverty and outmigration.
                   Rural Community Assistance Program
    Mr. Skeen. Are the water and waste disposal loans described on page 
23-4 of the budget justification in addition to the funds proposed 
under the RCAP?
    Response. All FY 1998 funding for these programs is proposed under 
RCAP. Page 23-4 through 23-5 of the budget justification contain a 
detailed explanation of the proposed uses of the same water and waste 
disposal loans and grants and solid waste management grants programs 
included in the RCAP funding proposal.
                         Administrative Expense
    Mr. Skeen. Please explain the increase in object class 23.2, Rental 
Payments to others.
    Response. Although an increase is reflected in object class 23.2 
Rental Payment to Others, a comparable decrease in reflected in object 
class 23.3, Communications, Utilities, and MiscellaneousCharges in FY 
1998. This adjustment more accurately reflects the type of charges we 
expect to incur in this object class 23 during FY 1998. In fact, the 
overall total for object class 23 is $100,000 less in FY 1998 than is 
estimated in FY 1997.
    Mr. Skeen. Please explain the increase in Object Class 25, Other 
Services.
    Response. This increase will partially cover the implementation of 
an automated business services system to process and track loans. 
Outdated computer systems for electric and telecommunications financial 
operations accounting will be updated to provide faster and better 
services to borrowers.
    Mr. Skeen. Please explain the increase in Object Class 33, 
Investments and Loans.
    Response. The increase in object class 33 is caused by scheduled 
repurchases of insured loans held by investors in FY 1998 being 
slightly more than FY 1997. This type of transaction occurs in the 
Rural Development Insurance Fund Liquidating Account.
              Distance Learning and Medical Link Programs
    Mr. Skeen. Please provide a breakdown of the levels for loans and 
grants between distance learning and medical link programs for FY '98.
    Response. The FY 1998 Budget Request for the Distance Learning 
Telemedicine Program provides for $150,000,000 in loans and $20,970,000 
in grants.
                          Rural Telephone Bank
    Mr. Skeen. What is the reason for the large subsidy increase for 
the Rural Telephone Bank Program Account for FY '98?
    Response. The subsidy request for the Rural Telephone Bank Program 
Account rose from $2,328,000 in FY 1997 to $3,710,000 in FY 1998. 
However, the supportable program level is approximately the same for 
both years. Under FY 1998 economic assumptions, there is an increase in 
the difference between Treasury rates paid by Rural Telephone Bank and 
interest rates charged to borrowers during the next several years. 
Since 83% of the loan disbursements are made three to six years from 
the year of obligation, the increase in the interest rate differential 
caused the subsidy rate to go up.
                       Chief Information Officer
    Mr. Skeen. Page 23-38 of the budget justification describes an 
increase of $4.5 million for automated business services. What input 
does the Chief Information Officer have on this program?
    Response. When the RUS modernization effort first went forward in 
December 1995, the proposal was fully coordinated with the Department's 
Chief Information Officer and the Office of Management and Budget. 
Since that time, these offices have been kept informed on our progress 
in this effort through the reports on information technology required 
during the various stages of the budget process.
                         Rural Housing Service
                            omb subsidy rate
    Mr. Skeen. Please provide a table showing the OMB subsidy rate for 
housing loan programs for FY 1997 and FY 1998.
    [The information follows:]

                  RURAL HOUSING PROGRAMS--SUBSIDY RATES                 
------------------------------------------------------------------------
                                                          Fiscal years  
              Rural housing loan programs              -----------------
                                                          1997     1998 
------------------------------------------------------------------------
Sec 502 Single Family Housing.........................    14.18    12.81
Sec 502 Guar Single Fam. Housing......................     0.23     0.23
Sec 502 Guar Unsub Refinancing........................  .......     0.02
Sec 515 Multi-Family Housing..........................    51.24  \1\ 45.
                                                                      83
Sec 538 Guar Multi-Family Housing.....................     5.88     6.09
Sec 504 Housing Repair Loans..........................    36.63    34.36
Sec 514 Farm Labor Housing Loans......................    47.77    49.25
Sec 524 Rural Housing Site Dev Lns....................    -1.02    -1.19
Sec 523 Self-Help Land Dev. Fund......................     2.87     3.41
Direct Credit Sales...................................    14.28    13.97
Direct Community Facility Loans.......................     8.73     8.38
Guar. Community Facility Loans........................     0.41     0.40
------------------------------------------------------------------------
\1\ Proposed legislation rate, subsidy rate under current law is 53.44. 

                          Centralized Service
    Mr. Skeen. How have RHS employees been affected by the change to 
centralized servicing? How many people have lost their jobs, taken 
early retirement or left the Department?
    Response. While it is impossible to distinguish whether these 
employees left the rolls due to the centralization of single family 
servicing or due to other factors, 806 permanent total field Rural 
Housing Service (RHS) employees have left the rolls through separation 
or retirement since the Under Secretary for Rural Development announced 
the field restructuring. During the same period, from February 1996, to 
the present, 101 permanent RHS employees voluntarily left the rolls. 
The impact of centralized servicing on RHS employees has been 
substantial and has included positive opportunities, such as skill 
building and career enhancing possibilities in some instances, in 
addition to potential job loss for others.
                        Direct Credit Borrowers
    Mr. Skeen. Was the legislation to change the statutory prohibition 
on graduating direct credit borrowers to guarantees submitted to 
Congress and what is its status?
    Response. In the President's Budget For FY 98, the Administration 
is requesting a separate refinancing account for graduating direct 
borrowers to the guaranteed program. The necessary legislation to 
accompany this budget request will be transmitted to Congress in the 
near future.
                  Section 533 and Section 504 Programs
    Mr. Skeen. What is the difference between the Section 523 housing 
preservation grant program and Section 504 very low-income housing 
repair grants?
    [The information follows:]
                  HPG Program vs. Section 504 Programs
    The Housing Preservation grants are available to public bodies, 
Indian tribes, or public and private nonprofit corporations serving 
rural areas. The eligible organizations provide assistance to eligible 
homeowners and owners of multi-units or co-ops. The Section 504 program 
provides a direct loan or grant to the individual homeowner.
    The HPG program requires the entire unit to be brought up to code 
standards.
    The HPG program assists very-low and low income homeowners to 
repair and rehabilitate their homes and also assists owners of rental 
property and cooperative housing complexes to repair and rehabilitate 
their units if they agree to make such units available to low and very-
low income persons. The Section 504 loan and grant programs are limited 
to very-low income persons.
    The HPG program provides assistance to all ages in rural America.
    The Section 504 grant program is only for 62 years of age or older, 
very-low income owner-occupant of rural housing. They must lack 
repayment ability for Section 504 housing loan.

                    Section 515 Rural Rental Program

    Mr. Skeen. How much new construction and how much rehabilitation do 
you expect to do in the 515 program in fiscal years 1997 and 1998?
    Response. In FY 1997, it is estimated that we will provide 
$56,000,000 for rehabilitation and $96,000,000 for new construction. In 
FY 1998--$60,000,000 for rehabilitation and $90,000,000 for new 
construction.
                      Mutual and Self-Help Program
    Mr. Skeen. Has the Mutual and Self-Help Housing Program expanded 
beyond the 25 states mentioned in last year's testimony?
    Response. The increased funding provided by this Committee and this 
Congress enabled RHS to expand the program. Currently, 41 states either 
are in full participation or are in the pre-development stage. There 
continues to be significant interest in this program from rural areas 
across the entire nation.
                       Rural Rental Housing Loans
    Mr. Skeen. What was the current backlog, in dollar volume and 
number of approved preapplications and final applications, for section 
515 loans in fiscal year 1995 and what are the figures for 1996?
    Response. As of our September 1996 survey, we had approximately 
$423.5 million for 398 preapplications and $168.5 million for 173 
applications. This would be a cumulative backlog which would include 
fiscal year 1995 and 1996. RHS has a current policy, however, to return 
applications in states that exceed 150% of the projected funding, 
therefore, the final number would be less and would not reflect the 
actual demand.
    Mr. Skeen. What was the dollar amount and number of subsequent 
loans made in fiscal years 1995 and 1996 and estimated for 1997?
    [The information follows:]

 SECTION 515 RURAL RENTAL HOUSING LOANS NUMBER AND AMOUNT OF SUBSEQUENT 
                                  LOANS                                 
                        [Fiscal years 1995-1996]                        
------------------------------------------------------------------------
                                                                  No. of
                   fiscal year                        Amount      loans 
------------------------------------------------------------------------
1995.............................................   $69,171,611      212
1996.............................................    51,923,670      172
1997 \1\.........................................    53,596,000      176
------------------------------------------------------------------------
\1\ Estimated.                                                          

                    Rural Rental Assistance Program
    Mr. Skeen. Of the funds requested for the rental assistance 
program, how much would go for renewals and how much would go for new 
contracts?
    [The information follows:]

                     STATUS OF FUNDS FOR RA PROGRAM                     
------------------------------------------------------------------------
                                  Existing       No.                    
         Type of unit            demand in    requested     Total funds 
                                   units       in units      requested  
------------------------------------------------------------------------
Renewals......................       34,100       34,100    $488,448,400
New Construction--515.........        2,258        1,395      17,431,309
New Const. Farm Labor.........          267          267       3,335,631
Servicing.....................      100,000            0               0
Rehab.........................        1,800        1,800      25,783,200
Debt Forgiveness..............          412          412       5,900,000
Replace Expiring Sec. 8.......        3,665        3,665      52,498,460
                               -----------------------------------------
      Total...................      142,502       41,639     593,397,000
------------------------------------------------------------------------

    Mr. Skeen. One of the problems with the rental assistance program 
has been participants under-reporting wages. How many states now allow 
wage matching by USDA for the rural rental assistance program?
    Response. Twenty-five states allow for wage matching in our Multi-
Housing programs. We encourage wage matching as a means to detect 
under-reported wages as recommended by the Office of Inspector General 
and other investigative bodies. Wage matching is useful in detecting 
under-reporting, especially when inaccurate information is 
intentionally provided to derive unearned subsidies.
    The Department is also taking steps to examine the routines 
employed by management agents and borrowers to solicit accurate 
information from tenants. Unsound certification routines exacerbate 
those reporting problems caused by the unintended failure to disclose 
important information. Sound certification routines will ensure tenants 
are asked questions which will lead to the truthful disclosure of 
secondary income sources.
    The Rural Housing Service issued Administrative Notice (AN) 3265 
(1930-C) on July 19, 1997, regarding maintaining acceptable project 
management and servicing actions. This guidance identifies nine key 
requirements of sound project management. Projects evidencing a record 
of misappropriated funds (including rent subsidies) are specifically 
highlighted as being unacceptable. The AN provides for servicing 
routines to ensure projects are managed at acceptable standards and 
held accountable for compliance deficiencies.
    Additionally, RHS is currently finalizing a legislative proposal to 
provide additional authority todetect under-reported wages. We believe 
this will be a valuable tool for our field staff to ensure the 
subsidies are not abused.
    Mr. Skeen. Please provide us with a five-year table, beginning that 
shows expiring rental assistance contracts for each year.
    [The information follows:]

         EXPIRING RENTAL ASSISTANCE UNITS FISCAL YEAR 1997-2001         
------------------------------------------------------------------------
                                                 Average                
             Fiscal year              Expiring   5-year     Total cost  
                                        units     cost                  
------------------------------------------------------------------------
    1997............................    33,347    13,956    $465,119,000
    1998............................    34,100    14,324     488,448,400
    1999............................    37,000    14,711     544,307,000
    2000............................    41,000    15,108     619,428,000
    2001............................    41,000    15,516     636,156,000
------------------------------------------------------------------------

                                Training
    Mr. Skeen. What was the cost of your agency-wide training program 
in fiscal years 1995, 1996, and 1997?
    Response. In fiscal year 1995, the housing programs of the Rural 
Housing Service were part of the Farmers Home Administration, and the 
Agency's total training budget included the farm programs that have now 
been transferred to the Farm Service Agency, as well as programs that 
are now included in the Rural Utilities Service and the Rural Business-
Cooperative Service. Administrative expenditures, such as training, 
were not tracked separately by program function at that time; however, 
we estimate that Rural Housing's share of the FY 1995 training budget 
would have been approximately $6,514,000.
    The Rural Housing Service spent $4,864,000 on training in FY 1996, 
and has budgeted $6,189,000 for training in FY 1997.
                   Section 502 Rural Housing Program
    Mr. Skeen. Please provide a table showing the numbers of pending 
requests, by state, for all section 502 loan programs as of the end of 
fiscal year 1996.
    [The information follows:]

[Page 88--The official Committee record contains additional material here.]


                      Equity and Nonprofit Buyouts

    Mr. Skeen. Please provide for us the number and dollar 
volume, by fiscal year, of equity and nonprofit buyouts.
    [The information follows:]

                              EQUITY LOANS                              
------------------------------------------------------------------------
                                                    No. of              
                   Fiscal year                       Loans      Amount  
------------------------------------------------------------------------
1988.............................................         3     $504,200
1989.............................................        33   11,156,800
1990.............................................        62   20,454,413
1991.............................................        44   23,161,450
1992.............................................        30   11,499,988
1993.............................................        71   24,891,463
1994.............................................        75   26,037,743
1995.............................................        16    5,000,000
1996.............................................         9    2,500,000
1997 \1\.........................................         3    1,001,680
------------------------------------------------------------------------
\1\ Year to date fiscal year 1997.                                      


                         NONPROFIT BUYOUT LOANS                         
------------------------------------------------------------------------
                                                    No. of              
                   Fiscal year                       Loans      Amount  
------------------------------------------------------------------------
1988.............................................         0           $0
1989.............................................         1      101,500
1990.............................................         1       99,000
1991.............................................         7    4,347,510
1992.............................................         0            0
1993.............................................         9    1,770,404
1994.............................................         3    1,587,851
1995.............................................         0            0
1996.............................................         0            0
1997 \1\.........................................         0            0
------------------------------------------------------------------------
\1\ Year to date fiscal year 1997.                                      

                           Housing Inventory

    Mr. Skeen. How many houses do you currently have in 
inventory, by state, and what is the total estimated value of 
this housing?
    [The information follows:]

[Page 90--The official Committee record contains additional material here.]


                        Farm Labor Housing Loans

    Mr. Skeen. Please provide for the record a table showing 
the number and dollar amounts of section 514, domestic farm 
labor housing loans, by year, for each of the past ten years.
    [The information follows:]

  SECTION 514 DOMESTIC FARM LABOR HOUSING LOANS OBLIGATED--FISCAL YEAR  
                          1987-FISCAL YEAR 1996                         
                         [Dollars in thousands]                         
------------------------------------------------------------------------
                                                    No. of              
                   Fiscal year                      Grants      Amount  
------------------------------------------------------------------------
1987.............................................        44      $10,686
1988.............................................        61       11,372
1989.............................................        70       11,446
1990.............................................        73       11,287
1991.............................................        57       13,836
1992.............................................        53       15,942
1993.............................................        32       16,300
1994.............................................        42       15,676
1995.............................................        26       15,071
1996.............................................        29       14,942
------------------------------------------------------------------------

    Mr. Skeen. What is the total number of applications and dollar 
amounts of section 514 loans pending, by state, as of the end of fiscal 
year 1996? What is on hand currently in fiscal year 1997?
    Response. RHS is revising the Farm Labor regulations to move to an 
annual Notice of Funding Availability (NOFA) process, rather that first 
come-first serve. RHS has informed the development community of the 
NOFA process and has discouraged the submission of new applications 
under the existing regulations since they would most likely not be 
funded. RHS hopes to complete the new regulations in FY 98. Based on a 
recent inquiry to all of our State Offices, approximately $20 million 
in rehab funds are being requested (predominately for loans), which we 
will make available as agreements are reached and as our resources 
permit. Based on current information, there is approximately $150 
million of projects in the pipeline, based upon both applications and 
pre-applications. Formal applications are provided for the record.

   FARM LABOR HOUSING, SECTION 514 LOANS AND SECTION 516 GRANTS PENDING APPLICATIONS, AS OF SEPTEMBER 30, 1996  
----------------------------------------------------------------------------------------------------------------
                                                                   No. of   Amount of    Amount of              
                              State                               Applic.     loans        grants       Total   
----------------------------------------------------------------------------------------------------------------
CA..............................................................        9  $11,157,958   $3,377,594  $14,535,552
CO..............................................................        2      550,275    2,201,103    2,751,378
DE..............................................................        1    1,913,335  ...........    1,913,335
FL..............................................................        6    3,969,812    5,478,487    9,448,299
GA..............................................................        1    1,404,778  ...........    1,404,778
IL..............................................................        1      439,700  ...........      439,700
MD..............................................................        2      203,847    1,834,624    2,038,471
MN..............................................................        2      170,000    1,530,000    1,700,000
NE..............................................................        2      105,060      945,540    1,050,600
NC..............................................................        3    1,918,410    1,308,842    3,227,252
OR..............................................................        3    4,102,293    1,708,129    5,810,422
PA..............................................................        2    1,439,000      507,000    1,946,000
VA..............................................................        2      796,411    1,479,048    2,275,459
WA..............................................................        2    8,445,740  ...........    8,445,740
WI..............................................................        1      185,310  ...........      185,310
                                                                 -----------------------------------------------
      Total.....................................................       39   36,801,929   20,370,367   57,172,296
----------------------------------------------------------------------------------------------------------------


            OUTSTANDING APPLICATIONS FOR FARM LABOR HOUSING, SECTION 514 LOANS AND SECTION 516 GRANTS           
----------------------------------------------------------------------------------------------------------------
                                                                   No. of                                       
                              State                               Applic.   Amt. loans  Amt. grants     Total   
----------------------------------------------------------------------------------------------------------------
CA..............................................................        2   $4,540,000  ...........   $4,540,000
CO..............................................................        4    6,461,761    1,324,342    7,786,103
DE..............................................................        1    1,913,335  ...........    1,913,335
FL..............................................................        1      993,430    1,506,510    2,499,940
GA..............................................................        1    1,404,778  ...........    1,404,778
MD..............................................................        1      203,847    1,834,062    2,038,471
MN..............................................................        1      170,000    1,530,000    1,700,000
NC..............................................................        2    1,918,410    1,308,842    3,227,252
PA..............................................................        1    1,439,000      507,000    1,946,000
WA..............................................................        2    8,445,740  ...........    8,445,740
                                                                 -----------------------------------------------
Total...........................................................       16   27,490,301    8,011,318   35,501,619
----------------------------------------------------------------------------------------------------------------
Note.--The figure for total loan and grant request does not include rehabilitation of pre-applications requests.

                   Rural Housing Preservation Grants
    Mr. Skeen. Please provide a ten-year table showing the number and 
dollar amounts of rural housing preservation grants.
    [The information follows:]

  RURAL HOUSING PRESERVATION GRANTS OBLIGATED--FISCAL YEAR 1987-FISCAL  
                                YEAR 1996                               
                         [Dollars in thousands]                         
------------------------------------------------------------------------
                                                    No. of              
                   Fiscal year                      grants      Amount  
------------------------------------------------------------------------
1987.............................................       155      $19,140
1988.............................................       156       19,140
1989.............................................       158       19,140
1990.............................................       160       19,140
1991.............................................       193       23,000
1992.............................................       190       23,000
1993.............................................       198       23,000
1994.............................................       203       23,000
1995.............................................       207       22,000
1996.............................................       160       11,000
------------------------------------------------------------------------

    Mr. Skeen. What is the total number of grants and the dollar 
amount, in total, of these grants pending as of the end of fiscal year 
1996?
    Response. The Agency does not have any pending HPG applications as 
of the end of fiscal year 1996, because funds are offered under a NOFA 
system, with applications that are not funded being returned to the 
applicant. For fiscal year 1996, $39,619,278 were requested from 437 
applicants to assist over 8,000 units. However, the Agency was only 
able to fund 151 applications using the total appropriation of 
$11,000,000 to assist 2,412 units.

                        Self-Help Housing Grants

    Mr. Skeen. Please provide a five-year table showing the number and 
dollar amount by state of self-help housing grants. What was the total 
dollar amount of pending requests at the end of fiscal year 1996?
    Response. I will provide a five year table for funding history for 
fiscal years 1992 to 1996. This table does not reflect additional 
funding to technical assistance providers that work with each of the 
self help grantees.
    At the end of FY 1996 there were $37,379,511 pending requests.
    [The information follows:]

[Page 93--The official Committee record contains additional material here.]


                     Very Low-Income Repair Grants
    Mr. Skeen. Please provide a ten-year table showing the number and 
dollar amounts of very low-income housing repair grants.
    [The information follows:]

     VERY LOW-INCOME HOUSING REPAIR GRANTS OBLIGATED FY 1987-FY 1996    
                         [Dollars in thousands]                         
------------------------------------------------------------------------
                                                       No. of           
                     Fiscal year                       grants    Amount 
------------------------------------------------------------------------
1987................................................     3623    $12,498
1988................................................     3656     12,500
1989................................................     3684     12,500
1990................................................     3664     12,642
1991................................................     3695     12,740
1992................................................     3678     12,803
1993................................................     3990     14,278
1994................................................     7354     27,487
1995................................................     6964     27,821
1996................................................     6244     25,712
------------------------------------------------------------------------

    Mr. Skeen. What is the number and dollar amounts, by state, of 
pending requests for grants on the very low-income housing repair 
program as of the end of fiscal year 1996?
    [The information follows:]

[Page 95--The official Committee record contains additional material here.]


                 Compensation for Construction Defects

    Mr. Skeen. Please provide a ten-year table showing the 
number and dollar amounts of compensation for construction 
defects payments made over the past ten years.
    [The information follows:]

           COMPENSATION FOR CONSTRUCTION DEFECTS FY 1987--1996          
                          [Dollars in thousand]                         
------------------------------------------------------------------------
                                                         No. of         
                      Fiscal year                        grants   Amount
------------------------------------------------------------------------
1987..................................................       78     $241
1988..................................................       70      258
1989..................................................       69      314
1990..................................................       37      179
1991..................................................       76      169
1992..................................................       35      193
1993..................................................       93      306
1994..................................................       99      385
1995..................................................       55      257
1996..................................................       47      295
------------------------------------------------------------------------

                    Self-Help Land Development Fund

    Mr. Skeen. Please list all the loans made under the self-
help housing land development fund during fiscal year 1996.
    Response. There were no Section 523 Site Development Loans 
made during fiscal year 1996.

                               User Fees

    Mr. Skeen. During fiscal year 1996, what user fees were 
collected for RHIF?
    Response. I will provide for the record a table that 
reflects the user fees collected for RHIF.
    [The information follows:]

FY 1996 RHIF User Fees as of 9/30/96

Conditional Commitment........................................  $343,386
Appraisal..................................................... 4,318,692
Loan Application..............................................    35,276
Credit Report RHIF............................................ 1,617,190
Credit Report Community Facility..............................         0
Guaranteed Fees RHIF..........................................13,383,892
Guaranteed Fees Community Facility............................   395,851
                    --------------------------------------------------------------
                    ____________________________________________________

  Total Collected.............................................20,094,287
                  Section 502 Rental Assistance Program
    Mr. Skeen. Please provide a five-year table showing the amount of 
the funds used, annually, for the section 502c rental assistance 
program.
    [The information follows:]

  SECTION 502C RENTAL ASSISTANCE ACTUAL OBLIGATIONS FY 1992 THROUGH FY  
                                  1996                                  
                         [Dollars in thousands]                         
------------------------------------------------------------------------
                                                                 Amount 
                                                               obligated
------------------------------------------------------------------------
Fiscal year:                                                            
    1992.....................................................        241
    1993.....................................................        522
    1994.....................................................      1,656
    1995.....................................................      4,535
    1996.....................................................      2,645
------------------------------------------------------------------------

                    Community Facility Loan Program
    Mr. Skeen. Please provide a ten-year table showing the number and 
dollar amount of community facility loans made, by fiscal year. Also 
show the breakout of direct and guaranteed loans.
    [The information follows:]

    DIRECT COMMUNITY FACILITY LOANS OBLIGATED FY 1987 THROUGH FY 1996   
                         [Dollars in thousands]                         
------------------------------------------------------------------------
                                                       Number           
                                                         of      Amount 
                                                       loans            
------------------------------------------------------------------------
Fiscal year:                                                            
    1987............................................      217    $95,700
    1988............................................      234     95,700
    1989............................................      304     95,700
    1990............................................      265     94,381
    1991............................................      273    100,000
    1992............................................      241    100,000
    1993............................................      206    100,000
    1994............................................      235    163,050
    1995............................................      274    176,071
    1996............................................      315    207,619
------------------------------------------------------------------------


      GUARANTEED COMMUNITY LOANS OBLIGATED FY 1991 THROUGH FY 1996      
                         [Dollars in thousands]                         
------------------------------------------------------------------------
                                                       Number           
                                                         of      Amount 
                                                       loans            
------------------------------------------------------------------------
    1991............................................       32    $25,000
    1992............................................       31     25,000
    1993............................................       53     52,346
    1994............................................       40     30,028
    1995............................................       40     51,092
    1996............................................       65     55,922
------------------------------------------------------------------------

    Mr. Skeen. Please provide a table showing the amount and number of 
guaranteed community facility loans and a table for direct community 
facility loans, by state, for fiscal years 1995, 1996, and 1997 to 
date.
    [The information follows:]

[Pages 98 - 100--The official Committee record contains additional material here.]


    Mr. Skeen. How many applications for direct and guaranteed 
loans were pending at the end of 1996? What is the current 
backlog of pending loans?
    Response. As of September 30, 1996 there were 283 direct 
preapplications and applications on-hand totaling $345,891,176. 
There were 29 guaranteed preapplications and applications on-
hand totaling $33,577,309.
    As of March 19, 1997 there are 301 direct preapplications 
and applications on-hand totaling $351,124,983. There are 39 
guaranteed preapplications and application on-hand totaling 
$51,885,108.
    Mr. Skeen. Did any of the community facility subsidy 
appropriated for fiscal year 1996 go unused?
    Response. The total direct community facility loan subsidy 
was utilized in FY 1996. Of the $3,555,000 guaranteed community 
facility loan subsidy, $2,661,898 was used.
    Mr. Skeen. Please provide a list of community facility 
loans that were made for medical clinics and hospitals during 
fiscal years 1995 and 1996, and so far in 1997.
    Response. Attached is a listing of community facility 
direct and guaranteed loans made to medical clinics and 
hospitals from fiscal year 1995 through fiscal year 1997 (as of 
3/19/97).


[Pages 102 - 106--The official Committee record contains additional material here.]



                 Rural Community Fire Protection Grants

    Mr. Skeen. Please provide a two-year table showing, by state, the 
number and amount for the rural community fire protection grants 
program.

[Page 108--The official Committee record contains additional material here.]


    Mr. Skeen. Can any other RHS programs be used to assist 
rural fire protection programs?
    Response. Yes, Community Facility direct and guaranteed 
loans and grants can be used to fund buildings and equipment 
for fire prevention and control and rescue and emergency 
services such as fire trucks and ambulance services. From 
fiscal year (FY) 1974 through 1996 there has been 95 direct 
loans totaling $27,495,170 funded for public safety type 
facilities. From FY 1990 through FY 1996 there has been 23 
guaranteed loans totaling $6,478,500 funded for public safety 
type facilities. The average loan amount for FY 1996 for public 
safety direct loans was $289,423, and for guaranteed was 
$570,000.
    Mr. Skeen. What other U.S. government programs fund rural 
fire protection programs and how much is available in fiscal 
year 1997?
    Response. None that we are aware of.
    Mr. Skeen. Describe how these funds are distributed.
    Response. The Rural Community Fire Protection Grant funds 
are allocated to States according to a formula based on a 
State's rural population, size, and the number of communities 
under 10,000 in population. Each State then accepts 
applications and prioritizes them to determine which projects 
will be funded.

                              HUD Transfer

    Mr. Skeen. Is the proposed transfer of $52,000,000 from HUD 
to the rental assistance program a one-year matter or does the 
Administration plan to transfer additional money?
    Response. Beginning in FY 98, the President's Budget 
proposes the conversion which will take eight years. By 2005, 
the Administration proposes all the HUD contracts will be 
converted to USDA contracts, provided that Congress approves 
the adjustments needed in the 602(b) allocations for both the 
Agriculture, Rural Development (Food and Drug Administration, 
In-House Letters), and Related Agencies and VA, HUD and 
Independent Agencies Subcommittees. For FY 1998, the 
President's Budget proposes the HUD allocation should be 
reduced by the amount it would cost to renew the Section 8 
contracts for one year, or $20 million, while the amount 
allocated for USDA 5-year rental assistance program (RAP) 
contracts would increase by $52 million. While the net budget 
authority required is greater in the near term, because 5-Year 
RAP contracts are replacing 1-year Section 8 contracts, after 
three years there are significant savings in the budget 
authority needed to maintain these units with RAP. Net savings 
from the conversion of all 46,000 units are $291 million over 
eight years (FY 98-05).
    Mr. Skeen. How much rental assistance money does HUD 
provide annually to rural rental programs?
    Response. There are 46,000 units of project based HUD Sec. 
8 in the Rural Rental Housing Program which HUD estimates is 
valued at approximately $1.2 billion over five years. 
Additional HUD rental assistance in the form of vouchers or 
certificates is maintained on RHS Field Office computers. This 
information has not been aggregated at the National level. 
However, we estimate that between 5 to 10 percent of tenants 
who do not receive project based rent subsidy from either HUD 
or RHS receive a voucher or certificate (between 7,500 and 
15,000 tenants total). This amounts to an estimated total of 
between 53,500 and 61,000 units. The estimated cost for HUD 
project based Section 8 is $27,630 for a one unit, five year 
contract compared to $14,324 for RHS rental assistance.
                   Rural Housing Assistance Programs
    Mr. Skeen. You are proposing to combine programs under a Rural 
Housing Assistance Grant. Some of these programs are allocated by 
formula, others by demand. How will individual state directors 
administer this account?
    Response. RHS and the Administration anticipate providing 
flexibility on the state level between the 504 and Housing Preservation 
grant programs. This will allow state directors to meet the specific 
needs of rural communities. The Farm Labor grant activity is 
concentrated in certain agricultural states. This program works 
directly in conjunction with the Farm Labor Loan Program. The 
Administration anticipates that the funding will be administered from 
the National Office with flexibility provided to meet the need for 
these specific areas. Additionally, the Administration is moving 
forward to replace the current funding system of ``first come-first 
serve'' to a Notice of Funding Availability (NOFA) process. The Mutual 
Self Help Grant activity has expanded tremendously in the last few 
years across the rural America. The Administration anticipates to fund 
this program out of the National Office to ensure small communities 
and/or states with little or no activity have the opportunity to 
participate.
              Multifamily Guarantee Demonstration Program
    Mr. Skeen. What were the results of the multifamily rural rental 
guarantee demonstration.
    Response. A pilot program was completed in record time in FY 1996, 
in which 49 applications were submitted through a national NOFA. Loan 
requests totaled over $62 million and represented approximately $85 
million in multifamily housing development.
    Ten applications were initially selected to allocate the $16.2 
million in available program dollars. One application was subsequently 
withdrawn in the process which resulted in nine projects obligated for 
$12,981,000 total program funds. The remaining $3,210,642 was returned 
to be obligated through the Section 515 program. The average project 
size for the ten applications is 45 units, with an average loan to 
development cost of 64%.
    Mr. Skeen. Why is rental assistance not used in this program?
    Response. The Administration elected to continue allocating all 
available rental assistance in the Direct Section 515 program to assist 
very low-income individuals. Without this deep subsidy, many families 
simply would not be able to have safe and affordable rental housing in 
rural areas.
                        Administrative Expenses
    Mr. Skeen. What was the reason for the increase in Object Class 22, 
Transportation of things, in FY 1997?
    Response. In FY 1997, the Rural Housing Service has budgeted 
$2,156,000 more than was spent in FY 1996 for transportation costs 
primarily in order to accomplish the closing of field offices and the 
necessary removal and transfer of files and equipment from those 
offices. If required, some funding may also be used for employee 
relocations.
    Mr. Skeen. What is the reason for the increase in Object Class 41, 
Grants, Subsidies and Contributions in FY `98?
    Response. A large part of the increase in Object Class 41 in FY 
1998 is due to the increase in the rental assistance program. The FY 
1998 budget will provide $52,497,000 in rental assistance required to 
replace expiring HUD section 8 contracts assisting section 515 
projects. OMB has adjusted USDA's and HUD's budget request to reflect 
this shift. In addition, an increase of $45,100,000 in budget authority 
is requested in FY 1998 for the section 502 direct single family 
housing loan program. This increase in subsidy will support a $1.0 
billion program level. The remainder of the increase reflects only 
modest increases in several other housing programs.
              Empowerment Zone and Enterprise Communities
    Mr. Skeen. Page 24-25 of the budget justification notes a change 
for an empowerment zone earmark authorized by P.L. 103-66. Has this 
change been requested before?
    Response. While this is the first year that this request has been 
included in the Rural Housing Insurance Fund Program Account, the FY 
1997 President's Budget requested an earmark of $80 million for FY 1997 
in the Rural Community Advancement Program for Empowerment Zones and 
Enterprise Communities (EZ/EC) Initiative. The FY 1997 Appropriations 
Act earmarked $1.2 million of the Rural Housing Assistance Program for 
EZ/EC. RHS will use these funds to carry out a pilot demonstration for 
EZ/EC communities, in which communities will have the flexibility to 
apply for funding that combines several program authorities.
                    Section 502 Rural Housing Loans
    Mr. Skeen. What are the criteria for qualifying for section 502 
direct and guarantee loans?
    Response.
   The Criteria for Qualifying for Section 502 Direct and Guaranteed
                           section 502 direct
    At the time of loan approval, the household's adjusted income must 
not exceed the applicable low-income limits for the area, and at 
closing, must not exceed the applicable moderate income limits for the 
area.
    The applicant must be a United States citizen or noncitizen who 
qualified as a legal alien.
    Applicants must agree to and have the ability to occupy the 
dwelling on a permanent basis.
    Applicants must have the legal capacity to incur the loan 
obligation.
    Applicants must demonstrate the following repayment ability:
    1. A very low-income applicant (less than 50% median income) is 
considered to have repayment ability when the monthly amount required 
for payment of principal, interest, taxes and insurance (PITI) does not 
exceed 29 percent of the applicant's repayment ability income, and the 
monthly amount required to pay PITI plus recurring monthly debts does 
not exceed 41 percent of the applicant's repayment income.
    2. A low-income applicant (from 50 to 80% median income) is 
considered to have repayment ability when the monthly amount required 
for payment of principal, interest, taxes and insurance (PITI) does not 
exceed 33 percent of the applicant's repayment ability income, and the 
monthly amount required to pay PITI plus recurring monthly debts does 
not exceed 41 percent of the applicant's repayment income.
    Applicants must be unable to secure the necessary credit from other 
sources on terms and conditions that the applicant could reasonably be 
expected to fulfill. Additionally, applicants must have a credit 
history that indicates reasonable ability and willingness to meet debt 
obligations.
    Payment subsidies reduce the monthly loan payment and are available 
to low and very low-income applicants based on income.
                         section 502 guaranteed
    Must have an adequate and dependable income.
    Must be a U.S. citizen or be legally admitted to the United States 
for permanent residence.
    Must have an adjusted annual family income that does not exceed 115 
percent of the median income for the area. Income includes the total 
gross income of the applicant, co-applicant, and any other adult in the 
household who will be a party to the note.
    Must have a credit history that indicates a reasonable willingness 
to meet obligations as they become due.
    Must have repayment ability based on the following ratios:
    Principal, Interest, Taxes and Insurance (PITI) divided by gross 
monthly income, must be equal to or less than 29 percent.
    Total debt ratio is less than or equal to 41 percent. The total 
debt ratio is determined by dividing all monthly debts monthly by gross 
income.
                Multi-Family Housing Guaranteed Program
    Mr. Skeen. If the guaranteed multi-family housing loan program were 
authorized, would the Department request additional funding?
    Response. Pending the results of the 1996 and 1997 Section 538 
demonstration programs and the required FY 1998 report to Congress that 
describes the demand, borrower types, the areas served, geographical 
distribution of the housing, the levels of income of the residents, the 
number of units provided, the extent to which borrowers under such 
loans have obtained other financial assistance and the extent to which 
low-income housing tax credits were utilized, the Administration is 
expected to fund the Section 538 program in 1999.
                              Credit Sales
    Mr. Skeen. Why is there a decrease in the level for credit sales of 
acquired property?
    Response. This program continues to be essential to ensuring the 
government protects its interest in inventory property. Credit sales of 
acquired property can be done through this program, as well as through 
the various loan program funds to which a property belongs. The ability 
to protect the government's interest in its inventory property will be 
provided through this funding level in conjunction with the other 
alternatives RHS has in managing inventory property.
                         Fire Protection Grants
    Mr. Skeen. Could Rural Community Fire Protection Grants be included 
in the RCAP?
    Response. The Rural Fire Protection Grants function differently 
than the other community loan and grant programs contained within RCAP. 
The funding is traditionally transferred to the Forest Service to be 
administered specifically for rural areas. RCAP programs are 
administered by Rural Development.
                       Chief Information Officer
    Mr. Skeen. What input does the Acting Chief Information Officer 
have in software development, DLOS contracts and other computer-related 
programs of the Rural Housing Service?
    Response. The USDA Chief Information Officer (CIO) has delegated 
specific authority and decision making to the Rural Development Chief 
Information Officer. These authorities have guidelines for conducting 
business related to Federal Information Processing (FIP) resources. 
When operating within those authorities and guidelines, RHS working 
with the Rural Development CIO, makes decisions on prioritizing 
software development, DLOS contracts, etc. The major activities where 
RHS must coordinate with the USDA CIO is any software, hardware, or 
telecommunications action related to the USDA Field Service Centers.
                       Rental Assistance Program
    Mr. Skeen. Under the Rental Assistance Program, the budget requests 
``such sums as may be necessary'' to liquidate debt incurred prior to 
fiscal year 1992. What is the significance of the 1992 date? What 
additional necessary sums have been spent on this program in addition 
to appropriated funds in fiscal year 1993 through 1996 and what do you 
anticipate spending in fiscal years 1997 and 1998?
    Response. In fiscal year 1992, the Rental Assistance Program 
account had transferred into it from the Rural Housing Insurance Fund 
(RHIF) $2.257 billion of unliquidated obligated balances of rental 
assistance contracts previously obligated in the RHIF between 1978 and 
1991. With the passage of the Federal Credit Reform Act of 1990, it was 
deemed improper to administer an ongoing grant program activity from 
what had become to be known as a loan liquidating account.
    The original obligations of the rental assistance contracts in the 
RHIF were made using that fund's permanent, indefinite authority to 
borrow. When actual disbursements were made pursuant to contracts in a 
given year, the account had current, indefinite appropriation language 
each year to supply the cash needed in lieu of utilizing Treasury 
borrowings.
    The language you cite is the current, indefinite language that 
allows the agency to seek funds from Treasury to provide the cash to 
liquidate a given year's needs for rental assistance disbursements 
pursuant to the old transferred balances. Since those obligations were 
supported by authority to borrow originally, this appropriation is used 
to ``liquidate debt incurred prior to fiscal year 1992.''
    This or similar language has been in place since fiscal year 1992. 
Actual year activity to date has been: FY 1992, $293 million; FY 1993, 
$300 million; FY 1994, $272 million; FY 1995, $224 million; and FY 
1996, $165 million. The projected activities for FY 1997 and FY 1998 
are estimated to be $128 million and $83 million, respectively.
                      FY 98 Demonstration Program
    Mr. Kingston. This committee for the last two years has provided 
funding for the Section 538 rural rental housing loan guarantee 
program. As we begin the process of appropriating funds for FY98, I 
have several questions about the Section 538 program, one of which will 
be why the administration did not recommend any funding for the 
program. But first, please respond to the following. How many 
applications did you receive for the initial demo program?
    Response. 49 applications were received for the Section 538 FY 96 
Demonstration program from 24 states requesting $62.5 million in 
guarantees for $85 million in multi-family housing development.
    Mr. Kingston. How many of those were complete and met the criteria 
established by the Rural Housing Service?
    Response. There were 13 proposals that met all of the requirements 
and had the appropriate documentation to address the issues of market 
and financial feasibility.
    Mr. Kingston. How many loan guarantees did you authorize and how 
many of those have closed?
    Response. There were 9 proposals in 8 states awarded conditional 
commitments. Although none of these loans have closed, three are 
expected to be completed shortly.
    Mr. Kingston. How do you evaluate the experience and ability of 
both the developer applicants and their lenders to make this program 
work and get off to a strong start?
    Response. For this pilot, RHS worked closely with HUD, Fannie Mae, 
Freddie Mac and VA approved lenders as well as State Housing Finance 
Authorities. Each lender was asked to submit their underwriting 
criteria with the loan application for review. With this demonstration 
program, we followed the standard underwriting practices of reviewing 
developers as that currently used in the Section 515 program.
    Mr. Kingston. I understand that your decision to limit the loan 
guarantee to 90% of the 90% guarantee rather than the 100% of the 90% 
maximum allowed by law resulted in developers and lenders with proven 
track records in this type of program electing not to participate in 
the first round. Please comment on this.
    Response. The maximum allowed by the 538 legislation did allow for 
a 100% guarantee of 90% project cost. However, OMB Circular 129 called 
for only 80% of the total financing to be guaranteed. For FY 96 RHS was 
authorized by OMB to allow a 90% guarantee on 90% of the project cost 
or an overall 80% guarantee.
                             FY 98 Program
    Mr. Kingston. How do you plan to use the funds appropriated for 
fiscal year?
    Response. RHS plans to do a second pilot program while we develop 
permanent regulations.
    Mr. Kingston. What changes have you made or do you plan to make in 
the program?
    Response. A legislative proposal is under consideration and RHS and 
the Administration are considering modifications including but not 
limited to an annual fee which could both reduce the subsidy rate and 
make Section 538 consistent with other federal guarantee programs. Also 
under consideration is the ability to allow prepayment on or after 25 
years, and the transfer of disposition responsibilities to the third-
party lender.
                              Other Issues
    Mr. Kingston. What are the comparative costs of the Section 515 and 
Section 538 programs? For example, how much loan authority does $1 
million in budget authority produce in each program?
    Response. The Section 515 program primarily serves very low-income 
residents with an average monthly rental payment of approximately $285 
compared to an estimated average rent in the Section 538 of $496. With 
a 1% loan for a 50 year term, the subsidy costs would naturally be much 
higher. The subsidy rate for Section 528 Demonstration program in FY 96 
was approximately 6.8 cents per dollar compared to the subsidy rate for 
the 515 program of approximately 49 cents per dollar.
    $1,000,000 BA/.068=$14,705,882 Loan Authority for 538
    $1,000,000 BA/.049=$2,040,816 Loan Authority for 515
    Mr. Kingston. Communities between 20,000 and 50,000 populations 
have historically received little housing assistance. Does it make 
sense in the Section 538 program to increase the eligible population 
limit to 50,000 which is the definition of rural in many other 
programs?
    Response. We are currently reviewing this issue as we proceed in 
the development of the RHS FY 98 Legislative package.
    Mr. Kingston. Can the Section 538 program be used effectively, 
particularly to make rents more affordable, with other available 
assistance like tax exempt bonds?
    Response. When coupled with other assistance like tax credits or 
HOME funds, rents can be made more affordable in addition to increased 
access for public bodies and nonprofits to the Section 538 program. 
With regard to tax exempt bonds, in accordance with OMB circular A-129, 
they are not allowed in conjunction with a Federal guarantee.
    Mr. Kingston. Please explain why the administration did not request 
funding for this program for FY98.
    Response. Pending the results of the 1996 and 1997 Section 538 
demonstration programs and the required FY 1998 report to Congress that 
describes the demand, borrower types, the areas served, geographical 
distribution of the housing, the levels of income of the residents, the 
number of units provided, the extent to which borrowers under such 
loans have obtained other financial assistance and the extent to which 
low-income housing tax credits were utilized, the Administration is 
expected to fund the Section 538 program in 1999.
                   Rural Business-Cooperative Service
                               Farmer Mac
    Mr. Skeen. What has RBS done with Farmer Mac in fiscal years 1996 
and 1997?
    Response. Farmer Mac purchased 17 Business and Industry Guaranteed 
Loans totaling $18,076,000 in fiscal year 1996 and as of March 18, 
1997, 8 loans totaling $5,369,000 in fiscal year 1997.
                    Rural Business Services Programs
    Mr. Skeen. How do you operate the loan programs to make sure that 
the government is not competing with private business?
    Response. The direct loan programs administered by RBS have 
provisions that require the applicant for these loans to attempt to 
obtain reasonable credit from other sources as a prerequisite to 
qualify for RBS direct loan assistance. The Business and Industry 
Guaranteed Loan Program provides for guarantees of loans made by 
private lenders; therefore, there is no competition with the private 
sector but rather a partnership between the private lender and RBS to 
bolster the credit structure in rural areas as an incentive to promote 
economic development.
                     Intermediary Relending Program
    Mr. Skeen. What is the situation with regard to delinquencies in 
the IRP program?
    Response. As of December 31, 1996, the IRP delinquency rate is less 
than 1 present, of a total outstanding balance of $195,300,889.
    Mr. Skeen. The Department issued draft regulations on the IRP in 
January 1995. What is the status of those regulations and what will 
they do?
    Response. The IRP final rule is currently under review in the 
Department. Once cleared by the Department, the final rule must be 
reviewed and cleared by OMB to publication. The revised regulations 
will clarify and revise procedures and requirements regarding a variety 
of issues. In particular, the revision will clarify the roles of the 
Government and the intermediaries, make the program more responsive to 
the needs of intermediaries and ultimate recipients, and streamline 
operating procedures.
                Appropriate Technology Transfer Program
    Mr. Skeen. What does the Appropriate Technology Transfer for Rural 
Area (ATTRA) program do that is not being done by other agencies, such 
as the Extension Service, public libraries, state agencies or 
commercial entities?
    Response. In FY 1996 alone, 35 percent of the 18,000 requests 
received were made by Extension Service personnel, agribusiness/
commercial entities, universities, state and Federal agencies, and 
other agricultural interests. The remaining 65 percent were directly 
from farmers. Not only do extension personnel call ATTRA, but they also 
refer callers to them. The number of extension callers and referrals 
has grown along with the number of annual requests to the program, 
which has quadrupled since FY 1989. se
    Often farmers who call say that some extension staff do not have 
detailed information on sustainable practices, alternative crops, 
marketing opportunities, etc. In 1994, USDA established a sustainable 
agriculture training program for extension personnel (called PDP, or 
professional development program), and ATTRA then received requests 
from all four USDA extension regions to be a training consortium 
partner, to develop materials, or to contribute materials. ATTRA's 
information has been used in regional and state training sessions, and 
publicized as a significant and unique national information source to 
the Extension Service.
    Farmers tell ATTRA time and again that they do not have ready 
access to libraries, and are not trained in information retrieval. They 
cannot afford to monitor more than 1,000 periodicals, journals and 
personal farmer and researcher contacts like ATTRA does. Farmers report 
a special appreciation for summarized information drawn from a wide 
variety of sources, including other farmers, regional research 
programs, and other USDA agencies.
    National toll-free telephone access, combined with materials 
delivered to their mailbox provides farmers with a more equitably 
available one-stop entry to current agricultural information that does 
not depend on their location, electronic capabilities, etc.
                             Subsidy Rates
    Mr. Skeen. Please provide a table which lists the subsidy rates for 
fiscal years 1996, 1997, and 1998 for all of the Rural Business-
Cooperative Service programs.
    [The information follows:]

                  RURAL BUSINESS PROGRAMS SUBSIDY RATES                 
------------------------------------------------------------------------
                                                     Fiscal years--     
           Rural business programs            --------------------------
                                                 1996     1997     1998 
------------------------------------------------------------------------
Direct Business and Industry Loans...........        0     0.51    -7.16
Guar. Business and Industry Loans............     0.92     0.93     0.97
Intermediary Relending Programs..............    59.50    46.48    48.25
Rural Economic Development Loans.............    28.48    22.93    23.91
------------------------------------------------------------------------

                               User Fees
    Mr. Skeen. During fiscal year 1996, what user fees were collected 
for RDIF accounts? Are there any other accounts where RBCS receives or 
collects user fees?
    Response. I will provide for the record a table that reflects the 
user fees collected RDIF accounts. Rural Business-Cooperative Service 
charges the general public for copies of publications and reports that 
deal with cooperatives. All monies received are credited to the 
Salaries and Expenses account as authorized by the Food Security Act of 
1985. These user fees totaled less than $10,000 in fiscal year 1996.
    [The information follows:]

Fiscal year 1996 RDIF user fees as of 9/30/96

Guaranteed Fees B&I...........................................$5,292,145
Guaranteed Fees RDIF..........................................         0
                    --------------------------------------------------------------
                    ____________________________________________________

  Total Collected.............................................$5,292,145
                   Business and Industry Loan Program
    Mr. Skeen. Please provide a ten-year table showing the annual 
appropriation and the number and dollar amounts of business and 
industry loans made each fiscal year.
    [The information follows:]

 GUARANTEED BUSINESS AND INDUSTRY LOAN PROGRAM, FISCAL YEAR 1987 THROUGH
                            FISCAL YEAR 1996                            
                         [Dollars in Thousands]                         
------------------------------------------------------------------------
                                       Supportable                      
             Fiscal year                 program      No. of     Amount 
                                          level       loans    obligated
------------------------------------------------------------------------
1987.................................     $95,700          67    $95,700
1988.................................      95,700          85     95,415
1989.................................      95,700          88     95,677
1990.................................      95,018          82     88,473
1991.................................     100,000          92     99,955
1992.................................     100,000          95     99,994
1992/1993 Natural Disaster                                              
 Supplemental........................     160,000          94     87,402
1993.................................     100,000          97    100,000
1993/1994 Disaster Supplemental......      50,000   .........  .........
1994.................................     249,670         179    249,648
1995.................................     505,319         329    423,596
1996.................................     699,673         562    638,352
------------------------------------------------------------------------

    Mr. Skeen. What percent of the B&I loans are currently delinquent 
and what was the dollar amount of the total delinquency?
    Response. As of December 31, 1996, 7.8 percent of the B&L loans 
were delinquent and the total delinquency was $86,373,173, of an 
outstanding balance of $1,279,843,444.
    Mr. Skeen. What steps are you taking to make these loans current?
    Response. We continue to place increased emphasis on training our 
Business Programs Managers to effectively monitor the B&I portfolio. 
Our Loan Servicing Division follows up on each delinquent loan on a 
quarterly basis, offering solutions to problems and discussing the 
lender's actions.
    We continue to work very closely with lenders in utilizing a 
variety of loan workout measures including, but not limited to, 
moratoriums, extensions of terms, personal guarantees, equity 
injections, subordinations, interest-rate reductions, collateral 
releases (under certain conditions), deferments of principal, re-
amortizations, and transfers and assumptions of loans to other 
qualified borrowers.
    Mr. Skeen. What is the total amount of B&I loans that have been 
written off?
    Response. Since inception of the B&I program, as of March 27, 1997, 
the total of B&I loans that have been written off is $910,458,697. I am 
providing a table for the record which shows final loss claims 
processed referenced to the fiscal year in which the loan was closed, 
and final loss claims that have been processed represent older 
guarantees issued by the Agency in the late 1970s and early 1980s.
    [The information follows:]

[Page 117--The official Committee record contains additional material here.]



    Mr. Skeen. How many loan requests, by state and dollar amount, of 
B&I loans were pending at the end of fiscal year 1996?
    Response. I will provide for the record a chart that shows the 
preapplications and applications on hand as September 30, 1996.
    [The information follows:]

[Page 119--The official Committee record contains additional material here.]


    Mr. Skeen. What is the current default rate? What recourse is 
available to USDA if borrowers default?
    Response. As of December 31, 1996, 7.8 percent of B&I loans were 
delinquent and the total delinquency was $86,373,173, of the 
$1,279,843,444 outstanding.
    Emphasis is placed on working out a loan, if possible, to ensure 
job retention in the rural communities. If a workout or transfer and 
assumption of the loan guarantee is not possible, foreclosure and 
liquidation of the collateral are recourses available to the lender/
USDA. The National Office trains program managers and provides guidance 
on servicing loans. The state office monitors all loans and discusses 
problem loans with lenders to ensure that loans receive prompt 
servicings.
                      Intermediary Relending Loans

    Mr. Skeen. What are the general terms of the loans to the 
intermediary? What is the maximum size of the loans?
    Response. The general repayment term for the intermediary is 30 
years at one percent interest with up to a 3-year deferral on 
principal. The principal is amortized over the remaining term of the 
loan. At this time, the maximum outstanding balance of IRP loans to an 
intermediary may not exceed $2 million.

                             Loans Payments

    Mr. Skeen. Do payments on loans go to the General Treasury or to a 
revolving fund back to the lender?
    Response. Payments return to the revolving fund of the RBS borrower 
on IRP loans.
                      Intermediary Relending loans

    Mr. Skeen. Were all the funds available in fiscal year 1996 
obligated? What is the current rate of obligation compared to this same 
time last year?
    Response. Yes, 47 loans for a total of $37,638,655 were obligated 
in Fiscal Year 1996. As of March 14, 1997, 13 loans totaling $10.7 
million were obligated as compared to four loans totaling $3,620 as of 
March 14, 1996.
    Mr. Skeen. Please list each of the loans made during fiscal year 
1996 for the rural development loan fund/intermediary relending 
program.
    [The information follows:]

[Pages 121 - 122--The official Committee record contains additional material here.]


    Mr. Skeen. For the record, would you provide a list, by 
state, of the number of loan requests unfunded at the end of 
fiscal year 1996.
    [The information follows:]

[Pages 124 - 125--The official Committee record contains additional material here.]


                    Rural Business Enterprise Grants

    Mr. Skeen. Please describe the operation of the Rural 
Business Enterprise Grants programs.
    Response. Rural Business Enterprise Grants (RBEG) are made 
to public bodies, nonprofit corporations, and Federally-
recognized Indian Tribal groups to finance and facilitate 
development of small and emerging private business enterprises. 
The Rural Business-Cooperative Service receives an 
appropriation for RBEG and distributes funds to Rural 
Development State Offices leaving some funds in a National 
Office reserve. The State Office reviews applications for 
eligibility, processes the applications, and allocates funds. 
If an application is eligible, the State Office may elect to 
fund it with their RBEG allocation or request funds from the 
National Office reserve if they have used their total 
allocation. If the State Office requests funding from the 
National Office, the application would be ranked and considered 
along with other projects requesting reserve funds.
    Mr. Skeen. Please provide a ten-year table showing the number and 
dollar amount of Rural Business Enterprise Grants. Also, show the 
budget request versus the appropriation for each year.
    [The information follows:]

                            RURAL BUSINESS ENTERPRISE GRANTS FY 1987 THROUGH FY 1996                            
                                             [Dollars in Thousands]                                             
----------------------------------------------------------------------------------------------------------------
                                                                       Amount   Appropriated   No. of    Amount 
                            Fiscal year                              requested     amounts     grants  obligated
----------------------------------------------------------------------------------------------------------------
1987...............................................................          0       $3,000         1     $3,000
1988...............................................................          0        6,500        27      6,500
1989...............................................................          0        6,500        36      6,500
1990...............................................................          0       16,406       129     16,406
1991...............................................................          0       20,750       155     16,406
1992...............................................................    $20,000       20,750       142     20,750
1993...............................................................     20,750       20,750       125     20,750
1994...............................................................     51,310       42,500       234     45,475
1995...............................................................     50,000       47,500       244     47,500
1996...............................................................     48,000       45,000       332     45,000
----------------------------------------------------------------------------------------------------------------

    Mr. Skeen. Please list each of the Rural Business Enterprise grants 
that were made during fiscal year 1996.
    Response. [The information follows:]

[Pages 127 - 133--The official Committee record contains additional material here.]


                   Rural Economic Development Grants

    Mr. Skeen. Describe the Rural Economic Development Grants 
program operation.
    Mr. Watkins. The Rural Economic Development Grant Program 
is a financing program that promotes projects initiated at the 
local level through Rural Utilities Service (RUS) electric and 
telephone borrowers. The program was established as a cushion 
of credit payment program whereby RUS electric and telephone 
borrowers are authorized to make voluntary advance payments on 
their loans and receive 5 percent interest on those advance 
payments. The difference in interest earnings between this 5% 
rate and the interest rate paid on balances in the RETRF 
liquidating account are available to make grants to RUS 
borrowers for the purpose of promoting rural economic 
development and creating jobs. The RUS borrowers promote 
projects based on local need. The grants are targeted to 
certain purposes that benefit rural communities. These grants 
are for purposes that are vital to the rural economy such as 
community development assistance, education and training for 
economic development, medical care, advanced telecommunications 
and computer networks for education, job training or medical 
services, infrastructure that is necessary to support 
businesses, and business incubators. The RUS borrower may, 
through a competitive application process, receive a grant to 
establish a revolving loan fund or as part of a loan and grant 
combination for a particular rural development project.
    Mr. Skeen. What are the results of this program to date?
    Response. The Rural Economic Development Grant Program has 
directly created over 5,300 jobs in rural areas using 
approximately $36 million in grant funds. These funds were 
leveraged with $124 million in private capital. In addition, 
the grants have established 107 revolving loan funds that will 
provide an ongoing source of needed financing for rural areas 
of the country.
    Mr. Skeen. How many RUS borrowers are now taking part in 
this program?
    Response. As of March 17, 1997, 101 RUS borrowers have 
received one or more grants under this program.

              Rural Economic Development Loans and Grants

    Mr. Skeen. For the record, would you please provide us a 
table showing the annual numbers of loans made in each of the 
last three years by the Rural Economic Development Loan and 
Grant programs, and what the appropriate amount of private 
sector capital was leveraged against each, and please provide a 
chart showing the purpose of each rural economic development 
loan.
    [The information follows:]

[Pages 135 - 146--The official Committee record contains additional material here.]


    Mr. Skeen. What interest rate is charged for these loans? 
What is the cost to the U.S. Government?
    Response. The inhterest rate is zero percent on the loans. 
The cost to the U.S. Government is the interest subsidy 
provided on the loan to the RUS borrowers. There have been no 
costs from loan losses in this program. The Rural Utilities 
Service (RUS) borrowers receive the loans to relend to ultimate 
recipients. The RUS borrowers repay the loans, in essence 
guarantee the loans, regardless of the outcome of the ultimate 
recipient's rural development project.

                          Technical Assistance

    Mr. Skeen. Please list for the record the number of 
requests for technical assistance and services rendered to 
cooperatives in fiscal year 1996.
    Response. Cooperative Services responded to 28 new 
technical assistance requests in fiscal year 1996. The 
recipient location and service rendered for each of these 
requests will be submitted for the record.
    [The information follows:]

           Technical Assistance and Services Rendered FY 1996

    1. Red River Meat Goat Cooperative, Bonham, Texas. Help 
organize a meat goat marketing cooperative.
    2. Michigan Milk/Independent Co-operative Milk Marketing 
Association, Novi, Michigan. Study feasibility of a joint 
venture in operations and marketing of products.
    3. Northeast Dairy Herd Improvement Association, Ithaca, 
New York. Study feasibility of joint operations with another 
cooperative.
    4. Augusta Frozen Food Co-operative, Staunton, Virginia. 
Conduct a management review.
    5. Countymark Cooperative, Inc., Indianapolis, Indiana. 
Study strategic positioning of local cooperatives.
    6. LincArt of Montana, Libby, Montana. Help organize a 
craft cooperative.
    7. Tillamook County Creamery Association, Tillamook, 
Oregon. Provide cooperative board training.
    8. Morning Fresh Food, Inc., Marana, Arizona. Help organize 
a catfish and vegetable processing cooperative.
    9. Sweet Potato Growers Association Cooperative, Winstonville, 
Mississippi. Help organize a sweet potato marketing cooperative.
    10. Organic Marketing Cooperative, Mardela Springs, Maryland. Help 
organize an organic food marketing cooperative.
    11. Dimmitt Agri Industries, Inc., Dimmitt, Texas. Assist in 
strategic planning process.
    12. Northeastern Juice Cooperative, Williamson, New York. Help 
structure a joint venture.
    13. Lee County Vegetable Cooperative, Marianna, Arkansas. Assess 
member attitudes and make recommendations to improve member relations.
    14. East Arkansas Produce Marketing Association, Moro, Arkansas. 
Provide training for board, managers and provide help in developing a 
financial and management plan.
    15. Alabama Ratite Growers Association, Cropwell, Alabama. Provide 
market research to determine feasibility of targeting selected 
international markets.
    16. Southern Grape Growers Association, Arlington, Georgia. Help 
determine feasibility of a juice plant.
    17. Southern Classic Aquaculture Enterprises, Lithonia, Georgia. 
Conduct producer survey, develop financial projection, conduct 
feasibility study, prepare business plans and conduct cooperative 
education programs.
    18. Cocopai Resource Conservation and Development Area, Inc., 
Flagstaff, Arizona. Determine feasibility of a wood marketing 
cooperative in Northern Arizona.
    19. Peninsula Algae Growers Cooperative, East Blue Hill, Maine. 
Provide organizational assistance and develop a business plan for an 
aquaculture cooperative.
    20. Arkansas Craft Guild, Mountain View, Arkansas. Provide 
cooperative board training with emphasis on strategic and long range 
planning.
    21. Nine dairy cooperatives at various sites in the United States. 
Collect, analyze and compare manufacturing cost data.
    22. Alpaca Owners and Breeders Association, Portland, Oregon. 
Provide strategic planning and management advice.
    23. National Contract Poultry Growers Association, Ruston, 
Louisiana. Conduct operational analysis and strategic planning 
sessions.
    24. Resource Conservation and Development Area, Inc., Holbrook, 
Arizona. Determine feasibility of Navajo wool marketing cooperative.
    25. Atlantic Region Co-Op, Rising Sun, Maryland. Determine 
feasibility of a ratite marketing cooperative in the region.
    26. Texas State Rural Development Office, Hondo, Texas. Develop a 
business plan for proposed beef marketing cooperative.
    27. Lake Superior Meats Cooperative, St. Paul, Minnesota. Provide 
board training and strategic planning.
    28. Various cottonseed processing cooperatives in the United 
States. Analyze cottonseed processing costs.
               National Sheep Industry Improvement Center
    Mr. Skeen. Please expand your explanation of RBS assistance to 
sheep and goat producers in light of the demise of the wool and mohair 
program.
    Response. RBS is taking the lead in establishing the National Sheep 
Industry Improvement Center as directed by the 1996 Farm Bill. We 
solicited nominations and assisted in the appointment of the Board of 
Directors for the Center. We have facilitated meetings and public 
hearings for this newly appointed Board and have operated as temporary 
staff for the Board. Regulations governing the operations of the Center 
have been drafted by RBS and will soon be published for public comment. 
Upon approval of a strategic plan the Board of Directors for this new 
Center will be able to make loans, investments, grants, and agreements 
with various parties to aid in infrastructure development to facilitate 
the marketing of sheep.

                      Business and Industry Loans

    Mr. Skeen. What is the default rate on B&I loans and what is the 
total amount of loans outstanding?
    Response. As of December 31, 1996, 7.8 percent of the B&I loans 
were delinquent and the total delinquency was $86,373,173. The total 
amount of principal outstanding as of December 31, 1996, was 
$1,414,088,676.
                             Consolidation

    Mr. Skeen. In last year's testimony you discussed the consolidation 
of RBS and other agency loan programs. What is the status of this idea?
    Response. Our proposal last year was to provide flexibility between 
the programs by implementing a Rural Performance Partnership Program 
under which some of the loan and grant program levels could be 
interchanged where local conditions indicated the need for a different 
program mix. This mechanism for greater flexibility was enacted in the 
1996 Farm Bill as the Rural Community Advancement Program (RCAP) was 
finalized after last year's appropriations hearings. Our budget 
proposal this year fully supports RCAP.

                        Funds for Rural America

    Mr. Skeen. Why did the Department not include the IRP in the Fund 
for Rural America?
    Response. Inclusion of the IRP program was seriously considered, 
but it was determined that other priorities, such as single family 
housing loan program, were more pressing.

                 Venture Capital Demonstration Program

    Mr. Skeen. Why does the Department not implement the venture 
capital demonstration program authorized in the Farm Bill?
    Response. This program was authorized under the Fiscal Year 1996 
Farm Bill. The Farm Bill provided that funding for this program is 
authorized as part of the Rural Community Advancement Program (RCAP) 
Rural Development Trust Fund; however, the Fiscal Year 1997 
Appropriations Act did not provide funding of the RCAP. Consequently, 
the venture capital program could not be funded. Regulations to 
implement the program are being developed.
    Mr. Skeen. What is the situation with the default of the ethanol 
plant in Ohio? What are the Department's estimated losses in this 
situation?
    Response. The lender, Huntington National Bank of Columbus, Ohio, 
and the Agency agreed upon a liquidation plan which was implemented. 
The machinery and equipment sold for $4.2 million. The plant is located 
on a Superfund site, making sale of the plant and property highly 
questionable. The lender will retain a mortgage on the land. The total 
loss to the Government is $9.733 million, which will be reduced in the 
event that the lender is able to sell the land. The Government is not 
in the chain of title and will not be exposed to any additional losses.

               Empowerment Zone and Enterprise Community

    Mr. Skeen. What are the criteria to be an empowerment zone or 
enterprise community?
    [The information follows:]

[Pages 150 - 152--The official Committee record contains additional material here.]


                        Rural Business Services

    Mr. Skeen. Your testimony on page 3 describes a Community 
Adjustment and Investment (CAI) program and the North American 
Development Bank (NAD) developed under NAFTA. What are these 
organizations and how does RBS interact with them?
    Response. The North American Development Bank (NADBank) was 
created as part of the NAFTA Implementation Act, Public Law 
103-182, 107 Stat 2057. It was perceived that an entity like 
NADBank would be necessary to finance or facilitate the 
financing of NAFTA-related projects in Mexico and the U.S. in 
two areas: environmental infrastructure projects within 100 
kilometers of the border if approved by the Border 
Environmental Cooperation Commission and economic adjustment 
assistance for communities adversely affected by NAFTA-related 
trade with either Mexico or Canada.
    This latter program is the Community Adjustment and 
Investment Program (CAIP), the implementation of which RBS is 
assisting. RBS is not involved in environmental infrastructure 
projects. The CAIP is a specialized economic development 
program designed to encourage the creation of jobs by the 
private sector in communities where workers become or are 
expected to be dislocated as a result of increased trade with 
Mexico or Canada, or the relocation of a company to Mexico or 
Canada, after January 1, 1994, when NAFTA took effect.
    NADBank headquarters is in San Antonio, Texas. Its Board of 
Directors is composed of three cabinet members from the U.S. 
and three from Mexico. NADBank is capitalized by funds paid 
equally by both the U.S. and Mexico. Funding from each country 
is to assist their respective communities which are negatively 
affected by NAFTA.
    Each country is allowed to use 10 percent of its NADBank 
contribution to fund its CAIP program. The U.S. Government 
established the NADBank CAIP Office to administer these funds 
and assist eligible communities.
    The CAIP Office, while a part of NADBank and subject to the Board 
of Directors' oversight, has been established with its office in Los 
Angeles, California. It is expected that, while NAFTA-elated trade 
dislocation could occur anywhere in the U.S., the majority of 
assistance will be in States which are not along the U.S.-Mexico 
border.
    Executive Order 12916, which implemented NADBank, created a CAIP 
Finance Committee composed of representatives of the Treasury 
Department (designated as the Chair), Department of Agriculture, 
Department of Housing and Urban Development, Small Business 
Administration, and other federal agencies selected by the Chair to 
provide assistance. Committee membership has not been expanded beyond 
these original participants.
    The Finance Committee exercises oversight responsibility over the 
CAIP and the Los Angeles office and determines, jointly with the CAIP 
Office, whether to ``endorse'' each proposed loan on a case-by-case 
basis. It is recognized that all loans received by the Finance 
Committee would have to be already approved by a private lender and by 
the Agency.
    The NAFTA Implementation Act also created the CAIP Advisory 
Committee (AC), composed of nine members, each appointed by the 
President and charged with advising on the proposed structure and 
guidelines for the CAIP Office operation.
    While some of the appropriated funds must go for the internal 
operations of the CAIP Office, outreach, and administrative support 
from NADBank, the CAIP Office may make both direct loans and utilize 
modified versions of existing Federal programs to leverage most CAIP 
funds into more substantial amounts to provide a meaningful level of 
assistance.
    The CAIP is still under development and the complete extent of the 
RBS role, in communities adversely impacted by NAFTA-related trade, is 
still in negotiation. At present, it is expected that RBS will assist 
the CAIP Office by providing a modified version of the Business and 
Industry (B&I) Guaranteed Loan Program. The Finance Committee focused 
on this program because of its very low subsidy rate--presently less 
than 1 percent--and its strong performance in avoiding defaults and 
losses. It is expected that RBS will operate this in addition to the 
existing program. USDA is developing a Memorandum of Understanding 
(MOU) with the Treasury Department to implement the CAIP.
    While the focus may depart somewhat from the mission of the 
standard program, it is expected that the present program will not be 
impacted. The sole funds to be used are those which the CAIP Office 
determines it will transfer to RBS to administer.

                        Rural Business Services

    Mr. Skeen. Why does RBS propose to spend $2 million on research on 
cooperatives?
    Response. Farm operators and other rural residents are facing many 
structural adjustment problems, including adapting to reduced federal 
price supports for wool and mohair, as well as mild and basic 
commodities. Research is necessary to assist boards of directors and 
managers to position their organizations to better compete under these 
circumstances and to deal with the global nature of markets. For 
example, many livestock producers are asking how they can participate 
in value-added activity or niche markets to improve their incomes. 
Other rural residents are examining self-help means such as cooperative 
water, telecommunications, health care and housing cooperatives to 
address their needs. By generating practical information on these 
issues, Rural Development staff are better able to provide technical 
advisory assistance, education and advice to rural clients and policy 
makers that enable them to make better informed decisions.
    Mr. Skeen. Why does RBS need an additional $2.1 million for 
``technical assistance to encourage entrepreneurship and business 
development?'' If loan and grant programs are already oversubscribed, 
is it practical to solicit more applications for funding?
    Response. As an economic development strategy, USDA has relied upon 
1890 institutions, to provide technical assistance to rural Americans 
whose communities have continued to be poor and impoverished for well 
over sixty (60) years. In most cases the reasons for the continued 
impoverishment has been the lack of access to Federal Programs 
including those in USDA. To begin to correct these inequities in 
program delivery, in 1988, USDA made a commitment to strengthen ties 
with the 1890 Land Grant Institutions and Tuskegee University for the 
purpose of implementing various USDA programs on their campuses and 
attracting more minorities to agriculture and forestry industries and 
participation in all USDA programs. The Rural Business Cooperative 
Services agency is a major part of this commitment.
    Through Cooperative agreements, Rural Business partners with 1890 
institutions to create entrepreneurial environments in surrounding 
communities that are consistently under represented in service delivery 
and continuously poor and impoverished. Our goal is to assist under 
served rural communities build entrepreneurial activities and 
sustainable communities by utilizing the expertise inherent in the 1890 
institutions.
    With regards to the issue of the oversubscription of rural business 
programs, this is a clear indication of the tremendous demand for our 
business programs in rural communities and the inadequate resources 
available to meet this demand. The use of the 1890 institutions will 
allow us to reach those individuals and businesses excluded in the past 
from proper participation. There is a tremendous need for rural 
business programs in rural communities because of the years of 
continued neglect. The only way to correct the inequities is to make 
program resources available to all communities and all Americans.
    Mr. Skeen. What is the difference between an enterprise and a 
champion community?
    Response. Champion communities are unsuccessful applicants for EZ/
EC designation, receiving no benefits other than additional points in 
awarding program loan and grants because they have developed local 
plans.
                                Training

    Mr. Skeen. Does the proposed increase in training for RBS employees 
described on page 25-38 of the budget presentation apply only to RBS 
employees or to all of the Rural Development Service?
    Response. It applies to all Rural Development employees. The 900 
employees in the field who are being redistributed as a result of the 
centralized single family housing loan servicing initiative are 
employees of the Rural Development mission area. These employees will 
carry out all programs of the three Rural Development agencies. In 
order to learn how to administer the business program aspect of their 
jobs, these employees will need to be trained in RBS functions which 
are new to them. The funds requested will be used to train employees in 
providing assistance to Champion Communities and Empowerment Zones and 
Enterprise Communities, outreach and support for cooperative 
development activities, loan application assistance and processing for 
business programs, and other community development services.
  Alternative Agricultural Research and Commercialization Corporation
    Mr. Skeen. What changes in the AARC program have resulted after the 
Farm Bill change from a center to a corporation?
    Response. The change in the structure of AARC from a center to a 
corporation has given AARC greater credibility with the for-profit 
financial community, from which AARC is seeking follow-on investments 
for companies in our portfolio. Also, the AARC Board of Directors was 
expanded to include the Under Secretary for Rural Development and the 
Under Secretary for Research, Education and Economics. The Farm Bill 
also included language stating that Federal agencies may establish set-
asides and preferences for the procurement of products from AARC-
invested companies.
    Mr. Skeen. How much has AARC invested since its beginning and how 
much has been returned on the investments?
    Response. Since 1993, AARC's first full year of operation, $28 
million has been invested, matched by $93 million from private 
partners. Repayments are not usually expected from companies until the 
fifth or sixth year due to the negative cash flow typically associated 
with start-up businesses. The AARC Corporation has already received 
payments from seven companies totaling $112,000, which has been 
deposited into the revolving fund, thereby validating the quality of 
the investment decisions of the AARC Board of Directors. Repayments are 
placed in the Corporation's revolving fund for reinvestment in other 
private companies. This repayment provision may offer the Corporation 
the opportunity to eventually be self-financing.
    Mr. Skeen. Please explain the increase in Object Class 25.2, Other 
Services.
    [The information follows:]

  ALTERNATIVE AGRICULTURAL RESEARCH AND COMMERCIALIZATION--OBJECT CLASS 
                                BREAKOUT                                
                        [Estimated 1997 and 1998]                       
------------------------------------------------------------------------
                                                     1997        1998   
                                                   estimate    estimate 
------------------------------------------------------------------------
25.2 Other services:                                                    
    Reimburseable Agreements....................     $20,000     $60,000
    Greenbook Charges...........................      35,000      40,000
    Design Charges..............................      10,000      25,000
    Video Services..............................      10,000      10,000
    Workshop-Conferences........................      20,000      20,000
    Venture Capital Marketing...................           0           0
    Product Marketing...........................           0           0
    Other Services\1\...........................       5,000      20,000
                                                 -----------------------
      Total.....................................     100,000         325
------------------------------------------------------------------------
\1\ Other Services such as: ADP service, repair, alteration or          
  maintenance of equipment, telephone calls, security, training, parking
  fees, bridge tolls, baggage, etc.                                     

    The AARC Corporation is unique to the Federal government. It is the 
only government corporation which makes equity investments in private 
companies. The corporation owns stock in about 60 small businesses 
located in rural areas. AARC funds are used to help these firms 
commercialize value added industrial uses for agricultural materials 
and animal by-products. The AARC investment serves as seed capital and 
is a catalyst to attract between three and four times as much initial 
funding from the private sector.
    However, many firms continue to need large infusions of follow-on 
financing if they are to continue to grow and hopefully become 
profitable. When these firms become profitable they redeem their stock 
held by the AARC Corporation. They pay back the Federal investment plus 
a risk charge. These funds are then placed in a revolving fund and 
reinvested in other companies.
    With AARC's limited budget, we are not in the position to continue 
to make repeated follow on equity investments. However, there are many 
venture capital firms who are willing to take the risk because, as they 
have told us, ``the AARC Corporation has put the USDA stamp of approval 
on these companies.''
    We believe it is a wise use of resources to promote these AARC 
funded companies to private sector venture capital firms. By helping 
these companies attract this additional private investment, we are 
protecting the taxpayer investment and stretching scarce Federal 
resources. We are arranging for AARC companies to make presentations to 
venture capital forums and are constantly supporting the efforts of 
AARC companies to attract venture capital. In addition to forums, we 
produce marketing materials for our companies and host a site on the 
internet linked to venture capital groups.
    Part of the agreement the AARC Corporation has with each of the 
companies in its portfolio, is to assist the companies in marketing 
their products. Again, we are protecting the government's investment by 
doing all we can to help increase the sales of our business partners. 
This means attending trade shows and other forums on behalf of AARC 
clients and producing marketing materials.
    One of the areas we are most intensely pursuing is the vast Federal 
market. Many of the products the AARC Corporation companies produce are 
ideal for consumption by the Federal government--if Federal officials 
know about them. We are informing Federal procurement officials about 
the availability of these products. Additionally, the 1996 Farm Bill 
contained language which authorizes Federal procurement officials to 
give preference or set-asides to AARC products. The sooner these 
companies become profitable through increased sales, the sooner the 
Federal government will get its money back.
    Mr. Skeen. How much additional funding has AARC received from the 
Fund for Rural America FY '97?
    Response. The AARC Corporation received $500,000. The AARC Board of 
Directors, with the concurrence of Secretary Glickman, has required 
that these funds be used for the marketing of AARC-invested companies 
and their products.
    Mr. Skeen. What are the payback arrangements to AARC with private 
sector partners?
    Response. Payback arrangements vary with each company. Basically, 
they take one of three forms: (1) an equity position with the company 
that provides for an exit strategy within 6 to 8 years, (2) a 
percentage of sales, or (3) a combination of both. All options provide 
for a considerable premium to be paid, in appreciation for the 
Corporation's risk.
    Mr. Skeen. Please update the list of AARC projects beginning on 
page 578 of last year's hearing record.
    [The information follows:]

[Pages 157 - 160--The official Committee record contains additional material here.]


              Transportation Technical Assistance Program

    Mr. Skeen. Does the Department intend to continue the 
transportation technical assistance program on a national 
basis?
    Response. Yes, the Department intends to accept 
preapplications for the transportation technical assistance 
program on a national basis. A solicitation notice for this 
program was published in the Federal Register on February 13, 
1997. The deadline for preapplications to be received by the 
Department's Rural Development State Office is May 1, 1997. 
Eligible entities nationwide may apply.

[Pages 162 - 416--The official Committee record contains additional material here.]


                                          Wednesday, March 5, 1997.

                 FOOD, NUTRITION, AND CONSUMER SERVICES

                               WITNESSES

MARY ANN KEEFFE, ACTING UNDER SECRETARY
WILLIAM E. LUDWIG, ADMINISTRATOR
GEORGE A. BRALEY, ASSOCIATE ADMINISTRATOR
YVETTE S. JACKSON, DEPUTY ADMINISTRATOR, FOOD STAMP PROGRAM
STEPHEN DEWHURST, BUDGET OFFICER, DEPARTMENT OF AGRICULTURE

    Mr. Skeen.  The committee will come to order.
    Today we have the Food, Nutrition and Consumer Service 
which administers all of the food assistance programs at USDA. 
Mary Ann Keeffe is the Acting Under Secretary.
    Ms. Keeffe, let's get started with you. If you will, 
introduce the others with you and proceed any way that you care 
to.
    Ms. Keeffe.  Thank you very much.
    Mr. Skeen.  Condense and abstract it a little if you will.
    Ms. Keeffe.  Absolutely. I've prepared in advance.
    Mr. Skeen.  Thank you.
    Ms. Keeffe.  Thank you, Mr. Chairman.
    It's my pleasure to appear before you today to discuss the 
President's fiscal year 1998 Budget Request for USDA's food and 
nutrition programs. As you know, I am the Acting Under 
Secretary for Food, Nutrition and Consumer Services, 
responsible for the Nation's domestic food assistance programs.
    I'm accompanied today by Mr. William E. Ludwig, the 
Administrator of the Food and Consumer Service; Mr. George A. 
Braley, the Associate Administrator of the Food and Consumer 
Service; Ms. Yvette S. Jackson, the Deputy Administrator for 
the Food Stamp Program; and Mr. Stephen Dewhurst, the Director 
of the Department's Office of Budget and Program Analysis.
    Mr. Chairman, I've had the opportunity to meet briefly with 
you, as well as several other Members of the Committee. And I 
know there is a great deal of interest in the budget request 
this year for our programs. This being the case, I would like 
to make a very brief statement which will then allow ample time 
for a full discussion of the issues.
    Mr. Skeen.  Very good.
    Ms. Keeffe.  I am speaking to you at a time of historic 
change in the manner in which government operates. This 
Administration came into office four years ago with a number of 
goals for our nutrition programs.
    These goals included improving the nutrition and health of 
children by updating the nutrition standards of the School 
Lunch and Breakfast Programs; making benefits available for all 
who qualify and wish to participate in the Special Supplemental 
Nutrition Program for Women, Infants and Children; reinventing 
government by working in partnership with the States to 
increase program efficiency and reduce abuse; implementing 
anti-fraud legislation to increase Food Stamp Program 
integrity; and ending welfare as we know it by replacing it 
with a system that offers hope, demands responsibility, and 
rewards work.
    We have been quite successful in meeting these goals. The 
mission of the food assistance programs is to improve the 
nutritional well being of children and low income families by 
helping them make healthy food choices, providing access to 
nutritious foods for the people who need it, and supporting the 
agricultural economy.
    Our 16 nutrition assistance programs, which include the 
Food Stamp Program, Child Nutrition, WIC, Commodity Programs, 
Nutrition Education and Training, and our Center For Nutrition 
Policy and Promotion work individually and in concert with one 
another to alleviate food insecurity and promote healthier 
diets for children and low income adults, as well as improve 
nutritional knowledge among all Americans.
    Taken together, these programs provide a vitally important 
nutrition safety net for Americans. Mr. Chairman, I would like 
to take this opportunity to thank you, as well as the Members 
of the subcommittee, for your support of these important 
programs. With your support we have had remarkable success in 
alleviating hunger and promoting healthier diets.
    We have made dramatic changes which will have a lasting 
effect on the recipients of our programs. Our fiscal year 1998 
request of almost $40 billion reflects our continuing efforts 
to provide that important nutritional safety net and to provide 
necessary oversight of these programs. I have submitted 
detailed testimony for the record. In addition, the testimony 
of the Administrator, Mr. Ludwig, presents more of the 
technical aspects of our request has also been submitted. 
Additional information on the Center For Nutrition Policy and 
Promotion also has been provided.
    As I'm sure you noted from my introduction, of those at the 
table with me, I have brought an experienced panel of 
colleagues who are well-versed in the operations of the 
programs. We will be happy to respond to any questions.
    [Clerk's note.--Ms. Keeffe's written testimony appears on 
pages 692 through 708. Mr. Ludwig's written testimony appears 
on pages 709 through 725. Dr. Kennedy's written testimony 
appears on pages 726 through 729. Ms. Keffee's and Mr. Ludwig's 
biographical sketches appear on pages 730 through 731. The Food 
and Consumer Service explanatory statement appears on pages 732 
through 933.

                 trafficking in the food stamp program

    Mr. Skeen.  Thank you very much. You do have a very capable 
staff. And I want to compliment you and them as well because it 
makes for a real good team. You can't ever under estimate the 
value of the staff around here because there is great 
institutional memory that resides in that kind of operation. We 
appreciate that.
    I'd like to clarify a misconception about the ability of 
EBT to save money in the Food Stamp Program. First, would you 
describe the difference between erroneous benefits and Food 
Stamp trafficking and the amount of losses associated with 
each? Second, tell how EBT will impact both.
    Ms. Keeffe.  Well, yes. That's a very good point, Mr. 
Chairman. I think it is sometimes misunderstood. Trafficking 
really means that recipients have converted their benefit to 
cash or something else other than the food for which it was 
intended. It should not be confused necessarily as being a loss 
of money because it doesn't mean that the recipients weren't 
entitled to that benefit. They simply have abused the use of it 
and are not using it for the purpose for which we intended it.
    Mr. Skeen.  Does that still constitute fraud?
    Ms. Keeffe.  Yes. Absolutely.
    Mr. Skeen.  Just so that we can get clear on the point.
    Ms. Keeffe.  The estimate that we have from an FCS study 
involving trafficking is $815 million. The other area in terms 
of fraud in the Food Stamp Program involves the error rate. 
This is an area, Mr. Chairman, where we have been very 
aggressive with what we've been doing in recent years. We have 
been reducing our error rate. If I could ask the Deputy 
Administrator of the Food Stamp Program to give some of the 
details on this, I think you'll be impressed.

                              error rates

    Mr. Skeen.  Is this error involved in the qualification?
    Ms. Keeffe.  Yes. That's correct.
    Mr. Skeen.  I think that deserves a good explanation and I 
would appreciate it.
    Ms. Jackson.  The error rates for fiscal years 1992 and 
1993 had increased. In response, the Food and Consumer Service 
really undertook a number of initiatives to work very closely 
with States to make payment accuracy a higher priority, 
particularly at the top management levels within State 
government.
    As a result of our efforts, we have seen significant 
improvement in the error rates. The error rate for 1993 was 
10.81 percent. That was reduced to 10.32 percent in fiscal year 
1994. And for 1995 it was reduced further down to 9.72 percent. 
That improvement resulted in a savings to taxpayers of about 
$350 million and in fewer errors committed by states.
    Mr. Skeen.  Just a little over one percent total change or 
a little bit under one percent?
    Ms. Jackson.  One percentage point translates to about a 
ten percent improvement in performance.
    Mr. Skeen.  That's right. I see.
    Ms. Keeffe.  As a word of further clarification on this, 
because you brought up the question of EBT with it, Mr. 
Chairman, the errors are losses of benefits whereas trafficking 
is a misuse of benefits. EBT really gets at trafficking. We are 
able through that system to get back to that individual who 
received the benefit in a way that simply is lost when you're 
dealing with coupons.
    Mr. Skeen.  It gives you a better certification trail.
    Ms. Keeffe. Yes, very much.
    Mr. Skeen.  A paper trail, if you will.
    Ms. Keeffe.  Yes. It just doesn't exist with coupons.

                          fraud investigations

    Mr. Skeen.  With the other, does your agency have the 
authority to transfer Food Stamp funds to the Inspector General 
to conduct fraud investigations?
    Ms. Jackson.  No. The Inspector General's Office has its 
own budget to conduct Food Stamp investigations. As a matter of 
fact, according to the Inspector General's Office, about half 
of their investigatory efforts are devoted to the Food Stamp 
Program, both investigations as well as audits.
    Mr. Skeen.  There are no transferral funds from your agency 
to the Inspector General?
    Ms. Jackson.  No. There are not.
    Mr. Skeen.  Welcome, Marcy. It is good to see you. It is 
good to have you back.
    Ms. Kaptur.  Thank you, Mr. Chairman.
    Mr. Skeen.  So, there is no exchange of funds for the 
investigating body then at all coming out of your funding in 
particular.
    Ms. Jackson.  No. There is not.
    Mr. Skeen.  They operate on their own?
    Ms. Jackson.  They operate under their own budget. We have 
a memorandum of agreement with them that allows us to operate 
our own compliance branch that does non-criminal 
investigations.

                              tefap costs

    Mr. Skeen.  The Welfare Reform Bill mandated that $100 
million in Food Stamp funding be used to purchase commodities 
for TEFAP. Does your request include $45 million for 
administrative cost to carry out this mandate? It seems that 
the appropriation for TEFAP's administrative expenses is always 
about $40 million annually no matter what the value of the 
commodities distributed are.
    One, would you give us some idea how these costs are 
calculated?
    Ms. Jackson.  The $100 million that you're referring to--
that is a one-time windfall in fiscal year 1997. It is the 
amount we received through the Welfare Reform legislation.
    Mr. Skeen.  I see. That was it; just a one time----
    Mr. Braley.  Mr. Chairman, if I could?
    Mr. Skeen.  Yes.
    Mr. Braley.  The authority there is for the purchase of 
food. The administrative costs, which remain in the 
discretionary portion of the budget, are at $45 million. That 
has stayed in that range for a number of years. Those funds 
support distribution of other commodities in addition to 
Federal commodities. They support the infrastructure in the 
States and allow them to to provide food for soup kitchens and 
food banks beyond the commodities that we provide, which have 
varied quite a bit from year-to-year.
    Mr. Skeen.  It stays at about the $40 million range.
    Mr. Braley.  That's correct. Essentially, it's been in that 
range for several years.
    Mr. Skeen.  How are the costs calculated in that TEFAP 
program?
    Mr. Braley.  Let me go a little bit beyond what I had said 
before and talk about those funds if I could.
    Mr. Skeen.  All right.
    Mr. Braley.  The States have the option when they're 
offered their share of administrative funds to reduce the 
amount they take as administrative funds and request additional 
food. In fact, in fiscal year 1996, States took less 
administrative funds to provide more food for needy people in 
their States. I believe it was in the low $30 million range.
    Mr. Skeen.  That was my next question. So, it was about $30 
million that you actually used.
    Mr. Braley.  Right. A little over $30 million was used in 
fiscal year 1996 for administrative costs, but States had the 
option of using up to $40 million. With some additional foods 
in distribution from that $100 million, I think some of the 
States anticipate that their administrative costs may be higher 
this year.

                              commodities

    Mr. Skeen.  I see. What was the level of the commodities 
this program supported?
    Mr. Braley.  This year it's $100 million in commodity 
purchases.
    Ms. Keeffe.  It is $145 million total in fiscal year 1997.
    Mr. Skeen. Of which $100 million is mandatory funding.
    Ms. Keeffe. Yes.
    Mr. Skeen. So, you used that just about every year?
    Ms. Keeffe. No. We have not had the $100 million in 
mandatory commodity purchases before the Welfare Reform bill.

                                gleaning

    Mr. Skeen. Welfare reform, okay. It wasn't user fees or 
something? I'm only kidding. The Secretary has announced the 
Food Recovery or Gleaning Initiative--the Gleaning and 
Authorized Use of the TEFAP funds.
    Ms. Keeffe. The administrative funds certainly would help 
in that effort.
    Mr. Skeen. The administration of the program.
    Ms. Keeffe. Gleaning is not a program per se, it is a 
voluntary effort on the part of people around the country. 
Foods are provided to soup kitchens and food banks. They're 
very welcome there of course. The administrative funding 
through TEFAP helps them to deal with them.
    Mr. Skeen. Define what you mean by gleaning.
    Ms. Keeffe. Gleaning can be in several different ways. 
Gleaning from the field literally going back to the Biblical 
concept of it. Food that is left behind, wasn't harvested; very 
often potatoes, corn, perfectly edible, but has been left there 
and would just be plowed under otherwise. And it's also food 
recovery, which can be done from supermarkets, from terminal 
docks, as well as from restaurants. So, there are many concepts 
to this.
    Mr. Skeen. Well, it's a very interesting process.
    Ms. Keeffe. It is. Of course, it cannot replace our network 
of programs.
    Mr. Skeen. No. Otherwise it would go to waste.
    Ms. Keeffe. Right. The amount of food wasted is shocking 
and it's perfectly good food.
    Mr. Skeen. It is.
    Ms. Keeffe. We feel very fortunate for the Bill Emerson 
Good Samaritan law which has opened this to a lot of areas 
where people were afraid to donate excess food in the past.
    Mr. Skeen. Thank you. Thank you for your answers. Ms. 
Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman.
    Mr. Skeen. Welcome back.
    Ms. Kaptur. Thank you very much. Thank you for being in 
command and control.
    Mr. Skeen. We've missed you.
    Ms. Kaptur. I've missed you, believe me. I didn't have a 
chance to speak with Acting Under Secretary Keeffe before the 
hearing. I know we've missed telephone calls. It's a pleasure 
to welcome you before the committee.
    Ms. Keeffe. Thank you very much, Congresswoman.

                    affirmative purchasing programs

    Ms. Kaptur. I do have a few questions. I'm wondering, in 
the various Food Stamp and commodity purchase programs that the 
Department undertakes, whether you have any type of affirmative 
purchasing program aimed at cooperatives where the Department 
would do as much as possible to encourage that public dollars 
spent for food are in fact received to the greatest extent 
possible by those who produce those commodities?
    Ms. Keeffe. Well, I think the Farmers' Market Program in 
the WIC Program is an example where we directly involve the 
local farmers and make people aware of the benefits of this 
kind of food who otherwise wouldn't think about it.
    It opens up a new network. We have had in our 
Administration a wonderfully successful operation of the 
Commodity Improvement Council within the Department. It brings 
together the three entities that purchase the food for our 
programs.
    The Agricultural Marketing Service and the Farm Service 
Agency Network have cooperated with the Food and Consumer 
Service to better realize what our needs are and what our 
agricultural needs are. We have a Small Resource Farmer 
Initiative in the Agricultural Marketing Service which is doing 
a pilot program now in the schools where schools purchase 
directly from Farmers' Market. This pilot is in the 
southeastern part of the country now. We're hoping to learn 
from that and to be able to expand it.
    The Department had a wonderful effort late last summer and 
early fall of a Farmers Market at USDA that was open to not 
only all of the staff of the Department, but also to a staff of 
federal agencies nearby and mall visitors. We had four or five 
of these in the course of late summer and early fall that were 
very well attended and farmers came from as far as New Jersey, 
Pennsylvania, and North Carolina to Washington to sell their 
products.
    Ms. Kaptur.  I think the Department is developing a greater 
sensitivity on this. But you know one of the big needs our 
farmers have, at least in our region of the country and I know 
this is true elsewhere, is access to market; bringing product 
to market. So often the processing plants control market 
access.
    And unless there are co-ops or some other mechanism through 
which farmers can bring product, it becomes difficult for them 
to meet the market. They are doorkeepers in the market. And 
some of those doorkeepers are very powerful interests. And if 
there is any point of view I would like to try to share with 
you today is to encourage you from a policy standpoint to think 
about ways in which the substantial dollars that the people of 
the United States spend on purchasing food could more directly 
go to producers themselves, through entities that they might 
set-up. They may exist in farmers markets, but there might be 
others.
    There has been a little more emphasis on co-ops at the 
Department. I know I've talked with Under Secretary Long about 
this in trying to help farmers have their own chain of access 
to the market. I look at Ohio and the egg producers situation 
and what's happening there. Some of our poultry producers; 
whether it's actions you could take that could influence what 
states do in their respective purchases, or to purchase 
directly from producers, either directly or through entities 
that they would set-up.
    I guess that's the point of view I'm just wishing to share. 
I had mentioned it several years in a row now. And I think then 
we directly benefit those who over the years have not bought up 
the chain of production. And we're going back to where we meet 
the original mission of the Department, you know, to also have 
a healthy farm sector in this country because the best economic 
development for rural communities is to have farmers who are 
earning a decent income.
    Despite some of the market difficulties that they might 
face, the same is true with pork production. If you look at 
access issues there on where you don't have slaughter houses in 
certain parts of the country and producers are locked out of 
the market unless they can transport product to some point 
quite a distance away. So, I think in your own way, even though 
you may not see this as part of the mission of your division, 
nonetheless I think you could really have a big impact on 
supporting the farm sector on the way in which you encourage 
purchasing patterns through the work that is done with WIC, 
your commodity programs, and to some extent--I wish I could 
figure out a magic answer on the Food Stamp Program.
    But I just wanted to share that point of view with you.
    I've been pleased with the success on farmers' markets. 
People are coming up to me and telling me about this in 
different parts of the country. So, I know we're having 
farmers; just regular people out there getting their hands 
dirty out there in the fields. That makes me feel good. I've 
just got to believe there is more we can do there. I would hope 
you would think about what I've said and maybe take it back in 
your deliberations within the Department.
    Ms. Keeffe. I think the schools are a potential there. I 
think you will be interested in the findings of this pilot 
because it is in fact a cooperative in the southeast of farmers 
that's going to be involved. I think what we learn could 
potentially expand this.
    Schools need to think of different ways of purchasing than 
they have in the past in order to deal directly with 
cooperatives or farmers. But I think the potential is there.

                     food stamps and welfare reform

    Ms. Kaptur. May I turn to the issue of Food Stamps just for 
a second? With the substantial welfare reform that we were able 
to pass, I have to say that one of the bellwether markers that 
I'm going to be looking at is the use of the Food Stamp 
Program.
    I know I've met with several of our feeding kitchens and 
churches in my area seeing if welfare reform as it moves 
forward is working in the way that it's supposed to. And if 
people are being hurt inadvertently, we ought to understand 
why. To the extent people can be moved off the welfare roles, 
obtain training and a job, that's the direction we all want to 
move. We know sometimes it isn't so simple.
    And some of the individuals end up falling off track onto 
some type of private charitable feeding program for a variety 
of reasons. They may have health problems, mental or physical 
problems and other reasons that they can't quite function in 
the market place.
    And I guess one of my questions is how you viewed the role 
of the United States Department of Agriculture to be sensitive 
to the impact on the Food Stamp Program of welfare reform or do 
you view that as part of the role of the Department of Health 
and Human Services to assess the impact of welfare reform 
through the window of the Food Stamp Program and its usage in 
different parts of the country?
    Ms. Keeffe. Well, I think we're very sensitive to this. And 
I think that we've recognized and the President has put forward 
legislation; particularly in the Food Stamp area of where there 
are particular problems in the welfare reform legislation that 
need to be addressed with this.
    You weren't here in the beginning, Congresswoman, when I 
introduced the panel, but the Deputy Administrator for the Food 
Stamp Program, Ms. Yvette Jackson, is here with me. Research is 
an area that comes into this and Ms. Jackson might want to 
elaborate.
    Ms. Jackson. We're very concerned with the potential impact 
of welfare reform on Food Stamp recipients. It is our 
responsibility as a Department to monitor the potential impact 
on food security of people who are moving from welfare to work.
    We can basically gauge what the impacts are, both positive 
impacts as well as areas that may have unintended consequences. 
The difficulty we have is that we really don't have the 
research dollars that allow us to do a full-scale evaluation of 
the impacts of welfare reform.
    We plan to collaborate with the Department of Health and 
Human Services as they also move forward in evaluating welfare 
reform. We want to ensure that food security is one of the 
issues that also gets measured.
    To the extent that we can independently or working with 
others also conduct evaluations, we fully intend to do so. But 
we do feel that it is critical in meeting our mission of 
providing food to people who need it that we follow welfare 
reform very closely and measure its impacts on our population.
    Ms. Kaptur. I have no further questions, Mr. Chairman. 
Maybe come back to me.
    Mr. Skeen. Thank you, Ms. Kaptur. Mr. Walsh.

                    nutrition education and training

    Mr. Walsh. Thank you, Mr. Chairman. Thank you all for your 
testimony. I'm sorry I wasn't here to hear it. We had votes and 
another meeting. It's just one of those days. So, I apologize 
for missing. My questions are redundant. I apologize for that.
    There are a couple of things I did want to ask about. The 
first one is a question on the Nutrition, Education and 
Training Program. This program was converted from a mandatory 
to a discretionary program. And at the end of last year it was 
done after we had already completed our budget. So, no money 
was appropriated.
    The Department did reprogram $3.5 million for the NET 
Program. You also called for changes to increase the program 
back to $10 million in this year's budget. Could you comment on 
this program and its relevance and importance to your missions?
    Ms. Keeffe. I'd be happy to. That is a very accurate 
picture of what happened to the Nutrition Education and 
Training Program funding which has been part of the Child 
Nutrition Programs for many years and has been very successful.
    We were able to put forward and transfer from Team 
Nutrition funds $3.75 million. We are very hopeful that we 
could receive the rest of the money for that $10 million which 
is what the budget request had been last year. Our request for 
this year is the same, for $10 million. I think you know that 
in 1995 we moved forward with the School Meals Initiative For 
Healthy Children which upgraded the nutrition standards in our 
school meals.
    As part of that, we have had a very aggressive Nutrition 
Education and Training Program geared to the children who are 
the recipients of the program, as well as a lot of training and 
technical assistance for school food service providers. The 
school year, 1996-1997, is the first year where schools have to 
meet the standards.
    The NET money and the people who work in the program are an 
integral part of providing that important nutrition education. 
We know that by simply upgrading nutrition standards and 
providing healthy meals will not automatically get children to 
eat them. We feel that concurrent education is very important.
    The people that have been working in the NET area are 
professionals and have been working with schools and in the 
community for some time. NET works in conjunction with our Team 
Nutrition. The money that is provided for Team Nutrition allows 
us to use the materials for that NET network. These are very 
important funds for us to achieve the success of really having 
children eating healthier meals.

  the special supplemental nutrition program for women, infants, and 
                                children

    Mr. Walsh. Good answer. I'd like to ask a number of 
questions about the WIC Program. Obviously this is one of the 
most popular programs that we have in our bill. And I'm sure I 
speak for everyone on this subcommittee, although I don't 
normally do that, when I say that it has strong support here.
    However, we have a responsibility to oversee the 
administration on all programs, including even the popular 
ones. So, as far as the WIC Program is concerned, there is a 
rather large request, a $378 million increase in WIC funding. 
That coupled with the hundreds of millions of dollars in user 
fees that we're being asked to include in our budget that have 
not been authorized by the Authorizing Committee, in food 
safety, food service inspection and FDA.
    We have a big hole in our budget; a big one. And my mother 
would say, well, you wanted the job, right, so don't complain. 
It is a challenge to us. What I wanted to do was ask you a 
couple of questions about the criteria and the possibility of 
tightening eligibility.I've been told and maybe you could 
verify this, that about 47 percent of the kids born in the country 
today qualify for WIC. Is that correct?
    Ms. Keeffe.  Yes. That's probably close. Forty-five percent 
is the figure that I use.
    Mr. Walsh.  Forty-five percent. Well, what percent of the 
kids born in the country today actually are receiving WIC 
assistance? Do you know what that figure might be? Forty-five 
percent qualify for WIC. Does that mean that 45 percent 
actually receive WIC assistance?
    Mr. Braley.  It would be approaching that figure because 
the rate of participation among infants that are eligible is 
very high. It approaches 100 percent of those eligible. As 
children get older and the family's economic circumstances 
improve, the coverage rate, the percentage of older children 
that are on the program is lower. But in infancy, it is around 
or just about 40 percent.
    Mr. Walsh.  So, the first or second year of life, close to 
45 percent of the kids in this country are receiving WIC 
assistance. That's a phenomenal number; phenomenal. I don't 
know if that was what was intended when we first passed the 
Act, that close to half of the kids in the country would 
qualify for a federal food assistance program.
    Can you tell us what the upper income threshold criteria is 
for a family of four to qualify for WIC?
    Mr. Braley.  It's in the neighborhood for a family of four 
of about $28,000 per year. It's 185 percent of the income for 
the poverty guidelines.
    Mr. Walsh.  So, if a couple with two kids has an income of 
under $28,000 they qualify for WIC?
    Mr. Braley. That is correct, however, there are nutritional 
risk criteria that must be met in order for a woman or her 
children to qualify for the program.
    Mr. Walsh.  Just because you make under $28,000 doesn't 
mean you're going to qualify for WIC.
    Mr. Braley.  That is correct. About two million people who 
would qualify on the basis of income we estimate would not meet 
the nutritional risk criteria. So, there is a two-part standard 
to the WIC Program. It's not just an income criteria but a 
nutritional risk criteria as well.
    Mr. Walsh.  What about a married couple having just their 
first child?
    Mr. Braley.  What would the income limit be?
    Mr. Walsh.  Yes.
    Mr. Braley.  Let me see if the folks with us have that 
handy. I'm not sure that I do. It should be in the neighborhood 
of about $24,000.
    Mr. Walsh.  And how about a single mother, unwed or 
whatever.
    Mr. Braley.  Just under $20,000; currently it is $19,166.
    Mr. Walsh.  Okay. Have those always been the levels or do 
they escalate with inflation?
    Mr. Braley.  They go up with inflation. The level has been 
at 185 percent of poverty.
    Mr. Walsh.  One hundred eighty-five percent of poverty.
    Mr. Braley.  For many years now, but it has been indexed.
    Mr. Walsh.  Do we know, at the beginning of the WIC 
Program, what percent of America's kids were qualifying for WIC 
assistance?
    Mr. Braley.  The percent of participation obviously has 
gone up as the program has grown. I don't know that we have 
figures. We can check and try to provide that for the record as 
far back as we can.
    [The information follows:]

[Page 428--The official Committee record contains additional material here.]


    Mr. Walsh.  When the percent of poverty level was changed, 
obviously that would bring more people under the encatchment. 
What was it before it was 185?
    Mr. Braley.  The 185 has been tied to the reduced price 
rate for school lunches for many years. That rate has been at 
185 for a long time. There was a time when it was actually a 
higher level. It was actually 175 percent but there was a 
standard deduction. We went through, in the late '70s, a period 
of fluctuation and what the income limits were that affected 
both Child Nutrition and WIC. But it's been 185 for many years.
    Mr. Walsh.  So, you use the same tag for school lunches as 
for WIC.
    Mr. Braley.  For school lunch reduced price meals. That's 
correct. And if you're eligible for Medicaid you're also 
eligible for WIC benefits as well. One of the reasons for the 
higher standard in WIC is that it is an important program both 
from the standpoint of providing nutrition services, actually 
providing food, but it also brings people into the health care 
system. It gets children immunized at a higher rate, it reduces 
iron deficiency anemia and that sort of thing. So, I think WIC 
needs to be viewed as an adjunct to health care.
    Mr. Walsh.  There is no question of its value to our 
society. We've traditionally had a very severe problem with 
infant mortality which is obviously directly related to low 
birth weight. And we've made a community-wide effort to resolve 
that. I think we're doing a good job, and WIC is a real 
important component of that.
    The last question is that we have over the years had a 
carryover situation where we carry over hundreds of millions of 
dollars in WIC. Interestingly last year we said that if there 
is a carry over in WIC we would take that money and put it into 
rural development, again because of this pressure on 
discretionary funds.
    We had to shorten rural development. So, we said, well, if 
there is extra money laying around in WIC, we will move it into 
there. All of a sudden the carryover disappeared. How do you 
explain that?
    Ms. Keeffe.  Well, we'd like to think that it's good 
management.
    Mr. Walsh.  Was it the fact that you were going to lose 
those funds so you just spent it?
    Ms. Keeffe. No. As a matter of fact, funds were transferred 
last year. We have really encouraged States to not have large 
carry-over funds, generally, as we do in all our programs. I 
think this is the nature of the business.
    Anyone that's run an organization and you have a situation 
with a grant as you do in WIC. And you can't over spend. As 
that money filters down from the Federal government to the 
State, to the local WIC agency, to the individual WIC clinic, 
everybody estimates as closely as they can. But at the end of 
the fiscal year sometimes there is a balance.
    What you have, the $100 million figure, is really the 
likely number that we're going to see with good management. 
This represents about 2.5 percent of the total.
    Mr. Walsh.  Okay. I'll leave it at that, Mr. Chairman. 
Thank you very much.
    Mr. Skeen.  Mr. Kingston.

                    breastfeeding and infant formula

    Mr. Kingston.  Thank you, Mr. Chairman. Madam Secretary, in 
your background, what is better for children, mother's breast 
milk, natural milk, or infant formula?
    Ms. Keeffe.  Well, in terms of the WIC Program, we 
encourage breastfeeding and provide a lot of information on it. 
We support a lot of staff working individually with people.
    Mr. Kingston.  I'm glad you do and you're ahead of me in my 
thinking and my questioning. So, let me get back. Is 
breastfeeding better than formula?
    Ms. Keeffe.  I'm not a doctor, but from everything that I 
have read and been told, my understanding is that breastfeeding 
is the best for infants.
    Mr. Kingston.  I'm not a doctor either and you and I are 
reading the same literature. Let me see if I can get Messrs. 
Ludwig, Braley and Dewhurst to agree with that.
    Mr. Braley.  That's something I would agree with, Mr. 
Kingston.
    Mr. Ludwig. Likewise, I am not a doctor, but from the 
literature that I have read and the people with whom I have 
talked, we certainly want to encourage breast feeding.
    Mr. Dewhurst. It seems to be unanimous. I would agree.
    Mr. Kingston. We all agree, and let's all say also now this 
assumes the mothers will give them breast milk because there 
are many cases in WIC where the mother actually isn't the one 
raising the child; a grandmother is. But we are encouraging 
breast milk because it is nutritionally better than formula. 
And that being the case why are States given a rebate for 
enrolling more people on formula than following your example of 
encouraging people to get on breast milk?
    Ms. Keeffe.  Well, speaking as a woman and mother of four 
children, I'll put that hat on. Having two daughters myself and 
women friends, not everyone is able to breastfeed for a variety 
of reasons. I think a lot of the people participating in the 
program need to work and they might find it difficult.
    It just simply isn't practical or possible in all cases. A 
part of WIC, as I'm sure you know, is one-on-one nutrition 
counseling when a lot of information is given to the 
participant on the positive effects of breastfeeding and 
participants are encouraged to breastfeed.
    And we, within the program, have a breastfeeding promotion 
coalition. It's a big part of our program. This group meets 
regularly to advance this. When the mother chooses not to 
breastfeed or there is an inability to lactate, the child needs 
to be on infant formula.
    Mr. Kingston. Are you familiar with LaLeche League?
    Ms. Keeffe.  Yes.
    Mr. Kingston.  Are they involved in this process at all?
    Ms. Keeffe.  Yes. They're on the consortium. They 
participate.
    Mr. Kingston. We have four children in our family. And lots 
of friends with children at this nursing age. Not everybody can 
breastfeed. It should not be something that if you don't do it 
you're less of a woman or whatever. So, we're all in agreement 
on that.
    What percentage is that though of people who--surely you've 
broken it down to people who maybe just aren't physically able 
to or aren't leaning in that direction.
    Ms. Keeffe. I am not aware that we have that statistic.
    Mr. Kingston.  Do you think we should do that? The reason 
why I say this is because the goal of this program is healthy 
children. That's what the whole thing is about. And here we, 
through the Grace of God, have an ability to make them 
healthier than anything that man has ever made in a laboratory 
and we're putting that lab product in front of God's mom 
product.
    It would appear to me that we should maybe explore this a 
little bit more and break it down. Acknowledging that there is 
a group that is physically able to, but unwilling to for other 
reasons of their own, and some of those are very legitimate 
reasons. Some are probably selfish reasons.
    Could we break that down? Could this committee direct you 
to try to find that information? And if we did, would that be 
useful in terms of doing it? Because it disturbs me if we've 
got a program that pays states $1.2 billion in rebates for 
pushing this lab product over mother's breast milk.
    Ms. Keeffe.  I don't think we are. I think that's a very 
nice side effect, you know, from the infant formula business. 
Rebates bring more money into the program, allowing more 
participants. But we have an enhanced food package for the 
nursing mother so that their special needs are considered. They 
get extra items in their food package that the non-nursing 
mother doesn't.
    I think there is a tremendous amount of encouragement to 
breast feed. I've visited countless numbers of WIC clinics 
around the country and I sit in on counseling sessions. So, I 
know that this is being routinely done. But I think we want to 
be a little cautious in the privacy area as to what information 
you should be getting from a customer.
    Mr. Kingston.  Just one second; if you will suspend. I know 
that customers generally are buying something. These are people 
who are receiving something. So, it's really not a customer 
relationship here. And, you know, in as much as taxpayers are 
paying $4 billion for this program, taxpayers certainly need to 
know a little bit more than the next person who is out there on 
the street who is not receiving any of the taxpayers largesse 
to raise their own child.
    So, I guess what I would say to you is, I think it would be 
in the benefit of the child and the benefit of society, and 
certainly the benefit of the taxpayers for us to determine what 
the breakdown of this is and why people are choosing lab made 
formula over mother's milk so that we can encourage and make 
sure that it's abundantly clear that mother's milk is a 
superior product to man-made laboratory formula.
    And in my few years on this committee and before on the 
Agriculture Committee, I'm not sure that message is truly 
getting out there for whatever reason. And it might be because 
of a bureaucratic built-in incentive to push the lab product or 
it might be because of other very legitimatereasons. I don't 
think we should be afraid to explore this in other words.
    I think we ought to be very honest about this and say, you 
know, let's determine. Maybe there is a problem here. Maybe 
there is not. But what often happens when I ask witnesses these 
questions, there seems to be almost a little rigidness to have 
an open dialogue and get the root of it and see what is really 
going on. And that's the direction that I would like to see. I 
see you've got some notes there.
    Ms. Keeffe. Staff has handed me a note here and we in fact, 
will have a study out this summer on infant feeding practices. 
It will tell us if mothers are breastfeeding. It won't address 
the issue of whether they can or cannot breastfeed, but we will 
at least clarify the numbers breastfeeding.
    Mr. Kingston. I know my time is up. I'm just really 
surprised at LaLeche, for example, doesn't have that statistic 
out there already. And, you know, don't know why they don't 
have it because I know they're so adamant on pushing it.
    Ms. Keeffe. Well, they have been. Of course, they're an 
important part of this consortium that we work with in 
breastfeeding promotion. So, as I said, breastfeeding is an 
important component of the program and we're all in agreement 
with you in terms of promoting it.
    Mr. Kingston. Well, thank you. I appreciate it.
    Ms. Keeffe. You're welcome.
    Mr. Kingston. Thank you, Mr. Chairman.
    Mr. Skeen. Okay. We're going to dub this the Kingston 
Survey. And Mr. Nethercutt, by his leave; and Ms. Kaptur has 
another meeting to go to. If you have another question, we'll 
go to Ms. Kaptur.

                     direct purchasing from farmers

    Ms. Kaptur. I have a very brief question, Mr. Chairman. And 
I thank you and Mr. Nethercutt as well. I have to testify at 
International Relations and they are waiting for me. I wanted 
to also ask Ms. Keeffe if the Department might be able to 
summarize for me in letter form in reply to the record the 
efforts that the Food, Nutrition and Consumer Services is 
making to encourage direct purchases that benefit farmers 
directly in the various programs that you administer, including 
the WIC Program.
    Since we're talking about high protein foods I would be 
very interested in how you would answer that line of 
questioning.
    [The information follows:]

Hon. Marcy Kaptur,
Ranking Democratic Member, Committee on Appropriations, Subcommittee on 
        Agriculture, Rural Development, Food and Drug Administration 
        and Related Agencies, U.S. House of Representatives, 
        Washington, DC.
    Dear Congresswoman Kaptur: This letter is in response to your 
request made during the House Appropriations Subcommittee on 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies' hearing of March 5, 1997. You requested that the 
Department of Agriculture (USDA) summarize in letter form (for the 
record) efforts that the Food, Nutrition, and Consumer Services (FNCS) 
is making to encourage direct purchases that benefit farmers directly 
in the various programs that we administer, including the Special 
Supplemental Nutrition Program for Women, Infants and Children (WIC).
    The strength of FNCS' nutrition programs lies in their dual 
objectives of improving the Nation's health by providing food to people 
who need it, and of strengthening the agricultural economy. By linking 
America's agricultural abundance to the health and well-being of 
millions, the nutrition programs form a bridge between agriculture and 
health.
    FNCS encourages purchases that will directly benefit local farmers 
through its Farmers Market Nutrition Program (FMNP). This program, 
which is associated with the WIC Program, was created to provide fresh, 
nutritious, unprepared foods (such as fruits and vegetables) from 
farmers' markets to women, infants and children who are nutritionally 
at risk, and to expand the awareness and use of farmers' markets by 
consumers. This successful program also complements the efforts and 
advances the objectives of USDA's Team Nutrition initiative. Through 
FMNP, coupons are issued that can be used to buy produce from farmers 
who have been authorized by the State to accept them. State agencies 
have the authority to limit sales to specific foods that are locally 
grown in order to encourage FMNP participants and other farmers' market 
customers to support farmers in their own States.
    The program is authorized in 27 States, the District of Columbia, 
and 3 Indian Tribal Organizations. During fiscal year (FY) 1995, about 
1 million recipients received FMNP benefits. It is funded through a 
set-aside provided for in the WIC Program appropriations. In FY 1996, 
$6.75 million of the federally appropriated WIC funds were earmarked 
for FMNP State agencies.
    Another effort underway to directly benefit farmers is a pilot 
project administered by the Agricultural Marketing Service. The pilot 
project will attempt to link producers directly with school districts 
to supply local agricultural commodities. ``Opportunities for Limited 
Resource Producers to Supply a School Lunch Program with Local 
Agricultural Products'' is moving forward and is expected to be running 
for the 1997-98 school year. The Georgia State Department of 
Agriculture, Fort Valley State College, and the Federation of Southern 
Cooperatives are currently working together on different aspects of the 
project which will be tested in a southern Georgia school district.
    I hope that this information fulfills your request. If you would 
like more detailed program information, please let me know.
            Sincerely,
                                            Mary Ann Keefe,
 Acting Under Secretary for Food, Nutrition, and Consumer Services.

                        supplemental wic funding

    Ms. Kaptur. On the WIC Program, finally, let me ask you, 
the Administration is requesting the supplemental funding of 
over $100 million. And the question I have relates to the 
specific number of people who may be dropped from the program 
if that supplemental funding is not enacted.
    On what basis do you decide what the numbers served are 
today and in the future? How trustworthy are those numbers? And 
so, when we look at an amount of money of that magnitude, how 
do we know that the numbers that we're looking at give us some 
security that they are real numbers?
    Over 7 million people currently served by the program. And 
we seem to have reached some sort of a leveling off over the 
last few years, 7.1 million, 7.2 million.
    Ms. Keeffe. Well, the program actually has been growing. 
Our target goal for several years now has been 7.5 million 
participants, a number we feel represents the full funding 
level. Where we've run into difficulty and have needed to 
request the supplemental is that growth this past year was 
greater than anticipated from our studies. We worked from 
estimates of the entire WIC population who would be eligible 
based both on income levels as well as nutritional needs, then 
estimated what percentage of that population is likely to use 
WIC. We have been operating for many years on the basis that 
it's 80 percent of the eligible population that would indeed 
seek WIC. That didn't happen at the end of the last fiscal year 
when the numbers increased beyond the level that we expected 
into this fiscal year. We are fearful that in order to stay 
within the funds available, States will have to drop a 
considerable number of participants for the rest of this year. 
We recently heard back from our States where we solicited 
information as to how they thought they would fare. I'm going 
to ask Mr. Braley to speak more directly to that issue.
    Mr. Braley. Congresswoman Kaptur, we reached the 
participation level of over 7.4 million people at the end of 
last fiscal year and at the beginning of fiscal year 1997. 
Based on the available information that we have in terms of how 
much it costs to serve a WIC participant and a reduced carry 
over level from what States had experienced in recent years, we 
reduced the carry over that had been at $145 million from 1996 
to 1997 to $100 million for next year, recognizing that States 
have to economize this year. The available resources would 
support an average of just over 7.2 million participants for 
the whole year.
    So, if we started the year way above 7.2, at 7.4 million, 
we're going to have to finish considerably below that in order 
to average 7.2 million participants. The States, in their 
response to the survey that Ms. Keeffe referenced, indicated 
higher participation levels. They said they could maintain 
participation levels at about 7.4 million. To do so, they 
greatly reduced the amount of carryover below the levels that 
they've had at any time in their history.
    Even in tight years in the past they've had about a 2.5 
percent carryover amount. In conversations with Congressman 
Walsh and with Ms. Keeffe, we talked about the fact that we 
have 86 state agencies, including a number of Indian Tribal 
Organizations that cannot withstand the consequences of over 
spending.
    So, they have to be a little bit conservative in spending 
patterns and make sure they don't over spend. We've taken what 
we think is a very conservative assumption about how much would 
be carried over from 1997 to 1998. Based on that, we believe we 
need a supplemental in order for participation not to decline 
down to roughly 7 million participants. This would be a decline 
in the neighborhood of 400,000 from where we started the fiscal 
year.
    Ms. Kaptur. I appreciate that. I have to tell you, some of 
these numbers are pretty confusing to me; carryover funds. What 
percent? How many do we have in the program now if you do this? 
It's just, I have to tell you, a little murky in my own mind. 
And I read some of the briefing papers and all.
    Having visited several WIC sites in my own community, 
that's the one real experience I have with WIC and they do a 
fantastic job, but I just have this gut instinct that WIC could 
be better managed. Maybe it's increased in its caseload too 
much too fast. I don't know. Maybe it's just Ohio.
    I have no studies to look at. But my sense is that we've 
been doing a good job of increasing participation in the 
program. It is a very well-received program. It is a needed 
program. But the rate of increase has caused me to doubt the 
best management possible at the state and local level.
    And also it has caused me to doubt how many more people are 
really out there that need to be enrolled because there has 
been pretty aggressive outreach. So, I do have some questions 
in my mind about this. And I thought I'd be fairly frank about 
that and open. I know people will provide me with good 
information that can help me clarify these thoughts in my mind.
    Thank you, Mr. Chairman. I just wanted to get that on the 
record.
    Mr. Skeen. Thank you. I think the questions are a little 
confusing, but we're going to get it unraveled. That's the 
reason we have these hearings. Mr. Nethercutt.

                    wic management and full funding

    Mr. Nethercutt. Thank you, Mr. Chairman. Ladies and 
Gentlemen, welcome. I'm sorry I missed the prior testimony due 
to a conflict with my being in a another subcommittee as we all 
have to do.
    I want to follow-up on Ms. Kaptur's comments. I have the 
same concerns. When you look at the numbers, and I've tried to 
look at the numbers and make sense out of them. You're seeking 
a supplemental this year. It appears, at least based on the 
information I have, that the program participation has dropped 
by 135,000 people between September and December.
    But yet you are seeking more funding. You know, the economy 
has not been better. If you listen to the President it is a low 
unemployment rate and so forth, low inflation. My sense is that 
this program was never designed initially to be a full 
participation program for every newborn child or pregnant mom 
in America.
    It was structured in such a way that it would meet a target 
need and meet a need that was not being fulfilled. I take into 
account Mr. Kingston's comments about the natural feeding of 
children, and I'm puzzled. Please clarify this. I really want 
to know.
    I've gone to my own WIC office and I'm very impressed with 
the education of the people there and their enthusiasm for the 
outreach that they've done. It seems to me, frankly, with all 
due respect to federal agency people, that there is this fear 
that if you don't ask and get more money you'regoing to lose 
some.
    Recognizing that we may not be able to meet the nutrition 
needs through WIC of all of the children in America, I guess 
I'm concerned about not only what I perceive to be a seeking of 
all the funds you can possibly get because of a fear that 
you're going to lose some funding in the program.
    Second, there is a management issue to be considered. 
Third, are we really sure about how much we need to spend on 
this program? Is the supplemental request really a reflection 
of an unmet need, or is this a desire to maintain the high 
levels of spending on the program?
    Ms. Keeffe.  I do not believe that we are fueling this 
needlessly ourselves just to continue program growth. First of 
all, we use estimates of the WIC eligible population which are 
not just based on financial need. It's also very important to 
remember that the people participating in WIC have to meet 
nutritional risk criteria. That population of fully eligibles 
is 9.2 million people. We're saying that for a fully-funded 
program, 7.5 million would be the number of participants. This 
has been the number now for several years. Certainly in our 
Administration it has been our target to reach full funding so 
that the people who are eligible and are likely to want to 
participate in the program may do so. So, we have been moving 
steadily and requesting funding accordingly each year to 
progress toward that targeted number, recognizing that we have 
to support an infrastructure to accommodate the growth in the 
program.
    I think everything shows that we are on target. I don't 
think the numbers that we're seeing deviate from that 7.5 
million goal.
    Since we have been continually striving for that goal, we 
feel it would be harmful to suddenly have to find ourselves not 
putting additional people into the program when the space 
becomes available; or worse yet, to have to move people off the 
program if we don't have the money this fiscal year to serve 
the number of actual participants.
    Mr. Nethercutt.  But you dropped 135,000 people from the 
WIC rolls the last few months of last year.
    Ms. Keeffe.  The December drop which is the one I think 
that you see there, you can look over, back many, many years 
and see that's a cyclical kind of thing. For whatever reason 
that particular month there is always a substantial drop in 
participation.
    Mr. Nethercutt.  You've never met 7.5 million people 
though, have you?
    Ms. Keeffe.  We've been very close.
    Mr. Nethercutt.  But you've never met 7.5 million.
    Ms. Keeffe.  We are hoping to achieve that, given the money 
to do that. The fact that we have been over 7.4 million which 
is what's put us in the problem for this fiscal year, I don't 
think there is much question that, yes, in October, 7.47 
million was the participation. I don't think there is much 
doubt that we'll hit that 7.5 target in 1998.
    Mr. Walsh.  George, would you yield for just a second on 
this specific point?
    Mr. Nethercutt.  Certainly; sure.
    Mr. Walsh.  The figures that I have in front of me are that 
the 7.5 or a little over 7.4 million, 7.45 million 
participants, which was full participation level, was based on 
the 1994 Census which was 9.4 million WIC eligible. The 1995 
Census said there were 9.2 million who were WIC eligible.
    Using the historical percentages why wouldn't you then 
calculate down based on the 1995 figures which were 200,000 
people fewer than the 1994? What's magic about 7.5 if it 
doesn't match up with historical figures?
    Mr. Braley.  The 7.5 million figure was derived from the 
1994 Bureau of the Census Current Population Survey. The 1995 
estimate, if you applied the exact same methodology, would 
yield a lower estimate. The eligibles came down slightly to 9.2 
million.
    What we're observing is of those fully eligible, a higher 
percentage are availing themselves of the program; coming in 
seeking the benefits. Remember, there is still 9.2 million 
eligible for the program. And we, in our estimating 
historically, had an arbitrary percentage at about, when the 
program was fully-funded, 80 percent of those people would 
participate. We've now seen in Food Stamp, for example, that 
families with young children participate at a rate of about 90 
percent. We now think that 80 percent is not valid. Plus the 
fact that we've actually observed participation of 7.47 million 
as the Acting Under Secretary just indicated.
    So, we've already been well above a number that would have 
come out of that. We know the participants are out there. We 
know that many are fully eligible. We're seeing participation 
rates somewhat higher than had been forecast in the previous 
estimates.
    Mr. Walsh.  Well, I'll yield back, George. Thank you.
    Mr. Nethercutt.  Thank you. I want to pursue this a little 
bit, Mr. Chairman. I hope I don't get in trouble taking too 
much time.
    There was a directive sent out. Food and Consumer Services 
sent a notice to states having to do with the allocation of WIC 
funds for this year. Last fall, they put out a second notice 
which gave the states a revised allocation. That's Mr. 
Dewhurst's testimony from just a few days ago, which makes me 
concerned about this fear that you're going to lose some money 
so, therefore, you're going to up the participation.
    Just assume that there is some validity to this concern. I 
won't pin you down, but that's my sense. It can be argued that 
way. I looked at the testimony that Ms. Haas testified here in 
this subcommittee a year ago, for fiscal year 1997 
appropriations. She said regarding WIC eligibles, ``There is no 
question that the improving economy which showed there was a 
reduction of eligibles by 7 percent between 1993 and 1994.'' I 
think that with the improving economy that this Administration 
has seen, we would have a reduction in the number of eligibles 
that would have reflected what full funding should be.
    I think that it is important to see it all in that kind of 
context. I think we and OMB have tried as hard as possible to 
determine the actual number of eligibles for WIC because it is 
a continuing changing circumstance that very much reflects the 
changing economy. ``It is very difficult to estimate the actual 
number of eligibles for WIC, trying to fine tune the program,'' 
she goes on to say.
    My point is we have a better economy as Ms. Haas has 
stated. We have a reduction of eligibles by 7 percent between 
1993 and 1994. You've got a reduction in eligibles at least 
last year. Now suddenly, and again I say this respectfully to 
you, that there is a threat that we may lose somemoney in this 
program, given the budget constraints that we have.
    It seems there is a conscious effort on the part of the 
agency to say, let's have more eligibles and get more people, 
anybody we can involved in this program, so that we won't lose 
money. Am I over stating it? That's probably a leading question 
that you'd be answering.
    Ms. Keeffe.  Are you questioning that these people qualify 
for the program?
    Mr. Nethercutt.  I'm questioning the wisdom of the program 
to reach out so hard and so strongly and so, you know, really 
kind of contrary to the statement of the Director a year ago. 
When the economy is improving, the population needing WIC 
apparently is declining, at least in some respects last year.
    I guess I'm really going to be real frank with you. I have 
this sense that if you don't ask for more money you feel you 
are going to lose it. And therefore, as a federal agency, I'm 
trying to make sure this committee has some evidence before it 
that is trying to justify your existence. You know, the greater 
existence.
    Ms. Keeffe.  I understand. The only thing I can say is that 
we are basing the request on the need that is there, people who 
are currently participating in the program, what the monthly 
numbers look like over the past year.
    Since that hearing a year ago, we need to keep in mind that 
Welfare Reform passed. I think that perhaps people are looking 
at other types of supplemental programs for their needs for 
which they qualify of course, but that there could be more 
people drawn to WIC as a result of that.
    Mr. Nethercutt.  Okay. I won't belabor it. But I think I 
speak a little bit for this subcommittee. We're very concerned 
about the numbers and how they add up, and the administration 
and the management. I think that's important, especially in 
light of a huge increase requested this year. I think we're 
struggling to make all of the money go around to the best 
places it can.
    And I looked at the eligibility levels, at least in my 
state. They're high for a family of eight which is a lot of 
people. I happen to be a family of four, but a family of eight 
is a lot of people. Approximately a $50,000 income makes some 
people body eligible for participation in WIC; $48,000 
something.
    Again, we're just trying to use good judgment. I'm not 
trying to defend turf or get into political problems. But on 
the other hand, just do what's right with the taxpayers' 
dollars and meet needs that are legitimate and verifiable.
    I'd be happy to have you respond, but I want to make sure I 
ask the question about Mr. Dewhurst's testimony, I think you 
mentioned that you would be happy to provide the committee with 
copies of the two directives that the Secretary spoke about 
last week. If we can get those, I'd appreciate it.
    [The information follows:]


[Pages 439 - 453--The official Committee record contains additional material here.]



                          financial management

    Mr. Nethercutt.  A year ago your predecessor sat here and 
we had quite a discussion, and the Agriculture Committee did 
later about the Inspector General's report relative to the 
management of FCS and the financial uncertainty, I guess, with 
which the program was administered.
    I looked again at the Inspector General's report of July 
1996 indicating that there should be, and expected to be, 
timely changes imposed to improve the financial management 
structure of the agency. Have you implemented those controls 
that have been recommended by the IG and hired adequate staff 
to make sure that accurate and reliable information is given to 
the Inspector General?
    Ms. Keeffe.  Yes. We absolutely have. I think we have 
worked at the Food and Consumer Service aggressively on this 
issue. We took it to heart immediately. We have new staff 
headed by a new Deputy Administrator who comes with the kinds 
of qualifications to lead that area. We got a good audit in the 
last fiscal year. And we're hopeful that we're beyond our bad 
times and are really moving in the right direction. I think the 
Inspector General has recognized that as well and thinks that 
we have come light years from where we had been at that time. 
We've done a lot of training of staff to help in just general 
financial areas where people need to be more conscious and 
aware of the kinds of business practices that the federal 
government needs to be about. We have been very aggressive in 
this area. I don't know whether the Administrator for the 
Agency, Mr. Ludwig, might like to comment.
    Mr. Ludwig.  Yes. I'd just like to add a little bit on to 
what the Acting Under Secretary said. We also have created a 
data integrity branch within Financial Management. I 
authorized, after our last hearing Congressman Nethercutt, the 
hiring of our new staff positions in Financial Management.
    We also hired a CGFA as Director of Accounting. As Mary Ann 
mentioned, we did bring in a new CFO, a man that I highly 
believe in. He has a very good background. He comes from the 
Department of Energy. I think we have come a very long way 
although we still have a way to go. It is still one of our top 
priorities.
    Mr. Nethercutt.  Good, sir. Thank you, Mr. Chairman. I'll 
pass for the moment on further questions.
    Mr. Skeen.  Thank you, sir. And if you have someone from 
the Defense Department, you have a real pro when it comes to 
budgeting. Those folks are real artists. I don't mean in 
painting.

                    nutrition education and training

    Let me ask you a question about Nutrition, Education and 
Training. I see you were able to reprogram $3.7 million from 
the Team Nutrition. Why can't you reprogram the remaining $6.3 
million from within the Child Nutrition Program? Is that 
possible?
    Ms. Keeffe.  We looked at it very carefully at that time, 
Mr. Chairman. We were looking at the whole $10 million figure. 
And what we came up with in terms of $3.75 million was the 
money available.
    Mr. Skeen.  Team Nutrition; that was funding that you could 
move around.
    Ms. Keeffe.  Yes, because a lot of that money was earmarked 
to go to States for training. It was done in the form of grants 
to States.
    Mr. Skeen.  You weren't committed on it?
    Ms. Keeffe.  We basically took $3.75 million from the 
Nutrition Education portion of Team Nutrition.
    Mr. Skeen.  Your Child Nutrition account is what, $8 
billion?
    Ms. Keeffe.  About $8 billion, yes.
    Mr. Skeen.  About $8 billion. Pretty good fund.
    Mr. Braley.  Mr. Chairman, if I could comment a little 
further. Most of that money is mandatory and we're not allowed 
to reprogram between mandatory and discretionary money.
    Mr. Skeen.  We're very familiar with programming. We're the 
discretionary body here.
    Mr. Braley.  I understand that.
    Mr. Skeen.  Those mandates like to walk all over the 
discretionary. But understand the game.
    Mr. Braley.  I do, sir.
    Mr. Skeen.  Mr. Walsh. Do you have a question?
    Mr. Walsh.  I do have a question, Mr. Chairman. On that 
point, is there a law that says that you cannot reprogram that 
money? Is there any directive that says you can't reprogram 
that money?
    Mr. Braley.  No. It's not a legal matter. It is a matter of 
internal executive branch rules.
    Mr. Walsh.  So, you could do it.
    Mr. Skeen.  At their discretion.
    Mr. Braley.  I could not do it because I would not be able 
to get approval.
    Mr. Walsh.  Who could do it?
    Mr. Braley.  The President, OMB, or the folks who make the 
rule.
    Mr. Walsh.  The Secretary?
    Mr. Braley.  No. The Secretary could not do it 
unilaterally.
    Mr. Walsh.  So, the President could do it.
    Mr. Braley.  Sure.
    Mr. Skeen.  The Vice President can't? OMB can't?
    Mr. Walsh.  He has a different job description. Back to WIC 
for just a second. Basically, what you've requested is a 10 
percent increase in WIC funding; correct? A $3.7 billion 
program with a $378 million increase is ten percent by most 
people's accounting.
    And yet you've got a 2 percent reduction in your base of 
eligibles. Is that not also correct?
    Mr. Braley.  That's in the ballpark. Again, we still have 
more eligibles than participants.
    Mr. Walsh.  Wait a minute. This is not a ballpark. Well, 
what are the estimates of WIC eligibles based on?
    Mr. Braley.  Current population survey.
    Mr. Walsh.  Right. But isn't this the methodology that 
you've consistently used over the years.
    Mr. Braley.  We've used that methodology. We've actually 
modified it a few times over the years, but for the last couple 
of years, that's the methodology we've used.
    Mr. Walsh.  Well, then has your methodology to get these 
WIC eligible population estimates changed or not changed? Your 
full participation methodology has changed. But these estimates 
to determine WIC eligibles, has that changed?
    Mr. Braley.  It has not changed for several years.
    Mr. Walsh.  So, for the purposes of this discussion, the 
1994 estimate is derived at through the same process as the 
1995 estimate.
    Mr. Braley.  That's correct.
    Mr. Walsh.  Okay. So, there is a 2 percent reduction in 
that population.
    Mr. Braley.  That's correct.
    Mr. Walsh.  Okay. So, we've got a 2 percent reduction in 
your base figures, and yet a 10 percent increase request to 
fund it. Now, that would get into your methodology for 
determining what full participation is; would it not?
    Mr. Braley.  Yes. But let me explain the 10 percent 
increase. The increase for 1998 needs to be compared to the 
1997 level that includes a supplemental. If we had the 
supplemental, the $378 million increase would be $278 million 
above the level that's requested for 1997. So, incrementally, 
it's a smaller increase.
    Mr. Walsh.  You're assuming.
    Mr. Braley.  Right. Also, $100 million of that is for a 
contingency fund if food price inflation increases more than is 
forecasted.
    Mr. Walsh.  So, of the $378 million, $100 million of that 
is for a contingency budget.
    Mr. Braley.  That's correct.
    Mr. Walsh.  So, it's not directly to increase, or expand, 
or meet need.
    Mr. Braley.  Right. We would not expect that to be an 
outlay based on our forecast. It was not scored as an outlay by 
OMB. I don't know how CBO would score it.
    Mr. Walsh.  A part of your request is $100 million for a 
contingency fund.
    Mr. Braley.  That's correct, Congressman.
    Mr. Walsh.  How big was the contingency fund last year?
    Mr. Braley.  We requested $100 million last year and it was 
not granted. So, we did not have a contingency fund in 1997.
    Mr. Walsh.  How about in 1994?
    Mr. Braley.  We've never had a contingency fund in the 
program. But we wanted to avoid the need to either reduce 
participation or come back for a supplemental in the event that 
we had unforeseen food price inflation.
    Mr. Walsh.  How can you justify a contingency fund when 
you're consistently carrying over funds?
    Mr. Braley.  Again, the carry over issue is a structural 
matter in managing a grant that's split up among 86 different 
agencies and thousands of local agencies and health clinics. 
There will be some amount of carryover even in a tight budget 
year.
    And we've squeezed that carry over down in our estimates to 
$100 million from $145 million in the prior year; this is about 
a 30 percent reduction. We don't believe that you can manage a 
grant program like WIC without having some level of carryover 
from year-to-year.
    Mr. Walsh.  All right. Back to the initial point. You have 
a 10 percent increase request with a 2 percent reduction in 
base of eligible population. So, you estimate that because of 
welfare reform that people are looking harder and because of 
your outreach people are getting more involved in the WIC 
Program?
    Mr. Braley.  Again, we estimate that we have 9.2 million 
people who are fully eligible for the program.
    Mr. Walsh.  Right.
    Mr. Braley. Our participation request underlying the 1998 
budget is 7.5 million. So, there are still people who are not 
going to use the program in our estimates.
    Mr. Walsh.  But based on your prior estimates and the 
methodology you used before using that 9.2 million population 
of WIC eligibles, you would arrive at about 7.32 million which 
would be full participation.
    Mr. Braley.  That's right.
    Mr. Walsh.  So, you're over that by 175,000.
    Mr. Braley.  We said, in essence, that we felt that only 80 
percent of those eligible at a particular time would come in 
and take advantage of the program. We've seen participation 
that's actually higher. We also know that quite a few States 
have achieved higher than 80 percent participation levels among 
eligibles, specifically, those that have had well-funded 
programs for a number of years.
    In essence, from our estimate of how many people are fully 
eligible for the program, both from an income standpoint and a 
nutrition standpoint, a higher percentage of those are going to 
come in and be certified for the program. Although it's not 
factored into our estimates, we believe that Welfare Reform and 
the potential for people to be looking for benefits may 
actually increase the demand for WIC services in the future.
    However, that's not factored into our estimates. Our 1998 
budget request supports a participation level that's very 
similar to what we had in October of this past year; only 
26,000 people higher than what was actually achieved in terms 
of participation.
    Mr. Walsh.  I think it's asking a lot to request a 10 
percent increase with a 2 percent reduction in population, 
based on new methodology and a part of that being $100 million 
contingency fund. I mean we do about $2 billion in rural 
development. Would you suggest we have a $50 million 
contingency fund there too? We'd be appropriating all kinds of 
contingency funds all through the budget in a very tight budget 
process.
    Mr. Braley. The contingency fund, I think, would be a 
budget authority increase but not scored as an outlay. At least 
that's what OMB thought in making that request.
    Mr. Walsh.  I'm told by staff that CBO does score it as an 
outlay.
    Mr. Braley.  Okay. That makes it more difficult.
    Mr. Walsh.  Thank you. Thank you, Mr. Chairman.
    Mr. Skeen.  Mr. Nethercutt.
    Mr. Nethercutt.  Thank you, Mr. Chairman. It appears to me 
from your testimony that the agency is pushing participation. 
You talked extensively about participation, participation. When 
you reach 7.5 million participants, then you will then look to 
management practice improvements. Is that a fair statement?
    Ms. Keeffe.  No. We've always been concerned about 
management practices in the program. We stress this issue 
continually. We work very closely with the States encouraging 
responsible administration. I think it's fair to say that this 
is a program that hasenjoyed a very good record in that area in 
the past. So, we've been very diligent.
    Mr. Nethercutt.  How many state agencies are there in your 
program administration?
    Ms. Keeffe.  There are 86. That includes a number of Native 
American reservations which are Indian Reservation Programs.
    Mr. Nethercutt.  And out of the 86 how many have a 
screening process for income verification or other eligibility 
requirements?
    Ms. Keeffe.  All of them.
    Mr. Nethercutt.  Are you sure? They all do? Every state?
    Mr. Braley.  They apply income criteria and then 
nutritional risk factors before people are allowed into the 
program.
    Mr. Nethercutt.  Are those mandatory screening procedures 
or are they voluntary in some cases?
    Ms. Keeffe. There are mandatory income and nutritional risk 
criteria that people have to meet.
    Mr. Nethercutt.  My understanding is that there is some 
option, some flexibility in certain states as to whether they 
want to and actually do a complete screening program. Am I 
right or wrong on that?
    Ms. Keeffe.  There are broad categories where States have 
latitude regarding the nutritional risk determination.
    Mr. Nethercutt.  So, that's a discretionary determination 
by those states?
    Ms. Keeffe.  No. They have to make a determination. But 
they are not all uniform.
    Mr. Braley.  States have argued, Congressman Nethercutt, 
that since this is an adjunct to their health system, they need 
some latitude to define which specific criteria will be used 
for bringing people into the program in their state. So, they 
all have to apply screening criteria for nutritional risk 
factors, but they vary to comport with practices of State 
Health Departments. There is some latitude.
    That's an area where we've looked at historically and we're 
looking at it again with the National Academy of Sciences to 
see if there is a need for some changes in that area; more 
standardization; that type of thing. But that's going to be a 
collaborative process over a period of time.

            paperwork reduction in child nutrition programs

    Mr. Nethercutt.  Well, I will go into another area quickly 
that bears on this I think; not necessarily WIC, but with 
regard to the School Nutrition Programs. The school officials 
in my own district and throughout our state are uniformly very 
frustrated with the administrative burden that is required in 
order to comply with federal regulations as it relates to 
school breakfasts and lunches.
    In fact, I had one school director literally pound the 
table. He said that if you can do anything for me in this job 
that you're in, try to get it so that we don't have to fill out 
so blasted much paperwork and hire one or two or more people to 
just do paperwork.
    Has your agency done anything since our last hearing, 
recognizing that this isn't all your burden, to improve the 
burden of regulations that stem from the School Nutrition 
Programs?
    Ms. Keeffe. I don't know relating it to the last hearing. 
There were issues in the School Meals Initiative For Healthy 
Children that did reduce paperwork burdens. The reviews, for 
example, that are done are now every five years as opposed to 
every four years, ease burdens at the State level.
    Also, there were various reports that had to be kept at the 
school level, which now were not necessary. And so those are 
eliminated in that legislation. This is an area where we do 
hear a lot of comments and where we have been working to help. 
We think the adjunct eligibility issue, which would 
automatically make children eligible for school meals if they 
are participating in other food assistance programs where the 
families are participating, in Food Stamp, for example, goes 
far into helping this.
    Mr. Nethercutt.  What would you do specifically in that 
regard to ease the paperwork burden and administrative 
obligations of the districts themselves in the instance that 
you've just mentioned?
    Ms. Keeffe.  In the adjunct eligibility?
    Mr. Nethercutt.  Yes.
    Ms. Keeffe.  Well, if a family shows that they are 
recipients of Food Stamp benefits then the children would 
automatically be eligible for the School Lunch Program. It 
doesn't involve a whole new application and forms.
    Mr. Nethercutt.  Is that in place or is it just proposed?
    Ms. Keeffe. It is in a lot of places. I don't know that 
everybody is doing it, but it is moving forward.
    Mr. Braley.  I believe, Congressman Nethercutt, that a tape 
is provided from the local Welfare Office or the Department of 
Social Services to the Department of Education which reduces 
the paperwork.
    Mr. Nethercutt.  Well, I know it's a big issue. It sure is 
a problem out West. And it frustrates our school officials who 
have to deal with this on a day-to-day basis. That's why I urge 
your consideration.
    Ms. Keeffe.  I also understand that our Office of Analysis 
and Evaluation is currently conducting a study of State 
practices which will show these best practices across schools 
as to exactly what they are doing in this regard and what 
they're using to cut down on these burdens. So, hopefully that 
study will give us more information.
    Mr. Nethercutt. Thank you, Mr. Chairman.
    Mr. Skeen.  Thank you, Mr. Nethercutt. Mr. Walsh.
    Mr. Walsh.  No further questions.
    Mr. Skeen.  Well, folks I think we've just about run out of 
gas from our side anyway. I want to thank you very much. We'd 
like to submit some questions for you to answer in writing.
    We appreciate very much you being here. You are patient in 
waiting for us. Is there any way we can give these school 
officials an EBT card?
    Ms. Keeffe.  Well.
    Mr. Skeen.  That would work.
    Ms. Keeffe.  The school officials? The children have 
something similar in a lot of schools.
    Mr. Skeen.  Too many cards out. They don't want the 
paperwork in the schools so they let the school superintendent 
or whoever is in charge have one of those EBT cards and keep 
track of it. I'm being a little facetious, but this is becoming 
a world of computers and automation. We vote with cards and all 
that sort of thing. But thank you very, very much for being 
here with us and going through this budget.
    Thank you for your patience and thank you for your 
forthright answers. Let's see what we can do with it.
    Ms. Keeffe.  Thank you for the opportunity, Mr. Chairman.
    Mr. Skeen.  It was a pleasure being with you.
    [The following questions were submited to be answered for 
the record:]
               school compliance with dietary guidelines
    Mr. Skeen. The Healthy Meals for Healthy Americans Act of 1994 
mandates that school meals comply with the Dietary Guidelines by school 
year 1996/1997. What is the status of this mandate?
    Response. Since this is the first school year that the mandate has 
been in effect, there is no data currently available to indicate how 
will schools are complying with the Dietary Guidelines. State agencies 
have begun to conduct nutrition reviews of their school food 
authorities and work with those schools needing corrective action. The 
Department is also preparing to conduct a survey of progress towards 
the Dietary Guidelines. FCS expects to have the results of that survey 
during the 1998-99 school year.
    It should also be noted that the Department has undertaken a 
comprehensive, integrated program to assist States and local food 
services in achieving compliance. A year ago, for example, the 
Department conducted a major training effort throughout the country to 
train States on the technical aspects of the new requirements. The 
States, in turn, conducted more than 1,450 training sessions for their 
local school personnel. Money appropriated under Team Nutrition will be 
used to provide additional training this fall.
    Mr. Skeen. The Act also gave States the right to waive a school's 
compliance with the Dietary Guidelines until School Year 1997/1998. How 
many States gave waivers and to how many schools?
    Response. Data submitted to the Department indicates that 31 States 
have authorized waivers of up 2 years for about 6,500 school food 
authorities out of about 24,000. This should not be taken as an 
indication that large numbers of schools do not agree with the Dietary 
Guidelines or do not intend to attempt compliance. The purpose of the 
waivers was to accommodate schools with training or resource needs. 
States that have authorized waivers are working closely with their 
school food authorities to ensure that they are in compliance by the 
time the waivers expire.
                  homeless children nutrition programs
    Mr. Skeen. For the Homeless Children Nutrition Program, provide a 
table that shows the number of organizations that participate, the 
number of meals and children served, and the cost of the program for 
each year the program has been in operation.
    [The information follows:]

                                       HOMELESS CHILDREN NUTRITION PROGRAM                                      
----------------------------------------------------------------------------------------------------------------
                                                                             Approximate   Number of            
                                                              Number of       number of      meals       Total  
                       Fiscal year                            sponsoring       children     served      program 
                                                          organizations \1\  served each      (in      cost  (in
                                                                               day \2\     millions)   millions)
----------------------------------------------------------------------------------------------------------------
1993....................................................              61           4,000         .70        $.95
1994....................................................              68           4,200        1.06        1.45
1995....................................................              70           4,200        1.03        1.43
1996....................................................              79           3,600         1.0        1.70
----------------------------------------------------------------------------------------------------------------
\1\ Represents actual number of organizations participating. A number of these organizations operate two or more
  outlets.                                                                                                      
\2\ Approximation based on enrollment reported by sponsoring organizations. Decrease for fiscal year 1996 may   
  result in part from more accurate reporting after training sessions were conducted.                           
                      child and adult care centers

    Mr. Skeen. In fiscal year 1995, child and adult care centers opted 
to receive 12 percent of the value of their commodity entitlements in 
the form of commodities and 88 percent in the form of cash. What were 
these values in fiscal year 1996?
    Response. In fiscal year 1996, child and adult care centers 
received about 15 percent of the value of their commodity entitlements 
in the form of commodities and 85 percent in the form of cash.
    Mr. Skeen. The two-tiered reimbursement structure for family day 
care homes becomes effective July 1, 1997. Does the unobligated balance 
carryover into fiscal year 1998 include the amount that won't be spent 
in the last quarter of this fiscal year? What is this level for 1997?
    Response. The unobligated balance carryover into fiscal year 1998 
includes $80 million from fourth quarter 1997 that will not be spent as 
a result of changes to the reimbursement structure of the Child and 
Adult Care Food Program. The total unobligated balance carryover for 
the Child Nutrition Programs is $736 million.

                        ccc donated commodities

    Mr. Skeen. Section 416 of the Agricultural Act of 1949 authorizes 
the CCC to donate commodities held in inventory that are acquired 
through price support programs to schools and other institutions. Since 
the 1996 farm bill replaced price supports with production flexibility 
payments, what is the impact on these types of bonus commodities?
    Response. The provisions of the Food Security Act of 1985 and the 
Food, Agriculture, Conservation, and Trade Act of 1990 continued to 
reduce CCC-owned inventories of surplus commodities. In school year 
1996, as a result of higher market prices and changes in the 
agricultural price support programs, the inventories of commodities 
available for bonus donation were exhausted and the CCC does not expect 
to make bonus commodities available in fiscal year 1997. The Department 
is, however, continuing to provide bonus commodities through section 32 
surplus removal authority.

                       school meals initiative

    Mr. Skeen. Update the table that appears on pages 39 and 40 of last 
year's hearing record showing a breakout of how the School Meals 
Initiative funding was spent to include fiscal years 1993, 1994, 1995, 
1996, and 1997 actuals and fiscal year 1998 estimates.
    Response. The fiscal year 1997 allocations represent the current 
budget plan; the fiscal year 1998 allocations are estimates.

[Page 462--The official Committee record contains additional material here.]


    Mr. Skeen. Also update the following table showing the total amount 
that has been spent to date in support of this initiative to include 
fiscal year 1996 actuals and fiscal year 1997 estimates.
    [The information follows:]

               FUNDING FOR SCHOOL MEALS INITIATIVES (SMI)               
                      [Formerly Dietary Guidelines]                     
------------------------------------------------------------------------
                                                               Total    
               Fiscal year                 Appropriation   obligated \1\
------------------------------------------------------------------------
1993....................................      $2,000,000        $450,000
1994....................................       2,054,000       3,344,000
1995....................................      20,350,000      12,535,040
1996....................................      10,500,000      12,867,954
1997 (estimate).........................  \2\ 10,000,000      15,617,000
                                         -------------------------------
      Total.............................      44,904,000      44,813,994
------------------------------------------------------------------------
\1\ Each year includes obligations from the current year's              
  appropriations and obligations against unobligated balances available 
  from the prior year's appropriation.                                  
\2\ Fiscal year 1997 SMI Appropriation was $10,000,000; however,        
  $3,750,000 was reprogrammed to section 6(a)(3) of the National School 
  Lunch Act to provide grants to State agencies to fund activities that 
  would have otherwise been supported by the NET Program.               

                team nutrition national training program

    Mr. Skeen. A Team Nutrition National Training Program was initiated 
with eight training workshops held in fiscal year 1996. Where were 
these workshops held; who and how many attended; what was the cost of 
these workshops; where did the funding come from; and are any being 
held in fiscal year 1997?
    Response. The Department conducted eight workshops to train State 
agency personnel who, in turn, will train local school food service 
staff on the implementation of the School Meals Initiative to 
incorporate the Dietary Guidelines for Americans in the National School 
Lunch and School Breakfast Programs. A total of 379 State agency and 
FCS Regional office staff were trained. The cost of the workshops was 
$744,652. The funding source was fiscal year 1995 School Meals 
Initiative Funds. Proposed training for fiscal year 1997 includes eight 
Nutrient Analysis Training Workshops for State agency staff.

                                    TEAM NUTRITION NATIONAL TRAINING PROGRAM                                    
----------------------------------------------------------------------------------------------------------------
                                                                                                      Attendees 
                 Region                             Location                       Date              State + FCS
                                                                                                         \1\    
----------------------------------------------------------------------------------------------------------------
SWRO....................................  Dallas, Texas..............  Jan. 9-11, 1996............         40+10
MPRO....................................  Denver, Colorado...........  Jan. 23-25, 1996...........          45+5
WRO.....................................  San Francisco, California..  Jan 30-Feb. 2, 1996........          38+7
MWRO....................................  Chicago, Illinois..........  Feb. 6-8, 1996.............          33+9
NERO....................................  Boston, Massachusetts......  Feb. 13-15, 1996...........         35+11
MARO....................................  Trenton, New Jersey........  Feb. 27-29, 1996...........         39+13
SERO....................................  Atlanta, Georgia...........  March 12-14, 1996..........         40+10
Make-Up.................................  Herndon, Virginia..........  March 26-28, 1996..........         33+11
      Total.............................  ...........................  ...........................       303+76 
----------------------------------------------------------------------------------------------------------------
\1\ Federal attendance was not supported with School Meals Initiative funds; however, Federal attendees         
  conducted and participated in the training.                                                                   

       national goals of nutrition education and training program

    Mr. Skeen. In fiscal year 1994, FCS, in partnership with local, 
State, and Federal agencies and professional organizations, implemented 
a strategic plan for the nutrition education and training program. The 
plan established ten measurable National goals. Briefly described each 
goal and provide the committee with the status of each.
    Response. The status of the 10 Nutrition Education and Training 
Program (NET) strategic plan goals was obtained through the FCS 
Regional offices review of the fiscal year 1995-96 NET State plans. A 
1996 report, ``Report Card on the NET Strategic Plan--Promoting Healthy 
Eating for Our Children'' contains a summary and compilation of the 
reviews.
    Goal 1: 75 percent of the Nation's schools that provide nutrition 
education as part of health education, as part of an interdisciplinary 
nutrition education curriculum, or through other means to children and 
parents.
    Status: Every State, 100 percent of the 41 reporting, indicated 
that they provided nutrition education to instructional staff, parents 
and children, excluding food service staff.
    Goal 2: 50 percent of child care and summer program facilities/
sites provide nutrition information/education to children, caregivers 
or parents.
    Status: 49 States, 100 percent of those reporting indicated 
activities were undertaken to assure that child care or summer programs 
received nutrition education.
    Goal 3: 50 percent of food service personnel/providers in Child 
Nutrition Programs receive nutrition information and/or training, 
including food service training.
    Status: 40 States, 95 percent of the 42 reporting, have indicated 
that they have undertaken training activities toward meeting this goal.
    Goal 4: 90 percent of school lunch and breakfast services have 
menus that are consistent with the nutrition principles in the Dietary 
Guidelines for Americans.
    Status: At least 78 percent of the 42 States reporting indicated 
that they are actively working on staff development to be able to meet 
this goal. 48 percent of the States reporting indicated that they are 
working toward determining if the meals are consistent, and/or changing 
policies which will support policies to meet the goal.
    Goal 5: 90 percent of child care and summer food services have 
menus that are considered with the nutrition principles in the Dietary 
Guidelines for Americans.
    Status: The information provided does not allow us to determine 
what percentage of States are now serving meals consistent with the 
Dietary Guidelines. All but one of the 39 reporting states indicated 
that they are making progress toward meeting this goal.
    Goal 6: 75 percent of States that incorporate applicable goals and 
strategies from the NET Strategic Plan into their NET State Plans.
    Status: 33 of the 38 reporting States have reported that they have 
incorporated the NET Strategic Plan into their State Plans. Therefore, 
this goal was exceeded at the 87 percent level. Three States cited 
using the NET Regulations, 7 CFR 227.37, or the interim State Plan as 
guidance for the State NET Plan. The response was unclear for two 
States.
    Goal 7: 75 percent of States using the National Needs Assessment 
Guidelines to conduct needs assessments.
    Status: Approximately 62 percent of the 37 States reporting used 
National guidelines. Due to the differences in the reporting language, 
it was not possible to determine the exact number of States using the 
NET National Needs Assessment Guidelines.
    Goal 8: 75 percent of States using national guidelines to evaluate 
NET projects and programs.
    Status: 86 percent of the States are conducting some level of 
evaluation. At least 52 percent, 20 of the 38 States reporting, 
indicated that they are using the National guidelines. Due to the 
reporting language, it was not clear from the Region's comments to what 
extent the States may have used the National guidelines. Thus, another 
34 percent of States conducted some type of evaluation, while only 13 
percent did not address evaluation or provided minimal information on 
evaluation.
    Goal 9: 75 percent of nutrition education personnel at National, 
Regional, and State levels have roles and responsibilities consistent 
with National recommendations.
    Status: Analysis showed that almost half, 47 percent of 34 States 
reporting, indicated that NET personnel have roles and responsibilities 
consistent with National recommendations.
    Goal 10: Establish partnerships with at least 10 allied nutrition, 
health, food management, or education organization; public or private 
agencies or group; or others interested in child nutrition issues.
    Status: An analysis of 40 State reports revealed a wide variety of 
partnerships and collaboration. Thus, Goal 10 was accomplished.
         nutrition education and training activities inventory
    Mr. Skeen. The Nutrition Education and Training Activities 
Inventory is a project designed to assist FCS in determining the extent 
to which current needs for nutrition education and training are being 
met. You anticipated receiving OMB clearance for the project in Spring 
1996 with data collection to begin in Summer 1996. What are the 
findings and recommendations of the project?
    Response. Results of this project have been delayed. It was the 
Agency's intention to collect data in the summer of 1996. However, at 
that time, future funding of the NET program was in question. Data 
collection was therefore, postponed until partial program funding for 
fiscal year 1997 could be arranged. The Agency anticipates publishing a 
final report in the summer of 1997.

                         bid-rigging task force

    Mr. Skeen. Did the task force assigned to work exclusively on 
suspension and/or debarment actions against any company or individual 
found guilty of bid-rigging meet in fiscal year 1996? If so, for what 
purpose and what actions were taken?
    Response. Yes, the task force which was established in January 1994 
by the FCS, continues to work on assessing information and making 
recommendations to the determining official for the initiation of 
suspension and debarment actions against any company or individual 
found guilty of bid-rigging or other serious offenses. FCS has received 
sufficient information concerning criminal and civil action on 156 
cases and administrative action is underway or completed on all of 
these cases. Final administrative determinations to date have resulted 
in 88 companies and/or individuals having been suspended, debarred or 
voluntarily excluded from participation in our programs. An additional 
39 cases have been resolved through administrative agreements which 
provide specific protections for the Federal government and the public 
interest.
    Mr. Skeen. Has the task force met in fiscal year 1997?
    Response. Yes, the task force is ongoing and consists of FCS staff 
members who work primarily on debarment and suspension actions, with 
the assistance of staff from the Office of the General Counsel. To 
date, the task force has received sufficient information to proceed on 
156 cases involving companies and individuals found guilty of bid 
rigging or other serious offenses. As a direct result of the task force 
efforts, actions have been initiated or completed on all cases.These 
cases include individuals and companies in the dairy, wholesale food, 
and juice industries and a food service management company. Dairy 
companies and related individuals are involved in the majority of these 
cases. FCS is continuing its aggressive pursuit of appropriate 
administrative action on all remaining cases as well as on any new 
cases that come to its attention.

                   cnp income eligibility guidelines

    Mr. Skeen. For the record provide new tables for fiscal years 1997 
and 1998 that show income eligibility guidelines used for poverty 
level, 130 percent of poverty and 185 percent of poverty.
    Response. The eligibility guidelines for fiscal year 1997 encompass 
school year 1996-1997, and are displayed in Table I. The eligibility 
guidelines for fiscal year 1998 encompass school year 1997-1998 and are 
displayed in Table II. The Agency anticipates publishing the guidelines 
for fiscal year 1998 in the Federal Register during the week of March 
9, 1997.

[Pages 466 - 467--The official Committee record contains additional material here.]


                        permanent appropriations

    Mr. Skeen. Update the table that appears on page 45 of last year's 
hearing record showing the permanent appropriations for a number of 
programs to include fiscal year 1998.

                        PERMANENT APPROPRIATIONS                        
                        [In thousands of dollars]                       
------------------------------------------------------------------------
                                               Fiscal years             
                                 ---------------------------------------
                                    1995      1996      1997      1998  
------------------------------------------------------------------------
Homeless Children Nutrition                                             
 Program........................     1,800     2,600     3,100     3,400
Border Babies...................       400       400       400       400
Information Clearinghouse.......       200       200       150       100
Nutrition Education (NET).......         1    10,000         0         0
Food Service Management                                                 
 Institute......................       147     2,000     2,000     2,000
Breakfast Startup...............     5,000     5,000         0         0
                                 ---------------------------------------
      Total, Permanent                                                  
       Appropriation............     7,548    20,200     5,650     5,900
------------------------------------------------------------------------

             nutrient standard menu planning demonstration

    Mr. Skeen. At last year's hearing you were reviewing a draft report 
on evaluation results of data collected from the sites that 
participated in the nutrient standard menu planning demonstration 
project. What were the findings of this evaluation.
    Response. The Nutrient Standard Menu Planning (NSMP) Demonstration 
is a three-year demonstration that will continue through the end of 
School Year 1996-97. The demonstration's evaluation, which is still 
ongoing, has two major components: (a) a formative or process 
evaluation that will document the NSMP operational procedures that were 
implemented, identify problem areas and potential changes that could be 
made to improve operations, and describe the perceived strengths and 
weaknesses of the system; and (b) a summative evaluation that will 
examine the impact of NSMP on the nutrient content of meals and on 
other aspects of the food service operations.
    Data for the process evaluation was collected during Fall 1995 and 
Winter 1996. Results of this process evaluation were compiled in an 
interim report entitled Evaluation of the Nutrient Standard Menu 
Planning Demonstration: Findings from the Formative Evaluation: A copy 
of this report is provided for the record.
    Data for the summative evaluation will continue to be collected 
through Spring 1997. A final report is anticipated in Winter 1998.
    [Clerk's note.--The Executive Summary follows. The full report is 
too lengthy, for reprint. A copy is retained in Committee files.]


[Pages 469 - 471--The official Committee record contains additional material here.]



          alternative meal counting and claiming pilot project

    Mr. Skeen. The Department has tested three types of alternative 
meal counting and claiming pilot projects in ten sites around the 
country. These included tests of extended application intervals; tests 
of providing meals at no charge to all students; and tests of direct 
certification. Originally a final report was suppose to be available in 
the fall of 1994, but was extended to the summer of 1995. At last 
year's hearing the Committee was told that a preliminary report was 
published in March 1994, and the final report would be released in the 
summer of 1996. What were the findings and recommendations of each 
project type?
    Response. Although FCS expected the final report to be completed by 
now, FCS has had to review the data and is completing the analysis in-
house. While the final report is unavailable, FCS is in the process of 
comparing the pilot procedures with the new burden reducing provisions 
established by the Healthy Meals for Healthy Americans Act of 1994. The 
Healthy Meals for Healthy Americans Act extended the meal counting and 
claiming procedures to five year cycles under the alternate meal 
counting and claiming procedures known as Provision 2. In addition, if 
the school demonstrates that the economic profile of the student 
population has not changed, the schools do not have to take 
applications for an additional 5 years. The cycle continues 
indefinitely unless socioeconomic data indicates that the economic 
profile of the student body has changed; then applications have to be 
taken again. In addition the Act created Provision 3 which allow 
schools to serve all meals free without taking applications for meal 
counts. The amount of Federal funding is based on the total 
reimbursement granted to the school the last year applications and meal 
counts were taken, adjusted for inflation and changes in enrollment. 
The Agency expects the report to be published this summer.
    Mr. Skeen. How is this information being used and by whom?
    Response. While the report is in the final stages of analysis, 
preliminary data has been used by the Agency to develop the regulations 
which implement the new alternate meal counting and claiming provisions 
established by the Healthy meals for Healthy Americans Act of 1994 (the 
Act). Under the Act, schools participating under an option known as 
Provision 2 could extend their alternate meal counting and claiming 
procedures in 5 year cycles if they can demonstrate that the 
socioeconomic profile of the school's student population has not 
changed. Provision 2 allows schools to take applications and meal 
counts once during a baseline year. Using the meal counts of the 
baseline year, monthly participation-based claiming percentages are 
developed. In the years that follow, the school does not take 
applications or meal counts by category; instead, they take total meal 
counts and apply the claiming percentages to determine the number of 
meals claimed for reimbursement by category. The Act also created a new 
option, Provision 3. Schools participating under Provision 3 do not 
have to take applications or meal counts by category but agree to serve 
free meals to all children. In lieu of reimbursements based on meal 
counts, the school receives the same reimbursement they received the 
last year applications were collected and meal counts collected, 
adjusted for changes in enrollment and reimbursement.
    An informal survey of our Regions resulted in an estimate of 2,000 
schools under the current Provision 2 rules. The Agency does not have 
information on Provision 3 because next year will be the first year of 
implementation. The Agency does not know how many additional schools 
will be under Provision 2 as a result of the Provision 2 expansion 
under the Healthy Meals for Healthy Americans Act of 1994.

                 state administrative expense carryover

    Mr. Skeen. Update the table that appears on page 48 of last year's 
hearing record showing the amount of State administrative expenses that 
have been carried over and what percent it was of the total 
appropriation to include fiscal year 1996.
    Response. An updated table showing the amount of State 
administrative expense funds that have been carried over and the 
percent of the total allocation to State agencies for fiscal years 1989 
through 1996, is provided. Appropriated State administrative expense 
funds are allocated to the State agencies and to FCS for the programs 
it administers directly. The carryover provision applies only to the 
State agencies. Therefore, the table reflects only funds allocated to, 
and subsequently carried over by, States.

       STATE ADMINISTRATIVE EXPENSE (SAE) FUNDS CARRYOVER HISTORY       
                              [In millions]                             
------------------------------------------------------------------------
                                                              Percent of
                                         Amount    Amount of  allocation
             Fiscal year                carried    original     carried 
                                          over    allocation     over   
------------------------------------------------------------------------
1989.................................       22.2        55.4        40.1
1990.................................       21.1        58.5        36.1
1991.................................       11.1        61.3        18.1
1992.................................       10.3        67.2        15.3
1993.................................       11.7        76.2        15.4
1994.................................       12.1        85.2        14.2
1995 \2\.............................       15.0        91.5        16.4
1996 \1\.............................       15.0        97.8        15.3
------------------------------------------------------------------------
\1\ Please note that this data is preliminary.                          
\2\ Information updated from last year's hearing record.                

                 electronic data interchange initiative

    Mr. Skeen. What is the status of the Electronic Data Interchange 
Food Distribution Division Pilot Project?
    Response. The Electronic Data Interchange initiative allows State 
distributing agencies to receive food surveys; place food orders; and 
receive food order status updates and entitlement updates 
electronically. Historically, this has been a paper process. 
Development and testing of the Electronic Data Interchange Food 
Distribution Division Pilot Project were completed in the last quarter 
of fiscal year 1996. The Agency then began moving forward with 
implementation. By the end of fiscal year 1996, each of our seven 
Regional offices and one State distributing agency within each Region 
was operational. By the end of February 1997, the number of 
participating State distributing agencies had increased to 15. FCS 
expects to have at least 40 State distributing agencies in operation by 
the end of calendar year 1997. States have been very enthusiastic about 
this customer service project.

                   special milk program participation

    Mr. Skeen. Please update the table that appears on page 54 of last 
year's hearing record showing the number of schools and institutions 
that participate in the Special Milk program to include fiscal year 
1996.
    [The information follows.]

           SPECIAL MILK PROGRAM OUTLETS OPERATING BY TYPE \1\           
                                                                        
                                                         Summer         
          Fiscal year            Schools  Institutions   camps    Total 
                                                                        
1980...........................   86,064       1,056      3,218   90,338
1981...........................   83,646       1,057      3,190   87,893
1982...........................    6,577         284      2,369    9,230
1983...........................    5,895         287      2,392    8,574
1984...........................    5,593         337      2,377    8,307
1985...........................    5,655         330      2,503    8,488
1986...........................    5,462         337      2,373    8,172
1987...........................    5,775         354      2,257    8,386
1988...........................    9,493         417      2,225   12,135
1989...........................    9,822         319      2,022   12,163
1990...........................    9,617         327      2,017   11,961
1991...........................   10,167         343      1,962   12,472
1992...........................   10,017         355      2,039   12,411
1993...........................    8,862         354      1,922   11,138
1994...........................    8,168         383      1,799   10,362
1995...........................    7,713         395      1,717    9,825
1996...........................    8,031         507      1,565   10,103
                                                                        
\1\ Data for outlets collected on an annual basis. Data for schools and 
  institutions collected in October. Data for Summer Camps collected for
  July.                                                                 
                      kentucky/iowa demonstration

    Mr. Skeen. Is the Kentucky/Iowa demonstration authorized for fiscal 
year 1997?
    Response. Yes, the project is authorized through September 30, 
1998.
                  cash-in-lieu of commodities program

    Mr. Skeen. What is the cost of the cash-in-lieu of commodities 
program?
    Response. A total of $8.4 million was spent in fiscal year 1996 for 
the cash-in-lieu of commodity program, also known as the Cash/Commodity 
Letter of Credit Program.

        streamlining administration of child nutrition programs

    Mr. Skeen. You state in the budget justification that your agency 
will continue efforts to streamline the administration of child 
nutrition programs at the State and local levels through promulgation 
of regulations and policy issuances affecting each of the programs. 
Would you please be more specific and tell the Committee what you plan 
to do.
    Response. In 1995, FCS established a Child and Adult Care Food 
Program (CACFP) initiative as a collaborative State agency and FCS 
effort. The goals of this initiative are to improve program integrity; 
streamline the operations of the CACFP to make the program easier to 
operate at the State and local levels, provide increased administrative 
flexibility and maintain a program which is fully open to all well 
managed sponsoring organizations and the children they serve. Under the 
initiative, FCS established a Task Force of State agency and FCS 
representatives to consider possible improvements in the areas of 
program approval criteria, training and operations, and oversight. In 
addition, the Task Force is providing assistance in the development of 
program operational materials for family day care home program sponsors 
and child care centers to ensure sound program management at the 
benefit delivery level. The guidance materials, which incorporate Task 
Force input, will be distributed nationwide for family day care home 
sponsors in May 1997 and for CACFP centers in March 1998. Finally, FCS 
is developing a regulation, ``Improving Management and Program 
Integrity in the CACFP'' with the intent of streamlining the operation 
of CACFP at the State and local levels, improving its integrity, and 
strengthening oversight control.
    FCS is also in the process of developing a single set of program 
regulations which will consolidate current, separate regulations 
governing the National School Lunch Program (NSLP) and the School 
Breakfast Program (SBP). These new regulations will remove considerable 
duplication of information/requirements in both the NSLP and SBP, with 
a single, concise set of rules for operating the School Nutrition 
Program.
    Further, FCS will shortly begin the task of implementing section 
741 of the Personal Responsibility and Work Opportunity Reconciliation 
Act of 1996 under which it is required to develop proposed changes to 
regulations governing the NSLP, SBP and Summer Food Service Program to 
simplify and coordinate these three programs into a single, 
comprehensive meal program. A report to the Senate Committee on 
Agriculture, Nutrition and Forestry and the House Committee on 
Education and the Workforce outlining the proposals developed by FCS is 
due by November 1, 1997.
    Finally, we are also studying ways to increase the use of the after 
school food programs, an interest of Secretary Glickman.

                  commodity purchases on states behalf

    Mr. Skeen. The Secretary recently announced a pilot program in 
South Carolina and Texas to allow USDA to purchase foods on behalf of 
the State. How will your agency be both involved and impacted by this 
pilot program?
    Response. The Agricultural Marketing Service and Farm Service 
Agency are responsible for the pilot program to purchase commodities on 
behalf of the State. Since they are purchasing for the State with State 
funds, the FCS will not be directly involved. FCS does not foresee any 
direct impact on the Agency.

                         infant formula rebates

    Mr. Skeen. Infant formula rebates are expected to be about $1.2 
billion this year. How many WIC recipients are supported by direct 
appropriation and how many are supported by rebates?
    Response. Infant formula rebates reduce the net cost of infant 
formula to the WIC program, thereby allowing an additional 1.7 million 
persons per month, or approximately 24 percent of the total 
participation level of 7.2 million, to be supported within the current 
appropriation.
                       non-infant formula rebates

    Mr. Skeen. Update the table that appears on page 61 of last year's 
hearing record showing the status of state agency contracts for rebates 
on commodities other than infant formula.
    [The Information follows:]

                          STATE AGENCY CONTRACTS FOR REBATES OTHER THAN INFANT FORMULA                          
----------------------------------------------------------------------------------------------------------------
                                                                                                      Expiration
         State agency                       Food type                   Rebate            Company        date   
----------------------------------------------------------------------------------------------------------------
Connecticut...................  Infant Cereal...................  $0.53/8oz.........  Gerber........     9/30/07
Indiana.......................  Infant Cereal...................  $.432.8 oz........  Gerber........      3/1/98
New York......................  Infant Cereal...................  $1.016/8 oz.......  Gerber........     1/31/98
Texas.........................  Infant Cereal...................  $0.92/8 oz........  Gerber........    12/31/00
California....................  Frozen Apple Juice..............  $0.265/ 12 oz.....  Treetop.......     2/28/99
                                Non-Refrigerated Apple..........  $0.525/46 oz......  Treetop.......     2/28/99
                                Frozen Grapefruit...............  $0.15/12 oz.......  Welch's.......     2/28/99
                                Non-Refrigerated Grapefruit.....  $0.27/46 oz.......  Welch's.......     2/28/99
                                Frozen Orange...................  $0.06/12 oz.......  Minute Maid...     2.28/99
                                Non-Refrigerated Orange.........  $0.055/46 oz......  Seneca........     2/28/99
                                Non-Refrigerated Pineapple......  $0.014/46 oz......  Maui..........     2/28/99
California/Nevada.............  Infant Cereal...................  $0.468/8 oz.......  Beechnut......     9/30/97
District of Columbia/Maryland/  Infant Cereal...................  $0.04/oz..........  Beechnut......     9/30/97
 West Virginia.                                                                                                 
                                Infant Juice....................  $0.011/oz.........  9/30/97.......            
----------------------------------------------------------------------------------------------------------------

    Mr. Skeen. Language was included in the fiscal year 1997 
appropriations bill requiring state agencies, using a competitive 
bidding system to procure infant formula, to award contracts to the 
bidder offering the lowest net price unless the state agency 
demonstrated that the weighted average retail price for different 
brands in the state did not vary by more than five percent. This 
language was included, at the request of the Administration, to give 
the Department time to change the regulations for infant formula 
procurement. What has been done since the bill was signed into law on 
August 6, 1996 to make the desired changes in regulations? For the 
record, provide a chronology of actions taken and a status of where you 
are in the process.
    Response. In response to the fiscal year 1997 appropriations bill, 
the FCS issued a policy memorandum December 13, 1996, requiring WIC 
State agencies to award contracts to the bidder offering the lowest net 
price unless the State agency demonstrates the weighted average retail 
price for different brands in the State do not vary by more than five 
percent.
    FCS originally planned to incorporate the requirement into an 
existing proposed regulation addressing a substantial number of infant 
formula cost containment issues. However, FCS has since realized that 
because of the dynamic nature of the proposed infant formula cost 
containment regulation, it would be more timely to publish a final 
regulation addressing only the appropriation bill's net cost 
requirement. Therefore, FCS is currently drafting a final regulation 
and will begin clearance shortly.

              infant formulas and medicaid foods database

    Mr. Skeen. Describe in further detail the database being developed 
at the National Agricultural Library of WIC-eligible infant formulas, 
exempt infant formulas, and medical foods including the database's 
cost.
    Response. The marketplace for infant formulas, exempt infant 
formulas and medical foods is constantly changing due to the 
introduction of new products, product reformulations, and the 
discontinuation of some products. Much of the information presented in 
the 1990 FCS publication entitled Infant Formulas, Exempt Infant 
Formulas, and Medical Foods Eligible for Use In the WIC Program is no 
longer current and needs to be updated. For this reason, funding, in 
the amount of $10,000, will be provided to the National Agricultural 
Library's Food and Nutrition Information Center (FNIC) to support the 
development and installation of an electronic database of WIC-eligible 
infant formulas, exempt infant formula, and medical foods. Developing a 
database of these foods, and providing electronic access to the list 
via the Internet offers WIC State agencies several advantages over a 
print document. These advantages are summarized below.
    Wide dissemination of the information.
    Early updates on a regular basis.
    Easy access to information using search features to quickly locate 
the specific information needed.
    Streamline the process of reviewing products for WIC eligibility.

                         wic vendor overcharges

    Mr. Skeen. In 1991, vendor overcharges were estimated to cost $40 
million. Using the rate from 1991, vendor overcharges were estimated at 
$63 million in fiscal year 1994. What is it estimated to be today?
    Response. The WIC Vendor Issues Study, 1991: Final Report estimates 
that approximately 1.9 percent of estimated annual retail redemptions 
in 1991 resulted from overcharges amounting to a loss of $39.5 million. 
The report emphasizes that not all of this overcharging is intentional. 
In addition, the report estimates that undercharges equaled 0.6 percent 
of estimated annual retail redemptions in 1991 amounting to savings of 
$11.7 million. Using preliminary food expenditure data and 1.9 percent 
overcharge rate, FCS estimates that the loss due to overcharging in 
fiscal year 1996 is $74 million of the $3.9 billion expended for food. 
Similarly, using the same undercharge rate as was found in the study, 
FCS estimates that $23 million was saved due to undercharging.
    The overcharge and undercharge rates reported in the 1991 Vendor 
Study are based on vendors in the 48 contiguous States which had 
participated in WIC for at least 12 months. For the 1995 estimate, FSC 
assumes that the rate applies to all WIC vendors in all participating 
States, Territories and Indian Tribal Organizations.
    FCS is planning a new WIC vendor study which will be awarded during 
this fiscal year. This new study will update the WIC Vendor Issues 
Study, 1991.
                 proposed vendor management regulations

    Mr. Skeen. Proposed vendor management regulations were published in 
December 1990. A proposed rule was expected to be published sometime 
during fiscal year 1996. What is the status of this initiative?
    Response. The proposed rule is currently in Departmental clearance. 
The proposal must also be reviewed and approved by the Office of 
Management and Budget prior to publication. The Agency is hopeful that 
the proposal will be published by the beginning of this summer.

                        wic authorized retailers

    Mr. Skeen. There are approximately 46,000 retailers authorized to 
participate in the WIC program. Who authorizes these retailers, your 
agency or the states?
    Response. State agencies are responsible for authorizing stores to 
participate in the WIC Program under broad guidelines established by 
FCS.
    Mr. Skeen. How often are retailers authorized?
    Response. Federal WIC Program regulations require State agencies to 
conduct a periodic review of all authorized food vendors under their 
jurisdiction a least once every two years. As such, most vendors are 
authorized for two years. No WIC vendors are permanently authorized, 
and participation agreements are renewable at the sole discretion of 
State agencies.
                    wic retailer monitoring efforts

    Mr. Skeen. States are responsible for monitoring retailers and 
assuring integrity of the redemption system. Describe how this is done. 
How often are retailers monitored? How much is spent on monitoring 
efforts? How much do states contribute to perform this duty?
    Response. With regard to monitoring, the WIC regulations require 
States to design and implement systems to identify high risk vendors 
and ensure on-site monitoring, investigation, and sanctioning of such 
vendors as appropriate. States fulfill this requirement in a variety of 
ways, depending on what States determine as appropriate for the risk 
status associated with the retailer. In some cases, State monitors will 
overtly check on a store's program compliance and simply point out any 
deficiencies to store management. For high risk vendors, either a 
covert compliance buy or an inventory audit may be performed to verify 
program compliance. FCS produces an annual report of States vendor 
monitoring activities.
    With regard to assuring the integrity of redemption systems, the 
WIC regulations require States to identify the disposition of all food 
instruments as validly redeemed, lost or stolen, expired, duplicated, 
voided or not matching issuance records. There is a reconciliation of 
each food instruments issued with food instruments redeemed and 
adjustment of previously reported financial obligations to account for 
actual redemptions and other changes in the status of food instruments. 
Many States have either a pre-edit or post-edit system, and some have 
both. Pre-edit systems involve prepayment edits or reviews by the State 
agency, its bank, or a contractor. Post-edit systems involve reviews 
and edits after payments are made to retailers, which are reconciled 
with associated redemptions before further payments to retailers are 
made.
    The regulations require that States conduct an on-site monitoring 
visit to at least 10 percent of their authorized vendors per year. The 
total cost of monitoring vendors in the WIC program is not known, 
however, as States are not required to specify monitoring expenses in 
spending reports. The cost of vendor monitoring varies from State to 
State based on numerous factors including, the type and frequency of 
the monitoring, the travel distance to authorized retailers for 
monitors, and whether the task is performed by the State agency, local 
agencies or contracted out. FCS does not collect information on what 
States contribute to perform this duty.

                 wic farmers' market nutrition program

    Mr. Skeen. How many WIC recipients received vouchers to be redeemed 
at farmers' markets in fiscal year 1996? What is the average amount of 
these vouchers? What is the rate of redemption?
    Response. Based on preliminary fiscal year 1996 data, approximately 
991,000 WIC recipients received WIC Farmers' Market Nutrition Program 
coupons in fiscal year 1996. The average value of coupons per recipient 
was $14. The redemption rate was 62 percent.
    Mr. Skeen. How many WIC participants continue to shop at farmers' 
markets after their initial visit with the one-time bonus voucher?
    Response. Based on fiscal year 1995 survey data, about 66 percent 
of the WIC Farmers' Market Nutrition Program (FMNP) recipients said 
they would continue to shop at farmers' markets even if they did not 
receive additional FMNP coupons. Additionally, 48 percent said they 
spent money and/or food stamps in addition to their FMNP coupons while 
at the farmers' market, and 51 percent said they had never visited a 
farmers' market before taking part in the FMNP.
    Mr. Skeen. How much of fiscal year 1996 funds for the Farmers' 
Market Nutrition Program was used for market development?
    Response. Of the 31 States participating in the FMNP in fiscal year 
1996, 11 States requested and were approved to use up to 2 percent of 
program funds for market development. The total amount approved for 
these 11 States for market development was $66,333.
    Mr. Skeen. Are any fiscal year 1997 funds being used for market 
development? If so, how much?
    Response. Eleven of the participating State agencies have requested 
and have been approved to use funds for market development. Program 
legislation permits the use of up to an additional 2 percent of total 
program funds for such purposes. Although the approval process is 
continuing, a total of $50,173 in fiscal year 1997 funds has been 
allocated to date to these 11 State agencies specifically for market 
development. These funds become administrative funds and are in 
addition to the regular administrative funds that a State agency 
receives, which can also be used for market development purposes, as 
well as for all other general administrative needs.

                  wic income eligibility requirements

    Mr. Skeen. For fiscal year 1996, the income eligibility for WIC was 
$28,860 for a family of four and $33,707 when the mother is pregnant. 
What is the income eligibility requirements for fiscal year 1997?
    Response. Effective July 1, 1997 through June 30, 1998, the income 
eligibility for WIC is $29,693 for a family of four and $34,725 for 
this same family of four when the mother is pregnant. Because the WIC 
income guidelines change during the fiscal year, the income amounts 
cited are still in effect through June 1997. Please be aware, however, 
that legislation provides WIC State agencies the option to implement 
the revised WIC income eligibility guidelines the Agency referenced 
above concurrently with the implementation of annual income eligibility 
guidelines under the Medicaid Program. The revised Medicaid guidelines 
were issued on March 10, 1997. Therefore, WIC State agencies may begin 
implementing the revised guidelines as early as March 10, 1997, but not 
later than July 1, 1997.
    Mr. Skeen. Provide a table similar to the one that appears on page 
57 of last year's hearing record showing the income eligibility levels 
for WIC for fiscal year 1997.
    Response. The WIC income eligibility guidelines which are effective 
July 1, 1997 through June 30, 1998 appear in the attached chart. The 
Child Nutrition Act provides WIC State agencies the option to implement 
these revised guidelines concurrently with the implementation of annual 
income eligibility guidelines under the Medicaid Program, but not later 
than July 1, 1997. This year Medicaid issued its guidelines on March 
10, 1997.

[Page 479--The official Committee record contains additional material here.]


                wic eligibility and participation rates

    Mr. Skeen. On page 59 of last year's hearing record in WIC 
eligibility and participation rates for 1993 and 1994. For the record, 
please provide this information for 1995 and 1996.
    Response. The data needed for estimates of eligibility and 
participation rates for fiscal year 1996 are not yet available. 
However, for the record the Agency will provide the ``Eligibility and 
Coverage Estimates 1995 Update--U.S. and Outlying Areas.''

[Pages 481 - 483--The official Committee record contains additional material here.]


                       three highest risk groups

    Mr. Skeen. What percentage of all persons enrolled in WIC fall in 
the three highest risk groups?
    Response. WIC State agencies report their average annual 
participation by risk group for a 12-month period, July of the prior 
year through June of the report year. The July through June report 
period is used to ensure that the most data is available for the 
funding formula. The average total participation for the period July 
1995 through June 1996 was 7,106,213. Of this amount, 5,512,351 (77.6 
percent) were in the three highest risk groups.
    Mr. Skeen. What percentage of those eligible for the three highest 
risk groups are being served?
    Response. FCS does not estimate the number of persons eligible for 
the program by risk groups, nor would the Agency have any creditable 
basis for making such estimates. The National health and nutrition 
survey data which the Agency uses to estimate the total eligible 
population is not sufficiently detailed to estimate this population by 
risk groups.

              wic and cdc's national immunization program

    Mr. Skeen. There is a joint effort between WIC and the Centers for 
Disease Control and Prevention's National Immunization Program to 
develop an immunization link within WIC ADP systems. What is the status 
of this initiative? How much has been spent to date on this initiative 
by both WIC and CDC?
    Response. In response to the 1989-1990 measles epidemic, the 
Department and the Centers for Disease Control and Prevention (CDC) 
have further strengthened their cooperative efforts to increase 
immunization rates among preschool-aged participants in the WIC 
Program. Two main strategies of this partnership are to enhance 
automation capabilities in WIC clinics, and to facilitate accurate and 
efficient assessment of the immunization needs of WIC infants and 
children. The results of this initiative are dramatic decreases in 
burden to WIC clinic staff; increased quality of screening services 
received by WIC clients; and better quality of data for immunization 
programs which permit them to target and use resources more 
effectively.
    To date, approximately $1 million in CDC funding has recently been 
provided to nine WIC State agencies to design, develop, and implement 
information system linkages between State Immunization Information 
Systems and WIC data systems at State and local levels. This is in 
addition to ongoing administrative support for immunization efforts 
funded both by WIC and by immunization program administrative funding, 
which cover costs such as immunization education, outreach, referral, 
assessment and follow-up. Grants have been awarded to the following 
States: Massachusetts, Rhode Island, Florida, Texas, Chickasaw Indian 
Nation, Virginia, Iowa, Nevada, and Alabama.

             reporting breastfeeding incidence and duration

    Mr. Skeen. The Healthy Meals for Healthy Americans Act of 1994 
requires the development of standards and collection of breastfeeding 
incidence and duration data. Reporting requirements on breastfeeding 
incidence and duration becomes mandatory for all states by April 1998. 
What is the status of this directive?
    Response. The Healthy Meals for Healthy Americans Act of 1994 
provision for reporting breastfeeding incidence and duration required 
reporting of this information under section 17 (d)(4) of the Child 
Nutrition Act which mandated a biennial report to Congress describing 
WIC participants. The Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, P.L. 104-193, removed the requirement for 
the biennial report to Congress.
    The FCS has provided States with specifications for collection of 
breastfeeding incidence and duration as part of the WIC Participant and 
Program Characteristics Study of 1996. Data from States who voluntarily 
submitted this data as a test exercise will be analyzed to the extent 
possible and feedback provided to those States. While no longer 
mandated, States will be requested to continue biennial submission of 
WIC Minimum Data Set items, including breastfeeding items, in 1998 and 
in 2000. A procurement for contractor support for this data analysis is 
underway and award is planned during fiscal year 1997.

                 wic breastfeeding promotional project

    Mr. Skeen. Your agency entered into a cooperative agreement in 
September 1995 with Best Start Social Marketing, Inc., to develop and 
implement a WIC breastfeeding promotion project. The goals of the 
project are to increase breastfeeding initiation and duration rates 
among WIC participants, increase referrals to WIC for breastfeeding 
support, and increase general public acceptance and support of 
breastfeeding. Provide the Committee with a detailed update of this 
project including the total cost of the project and findings and 
recommendations made to date.
    Response. The FCS signed a cooperative agreement with Best Start 
Social Marketing, Inc. in September 1995 for the WIC National 
Breastfeeding Promotion Project. The project is in the 18th month of a 
30 month period.
    Ten pilot States are participating in this innovative project. They 
include Iowa, Arkansas, Nevada, California, New Jersey, West Virginia, 
Ohio, New York, Mississippi, and the Chickasaw Indian Tribal 
Organization. This multiphase project includes the following: formative 
research; development of a National resource guide and a community 
organizer's kit; training of WIC staff in coalition building, 
utilization of media, breastfeeding counseling strategies, and other 
aspects of breastfeeding promotion; and implementation of the campaign 
tailored to each of the ten States in the project. Other States have 
been invited to participate at their own initiative. A training 
conference is scheduled for April 16-19, 1997, in Alexandria, Virginia 
for representatives from each pilot State and other interested States. 
Attendees of the conference will learn more about how to utilize State 
and local level media resources and communication channels.
    FCS has learned from the social marketing research conducted that 
WIC breastfeeding mothers have three major barriers to successful 
breastfeeding. The barriers are embarrassment, a busy schedule, and the 
need for encouragement. All materials, such as educational pamphlets, 
posters and media advertising have been designed around these three 
themes. An extensive formative research and pretesting process has 
guided the development process. Research found that the decision to 
breastfeed is not simply made by the mother but is one which occurs 
within a matrix of influences. To address this reality, family, 
friends, and the general public have been considered in the design of 
these materials. WIC clients, their families and friends, and WIC staff 
have been included in the pretesting activities.
    Following the conference, the participating States will officially 
launch the media implementation phase of the project during World 
Breastfeeding Week, August 1-7, 1997. At that time, States will air 
television and radio spots to promote breastfeeding, which will be 
supported by advertising, posters, and educational pamphlets. Best 
Start will provide 12 months of technical assistance after the research 
and development phase of this project.
    The target audience for the WIC breastfeeding project is WIC 
participants and their families, although the general public is 
expected to also benefit to the extent that they have access to the 
implementing media. The total cost of this project is $511,796.

                  wic and national breastfeeding goals

    Mr. Skeen. Where does the program stand in relationship to the 
Surgeon General's goal to increase to at least 75 percent the 
proportion of mothers who breastfeed their babies in the early 
postpartum period and to at least 50 percent the proportion who 
continue breastfeeding until their babies are five to six months old?
    Response. WIC is making steady progress towards these National 
breastfeeding goals. The Department plans to begin gathering National 
data on actual incidence and duration of breastfeeding in the WIC 
Program from WIC State agencies in 1998. Past traditional sources of 
information have been the WIC monthly Financial Management and 
Participation Report and proprietary data from the Ross Laboratories 
Mothers Survey, the only source of duration information available. 
Based on the WIC monthly Financial Management and Participation Report, 
the WIC Program in 1996 had an average of 292,273 breastfeeding women 
participating in the Program each month. This equates to 36 percent of 
the postpartum women served by WIC. Data from the 1994 Ross Survey 
indicated that, of infants participating in WIC whose mothers responded 
to the survey, 44 percent were breastfed in the hospital, and nearly 13 
percent were breastfed at five to six months. The Ross data as well as 
other information suggest that WIC breastfeeding rates are growing, and 
are growing at a faster rate than among nonparticipants. For example, 
the Ross data showed that between 1989 and 1994, the percentage of WIC 
mothers breastfeeding in the hospital increased from 34 to 44 percent, 
while the percentage of non-WIC mothers breastfeeding in the hospital 
rose from 63 to 69 percent. This is an increase of ten percent for WIC 
mothers compared to six percent for non-WIC mothers. FCS believes that 
the substantial efforts directed at improving breastfeeding rates in 
WIC by Federal, State and local personnel are responsible for this 
encouraging trend.

                wic nutrition education assessment study

    Mr. Skeen. The final report on the WIC Nutrition Education 
Assessment Study to examine the process of nutrition education in WIC 
and the impact of nutrition education interventions on participants 
nutrition-related knowledge, attitudes, and behavior was expected to be 
available in early 1997. What were the findings and recommendations of 
this study?
    Response. Final analyses of data for this study are underway. The 
report is now expected to be available in late calendar year 1997.
              wic nutrition education demonstration study
    Mr. Skeen. A second study, the Nutrition Education Demonstration 
Study, is examining the effectiveness of current and innovative WIC 
nutrition education programs on increasing participants' knowledge. 
What were the findings and recommendations of this study?
    Response. This study has not yet been completed. The final report 
is anticipated in the Winter of 1998.

                     wic cost effectiveness studies

    Mr. Skeen. Provide a list and brief summary of results of all 
studies published by USDA that found that participation in WIC is 
highly cost effective.
    Response. A 1991 USDA study, The Savings in Medicaid Costs for 
Newborn and Their Mothers from Prenatal Participation in the WIC 
Program, Vol. 1 and 2, shows that every dollar spent in five study 
States on WIC prenatal participation saved the government from $1.77 to 
$3.13 in Medicaid costs for newborn and mothers over the first 60 days 
after birth. For newborns only, over the same period, the study 
estimates that every dollar spent on prenatal WIC benefits saved 
Medicaid from $2.84 to $3.90. In addition, an addendum to this study 
estimates that between $1.92 and $4.75 were saved for every dollar 
spent on prenatal WIC benefits when the full Medicaid costs for any 
condition that began during the 60 days after birth are considered.
    In a 1991 study, An Evaluation of the Impact of Prenatal WIC 
Participation on Birth Outcomes and Medicaid Costs in North Carolina, 
Buescher, et al, estimate that for each dollar spent on prenatal WIC 
services, Medicaid saves $2.91 over the first 60 days of life.
    In a 1979 study, Cost/Benefit and Cost/Effectiveness of WIC, 
Kennedy, et al, estimate that in Massachusetts, for each dollar spent 
on prenatal WIC, from $1.90 to $3.10 were saved in medical costs during 
short-term hospital stays. These findings do not include savings over 
the long term.
    Although not published by USDA, in 1992, GAO published Early 
Intervention: Federal Investments Like WIC Can Produce Savings. This 
study reported that every dollar spent on WIC during pregnancy saves 
$2.90 over the first year of life after birth, and $3.50 over 18 years 
in Federal, State, local, and private health care costs. GAO estimates 
that 1990 prenatal WIC benefits helped Federal and State governments 
avoid over $472 million in Medicaid expenditures expected in the first 
year of the infant's life. In addition, GAO estimates that 1990 
prenatal WIC expenditures would help Federal, State, local and private 
payers avoid over $1.036 billion in medical costs over the first 18 
years of life.
    There are many other studies which have shown tangible benefits of 
the WIC program, but which did not translate the benefits into cost 
savings ratios. For example, the National WIC Evaluation found that WIC 
increases birthweight and length of gestation, and improves children's 
diets and some measures of cognitive performance. Studies, such as Very 
Low Birthweight among Medicaid Newborn in Five States: The Effects of 
Prenatal WIC Participation and Infant Mortality among Medicaid Newborns 
in Five States: The Effects of Prenatal WIC Participation, have shown 
that prenatal WIC participation reduces the incidence of very low 
birthweight and infant mortality. In addition, the study, 
Characteristics and Outcomes of WIC Participants and Non-participants: 
Analysis of the 1988 National Maternal Health Survey (NMHS), compares 
the outcomes and behaviors of WIC and non-WIC participants who were 
interviewed for NMHS. This study shows that WIC participants have 
higher birthweights, longer gestations, and better utilization of 
prenatal care than do income eligible non-WIC participants.

      healthy meals for healthy americans act of 1994 requirements

    Mr. Skeen. The Healthy Meals for Healthy Americans Act of 1994 
requires that up to $10 million be used for development of 
infrastructure, special state projects, and special breastfeeding 
promotion and support projects. Provide a breakout of what was spent in 
fiscal year 1996 to comply with this provision.
    [The information follows:]

Healthy Meals for Healthy Americans Act requirements

Infrastructure Grants to State Agencies.................      $7,828,467
Special Project Grants to State Agencies................       1,811,533
Breastfeeding Promotion and Support & Infrastructure....         360,000
                    --------------------------------------------------------
                    ____________________________________________________
      Total.............................................      10,000,000

    To date, the Department has allocated a total of $7,828,467 to WIC 
State agencies for State-specific infrastructure grants to help support 
the overall goal of reaching more participants and providing quality 
program service. Each of our 7 Regional offices received $1 million for 
allocation to WIC State agencies in January 1996 and an additional 
$828,467 was awarded in September 1996. A total of 45 WIC State 
agencies received infrastructure grants that were awarded on a 
competitive basis. The following table summarizes the breakout of the 
categories of how the funds are being expended.

WIC infrastructure grants to State agencies

        Categories of infrastructure funds expenditTotal funds allocated

Automated Management Information and Integrated Data 
    Systems.............................................      $2,505,270
Electronic Benefit Transfer (EBT) Projects..............       1,629,237
Immunization Data Systems...............................         129,885
Breastfeeding Promotion and Support.....................         125,600
Management Technologies and Improvement of Access to 
    Services............................................       1,043,351
Facility Renovation and Non-ADP Purchase................       2,395,124
                    --------------------------------------------------------
                    ____________________________________________________
      Total.............................................       7,828,467

    The FCS awarded $1,766,324 to five State agencies to support 
special State projects in fiscal year 1996. The balance of funds was 
utilized for technical support to State agencies for developing grant 
requests. These special State projects are of National or Regional 
significance and are relevant to current WIC policy issues, designed to 
produce a demonstrable impact and be transferable to other WIC 
programs. The projects also suggest innovative or creative approaches 
to improving the delivery of WIC services. The following table 
summarizes fiscal year 1996 special project grants.

                       WIC SPECIAL PROJECT GRANTS                       
------------------------------------------------------------------------
                                                               Amount   
        State agency                    Project            allocated \1\
------------------------------------------------------------------------
Arkansas...................  Methods for defining local        $501,806 
                              clinic costs.                             
California.................  Evaluation of the                  450,844 
                              effectiveness of nutrition                
                              education methodology.                    
Minnesota..................  Develop/implement a store-         254,129 
                              based nutrition education                 
                              strategy for high-risk                    
                              participants.                             
Missouri...................  Develop/implement nutrition        256,706 
                              education strategy for                    
                              Farmer's Market Nutrition                 
                              Program local agencies.                   
Nebraska...................  Evaluation of integrated           302,839 
                              approach to grants                        
                              management at the service                 
                              delivery level.                           
------------------------------------------------------------------------
\1\ The balance funds was utilized for technical support to State       
  agencies for developing grant requests.                               

    The final $360,000 of the $10 million total was used to support a 
variety of efforts to promote and support breastfeeding and 
infrastructure in the WIC Program. Several publications were developed 
and produced and other promotional efforts have been conducted, as well 
as coordination with and support of the Healthy Mothers/Healthy Babies 
Coalition's breastfeeding efforts.
    Mr. Skeen. Also provide a breakout of what you plan to spend in 
fiscal year 1997.
    Response. The following information is provided on the breakout of 
the $10.0 million fiscal year 1997 WIC multi-purpose grants:

WIC multi-purpose grants

Infrastructure Grants to State Agencies.................      $7,000,000
Special Project Grant to State Agencies.................       2,000,000
Breastfeeding Promotion and Support & Infrastructure....       1,000,000
                    --------------------------------------------------------
                    ____________________________________________________
      Total.............................................      10,000,000

    To date, the Department has allocated a total of $7.0 million to 
WIC State agencies for State-specific infrastructure grants to help 
support the overall goal of reaching more participants and providing 
quality program service. Each of our 7 Regional offices received $1.0 
million for allocation to WIC State agencies and grants were awarded to 
33 State agencies on a competitive basis. The following table 
summarizes the breakout of the categories of how the funds will be 
expended.

WIC State-specific infrastructure grants

        Categories of infrastructure grant expenditTotal funds allocated

Automated Management Information and Integrated Data 
    Systems.............................................      $4,598,577
Electronic Benefit Transfer (EBT) Projects..............         886,295
Service Integration, Coordination & Co-Location.........         166,700
Breastfeeding Promotion and Support.....................         152,888
Management Technologies and Improvement of Access to 
    Services............................................         312,612
Facility Renovation and Non-ADP Purchase................         882,928
                    --------------------------------------------------------
                    ____________________________________________________
      Total.............................................       7,000,000

    The FCS has set aside $2.0 million to support special State 
projects in fiscal year 1997. As in fiscal year 1996, FCS will fund 
special State projects of National or Regional significance that are 
relevant to current WIC policy issues, designed to produce a 
demonstrable impact and be transferable to other WIC programs. The 
projects should also suggest innovative or creative approaches to 
improving the delivery of WIC services.
    The final $1.0 million of the $10.0 million total will be used to 
support breastfeeding promotion and support activities and 
infrastructure projects of national significance. The utilization of 
these funds is currently being reviewed to ensure that the agency's 
goals are effectively addressed.

                          nutrition education

    Mr. Skeen. Update the table that appears on page 84 of last year's 
hearing record showing what is required to be spent nationally on 
nutrition education to include fiscal years 1996 and 1997 actuals and 
fiscal year 1998 estimates.
    Response. Nationally, WIC is required to spend at least one-sixth 
of its nutrition services and administration (NSA) funds on nutrition 
education. Therefore, actual amounts for fiscal years 1996 and 1997 
will not be known until final NSA expenditures are reported and 
verified during the annual closeout and reconciliation of the grants 
for those years. The actual expenditures for fiscal year 1996 will be 
available in the near future and will be provided at that time; the 
actual expenditure for fiscal year 1997 will not be available for 
another year. For fiscal year 1996, the estimate reflects States' 
preliminary report of NSA expenditures. For fiscal year 1997, the 
estimate is based upon the total NSA grants awarded as of March of 
1997. For fiscal year 1998, the estimate is calculated using the total 
anticipated NSA funds based on the President's Budget request.
    A table depicting the WIC Program's minimum nutrition education 
expenditure requirement for each of the requested fiscal years is 
provided for the record.

WIC minimum nutrition education expenditure requirements

        Fiscal year                                               Amount
1996 (Estimate).........................................    $164,237,329
1997 (Estimate)......................................... \3\ 160,241,830
1998 (Estimate).........................................     169,217,667

\3\ The reduction in the project NSA expenditure requirement from fiscal 
year 1997 to fiscal year 1996 is due to the fact that the 1996 estimate 
is based on the States' preliminary report of NSA expenditures made with 
a year-end total 1996 NSA grant that is greater than the total 1997 NSA 
grant as of March.

    Mr. Skeen. According to budget justifications, WIC nutrition 
education is intended to teach participants about the importance of 
good nutrition and its relationship to good health, with the intent of 
achieving positive change in dietary habits. What measurements are done 
to confirm or disprove that the nutrition education being provided is 
achieving its intended goal.
    Response. The FCS is currently conducting two research projects on 
the efficacy of nutrition education. These studies are the Nutrition 
Education Assessment Study and the Nutrition Education Demonstration 
Project.
    The objectives of the WIC Nutrition Education Assessment study are 
to:
    (1) Examine the impact of WIC nutrition education on participants' 
knowledge, attitudes, behavior, and satisfaction with services;
    (2) Document how the nutrition education component of WIC is 
planned, managed, evaluated, and administered in selected local agency 
sites, and staff perceptions of barriers to providing more effective 
nutrition education; and,
    (3) Investigate the educational strategies used to meet the needs 
of special populations such as teenage mothers, or low literacy 
participants.
    The study employs a case study method, and has obtained data from 
focus groups with participants and local agency staff, service 
inventories, participant record review, and a series of participant 
interviews (baseline and two post-tests) in the selected sites. The 
study focuses primarily on women enrolling in WIC during pregnancy.
    The first part of the study entailed a detailed investigation into 
the process and management of nutrition education in the study sites, 
and into staff and participant perceptions of the nutrition education 
services offered. This phase of the study provided preliminary 
information on the characteristics of the participants and the services 
offered, which provided input for the development of the more formal 
measurement instruments required for the impact analysis. A baseline 
survey was administered to assess pregnant women's knowledge, 
attitudes, and behavior upon initial enrollment into WIC. Post-tests 
were administered to assess short-term and longer-term retention of 
concepts taught in nutrition education, and any changes in selected 
attitudinal and behavioral measures.
    FCS awarded a contract to Abt Associates on September 30, 1992. 
Data was collected between August 1994 and July 1996. The data 
collection is complete and the data are being analyzed. The final 
report is expected late in calendar year 1997.
    The primary objectives of the WIC Nutrition Education Demonstration 
Study are to:
    (1) Examine the effectiveness of current WIC nutrition education 
programs in increasing prenatal participants' knowledge of nutrition;
    (2) Test the effectiveness of innovative WIC nutrition education 
programs in increasing prenatal participants' knowledge of nutrition;
    (3) Determine if the innovative programs cost more, less, or the 
same as the current programs; and
    (4) Examine the effectiveness of a WIC nutrition education program 
directed toward young children.
    FCS has implemented a randomized field experiment in clinic 
settings. Experimental groups are comprised of prenatal women who 
participate in current or innovative WIC nutrition education, or in a 
comparison group. The field experiment involves collecting process and 
outcome information. Outcome measures focus on nutrition knowledge. The 
study will also calculate the cost of delivering WIC nutrient education 
at study sites. A second randomized field experiment has been 
implemented to examine the effectiveness of a program directed toward 
young children.
    A contract was awarded in September 1994 to Abt Associates, Inc. 
Data collection is complete. The final report is expected to be 
released in the Winter of 1998.
    Mr. Skeen. Who supplies the nutrition education materials used by 
states?
    Response. The majority of the nutrition education materials used 
for WIC are developed by WIC State and local agencies, geared toward 
their specific needs or target audience. WIC agencies also frequently 
use nutrition education materials produced by Federal Agencies and 
private entities and may access resources and materials for loan and 
reproduction from USDA's National Agricultural Library. WIC nutrition 
services and administration funds can be used by WIC agencies to cover 
nutrition education expenses, including the cost of such materials.
    Over the years, the FCS also has developed materials for WIC State 
and local agency use on a wide range of nutrition/health topics, such 
as basic nutrition, breastfeeding, alcohol and other drug abuse 
prevention education, and fetal alcohol syndrome. These materials 
include pamphlets, posters, professional references and notebooks, and 
videotapes designed for WIC participants as well as professional 
reference aids for the WIC staff. FCS has also purchased from leading 
nutrition/health authorities other materials for distribution to WIC 
agencies, such as on the need for childhood immunizations, the 
importance of folate in the diets of women, and the harmful effects of 
smoking during pregnancy.
                           wic unspent funds

    Mr. Skeen. Please update the table that also appears on page 84 of 
last year's hearing record showing the amount of spendforward funds, 
the amount of unspent recovery funds, and the total unspent funds to 
include fiscal years 1995 and 1996 actuals and fiscal year 1997 
estimates.
    [The information follows:]

                        UNITED STATES DEPARTMENT OF AGRICULTURE FOOD AND CONSUMER SERVICE                       
                    [Special Supplemental Nutrition Program for Women, Infants and Children]                    
----------------------------------------------------------------------------------------------------------------
                                                             Total                                              
                                                            unspent    Spendforward                   Total as  
                      Fiscal year                         recoverable      funds         Total       percent of 
                                                             funds                                 appropriation
----------------------------------------------------------------------------------------------------------------
1982...................................................   $68,962,000  ............   $68,962,000         7.63  
1983...................................................    54,969,000  ............    54,969,000         4.74  
1984...................................................    27,022,000  ............    27,022,000         1.99  
1985...................................................    36,489,000  ............    36,489,000         2.43  
1986...................................................    34,040,000  ............    34,040,000         2.15  
1987...................................................    11,808,000    $7,322,438    19,130,438         1.15  
1988...................................................     9,252,000    18,893,644    28,145,644         1.56  
1989...................................................    25,608,000    24,997,867    50,605,867         2.62  
1990...................................................    28,072,000    26,646,077    54,718,077         2.57  
1991...................................................    73,382,000    27,429,625   100,811,625         4.29  
1992...................................................    66,232,294    34,662,544   100,894,838         3.88  
1993...................................................    97,256,535    35,658,673   132,915,208         4.65  
1994...................................................   136,766,131    39,498,515   176,264,646         5.49  
1995...................................................   137,478,745    47,203,091   184,681,836         5.32  
1996 \1\...............................................   131,000,000    62,000,000   193,000,000         5.17  
1997 \2\...............................................   100,000,000    50,000,000   150,000,000         4.02  
----------------------------------------------------------------------------------------------------------------
\1\ Updated estimate as of March 1997 based on information provided by WIC State agencies. Food funds spent     
  forward represent 57.7 percent of the total funds spent forward and nutrition services and administration     
  funds represent which 42.3 percent.                                                                           
\2\ Estimate based on President's fiscal year 1998 Budget Request which assumes a supplemental of $100,000,000. 

    Mr. Skeen. For the record, update the tables that appear on pages 
85, 86, and 87 showing a breakout of WIC spendforward, by state, to 
include fiscal years 1996 and 1997.
    Response. The fiscal year 1996 and fiscal year 1997 spendforward 
levels reflected on the following table were transmitted in the fiscal 
year 1997 spending plans recently submitted by WIC State agencies. 
States are estimating that the percentage of fiscal year 1997 
spendforward funds will be greatly reduced from past years. Given 
historical levels of spendforward, and FCS's inability to access these 
funds, the Agency continues to believe the State estimates for fiscal 
year 1997 are overly optimistic.
    [The information follows:]

[Pages 491 - 496--The official Committee record contains additional material here.]


    Mr. Skeen. Provide a table similar to the one that appears on pages 
26 and 27 of last year's hearing record showing, by state, the final 
unspent recoverable funds for fiscal year 1996.
    Response. Preliminary data was submitted by WIC State agencies on 
their estimated unspent recoverable funds for fiscal year 1996. The 
total amount of unspent recoverable funds will not be known until the 
States and FCS complete the financial closeout process.
    [The information follows:]

[Pages 498 - 500--The official Committee record contains additional material here.]


                   national academy of sciences study

    Mr. Skeen. In 1993, the National Academy of Sciences was awarded a 
$750,000 grant to conduct a review of the scientific basis for each of 
the nutritional risk criteria currently used in the program among other 
things. The report was originally due to be released in January 1996. 
You reported at last year's hearing that the Academy did not complete 
its work by the anticipated date and it was expected to be available in 
early May 1996. What were the findings and recommendations of the 
Academy? Provide a copy of the Executive Summary for the Record.
    Response. A copy of the summary follows:

[Pages 502 - 514--The official Committee record contains additional material here.]


                      wic state allocation formula

    Mr. Skeen. You are requesting appropriation language to adjust the 
formula used in making state allocations for fiscal year 1998. Funding 
formula regulations were modified a few years ago. What impact did 
these changes have and how will the proposed changes differ?
    Response. The current food funding formula, used for the first time 
in fiscal year 1995, was developed for a time of program expansion 
toward fully funding. Its primary focus, after States are funded at the 
prior year food grant level, adjusted based on inflation, is to 
allocate additional funds into States that are not receiving funds 
proportionate to those eligible for WIC services as compared to other 
WIC States agencies. Due to significant appropriation increases, these 
``under fair share'' States were able to receive growth funds that 
enabled them to increase participation and serve a higher percentage of 
eligible persons.
    During times of limited funding, the current funding formula does 
not provide the optimum flexibility needed to allocate funds to those 
WIC State agencies that are most in need and able to spend the funds 
most effectively. By allowing the Secretary to allocate funds by such 
means as he deems necessary, only those State agencies which 
demonstrate a true need for funds and are able to manage and utilize 
additional funds effectively would receive additional funding. This 
provision would allow better targeting, improved management and 
expedited distribution of WIC funds to those States that may otherwise 
have to curtail WIC operations.
    Also, to allow additional funding to be allocated to States that 
need it the most, the Agency has requested that each State agency's 
fiscal year 1998 appropriated funds be reduced by the amount of food 
funds spent forward from fiscal year 1997. FCS believes that reducing 
the funds allocated to State agencies that had prior year spend forward 
funds and reallocating these funds to other States that are facing 
funding shortages will facilitate our goal of funding each State agency 
at or hear fair share level.
    FCS is committed to developing a revised allocation formula that is 
better suited to a full funding environment.

                        wic nutrition assessment

    Mr. Skeen. How much of the total provided in administrative 
expenses is used to cover the cost of nutrition assessment? How are 
these assessments made?
    Response. WIC nutrition services and administration (NSA) funds are 
expended for and reported by the following purposes: program 
management, client services, nutrition education and breastfeeding 
promotion and support. The cost category of client services includes 
expenditures on nutrition assessments, the issuance and explanation of 
food instruments, and referrals to other health and social services. 
Thus, nutrition assessments are not tracked separately but are a part 
of the client services information provided by States.
    The latest expenditure data available (fiscal year 1995) indicates 
that total Federal WIC expenditures by State and local agencies was 
$3,421,004,282, which includes the costs both of food and NSA. Of that 
amount, $379,881,885 (11 percent) was spent on client services, 
representing, in part, expenses for nutrition assessments.
    In accordance with Federal WIC regulations, an assessment of 
nutrition risk of applicants to determine their WIC eligibility must 
include, at a minimum, height and weight measurements and a blood test 
for iron-deficiency anemia. States also collect additional medical/
nutrition information, such as a health history, and, either a 24-hour 
dietary recall or food frequency assessment. WIC agencies either obtain 
this health data directly on site during the WIC certification process 
or accept health data referred to them by the applicant's health care 
provider. The WIC competent professional authority (e.g., a 
nutritionist or nurse) is responsible for reviewing nutrition 
assessment information and making determinations as to whether 
individual applicants are at nutritional risk.

                         wic infant enrollment

    Mr. Skeen. The Secretary has stated that 40% of infants in this 
country are in the WIC program. Provide a table that shows, by state 
the total number of births and the number enrolled in the program for 
1995 and 1996.
    Response. Data on live births for 1996 are not yet available. Using 
preliminary data on live births for 1995, the Agency estimates that the 
percentage of infants in the U.S. and territories who participate in 
WIC is slightly less than 46 percent.
    [The information follows:]

[Page 516--The official Committee record contains additional material here.]


                  alabama on-line ebt feasibility test

    Mr. Skeen. What is the status of the plan by Alabama to conduct a 
feasibility test of an on-line EBT solution using a magnetic stripe 
card along with food stamps?
    Response. Alabama, as part of the Southern Alliance of States (SAS) 
project, is planning to conduct a feasibility test of an on-line EBT 
redemption system for WIC using a magnetic stripe card, along with the 
FSP functionality being implemented in that State. The WIC pilot, which 
will include approximately 650 clients and 39 retailers, is scheduled 
to begin after the FSP pilot in Montgomery County. Test results will 
determine further expansion, including an option to add North Carolina 
and/or Tennessee. Alabama is negotiating with Citibank and its 
subcontractors as to a WIC pilot start-up date, expected to begin in 
September or October 1997.

                        wic certification period

    Mr. Skeen. What is the certification period in the program? How 
often must participants be recertified?
    Response. WIC certification periods vary by participant category. 
Pregnant women are certified for the duration of their pregnancy and up 
to six weeks postpartum. Breastfeeding women are certified at intervals 
of approximately six months ending with the breastfed infant's first 
birthday. Nonbreastfeeding postpartum women are certified for up to six 
months postpartum. Most State agencies permit local agencies to certify 
infants who are under six months of age for a period extending to the 
infant's first birthday provided the quality and accessibility of 
health care services are not diminished. Children are certified at 
intervals of approximately six months, ending at the end of the month 
in which a child reaches his/her fifth birthday.
    At the end of the certification periods noted above, participants 
must reapply and be determined to meet all eligibility criteria, 
nutritional risk, income, and residency, in order to receive continued 
WIC Program benefits.
                        wic state reallocations

    Mr. Skeen. During fiscal year 1996, USDA conducted five 
reallocations to WIC state agencies of recovered prior year and current 
year funds. Provide a list of when these reallocations occurred and the 
amount of each.
    [The information follows:]

----------------------------------------------------------------------------------------------------------------
                                                                    Prior year     Current year        Total    
                              Month                                 recoveries         funds       reallocation 
----------------------------------------------------------------------------------------------------------------
January.........................................................     $13,456,983               0     $13,456,983
February........................................................               0     $28,950,000      28,950,000
May.............................................................      50,000,000      24,443,475      74,443,475
July............................................................      26,543,017      26,438,364      52,981,381
August..........................................................               0      10,119,743      10,119,743
                                                                 -----------------------------------------------
      Total.....................................................      90,000,000      89,951,582     179,951,582
----------------------------------------------------------------------------------------------------------------

                             wic referrals

    Mr. Skeen. Provide a list of all referrals WIC caseworkers make and 
indicate which are mandated by law.
    Response. There are only two programs which WIC local agency staff 
are required to refer applicants/participants to. They are:
          Medicaid, if it appears that such applicants may be eligible 
        for Medicaid benefits and are not participating in the program; 
        and
          Drug and other harmful substance abuse counseling, treatment 
        and education programs.
    Other referrals commonly made but not required include:
  Temporary Assistance Program for Needy Families
  Child Abuse Counseling
  Early and Periodic Screening, Diagnosis and Treatment (EPSDT) Program
  Expanded Food and Nutrition Program (EFNEP)
  Family Planning
  Food Stamp Program
  Immunization Programs
  Maternal and Child Health (MCH) Program
  Prenatal Care Programs
  Well-Child Care Programs
  Local Programs for Breastfeeding Promotion

                       wic discretionary funding

    Mr. Skeen. Provide a table that shows how much in bonus funding 
each regional director and regional office received in fiscal years 
1995 and 1996.
    Response. Discretionary funds equal 10 percent of the total 
appropriated funds allocated for nutrition services and administration. 
Most Regions allocate discretionary funding for specific projects and 
initiatives. However, much of the discretionary funding, especially in 
fiscal year 1997, was provided to the State in the same proportion as 
allocated by the funding formula and was not earmarked for special 
projects. This is because insufficient funds resulted in decreases from 
the fiscal year 1996 grant level and many Regions believed State 
agencies should receive as close to the fiscal year 1996 grant level as 
possible.

                      REGIONAL DISCRETIONARY FUNDS                      
------------------------------------------------------------------------
                                           Discretionary   Discretionary
                 Region                    funds, fiscal   funds, fiscal
                                             year 1995       year 1996  
------------------------------------------------------------------------
Northeast...............................      $9,175,981      $9,458,281
Mid-Atlantic............................      11,366,270      11,795,979
Southeast...............................      17,665,762      18,320,009
Midwest.................................      13,681,161      14,167,375
Southwest...............................      13,275,785      14,010,602
Mountain Plains.........................       6,935,457       7,222,391
Western.................................      17,918,286      20,369,511
                                         -------------------------------
      Total.............................      90,018,702      95,344,148
------------------------------------------------------------------------

                    certifying wic nutritional risk

    Mr. Skeen. In addition to meeting income eligibility requirements, 
participants must also be certified by a medical professional to be 
nutritionally at risk. Describe the process this entails. What is done 
to medically certify a participant?
    Response. In determining nutritional risk, at a minimum, height or 
length and weight must be measured, and a blood test for anemia must be 
performed by a medical or health professional on staff at WIC or as a 
private provider. The blood test is not required for infants under six 
months of age, at the discretion of the State agency, for children who 
were determined to be within the normal range at their last 
certification. WIC nutritionists and other staff also look for other 
indicators of nutritional risk, consistent with nutritional risk 
criteria. The medical assessment may also include a patient history to 
determine, for example, if the woman smokes, has a history of high risk 
pregnancies or low birth weight infants, or for infants, their 
immunization status. In addition, the assessment would include a review 
of medical documentation presented by the applicant's physician 
confirming conditions such as diabetes, hypertension, lead poisoning or 
other medically based nutritional risk conditions.

                 percentage of infants eligible for wic

    Mr. Skeen. I understand that over 40 percent of America's infants 
are on WIC. Does this mean that over 40 percent of infants in this 
country are low-income and nutritional risk.
    Response. The relatively high proportion of infants who participate 
in WIC reflects the relatively high rates of eligibility among infants. 
Data from the Current Population Survey (CPS), which is the source of 
official Federal poverty statistics as well as our WIC eligible 
estimates, indicate that about 45 percent of all infants born in the 
country had incomes below 185 percent of poverty in 1995. A similar 
proportion of infants in the U.S. and participating territories 
paticipanted in WIC in that year.
    Young children are far more likely to live in low-income households 
than are the rest of the population. In 1995, nearly one-quarter of 
infants and children under 5 lived in poverty, compared to 11 percent 
of adults aged 18-59. Similarly, the proportion of infants below 185 
percent of the poverty line was nearly twice as high as the proportion 
of adults with income at that level, about 25 percent.
    Over half, 56 percent, of the infants who are income-eligible for 
WIC are living below the poverty level, and three-quarters are below 
130 percent of poverty--the income level at which families qualify for 
free school lunches and breakfasts.
    FCS' State-reported program data on participant characteristics 
confirms that many infant participants are well below the income-
eligibility standard. For 1994, latest data available, 63.7 percent of 
WIC infants had reported incomes below poverty.
    The high rates of participation among infants is also consistent 
with FCS estimates of the incidence of nutritional risk among infants. 
Based on data from National health and nutrition surveys, we estimate 
that nearly all low-income infants will have a qualifying nutritional 
risk.
    flexibility in allocating funds to commodity assistance programs
    Mr. Skeen. Congress provided a single appropriation of $166 million 
in fiscal year 1997 to fund three commodity assistance programs, the 
Commodity Supplemental Food Program, the Emergency Food Assistance 
Program, and the Soup Kitchens/Food Banks Program. This was done to 
give the Department and States more flexibility in allocating funds 
between the programs. How were these funds allocated? How much 
flexibility did the States have in allocating these funds to the three 
programs?
    Response. The Secretary has exercised discretion as follows in 
disposition of the $166 million appropriated for the three programs. In 
accordance with the authority provided in the appropriations 
legislation, the Secretary has set aside $76 million--the amount in the 
President's budget request for fiscal year 1997--for the Commodity 
Supplemental Food Program (CSFP). The Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, P.L. 104-193, which was enacted 
a few weeks after the appropriations legislation, absorbed the Soup 
Kitchens/Food Banks Program (SK/FB) into the Emergency Food Assistance 
Program (TEFAP). Thus the remaining $90 million was left for the 
``consolidated'' TEFAP. Of the $90 million, $45 million was allocated 
to States for administration of the program, and the remaining $45 
million, less costs associated with commodity procurement, is being 
allocated to States in the form of TEFAP commodity entitlements.
    States did not exercise discretion regarding the division of the 
$166 million among TEFAP, CSFP, and SK/FB. As indicated above, the 
Secretary determined the amount to be used for CSFP, and P.L. 104-193 
subsumed SK/FB into TEFAP. States were, however, granted discretion to 
request that part or all of their TEFAP administrative funds 
allocations be used instead for commodity purchases. Furthermore, they 
can decide to use their commodity entitlement for distribution to needy 
households; or provision of meals to the needy, including the homeless; 
or a combination of the two.
    Mr. Skeen. Provide a table that shows, by state, how these funds 
were spent.
    Response. Preliminary close-out fiscal year 1997 expenditure data 
will not be available from States until early January 1998. Therefore, 
FCS cannot report how the funds were spent. FCS can, however, detail 
how resources are being allocated among States.
    Of the $166 million, $76 million was set aside for the Commodity 
Supplemental Food Program (CSFP). These funds, plus an estimated $15.2 
million in CSFP funds carried over from fiscal year 1996, have been 
allocated among States as indicated by Exhibit A. (The exact amount of 
carry-over has yet to be determined. The most recent estimate is 
approximately $16 million.)
    The remaining $90 million, plus $100 million made available for 
Emergency Food Assistance Program (TEFAP) commodity purchases by P.L. 
104-193, yields a maximum of $190 million for TEFAP in fiscal year 
1997. Of this amount, $45 million has been allocated to States for 
program administrative expenses. The amount of $135 million from the 
remaining $145 million has been allocated among States in the form of 
commodity entitlements. These allocations are displayed State by State 
in Exhibit B. The Department has requested a supplemental appropriation 
of $6.25 million for the Nutrition Education and Training Program to be 
offset from TEFAP funds. This amount is being held back pending 
disposition of the supplemental request.

[Pages 520 - 521--The official Committee record contains additional material here.]


                              csfp funding

    Mr. Skeen. Update the table that appears on page 95 of last year's 
hearing record showing a breakout of CSFP funding to include fiscal 
year 1997.
    [The information follows:]

                                                  CSFP FUNDING                                                  
----------------------------------------------------------------------------------------------------------------
                           Fiscal year                                  WIC           Elderly          Total    
----------------------------------------------------------------------------------------------------------------
1993............................................................     $60,303,000     $32,609,000     $92,912,000
1994............................................................      51,074,000      36,966,000      88,040,000
1995............................................................      42,589,000      44,328,000      86,917,000
1996............................................................      38,540,000      53,222,000      91,762,000
1997............................................................      38,562,000      62,918,000    101,480,000 
----------------------------------------------------------------------------------------------------------------
Note.--Administrative costs are not reported by category. The breakdown of administrative costs included in the 
  above data is based on the ratio of food costs for WIC and elderly participants to total program expenses.    

    Mr. Skeen. The budget request includes an increase of $10 million 
for the Commodity Supplemental Food Program. This is in part to support 
an increase in elderly participation levels, but the program 
performance data shows elderly participation levels dropping 
significantly in fiscal year 1998 from fiscal year 1997 levels. How do 
you explain this?
    Response. The requested increase of $10 million in the Commodity 
Supplemental Food Program (CSFP) appropriation is a significant amount, 
given the Administration's efforts to reduce the Federal deficit and 
the consequent need to control spending for discretionary programs. 
Funds available for program operations will fall from $92 million in 
fiscal year 1997 to $86 million in fiscal year 1998. The funds 
available in fiscal year 1997 are derived from two sources: unused 
funds appropriated in fiscal year 1996 which have been carried forward 
into fiscal year 1997--$16 million; and fiscal year 1997 
appropriations--$76 million. No funds are estimated to be carried 
forward from fiscal year 1997 into fiscal year 1998. Therefore, the 
fiscal year 1998 budget is increasing while program participation 
drops.
    The increase in elderly participation shown in the budget is fiscal 
year 1996 average compared to the average for fiscal year 1997. In 
fact, the level of participation estimated for fiscal year 1997 
represents the year-end level estimated to be achieved in September of 
fiscal year 1996 and continued at that level throughout fiscal year 
1997.
                           tefap commodities

    Mr. Skeen. Update the table that appears on page 96 of last year's 
hearing record showing the amount of commodities purchased with 
appropriated funds and the amount of commodities donated to the program 
to include fiscal year 1996 actuals and fiscal year 1997 estimates.
    Response. In fiscal year 1997, no bonus commodities will be donated 
to the program. The updated table follows.

                                                TEFAP COMMODITIES                                               
----------------------------------------------------------------------------------------------------------------
                                                         Entitlement                          Bonus             
                    Year                     -------------------------------------------------------------------
                                                   Pounds           Value            Pounds           Value     
----------------------------------------------------------------------------------------------------------------
1982........................................  ...............  ...............      121,682,012      $79,460,730
1983........................................  ...............  ...............      754,034,303      971,954,427
1984........................................  ...............  ...............      856,348,140    1,034,156,353
1985........................................  ...............  ...............      929,562,429      973,110,714
1986........................................  ...............  ...............      947,692,348      845,794,765
1987........................................  ...............  ...............    1,014,088,662      845,778,720
1988........................................  ...............  ...............      693,486,404      537,335,272
1989........................................      140,732,700     $119,977,167      276,026,814      135,374,656
1990........................................      148,006,284      119,017,514      262,920,772      118,996,793
1991........................................      177,844,572      119,198,359      234,080,760       88,563,131
1992........................................      159,347,682      119,305,477      239,041,044       84,779,276
1993........................................      288,677,173      161,227,078      110,750,630       63,324,846
1994........................................      180,674,418       79,405,684       95,035,356       48,363,528
1995 \1\....................................       62,649,043       25,185,063       33,234,266       29,161,163
1996........................................       40,754,625       16,060,757       18,620,478       14,265,716
1997........................................      338,414,634      138,750,000  ...............  ...............
----------------------------------------------------------------------------------------------------------------
\1\ Includes TEFAP demonstration projects.                                                                      

                       tefap administrative funds
    Mr. Skeen. Please update the table that appears on page 97 of last 
year's hearing record showing the amount of TEFAP administrative funds 
returned to the U.S. Treasury to include fiscal year 1996.
    [The information follows:]

TEFAP administrative funds

        Fiscal year                                                     
1996....................................................               0
1995....................................................            $166
1994....................................................               0
1993....................................................          12,965
1992....................................................       1,465,284
1991....................................................       1,523,515
1990....................................................       1,866,421
1989....................................................       6,506,462
1988....................................................       2,234,340
1987....................................................         904,203

Note.--This table is updated to reflect unobligated funds as of 
September 30, 1996. Funds listed for fiscal years 1987 through 1991 have 
been returned to the U.S. Treasury and are no longer available to pay 
claims.

    Mr. Skeen. In fiscal year 1996, the Department allocated $40 
million to states in the form of administrative funds and authorized 
each state to redirect all or any part of this funding to purchase 
additional commodities. States elected to use $31 million of the $40 
million for administrative funds and the rest for additional commodity 
purchases. What happened this fiscal year?
    Response. States agencies have been given two opportunities to 
redirect administrative funding to commodity purchases. Preliminary 
adjustment requests are due on May 30, 1997, and final requests must be 
submitted July 7, 1997. At this time, the Agency has not received any 
State requests for adjustments. Therefore, it remains to be seen how 
much administrative funding will be used to purchase commodities in 
fiscal year 1997.
    Mr. Skeen. Is food recovery or gleaning activities an authorized 
use of TEFAP administrative funds? If so, how much is being spent on 
this activity in fiscal year 1997?
    Response. Yes, States may use the funds allocated to them for 
administrative support in TEFAP to pay the costs of transporting, 
processing, and distributing both USDA and non-USDA foods, including 
foods obtaining in gleaning or other food recovery activities. However, 
since States do not separately report the activities on which they 
spend their administrative grants, FCS does not know how much is being 
used for food recovery or gleaning. Promoting food recovery is a major 
goal at the Department, and the Agency encourages States to do all they 
can to support it.
                    palau food distribution program

    Mr. Skeen. The traditional food distribution program in Palau is 
being phased out in accordance with the former trust territory's 
independence. When will this phase-out be complete?
    Response. Under the Compact of Free Association established between 
the United States and Palau in 1994, funding levels for commodity 
programs have been progressively reduced since fiscal year 1995, and 
will be terminated by fiscal year 1999. Palau currently receives a cash 
grant in lieu of commodities for school programs, the Nutrition Program 
for the Elderly, and charitable institutions, and may receive commodity 
assistance in disasters.

                        nuclear-affected islands

    Mr. Skeen. Is the food assistance program for the nuclear-affected 
islands authorized for fiscal year 1998?
    Response. No, thus far legislation reauthorizing food assistance 
for the nuclear-affected islands for fiscal year 1998 has not been 
passed. However, the President's fiscal year 1998 budget includes a 
request for $581,000 for commodity assistance for the nuclear-affected 
islands with the expectation that authorizing legislation will be 
enacted.
                 food stamp nutrition education program

    Mr. Skeen. The latest figure the Committee has regarding nutrition 
education in the food stamp program is that 38 states have approved 
nutrition education plans and receive Federal reimbursements of $20 
million for half the cost of nutrition education and promotion 
activities in fiscal year 1996. Give us an update of actuals for fiscal 
year 1996 and estimates for fiscal year 1997.
    Response. The most recent data we have available now reveals that 
the actual amount for fiscal year 1996 is $20.3 million. FCS currently 
estimates that the current number of States that have approved 
Nutrition Education plans will increase from 35 in fiscal year 1996 to 
38 in fiscal year 1997. It is estimated that $46.0 million in Federal 
funds will be spent on State Nutrition Education activities in fiscal 
year 1997. Nutrition education has the potential to significantly 
improve the nutritional status and contribute to the long-term well-
being of food stamp households, so the Agency encourages the States to 
do as much nutrition education as they can. State willingness to pay 
their half of the tab for nutrition education is testimony to their 
belief in the efficiency of nutrition education.

                      nutrition education program

    Mr. Skeen. The agency sponsored a research conference on evaluating 
nutrition education and another on improving access to food. What were 
the findings and recommendations for each? Submit, for the record, a 
copy of the summary volume of conference proceedings.
    Response. The research conference on evaluating nutrition education 
brought together almost 250 experts from government, industry, and 
academia to identify the state of the art in assessing the 
effectiveness of nutrition education. Four major themes applicable to 
the development and evaluation of behaviorally-focused nutrition 
education programs emerged: (1) set appropriate objectives and manage 
expectations, recognizing that achieving large behavior changes will 
take time; (2) define measurable outcomes, avoiding outcomes too global 
to meaningfully measure a program's effect; (3) design interventions 
using appropriate theoretical models--and design evaluations using the 
same models; and (4) include both formative and process evaluation 
activities to enable mid-course corrections if needed. The summary 
volume of conference proceedings on evaluating nutrition education is 
nearing completion. We will provide a copy to the Committee as soon as 
it is available.
    The conference on evaluating nutrition education identified the 
need to develop and test instruments and materials to evaluate 
nutrition education in the Food Stamp Program. FCS has competitively 
awarded three grants for this purpose. The grant recipients and titles 
are: (1) University of California at Davis, ``The Validation of a Brief 
Checklist to Evaluate Nutrition Education Interventions,'' (2) 
University of Vermont, ``The Validation of the Multiple-Pass 24-Hour 
Recall Method Using Total Energy Expenditure by Double Labeled Water in 
Low-Income Women,'' and (3) University of North Carolina at Chapel 
Hill, ``The Development and Evaluation of the Eating Style Index: A 
Series of Simplified Eating Behavior Scales.''
    The conference on food access brought together persons from across 
the country to identify ways to foster better access to a wide range of 
high quality, reasonably priced food for all Americans. Key findings 
include:
    Supermarket development can affect economic development by serving 
as an anchor for shopping centers, attracting new stores, increasing 
foot traffic for existing stores, providing jobs to residents, and 
increasing residential property values.
    Supermarket development requires sound market research, solid 
public/private partnership, quality management, sufficient capital, and 
community support.
    In communities where supermarket development is not feasible, 
alternative strategies can be effective and include improvement of 
smaller stores, farmers' and public markets, food cooperatives, urban 
agriculture, and transportation options.
    Food access and food security are linked. The latter is a 
prevention-oriented concept that looks at the access to food resources 
within a given community.
    there are several planned follow-up activities to identify and 
assess strategies which have already been planned or implemented by 
local communities, and provide technical assistance to communities that 
have identified food access as a problem, but do not have the 
information and/or resources needed to proceed. Additional technical 
assistance tasks include a guidebook for communities, a toll-free 800 
number, and assistance with implementation of food access initiatives.
    [Clerk's note.--A copy of the report of the proceedings on the 
Conference are retained in Committee files]

                    state nutrition support network

    Mr. Skeen. Describe in further detail for the record what a state 
nutrition support network is and how it works.
    Response. A State nutrition support network is a coalition of 
public and private organizations within a State, formed for the purpose 
of improving the nutrition and health of low-income persons in general 
and food stamp participants in particular. It seeks to identify 
appropriate nutrition promotion goals for the State, coordinate the 
preparation of a consumer-centered food stamp nutrition education plan 
designed to reach large numbers of program participants, recruit 
partners to contribute resources for this plan, and implement the 
approved plan. The networks received one-time seed money from the FCS, 
but are expected to become self-sustaining.
    The activities of each network are expected to build on existing 
State and local nutrition promotion and education efforts. They are 
expected to develop plans that are consistent with the Dietary 
Guidelines for Americans, focus on changing nutrition behavior, and 
targeted to the needs and circumstances of those eligible for or 
receiving food stamps.
    FCS has contracted for an independent process evaluation to examine 
the procedures and tasks involved in implementing the networks by 
mapping each projects, making clear what happened, identifying the form 
service delivery will take, identifying problems and measuring program 
activities and interactions. The contractor will provide a consistent 
framework across sites for data collection, and monitor the data 
collection process and reporting to ensure the quality of the 
evaluations. The contractor will evaluate each State project and will 
synthesize the outcome of all of the evaluations. The synthesis is 
expected to provide FCS with information about successful approaches to 
network development as well as limitations of such efforts.
    Mr. Skeen. FCS awarded funds to 10 new states to develop State 
Nutrition Support Networks and extended the original 12 networks for a 
second year. Provide a list of all states that received funding for 
these networks, how much they received, and how much state money was 
received for fiscal year 1995 and 1996.
    Response. The initial seed money to establish the State Nutrition 
Support Networks is entirely Federal. While the networks are expected 
to become self-sustaining with a combination of private and public 
funds, States were not asked to fund the initial start-up.
    [The information follows:]

                 STATE NUTRITION SUPPORT NETWORK FUNDING                
------------------------------------------------------------------------
                                             Fiscal years--             
                  State                   --------------------   Total  
                                             1995      1996             
------------------------------------------------------------------------
Round 1:                                                                
    Alabama..............................   $93,916   $99,949   $193,865
    Arizona..............................    61,231    91,086    152,317
    California...........................    85,606    99,995    185,601
    Georgia..............................    77,670   100,000    177,670
    Indiana..............................    75,000  ........     75,000
    Iowa.................................    99,513    68,672    168,185
    Maine................................    73,976    78,990    152,966
    Minnesota............................    95,762   100,000    195,762
    Missouri.............................    69,419    99,979    169,398
    Vermont..............................    75,279    99,990    175,269
    Virginia.............................    84,514    97,770    182,214
    Washington...........................    75,467   123,504    198,971
Round 2:                                                                
    Colorado.............................  ........   199,981    199,981
    Kansas...............................  ........   199,241    199,241
    Michigan.............................  ........   199,716    199,716
    Nevada...............................  ........   184,721    184,721
    New Jersey...........................  ........   167,700    167,700
    North Carolina.......................  ........   197,064    197,064
    Oklahoma.............................  ........   199,935    199,935
    Pennsylvania.........................  ........   200,000    200,000
    South Dakota.........................  ........   152,000    152,000
    Wisconsin............................  ........   152,156    152,156
------------------------------------------------------------------------

                           food stamp reserve

    Mr. Skeen. Included in the fiscal year 1997 appropriation is a 
reserve of $100 million, which is available until September 30, 1997. 
How much of this reserve has been used so far this fiscal year?
    Response. To date, none of the $100 million reserve included in the 
fiscal year 1997 appropriation for food stamps has been used.
    Mr. Skeen. How much of the fiscal year 1996 reserve was returned to 
the Treasury?
    Response. All of the fiscal year 1996 reserve for the food stamp 
program was returned to the Treasury.
    Mr. Skeen. Update the table that appears on page 98 of last year's 
hearing record showing, by fiscal year, the amount provided for a 
reserve account and how much of the reserve was actually used to 
include fiscal year 1996 actuals and fiscal year 1997 to date.
    [The information follows:]

                                    FOOD STAMP PROGRAM RESERVE APPROPRIATION                                    
                                            [In billions of dollars]                                            
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal years--                    
                                                        --------------------------------------------------------
                                                          1991    1992    1993    1994    1995    1996   1997\1\
----------------------------------------------------------------------------------------------------------------
Reserve Appropriation..................................    $1.5    $1.5    $2.5    $2.5    $2.5     $.5      $.1
Amount Used............................................     1.5     0.9       0       0       0       0        0
----------------------------------------------------------------------------------------------------------------
\1\ It is currently estimated that none of the $0.1 billion will be used in fiscal year 1997.                   

                    advance appropriations for fy-99

    Mr. Skeen. You are proposing, as part of the budget request, 
language requesting $6.6 billion in advance appropriations for the 
first quarter of fiscal year 1999. Has there ever been a time where the 
program has had to stop the delivery of benefits to participants 
because of a lack of funding or any other reason?
    Response. The advance appropriation of funds for fiscal year 1999 
program operations is to continue, without a continuing resolution or 
other delays in a full year appropriation, and ensure efficient and 
uninterrupted delivery of food stamp benefits. Having this funding 
available until the end of the fiscal year is consistent with the 
language in other programs such as Aid to Families with Dependent 
Children. The FCS has never had to cancel or reduce benefits.
    FCS had to plan for such reductions in several years during the 
1980s. This was prior to the establishment of the benefit reserve 
provision, when Congressional action on a supplemental appropriation 
was delayed or uncertain. The requested benefit reserve and advance 
appropriation eliminate the uncertainty that such contingency planning 
creates in the operations of State agencies.

                          payment error rates

    Mr. Skeen. Update the table that appears on page 106 of last year's 
hearing record showing the error rate, by state, to include fiscal 
years 1995 and 1996.
    Response. Official error rates for fiscal year 1996 are not 
available until June 30, 1997; FCS will forward this information as 
soon as it is available. The error rates, by State, for fiscal years 
1991 through 1995 are submitted for the record.
    [The information follows:]

[Pages 527 - 528--The official Committee record contains additional material here.]


    Mr. Skeen. Update the table that also appears on page 108 of last 
year's hearing record showing the overpayment error rate, the 
underpayment error rate, and the total error rate to include fiscal 
year 1995 actuals and estimates for fiscal year 1996.
    Response. Official error rates for fiscal year 1996 will not be 
available until June 30, 1997; FCS will forward this information as 
soon as it is available. The overpayment, underpayment and total error 
rate for fiscal years 1988 through 1995 are submitted for the record.
    [The information follows:]

                           PAYMENT ERROR RATES                          
------------------------------------------------------------------------
                                  Overpayment  Underpayment  Total error
           Fiscal year                rate         rate          rate   
------------------------------------------------------------------------
1988............................         7.41          2.52         9.93
1989............................         7.27          2.54         9.81
1990............................         7.34          2.47         9.81
1991............................         6.96          2.34         9.30
1992............................         8.19          2.49        10.68
1993............................         8.27          2.54        10.81
1994............................         7.65          2.67        10.32
1995............................         7.30          2.42         9.72
------------------------------------------------------------------------

    Mr. Skeen. Provide an update of the table that appears on page 110 
of last year's hearing record showing the overpayment error rate, the 
dollar amount associated with this rate, and the amount recovered to 
include fiscal years 1995 and 1996.
    Response. Official error rates for fiscal year 1996, and their 
associated dollar amounts, are not available until June 30, 1997. FCS 
will forward this information as soon as it is available. The updates 
on the overpayment error rate, including fiscal year 1995 data follow.
    [The information follows:]

                                  PAYMENT ERROR RATES, AMOUNTS, AND COLLECTIONS                                 
----------------------------------------------------------------------------------------------------------------
                                                                   Overpayment                                  
                           Fiscal year                              error rate     Estimated       Liabilities  
                                                                    (percent)     overpayment       collected   
----------------------------------------------------------------------------------------------------------------
1980.............................................................         9.51     $791,082,618                0
1981.............................................................         9.90    1,013,137,756    $1,372,228.00
1982.............................................................         9.54      905,764,365     2,898,386.00
1983.............................................................         8.32      894,504,311     1,058,131.20
1984.............................................................         8.59      902,320,084       588,503.00
1985.............................................................         8.27      847,502,397       299,390.00
1986.............................................................         8.09      840,024,012            \1\ 0
1987.............................................................         7.58      742,792,841            \1\ 0
1988.............................................................         7.41      825,622,613            \1\ 0
1989.............................................................         7.27      849,249,362            \1\ 0
1990.............................................................         7.34    1,035,549,595            \1\ 0
1991.............................................................         6.96    1,206,775,325    \1\ 47,411.00
1992.............................................................         8.19    1,711,896,360            \2\ 0
1993.............................................................         8.27    1,819,727,566            \2\ 0
1994.............................................................         7.65    1,740,104,624            \2\ 0
1995.............................................................         7.30    1,661,942,767            \2\ 0
                                                                  ----------------------------------------------
      Total......................................................  ...........   17,787,996,595     6,264,049.20
----------------------------------------------------------------------------------------------------------------
\1\ States have agreed to invest almost $45 million in program improvements as a result of settling $300 million
  in outstanding quality control liabilities for fiscal years 1986-1991. Because it is an investment of State   
  funds, it is not included in the dollar value of claims recovered. The $47,411 represents a cash payment by   
  the three States which chose to pay the settlements as opposed to investing in program improvements.          
\2\ Pending implementation of P.L. 103-66, formal claims for fiscal years 1992 forward can not be asserted      
  against a State that is subject to a liability. Despite this, 11 States have already settled over $239 million
  in liabilities incurred for fiscal years 1992 forward. Once appropriate rulemaking has been completed, the FCS
  will formally notify the States that have not settled their liabilities and pursue recovery of these claims.  

                  enhanced funding for low error rates

    Mr. Skeen. Update the table that appears on page 112 of last year's 
hearing record showing the states and the amount of enhanced funding 
each received for low-error rates to include fiscal years 1995.
    Response. In 53 instances, 14 States received up to 10 percent 
enhanced administrative funding totaling $69,481,458 for achieving low 
error rates during fiscal years 1986 through 1995.
    [The information follows:]

                  ENHANCED FUNDING FOR LOW ERROR RATES                  
------------------------------------------------------------------------
                                                                Total   
          Fiscal year            No. of        States          enhanced 
                                 States                        funding  
------------------------------------------------------------------------
1986-1988.....................        9  Hawaii............   $1,012,452
                                         Nevada............    1,547,289
                                         North Dakota......      686,453
                                         South Dakota......    1,088,229
1989..........................        7  Alabama...........      459,274
                                         Hawaii............      909,546
                                         Kentucky..........    4,485,273
                                         Montana...........      255,656
                                         Nevada............      578,338
                                         North Dakota......       95,466
                                         South Dakota......      373,931
1990..........................        5  Alabama...........      905,586
                                         Hawaii............    1,095,531
                                         Kentucky..........    4,274,224
                                         North Dakota......       51,530
                                         South Dakota......      609,745
1991..........................        5  Alabama...........    3,836,425
                                         Hawaii............    1,344,323
                                         Kentucky..........    3,382,804
                                         North Dakota......      217,963
                                         South Dakota......      640,849
1992..........................        5  Hawaii............    1,411,896
                                         Kentucky..........    4,492,878
                                         North Dakota......       56,654
                                         South Dakota......      499,799
                                         Virgin Islands....      102,313
1993..........................        6  Alaska............    1,320,916
                                         Hawaii............    1,438,228
                                         Kentucky..........    3,521,698
                                         Rhode Island......      399,752
                                         South Dakota......      515,164
                                         Virgin Islands....      292,433
1994..........................        8  Alabama...........    1,076,572
                                         Arkansas..........    1,488,464
                                         Kentucky..........    1,813,624
                                         Louisiana.........    2,770,699
                                         Massachusetts.....      953,365
                                         South Carolina....    2,968,890
                                         South Dakota......      576,934
                                         Virgin Islands....       46,938
1995..........................        8  Alaska............    1,095,557
                                         Arkansas..........      808,881
                                         Hawaii............    1,624,389
                                         Kentucky..........    5,083,618
                                         Massachusetts.....    5,557,672
                                         Rhode Island......      845,045
                                         South Dakota......      613,369
                                         Virgin Islands....      254,823
                               -----------------------------------------
      Totals..................       53                       69,481,458
------------------------------------------------------------------------

                      quality control liabilities

    Mr. Skeen. What is the status of the $371,138,475 in outstanding 
and potential Quality Control liabilities?
    Response. Since January 1994, the FCS has concluded settlement 
agreements with 11 States to resolve potential liabilities totaling 
$239.38 million for fiscal years 1992 through 1995. The agreements 
reached with 7 of the 11 States resolved potential liabilities for 2 or 
more years.
    In negotiating these settlements, FCS pursued outcome-based 
performance in which the States reinvest an amount designed to enable 
the State to reduce or maintain its error rate at an acceptable level 
of performance for a specified period of time. If the States meet their 
performance standards, additional funds would be waived. If the 
standards are not met, the States would reinvest the balance in payment 
accuracy activities.
    These 11 States may reinvest up to $63.55 million in Food Stamp 
program activities designed to improve payment accuracy over the next 4 
years. Approximately $21.28 million will be reinvested within the next 
2 years. The remaining $42.27 million would be reinvested if these 
States do not achieve a reasonably acceptable level of performance (the 
National average) established in these agreements.
    FCS has contacted the remaining 14 States concerning settlement of 
an additional $131.76 million.
    Mr. Skeen. How much were state agency assessed liabilities for high 
error rates in fiscal year 1996?
    Response. Official error rates for fiscal year 1996, and their 
associated dollar amounts, will not be available until June 30, 1997. 
However, for fiscal year 1995, the most recent year for which official 
error rates are available, 16 States were notified of potential 
liabilities totaling $72.9 million.
    Mr. Skeen. How many states' combined error rate was below six 
percent in fiscal year 1996?
    Response. Official error rates for fiscal year 1996 will not be 
available until June 30, 1997. However, for fiscal year 1995, the 
latest available official error rates, 9 States had error rates below 
six percent and 8 of these 9 States qualified for enhanced funding.
                    national performance error rates
    Mr. Skeen. What was the national performance measure in fiscal year 
1996?
    Response. The National performance measure for fiscal year 1996 
will not be available until June 30, 1997. However, for fiscal year 
1995, the National performance measure, which is the combined rate for 
overpayment errors and underpayment errors, was 9.72 percent.
                     fy-1995 potential liabilities
    Mr. Skeen. In fiscal year 1995, 16 states were notified of 
potential liabilities totaling $72.9 million. What is the status of 
these funds?
    Response. The FCS has concluded settlement agreements with 4 States 
to settle potential claims totaling $23.83 million. FCS has also 
advised the 12 remaining States of its interest in resolving $49.1 
million in outstanding liabilities by allowing the States the option to 
reinvest in Food Stamp Program activities designed to improve program 
administration.
                  food stamp benefits issued in error

    Mr. Skeen. The budget estimates the amount of erroneous benefits 
increasing in fiscal year 1998. How do you explain this when 
participation in the program is going down and the overpayment error 
rate is expected to drop?
    Response. The amount of benefits issued in error depends on two 
things: the total cost of benefits issued and the percentage of 
benefits issued in error. The amount of benefits issued erroneously 
increases slightly between fiscal year 1997 and fiscal year 1998 
because the dollar value of total benefits issued is expected to rise 
faster than the overpayment error rate is expected to decline.
    Mr. Skeen. You are spending $1,008,000 in fiscal year 1997 for 
error reduction activities. Do you think this is a sufficient amount in 
view of the fact that your budget includes about $2.0 billion a year 
for erroneous benefits?
    Response. While FCS has integrated payment accuracy into its day-
to-day management of the program and, consequently, dedicates 
significant staff resources to working with States, the $1,008,000 in 
error reduction funds allows FCS to work more directly with States to 
improve payment accuracy. In fiscal year 1997, these moneys are funding 
6 FCS staff years in addition to providing $300,000 to augment regular 
State Exchange funding of $379,000. State Exchange provides funds to 
support travel among States to allow for the observation of successful 
payment accuracy efforts.
    Past activities funded by error reduction moneys have included 
national conferences bringing State officials together to focus on 
improving payment accuracy and hiring a National payment accuracy 
coordinator through use of an Interagency Personnel Agreement.
    Additional error reduction funding would be particularly helpful in 
this era of decreasing staff resources. Further resources would be 
devoted to working with State agencies to help maintain the trend of 
decreasing Food Stamp error rates.

             wyoming wic off-line ebt demonstration project

    Mr. Skeen. Wyoming has implemented an off-line demonstration 
project for food stamp and WIC benefits. FCS awarded a contract to Abt 
Associates to conduct an evaluation of this project in 1994. The final 
report was expected to be available in 1996. What were the findings and 
recommendations of this evaluation?
    Response. An interim report, Issues in Planning Off-line EBT for 
the WIC and Food Stamp Programs was published March 1996. This report 
addresses roles of the major stakeholders such as program clients, 
private sector partners (food retailers, banks, and processors) local, 
State and Federal staff. It identifies particular system features and 
issues that States may need to consider in proceeding to an electronic 
benefit transfer (EBT) approach such as Wyoming's. Issues particular to 
the WIC Program are identified such as WIC's transaction complexity and 
how the Wyoming system is designed to handle it; the need to build and 
maintain a database of Universal Product Code (UPC) data on WIC-
eligible food; the need for coordination between the local and 
especially State agencies administering WIC and FSP; and the potential 
for using the smartcard to store health information for WIC recipients. 
The report also addresses the desire of food retailers for EBT systems 
to be consistent and integrated with their normal commercial 
operations, for example, no separate point of sale device for 
government transactions. Last, this report provides a framework for 
analyzing baseline costs of paper-based issuance systems for WIC and 
the Food Stamp Program.
    The Final Report for the Wyoming evaluation is in final clearance 
stages and will be published this spring.

                 impact of regulation e on ebt systems

    Mr. Skeen. What were the findings and recommendations of the test 
to determine the impact of Regulation E on EBT systems that was 
conducted at several sites in New Jersey and New Mexico in fiscal year 
1995?
    Response. Regulation E would have limited client liability for 
losses resulting from unauthorized usage of EBT cards and established 
procedures for processing claims for lost benefits. Before EBT, in most 
cases when food stamps were lost or stolen, no replacements were 
provided. Regulation E would have required that lost benefits exceeding 
$50 be replaced, a new cost States would have had to absolve. In 
addition, there would have been substantial costs to check loss claims 
and administer the replacement system. Many programs administrators 
were concerned that the application of Regulation E to EBT would 
increase operating costs, making it a less cost-effective alternative 
to paper coupons. To learn more about the likely effects of Regulation 
E on benefit replacement and administrative costs, FCS sponsored a 
demonstration where sites with EBT systems implemented the provisions 
of Regulation E for 12 months.
    Preliminary results based on the experience of the first several 
months of the demonstration in June 1996 suggested that the application 
of Regulation E increased food stamp benefit replacement costs by about 
$0.01 per case-month, a very small but consistent effect across all 
demonstration sites. The administrative costs associated with 
Regulation E were more substantial and variable across sites. Initial 
estimates of administrative costs in the Regulation E sites ranged from 
$0.19 to $0.94 per case-month for State-administered cash assistance 
programs and about $0.26 per case-month for claims involving food 
stamps, while administrative costs in a comparison site averaged a 
little more than $0.01 to $0.02 per case-month.
    FCS expects to release a final report on the Regulation E 
demonstration later this year. The final report will be based on data 
from the full 12 months of operations at each site, will include some 
additional measures of administrative costs, and will isolate those 
costs less likely to occur outside of a demonstration setting. In 
addition, the report will contain the results of a survey with 
recipients regarding their claim experiences and another with clients 
who experienced a benefit loss but did not report it.
    Mr. Skeen. What has been the impact of the elimination of the 
requirement for state-administered programs to adhere to regulation E 
requirements?
    Response. Prior to the elimination of the Regulation E requirement, 
several States, including Pennsylvania and California, made it clear 
that they would not implement EBT if Regulation E applied to State-
administered systems. Some operational States threatened to discontinue 
their existing projects. Since last summer, when States learned that 
the Regulation E requirement would be eliminated, there has been a 
marked acceleration in EBT implementation activity. For example, 
Pennsylvania now plans to begin expansion in October, while California 
has selected a vendor for a two county project.

                            ebt innovations

    Mr. Skeen. During fiscal year 1996, your agency began EBT 
initiatives in three states aimed at finding innovative ways for EBT 
technology to reduce food stamp trafficking. What have been the results 
of these initiatives?
    Response. In fiscal year 1996, FCS funded trafficking 
demonstrations in three States: Texas, South Carolina, and New Mexico.
    In the Texas demonstration, the State set up a store front 
operation for three months to identify clients choosing to illegally 
traffic their EBT food stamp benefits for a discounted cash amount. The 
goal of the operation was to use EBT data to identify and prosecute the 
recipients, then use the prosecutions to send a message to potential 
traffickers that EBT data can improve the identification and 
prosecution process. The operation was completed in December, and an 
evaluation of the impact will be done once the results of the operation 
are publicized. It is estimated, however, that there will be about 80 
felony prosecutions, and an additional 175 misdemeanor suspects charged 
later this month.
    In South Carolina, the State is demonstrating an EBT client 
integrity system that uses retailer profiling data to identify traffic-
prone stores. Using the EBT data on clients that shopped in these 
stores, the State is identifying recipients that appear to have 
trafficked their benefits. These recipients are then referred to the 
Food Stamp Program's Administrative Disqualification Hearings process. 
The evaluation of this demonstration will be complete in Spring 1998.
    Although funding was approved for a sting operation in New Mexico, 
the State has withdrawn its request to do the demonstration. The 
operation involved having State investigators pose as a ``buyers'' of 
EBT cards at homeless shelters where high volume trafficking is 
suspected. The State decided against implementing a sting that targeted 
the homeless population.
                               ebt status

    Mr. Skeen. Provide the Committee with a complete list and the 
status of all EBT plans of each state.
    Response. The most recent Electronic Benefits Transfer (EBT) Status 
Report for February 1997 follows:

[Pages 534 - 555--The official Committee record contains additional material here.]


                               ebt costs

    Mr. Skeen. What is the impact to both USDA and the states of the 
deletion of the requirement that EBT systems be cost neutral in any one 
year and be on-line systems?
    Response. Because the regulation concerning these two requirements 
is in clearance, the Agency cannot state definitively what the final 
effect will be. However, the Agency expects these changes to have 
positive effects on both the Department and the States. Removing the 
cost neutrality requirement for any one year will reduce Federal and 
State agencies' administrative burdens for handling fiscal actions on a 
yearly basis. Removing the requirement that an electronic benefit 
transfer (EBT) system be on-line allows States more flexibility in 
selecting an EBT system which will meet their particular 
administrative, issuance, security, and redemption processing needs.

                   federal tax refund offset program

    Mr. Skeen. Update the table that appears on page 108 of last year's 
hearing record showing the number of states participating in the 
Federal Tax Refund Offset Program, the amount collected from Federal 
tax refunds, and the amount in administrative costs to run the program 
to include fiscal year 1996 actuals and fiscal year 1997 estimates.
    [The information follows:]

                                        FEDERAL TAX REFUND OFFSET PROGRAM                                       
----------------------------------------------------------------------------------------------------------------
                                                                                  FCS reported                  
                                                                  Number of        costs for      Collection due
                             Year                                   States          federal          to FTROP   
                                                                participating    operations \1\     (millions)  
----------------------------------------------------------------------------------------------------------------
1993.........................................................                9         $698,000              8.7
1994.........................................................               21          983,000             30.7
1995.........................................................               32        1,094,500             26.6
1996.........................................................               40        1,109,750             40.3
1997.........................................................               43      \2\ 945,500           \3\ 45
----------------------------------------------------------------------------------------------------------------
\1\ Federal operating costs are estimated at this level.                                                        
\2\ Decrease in estimate due primarily to a pass-on of the IRS administrative fee to the debtor for most cases. 
\3\ Estimate.                                                                                                   

                   food security and hunger analysis

    Mr. Skeen. A collaborative effort with the Bureau of Census to 
collect answers to questions about food security and hunger was 
undertaken in April 1995. Abt Associates was analyzing the data. What 
were the results of this analysis?
    Response. The date analysis has been completed, with very 
encouraging results: the Census data do appear to support a reliable 
measurement of the severity and extent of food insecurity and hunger in 
the United States. Summary reports providing detailed explanations of 
the methods and results of the analysis are currently in progress. FCS 
expects, that these reports will be completed later this year.

                     special wage incentive program

    Mr. Skeen. Please update the table that appears on page 114 of last 
year's hearing record showing the cost of the Special Wage Incentive 
Program to include fiscal year 1995 and 1996 actuals and fiscal year 
1997 estimates.
    [The information follows:]

                                         SPECIAL WAGE INCENTIVE PROGRAM                                         
----------------------------------------------------------------------------------------------------------------
                                                             Administrative                                     
                        Fiscal year                               costs         Benefit costs       Total \3\   
----------------------------------------------------------------------------------------------------------------
1988......................................................                 0                 0                 0
1989......................................................           $32,206           $68,769          $100,975
1990......................................................            55,464           616,616           672,080
1991......................................................           238,292         2,490,138         2,728,430
1992......................................................           643,366         8,839,521         9,482,887
1993......................................................           964,661        13,802,384        14,767,045
1994......................................................           705,501        17,335,803        18,041,304
1995......................................................           718,591        16,512,584        17,231,175
1996 \4\..................................................         1,523,842        17,727,723        19,251,565
1997 \5\..................................................         2,288,436        46,338,096        48,626,532
----------------------------------------------------------------------------------------------------------------
\3\ Federal share of program costs.                                                                             
\4\ Preliminary figures.                                                                                        
\5\ Budgeted amount (estimates are higher than in previous years because the program is mandatory for all       
  participants in fiscal year 1997).                                                                            

         puerto rico and american samoa food stamp block grants
    Mr. Skeen. Update the table that appears on page 115 of last year's 
hearing record showing the funding for food stamp block grant programs 
to include fiscal year 1998 estimates.
    [The information follows:]

                                   FUNDING FOR PUERTO RICO AND AMERICAN SAMOA                                   
----------------------------------------------------------------------------------------------------------------
                                                                                    Fiscal years--              
                                                                    --------------------------------------------
                                                                       1994     1995     1996     1997     1998 
----------------------------------------------------------------------------------------------------------------
Puerto Rico (dollars in billions)..................................     $1.1     $1.1     $1.1     $1.2     $1.2
American Samoa (dollars in millions)...............................  \1\ 1.7      5.3  \2\ 5.3      5.3      5.3
----------------------------------------------------------------------------------------------------------------
\1\ Funding for fiscal year 1994 was included in the Food Donations Programs for Selected Groups.               
\2\ Funding for American Samoa in fiscal year 1996 was included in the Farm Bill.                               

                     employment and training funds

    Mr. Skeen. Update the table that appears on page 137 of last year's 
hearing record showing a breakout of how the employment and training 
funds were spent to include fiscal year 1997 actuals and fiscal year 
1998 estimates.
    [The information follows:]

                                          EMPLOYMENT AND TRAINING FUNDS                                         
                                             [Dollars in thousands]                                             
----------------------------------------------------------------------------------------------------------------
                                                                 Fiscal     1993-1997                           
                         Fiscal year                           years 100%   50% admin.  Part reimb.     Total   
                                                                 grant        funds        funds                
----------------------------------------------------------------------------------------------------------------
1993........................................................      $74,665      $61,768      $21,237     $157,670
1994........................................................       75,000       62,155       25,588      162,743
1995........................................................       74,382       63,802       24,757      162,941
1996........................................................       74,697       75,399       29,668      179,764
1997........................................................       79,000       79,333       28,877      187,210
1998........................................................       81,000       80,632       29,628      191,260
----------------------------------------------------------------------------------------------------------------

            food stamp participation and unemployment rates
    Mr. Skeen. Update the table that appears on page 139 of last year's 
hearing record showing food stamp participation and unemployment rates 
to include fiscal year 1996 actuals and fiscal year 1997 estimates.
    [The information follows:]

             FOOD STAMP PARTICIPATION AND UNEMPLOYMENT RATES            
------------------------------------------------------------------------
                                                             Civilian   
               Fiscal year                 Participants    unemployment 
                                            (millions)    rate (percent)
------------------------------------------------------------------------
1982....................................          27,717             9.7
1983....................................          21.625             9.6
1984....................................          20.854             7.5
1985....................................          19.899             7.2
1986....................................          19.429             7.0
1987....................................          19.113             6.2
1988....................................          18.653             5.5
1989....................................          18.767             5.3
1990....................................          20.086             5.5
1991....................................          22.620             6.7
1992....................................          25.403             7.4
1993....................................          26.982             6.9
1994....................................          27.472             6.3
1995....................................          26.622             5.6
1996....................................          25.534             5.5
1997 \1\................................          24.303             5.3
1998 \1\................................          23.377             5.5
------------------------------------------------------------------------
\1\ Projected Data.                                                     
Note.--Effective January 1994, there was a major redesign of the Current
  Population Survey, which resulted in slightly higher unemployment     
  rates after that date. Beginning with 1990 data, BLS recently         
  recalculated unemployment rates using new population controls. This   
  also resulted in slightly different unemployment rates than those     
  previously reported.                                                  

                        food disputes assistance

    Mr. Skeen. Update the tables that appear on page 138 of last year's 
hearing record showing the amount of disaster assistance provided to 
each state to include fiscal year 1996 actuals and fiscal year 1997 
estimates.
    [The information follows:]

                                               DISASTER ASSISTANCE                                              
----------------------------------------------------------------------------------------------------------------
                                                                    Food stamp                                  
                         State/disaster                              benefits       Commodities        Total    
----------------------------------------------------------------------------------------------------------------
Fiscal year 1996 actual:........................................                                                
    Virgin Islands/hurricane....................................     $16,294,461      $2,445,000     $18,739,461
    Idaho/floods................................................          39,460  ..............          39,460
    Oregon/floods...............................................          30,016  ..............          30,016
    Washington/floods...........................................          27,216  ..............          27,216
    North Carolina/hurricane....................................      48,497,767         350,000      48,847,767
                                                                 -----------------------------------------------
      Total.....................................................      64,888,920       2,795,000      67,683,920
                                                                 ===============================================
Fiscal year 1997 Estimate;                                                                                      
    Arkansas/tornadoes..........................................     $15,000,000  ..............      15,000,000
    Ohio........................................................      20,000,000  ..............      20,000,000
                                                                 -----------------------------------------------
      Total.....................................................      35,000,000  ..............      35,000,000
----------------------------------------------------------------------------------------------------------------

                      cash-out food stamp projects

    Mr. Skeen. Provide a status report on all cash-out food stamp 
projects.
    [The information follows:]

[Pages 559 - 561--The official Committee record contains additional material here.]


                 increasing state administrative costs

    Mr. Skeen. Why are state administrative expenses projected to 
increase in fiscal year 1998 when benefit costs are being reduced?
    Response. Although program participation is expected to decline 
between fiscal year 1997 and 1998, State Administrative Expenses are 
projected to increase by $45.3 million. The fiscal year 1997 base 
estimate is $1,746,944,000 plus $19,098,000 for incentive payments to 
States for a total of $1,766,042,000 for the fiscal year. The economic 
indicators, provided by the Office of Management and Budget dated 
November 15, 1996, provides for a rate increase of 2.6 percent in 
fiscal year 1998. This rate is applied to the fiscal year 1997 base 
which results in a estimated need of $1,792,365,000 for fiscal year 
1998. An additional estimate of $19,000,000 added to the fiscal year 
1998 base for incentive payments to States, results in a total 
estimated need of $1,811,365,000 for the fiscal year. The increase for 
fiscal year 1998 is the result of inflation only.

                        community food projects

    Mr. Skeen. Included in the request is $2.5 million for the 
Community Food Projects. Describe in further detail what this funding 
will be used for.
    Response. Funding for Community Food Projects was authorized in the 
Federal Agricultural Improvement and Reform Act of 1996. Within the 
Department of Agriculture, administration responsibility for this grant 
program was delegated to the Cooperative State Research, Education, and 
Extension Service. The Community Food Project grants enable communities 
to develop comprehensive, long-term strategies to address local food, 
farm and nutrition issues. The projects increase self-reliance while 
increasing access to nutritious, affordable food through local food 
projects, such as community gardens, community shared agriculture, and 
farmers' markets. The grants are intended to help eligible private 
nonprofit entities that need a one-time infusion of Federal assistance 
to establish and carry out these multi-purpose community food projects.
    Mr. Skeen. How much is being provided in fiscal year 1997 for these 
type projects Provide a brief description of each project?
    Response. A total of $2.5 million is available in fiscal year 1997. 
The request for proposals for the 1997 Community Food Projects will be 
released soon. In fiscal year 1996, a total of $1 million was awarded 
to 23 grantees. A description of the 1996 projects follows.

[Pages 563 - 566--The official Committee record contains additional material here.]


            food distribution program on indian reservations

    Mr. Skeen. You are anticipating that participation levels in the 
Food Distribution Program on Indian Reservations will increase 
significantly in fiscal years 1997 and 1998. What do you attribute this 
to?
    Response. The estimated participation levels for fiscal years 1997 
and 1998 in the Food Distribution Program on Indian Reservations 
(FDPIR) were based primarily on substantial increases during fiscal 
year 1996. During fiscal year 1996, the program experienced an increase 
in participation of 5.4 percent over the previous year. One of the 
causes for the increase in participation may be the reaction of food 
stamp participants to recently enacted welfare reform legislation. Some 
Indian Tribal Organizations report that households shifted from food 
stamps to FDPIR in anticipation of the implementation of the welfare 
reform provisions, particularly the work requirement for able-bodied 
persons without children. Despite the reaction of these households, 
many of them would have been exempt from this food stamp provision. 
Twenty-six States that contain tribal lands have requested waivers of 
this provision of behalf of the Tribes. Although most of the waivers 
have been approved because of the high unemployment rates and lack of 
employment opportunities on many of the reservations, some have been 
denied, including those from Colorado, Minnesota, and Oklahoma. Also, 
several of the waiver requests are pending.
    Program-specific factors may be contributing to participation 
increases. Significant nutritional improvements are being made in the 
food package. The fat, sugar, and sodium content levels have been 
reduced in a variety of products. In addition, frozen ground beef was 
made available during the latter part of fiscal year 1995. During the 
past year, fresh fruits and vegetables were made available to select 
tribes on a pilot basis. This pilot project has been proven to be very 
popular.
    Mr. Skeen. Update the table that appears on page 144 of last year's 
hearing record showing commodity inventory balances for the Food 
Distribution Program on Indian Reservations to include fiscal years 
1996 actuals and estimates for 1997.
    [The information follows:]

Food Distribution Program on Indian Reservations--Commodity Inventory 
Balances

                                                                 Balance
Fiscal year:
    1994 (Actual).......................................     $31,500,000
    1995 (Actual).......................................      25,588,000
    1996 (Actual).......................................      19,662,000
    1997 (Estimate).....................................      18,095,000

    Mr. Skeen. Also update the following table showing FDPIR 
participation levels to include fiscal year 1996 actuals and fiscal 
year 1997 estimates.
    [The information follows:]

                       FDPIR PARTICIPATION LEVELS                       
                     [Average monthly participation]                    
------------------------------------------------------------------------
                                                    Outlying            
              Fiscal year                 Indians     areas      total  
------------------------------------------------------------------------
1986..................................     139,952     5,000     144,952
1987..................................     140,231     5,448     145,679
1988..................................     134,578     3,081     137,659
1989..................................     138,277     2,875     141,152
1990..................................     135,438     2,875     138,313
1991..................................     126,994     2,635     129,629
1992..................................     116,398     1,247     117,645
1993..................................     111,821     3,648     115,469
1994..................................     113,114     2,992     115,774
1995..................................     113,835     (\1\)       (\1\)
1996..................................     120,033     (\1\)       (\1\)
1997 (estimate).......................   \2\110,43                      
                                                 5     (\1\)       (\1\)
------------------------------------------------------------------------
\1\ This data is no longer available. As of fiscal year 1995, the former
  trust territories receive a fixed grant. When FDPIR was converted to a
  fixed grant rather than a grant annually adjusted by actual           
  participation, many of the reporting requirements were dropped.       
\2\ Participation may increase 13,200 in fiscal year 1997.              

                             welfare reform

    Mr. Skeen. Under the new welfare reform rules, an able bodied 
recipient of food stamps is limited to three months of benefits if they 
are not working or in a jobs program. A recipient in FDPIR can, on a 
monthly basis, elect to receive food stamps or commodities. Do the same 
rules apply to able bodied FDPIR recipients?
    Response. No, the new welfare reform rules under the Food Stamp 
Program that apply to able-bodied recipients do not apply to the FDPIR. 
First, the legislative provision that mandated this new policy is 
specific to the Food Stamp Program and does not apply to other programs 
under the Food Stamp Act, such as the FDPIR. Finally, given the 
remoteness, lack of employment opportunities, and high unemployment 
rates on many of the reservation areas served by the FDPIR, a 
significant number of able-bodied FDPIR recipients would be exempt if 
this requirement were extended to the program. Under current rules, 
exemptions may be granted through a waiver approved by the Secretary 
for areas that have unemployment rates above 10 percent or do not have 
sufficient jobs to provide employment for the able-bodied individuals. 
To date, 26 States that contain tribal lands have requested waivers of 
the able-bodied provision on behalf of the Tribes. Although most have 
been approved, some waiver requests, including those from Colorado, 
Minnesota, and Oklahoma have been denied. Several of the waiver 
requests are pending.
           treatment of educational training assistance rule
    Mr. Skeen. A rule published in October 1996 to address educational 
and training assistance provisions found in several statutes will also 
incorporate the principles of the President's Regulatory Reform 
Initiative and the recommendations of the National Performance Review 
by simplifying program regulations and increasing state flexibility. 
Would you elaborate on this and provide some specific examples for the 
record.
    Response. The final rule, Treatment of Educational Training 
Assistance, published on October 17, 1996, contained two major changes 
from the proposed rule that were made in response to the 
recommendations of the National Performance Review to simplify program 
regulations and increase State flexibility, and comments received on 
the proposals. The proposed rule prescribed a detailed and complex 
three-part procedure for excluding educational assistance for food 
stamp purposes. The final rule allowed States the flexibility to design 
procedures for excluding student assistance that are more appropriate 
to their specific circumstances. The proposed rule maintained the 
additional and special verification procedures for student assistance. 
As verification procedures were already outlined elsewhere in the 
regulations, the section outlining verification of student assistance 
was redundant. Therefore, the final rule eliminated these requirements 
and instructed States to follow the verification requirements in 7 CFR 
273.2(f).
               certification of eligible households rule

    Mr. Skeen. When did you publish the proposed rule that revises the 
provisions regarding the certification of eligible households?
    Response. The rule has not been published yet. The draft proposed 
rule titled ``Regulatory Reform--Certification of Eligible Households'' 
is being revised to reflect enactment of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996, P.L. 104-193. The 
Regulatory Reform rule is designed to increase State flexibility and 
eliminate unnecessary regulatory requirements. Public Law 104-193 
contains many State agency options and other provisions which would 
further increase State agency flexibility. FCS is incorporating 
provisions of the Regulatory Reform rule that were superseded by 
provisions of P.L. 104-193 in the proposed rule implementing the 
certification provisions of P.L. 104-193. FCS expects to publish this 
proposed rule, titled ``State Flexibility and Certification Provisions 
of P.L. 104-193,'' in September 1997. Concurrently, FCS is revising the 
draft Regulatory Reform rule to increase State flexibility in 
certification areas not addressed in P.L. 104-193.
     interim rule on non-discretionary provisions of welfare reform
    Mr. Skeen. You anticipate publishing an interim rule this fiscal 
year addressing non-discretionary provisions of welfare reform. This 
would be the first rule implementing the welfare reform legislation. 
Please provide more specifics for the record on what this rule will do.
    Response. The interim rule implements the non-discretionary 
provisions of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996. These provisions, which require no 
interpretation and are non-discretionary, concern changes in the 
minimum and maximum allotments; the standard and shelter deductions, 
and homeless shelter allowance; household composition; the vehicle fair 
market value of exclusion; the definition of ``homeless;'' and 
expedited service. Specifically, the rule: freezes the minimum 
allotment at $10 and eliminates the periodic adjustment; requires that 
annual adjustments to maximum allotments reflect the actual change in 
the cost of the Thrifty Food Plan; freezes the standard deduction for 
the 48 States and the District of Columbia at $134 and freezes it at 
appropriate levels for other areas; sets the shelter deduction cap at 
$247 until December 31, 1996, and at $250 for January 1, 1997 through 
September 30, 1998, and makes the legislated incremental adjustments 
through fiscal year 2001; establishes an optional homeless shelter 
allowance capped at $143; sets the vehicle fair market value exclusion 
at $4,650 as of October 1, 1996 with no future adjustments; provides 
that persons whose primary nighttime residence is a temporary 
accommodation in the home of another may only be considered homeless if 
the accommodation is for no more than 90 days; and increases the number 
of days which States have to provide expedited service from 5 to 7 days 
and eliminates households consisting entirely of homeless people from 
those categories of households entitled to receive expedited service.

                impact of welfare reform on error rates

    Mr. Skeen. The Welfare Reform Act deleted the Federal requirements 
for states' employee training and made use of the Income and 
Eligibility Verification System and Immigration Status Verification 
System optional. What impact will this have on error rates and 
erroneous benefit levels?
    Response. The Department of Agriculture proposed and Congress 
enacted the provision repealing the statutory requirement that States 
train their employees because it was considered to be too prescriptive. 
Repealing the requirement is expected to have no effect on State 
practices and no impact on error rates as States must continue to 
administer the Food Stamp Program accurately and in accordance with the 
Food Stamp Act. Additionally, States generally want to avoid increases 
in their error rates as they take pride in their payment accuracy 
achievements.
    Similarly, the Department proposed and Congress repealed the 
statutory requirements that governed the means States use to verify 
information provided by food stamp applicants and participants--
specifically, the Income and Eligibility Verification System and the 
Systematic Alien Verification for Entitlement Program. No change was 
made in verification requirements and States are expected to use their 
best judgment to choose the means of verification that works best. 
Increasing State flexibility in this way is not expected to increase 
errors.
   time limits on retailers and wholesalers food stamp authorizations
    Mr. Skeen. USDA is now required to establish specific time periods 
during which retailers' and wholesalers' authorizations to accept and 
redeem food stamp benefits will be valid. What is this time period set 
at and how will it be enforced?
    Response. Section 832 of Public Law 104-193 provides authority for 
the Department to establish specific periods of time during which a 
firm may be authorized to accept food stamp benefits. The Department is 
in the process of developing a proposed regulation for public comment 
which will deal with this and other discretionary retailer provisions 
included in the law. The intent of this provision is to essentially 
eliminate the current open-ended authorization of retailers and 
wholesalers in the program. Neither current authorization practices nor 
the implementation of limits on authorization periods preclude FCS from 
periodically requesting information from a firm or concern for purposes 
of reauthorization in the program or from withdrawing or terminating 
the authorization of a firm in accordance with program regulations.

                           forfeited property

    Mr. Skeen. Have any proceeds from any sale of forfeited property 
and money been turned over to your agency to carry out authorization 
and compliance activities?
    Response. No proceeds from any sale of forfeited property and money 
have been turned over to FCS to carry out authorization and compliance 
activities. FCS is fourth in the line of claimants for forfeited 
proceeds. FCS understands there are some proceeds currently being 
distributed, but until the first three claimants are cleared, FCS is 
not certain how much, if any, will remain for the Agency.
              use of food stamps for vitamins and minerals
    Mr. Skeen. The Welfare Reform bill requires USDA to study the use 
of food stamps to purchase vitamins and minerals and report to Congress 
by December 15, 1998. What is the status of this requirement?
    Response. FCS has organized an interagency working group within 
USDA to address the serious objectives specified in the welfare reform 
bill. FCS has drafted a preliminary work plan with staff from USDA's 
Center for Nutrition Policy and Promotion and Economic Research 
Service. The plan describes a general strategy for addressing each 
major objective of the Congressional mandate using in-house resources. 
FCS is now in the process of contacting key staff at the Centers for 
Disease Control and Prevention and the National Academy of Sciences to 
obtain their input.
                    food stamp store investigations

    Mr. Skeen. There are 193,000 stores authorized to participate in 
the food stamp program. During fiscal year 1996, the Compliance Branch 
conducted investigations of 4,862 stores nationwide. Almost half of 
these, or 2,283, resulted in documented evidence of violations with 
sufficient evidence in 1,418 cases to warrant disqualification from the 
program. Of the 1,418 cases, how many were actually disqualified or 
paid civil penalties in lieu of disqualification?
    Response. Updated information on Compliance Branch activity shows 
that investigators of the FCS actually conducted 4,635 investigations 
Nationwide during fiscal year 1996. Of the cases investigated, 2,155 
resulted in documented evidence of violations, and there was sufficient 
evidence in 1,333 cases to warrant disqualification from the Food Stamp 
Program or a civil money penalty.
    A total of 1,272 participating retailers were disqualified from the 
program for violations in fiscal year 1996. The disqualification 
periods assigned to these firms range from 6 months to permanent 
depending on the severity of the violations. During this same period, 
about 200 civil money penalties were also imposed against violating 
firms.
    Investigative cases completed in any one fiscal year which warrant 
disqualification from the program may not always have administrative 
action occur in the same fiscal year, and thus may not become 
sanctioned until the next fiscal year. This occurs primarily because of 
the due process that is afforded to retailers through administrative 
and judicial review rights.

                 state demonstration projects and afdc

    Mr. Skeen. Provide a brief summary of each of the 10 state 
demonstration projects that are ongoing in conjunction with AFDC 
experiments to promote self sufficiency and welfare reform.
    Response. As reported in fiscal year 1996, FCS is operating 10 
State demonstration projects in conjunction with Aid to Families with 
Dependent Children (AFDC) in which high priority has been placed on 
promoting self-sufficiency and welfare reform. It should be noted that 
under the welfare reform legislation AFDC programs have been block-
granted to the States as Temporary Assistance to Needy Families (TANF) 
programs.
    [The information follows:]
Connecticut
    Reach for Jobs First increases food stamp resource limits, and 
excludes the value of one vehicle and disregards some earned income 
when determining food stamp eligibility. It also reduces and time-
limits AFDC benefits, disregards assets of AFDC dependent children, and 
redesigns the JOBS Program.
Illinois
    Work and Responsibility Demonstration Project requires quarterly 
reporting of earned income for food stamps and AFDC. It also requires 
time-limited AFDC benefits for recipients without earned income, six 
months of job search for the job ready, and a family cap. It also 
revises JOBS requirements.
Maine
    Welfare to Work operates a subsidized employment program in three 
regions which cashes out food stamps and consolidates them with AFDC 
benefits. The demonstration project also allows child support payments 
to go directly to families, mandates a family contract, requires teen 
parents to complete high school, and mandates job search for job ready 
applicants and recipients.
New Hampshire
    Employment Program requires all able-bodied participants to do 
intensive job search for 26 weeks and, for those who do not obtain work 
in the 26 weeks, requires them to accept private or public partnership 
employment placement for an additional 26 weeks while seeking full-
time, unsubsidized employment. The program aligns financial assistance 
policies with Food Stamp Program policy, including participant resource 
limits, treatment of vehicles, educational income, and verification of 
income.
North Carolina
    Work First Program raises the resource limit to $3,000 and the 
vehicle asset limit to $5,000 for food stamps and AFDC, and combines 
the food stamp and AFDC applications. It also eliminates increases in 
AFDC benefits after the birth of a child, limits JOBS exemptions, and 
requires participants to sign a self-sufficiency contract.
    Cabarrus Count Work Over Welfare (WOW) emphasizes job development 
and establishing subsidized positions to guarantee that work experience 
opportunities are available. AFDC and/or cash value of food stamp 
allotments of WOW participants supplement the wages paid by employers 
for subsidized jobs.
North Dakota
    Training, Education, Employment, and Management operates in 10 
counties and consolidates AFDC, food stamps and the Low-Income Home 
Energy Assistance Program into one program with a single cash payment.
Ohio
    A State of Opportunity provides for time-limited wage 
supplementation. It supplements wages paid by employers with food 
stamps and AFDC by 50 percent in the first year and 25 percent in the 
second year. In the third year, employers pay 100 percent of wages.
Oregon
    The Oregon Option expands the JOBS Plus wage supplementation 
demonstration project which substitutes private and public sector jobs 
for food stamps, AFDC, and unemployment insurance.
Texas
    Achieving Change for Texans excludes for food stamps monies held in 
Individual Development Accounts and eliminates categorical eligibility 
status of families receiving AFDC diversion payments. It also increases 
AFDC resource limits, excludes earnings of children, requires personal 
responsibility agreements, and time-limited exemptions from work 
requirements.
                    food stamp waiver demonstrations

    Mr. Skeen. Provide a list of the 43 demonstrations containing food 
stamp waivers that were approved in fiscal year 1996.
    Response. A list of all approved food stamp demonstration projects 
follows. At the end of fiscal year 1996 there were 43 approved 
projects, 11 of which had been approved that year. One demonstration 
project has been approved in fiscal year 1997, making a total of 44 
approved projects.

[Pages 572 - 580--The official Committee record contains additional material here.]


                        wage supplement projects

    Mr. Skeen. How many wage supplement projects are currently in 
operation?
    Response. There are 10 wage supplement projects currently 
operating, and two projects under review. Wage supplementation projects 
are operating in Arizona, Maine, Maryland, Massachusetts, Mississippi, 
Missouri, North Carolina, Ohio, Oregon, and Virginia. Projects in 
Pennsylvania and West Virginia are under review. The existing projects 
were approved as demonstrations under the Department's waiver 
authority; however, the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 provides wage supplementation as a State 
option which eliminates the need for a waiver.

               potential for increasing food stamp costs

    Mr. Skeen. Welfare reform gave States flexibility under the 
Temporary Assistance for Needy Families block grant. I read in Mr. 
Ludwig's testimony that if states decide to reduce cash assistance 
under TANF, food stamp costs will increase. Would you please elaborate 
on this point for the record.
    Response. Welfare reform has given States broad new authority under 
the Temporary Assistance for Needy Families (TANF) block grant. The 
choices States make about the level and form of benefits provided can 
affect Food Stamp Program costs dramatically. TANF recipients are 
categorically eligible to receive food stamps just as recipients of its 
predecessor program--Aid to Families with Dependent Children--were. 
Since the amount of food stamp benefits a participating household 
receives is based on its income and AFDC/TANF payments are countable 
income, if States choose, for example, to reduce the cash benefits of 
individual assistance units and use the money for programs such as 
employment and training programs, food stamp costs will increase.

                   on-site retailer visits contractor

    Mr. Skeen. What is the cost of the contract to use private vendors 
to conduct on-site retailer visits?
    Response. In fiscal year 1997, the appropriation included $4.2 
million for the FCS to obtain contractor assistance in conducting 
visits to a substantial subset of authorized retailers as part of our 
retailer authorization process. FCS is in the process of soliciting 
offers from contractors to conduct store visits. These offers have not 
yet been received, nor evaluated, so the Agency is unable to provide 
cost information at this time. FCS anticipates that the contracts will 
be awarded in June 1997. Some of the appropriated funds will be used to 
support FCS contract-related activities and management.

                       elderly nutrition program

    Mr. Skeen. Is the nutrition program for the elderly authorized for 
fiscal year 1998?
    Response. The authorizing legislation expired in 1995. It has not 
been reauthorized.
    Mr. Skeen. Please update the table that appears on page 143 of last 
year's hearing record to show participation levels for the elderly 
feeding program to include fiscal year 1996 actuals and fiscal year 
1997 estimates.
    [The information follows:]

NPE Meals Served--Annual

                                                        Meals (Millions)
Fiscal year:
    1986.......................................................... 228.2
    1987.......................................................... 232.1
    1988.......................................................... 240.4
    1989.......................................................... 243.3
    1990.......................................................... 245.7
    1991.......................................................... 244.6
    1992.......................................................... 245.5
    1993.......................................................... 244.3
    1994.......................................................... 247.2
    1995.......................................................... 251.2
    1996.......................................................... 246.4
    1997 \1\...................................................... 248.3

\1\ Projected data.
---------------------------------------------------------------------------
          freely associated states, palau, and american samoa
    Mr. Skeen. Update the table that appears on page 145 of last year's 
hearing record to show the amount of funds available to the Freely 
Associated States and Palau to reflect fiscal year 1996 actuals and 
fiscal year 1997 estimates.
    [The information follows:]

                   FUNDS AVAILABLE TO THE FREELY ASSOCIATED STATES, PALAU, AND AMERICAN SAMOA                   
----------------------------------------------------------------------------------------------------------------
                                                                 Freely                                         
                         Fiscal year                           associated     Palau       American      Total   
                                                                 States                  Samoa \1\              
----------------------------------------------------------------------------------------------------------------
1997........................................................     $581,000     $169,000   $5,300,000   $6,050,000
1996........................................................      581,000      253,000    5,300,000    6,134,000
1995........................................................      581,000      337,000    5,300,000    6,218,000
1994........................................................      581,000      337,000    1,700,000    2,618,000
1993........................................................      581,000      437,000  ...........    1,018,000
1992........................................................      527,000      311,000  ...........      838,000
1991........................................................      421,000      558,000  ...........      979,000
1990........................................................      421,000      589,000  ...........    1,010,000
1989........................................................      461,000       69,000  ...........      538,000
1988........................................................      501,000      263,000  ...........      764,000
1987........................................................    1,596,552  ...........  ...........    1,596,552
----------------------------------------------------------------------------------------------------------------
\1\ Funded under The Food Distribution Program on Indian Reservations in fiscal year 1994 and under the Food    
  Stamp appropriation in subsequent years.                                                                      

                             adp purchases

    Mr. Skeen. Update the table that appears on page 154 of last year's 
hearing record showing the amount spent for ADP purchases and upgrades.
    [The information follows:]

                              ADP PURCHASES                             
                        [In thousands of dollars]                       
------------------------------------------------------------------------
                                          Hardware   Software    Total  
              Fiscal year                purchases  purchases  purchases
------------------------------------------------------------------------
1988...................................      2,605        497      3,102
1989...................................      3,628        472      4,100
1990...................................      2,107        177      2,284
1991...................................      1,856        589      2,445
1992...................................      2,272        538      2,810
1993...................................        603        212        815
1994...................................      2,573        990      3,563
1995...................................      2,129        229      2,358
1996...................................      2,533        658      3,191
1997...................................      1,017        395  \1\ 1,412
------------------------------------------------------------------------
\1\ Projected.                                                          

                         headquarters staffing

    Mr. Skeen. Update the tables that appear on page 161 of last year's 
hearing record showing both the staff year and dollar level associated 
with the Administrator's Office, both Associate Administrators offices, 
the five Deputy Administrators offices, and the two Office Directors 
offices to include for fiscal year 1997 actuals and estimates for 
fiscal year 1998.
    Response. Following is a breakout of staff year and dollar levels 
in the headquarters' organizations. The dollar level includes salaries 
and benefits, travel, training, and all other expenses related to staff 
support.

                                              HEADQUARTERS STAFFING                                             
----------------------------------------------------------------------------------------------------------------
                                                                   FY 1997 Actual         FY 1998 Estimate \1\  
                        Organization                         ---------------------------------------------------
                                                                Dollars       FTE's       Dollars       FTE's   
----------------------------------------------------------------------------------------------------------------
Administrator's Office \2\..................................    1,316,620        16.11    1,352,830        16.11
Office of Consumer Affairs..................................      357,519         5.34      367,581         5.34
Off. Analysis & Evaluation..................................    2,643,123        38.29    2,721,169        38.29
Off. Govt. Aff. & Public Info...............................    1,344,839        22.21    1,383,728        22.21
Food Stamp Program..........................................    8,523,931       135.67    8,760,345       135.67
Special Nutrition Program...................................    8,152,490       134.77    8,391,039       134.77
Financial Management \3\....................................    6,171,074        90.74    6,352,094        90.74
Management..................................................    8,928,826       143.18    9,188,060       143.18
----------------------------------------------------------------------------------------------------------------
\1\ The fiscal year 1998 estimate assumes that FPA receives full funding from the President's Budget request.   
\2\ The Administrator's Office includes both Associate Administrators' Offices.                                 
\3\ Financial Management includes 12 personnel for Administrative Review related to Food Stamp Appeals.         

    Mr. Skeen. How many people in the Administrator's Office are on 
detail from program or FPA offices?
    Response. As of March 7, 1997, there are no people on detail to the 
Administrator's Office from any program or FPA offices.
    Mr. Skeen. Update the table that appears on page 163 of last year's 
hearing record showing the funding for the Office of Governmental 
Affairs and Public Information to include fiscal year 1997 actuals and 
fiscal year 1998 estimates.
    Response. A funding breakdown for the Office of Governmental 
Affairs and Public Information follows.

                 OFFICE OF GOVERNMENTAL AFFAIRS AND PUBLIC INFORMATION FUNDING AND STAFF LEVELS                 
----------------------------------------------------------------------------------------------------------------
                                                                                                         1998   
                                                              1995 actual  1996 actual  1997 actual    estimate 
----------------------------------------------------------------------------------------------------------------
Congressional Relations.....................................            0     $270,000     $270,000     $270,000
Office of Governmental Affairs and Public Information.......   $1,479,109   $1,403,424   $1,344,839   $1,383,728
FTE's.......................................................           25           23           22           22
                                                             ---------------------------------------------------
      Total dollars.........................................   $1,479,109   $1,673,424   $1,614,839   $1,653,728
----------------------------------------------------------------------------------------------------------------

   national advisory council on maternal, infant and fetal nutrition
    Mr. Skeen. When did the National Advisory Council on Maternal, 
Infant and Fetal Nutrition meet in fiscal year 1996? What were the 
recommendations that resulted from the meeting?
    Response. The Council met on September 10-12, 1996. The purpose of 
the meeting was to develop the Council's 1996 biennial report to the 
President and Congress on ways to improve the Special Supplemental 
Nutrition Program for Women, Infants and Children (WIC) and related 
programs. The report, which has completed the USDA clearance process, 
will be printed and disseminated shortly. It contains the following 
Council recommendations--not necessarily endorsed or supported by 
USDA--as specifically worded in their report:
Legislation
    1. Fully fund the WIC Program. This should be done through a dual 
approach: (1) that Congress continue to appropriate additional funds 
for the WIC Program; and (2) that future appropriations language 
maintain WIC carryover funds within the WIC Program.
    2. Amend the Welfare Reform legislation, P.L. 104-193, to ensure 
that citizenship or alien status is not a condition of eligibility for 
WIC and Commodity Supplemental Food Program (CSFP) applicants/
participants.
    3. Change authorizing legislation to clarify that the WIC Program 
is a health and nutrition program for women, infants and children.
    4. Amend WIC legislation to allow food funds to be used for the 
purchase/rental of breast pumps and pumping kits.
    5. Pass legislation to allow the sharing of supplies of WIC-
developed nutrition education and breastfeeding promotion materials for 
women, infants, and children with CSFP at no cost to CSFP.
Regulations
    1. USDA should amend regulations to allow flexibility in the timing 
of anemia testing of WIC participants which would allow States to 
utilize existing medical standards.
    2. USDA should take immediate action to allow food substitutions to 
better accommodate food preferences of WIC's cultural/ethnically 
diverse population. Changes should maintain the nutritional integrity 
of the current WIC food packages and be as cost-neutral as possible.
Program Operations and Administration
    1. The Council supports in principle the idea of assigning CSFP 
food dollars instead of a caseload allocation. USDA should work with 
State and local cooperators in order to fully explore the policy and 
operational implications of the shift in resource allocation method. It 
is also recommended that a pilot be tested prior to nationwide 
implementation.
    2. USDA should work with partners in DHHS and States to define the 
impacts of managed care on WIC services and the availability of related 
health services of WIC clients.
    3. USDA and DHHS should continue to work together to coordinate the 
provision of WIC and immunization services without compromising the 
nutritional integrity of WIC and/or the immunization goals of CDC's 
National Immunization Program.
    4. USDA should focus efforts to promote and support breastfeeding 
as a priority in WIC by encouraging all State and local WIC agencies to 
implement the National Association of WIC Directors Guidelines for 
Breastfeeding Promotion and Support in the WIC Program and to integrate 
the guidelines into clinic procedures and practice.
    5. Congress or USDA should investigate a potential gap in food and 
nutrition services for certain 5-year-olds.
    6. Recommends to USDA that the Federal/State committee established 
to review the WIC nutrition services and administration (NSA) funds 
formula include as one of its changes, rebate funding regulations and 
policies as they relate to the reallocation of rebate funding between 
food funds and NSA funds.
    7. USDA should retain the current level of State flexibility to 
define nutritional risk criteria within existing broad Federal 
regulations.
    8. USDA should review the current system of measuring WIC Program 
performance and explore the development of more outcome-oriented 
measures.
    9. WIC's nutrition education should not be compromised by the many 
pressing, but important, issues the WIC community is not addressing. 
Measures should be taken to strengthen the quality of nutrition 
education by refocusing energies and resources (i.e., monies, staff, 
and time) on this key component.
    10. USDA and DHHS should continue to assist WIC State agencies in 
their efforts to recruit and retain qualified nutrition professionals 
(i.e., those with a minimum of a bachelor's degree in nutrition or 
dietetics) to work in WIC clinics to ensure the delivery of quality 
nutrition services to participants.
    USDA should explore with the Health Resources and Services 
Administration, DHHS, the designation of ``health provider in 
underserved areas'' to overcome the unavailability of registered 
dietitians and public health nutritionists for community health 
programs such as WIC and Maternal and Child health.

                    ongoing studies and evaluations

    Mr. Skeen. Provide a list of all ongoing studies and evaluations 
that are being conducted in all areas of the agency including the 
Center for Nutrition Policy and Promotion. Include a brief description 
of the study, the total projected cost, the amount spent to date, when 
it started, when it will be completed, whether it is being done in-
house or contracted out, who the contractor is, and whether it was 
mandated by law or not.
    Response. FCS implements its agenda through contracts, grants, and 
cooperation agreements with public and private organizations. An 
updated list of all ongoing nutrition studies and research being funded 
by FCS and the Center for Nutrition Policy and Promotion follows.

[Pages 585 - 626--The official Committee record contains additional material here.]


                    planned studies and evaluations

    Mr. Skeen. Also provide a list of all studies and evaluations that 
are planned for fiscal years 1997 and 1998. Indicate which year they 
are planned to start.
    Response. A list of all studies and evaluations that are planned 
for fiscal year 1997 and 1998 is submitted for the record. Planning for 
fiscal year 1998 studies is still underway, therefore, examples of the 
kinds of studies the agency is considering is presented.

[Pages 628 - 632--The official Committee record contains additional material here.]


                  funding for studies and evaluations

    Mr. Skeen. Update the table that appears on page 196 of last year's 
hearing record showing the amount, by program, spent for studies and 
evaluations to include fiscal year 1996 actuals and fiscal year 1997 
estimates. Also include on this table the authorized level for each 
year.
    [The information follows:]
                  funding for studies and evaluations

----------------------------------------------------------------------------------------------------------------
                 Program                    1990     1991     1992     1993     1994     1995     1996     1997 
----------------------------------------------------------------------------------------------------------------
Food Stamp:                                                                                                     
    Authorized..........................    7,582   11,238   10,229    9,600   11,104   12,148   10,561    3,000
    Spent...............................    7,582   11,238   10,229    9,579   11,104   12,033   10,561    3,000
Child Nutrition:                                                                                                
    Authorized..........................    3,142    3,085    3,835    3,835    3,835    3,663    4,162    1,000
    Spent...............................    3,142    3,056    3,829    3,835    2,835    3,445    2,580    2,516
WIC:                                                                                                            
    Authorized..........................    4,958    5,000    5,000    5,000    5,000    3,495    3,495    3,495
    Spent...............................    4,903    2,328    5,027    4,711    4,823    3,477    3,030    3,495
----------------------------------------------------------------------------------------------------------------

                         program object classes

    Mr. Skeen. Provide an object class breakout for each program within 
FCS.
    Response. Object class breakouts by program follow. Please note 
that the agency object class table originally provided in the 
Explanatory Notes was in error. A corrected Agency table is provided 
for the record.

[Pages 634 - 640--The official Committee record contains additional material here.]


                          1998 budget request
    Mr. Skeen. Provide a detail breakout, by program item, of the 
agency's budget request to the Secretary, the Secretary's request to 
OMB, and the OMB allowance.
    [The information follows:]

[Page 642--The official Committee record contains additional material here.]


     nutrition programs assisting state, local, or private programs

    Mr. Skeen. For the record list all the nutrition programs that USDA 
either conducts or provides assistance for state, local, or private 
operated programs including its cost.
    [The information follows:]

Food and Consumer Service--Nutrition Assistance Programs That Provide 
Assistance for State, Local, or Private Operated Programs and their 
Related Costs, Fiscal Year 1998--($000)

Food Stamp Program:
    Food Stamps...............................................26,977,479
    Nutrition Assistance for Puerto Rico...................... 1,204,000
    Food Distribution Program on Indian Reservations..........    75,000
    The Emergency Food Assistance Program.....................   100,000
                    --------------------------------------------------------------
                    ____________________________________________________

  Subtotal, Food Stamp Program................................28,356,479
                    ==============================================================
                    ____________________________________________________
Child Nutrition Program....................................... 7,782,766
Special Supplemental Food Program (WIC)....................... 4,108,000
Commodity Assistance Program (CAP):
    Commodity Supplemental Food Program (CSFP)................    86,000
    Emergency Food Assistance Program and Soup Kitchens.......    45,000
    Pacific Island Assistance.................................     1,165
    Nutrition Program for the Elderly.........................   140,000
                    --------------------------------------------------------------
                    ____________________________________________________

  Subtotal, CAP...............................................   272,165
                    --------------------------------------------------------------
                    ____________________________________________________

  Total, FCS..................................................40,519,410
                    ==============================================================
                    ____________________________________________________

                    new nutrition education program

    Mr. Skeen. Describe in further detail the new nutrition education 
program due to begin in fiscal year 1998.
    Response. The National Nutrition Monitoring and Related Research 
Act of 1990 (7 U.S.C. 5341) requires the Secretaries of Agriculture and 
Health and Human Services to publish jointly every 5 years the Dietary 
Guidelines for Americans. The U.S. Department of Agriculture (USDA) and 
the Department of Health and Human Services (DHHS) released the Fourth 
Edition of the Dietary Guidelines in 1995 based on the recommendations 
of the 11-member Dietary Guidelines Advisory Committee, a group of 
widely recognized nutrition and medical experts chaired by Dr. Dorris 
Howes Calloway of the University of California at Berkeley. The 1995 
Advisory Committee recommended using a two-step approach to develop the 
Fifth Edition of the Dietary Guidelines for Americans in the year 2000. 
The first step focuses on determining the important nutrition-related 
public health issues and developing the appropriate dietary guidance 
for the general public. The second step focuses on effective 
communication messages to educate the public and achieve behavior 
modification. The Advisory Committee's recommendation was supported by 
consumer research conducted jointly by USDA and DHHS in 1995.
    As the focal point in USDA for linking scientific research to the 
consumer, the Center for Nutrition Policy and Promotion (CNPP) has met 
with representatives from USDA's Agricultural Research Service and DHHS 
and is developing plans to produce and promote the Fifth Edition of the 
Dietary Guidelines due in the year 2000. As part of this work, the CNPP 
will conduct the foundation research in fiscal years 1997 and 1998 to 
develop effective strategies and communication messages that will be 
implemented as a new nutrition promotion initiative in tandem with the 
release of the Dietary Guidelines 2000. This new program will use a 
consumer-oriented approach that focuses on the goal of achieving 
improved dietary behavior not only by increasing knowledge, but more 
importantly by closing the gap between what consumers know and what 
they do in practice. This approach implements a new vision for 
nutrition education that moves beyond information delivery to focus on 
behavior change. Activities in fiscal year 1997 and 1998 will be 
conducted primarily using in-house resources.
    Research has demonstrated that knowledge and information 
dissemination is insufficient to change dietary behavior. Basic 
requirements for consumer-based nutrition promotions have been 
identified and include, (1) Focus on behavior change; (2) Develop a 
strong consumer orientation; (3) Segment and target specific segments 
of consumers; (4) Use multiple, reinforcing, interactive channels; and 
(5) Continually refine consumer messages. CNPP plans to use these key 
elements to guide the development of the new nutrition promotion 
program to be implemented with the release of the Dietary Guidelines 
2000.
    In particular, in fiscal year 1997, CNPP is using available data 
and in-house resources to establish adequate benchmarks for success, 
identify changes in food consumption that will most readily achieve 
these benchmarks and their economic implications, report trends in 
current dietary behavior, evaluate relevant models for achieving 
dietary behavior change, and identify other key indicators for 
effective behavior change. In fiscal year 1998, CNPP plans to identify 
and select potential dietary behaviors and target audiences based upon 
the research conducted in fiscal year 1997 using USDA food consumption 
survey data, the Healthy Eating Index, and a secondary review of 
consumer trends from a variety of sources. CNPP will develop target 
audience profiles and develop collaborative public/private partnerships 
to implement the new nutrition promotion program. Although CNPP will 
coordinate this program, it is envisioned that much of the program will 
be implemented and financed through collaborative public/private 
partnerships.
                   u.s. plan of action for nutrition

    Mr. Skeen. Also describe in further detail the U.S. Plan of Action 
for Nutrition. Submit a copy of the plan for the record.
    Response. In November 1996, CNPP published a joint report written 
by the U.S. Department of Agriculture, U.S. Department of Health and 
Human Services, and the Agency for International Development. This 
report, called Nutrition Action Themes for the United States, was 
undertaken in response to the commitment made by 159 participating 
countries at the 1992 International Conference on Nutrition to prepare 
or improve their National plans of action.
    Principles and themes to facilitate the improvement of nutrition 
security through the end of the 20th century and into the next century 
were based on the World Declaration and Plan of Action for Nutrition, 
published by Food and Agriculture Organization of the United Nations, 
World Health Organization in 1992.
    The report is in two sections. The first focuses on nutrition 
within the United States, the ``Domestic Section.'' This section 
describes the current nutrition situation, the U.S. goal for nutrition, 
and how nutrition action is achieved in the United States. Seven 
priority areas are discussed, together with specific strategies for 
improving the nutrition situation. The second major component is the 
``International Section.'' This section focuses on international issues 
and reflects the leadership role of the United States in supporting 
developing countries' efforts to improve nutritional status and has 
nine priority areas.
    The report was a major background paper for the November 1996, 
World Food Summit in Rome, and will be a basis for U.S. response to the 
Summit.
    [Clerk's note.--A copy of the report is retained in Committee 
files.]
                description of food assistance programs
    Mr. Skeen. Provide a list and a brief description of the 15 foods 
assistance programs managed by your agency.
    [The information follows:]
The 15 food assistance programs managed by the Food and Consumer 
        Service
    1. The Food Stamp Program
    2. The Nutrition Assistance Program for Puerto Rico
    3. The Food Distribution Program on Indian Reservations
    4. The National School Lunch Program
    5. The School Breakfast Program
    6. The Summer Food Service Program
    7. The Child and Adult Care Food Program
    8. The Special Milk Program
    9. Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC)
    10. Farmers' Market Nutrition Program
    11. Commodity Supplemental Food Program
    12. The Emergency Food Assistance Programs/Soup Kitchens
    13. Pacific Island Assistance
    14. Commodities to Charitable Institutions and Summer Camps
    15. Nutrition Program for the Elderly
    The Food Stamp Program (FS). The Nation's principal Food Assistance 
Program. It serves the Nation's most needy persons. The program enables 
low-income households to improve their diets by increasing food 
purchasing power via monthly allotments of coupons or electric benefits 
redeemable for food at retail stores. In addition to benefit costs, the 
appropriation provides for State Administrative costs, and other 
program costs such as printing and distribution of food stamps and 
funds for grants to States for Employment and Training Program 
activities.
    The Nutrition Assistance Program for Puerto Rico. As required by 
the Omnibus Budget Reconciliation Act of 1981, the FSP in the 
Commonwealth of Puerto Rico was replaced with a block grant effective 
July 1, 1982. FCS provides funds to cover 100% of the benefit costs and 
50% of the administrative costs of the program. From its inspection, 
the FSP in Puerto Rico served a much higher proportion of total 
population than the United States as a whole due to significantly lower 
income levels in Puerto Rico. Forty-three percent (43%) of the total 
estimated population participated in the program in 1995.
    The Food Distribution Program on Indian Reservation (FDPIR). The 
Food Stamp Act of 1977 authorized the distribution of agricultural 
commodities to eligible needy persons residing on or near Indian 
reservations or in the Pacific Islands. FDPIR was provided as an 
alternative for Indian households in rural areas where the FSP was not 
readily available or where food stores were inconveniently located. In 
areas where both FDPIR and Food Stamps are available, no household may 
participate simultaneously in both, although they may switch from one 
to the other.
    The National School Lunch Program (NSLP) provides assistance to 
States for the service of nutritious lunches and snacks to children and 
participating schools and institutions. States are reimbursed on the 
basis of the number of meals served to children in participating 
schools at reimbursement rates which vary according to family need. The 
Federal government pays a base rate for all meals served including 
meals to all children whose family income is more than 185 percent of 
the poverty guidelines. Additional assistance is provided to the States 
for serving lunches and snackes free or at a reduced price to needy 
children. Meals served in the NSLP are required to meet the Dietary 
Guidelines.
    The School Breakfast Program (SBP) is available to the same schools 
and institutions as the NSLP. The Healthy Meals for Healthy Americans 
Act of 1994, P.L. 103-448, made these grants permanent. For each 
breakfast served, schools are reimbursed at established free, reduced 
price and paid meals rates. The income eligibility guidelines are the 
same as those for the NSLP.
    The Summer Food Service Program (SFSP) provides funds for food 
service for needy children during school vacation. Institutions 
eligible to participate are those serving children from areas in which 
poor economic conditions exist. Furthermore, these institutions must be 
public or private non-profit schools, other than public entities, sites 
serving homeless children, residential camps, colleges and universities 
that operate the National Youth Sports Program or private nonprofit 
organizations that meet certain criteria.
    The Child and Adult Care Food Program (CACFP) provides cash and 
commodities or cash-in-lieu of commodities for children in non-
residential child care centers and family day care homes and for 
chronically impaired adults and persons 60 years of age and older who 
are enrolled in adult day care centers. In addition, funds are made 
available to the States for audit expenses associated with the 
administration of the CACFP.
    The Special Milk Program helps schools and institutions not 
otherwise participating in a federally subsidized meal service program 
provide milk to children at a low price or free of charge in order to 
encourage children to drink more milk.
    The Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC). The purpose of the WIC program is to improve the health 
of nutritionally at-risk, low-income pregnant, breastfeeding and 
postpartum women, infants and children up to their fifth birthday. 
Participants receive food packages designed to supplement their diet 
with foods that are rich sources of the nutrients that are typically 
lacking in the target population. Participants also receive nutrition 
education on the program, including information about breastfeeding and 
referrals to health services, such as immunization, drug and alcohol 
abuse counseling, well-baby care, prenatal care, and smoking services. 
WIC operates in the 50 States, the Commonwealth of Puerto Rico, and on 
Indian Reservations.
    The Farmers Market Nutrition Program (FMNP). This program strives 
to accomplish two goals: (1) provide fresh, nutritious, unprepared 
foods (such as fruits and vegetables) from farmers' markets to women, 
infants and children who are nutritionally at risk, and (2) to expand 
the awareness and use of farmers' markets by consumers. Although 
directly related to the WIC program, about half of the current FMNP 
operations are administered by State Departments of Agriculture rather 
than WIC State agencies.
    The Commodity Supplemental Food Program (CSFP) provides Federally 
purchased commodities and administrative funds to States which 
distribute the commodities to low-income pregnant, postpartum, and 
breastfeeding women, infants and children up to age 6 and persons 60 
years of age and older residing in the service areas. The quantity and 
variety of commodities are determined by the Secretary of Agriculture.
    The Emergency Food Assistance Program (TEFAP)/Soup Kitchens (SK). 
TEFAP provides federally purchased commodities for use by emergency 
feeding organizations, including soup kitchens, food recovery 
organizations, and food banks, in providing food assistance to the 
needy. Administrative funds are made available to defray costs 
associated with processing, repacking, storage, and distribution to the 
commodities, and are available for both food banks and food recovery 
organizations. The allocation of both commodities and administrative 
grants to States is based on a formula which considers the States' 
unemployment levels and the number of persons with income below the 
poverty level. Funds are provided by direct appropriation and may be 
supplemented by commodities purchased under farm program authorities 
that are distributed at no charge against funds appropriated for TEFAP. 
The Food Stamp Act provides mandatory funding for commodity purchases, 
although additional funds are also appropriated for purchases and 
program administration.
    Pacific Island Assistance covers the Needy Family Program, Special 
Assistance for the nuclear-affected islands, and the Disaster Feeding 
Program which attends to disasters too small to warrant Presidential 
recognition. The islands in the nuclear-affected zones, including Palau 
and the Marshall Islands, receive USDA commodities and administrative 
funds under these programs.
    The Nutrition Program for the Elderly (NPE) provides cash and 
commodities to States for distribution to local governments that 
prepare meals served to elderly persons in congregate settings or 
delivered to their homes. The program promotes good health through 
nutrition assistance and by reducing the isolation experienced by the 
elderly. USDA's role in this program is to supplement the Department of 
Health and Human Services funding for programs for the elderly with 
cash and commodities on a per meal basis for each meal served to an 
elderly person.
    Commodities to Charitable Institutions and Summer Camps. Commodity 
donations to charitable institutions and summer camps are provided 
through broad legislative authority that permits the distribution of 
price support and surplus removal commodities to a wide variety of 
institutions serving needy persons. Accordingly, no funds are 
appropriated directly to FCS for these programs.

                     fcs staffing, by appropriation

    Mr. Skeen. Provide a table that shows the number of staff funded by 
each appropriation provided under the Food and Consumers Services 
heading.
    Response. Provided for the record is a breakout of staff years 
funded by each FCS appropriation in fiscal year 1997. Please note that 
the amount listed for the Food Program Administration includes the 
Center for Nutrition Policy and Promotion, and the Child Nutrition 
figure includes Team Nutrition.

Food and Consumer Services staff levels

Food Program Administration...................................     1,632
Food Stamp Program............................................        56
Child Nutrition Program.......................................       118
                reimbursement for administrative support
    Mr. Skeen. You receive obligations from the Office of the 
Secretary, the National Appeals Division, and the Farm Service Agency. 
For the record, provide a brief description of the reason for each.
    Response. The Office of the Secretary, the National Appeals 
Division, and the Farm Service Agency have agreed to reimburse FCS for 
administrative support provided to them at the Pack Office Center 
Buildings. This support includes facility management and access to 
copiers, passenger shuttle, supplies, mail service, and telephone 
service. In addition, the Office of the Secretary, Chief Financial 
Officer, is reimbursing FCS for the salaries and benefits of three 
employees detailed to the Department FISVIS effort.

                minority business opportunity committee

    Mr. Skeen. You also expect to receive $180,000 from the Department 
of Commerce in fiscal year 1997. What is this for?
    Response. The Department of Commerce provides these funds to pay 
FCS for its work to establish a Minority Business Opportunity Committee 
(MBOC) in Chicago. The Office of Small and Disadvantaged Business 
Utilization of USDA has concluded that assistance to minority-owned 
businesses will contribute to the economic vitality of minority-owned 
businesses served by FCS' Midwest Region. The MBOC is designed to 
survey, monitor, evaluate and prepare reports regarding minority 
business activity through the coordination of Federal, State, and local 
government and private sector resources; coordinate, disseminate and 
exchange information on minority business enterprise among the Federal 
agencies, the local government and the private sector; identify 
potential projects, determine support needs, and monitor expected 
results; and organize and coordinate appropriate committees and task 
forces and assure adequate MBOC outreach.

                    advisory and assistance services

    Mr. Skeen. Object class 25.1, Advisory and Assistance Services is 
expected to increase from $9.2 million in fiscal year 1997 to $17.2 
million in fiscal year 1998. Why?
    Response. The three FCS research accounts constitute virtually all 
of object class 25.1. The fiscal year 1997 appropriation substantially 
reduced the funds for food assistance program research from their 
fiscal year 1996 levels. The President's budget request for 1998 
partially restores the research accounts to their previous levels.

                               equipment

    Mr. Skeen. Why is object class 31, equipment, projected to increase 
$757,000 in fiscal year 1998.
    Response. The agency object class table originally provided to you 
as part of the Explanatory Note was in error. A corrected agency object 
class report will be provided for the record. This revised report shows 
that equipment, Object Class 31, is projected to decrease $227,000 from 
fiscal year 1997.

[Page 648--The official Committee record contains additional material here.]


    Mr. Skeen. How many staff are supported by the $2,218,000 provided 
for the Center for Nutrition Policy and Promotion? How many would be 
supported by the budget request of $2,499,000?
    Response. In fiscal year 1997, the allocation of $2,218,000 
supports approximately 29.5 staff years. For fiscal year 1998, the 
budget request of $2,499,000 supports 32.4 staff years.
      updating the nutrition education and research strategic plan
    Mr. Skeen. The Center has recommended that USDA update its 
nutrition education and research strategic plan. What is the status of 
this recommendation?
    Response. USDA is implementing the recommendation. With the 
concurrences of the Acting Under Secretary for Food, Nutrition and 
Consumer Services, the Acting Under Secretary for Research, Education, 
and Economics, and the Acting Under Secretary for Food Safety, the 
Executive Director of the Center for Nutrition Policy and Promotion 
(CNPP) submitted a report to the Secretary of Agriculture entitled, The 
State of Nutrition Education in USDA--A Report to the Secretary. FCS is 
submitting a copy of this report for the record. An intradepartmental 
working group of representatives from each USDA agency related to 
nutrition education, chaired by CNPP staff, assessed the successes and 
barriers of USDA's nutrition education efforts, reviewed contemporary 
characteristics of effective delivery methods, and analyzed trends in 
programs, legislative history, and funding. The working group report 
recommended that USDA update its nutrition education and research 
strategic plan for the 21st century.
    Before its submission to the Secretary, USDA's Nutrition Education 
and Research Coordinating Council favorably reviewed the report and 
determined that it will be useful in helping USDA meet the requirements 
of the Government Performance and Results Act (GPRA). The Council 
coordinates all USDA activities involving research, analysis, education 
and public information programs relating to human nutrition and is co-
chaired by the Under Secretary for Food, Nutrition and Consumer 
Service, and the Under Secretary for Research, Education, and 
Economics. The Council asked its Human Nutrition Coordinating Committee 
to catalog draft strategic plans for agencies responsible for human 
nutrition education and research. A draft of the Committee's findings 
have been sent to Council members for further deliberation at the 
Council's next meeting. USDA will consider further updating its 
nutrition education and research strategic plan as it works to fulfill 
the requirements of GPRA.

                     nutrition promotion initiative

    Mr. Skeen. In the explanatory notes, you state that the Center for 
Nutrition Policy and Promotion will carry out critical activities to 
position itself to conduct An innovative multi-year nutrition promotion 
initiative in 1998. Please describe this initiative in further detail.
    Response. The Center plans to conduct a new nutrition promotion 
program for implementation in tandem with the release of the Fifth 
Edition of the Dietary Guidelines for Americans due in the year 2000. 
The Center will conduct foundation and program concept development 
research including reviewing consumer trends data and applying the 
Healthy Eating Index to identify potential target audiences and their 
profiles. In addition, the Center will identify changes in food 
consumption that will most effectively raise the Healthy Eating Index 
scores of targeted populations, establish dietary behavioral benchmarks 
and design behavioral models required to translate Dietary Guidelines 
into consumer actions that improve dietary and nutritional status in 
fiscal years 1997 and 1998. The program is intended to translate 
dietary guidance into dietary behavior, by closing the gap between what 
consumers know and do in practice.
    Mr. Skeen. It also stated that the Center will begin training USDA 
staff for the new skills required to successfully conduct nutrition 
promotion activities and to institutionalize a consumer-oriented 
approach to educating consumers. Would you please elaborate on this 
statement.
    Response. By consumer-oriented approach the Agency means designing 
programming that is based on behavioral and consumer research to 
increase prospects of influencing dietary patterns. Beginning in fiscal 
year 1998, the CNPP will begin sponsoring a series of seminars and 
meetings to educate USDA staff on using a consumer-oriented approach to 
nutrition education focused on changing dietary behavior. In November 
1996, CNPP submitted a report to the Secretary of Agriculture entitled 
The State of Nutrition Education in USDA--A Report to the Secretary. 
The report, prepared by an interdepartmental Working Group that CNPP 
chaired, recommended USDA develop a cost-effective, integrated, 
comprehensive, and sustainable nutrition education program for all 
Americans by the 21st century. The recommendation drew heavily from the 
results of a research review published in December 1995 that showed 
nutrition education interventions promoting behavior change as a goal 
from the outset were more effective than interventions focusing solely 
on information dissemination and knowledge gain.
    Traditionally, USDA's approach to its nutrition education 
activities have been to provide information and target knowledge gains. 
USDA has begun to focus more closely on using nutrition promotion 
techniques to positively impact dietary behavior change among Americans 
and keep up with changes in the nutrition science-base, be responsive 
to consumer needs and wants, and be able to better document the 
effectiveness of its nutrition education activities.
    CNPP plans to transfer this knowledge to all agencies within USDA 
responsible for nutrition education will help implement the 
recommendations of the report. This effort will also help CNPP develop 
and implement a nutrition promotion initiative to support the release 
of the Fifth Edition of the Dietary Guidelines for Americans due in the 
year 2000.
                        requests from the public

    Mr. Skeen. How many requests from the public did the Center respond 
to?
    Response. During fiscal year 1996 the CNPP Office of Public 
Information responded to:
          180 telephone calls from reporters, editors, and fact 
        checkers with magazines and newsletters;
          52 television and radio reporters and producers;
          20 news and wire service reporters;
          33 newspaper reporters and editorialists;
          20 book authors and publishers;
          70 advertising agencies and food manufacturers;
          60 professional and trade associations;
          21 diet researchers and nutrition software developers;
          40 high schools and universities;
          15 hospitals and health departments;
          21 congressional offices;
          92 federal and state agencies;
          17 foreign governments, media and universities; and
          76 members of the general public.
    In addition, during fiscal year 1996, the Office of Public 
Information responded to almost 8,000 requests for publications 
produced by CNPP. Each week, CNPP responds to approximately 50 
telephone calls, 30 voice mail messages and 75 written letters or post 
cards from persons, primarily the general public, requesting 
publications.
    Further, many of the materials produced at the Center have been 
placed on the CNPP Home Page at http://www.usda.gov/fcs/cnpp.htm where 
researchers, nutrition professionals, news media, students and the 
public can gain immediate access. In addition, the CNPP Home Page is 
linked to several related web sites. During fiscal year 1996, the CNPP 
Home Page received approximately 50,000 hits.

                      dietary guidelines alliance

    Mr. Skeen. Who serves on the Dietary Guidelines Alliance? How often 
does the Alliance meet? What are the outcomes of these meetings?
    Response. On January 2, 1996, the Secretaries of Agriculture and 
Health and Human Services jointly released the Fourth Edition of 
Nutrition and Your Health: Dietary Guidelines for Americans to provide 
advice to help American consumers build healthy diets for themselves 
and their families. The Dietary Guidelines are the cornerstone of 
Federal nutrition policy and emphasize food choices in the context of 
balance, variety and moderation in the total diet. The Dietary 
Guidelines were based on the recommendation of the 11-member Dietary 
Guidelines Advisory Committee. The Advisory Committee also recommended 
the departments vigorously promote the Dietary Guidelines and develop 
more effective communication messages to educate the public and achieve 
behavior change. Consumer research conducted jointly by the U.S. 
Department of Agriculture (USDA) and the Department of Health and Human 
Services (DHHS) supported the Advisory Committee's recommendation and 
showed a consumers needed to know how to put the Dietary Guidelines 
into practice.
    The Dietary Guidelines Alliance--a coalition of food industry, 
health organizations and the government--was formed to show consumers 
that, with balance, variety and moderation, all foods can fit into a 
healthful diet, and that nutrition, taste, and physical activity are 
inseparable for achieving a more healthful lifestyle. The Alliance's 
mission is to provide positive, simple and consistent messages to help 
consumers implement the Dietary Guidelines and better use the Food 
Guide Pyramid and nutrition fact labels.
    Members of the Alliance include: The American Dietetic Association, 
the Food Marketing Institute, the International Food Information 
Council, the National Cattlemen's Beef Association, the National Dairy 
Council, and the National Food Processors Association, the National 
Pork Producers Council, the Produce Marketing Association, the Sugar 
Association, Inc., and the Wheat Foods Council, in liaison with USDA's 
Center for Nutrition Policy and Promotion, DHHS's Office of Disease 
Prevention and Health Promotion, Centers for Disease Control and 
Prevention, Food and Drug Administration, and the President's Council 
on Physical Fitness and Sports; and Public Voice for Food and Health 
Policy.
    The Alliance has met intermittently for the purpose of conducting 
consumer research and developing consumer messages. The Alliance 
created the ``It's All About You'' campaign using consumer-tested 
message concepts and action tips. The messages are targeted to all 
healthy adults. However, the consumer research focused mainly on women, 
since women often act as ``gatekeepers,'' helping to shape their 
families' nutrition and health behaviors. The Alliance also produced a 
handbook for nutrition and food communicators, Reaching Consumers with 
Meaningful Health Messages, to implement the campaign. (See enclosed.) 
Nancy Schwartz, Ph.D., R.D., Director, National Center for Nutrition 
and Dietetics, The American Dietetic Association, and Eileen Kennedy, 
D.Sc., R.D., Executive Director, CNPP, co-presented the results of 
consumer research supporting the ``It's All About You'' campaign at the 
79th Annual Meeting of The American Dietetic Association. CNPP staff 
have represented USDA as liaisons to the Alliance and have participated 
in Alliance meetings. Except for staff time, incidental travel 
expenses, and purchases of limited quantities of the handbook, CNPP has 
incurred no other costs in supporting its liaison role to the Alliance. 
CNPP is working with the Cooperative State Research, Education and 
Extension Service to distribute the limited quantities of the handbook 
to State and county Extension personnel.
    Mr. Skeen. The Center is developing a Memorandum of Understanding 
to define the Center's expanded role with and future contributions to 
the Alliance. Describe this initiative in further detail.
    Response. To more completely define the Federal government's 
liaison role with the Alliance, CNPP took the lead in drafting a 
Memorandum of Understanding (MOU) among USDA, DHHS, and the Dietary 
Guidelines Alliance. The purpose of the MOU is to provide a framework 
for cooperation among the parties as each develops science-based and 
consumer-oriented messages to promote the Dietary Guidelines. The MOU 
explicitly does not obligate any funds. CNPP plans to execute the 
agreement on behalf of USDA pursuant to 7 CFR 2.19(a)(3), where the 
Secretary of Agriculture has delegated authority to CNPP for, among 
other things, developing materials to aid the public in selecting food 
for good nutrition; coordinating nutrition education, promotion and 
professional education projects within the Department; and consulting 
with the Federal and State agencies, the Congress, universities, and 
other public and private organizations and the general public regarding 
food consumption and dietary adequacy. USDA's office of General Counsel 
has determined that the MOU is legally sufficient and the document is 
in final clearance within USDA and DHHS.
    The Dietary Guidelines Alliance is an example of how CNPP has 
leveraged its modest resources to promote the Dietary Guidelines. The 
Alliance also represents a unique public-private partnership to improve 
the dietary behavior of Americans.

                nutrient content of the u.s. food supply

    Mr. Skeen. What have been the changes in the nutrient content of 
the U.S. food supply in the last 20 years?
    Response. The Nutrient Content of the U.S. food supply is a 
historical data series, beginning with 1909, on the amounts of 
nutrients per capita per day available for consumption. The amount per 
capita is estimated for food energy, energy-yielding nutrients, other 
food components, ten vitamins, and seven minerals. Nutrient estimates 
have been updated through 1994. The following discussion highlights 
trends in the nutrient content of the U.S. food supply from 1974 to 
1994.
    The level of food energy increased from 3,200 calories per capita 
per day in 1974 to 3,800 calories in 1994. This increase reflects 
higher levels of all three energy-yielding nutrients--protein, 
carbohydrate and fat. The increase in carbohydrate from 383 to 491 
grams reflects greater use of sugar and sweeteners and grain products. 
In 1994 grain products replaced sugars and sweeteners as the major 
source of carbohydrate, providing over two-fifths of the carbohydrate 
in the food supply. Fat increased from 151 grams per capita per day in 
1974 to 159 grams in 1994. This increase was due to an increase in fat 
from vegetable sources.
    Changes in fatty acid levels reflects the shift from animal to 
vegetables sources of fat. Both monunsaturated and polyunsaturated 
levels increased, while saturated fatty acids remained the same from 
1974 to 1994. The cholesterol level declined from 440 to 410 milligrams 
per capita per day, mostly due to a decline in the use of egg, red meat 
and fluid whole milk products.
    Vitamins A and B12 were the only vitamins to have a lower level in 
1994 than in 1974. All other vitamins, thiamin, riboflavin, niacin, 
folate, vitamin B6, vitamin C, and vitamin E, had higher levels. 
Vitamins A and B12 levels decreased from 1,560 to 1,520 retinol 
equivalents and 9.2 to 8.1 micrograms, respectively, because of lower 
red meat, particularly organ meat, and egg use. Increases in the level 
of thiamin from 2.1 to 2.7 milligrams, in riboflavin from 2.3 to 2.6 
milligrams and in niacin from 23 to 29 milligrams per capita per day 
are reflective of Federal enrichment standards and the greater use of 
enriched grain products in more recent years. The level of folate which 
increased from 276 to 331 micrograms per capita per day is due to both 
the increased use of grain products as well as citrus fruits. The 
increase in the level of vitamin C from 108 to 124 milligrams per 
capita per day is also associated with increased consumption of fresh 
fruit.
    All minerals calcium, phosphorus, magnesium, iron, zinc, copper and 
potassium, had higher levels in1994 than in 1974. As with thiamin, 
riboflavin, and niacin, the iron level increased as a result of 
enrichment of flour and increased use of grain products. The level of 
calcium increased from 850 to 960 milligrams and phosphorus levels from 
1,430 to 1,680 milligrams per capita per day. Dairy foods are the 
primary contributor of these nutrients and the increased use of low fat 
milks and cheese are mainly responsible for their increase. The 
magnesium level increased form 320 to 380 milligrams, zinc level from 
12.0 to 13.2 milligrams, and potassium level from 3,410 to 3,780 
milligrams per capita per day. These increases are largely due to 
increases in grain product consumption. However, the magnesium level is 
higher also due to increases in low fat milk and poultry use and the 
potassium level due to increased fruit consumption. The level of copper 
increased from 1.6 milligrams to 1.9 milligrams per capita per day and 
is reflective of increased use of grain products as well as legumes, 
and nut products which provided 20 percent of the copper in the food 
supply in 1994.
    The nutrient content of the food supply series has a number of 
uses. The U.S. food supply is one of the major components of the 
National Monitoring and Related Research Program (NMRRP), mandated by 
the National Nutrition and Related Research Act of 1990. As such, the 
focus of food supply related research is based on activities identified 
in the Ten-Year Comprehensive Plan, the basis of the planning and 
coordination of the NMRRP. Food supply nutrient estimates provide 
unique and essential information on the amount of food and nutrients 
available for human consumption and their adequacy in meeting 
population nutrient requirements. The data summarized here are 
invaluable for monitoring the potential of the food supply to meet 
nutrient requirements, examining relationships between food supplies, 
diet and health, and assessing dietary and nutritional status of 
Americans. Food supply and nutrient estimates not only reflect Federal 
enrichment an fortification standards and technology advance in the 
food industry, but also contribute to the Federal dietary guidance 
system. As such, they help agricultural policy makers to establish 
production goals at the food supply and production levels.

                        thrifty food plan update

    Mr. Skeen. The Thrifty Food Plan is being updated to reflect 
current dietary recommendations as well as new food composition, and 
price information. When will this update be available?
    Response. The Center has undertaken a significant effort to revise 
the Thrifty Food Plan. The goal is to reflect current dietary guidance 
and the latest information on prices, eating patterns, and the nutrient 
composition of foods in a cost neutral manner. In practice, this poses 
a substantial methodological challenge to ensure a plan that is both 
meaningful and practical.
    At this point, the Center has developed a preliminary plan that 
does meet all of the required nutrition and cost constraints using a 
newly developed methodology. To determine its usefulness as a guide for 
actual consumption by low-income households, the Center is currently 
working with Pennsylvania State University to develop and test a set of 
menus based on the preliminary plan.
    The availability of a revised Thrifty Food Plan depends on the 
successful demonstration of its feasibility and whether it could be 
implemented in a cost neutral manner and should be available in late, 
1997.
                        family economics review

    Mr. Skeen. What is the annual subscription level of the Family 
Economics Review?
    Response. The Center distributes about 5,000 copies of the 
quarterly peer reviewed journal, now named Family Economics and 
Nutrition Review. The subscription level is approximately 3,600 copies, 
which includes about 2,000 copies purchased by the Cooperative State 
Research, Education, and Extension Service for distribution throughout 
the Cooperative Extension System to Federal, State, and county 
specialists in the 50 States. The Center also distributes 600 copies 
that are mailed to officials in USDA and other Federal agencies, while 
additional copies are distributed at a variety of professional meetings 
and speaking engagements. The Government Printing Office microfiche 
copies to 900 depository libraries.
    Articles for the journal are prepared by Center and other 
Government staff and outside, usually academic, authors. A voluntary 
Advisory Board along with diverse peer reviewers contributes to the 
quality of the journal. Two Center staff members have responsibility 
for editing and preparing the journal for publication although they 
perform additional duties at the Center as well. Printing costs vary by 
size, number of pages, of the issue. The last issue cost the Center 
$1,500.
    Mr. Skeen. Submit a copy of the revised commodity fact sheets for 
the record.
    Response. The revised commodity facts sheets were completed in 
December 1996, and distributed to the States in early 1997. A copy is 
submitted for the record.
    [Clerk's note.--The data is too lengthy for reprint. A copy is 
retained in Committee files.]

                brand-name packaging for fdpir and csfp

    Mr. Skeen. In fiscal year 1996, USDA initiated a five year pilot 
project to test the feasibility of providing commercial products in 
brand-name packaging for FDPIR and CSFP. What are the preliminary 
findings and recommendations of this initiative?
    Response. Dry, ready-to-eat cereals, infant formula and infant rice 
cereal, nonfat dry milk and evaporated milk, and cheese have been 
purchased in brand-name packaging. Manufacturers are invited to bid 
commercial or USDA labels, at their discretion. It is important to note 
that many of the competitive bids continue to be awarded to companies 
packaging in USDA labels. Only one dry, ready-to-eat cereal, out of 
four offered, has been purchased in brand-name packaging. Other 
products may be added to the pilot at a later date. As part of the 
pilot, the Department is introducing longer term contracts for 
commercially labeled products. Early indications are that cost savings 
can be achieved for some products. The pilot project will be formally 
evaluated to determine the cost implications of commercial labels, 
participant acceptability, and the impact on program integrity, i.e., 
possible effects are incidence of trafficking and theft.

                           csfp food packages

    Mr. Skeen. What are the results of the analysis of the CSFP food 
packages?
    Response. Members of the work group formed to conduct the review 
recommended changes to the food packages for pregnant, breastfeeding, 
and postpartum women, children, and the elderly. In response to these 
recommendations, cheese will be added to the CSFP food packages and the 
number of servings in the meat/meat alternate, grain/pasta, and 
vegetable categories of the USDA Food Guide Pyramid will be increased. 
The cost of these additions will be offset by reducing the amounts of 
the least popular items in the food packages. The Secretary has 
approved these changes, and the House Committee on Agriculture and the 
Senate Committee on Agriculture, Nutrition, and Forestry have been 
informed, in accordance with section 5(d) of the Agriculture and 
Consumer Protection Act of 1973, as amended. House and Senate 
Appropriations Committees have also been notified. States may implement 
the changes as early as May, by which time they should have received 
their first shipments of cheese. These food package changes should 
enhance the program's appeal to recipients.
  staff year ceilings for the food stamp and child nutrition programs
    Mr. Skeen. What are the staff year ceilings for the food stamp and 
child nutrition programs? Are these levels set by law?
    Response. The staff year ceiling for both fiscal years 1997 and 
1998 for Food Stamps is 56. The fiscal year 1997 ceiling for Child 
Nutrition is 118. The Child Nutrition ceiling for fiscal year 1998 was 
reduced to 109. These levels are not specifically stated in law; 
however, the ceilings are described in the Explanatory Notes that 
accompany the President's Budget, which provides legislative history in 
support of the FSC appropriations.

                 ig wic vendor management investigation

    Mr. Skeen. An Inspector General investigation into WIC vendor 
management identified some problems with vendors overcharging the 
program. When did the IG report come out?
    Response. The Inspector General's report was issued in June 1988.
    Mr. Skeen. Briefly describe what the IG reported.
    Response. The Inspector General's (IG) audit report disclosed 
problems with the procedures used by WIC State agencies to monitor 
vendors participating in the program. The findings focused on four 
areas: vendor monitoring, reconciliation of food instruments, security 
and accountability of food instruments, and dual participation. The 
report also recommended greater coordination with the Food Stamp 
Program. The audit found that, in addition to considerable variation in 
States compliance monitoring efforts and procedures to prevent program 
abuse, 76.6 percent of the small sample of high risk, non-chain WIC 
vendors the IG visited overcharged the program by an average of 28.5 
percent of the amounts they redeemed.
    However, the Department believes the findings of the study must be 
viewed in perspective, given the sampling and methodology used in the 
study. The IG's study targeted its vendor compliance investigation on a 
small group of historically high-risk, non-chain stores in metropolitan 
areas--hardly reflective or representative of WIC's National vendor 
population. Therefore, even as noted in the audit report itself, 
results of IG's compliance purchases ``cannot be statistically 
projected to all or any category of vendor participating in the WIC 
Program.''
    The Department believes that findings of the 1991 Vendor Issues 
Study are more informative in demonstrating the incidence of vendor 
fraud and abuse. This study, including a Nationally representative 
sample of WIC vendors, found that an estimated 22 percent of vendors 
overcharged the program. These vendor overcharges were estimated to 
have resulted in a 1991 annual overcharge of $39.5 million or 1.9 
percent of the estimated $2.09 billion in annualized retail 
redemptions. In addition, the study found that as much as 17 percent of 
vendors undercharged the program, resulting in 1991 annual undercharge 
of $11.7 million or 0.6 percent of annualized retail redemptions.
    Mr. Skeen. What has the agency done to address this report?
    Response. The Department has fully responded to 14 of the 38 
recommendations contained in the 1988 IG audit. Generally, FCS has 
improved upon vendor management at the National level. Among other 
things, the VAMP vendor tracking system was implemented, as well as a 
system to identify National trends in vendor management. In December 
1990, the Department proposed a rule that addressed most of the 
outstanding recommendations. This rule covered such issues as 
standardized sanctions for abusive vendors, minimum compliance 
investigation standards, greater accountability and security of food 
instruments, and development of methods to prevent overcharging. The 
rule was quite controversial and it was eventually recommended that the 
rule be reproposed. A reproposed rule was submitted to the Department 
for clearance in early 1992, but was returned due to a moratorium on 
regulations. It is currently in the advanced stages of the clearance 
process.
    The Department also recently submitted into clearance another 
proposed rule, to implement mandates of the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 (PRWORA), which enables FCS 
to take prompt action against vendors which seriously defraud or abuse 
the Food Stamp and WIC programs.
    In response to the 1988 audit, FCS also initiated a series of 
initiatives to improve integrity. These include:
    In 1989, WIC began issuing its annual, national Vendor Activity 
Monitoring Profile or VAMP report, which provides various types of data 
on State agencies vendor monitoring efforts. Among other things, VAMP 
has been useful to States as a means of validating their high-risk 
detection systems. Since the initial report, the profile has been 
revised and refined to present more informative data.
    In 1993, FCS published a study that was done to test the level/
magnitude of retailer violations/abuse in a nationally representative 
sample of authorized WIC vendors. The Vendor Issues Study found that 
retailer overcharges constituted 1.9 percent, and undercharges, 0.6 
percent, of the estimated annualized retailer redemptions.
    A similar follow up study is planned for 1997 which will quantify 
the types of retailer violations/abuse.
    In 1995, FCS convened a group of Regional, State, and local WIC 
program and vendor management staff to discuss setting standards of 
integrity in State vendor management systems.
    In 1996, FCS, in cooperation with NAWD, convened a group of State 
and local WIC staff, responsible for food delivery system data 
collection and reporting, to develop data elements for a revised 
national report of States' many vendor monitoring and fraud and abuse 
detection efforts to assure integrity in WIC's food delivery systems.
    The WIC Program has maintained regular dialogue and promoted 
coordination with the Food Stamp Program in several areas related to 
vendor monitoring and abuse detection. For example, WIC's Southwest 
Regional Office has been piloting a project which facilitates data 
sharing between WIC and FSP Field offices on vendors using electronic 
communication.
    FCS has been communicating and cooperating with the Food Marketing 
Institute (FMI) and other retailer associations to promote vendor 
policies and procedures that are practical and efficient for vendors 
without compromising WIC program goals. In addition, FCS has been 
promoting regular dialogue between State agencies and their retailer 
advisory groups.
    The National Association of WIC Directors (NAWD) has included, 
several sessions on vendor management and program integrity monitoring 
efforts in the agenda for their National meeting in May of this year. 
NAWD's membership has recognized the growing need for heightened 
awareness, enhanced staff skills, and knowledge of policies and 
procedures assuring system integrity.

                            wic vendor fraud

    Mr. Skeen. What is the level of program losses due to vendor fraud?
    Response. An FCS report, WIC Vendor Issues Study, 1991, provides 
estimates of the prevalence of overcharging and undercharging. Based on 
those estimates, the net loss to the WIC program in 1995 due to 
overcharging is estimated at $67 million. The study suggests that 
approximately 22 percent of vendors overcharged and 17 percent 
undercharged in one or more of three compliance investigation buys. The 
study concludes that not all overcharges are intentional. The study 
also estimates that approximately 5.5 percent of all vendors initiate 
substitutions of other items for WIC foods.

             government performance and results act (gpra)

    Mr. Skeen. GPRA, known as the Results Act, requires each executive 
agency to issue, no later than September 30, 1997, a strategic plan 
covering at least five years. In addition to a mission statement 
grounded in legislative requirements, the plans are to contain general 
goals and objectives that are expected to be outcome or results 
oriented (such as to improve literacy) as opposed to output or activity 
oriented (such as to increase the number of education grants issued).
    What progress is the agency making in developing its strategic 
plan, including defining its mission and establishing appropriate 
goals?
    Hs the agency identified conflicting goals for any of its program 
efforts? If so, what are the performance consequences of these 
conflicting goals and what actions--including seeking legislative 
changes--is the agency taking to address these conflicts?
    Response. FCS submitted its proposed strategic plan to USDA on 
February 10, 1997. This plan included a mission statement and agency 
goals, as well as policy and programmatic objectives and performance 
measures.
    FCS has not identified any conflicting goals.
    Mr. Skeen. Strategic plans must be based on realistic assessments 
of the resources that will be available to the agency to accomplish its 
goals. As you are developing your strategic plan, how are you taking 
into account projected resources that likely will be available--
especially as we move to a balanced budget? What assumptions are you 
making? How are you ensuring that your goals are realistic in light of 
expected resources?
    Response. FCS has achieved the streamlining goals and is projecting 
that the Agency's resources will now maintain a steady state. In 
developing the annual performance plans, the Agency has made every 
effort to match the goals with existing budget resource levels. While 
the government moves toward a balanced budget, the FCS administrative 
budget has already been reduced to a level that barely supports the 
Agency's mission. FCS staffing has been reduced by 40% since 1980 and 
is currently below the fiscal year 2000 streamlining target in 
accordance with the National Performance Review and the Vice 
President's goals on reducing the Federal workforce.
    FCS needs to maintain its current staff levels in order to properly 
administer the Agency's programs and meet the Agency's goals. Further 
reductions in staff levels or budget resources can only result in 
diminished fiscal and program oversight with a corresponding failure to 
achieve the goals and objectives as stated in the Agency's strategic 
plan and annual performance plan. Development of the performance plan 
anticipates no significant changes from the current administrative 
resource level. The 1998 administrative budget request was the same as 
last year's funding level plus half the inflation needed to offset 
mandated salary increases.
    The Agency is making every effort to develop realistic goals that 
are consistent with expected resources. Specifically, FCS has 
identified resources needed to accomplish each goal based on past 
performance history and current program knowledge. However, the Agency 
will not know if it has overstated or understated the need for 
resources to accomplish each goal until we produce the fiscal year 1999 
accountability report.
    Mr. Skeen. For Congress, the heart of the Results Act is the 
statutory link between agency plans, budget requests, and the reporting 
of results. Starting with fiscal year 1999, agencies are to develop 
annual performance plans that define performance goals and the measures 
that will be used to assess progress over the coming year. These annual 
goals are to measure agency progress toward meeting strategic goals and 
are to be based on the program activities as set forth in the 
President's budget.
    What progress have you made in establishing clear and direct 
linkages between the general goals in your strategic plan and the goals 
to be contained in your annual performance plans? OMB expressed concern 
last year that most agencies had not made sufficient progress in this 
critical area.
    More specifically, how are you progressing in linking your 
strategic and annual performance goals to the program activity 
structure contained in the President's budget? Do you anticipate the 
need to change or modify the activity structure to be consistent with 
the agency's goals?
    Overall, what progress has your agency made--and what challenges is 
it experiencing--defining results--oriented performance measures that 
will allow the agency and others to determine the extent to which goals 
are being met?
    Response. The general goals in the FCS strategic plan which cover 
fiscal years 1997 through 2002 have been clearly linked to the Agencies 
1997 annual performance goals as described in a section of the annual 
performance plan. Although, FCS is required to submit an Annual 
Performance Plan for fiscal year 1999, it became evident that fiscal 
year 1997 would be a good starting point to establish annual goals and 
also would provide the Agency with background information to move more 
quickly to improved performance for the upcoming years. The Agency 
achieved the following by establishing a current year performance plan: 
1) gained the attention of agency managers, 2) showed how their current 
goals and activities are leading to the accomplishment of the strategic 
plan's long-range goals, and 3) developed form and content for future 
plans.
    FCS will develop our 1999 plan in conjunction with our 1999 budget 
estimate process which will begin in April, 1997.
    FCS has concentrated heavily on linking the annual performance 
goals to the strategic plan goals. The Agency will now focus efforts on 
ensuring that the annual performance goals will be linked to the 
President's budget program activity structure. The Agency has met with 
the Department's Acting CFO to discuss these linkages and also how cost 
accounting is linked to GPRA.
    It may be necessary to adjust the budget activity structure. The 
Agency is still evaluating how the annual performance goals will be 
linked with the program activity structure in the budget. At this 
point, FCS can only assume if changes are needed, they will be minimal.
    FCS has developed results-oriented performance measures in the 
strategic plan and the 1997 annual performance plan. The Agency 
received the following comments from the Department about our strategic 
plan performance measures. ``FCS has done an excellent job of 
identifying performance measures in terms of outcomes to be achieved 
rather than focusing on workloads or outputs. We congratulate you on 
quantifying the performance measures . . .'' The Agency is proud of the 
work that has been done and will continue to define results-oriented 
performance measures in the 1999 performance plan.
    Mr. Skeen. If applicable, what lessons did the agency learn from 
its participation in the Results Act pilot phase and how are those 
lessons being applied to agency-wide Results Act efforts? What steps is 
the agency taking to build the capacity (information systems, personnel 
skills, etc.) necessary to implement the Results Act?
    Response. FCS is not a pilot phase agency, therefore, the above 
questions are not applicable.
    Mr. Skeen. The Results Act requires agencies to solicit and 
consider the views of stakeholders as they develop the strategic plans. 
Stakeholders can include state and local governments, interest groups, 
the private sector, and the general public, among others. Who do you 
consider to be the your agency's primary stakeholders and how will you 
incorporate their views into the strategic plans?
    Response. FCS administers its programs in an environment that 
includes other agencies within USDA, other Federal Agencies, State, 
Territorial, Indian Tribal and local governments, advocacy groups and 
program participants.
    The State agencies administer FCS nutrition assistance programs 
through a Federal-State partnership. For most programs, the Federal 
government pays for the costs of the benefits and a portion of the 
administrative costs. States have flexibility to design administrative 
and operational procedures. FCS considers these entities and their 
representatives (e.g., National Association of WIC Directors, American 
Public Welfare Association) to be among its major stakeholders. To 
promote this Federal/State partnership, FCS meets regularly with 
cooperators and State agencies.
    In addition, several public nonprofit advocacy groups have 
interests in FCS programs. These groups include, for example, Public 
Voice and the Food Research Action Council.
    FCS incorporated the needs and viewpoints of its customers into 
this plan. FCS held hearings, analyzed public comments, conducted 
surveys and held meetings with many of the Agency's customers on the 
direction and operations of its programs. For example, FCS solicited 
input from government organizations and advocacy and food industry 
retailer groups on ways to improve program effectiveness and 
efficiency. The Agency has also conducted surveys of programs 
administrators, participants, food retailers and financial institutions 
to obtain information on their satisfaction with FCS programs and how 
they can be improved.
    FCS plans to hold further discussions with these customers on the 
Agency strategic plans over the next several months.
    Mr. Skeen. For the Results Act to be successful, agencies with 
similar missions, goals, or strategies will need to ensure that their 
efforts are coordinated. What other federal agencies are you working 
with to ensure that your strategic plans are coordinated? What steps 
have you taken to ensure that your efforts complement and do not 
unnecessarily duplicate other federal efforts?
    Response. In the development of the strategic plan, FCS has 
coordinated with agencies both within the USDA and with appropriate 
Federal agencies outside USDA. For USDA agencies, FCS identified 
overlapping areas of interest and activity. Discussions were then held 
with any relevant agencies to ensure that any overlapping goals or 
objectives were incorporated into both agencies' plans. These agencies 
included: Agricultural Research Service, Cooperative State Research, 
Education and Extension Service, Agricultural Marketing Service, the 
Farm Service Agency and the Office of Inspector General.
    In addition, FCS identified other Federal agencies with similar 
programs or areas of activity. Discussions were then held with these 
agencies in order to understand their strategic plans, performance 
plans and performance measures. FCS has particularly used this 
information to identify data collections or performance measures that 
could be used by FCS in its performance measurement so that duplication 
of effort did not occur. These were primarily the Department of Health 
and Human Services agencies such as Health Resources Services 
Administration, the Maternal and Child Health Bureau and the Office of 
Child Support Enforcement.
    Mr. Skeen. The Results Act requires agencies to consult with 
Congress as they develop their strategic plans. Since these plans are 
due in September, now is the time for agencies to begin the required 
consultations. What are your plans for congressional consultation as 
you develop your strategic plan? Which Committees will you consult 
with? How will you resolve differing views?
    Response. All USDA Mission Areas/Agencies have prepared draft 
Strategic Plans which are currently being reviewed by an Under/
Assistant Secretary (or other relevant official), the Senior Policy 
Staff and the Secretary. Upon completion of the review, the Department 
plans to provide copies of the Strategic Plan (including an overall 
Departmentwide Executive Summary and the Strategic Plans for the 
individual Mission Areas/Agencies) to relevant Congressional 
Committees. Thereafter, FCS will look forward to meeting with Members 
or Staff to discuss the Strategic Plan and to solicit their input and 
advice on refinements to that Plan. The Agency plans to provide copies 
of the Department's Strategic Plan to the following Committees:
    House Agriculture Committee.
    House Appropriations Committee.
    House Economic and Educational Opportunities Committee.
    House Government Reform and Oversight Committee.
    House Resources Committee.
    Senate Agriculture, Nutrition, and Forestry Committee.
    Senate Appropriations Committee.
    Senate Energy and Natural Resources Committee.
    Senate Governmental Affairs Committee.
    Mr. Skeen. In passing the Results Act, Congress sought to 
fundamentally change the focus of federal management and decision 
making to be more results-oriented. Organizations that have 
successfully become results-oriented typically have found that making 
the transformation envisioned by the Results Act requires significant 
changes in what they do and how they do it.
    What changes in program policy, organization structure, program 
content, and work process has the agency made to become more results-
oriented?
    How are managers held accountable for implementing the Results Act 
and improving performance?
    How is the agency using Results Act performance goals and 
information to drive daily operations?
    Response. Once agency managers start using the fiscal year 1999 
annual performance plan, they may find that changes in program policy, 
organization structure, program content, and work processes are needed. 
It is premature to make this determination at the present time.
    Effective with the fiscal year 1999 annual performance plan, agency 
managers will be responsible for reporting on annual performance goal 
achievement. Through detailed briefings, discussions, conference calls, 
and meetings, most managers have already participated in the 
development of the Agency's strategic plan and annual performance 
plans. As the 1999 process takes shape, each manager will be asked to 
take a more involved role in developing goals and objectives and they 
will become more aware of which goals they are responsible for and how 
these goals will be measured. By educating and involving agency 
managers, the Agency can begin to make changes in current operations to 
improve program performance and accountability.
    It is also premature for FCS to use the Results Act performance 
goals and information to drive daily operations. The Agency is in the 
process of adjusting our culture to the concept of developing strategic 
goals and objectives through senior manager discussions and meetings. 
The Agency believes that these types of changes are best achieved 
methodically which takes time. Once the 1999 annual performance plan is 
in use, the Agency hopes to have developed a process for integrating 
plans and goals into the daily operations.

                           ebt implementation

    Mr. Dickey. In your testimony, you indicated that by the end of the 
fiscal year 1998, Electronic Benefits Transfer (EBT) would be 
operational in 40 States. You also indicated that the remaining 10 
States represent about 45% of food stamp assistance. To which 10 States 
are you referring?
    Response. The remaining States mentioned in the testimony do not 
make up the entire 45 percent. By the end of fiscal year 1998, most of 
the operational States will not be operating statewide systems. 
Therefore, the 45 percent includes the caseloads of the non-operational 
States as well as a portion of the caseload of those States that are 
still in the process of rolling out. While the testimony stated that 
about 40 States will be operational, FCS projects that, should State 
EBT plans be met, there will only be about eight States (or 
territories) that are not operational by the end of fiscal year 1998: 
Arizona, Delaware, Guam, Montana, Nebraska, Nevada, the Virgin Islands 
and West Virginia.
    Mr. Dickey. When will these have operational EBT systems in place?
    Response. FCS hopes to be able to work with each of these States so 
they have systems in place by the end of fiscal year 1999. Minimally, 
the law now requires that they have systems in place by 2002.
    Mr. Dickey. What is causing the delay in these States?
    Response. Until the recent welfare reform legislation, EBT was not 
a mandated issuance system. Consequently, it was not a priority for 
these States. Now that there is a legislative mandate, FCS has begun 
working with these States to ensure they comply with the legislative 
mandate. Furthermore, welfare reform exempted EBT systems from the 
requirements of Regulation E, which had been a serious concern to 
several States.
    Mr. Dickey. What, if anything, can this committee do to speed up 
the process?
    Response. FCS does not believe that the process needs to be speeded 
up at this time. Most States are already well positioned to have 
systems in place by the end of fiscal year 1999. Now that there is a 
mandate to implement EBT, we will be working with the remaining States 
to try and meet that goal as well. FCS will approach the committee at a 
later time if it encounters unforeseen difficulties with these States.
    FCS does not need to retain EBT funding so that we can continue to 
provide the staff support and the technical assistance States need. FCS 
has been working with States and providing information through 
conferences, EBT User Group meetings, and individual meetings with and 
among States. FCS has provided technical assistance and training to 
States in security, interface design, testing, and other areas. FCS 
needs to retain funding to continue to provide this critical staff 
support and technical assistance to States as they work through the 
process of planning and implementing EBT.

                   work requirements and food stamps

    Mr. Dickey. While the welfare reform bill imposed new work 
requirements and time limits for food stamps recipients, it exempts 
people with dependents. A constituent wrote to ask me whether I thought 
that in a household with two able-bodied adults, one of them should be 
required to work in order to receive food stamps. What do you think?
    Response. FCS believes that everyone who can work should work. FCS 
also recognizes that each family is unique and their individual needs 
must be considered in applying the time limit provisions. Section 824 
of the Personal Responsibility and Work Opportunity Reconciliation Act 
provides that the time limit shall not apply to an individual if the 
individual is a parent of a child in the household. The law also 
exempts any other member of the household who has responsibility for a 
dependent child. Each State will be making the decision as to what 
``responsibility for a dependent child'' entails. However, individuals 
exempt under the food stamp time limit are still subject to the 
requirement to register for work and to participate in work programs. 
Under the work provisions, only one parent in a two parent household is 
exempt as a child's caretaker.
    Mr. Dickey. In a household with two able-bodied adults, is there 
any reason to exempt both adults from the work requirements and time 
limits?
    Response. FCS believes that everyone who can work should work. 
Section 824 of the Personal Responsibility and Work Opportunity 
Reconciliation Act provides that the time limit shall not apply to an 
individual if the individual is a parent of a child in the household. 
Thus, the law currently provides that if two adults in the household 
are both parents of a dependent child, they are both exempt from the 
time limit. However, individuals exempt under the food stamp time limit 
are still subject to the requirement to register for work and to 
participate in work programs. Under the work provisions, only one 
parent in a two parent household is exempt as a child's caretaker.

                     tefap distribution in arkansas

    Mr. Dickey. In your testimony, you mentioned through TEFAP, FCS is 
usually one of the first federal agencies on the scene--to distribute 
food to disaster victims. Could you update us on what is being done 
under this program for victims of the severe tornadoes in Arkadelphia, 
Arkansas and other devastated areas in my district?
    Response. FCS is providing commodities to disaster assistance 
organizations in Arkansas and other affected areas including Kentucky, 
Ohio and Indiana. In Arkansas, one shelter remains open and several 
mobile kitchens are providing meals. Our latest report indicated that 
93,000 pounds of U.S. Department of Agriculture (USDA) commodities have 
been provided to the disaster assistance organizations in Arkansas. 
USDA commodities are being used for congregate feeding in other States 
as well. To date all USDA donated food used for disaster assistance in 
Arkansas has been taken from school inventories. The Emergency Food 
Assistance Program (TEFAP) food is usually packed in household size 
containers and is not suitable for congregate feeding. In the event 
household distribution of commodities is approved for disaster 
assistance, TEFAP food would be available for donation.
    Congregate feeding is usually authorized for a period of thirty 
days. Thereafter, unless an extension has been approved, a modified 
food stamp program with waivers or a disaster food stamp program is 
approved for recipients affected by the disaster that are not normally 
eligible for food assistance.

                       proposed tefap rescission

    Mr. Dickey. The President has asked for a $6.25 million 
supplemental appropriation for Nutrition Education Training (NET) to be 
offset by funds from TEFAP. Would this request, if granted, diminish 
your ability to be of assistance in disasters similar to the one people 
in my district are currently suffering through?
    Response. Although TEFAP commodities are available to eligible 
people during a disaster, TEFAP is not the Department's primary means 
of providing commodity assistance during disasters. The Department's 
ability to provide disaster assistance would not be materially 
diminished if TEFAP funds were reduced as proposed. The Robert T. 
Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 
et seq.) specifically authorizes the Secretary to use funds 
appropriated under section 32 of the Act of August 24, 1935 (7 U.S.C. 
612c), to purchase commodities for use in providing food assistance to 
victims of Presidentially declared disasters. There is no specified 
limit as to the amount of funds available for this purpose.
    In addition to funds available under the Stafford Act, a small sum 
is appropriated to the Department under the Commodity Assistance 
Programs account to provide commodity relief in situations of distress 
when there has not been a Presidential disaster declaration. Surplus 
commodities may also be provided in disaster situations. Finally, it is 
important to note that emergency food stamps are also available as a 
primary means of nutrition assistance in disasters. Given all of these 
resources, TEFAP plays a small and incidental role in disaster relief 
efforts.
                   child and adult care food program

    Mr. Dickey. I have had complaints from constituents who claim that 
funds under this program intended for reimbursement to daycare homes 
for food provided to children were never received by the daycare 
centers. What procedures, if any, do you have in place to assure that 
money appropriated for this purpose actually gets to the children?
    Response. Under the Child and Adult Care Food Program (CACFP), 
Federal per-meal reimbursement payments are provided to participating 
child care centers and family day care homes to help defray the cost of 
providing meals meeting program requirements that are served to 
enrolled children. In the case of child care centers, these 
reimbursement payments are paid directly to the center by a State 
administering agency upon receipt and approval of a valid monthly 
reimbursement claim. Unlike centers, family day care homes cannot 
participate in the CACFP by themselves but must do so under the 
auspices of a sponsoring organization. These sponsoring organizations 
submit reimbursement claims to the State agency which reflect the 
combined claims of all homes under their jurisdiction. When a 
sponsoring organization receives its total reimbursement payment from 
the State, it is required by program regulations (7 CFR Part 226) to 
disburse reimbursement payments to its homes based on the meals served 
by each within 5 days of receipt from the State agency.
    Under program regulations, sponsoring organizations must enter into 
participation agreements with their individual homes. Under these 
agreements, homes are entitled to receive reimbursement payments in a 
timely manner. If homes are not receiving payments, this should be 
brought to the attention of the State agency.
    In addition, State agencies are responsible for ensuring that homes 
are being properly reimbursed by sponsoring organizations and that 
reimbursement is, in fact, being provided for meals served to children. 
This oversight responsibility is carried out on a regular basis in 
accordance with program regulations and when any additional oversight 
appears warranted.
    Mr. Dickey. Could you please describe the system for delivering 
funds under this program in detail?
    Response. Appropriations for the Child and Adult Care Food Program 
(CACFP) are based on per-meal reimbursement rates established in the 
National School Lunch Act and tied to the actual number of meals by 
type to be served in participating child care centers and family day 
care homes for meals served to enrolled children. These funds are made 
available by the FCS through Letters of Credit to State agencies which 
directly administer the CACFP. State agencies draw funds from these 
Letters of Credit in order to pay valid reimbursement claims received 
from centers and sponsors of family day care homes. These claims are 
received from centers and sponsors of homes on a monthly basis and 
reflect the number of program meals served. Reimbursement payments are 
made directly to centers and sponsors of homes. The sponsors, in turn, 
make payments to each of their homes based on the number of meals by 
type served by each home.

                     food stamp payment error rate

    Mr. Bonilla. In reading through the budget request for FCS, I was a 
little surprised to find that the level of food stamp payment error has 
only dropped from 10.8% to 9.7% over the last four years. First, what 
kind of payment errors are we talking about here and what is the dollar 
amount of a 9.7% rate of payment error in such a huge program? And, 
second is this the kind of problem that we can expect nationwide 
implementation of EBT to curtail or should other step be taken--what 
does FCS have planned to correct this problem?
    Response. The payment errors identified through the Quality Control 
(QC) monitoring system include underissuances to eligible households as 
well as overissuances to eligible households and issuances to 
households which are not eligible for benefits. The errors may result 
from (1) State agency causes such as caseworker misapplication of 
policy, failure to act appropriately upon reported information, or 
failure to obtain required verification or (2) client causes such as 
failing to report changes which might affect their eligibility or 
benefit level or reporting information incorrectly.
    In fiscal year 1995, over $22.7 billion in food stamp benefits were 
issued Nationwide. The 9.7 percent National payment error rate for 
fiscal year 1995 represents approximately $2.2 billion that were issued 
in error, about $1.6 billion in overissuances and $550 million in 
underissuances. The decrease in the error rate from 10.81 percent in 
fiscal year 1993 to 10.32 percent in fiscal year 1994 and then to 9.72 
percent in fiscal year 1995 represents an overall 10 percent reduction 
in errors for savings of more than $350 million for the U.S. taxpayer 
over the 2-year period.
    While the Electronic Benefit Transfer System (EBT) is helping to 
control trafficking of food stamps, it does not impact on errors or 
mistakes made in the process of certifying or maintaining a household 
on the program. Since fiscal years 1992 and 1993 when there were 
increases in the National error rate, the FCS has made increased 
payment accuracy a top priority. Regional offices intensified efforts 
to work directly with States and are continuing to work aggressively in 
partnership with them to reduce errors made in the food stamp 
certification process.
    To help reduce the error rate, FCS has pursued outstanding 
liabilities with States through reinvestment in management practices 
that are intended to improve payment accuracy. FCS believes that 
allowing States to reinvest outstanding food stamp quality control 
liabilities in State error reduction activities is a valuable tool in 
improving payment accuracy. FCS's principal goal in resolving these 
liabilities is to promote the reduction and subsequent maintenance of 
low error rates. FCS also intends to actively pursue the collection of 
liabilities assessed against those States with unacceptably high error 
rates, if settlement agreements are not reached. In a program where 
benefit amounts are 100 percent Federally funded, it is critical that 
payment accuracy be made a priority through fiscal responsibility. 
States who have low error rates under 6 percent are eligible for 
enhanced funding. In fiscal year 1995, eight States received close to 
$16 million for maintaining error rates below 6 percent.
    FCS has also been successful in obtaining commitments from the top 
levels of State management to improve payment accuracy. To help States 
in their efforts, FCS has implemented a number of additional strategies 
to help increase payment accuracy Nationwide.
    FCS has received a special budget appropriation of at least $1 
million each fiscal year since fiscal year 1995 to support special 
initiatives designed to increase payment accuracy Nationwide.
    Technical assistance is provided by FCS Regional offices to both 
State and local offices. Regional offices identify and share payment 
accuracy strategies among individual States. Direct technical 
assistance in the form of data analysis, policy support, development of 
corrective action, and training has also been provided to States.
    The regular State Exchange allocation has been augmented since 
fiscal year 1995 to support payment accuracy activities. State Exchange 
funds allow State officials to travel to other localities to share 
their expertise and/or observe successful payment accuracy efforts.
    FCS Regional offices host Regional payment accuracy conferences 
that emphasize payment accuracy as a top priority and allow States to 
share successful payment accuracy strategies. FCS National office has 
hosted two National payment accuracy meetings since fiscal year 1995 to 
promote payment accuracy as a top priority at the highest management 
levels and provide a forum for the exchange of ideas and successful 
practices.
    Both FCS headquarters and Regional offices have produced 
publications and newsletters highlighting effective or best practices 
employed by States around the Nation. In fiscal year 1996, FCS 
Headquarters published the second issue of the National Payment 
Accuracy Report and a catalogue which provided a review of various 
payment accuracy strategies employed by selected States around the 
country.
              legal immigrants and food stamp eligibility

    Mr. Bonilla. In regard to the legislative proposals in the food 
stamp area, can you give the committee a bit more detail on the 
legislative proposal to postpone the ban on food stamp receipt by 
current legal immigrant participants must who are in pursuit of U.S. 
citizenship?
    Reponse. Under current law, starting April 1, 1997, participating 
households with legal immigrants as household members must apply for 
recertification, States must determine the eligibility of the legal 
immigrant household members based on the requirements enacted in the 
Personal Responsibility and work Opportunity Reconciliation Act of 
1996. The proposal would delay from April 1, 1997 until August 1, 1997 
the food stamp ineligibility of most legal immigrants currently 
participating in the Food Stamp Program. It would also provide States 
until September 30, 1997, rather than until August 22, 1997, to remove 
participating immigrants from the Food Stamp Program.
    Immigrants who are eligible for citizenship may need more time to 
acquire citizenship and retain food stamp eligibility. The proposal 
would allow immigrants additional time--up to 5 additional months--to 
seek naturalization. The cost of the proposal is estimated to be $165 
million in fiscal year 1997.

                 lean meat and child nutrition programs

    Mr. Bonilla. I am concerned that meat consumption is decreasing. I 
am especially concerned that for economic reasons, the people receiving 
the lowest amounts of healthy lean meat in their diet are likely to be 
children eligible for Child Nutrition programs. I wonder if FCS is 
taking adequate measures to ensure that children are being exposed to 
healthy amounts of lean meat?
    Reponse. FCS has meal patterns that require specific minimum 
amounts of meat/meat alternates, cooked lean meat, cheese, eggs, cooked 
dry beans or peas, or peanut butter. When meats are served, there are 
established minimums which must be served at each lunch meal--and this 
has not changed. In the Traditional Food-Based Meal Pattern we have 
even recommended an increase of 1 ounce more of cooked lean meat for 
the older children, grades 7-12.
    As of June, 1995, menu planning options have been increased from 
one to four. Two of them are food-based: the Traditional Food-based 
System and the Enhanced Food-based System. The nutrient-based plans of 
NuMenus and Assisted NuMenus are the other Two menu planning options in 
the USDA ``School Meals Initiative for Healthy Children''. NuMenus and 
Assisted NuMenus allow menu planners the flexibility of breaking away 
from the traditional meal pattern and using a variety of foods in any 
quantity to improve the nutritional quality of the meal.
    This year, the Food and Consumer Services' Food Distribution 
Division has purchased an additional 4.9 million pounds of special trim 
beef for processing by schools, at a cost of $6.5 million. FCS also has 
a plan for the distribution to schools in the months of April-May, a 
donation of surplus beef from the Agricultural Marketing Service. This 
will be 960,000 pounds of sliced beef, at a cost of $2.4 million. All 
of the above is in addition to an average of 147 million pounds of 
frozen ground beef purchased annually as a USDA commodity for schools.
    Mr. Bonilla. I am curious how much flexibility the nutritionist in 
local school districts have to make adjustments meal plans are 
including sufficient amounts of lean meats like Beef.
    Reponse. There is also a soon-to-be released regulation in support 
of Healthy Meals and Healthy Children for a fifth menu planning option 
which the Agency simply calls ``any reasonable means.'' These menu 
options are designed to give menu planners a wider array of options 
when making changes in their menus, yet the ultimate goal is the same 
as for Food Based Menus: to maintain the calories and nutrients while 
encouraging lowfat options that will best meet the nutritional needs. 
Seven new recipes for beef have recently been developed and distributed 
to schools by the USDA.
    Mr. Bonilla. I know there is a proposal to add yogurt to the school 
lunch program as a protein substitute. Has any consideration been given 
to adding healthy and lean lamb or goat meat to the student lunch 
program? If not, why not?
    Reponse. Local school food service managers have complete 
discretion under the current regulations to serve lamb and goat meat as 
well as beef, pork, chicken, fish and a variety of meat alternates.

                             food recovery

    Mr. Bonilla. There is brief mention in your testimony of the 
Administration's support ``food recovery'' through private sector 
donations. Can you give us some idea of how much private sector 
participation is currently taking place with regard to food recovery, 
and generally how food recovery is being administered under FCS?
    Response. There has been tremendous growth in private sector 
participation in food recovery activities over the past few years. It 
is estimated that there are 150,000 private nonprofit food distribution 
organizations. Virtually all of these programs use recovered food to 
feed the hungry.
    As you know, the Secretary is a strong supporter of gleaning and 
food recovery. It is the Department's goal to elevate the status of 
State and local food recovery efforts to a National level and increase 
awareness and participation. The FCS was instrumental in coordinating a 
Round Table meeting in December of 1995, which was hosted by the 
Secretary. The purpose of the Round Table was to identify ways in which 
the Federal Government, particularly the U.S. Department of Agriculture 
(USDA), can assist on-going gleaning and food recovery efforts. Since 
then, FCS has continued to be involved in the Department's food 
recovery efforts. FCS works with USDA's Office of Intergovernmental 
Affairs on projects that arise in the area of gleaning and food 
recovery. Last year the Agency supported and facilitated a contract 
between Breedlove Dehydration plant and the Department of Defense. 
Breedlove is a non-profit organization in Lubbock, Texas which 
processes gleaned food into dehydrated products for distribution to 
needy people. Food recovery activities are encouraged in The Emergency 
Food Assistance Program (TEFAP) which is administered by FCS. Through 
Welfare Reform, processing non-USDA commodities is now an allowable use 
of TEFAP administrative funds at the State level. To determine ways 
that FCS can continue to encourage food recovery and gleaning, Amanda 
Manning, Associate Administrator of FCS, currently serves on the USDA 
Interagency Gleaning/Food Recovery Task Force.

                              object class

    Mr. Latham. In your budget submission you have a chart that is a 
classification by objects of your budget. I am interested in having you 
for the record breakdown the section labeled ``25.2 Other Services,'' 
and the section labeled ``31 Equipment.''
    Response. The agency object class report originally provided to you 
in the Explanatory Notes was in error. A more detailed breakdown of the 
object classes ``Other Services'' and ``Equipment is provided for the 
record.''

[Pages 664 - 666--The official Committee record contains additional material here.]


    Mr. Latham. What has been driving the equipment expenditure level 
up so much?
    Response. The Agency object class report originally provided in the 
Explanatory Notes was in error. A corrected Agency object class report 
is provided for the record. It shows that equipment, Object Class 31, 
is projected to decrease $227,000 from fiscal year 1997.

[Page 668--The official Committee record contains additional material here.]


                   proposed changes to welfare reform

    Mr. Latham. The President has said he wants to modify the Welfare 
Reform bill he signed last year. Would you please outline the changes 
proposed and give us an idea when the Administration's legislation will 
be delivered to the Congress?
    Response. FCS' food stamp legislative proposals address those areas 
of the Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996, largely unrelated to welfare reform, that reduced benefits in 
the Food Stamp Program. Specifically, the proposals will:
          Create a more realistic work requirement for unemployed 
        adults by significantly increasing work opportunities, 
        providing funds to create work slots so that almost all 
        individuals subject to the time limit who are unable to find 
        employment would be offered a work slot, and establishing a 
        tough sanction so that individuals are forced to make the 
        choice of living up to the responsibilities of accepting food 
        assistance or becoming ineligible for the program;
          Delay the implementation and deadline dates for removing 
        legal resident participants from the program to help ensure a 
        more orderly implementation and allow immigrants additional 
        time to seek naturalization;
          Eliminate the cap on the excess shelter expense deduction by 
        fiscal year 2002 to help families with children who have high 
        shelter expenses;
          Resume indexing the standard deduction in fiscal year 2002 to 
        prevent further decline in the real value of this deduction; 
        and
          Raise and index the vehicle fair market value exclusion, 
        recognizing that access to reliable transportation is critical 
        to finding and keeping employment.
Specific legislative language for these proposals will be delivered to 
Congress as soon as possible.
                                research

    Mr. Latham. The Administration is proposing increasing funding for 
research on human nutrition and surveys of diets, and food safety. You 
are also requesting money for research within the FCS. I am concerned 
that there may be some duplication and overlap in all these efforts. 
Would you explain exactly what your research activities are?
    Response. FCS' research activities are evaluations, pilot projects, 
and studies which focus on operational and policy issues specific to 
the Food Assistance Programs that serve low-income Americans. There is 
very little overlap with the research programs elsewhere in USDA. These 
evaluations, pilot projects, and studies enable us to respond to the 
oversight responsibilities of Congress; provide assistance to States to 
identify and share best practices; measure the effectiveness of program 
operations and alternatives; and provide objective, reliable outcome 
measures of program performance.
    FCS' research has a proven track record of improved government 
performance. A small sampling of the return from the investment in our 
research program includes:
          Critical contributions to the emergence and expansion of 
        Electronic Benefit Transfer;
          Help in fighting fraud and abuse, generating the only 
        reliable estimates of the prevalence of food stamp trafficking;
          Determination of the nutrients provided in school meals, 
        leading to the first reform of the nutrition standards in 
        school nutrition programs in 50 years; and
          Demonstration of the cost-effectiveness of WIC.
    In the year ahead, with the funding requested for research in the 
1988 budget, we would expect to be able to:
          Help States make use of the new flexibility provided by 
        welfare reform to run programs that encourage personal 
        responsibility, reward work, and improve nutrition and health;
          Respond to Congress' mandate to study the effects of welfare 
        reform on CACFP. Without these funds, FCS cannot address 
        critical questions posed in the legislation;
          Focus WIC research on improving program management and 
        efficiency and respond to recommendations from the scientific 
        community to strengthen the WIC Program, including development 
        of tools to support eligibility determinations;
          Continue development and evaluation of cost-effective EBT 
        systems for WIC;
          Sustain critical updates of the characteristics of food stamp 
        and WIC participants and track compliance with Congressionally-
        mandated nutrition standards for school meals; and
          Develop cost-effective ways to improve program integrity and 
        reduce administrative costs, focusing on operational 
        improvements to reduce error and fight trafficking.

                         contracting practices

    Mr. Latham. Last year I sat on the Committee on Agriculture and we 
held hearings on the highly questionable contracting practices used by 
your predecessor Ellen Haas in conducting research and surveys. Could 
you give this subcommittee an update on these practices. Can we assume 
that the questionable behavior in the Food, Nutrition, and Consumer 
Services' contracting left with Ms. Haas?
    Response. FCS has taken steps to avoid even the appearance of 
impropriety in the way contracting is managed. A Contract Management 
Review Task Force was established to assess the adequacy of the 
Agency's policies and procedures for contract management. As a result, 
several areas were strengthened to ensure that procurements are 
consistent with Federal rules and good procurement practices. Over the 
last nine months, the Agency has: (1) established an Information 
Collection Review Board to review information collection instruments 
developed for research purposes; (2) mandated training for all 
procurement officials, including senior level managers; (3) issued 
revised contract operating procedures; and (4) appointed an Agency 
procurement ombudsman as a resource where any concerns of procurement 
impropriety or the appearance of impropriety can be raised. The Agency 
is confident that these actions have increased employee awareness on 
appropriate contracting practices and improved our overall procurement 
processes and procedures.
    FCS studies have provided and continue to provide solid, policy-
relevant, objective information for use by Congress and other policy 
makers at the Federal, State and local levels.

                           nutrition research

    Mr. Fazio. During our hearing with the Undersecretary for Research, 
Education and Economics, the administrators of ARS and CSREES testified 
about several promising nutrition initiatives as well as USDA's 
programs in their regional nutrition center, such as the Western Human 
Nutrition Center in San Francisco that is slated to be moved to Davis, 
California.
    I understand that the Food, Nutrition and Consumer Services also 
have funding for nutrition research and for evaluations of nutrition 
programs, including funding for the Center for Nutrition Policy and 
Promotion under the Food Program Administration for research on dietary 
guidelines.
    Please summarize any nutrition research or evaluation programs or 
spending included in your budget request.
    Response. The FCS research and evaluation program includes 
evaluations, pilot projects, and studies which focus on operational and 
policy issues specific to the food assistance programs that serve low-
income Americans. A portion of the Agency's research funds each year 
are used to assess the nutritional impacts of these programs as well as 
the effectiveness of FCS nutrition education initiatives in reaching 
program participants.
    FCS research efforts in nutrition education and promotion have been 
geared towards two practical challenges. The first is that program 
resources are finite and insufficient to provide face-to-face 
counseling on nutrition for all food assistance program participants. 
FCS must identify cost-effective ways to reach large numbers of program 
participants in their communities. The second challenge is to ensure 
prudent use of program resources by measuring the effectiveness--and 
developing tools to help measure the effectiveness--of the 
interventions we employ. The agency's nutrition research projects have 
supported efforts to address both challenges.
    The Center focuses on ways to promote improved nutrition education 
for the broad population, rather than low-income food assistance 
program recipients. ARS and USDA's regional nutrition centers conduct 
scientific research on human nutrition relevant to the broad 
population, rather than low-income food assistance recipients. ARS 
efforts have been vitally important to establishing Recommended Dietary 
Allowances and contributing to the Dietary Guidelines. FCS relies on 
their results when designing assessments of the nutritional impacts of 
our programs.
                         collaborative research

    Mr. Fazio. Please describe any collaboration with ARS or CSREES 
regarding nutrition research. What are the obstacles, if any, to 
involving ARS's regional nutrition centers to a greater degree in 
fulfilling the needs of the Food, Nutrition and Consumer Services in 
this area?
    Response. Research of the Food, Nutrition, and Consumer Services 
(FNCS) focuses on policy and operational issues relating to the 
domestic food assistance programs administered by the FCS and USDA's 
general nutrition policy and promotion issues addressed by the Center 
for Nutrition Policy and Promotion (CNPP). In contrast, the ARS 
research program focuses primarily on the fundamental scientific 
information on human nutrient requirements that provide the basis for 
development of dietary guidelines and help identify the need for food 
assistance programs that prevent disease and maintain good health.
    FNCS and ARS collaborate in a number of important areas. ARS 
conducts the Continuing Survey of Food Intakes by Individuals and the 
Diet, Health and Knowledge Survey, and both FCS and CNPP are heavy 
users of the resulting data. FCS and CNPP provide suggestions for 
questions to be included in these surveys, and use the data to develop 
policy options, inform policy decisions and generate important 
operational benchmarks. FCS collaborates with the ARS Nutrient Data 
Laboratories on development and maintenance of the National Nutrient 
Database for Child Nutrition Programs.
    In its work to periodically update the Dietary Guidelines for 
Americans, CNPP works with ARS and the Department of Health and Human 
Services (DHHS) staff as the executive secretariat for the Dietary 
Guidelines Advisory Committee. In this role, CNPP and ARS work together 
to identify new research on human nutrition requirements, often 
conducted by or sponsored by ARS and CSREES, and make this available to 
the Committee.
    ARS, CSREES, FCS and CNPP, along with other USDA agencies and a 
liaison from DHHS, participate in the USDA Human Nutrition Coordinating 
Committee. This Committee meets monthly to share information about 
ongoing and upcoming activities and research. A subgroup of this 
committee, the Diet Appraisal Research Working Group, meets monthly to 
exchange information on the latest methods for assessment and analysis 
of food and nutrient data.
    FCS has also been working with the ARS Children's Nutrition 
Research Center to track and encourage private sector development of a 
non-invasive screening test for iron deficiency anemia. While still in 
the early developmental stage, once available in the market, this test 
could be used to allow screening of children for WIC certification 
without the need for a ``finger stick.''

                    school lunch program flexibility

    Mr. Fazio. During the hearing with Secretary Glickman, we discussed 
the possibility of allowing schools to serve yogurt as a credited food 
item in the school lunch program to give schools greater flexibility in 
implementing the Dietary Guidelines.
    I commend the Department for its recent announcement to allow 
school service officials to serve yogurt as a substitute for meat. I 
believe that with this decision, students will enjoy a greater variety 
in their school lunches, and more students may participate in the 
school lunch program in the future.
    Please tell the rationale for this decision and the benefits that 
the Department predicts will go to school systems and school lunch 
programs.
    Response. The Department's rationale for issuing this regulation is 
very much the same as your description. FCS wished to provide local 
food services with maximum flexibility to meet the needs of all of 
their children. It is worth noting that some local food services were 
already able to serve yogurt as part of reimbursable meals. Schools 
which elected to plan and prepare meals using a computer analysis of 
the nutrients, what we have termed NuMenus, are not subject to 
crediting requirements because their ongoing nutrient analysis enables 
them to determine during the planning stage whether their meals are 
meeting the nutrition requirements. Schools electing to use one of the 
meal pattern options authorized under our regulations are still subject 
to crediting policies because they do not have the tools to make an 
ongoing determination of compliance with the nutrition standards. It is 
these schools that are affected by this policy.
    The principal benefit to the programs is the additional flexibility 
that all food service managers now have to plan and prepare meals. Just 
as important, the new policy will enable local schools to meet the 
needs of children who, for one reason or another, do not consume meat. 
The Department does not anticipate any significant reduction in the use 
of meat products in school meals. These products will continue to be 
popular and present in the vast majority of school meals. This policy 
simply provides an additional tool for local managers in their quest to 
provide meals that are both nutritious and appealing to children.

              school lunch program flexibility regulations

    Mr. Fazio. Under provisions of the Healthy Meals Act, school 
districts are allowed to develop school lunch programs under the 
standards of ``any reasonable approach'' as long as they are in 
compliance with the Federal Dietary Guidelines. This flexibility would 
give local school districts an opportunity to produce their own menu 
for kids rather than having to serve a preselected standardized menu as 
long as the nutritional value adds up for our kids.
    It seems to me that as long as local school districts fully comply 
with USDA's dietary guidelines, they should be given the flexibility to 
develop a menu that works best for them and their students.
    When will these regulations be issued?
    Response. A proposed regulation to incorporate the traditional meal 
pattern into the program regulations and to provide guidelines for 
authorizing other reasonable approaches to meal planning is in 
clearance. Because clearance procedures are quite extensive, it is 
difficult to predict exactly when the rule might be published, but the 
Agency anticipate that it will be available for public comment by late 
spring or early summer.
    It is worth noting that schools are already able to continue to use 
the traditional meal pattern if they so choose, since the Department 
issued guidance on this provision promptly after the enactment of the 
Healthy Meals for Children Act. Moreover, in advance of a rule, the 
Department recently gave permanent authorization for a comprehensive 
nutrition project called Shaping Health as Partners in Education 
(SHAPE) in California based on the assessment that this innovative 
program operated in some 80 school districts provides school meals that 
meet the nutrition standards.
    For the record, the Department agrees completely that schools 
should have maximum flexibility to plan and prepare meals that meet 
nutrition standards. In fact, schools currently have unprecedented 
ability to choose a meal planning system that is right for them. 
Schools may select from two food-based meal patterns as well as two 
methods of planning and preparing meals using nutrient analysis. The 
Department is also committed to authorizing other reasonable approaches 
that can ensure nutrition integrity and value for school children.

                       new wic allocation formula

    Mr. Fazio. I understand that USDA may look at a new allocation 
formula to distribute WIC funds that are appropriated this year. What 
are the problems, if any, created by the present allocation, and how do 
you expect those to be solved by a new allocation?
    Response. The current food funding formula, used for the first time 
in fiscal year 1995, was developed for a time of program expansion 
toward full funding. It's primary focus, after States are funded at the 
prior year food grant level, adjusted based on inflation, is to 
allocate additional funds to States that are not receiving funds 
proportionate to those eligible for WIC services as compared to other 
WIC State agencies. Due to significant appropriation increases, these 
``under fair share'' States were able to receive growth funds that 
enabled them to increase participation and serve a higher percentage of 
eligible persons.
    During times of limited funding, the current funding formula does 
not provide the optimum flexibility needed to allocate funds to those 
WIC State agencies that are most in need and able to spend the funds 
most effectively. By allowing the Secretary to allocate funds by such 
means as he deems necessary, only those State agencies which 
demonstrate a true need for funds and are able to manage and utilize 
additional funds effectively would receive additional funding. This 
provision would allow improved management and expedited distribution of 
WIC funds to those States that may otherwise have to curtail WIC 
operations.
    Also, to allow additional funding to be allocated to States that 
need it the most, we have requested that each State agency's fiscal 
year 1998 appropriated funds be reduced by the amount of food funds 
spent forward from fiscal year 1997. FCS believes that reducing the 
funds allocated to State agencies that had prior year spend forward 
funds and reallocating these funds to other States that are facing 
funding shortages will facilitate our goal of funding each State agency 
at or near their fair share level.
    FCS is committed to developing a revised allocation formula that is 
better suited to a full funding environment.
    discrepancies between state and federal wic population estimates
    Mr. Fazio. Currently in California there is a significant 
discrepancy between USDA's estimates of the total WIC population served 
and the estimate by the California Department of Health and Human 
Services. Describe your process for making estimates about the WIC 
population served and describe any interaction with state agencies for 
this purpose. What is your explanation for the significant discrepancy 
in California between these two estimates?
    Response. USDA develops State-level estimates of infants and 
children below 185 percent of poverty each year for use in the WIC 
funding formula. These estimates are developed by using income data 
from the Current Population Survey (CPS) and State-level data on food 
stamps and AFD participation and changes in per capita income. A 
detailed description of this methodology and the most recent set of 
State estimates, for 1994, is provided for the record.
    Prior to 1994, the Decennial Census was the source of State-level 
eligible estimates. Our current methodology was developed in 1994 in 
order to provide State-level estimates which were more timely than 
those based on Decennial Census data, which could only be updated in 
10-year intervals. The methodology was developed in consultation with a 
group of State directors established by the National Association of WIC 
Directors for the purpose of improving State-level eligible data.
    FCS does not have detailed information on the methodology used by 
the California Department of Health and Human Services in developing 
its eligibles estimate. California did recently submit information to 
FCS indicating that it's reasons for believing the USDA figures to be 
low include the effects of Medicaid adjunct eligibility, the impacts of 
immigration, and recent economic conditions in the State.
    FCS recognizes that States may wish to develop their own eligibles 
estimates for program management purposes which might differ from these 
estimates due to such factors as State Medicaid policies and practices, 
and efforts to reflect more recent economic conditions. However, FCS 
believes that for Federal program management purposes, it is critical 
to use estimates which can be derived using consistent data sources and 
methodologies for all States. Thus, FCS continues to believe that the 
USDA State-level estimates of infants and children below 185 percent of 
poverty represent the best available source of consistent National data 
for distributing food funds among the States.
    [The information follows:]

[Pages 674 - 676--The official Committee record contains additional material here.]


                           food stamp waivers

    Mr. Fazio. The welfare reform bill permits states to apply for two 
food stamp waivers: local areas with unemployment rates over 10%, and 
local areas classified by the Department of Labor as ``labor surplus 
areas''--areas where the unemployment rate has been at least one-fifth 
above the national average for the past two years.
    Provide for the record the states that applied for each waiver and 
the areas of the states covered by the exemption.
    Response. A table listing waivers granted by the FCS and waivers 
requested by States which are currently under evaluation is provided 
for the record. It should be noted that Section 6(o) of the Food Stamp 
Act, as amended by the Personal Responsibility and Work Opportunity 
Reconciliation Act, provides for exemptions in areas where there are 
insufficient jobs for individuals subject to the requirements of 
Section 6(o) of the Act. Most, but not all of these areas are 
classified as Labor Surplus Areas (LSAs) by the Department of Labor. 
Unless otherwise specified the term, ``insufficient jobs'' refers to 
areas designated as LSAs.
    [The information follows:]

[Pages 678 - 685--The official Committee record contains additional material here.]


                              ebt savings

    Mr. Fazio. What are your projections for overall savings, 
especially savings in combating food stamp fraud, once we have switched 
over to EBT entirely?
    Response. The President's annual budgets are taking into account 
certain Federal savings as a result of moving to electronic benefit 
transfer (EBT). States have strong incentive to limit spending to that 
which was spent on the coupon system replaced by EBT and, thus far, 
they have largely been successful in doing so. As long as this is the 
case, Federal savings result from the printing, distribution and 
redemption costs in handling paper coupons paid directly by the FCS 
that are being reduced and will eventually be eliminated when all 
States are using EBT. Those costs amounted to $37 million in fiscal 
year 1996. Additional savings in food stamp benefit dollars issued are 
also expected as a result of eliminated mail issuance replacement 
losses and duplicate authorization to participate (ATP) replacement 
losses.
    On the other hand, there are also some additional Federal costs 
associated with new systems developed to help the Agency manage EBT. 
For example, the Account Management Agent (AMA), a system for 
electronic reconciliation and financial monitoring, is expected to cost 
FCS about $1.5 million at full EBT operations. Two other systems needed 
for retailer management and program integrity EBT Data Exchange (REDE) 
and the Anti-fraud Locator for EBT Redemption Transactions (ALERT), are 
near completion, but their annual operating costs are still unknown.
    An FCS study estimated that about $815 million annually is diverted 
from food stamp benefits by trafficking, whereby the recipient coverts 
food stamp benefits to cash. This amounts to less than 4 cents out of 
every dollar issued. Reduction in trafficking is needed and EBT should 
help. However, these reductions will not result in program savings 
since the benefits would still be used if not trafficked. The important 
point is that reduction in trafficking mean that more benefits would be 
used properly for food items. While trafficking does not result in a 
dollar loss to the program, it does undermine the basic purpose of the 
program to provide food to eligible families.

                         wic supplemental needs

    Ms. Delauro. One of the most effective programs of the Department 
of Agriculture and one that has consistently received bipartisan 
support has been the WIC program. It is estimated that one dollar 
invested in WIC saves three dollars in other costs such as Medicaid. 
The Department has requested supplemental funding for the WIC program 
for fiscal year 1997. Could you explain the current level of WIC 
participation, what level of participation would have to be achieved if 
no supplemental funding were provided? Are supplemental funds needed to 
prevent participants from being kicked out of the WIC program?
    Response. Year end participation for fiscal year 1996 was 7.4 
million participants. This level of participation is consistent with 
the bipartisan goal of full-funding for 7.5 million participants. With 
current funding, without a supplemental, we estimate WIC will serve an 
average 7.2 million persons in fiscal year 1997. In order to achieve 
this average, the fiscal year 1997 year end participation must fall to 
7.0 from over 7.4 million at year end fiscal year 1996--a drop of 
approximately 400,000 participants. Supplemental funds are needed to 
avoid this precipitous drop in enrollment. With a supplemental we will 
be able to maintain an average participation of approximately 7.4 
million throughout the year.

                           food stamp waivers

    Ms. Delauro. Secretary Keefe, the Food Stamp Program has been, in 
your words, ``the cornerstone of our Nutrition Assistance Programs.'' I 
am concerned by changes in the welfare law that will end food stamp 
benefits after three months for many individuals--even those who want 
to work but cannot find jobs because there simply are not enough jobs 
available. I understand that a number of governors, as is allowed, have 
applied for waivers for high unemployment areas in their states. Can 
you tell us how many governors have applied for waiver and from which 
states?
    Response. As of March 6, 1997, FCS had received waiver requests 
from 41 States including the District of Columbia. FCS has approved 
waivers requested for 11 States: Virginia, Alabama, Hawaii, Georgia, 
Tennessee, Arkansas, South Carolina, Missouri, Utah, Montana, and the 
District of Columbia. FCS has approved 20 waivers in part as they were 
requested by the States. These 20 States have either additional waivers 
pending or have portions of their requests deferred pending additional 
information: Illinois, West Virginia, Kentucky, Washington, Rhode 
Island, Pennsylvania, Louisiana, Texas, Colorado, Ohio, New Jersey, 
Oklahoma, Minnesota, Arizona, Nevada, Maryland, North Dakota, New York, 
North Carolina, and Florida. Ten States have requested waivers that are 
still pending because they are still in the evaluation process or 
because they could not be approved based on the data originally 
submitted, but which may be approved upon receipt of additional data or 
justification from the State agency: Vermont, California, South Dakota, 
Maine, New Mexico, Alaska, Idaho, Oregon, Indiana, and Nebraska.
    Ms. DeLauro. What do these waivers permit states to do that they 
cannot do under the law? In your opinion, does the high number of 
waiver requests indicate that the law ought to be changed?
    Response. These waivers permit States to exempt individuals in the 
approved geographic areas from the time limit provisions in section 824 
of the Personal Responsibility and Work Opportunity Reconciliation Act. 
These time limit provisions prohibit an individual from receiving food 
stamps, if, during the preceding 36-month period, the individual 
received food stamp benefits for not less than 3 months, consecutive or 
otherwise, during which the individual did not work 20 hours or more 
per week, average monthly; did not participate in and comply with the 
requirements of a workfare program; or received benefits because the 
individual was exempt from these requirements.
    FCS believes the high number of waiver requests does indicated that 
the law ought to be changed. Since the work requirement in the welfare 
reform legislation did not provide actual work opportunities, it can 
have the effect of making able-bodied individuals without children 
ineligible to receive food stamps whether or not they are willing to 
work. The budget proposes a more realistic work requirement than is 
tough but fair by (1) providing work opportunities than enable people 
who are willing to work to do so in order to retrain their food stamp 
eligibility, (2) establishing a 6-in-12-month time limit to replace the 
3-in-36-month time limit in welfare reform, and (3) ensuring severe 
penalties--a minimum 6-month disqualification--for any able-bodied 
adult without children who refuses to work after 6 months of 
participation.
                             ebt challenges

    Ms. DeLauro. I applaud the efforts of the Agriculture Department to 
implement the Electronic Benefits Transfer (EBT) system for the Food 
Stamp Program in states across the country. EBT's benefits in fighting 
fraud were made clear by the testimony of the Department's Inspector 
General. I am particularly pleased that EBT and its benefits are now 
being realized in my home state as Connecticut comes on-line. What 
challenges should Connecticut expect as EBT is implemented and how can 
the subcommittee ensure the continued success of EBT as it expands 
nationwide?
    Response. FCS is very pleased with the implementation of 
Connecticut's Electronic Benefits Transfer (EBT) system which began 
full pilot operation in the Waterbury area March 1, 1997. At this time, 
the Agency does not see any challenges to the successful completion of 
Connecticut's Statewide EBT implementation by Fall 1997. Connecticut 
has anticipated the challenges of implementing EBT and is well prepared 
to succeed. Nationwide EBT is on track as all states are now involved 
in some aspect of EBT from early planning through actual operations.

                     school lunches and fat content

    Ms. DeLauro. In your testimony, you mentioned that the School Lunch 
Program has undergone its first full-scale reform in fifty years in 
order to improve nutrition standards in the program. What specifically 
has been done to improve school lunches that often contained unhealthy 
levels of fat?
    Response. In June of 1995 a final rule was implemented that 
required that meals meet the Dietary Guidelines. Nutrient standards 
have been set for six key nutrients, one of which is fat. Schools have 
the option of planning meals based on nutrient analysis, rather than 
the more traditional meal pattern. The total fat and saturated fat will 
be determined as a percentage of total calories. Schools adopting this 
menu planning system will know on a weekly basis how their planned 
lunches measures up to the standards and how to make adjustments that 
will assist them in doing better. Schools have the local option to 
choose one of two nutrient based systems as well as the enhanced or 
traditional food based system of menu planning. The Enhanced Food Based 
Menu Planning was specifically designed to increase the servings of 
grains, breads, fruits and vegetables.
    USDA/FCS has taken a leadership role in providing training to State 
Agency staff on the implementation of the above new systems. A National 
training program in eight different locations was conducted in 1996. 
Representative of all States attended. Technical assistance materials 
in the form of model menus and model operational systems (Assisted 
NuMenus) have been provided to all States for local distribution. New 
recipes that provide low fat alternatives have been provided to all 
schools participating in the National School Lunch and Breakfast 
Programs. FCS has also provided local schools with a Reference Guide 
for Foods and Ingredients. This guide is directed as assisting the 
local schools in writing food specifications that will assist them in 
developing quality food standards and help them to ensure that they get 
the quality they want through food procurement.
    Quality food continues to be a part of FCS' ongoing efforts in the 
USDA Food Distribution program for commodities. Significant 
improvements have been made over the past few years on both 
specifications and procurement of products that are low in fat and 
cholesterol as well as moderate in sugar and sodium. Increased 
purchases of fresh fruits and vegetables and continued provisions of 
whole grains have provided the schools with a wide variety of foods 
that make menu planning easier and healthier. Nutrition labeling of 
food distributed to the schools began in the 1996 school year. FCS also 
provided schools with updated ``Facts About USDA Commodities''. These 
fact sheets include commodity usage, storage guidance, preparation tips 
and nutrient analysis for each of the foods.

                nutrition education and training program

    Ms. DeLauro. We are constantly improving our knowledge of what 
foods are healthy, and presumably that information is passed on to 
School Lunch operators. Are there systems in place to make sure that 
School Lunch operators not only know what is healthy, but serve 
nutritious lunches to school children?
    Response. USDA in cooperation with States and outside groups 
operate a system for training and education programs that provide 
ongoing assistance for local School Food Authorities in serving 
healthful foods. One of the primary systems of information and training 
for local schools is the USDA/FCS, Nutrition Education and Training 
Program. This program provides grants to States to develop and conduct 
training programs for local school food service personnel in all phases 
of serving healthy school meals. The advantage of this State resource 
is that it is ongoing and constant and the local schools have come to 
depend on this assistance.
    A second component is the Federally funded Team Nutrition program. 
One component of this program develops and provides training and 
education materials for use at the school level for serving nutritious 
meals. Grants to States are made under this program for the purposes of 
training and technical assistance for local schools. National materials 
for healthful menu planning, recipes, and culinary techniques have been 
delivered to the school staff. The National Training Program for 
Healthy School Meals, which was provided for all State Agencies, was 
also a part of the Team Nutrition effort.
    A third component is the USDA funded National Food Service 
Management Institute based at the University of Mississippi. The 
Institute provides research, materials and training for school food 
service personnel on how to provide nutritious meals. State and local 
workshops and teleconferences on purchasing, and culinary techniques 
are conducted. USDA has established through the Institute a help desk 
with a toll free number for local school food service personnel to ask 
for and receive information on food service and nutrition issues.
    Along with the components mentioned above, State Agencies who 
administer the programs are performing nutritional assessments of 
served menus as part of the program monitoring process. The assessment 
is compared to the established nutritional standard for the age/grade 
group served in the schools. The State reviewer also provides 
assistance to the schools who are having difficulty in achieving the 
standards.
    Complementing the nutritional assessments done by State Agencies 
are studies conducted by USDA, through funds appropriated for Child 
Nutrition Research, on the nutritional status of school meals. The 1992 
School Nutrition Dietary Assessment (SNDA) Study is the most recent 
USDA study to thoroughly assess the nutritional content of school 
meals. USDA is currently preparing a follow-up to SNDA, the 
Implementation of Nutrition Objectives for School Meals study, to 
determine what progress schools have made since SNDA in improving 
meals' nutritional quality. A complementary study, Status of the 
Implementation of the School Meals Initiative for Healthy Children, is 
also underway. An objective of this latter study is to examine school 
food service operations and their effectiveness in producing 
nutritional meals. The periodic assessment and feedback provided by 
these and other studies is used to inform and direct USDA's Team 
Nutrition and Nutrition Education and Training efforts, and increase 
the awareness of the State and local programs of progress towards the 
Dietary Guidelines for Americans.

                school lunch program--appeal to students

    Ms. DeLauro. In the past, criticism of School Lunch has been that 
kids don't like and don't eat the food served. Is this a valid 
criticism? How big a problem is it? What has the Department of 
Agriculture done to address this problem? What are the schools across 
the country doing to make sure that meals not only taste good, but are 
healthy as well?
    Response. Based on the summary of USDA's School Nutrition Dietary 
Assessment Study, (SNDA), October 1993, National School Lunch 
participants waste approximately 12 percent of the food that they are 
served. Younger students and adolescent females waste more food than do 
older students and adolescent males, respectively SNDA also showed that 
students consumed more than the recommended level of fat and saturated 
fat at lunch, based on the Dietary Guidelines for Americans.
    The Department of Agriculture has made an effort to address this 
problem through the School Meals Initiative for Healthy Children. This 
major effort was launched in June of 1994. In June of 1995, a final 
rule was published updating the nutrition standards for school meals 
and providing schools with options for three new menu planning systems.
    The Department created Team Nutrition to assist the local schools 
in meeting the new nutritional standards and improving the acceptance 
of food by the students. Team Nutrition is divided into two components: 
training and technical assistance for school food service staffs and 
nutrition education for students, teachers and parents. Under this 
program, grants are also made to State Agencies to achieve similar 
goals. As a result of this effort a tremendous amount of new technical 
assistance and training materials have been provided to over 90,000 
schools within 23,000 school districts. Nutrition Education materials 
are being developed and distributed to millions of children, and their 
families Nationwide.
    The Technical Assistance materials provided to State and local food 
service programs have been directed at the improvement of food quality 
through new lower fat recipes, model menus, food specification 
reference material for procurement, food safety and sanitation, 
nutrient analysis software designed specifically for school food 
service, and a National training program for the implementation of 
healthy meals.
    The nutrition education materials have been developed with the goal 
of helping children to: Expand the variety of foods in their diet; add 
more fruits, vegetables and grains to the foods they already eat; 
construct a diet lower in fat.
    Materials have been developed in conjunction with the Team 
Nutrition partners such as The Walt Disney Company and Scholastic, Inc.
    The Nutrition education component of Team Nutrition is designed to 
link the classroom with the cafeteria so that children can see the 
connection between the nutrition information they are receiving and the 
meal they are being served. The Technical Assistance and Training 
component of Team Nutrition is designed to provide the local food 
service staff with the materials and training they need to provide 
meals to the children that are consistent with the nutrition education 
message provided to them as well as tasty, safe and attractive to eat.

                     1997 wic supplemental funding

    Mr. Obey. Ms. Keeffe, as you are well aware, probably the first 
major issue in the food, nutrition, and consumer services area this 
subcommittee will face is how to deal with the requested $100 million 
supplemental for the WIC program. There has been no dearth of 
misinformation and conflicting information. Even USDA sources have been 
far from united in their assessments. Your statements this morning are 
a case in point. On page 12 of your statement, Mr. Keeffe, we read that 
``without the supplemental, states will have to reduce participation by 
several thousand.'' On page two Mr. Ludwig's statement we have two 
comments: ``Without the supplemental, WIC will experience a significant 
reduction in participation during 1997.'' And, ``Without this 
supplemental, participation could decline by several hundred thousand 
women, infants, and children.'' It would appear no one is willing to 
estimate a specific number of the people who may have to be dropped 
from participation if the supplemental is not forthcoming.
    Although not signed by a USDA official, the executive summary of 
the preliminary analysis of state spending plans in the WIC program for 
1997, received last Friday, still estimates that a decrease of 400,000 
women, infants and children will result if additional funding is not 
provided. Is that still the Administration's official position? And if 
it is, why aren't your statements more forceful in that regard?
    Response. The estimate of a 400,000 decrease in participation by 
fiscal year end 1997 is still the Administration's official position. 
FCS statements have consistently reported that 400,000 mothers and 
children will lose WIC benefits if a supplemental is not provided, and 
that this is clearly contrary to the goals of the WIC program.
    FCS estimates that current resources will allow the program to 
support an average of 7.2 million for this year. Since the fiscal year 
1996 year-end participation was 7.4 million, participation will have to 
drop significantly from that level in order to average 7.2 million for 
this year. The Agency estimates that participation will need to drip as 
low as 7.0 million by the end of the year without a supplemental. That 
is the basis for the Agency's statement, that 400,000 women, infants, 
and children could lose benefits.

                         wic nutritional goals

    Mr. Obey. Ms. Keeffe, as you indicate at the start of your 
statement, this Administration set a number of nutrition goals four 
years ago. One of them was to make the benefits of the WIC program 
available for all who qualify and wish to participate. Has there been 
any diminution in the Administration's commitment to this goal?
    Response. FCS continues to maintain our full commitment to this 
goal. WIC improves participant health, prevents poor birth outcomes, 
and spread positive nutrition messages. In addition, WIC helps the 
Federal and State governments to avoid high Medicaid and other costs 
that are associated with poor birth outcomes, ill health, and long-term 
disabilities. For these reasons, the benefits of participation in the 
WIC program should be made available to those eligible persons who wish 
to participate.
    The President's Budget proposes to fully fund the WIC program to 
serve 7.5 million women, infants, and children by the end of fiscal 
year 1998. The full funding participation level, providing adequate 
funding to serve all eligible persons who would choose to participate 
in WIC, had been assumed to be approximately 7.5 million persons for 
budget purposes for the past several years. Participation at the end of 
fiscal year 1996 and through the first quarter of fiscal year 1997 was 
about 7.4 million. Thus, FCS is very close to reaching our fill funding 
participation goal.
                         targeting wic benefits

    Mr. Obey. Also on page 12 of your statement, Ms. Keefe, you say 
that ``in times when resources cannot meet demand, benefits must be 
targeted to those in need.'' When everyone participating in the WIC 
Program is in need by definition, just how do you propose to do this?
    Response. First, the Agency would like to clarify the statement. 
What the Agency meant to convey was that FCS must target benefits to 
those most in need. Legislation defines nutritional risk as 
nutritionally related medical conditions, dietary deficiencies that 
impair or endanger health, conditions that directly affect the 
nutritional health of a person, such as alcoholism or drug abuse, and 
conditions that predispose persons to inadequate nutritional patterns 
or nutritionally related medical conditions. FCS has defined a priority 
system which categorizes clients by level of need, enabling WIC to 
target benefits to those most in need. The principle of benefit 
targeting recognizes that persons with medically-based nutritional 
risks will receive service before persons with dietary-based 
nutritional risks. Under the priority system, the top three priorities 
are comprised of pregnant and breastfeeding women and infants with 
documented nutritionally related medical conditions, the highest risk 
categories, followed by children with documented medical conditions. 
Benefit targeting is routinely practiced by State agencies as evidenced 
by the fact that 78 percent of program participants fall within the top 
three priorities.
                         wic supplemental need

    Mr. Obey. One more time, just so there is no doubt or confusion; is 
it accurate to say that if the supplemental is provided, resources will 
meet demand, and if the supplemental is not provided, resources will 
not meet demand and as a means of targeting benefits, women, infants 
and children currently on the rolls will be dropped.
    Response. It is accurate to say that if the supplemental is 
provided, the Agency will be able to maintain fiscal year 1996 year-end 
participation levels. If the supplemental is not provided, FCS 
estimates that current participation levels will need to drop by 
400,000 persons by the end of fiscal year 1997. Each State will make 
participation decisions based upon its level of resources constraint. 
Under the priority system, WIC applicants are categorized by their 
level of nutritional and medical risk. Persons in higher priority 
levels, who are most in need, have precedence for participation over 
persons in lower priority levels. Using the WIC priority system, some 
States will have to limit participation of persons in lower priority 
levels by not recertifying them or by not certifying new participants. 
If these steps do not achieve needed reductions in participation, 
States may have to drop current participants.

                        state wic spending plans

    Mr. Obey. In addition to the normal reporting requirements, in 
January, the Department asked all WIC State agencies to complete a 
spending plan for 1997. The information was received last Friday. It 
would appear that WIC directors were placed in the position of either 
saying that they would cut participants from the program--or spend 
funds at a rate never experienced in the program. I suggest the results 
of the spending plans indicate the directors figured it was much easier 
to say they would spend down balances than that they would cut people 
from the rolls. How else do you account for the fact that reallocated 
carryover balances, which have historically averaged between 2.5 
percent and 4.2 percent, were projected for this exercise to decrease 
to .69 percent? Similarly with the spend forward funds. While the 
average has been 1 percent-1.5 percent, for this special report the 
directors estimated they would reduce spend forward funds down to .51 
percent. To those who would suggest that the States' expenditure plans 
question the need for a WIC supplemental, I suggest that the spending 
plans are totally unrealistic and historically insupportable. The 
Department's own executive summary of the State spending plans largely 
discounts the State agency estimates, saying in part, ``Based on the 
trends of past years, the State agency estimates appear unrealistic.'' 
Do you agree with that assessment?
    Response. Yes, the Agency agrees with the assessment that the State 
agency estimates on unspent recoverable funds and spend forward funds 
are historically insupportable and are most likely too optimistic. 
While it is realistic to assume that the percentage of available funds 
that will remain unexpended by States if fiscal year 1997 will decline 
and reach its lowest level in some time, it is doubtful that it will 
decrease to the extent the States predicted on their spending plans. 
Based on past spending performing, the Agency continues to support the 
estimate of approximately 2.5 percent unspent recoverable funds, which 
is about $100 million, and a spend forward level in the range of 1-1.5 
percent.
                     welfare reform impacts on wic

    Mr. Obey. What impacts on the WIC Program are anticipated in 1998 
and later years as a result of welfare reform?
    Response. This legislation has both immediate and long-term 
effects. FCS can only speculate on the impact of this comprehensive 
legislation on demands for the WIC Program, such as changes in the 
potentially eligible population. This legislation made changes in 
social policy that were more sweeping than any seen in decades. Over 
time, FCS will be able to assess the overall impacts of this 
legislation on demand for the WIC Program.
    This legislation also allows States to limit WIC benefits to 
qualified aliens. Thus far, no State has opted to base eligibility on 
alien status. Given the proven cost effectiveness of WIC as a 
preventative program, the Administration believes it unwise to deny WIC 
benefits to qualified aliens because this would deny critical nutrition 
and health benefits to pregnant women whose children would be eligible 
for WIC. USDA has notified States that if they elect to restrict 
eligibility, the Agency will adjust State grant allocations to reflect 
this change.
    Finally, this legislation eliminates some administrative 
requirements of earlier legislation which State and local agencies 
found to be burdensome. Specific requirements for referrals and other 
administrative processing requirements have been lessened. Through a 
policy memorandum, FCS has permitted States to begin to immediately 
benefit from these reduced requirements.

[Pages 692 - 933--The official Committee record contains additional material here.]




                           W I T N E S S E S

                              ----------                              
                                                                   Page
.................................................................
Beyer, Wally.....................................................     1
Braley, G.A......................................................   417
Crain, W.B.......................................................     1
Dewhurst, S.B....................................................1, 417
Jackson, Y.S.....................................................   417
Keeffe, M.A......................................................   417
Ludwig, W.E......................................................   417
Shadburn, J.E....................................................     1
Thompson, J.L....................................................     1
Watkins, D.J.....................................................     1



                               I N D E X

                              ----------                              

                           RURAL DEVELOPMENT

                                                                   Page
Assistance to Non-Agricultural Cooperative.......................    51
Biography of Jill Long Thompson..................................   235
Conclusion.......................................................    37
Consolidation....................................................     9
Empowerment Zones/Enterprise Communities.........................    38
Explanatory Notes................................................   241
Government Performance and Results Act...........................    58
Introduction.....................................................     1
Inspector General Report.........................................    48
National Reserve Account.........................................    55
Questions Submitted for the Record:
    Chairman Skeen...............................................    38
    Ms. Kaptur...................................................    57
Reorganization...................................................    54
Rural Community Advancement Program...........................5, 34, 51
Rural Community Assistance Program...............................    54
    Obligated and Unobligated Balances...........................    55
    Repooling....................................................    55
    Rural Business Opportunity Grants............................    55
Rural Development Council........................................    42
Rural Development Programs:
    Carryover....................................................    41
    Coordination.................................................     9
    Definition of Rural..........................................    42
    Memorandum of Understanding..................................    25
    Subsidy Rate.................................................     6
    Write-off and Losses.........................................    43
Statement of Under Secretary Thompson............................2, 162
Voluntary Separation.............................................    49

                        Rural Utilities Service

Administrative Expenses..........................................    83
Biography of Wally Beyer.........................................   236
Borrower's Eligibility:
    Telecommunication Loans......................................    63
    Electric Loans...............................................    64
Chief Information Officer........................................    84
Circuit Rider....................................................    79
Colonials........................................................    79
Deferment........................................................    70
Distance Learning & Telemedicine Program.................26, 62, 64, 84
Emergency Community Water Assistance.............................    80
Explanatory Notes................................................   268
Federal Financing Bank...........................................    62
Foreign Travel...................................................    72
Questions Submitted for the Record:
    Chairman Skeen...............................................    61
Rural Community Assistance Program...............................    83
Rural Electric and Telecommunication Loans.......................61, 62
    Applications on Hand.........................................70, 71
    Loans Approved...............................................    72
Rural Telephone Bank.............................................53, 84
Rural Utilities Service.......................................7, 51, 61
Statement of RUS Administrator...................................   177
Solid Waste Management Grants....................................    80
Subsidy Rate.....................................................    63
Technical Assistance Grants......................................    79
Telecommunications:
    Bill......................................................8, 52, 80
    Deregulation.................................................52, 81
    Small Farmer.................................................    25
    Rural Utilities..............................................    18
Water 2000.......................................................27, 61
Water and Waste Loans and Grants..............................72-76, 80
    Backlog of Applications..................................18, 77, 78
    Private Financing............................................    26
WIC Carryover....................................................    27
Write-Offs.......................................................    82

                         Rural Housing Service

Administrative Expenses..........................................   110
Biography of Jan E. Shadburn.....................................   237
Centralized Service..............................................    84
Chief Information Officer........................................   112
Community Facilities Loan Program................................97-106
Compensation for Construction Defects............................    96
Cooperatives.....................................................    57
Credit Sales.....................................................   111
Direct Credit Borrowers..........................................    85
Domestic Farm Labor...............................................91-92
Empowerment Zones/Enterprise Communities.........................   110
Explanatory Notes................................................   308
Farm Bill, 1996..................................................57, 58
Government Performance & Result Act..............................    58
Multifamily Guarantee Demonstration Program..........100, 111, 112, 113
Mutual and Self-Help Technical Assistance........................31, 85
    Eligibility/Criteria.........................................    56
    Occupancy Surcharge..........................................    56
OMB Subsidy Rate.................................................    84
Questions Submitted for the Record:
    Chairman Skeen...............................................    84
    Mr. Kingston.................................................   112
Rental Assistance Program................................86-87, 96, 112
Rural Community Fire Grants................................107-109, 111
Rural Housing Assistance Programs................................   109
Rural Housing Preservation Grants................................    92
Section 502 Rural Housing Loans.................................87, 111
    Equity/Non-profit Buyout.....................................    89
    Housing Inventory............................................    90
    Pending Request..............................................    88
    Qualifying Criteria..........................................   110
Section 515 Rural Rental Housing......................7, 51, 85-86, 113
    Other Issues.................................................   113
Section 533 and Section 504 Grant Programs.......................    85
Self-Help Housing Program.................................30, 92-93, 96
Statement of RHS Administrator...................................   192
Transfer of HUD Section 8 Program...............................57, 109
User Fees........................................................    96
Very Low-Income Repair Grants.....................................94-95

                   Rural Business-Cooperative Service

Alternative Agricultural Research and Commercialization
  Center..............................................33-34, 35-37, 115
    Follow-on Investments........................................   159
    New Investment...............................................   157
    Object Class Breakout........................................   155
Appropriate Technology Transfer Program..........................   114
Biographies of:
    Dayton J. Watkins............................................   238
    W. Bruce Crain...............................................   240
Business and Industry Guaranteed Loans..................32, 53, 115-120
    Backlog of Applications......................................    29
    Cooperative..................................................23, 24
    Default Rate.................................................   148
Consolidation....................................................   148
Empowerment Zones/Enterprise Communities........................149-152
Explanatory Notes................................................   367
Farmer Mac.......................................................   113
Funds for Rural America..........................................   148
Intermediary Relending Program.............................114, 120-125
National Sheep Industry Improvement Center.......................   148
Questions Submitted for the Record:
    Chairman Skeen...............................................   114
Rural Business-Cooperative Service Program.............22, 28, 114, 154
    Community Adjustment and Investment Program..................   153
Rural Business Enterprise Grants................................126-133
Rural Economic Development Grants...............................134-146
Salaries and Expenses............................................32, 35
Statement of AARC Cooperation Executive Director.................   229
Statement of RBS Administrator...................................   211
Subsidy Rate.....................................................   114
Technical Assistance.............................................   147
Training.........................................................   154
Transportation Technical Assistance Program......................   161
User Fees........................................................   115
Venture Capital Demonstration Program............................   148

                       Food and Consumer Service

FCS Overview Data:
    Budget Request..............................................641-642
    Description of Food Assistance Programs.....................644-646
    Nutrition Programs Assisting State, Local or Private Programs   643
Child Nutrition Program:
    Alternative Meal Counting and Claiming Pilot Project.........   472
    Bid-Rigging Tas Force........................................   465
    Cash-In-Lieu of Commodities Programs.........................   474
    CCC Donated Commodities......................................   461
    Child and Adult Care.......................................461, 660
    CNP Income Eligibility Guidelines...........................465-467
    Commodity Purchases on States Behalf.........................   474
    Dietary Guidelines...........................................   470
    Electronic Data Interchange Initiative.......................   473
    Homeless Children............................................   460
    Kentucky/Iowa Demonstration..................................   473
    Lean Meat and CNP............................................   662
    National Goals of Nutrition Education and Training Program...   463
    Nutrient Standard Menu Planning Demonstration...............468-471
    Nutrition Education and Training......................425, 464, 688
    Nutrition Education and Training, Reprogramming..............   454
    Paperwork Reduction in Child Nutrition.......................   458
    Permanent Appropriations.....................................   468
    School Lunch Program-Appeal to Students......................   689
    School Lunch Program Flexibility............................671-672
    School Lunches and Fat Content..............................687-688
    School Meals Initiative.....................................461-463
    Special Milk Program Participation...........................   473
    State Administrative Expense Carryover......................472-473
    Streamlining Administration of Child Nutrition Programs......   474
    Team Nutrition National Training Program.....................   463
Commodity Assistance Programs:
    Brand-Name Packaging for FDPIR and CSFP......................   653
    Commodities..................................................   421
    CSFP Food Packages...........................................   653
    CSFP Funding.................................................   522
    Flexibility in Allocating Funds to Commodity Assistance 
      Programs..................................................519-521
    Food Recovery...............................................662-663
    Gleaning.....................................................   421
    Nuclear-Affected Islands.....................................   524
    Palau Food Distribution Program..............................   523
    Proposed TEFAP Rescission....................................   659
    TEFAP Administrative Funding.................................   523
    TEFAP Commodities...........................................522-523
    TEFAP Costs..................................................   420
    TEFAP Distribution in Arkansas...............................   659
Explanatory Notes...............................................732-933
FCS Research:
    Collaborative Research......................................670-671
    Contracting Practices........................................   670
    Nutrition Research...........................................   670
    Research.....................................................   669
Food Donations Programs for Selected-Groups:
    Elderly Nutrition Program....................................   581
    Freely Associated States, Palau, and American Samoa..........   582
    Meals Served.................................................   581
Food Program Administration:
    ADP Purchases................................................   582
    Advisory and Assistance Services.............................   647
    Dietary Guidelines Alliance.................................650-651
    Equipment...........................................647-648 667-668
    Family Economics Review......................................   653
    FCS Staffing, By Appropriation...............................   646
    Financial Management.........................................   454
    Funding for Studies and Evaluations.........................633-640
    Government Performance and Results Act (GPRA)..............655-6598
    Headquarters Staffing.......................................582-583
    Minority Business Opportunity Committee......................   646
    New Nutrition Education Program.............................643-644
    Nutrient Content of the U.S. Food Supply....................651-652
    Nutrition Education and Research Strategic Plan..............   647
    Nutrition Promotion Initiative..............................649-650
    Object Class................................................663-666
    OGAPI Funding and Staff Levels...............................   583
    Ongoing Studies and Evaluations.............................584-626
    Planned Studies and Evaluations.............................627-632
    Reimbursement for Administrative Support.....................   646
    Requests from the Public.....................................   650
    Staff Year Ceilings for FSP and CNP.........................653-654
    Thirfty Food Plan Update.....................................   652
    U.S. Plan of Action for Nutrition............................   644
Food Stamp Programs:
    Advances Appropriations for Fiscal Year 1999.................   526
    Benefits Issued in Error.....................................   531
    Brand Name Packaging for FDPIR and CSFP......................   653
    Cash-Out Food Stamp Projects................................558-561
    Certifiation of Eligible Households Rule.....................   568
    Commodity Inventory Balances.................................   567
    Community Food Projects.....................................562-566
    Disaster Assistance..........................................   558
    Electronic Benefit Transfer (EBT)............533-556, 658, 686, 687
    Employment and Training......................................   557
    Enhanced Funding for Low Error Rates...................530, 660-661
    Error Rates..............................419, 526-529, 531, 660-661
    Federal Tax Refund Offset Program............................   556
    Fiscal Year 1995 Potential Liabilities.......................   531
    Food Disputes Assistance.....................................   558
    Food Distribution Program on Indian Reservations.............   567
    Food Security and Hunger Analysis............................   556
    Forfeited Property...........................................   569
    Fraud Investigations.........................................   420
    Funding for Puerto Rico and American Samoa...................   557
    Impact of Regulation E on EBT System.........................   532
    Impact of Welfare Reform on Error Rates......................   569
    Increasing State Administrative Costs........................   562
    Interim Rule on Non-Discretionary Provisions of Welfare 
      Reform.....................................................   568
    Legal Immigrants and Food Stamp Eligibility..................   622
    National Performance Error Rates.............................   531
    Nutrition Education Program.................................524-525
    On-Site Retailer Visit Contractor............................   581
    Participation and Unemployment Rates........................557-558
    Participation Levels.........................................   567
    Potential for Increasing Food Stamp Costs....................   581
    Quality Control Liabilities..................................   530
    Reserve......................................................   526
    Special Wage Incentive Program..............................556-557
    State Demonstration Projects and AFDC........................   570
    State Nutrition Support Network.............................525-526
    Store Investigations.........................................   570
    Time Limits on Retailers and Wholesalers Food Stamp 
      Authorizations.............................................   569
    Trafficking in the Food Stamp Program........................   418
    Treatment of Educational Training Assistance Rule............   568
    Use of Food Stamps for Vitamins and Minerals.................   569
    Wage Supplemental Projects...................................   581
    Waivers.......................................571-580, 677-685, 686
    Welfare Reform........................................424, 567, 669
    Work Requirements and Food Stamps............................   659
    Wyoming WIC Off-Line EBT Demonstration Project...............   532
Government Performance and Results Act (GPRA)....................   655
Special Supplemental Nutrition Program for Women, Infants, and 
  Children (WIC):
    1997 WIC Supplemental Funding..........................433, 689-690
    Affirmative Purchasing Programs..............................   422
    Alabama On-Line EBT Flexibility Test.........................   517
    Authorized Retailers.........................................   476
    Breastfeeding and Infant Formula.............................   430
    Breastfeeding Promotional Project...........................484-485
    Certification Period.........................................   517
    Certifying WIC Nutritional Risk..............................   518
    Cost Effectiveness Studies...................................   486
    Direct Purchasing From Farmers...............................   432
    Discrepancies Between State and Federal WIC Population 
      Estimates.................................................673-676
    Discretionary Funding........................................   518
    Eligibility and Participation Rates.........................480-483
    Farmers' Market Nutrition Program............................   477
    Healthy Meals for Healthy Americans Act of 1994 Requirements.   487
    IG WIC Vendor Management Investigation......................654-655
    Income Eligibility Requirements.............................477-479
    Infant Enrollment...........................................515-516
    Infant Formula Rebates.......................................   474
    Infant Formulas and Medicaid Foods Database..................   475
    Infrastructure Grants to State Agencies.....................487-488
    Letter to the Honorable Marcy Kaptur, Ranking Democratic 
      Member, U.S. House of Representatives......................   432
    Minimum Nutrition Education Expenditure Requirements.........   488
    Multi Purpose Grants........................................487-488
    National Academy of Sciences Study..........................501-514
    National Advisory Council...................................583-584
    National Breastfeeding Goals.................................   485
    National Education Demonstration Study.......................   486
    New WIC Allocation Formula...................................   672
    Non-Infant Formula Rebates...................................   475
    Nutrition Assessment.........................................   515
    Nutrition Education Assessment Demonstration Studies.........   486
    Nutrition Education.........................................488-489
    Nutritional Goals............................................   690
    Participant Income Criteria..................................   425
    Percent of Children in U.S. Below 185% of Poverty (1972-1995) 
      (insert)...................................................   428
    Percentage of Infants Eligible for WIC.......................   518
    Proposed Vendor Management Regulations.......................   476
    Referrals....................................................   517
    Reporting Breastfeeding Incidence and Duration...............   484
    Retailer Monitoring Efforts..................................   476
    Special Project Grants.......................................   487
    State Allocation Formula.....................................   515
    State Reallocations..........................................   517
    State Spending Plans.........................................   691
    Supplemental Needs.....................................686, 690-691
    Targeting WIC Benefits.......................................   690
    Three Highest Risk Groups....................................   484
    Unspent Funds...............................................490-500
    Vendor Fraud.................................................   655
    Vendor Overcharges...........................................   476
    Welfare Reform Impacts on WIC................................   691
    WIC and CDC's National Immunization Program..................   484
    WIC Directives (insert).....................................439-453
    WIC Management and Full Funding..............................   435
Prepared Statements:
    Mary Ann Keeffe, Acting Under Secretary, Food, Nutrition, and 
      Consumer Services.........................................692-708
    William Ludwig, Administrator, Food and Consumer Service....709-725
    Eileen Kennedy, Executive Director, Center for Nutrition 
      Policy and Promotion......................................726-729
    Biographical Sketches.......................................703-731
Questions Submitted for the Record:
    Chairman Skeen...............................................   460
    Mr. Dickey...................................................   658
    Mr. Bonilla..................................................   660
    Mr. Latham...................................................   663
    Mr. Fazio....................................................   670
    Ms. DeLauro..................................................   686
    Mr. Obey.....................................................   689
Witnesses........................................................   417