[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



                  AGRICULTURE, RURAL DEVELOPMENT, FOOD

                  AND DRUG ADMINISTRATION, AND RELATED

                    AGENCIES APPROPRIATIONS FOR 2003

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS
                             SECOND SESSION
                                ________
     SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG 
                  ADMINISTRATION, AND RELATED AGENCIES
                     HENRY BONILLA, Texas, Chairman
 JAMES T. WALSH, New York            MARCY KAPTUR, Ohio
 JACK KINGSTON, Georgia              ROSA L. DeLAURO, Connecticut
 GEORGE R. NETHERCUTT, Jr.,          MAURICE D. HINCHEY, New York
Washington                           SAM FARR, California
 TOM LATHAM, Iowa                    ALLEN BOYD, Florida         
 JO ANN EMERSON, Missouri
 VIRGIL H. GOODE, Jr., Virginia
 RAY LaHOOD, Illinois               
                         
 NOTE: Under Committee Rules, Mr. Young, 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.
   Henry E. Moore, Martin P. Delgado, Maureen Holohan, and Joanne L. 
                        Perdue, Staff Assistants
                                ________
                                 PART 7
                       FOOD AND NUTRITION PROGRAMS
                     AND RURAL DEVELOPMENT PROGRAMS
                                                                   Page
 Food, Nutrition, and Consumer Services...........................    1
     Food and Nutrition Service...................................    6
 Rural Development................................................  535
     Rural Utilities Service......................................  549
     Rural Housing Service........................................  559
     Rural Business Cooperative Service...........................  574
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 79-637                     WASHINGTON : 2002

                                  COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

 RALPH REGULA, Ohio                  DAVID R. OBEY, Wisconsin
 JERRY LEWIS, California             JOHN P. MURTHA, Pennsylvania
 HAROLD ROGERS, Kentucky             NORMAN D. DICKS, Washington
 JOE SKEEN, New Mexico               MARTIN OLAV SABO, Minnesota
 FRANK R. WOLF, Virginia             STENY H. HOYER, Maryland
 TOM DeLAY, Texas                    ALAN B. MOLLOHAN, West Virginia
 JIM KOLBE, Arizona                  MARCY KAPTUR, Ohio
 SONNY CALLAHAN, Alabama             NANCY PELOSI, California
 JAMES T. WALSH, New York            PETER J. VISCLOSKY, Indiana
 CHARLES H. TAYLOR, North Carolina   NITA M. LOWEY, New York
 DAVID L. HOBSON, Ohio               JOSE E. SERRANO, New York
 ERNEST J. ISTOOK, Jr., Oklahoma     ROSA L. DeLAURO, Connecticut
 HENRY BONILLA, Texas                JAMES P. MORAN, Virginia
 JOE KNOLLENBERG, Michigan           JOHN W. OLVER, Massachusetts
 DAN MILLER, Florida                 ED PASTOR, Arizona
 JACK KINGSTON, Georgia              CARRIE P. MEEK, Florida
 RODNEY P. FRELINGHUYSEN, New Jersey DAVID E. PRICE, North Carolina
 ROGER F. WICKER, Mississippi        CHET EDWARDS, Texas
 GEORGE R. NETHERCUTT, Jr.,          ROBERT E. ``BUD'' CRAMER, Jr., 
Washington                           Alabama
 RANDY ``DUKE'' CUNNINGHAM,          PATRICK J. KENNEDY, Rhode Island
California                           JAMES E. CLYBURN, South Carolina
 TODD TIAHRT, Kansas                 MAURICE D. HINCHEY, New York
 ZACH WAMP, Tennessee                LUCILLE ROYBAL-ALLARD, California
 TOM LATHAM, Iowa                    SAM FARR, California
 ANNE M. NORTHUP, Kentucky           JESSE L. JACKSON, Jr., Illinois
 ROBERT B. ADERHOLT, Alabama         CAROLYN C. KILPATRICK, Michigan
 JO ANN EMERSON, Missouri            ALLEN BOYD, Florida
 JOHN E. SUNUNU, New Hampshire       CHAKA FATTAH, Pennsylvania
 KAY GRANGER, Texas                  STEVEN R. ROTHMAN, New Jersey    
 JOHN E. PETERSON, Pennsylvania
 JOHN T. DOOLITTLE, California
 RAY LaHOOD, Illinois
 JOHN E. SWEENEY, New York
 DAVID VITTER, Louisiana
 DON SHERWOOD, Pennsylvania
   
 VIRGIL H. GOODE, Jr., Virginia     
   
                 James W. Dyer, Clerk and Staff Director

                                  (ii)

 
   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2003

                              ----------                              

                                           Thursday, March 7, 2002.

                 FOOD, NUTRITION AND CONSUMER SERVICES

                               WITNESSES

ERIC M. BOST, UNDER SECRETARY, FOOD, NUTRITION AND CONSUMER SERVICES
SUZANNE M. BIERMANN, DEPUTY UNDER SECRETARY, FOOD, NUTRITION AND 
    CONSUMER SERVICES
GEORGE A. BRALEY, ACTING ADMINISTRATOR, FOOD AND NUTRITION SERVICE
STEPHEN B. DEWHURST, BUDGET OFFICER, DEPARTMENT OF ARGICULTURE

                       Introduction of Witnesses

    Mr. Bonilla. The subcommittee will come to order.
    I want to welcome our witnesses this morning. We are 
delighted to have before us the Food and Nutrition Service 
represented by Eric Bost, the Under Secretary for Food, 
Nutrition and Consumer Services; Suzanne Biermann, the Deputy 
Under Secretary; George Braley, the Acting Administrator; and 
Steve Dewhurst, of course, the Budget Officer. Not only is this 
the first time that we have had the new Under and Deputy Under 
Secretary before us, but I am delighted to remind everyone that 
they are fellow Texans.
    Mr. Bost. Absolutely.

                            Opening Remarks

    Mr. Bonilla. The Chair is especially proud to have you all 
here today.
    You all oversee some very important feeding programs 
delivered by FNS and its State and local partners. Perhaps the 
most significant topic we will discuss this morning is the WIC 
program, which this subcommittee supports strongly and the full 
committee as well. It is a very good program that we all want 
to see continue to serve every last American that needs this 
help. We will be interested in getting into the subject of who 
is currently covered and what we might need to do in the future 
to address any shortfalls.
    Before we get into any testimony this morning, though, I 
would like to yield to my friend, Ms. Kaptur, to see if she has 
any opening remarks.
    Ms. Kaptur. Thank you, Mr. Chairman. We just want to 
welcome the witnesses this morning and say that you really 
operate some of the most important programs in our country, and 
we thank you for your service to our Nation. We will have many 
questions during the question period, obviously, but please 
know that millions of children in the Midwest, in Ohio, which I 
represent, and all over our country depend on you, and their 
mothers.
    I just returned from Russia, and it was really troubling to 
be in a wing of a hospital that we are trying to help rebuild 
where we know that out of every five children conceived, three 
are aborted, one is born with chronic birth defects, and one is 
born with a chance to live a normal life. No WIC program, no 
decent nutrition for mothers or children, and it provided me 
with a really excellent counterpoint to how far we have come in 
our country and to what extent we can bridge, as we are with 
our Global Food for Education program, bridge our WIC programs 
internationally to help mothers and children internationally, 
more effectively than we have in the past.
    So, again, thank you so very much for being here this 
morning, and we look forward to your testimony. Thanks, Mr. 
Chairman.
    Mr. Bonilla. Mr. Secretary, we will insert your statement 
into the record, and we would be delighted to hear from you at 
this time.

                           Opening Statement

    Mr. Bost. Good morning, and thank you, Mr. Chairman and 
members of the subcommittee. It is a real pleasure for all of 
us to be here with you today for the opportunity to present the 
Department of Agriculture's Food, Nutrition and Consumer 
Services budget for fiscal year 2003. You have had the 
opportunity of meeting my Deputy, Suzanne Biermann, but I would 
also like to take just a minute to introduce to you two 
additional members of our team: Dr. Peter Murano, who is Deputy 
Administrator for Special Nutrition Programs, and Steve 
Christensen, who is Acting Deputy Director for the Center for 
Nutrition Policy and Promotion.
    Since this is the first time I have appeared before this 
committee, I would also like to introduce myself just briefly. 
I was confirmed as Under Secretary in June of this past year. 
Previously, I served as the Commissioner of the Texas 
Department of Human Services in Texas under then-Governor 
George Bush, and I was responsible for many of the programs 
that I am responsible for here, in addition to TANF and long-
term care. Before that, I spent almost 20 years managing human 
services agencies across the country, most recently in Arizona 
and North Carolina, Pennsylvania and Florida.
    When the President and Secretary Veneman asked me to join 
the Department of Agriculture, I was extremely pleased tohave 
the opportunity to put my experience to work to effectively manage and 
improve the Federal nutrition programs. You should know that these are 
programs that are very important to me personally. We are talking about 
food stamps and the child nutrition programs, and this is a very 
important time because, as you know, food stamps are up for 
reauthorization now and the child nutrition programs are up for 
reauthorization in 2003.
    The administration and my team at FNCS and I look forward 
to working with you and the committee staff as we move forward 
to effectively and efficiently manage these nutrition programs.
    The administration has some very clear goals related to the 
nutrition programs. First and foremost, we are interested in 
simplifying our programs; and maintaining access to our 
programs, while maintaining their integrity which is very, very 
important. We want simple policies that make the programs 
understandable to those who administer them and those who 
receive them. We are interested in full access to the programs 
for those that are eligible to receive these services and sound 
public stewardship of the funds appropriated for these critical 
funds.
    In addition to that, I also view my responsibility as Under 
Secretary in two very broad terms and objectives: To ensure 
that those that are eligible to participate in Federal 
Nutrition Programs have the opportunity to do so, and to ensure 
the integrity of our programs through a solid public 
stewardship.
    The President's budget request totaled $41.9 billion in 
budget authority for fiscal year 2003 which supports the 
operation of the programs as well as some very important 
initiatives that advance both program access and integrity, and 
I would like to take a minute just to talk about those.

                      WOMEN, INFANTS AND CHILDREN

    The chairman and Ms. Kaptur both made reference to WIC. The 
President's budget of $4.8 billion for WIC reflects the growing 
demand for this program and the administration's firm 
commitment to ensure that resources are directed carefully to 
the programs. As the President has said, WIC works in terms of 
meeting the needs of a significant number of children and 
women. This budget reflects an increase of $364 million and 
will support a monthly average of almost 8 million needy women, 
infants, and children in 2003, which, to digress for a minute, 
I believe is unprecedented. I believe the increase is an 
unprecedented increase in terms of meeting the needs of folks 
who need these services.
    In addition to that, the budget also includes a $150 
million contingency fund if the food costs or participation 
exceeds current estimates.
    Let's talk about another program that is important to a 
significant number of people: The Farmers' Market Nutrition 
Program. The President's budget does not provide funding for 
the farmers' market nutrition program in fiscal year 2003. We 
agree that this is a very good program that supports American 
farmers and provides low-income families access to fresh fruits 
and vegetables. However, the program doesn't operate in all 
States, is not operated statewide in those States that 
participate, and provides limited benefits to only some of the 
participants.
    The administration is making the difficult choice of 
discontinuing the funding in an effort to focus on broad-based, 
more universally established programs, and I expect several 
questions from you on this issue.

                           FOOD STAMP PROGRAM

    Food stamps. The President's budget requests $26.2 million 
in the food stamp program, which would serve an average of 20.6 
million people each month, more than 3 million more than a year 
ago. Our proposal for the food stamp program includes 
legislative changes that would simplify the rules, support 
work, improve access, and also improve accountability. The 
fiscal year 2003 request also continues a $2 billion food stamp 
reserve.

                        CHILD NUTRITION PROGRAMS

    Child nutrition programs. The administration's budget 
includes $10.6 billion for child nutrition programs which would 
continue programs that provide millions of nutritious meals to 
all children in school and child-care settings. The budget 
increase in this program is due to, of course, economic 
conditions that increase the need for assistance, rising school 
enrollment, and also increases in payment rates to cover 
inflation.

                           PROGRAM INTEGRITY

    Program integrity. In the food stamp program, we are 
interested in ensuring that those persons who are eligible to 
receive services receive them and that they receive an accurate 
amount, no more or no less. For fiscal year 2000, 91.1 percent 
of all food stamp benefits were issued correctly, which is the 
highest level of accuracy in the food stamp program in this 
country.
    However, on the other side, unfortunately, it still means 
that about 6.5 percent of the benefits were overissued and 
about 2.4 percent of the benefits were underissued, totaling 
about $1.3 billion in erroneous payments. This is a very 
important point that I want to mention to the committee. Every 
percentage point increase in the error rate represents $200 
million in improper payments. I think that is significant.
    Rising errors have an impact not only on the integrity of 
the program and the support of the American taxpayers, but also 
have an impact on the availability of funds to help low-income 
families and individuals receive those services. The 
President's budget proposes a comprehensive and, Ibelieve, a 
very balanced approach to reforming the current Quality Control (QC) 
system: The proposal balances accountability with other measures of 
program outcome, focuses on the outliers--those States with the most 
serious and consistently high error rates, and also replaces current 
enhanced funding with $70 million in annual performance bonuses for 
those States that do an excellent job in terms of administering the 
program.
    The bottom line for me--and I have had the responsibility 
of managing the second-largest food stamp program in the 
country--is that we are seeking, we are looking for that 
balance: For those States who don't do a good job, looking at 
holding them accountable; for those States who do an 
outstanding job, providing them with a bonus and incentive and 
continue to help them even do better.
    Let me move on to another issue, which is the accuracy of 
free and reduced price certifications for our meals in schools. 
There is evidence that more students are being certified for 
free or reduced-price meals than appear to be eligible. It also 
appears that this trend is getting a little bit worse. But it 
is something that we are on top of, that we are looking at, and 
we are attempting to put some measures in place to address 
this. But in terms of just some broad parameters. I will speak 
for just 30 seconds on this issue because it is something that 
I found out about when I was briefed for my confirmation 
hearing--I am interested in ensuring that we don't put 
something in place that is going to deter eligible students 
from receiving free or reduced meals. On the other hand, I 
don't want to put something in place that is going to be an 
overly difficult administrative burden on the schools.
    In conclusion, I really appreciate being here, and I look 
forward to working with this committee in terms of meeting the 
needs of adults and children who are in need and those who 
receive our services.
    I would be more than happy to answer any questions that you 
may have of me, and if I don't know the answer, I am sure that 
I have staff ready and available who do. And if we don't, we 
will certainly get back to you in a very timely fashion.
    [The information follows:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                     FOOD STAMP PROGRAM ERROR RATE

    Mr. Bonilla. Thank you so much for your testimony.
    I would like to start with a question about the food stamp 
program. Obviously, it is mandatory, so we don't control the 
spending levels of this program. But we do have an opportunity 
to conduct some oversight.
    Mr. Bost. Yes, sir.
    Mr. Bonilla. The error rate is something that concerns a 
lot of us, and, of course, you just touched on it in your 
testimony. It is estimated to be at 8.5 percent for fiscal year 
2003. You stated the figure of $1.3 billion in overpayments and 
$460 million in underpayments. Are there any particular areas 
of the country where you feel that people are thumbing their 
nose at verification requirements? It is unbelievable that this 
program where it is so important to get every dollar to the 
people who truly need it, that perhaps there are some 
operations in this country that feel like they live under a 
special set of rules or they feel like they don't have to 
comply with verification requirements.
    Can you address that?
    Mr. Bost. Absolutely. Thank you very much, Mr. Chairman. 
Let me provide just a little brief introduction, and then I 
will get to the real issue here.
    The overall food stamp error rate for this country is at 
the lowest that it has ever been, and that is the good news.
    On the other side, we have some concerns about other States 
that are not, in my opinion, taking this as seriously as maybe 
they should or could in terms of addressing some issues. As I 
mentioned, Texas is the second-largest issuing State in terms 
of food stamps, and the number one State, of course, is 
California. We have preliminary information right now--and I 
really want to make the point very clear, it is preliminary. We 
have the responsibility for providing final numbers by the end 
of April, and we are into the first of March; therefore, the 
numbers that I am going to give you, there is a possibility 
that the numbers may change or fluctuate. But right now I am 
very concerned about the error rates, and I am not one for 
waiting to the last minute to start to address an issue. We 
want to jump on it as quickly as possible.
    Based on the preliminary information that we currently have 
available to us, it appears that California's overall error 
rate is going to be approaching about 18 percent. I remind you, 
I said the national error rate is about 8.9 percent. So they 
are double the national error rate.
    In addition, their overpayments are close to $200 million, 
and their underpayments, in terms of people coming in to apply 
that are actually eligible to receive services, is anywhere 
from $75 to $100 million.
    I have some serious concerns about them addressing their 
error rates at a slower pace than I think that I would want 
them to, given that they are the largest issuing State in the 
entire country: When you talk about a significant amount of 
money that is not being appropriately given to people who are 
actually eligible for the program, I think that that is a very 
serious concern.

                     FOOD STAMP PROGRAM ERROR RATES

    Mr. Bonilla. Are they thumbing their noses, or is it 
incompetence? What is that you are discovering preliminarily?
    Mr. Bost. Well, I have gone out to California on at least 
three visits, and I am on my way this afternoon at 4 o'clock to 
talk with them again about what we can do to help them turn 
this real concern around. I think that they are just beginning 
to take us seriously in terms of addressing what I see as a 
critical issue.
    Like I said, if overpayments are too high, that is fraud 
and you need to address it. On the other hand, if you have 
people who are being underpaid, then people aren't getting what 
they are due.
    In this instance, in California, it is both. And I think 
that they could do and they are attempting to do a better job. 
I am not one to go out and point fingers without providing them 
some very specific examples of what I think they can do to help 
their process.
    One, we have provided them with staff resources for 
technical assistance. Two, we have provided them with monetary 
resources to allow them to work with other States that have 
done a good job in reducing erroneous payments. And, three, in 
terms of time, energy and effort, this is my fourth trip out to 
California in less than 3 months because I am very, very proud 
to say--and it is due to the staff's commitment in Texas--we 
have one of the lowest error rates in the entire country; Texas 
is the second-largest issuing State with one of the lowest 
error rates of less than 4 percent. So I think that we were 
doing something right in Texas in terms of administration of 
this program. We have shared with them some of the things that 
we were doing in Texas that we believe are applicable to the 
situation that exists in California.
    I don't want to sit here and give you the impression that 
we are beating on them. We are really trying to help them 
address this problem because the issue for me in this role is 
to ensure that we have an accurate determination of benefits 
for every single person who goes into a food stamp office 
anywhere in this country.

                     FOOD STAMP PROGRAM ENFORCEMENT

    Mr. Bonilla. One other point, if you would just touch on it 
briefly, is the fines that can be assessed and your ability to 
collect those fines.
    Mr. Bost. Well, within the last 6 months, the Department 
has been successful in terms of being able to assess those 
fines and actually have a State pay the fine back. I am very 
concerned when we look at the Senate version and the House 
version of the farm bills, with regard to the QC system. They 
don't afford us any teeth to hold States accountable if they 
are doing a poor job, saying you have got to pay up.
    They see this, the States--and I come from a State, and you 
always kind of see the world from where you sit, of course, but 
the States kind of see this as Federal monies and it is not any 
money out of their pocket. Of course, in terms of having to pay 
it back, they don't jump up and down in terms of wanting to pay 
it back when they are not doing as good a job as I believe that 
they could.
    On the other hand, if you look at the administration's 
proposal, we believe that there is a balance, that we are 
striking that balance in terms of holding those States 
accountable that have the most egregious errors in terms of the 
administration of the food stamp policy. One, we first work 
with them to provide technical assistance, of course, to 
provide them with the opportunity over a period of 2 years to 
address their issues. But if they fail to do that, they have to 
pay it back, because on the other side, if they do a good job, 
we are going to give them bonuses. So I think that is fair. And 
I think it is right.
    Mr. Bonilla. Thank you very much.
    Mr. Farr. Mr. Chairman, could you yield for one question on 
the California issue?
    Mr. Bonilla. Mr. Farr, one question.
    Mr. Farr. Thank you, Mr. Chairman.
    California is a very big State. You have the L.A. Basin and 
then you have the rural parts. Would you say the error rate was 
consistent all over California or does it vary in different 
areas?
    Mr. Bost. I think a couple of things, Mr. Farr. You have, 
of course, L.A. County, which has a significantly high error 
rate, 27 percent. But you have other counties that have high 
error rates also. Let's go back to my experience in Texas, very 
similar, large State, border State, rural counties, urban 
counties. We were able to lower the overall error rate. So 
there are some similarities and I believe that if they take the 
commitment to address this problem very seriously they could do 
better. And they are trying--I don't want to say that they 
aren't trying. They are trying and they are getting a little 
bit better. But they have a significant problem. When you have 
an overall errorrate of almost 18 percent and the national 
error rate is about 8.9, that is double. I think that indicates they 
have a responsibility to do better. These are Federal dollars that we 
are talking about.
    Mr. Bonilla. Thank you very much. We will get back to--we 
will allow ample time for every member to have a couple of 
rounds of questions.
    Ms. Kaptur?

                         SENIOR FARMERS' MARKET

    Ms. Kaptur. Thank you, Mr. Chairman, very much and, Under 
Secretary Bost for your testimony this morning.
    Let me just say that you really have an important job. You 
have had many important jobs in your life. And as I look at the 
discretionary and the mandatory funds that flow to the 
Department of Agriculture under your jurisdiction, you command 
over half of the dollars the American people provide for 
agriculture, food and nutrition in our country, over $40 
billion a year. This is a massive responsibility.
    And your background is incredible. You bring real knowledge 
of human service programs from a major State in our Union. You 
have working knowledge of TANF and human need across this 
country.
    I represent a part of our country in northern Ohio where 
unemployment is above the national average, where our food 
banks are having to do extra drives to ask the public to help 
fill them. TANF in Ohio has been miserably administered. And we 
also have a situation where many of our veterans have now been 
cut off assistance because they are single males, and they are 
flocking into our food banks for help. The need for food is 
actually greater now than it has ever been in my career in my 
own district.
    As I read your resume and I looked at your background, you 
have, I do not believe, ever worked for an agriculture 
department. You have never been inside an agriculture 
department. That is a strength; it may be a weakness. It is a 
strength, in my judgment, because you can see things as new and 
you can bring this tremendous human service background to the 
service of the country.
    My first question this morning relates to raising 
consciousness about how important your role is in connecting to 
the main mission of the Department of Agriculture, which is to 
make sure that we have a sound farm economy in this country and 
to use the power of the Nutrition Service to help promote that.
    One of the biggest disconnects I have found in my career 
here between the Department of Agriculture is between the food 
and nutrition programs and commodity programs and production 
agriculture.
    How do I illustrate that? In your budget you rightly admit 
you don't provide money for the WIC farmers' market nutrition 
program. You don't provide money for the senior farmers' market 
nutrition program. Yesterday we had the Agricultural Marketing 
Service up here, and they told us they have a 2-year supply of 
dry milk sitting out there in--I do not know where it is, 
Kansas or wherever. And my question to them was: You know, we 
have hungry people all over this country. We have children that 
are exhibiting huge amounts of plate waste in the schools 
because they do not like the food that is served to them. Why 
can't we turn some of that milk product into a low-fat cheese 
that could be used by both our food banks as well as in our 
nutrition programs, and they basically sat there stone-faced. I 
said you ought to go talk to the nutrition part of your 
department.
    So I guess my basic question to you really is: How can we 
work with you to get you to consider how to use your power to 
help reach the farm community in the work that you do? That is 
why the WIC farmers' market program is important. In Texas 
alone, over 226,000 individuals have accessed help through that 
program just in Texas alone. And I can tell you, in States like 
my own, it is the difference between a small specialty farmer 
near an urban area being able to stay in business or not.
    Mr. Bost. Right.
    Ms. Kaptur. That is how important it is. And so my 
fundamental question to you really is how can we think with you 
about how to use that $40 billion of power that you have to 
help production agriculture, particularly our small- and 
medium-sized and minority farmers or women who are involved in 
many new enterprises out there in our country. How do you find 
them?
    I will give you one other example. In our school lunch and 
breakfast programs, I asked the question: Okay, State of Ohio, 
how do you help production agriculture in Ohio? Who do you buy 
your food from? No consciousness. We can't get apples from 
farmers in Ohio into the school lunch programs. How do we 
connect the Food and Nutrition Service to production 
agriculture better?

                    ALTERNATIVES TO FARMERS' MARKETS

    Mr. Bost. Ms. Kaptur, you made a significant number of 
points, and I am going to try to cover several of them. Let's 
go back to the California example that I gave you.
    One of the things that I said when I went out and talked to 
the folks in California--and I went to visit the folks in the 
agricultural part of California in addition to the folks who 
run the human services part of California to make this point 
with them. If they did a better job of administering their food 
stamp program, it would result in several things. It would 
result in, one, people who need to receive food receiving it. 
It would also result in grocery stores being able to sell more 
food. It also wouldresult in farmers' being able to produce 
more food to sell to the grocery stores and, in turn, also afford them 
both----
    Ms. Kaptur. Would the gentleman be kind enough to yield 
there? Let me tell you, that is one of the biggest 
disjunctures. Do not assume that farmers can sell their product 
to grocery stores.
    Mr. Bost. Right. Well, in California, they were very 
receptive to this idea and so that is one of the things that we 
are working on.
    In addition to that, I think it was this week or last week, 
there was just a call to action involving me and FRAC and 
Second Harvest, to talk about the need for, getting more food 
to people in need in this country, and I think that addresses 
some of your other concerns. This is also very important to me. 
Also, there is a major initiative that I have implemented, 
about 2 or 3 months ago, to increase the number of students who 
participate in our breakfast programs and also in our summer 
feeding programs. In order for that to occur, I think you 
addressed two major issues: one, feeding more children that are 
in need of food; and, two, when you do that, you have got to 
produce more food because you are feeding more people. We are 
attempting to make that connection.
    And last, but not least, let's talk specifically about the 
issue of the dry milk. We were aware that you had asked the 
question yesterday, and we talked with our colleagues in that 
part of the Department to see what we could----
    Ms. Kaptur. I am glad to hear that.
    Mr. Bost. Well, I told you, I don't try to sit on my hands. 
We were aware of the question that you asked yesterday, and 
there has already been some dialogue with them to see what we 
can do about wider distribution of the dry milk.
    But in the spirit of being perfectly candid with you, I am 
really happy to hear you say cheese, because in terms of 
turning the dry milk into milk, there is a question of palate. 
There are some folks who don't like the taste of it, and so I 
am glad that you mentioned the issue of cheese, and that is a 
wonderful idea, and it is something that we are pursuing.
    One final point. Just this week alone, we met with the 
peach producers. I have met with the apple folks. I have met 
with the bison people. I have met with the cranberry folks. 
Mrs. Stabenow mentioned the vegetable I don't particularly care 
for, but we met with some vegetable producers in Michigan to 
talk about increasing the supply of those types of fruits and 
vegetables to our school children as a part of our school 
programs. I think that we have been very active and very 
assertive in terms of addressing many of the issues that you 
spoke to, and I am very proud of what I have been able to do in 
the very short period of time I have been here to address many 
of those specific concerns.
    Ms. Kaptur. I know that our time has expired, and I would 
just say to Under Secretary Bost, there is at least a $100 
million carryover in the WIC program, and in order to continue 
to fund the farmers' market nutrition program, you should take 
a look at those dollars and restore them.
    Mr. Bost. Okay. We'll take a look at it.

                      WIC PARTICIPATION FORECASTS

    Mr. Bonilla. Thank you. I will be recognizing members 
factoring in seniority, but then order of arrival, and going 
back and forth, left and right. So at this time I will 
recognize Mr. Nethercutt.
    Mr. Nethercutt. Welcome, ladies and gentlemen. I am happy 
to have you here.
    Mr. Bost. Thank you.
    Mr. Nethercutt. I want to ask you, with respect to your 
budget request as it relates to WIC, when the budget was 
written, we had a little different economic forecast than we do 
today. Does that change in economic forecast have any 
significant change in your request amounts? Do you see any room 
for adjustment as it relates to the request you have made here 
today?
    Mr. Bost. You mean in terms of the request that we are 
making for fiscal year 2003?
    Mr. Nethercutt. Yes, sir. The assumptions that you made as 
it relates to putting your budget together, have there been any 
changes in those assumptions based on the changes in economic--
outlook?
    Mr. Bost. Well, yes, we have seen some increases in the 
number of persons, both women and children, that are 
participating in the program, but there are a couple of things 
that I think are very important to note. One----
    Mr. Nethercutt. Have they gone up or down?
    Mr. Bost. Well, actually, you see seasonal changes.
    Mr. Nethercutt. Yes, sir.
    Mr. Bost. We saw participation going up in October and then 
it went down a little bit in December. We would anticipate it 
going up in January.
    But the other point that I would like to mention--two 
points. One, in terms of this specific budget request, this is 
unprecedented, being able to meet the needs of almost 8 million 
persons per month. That is the first point that I would make. 
Second, there is a $150 million reserve if we didn't really hit 
the target and so I think there is money in there to address 
any economic changes that will occur.

                             WIC CARRYOVER

    Mr. Nethercutt. I understand. And you have also got $100 
million you are carrying over virtually every year inthis 
account. Correct?
    Mr. Bost. Yes.
    Mr. Nethercutt. Give or take?
    Mr. Braley. Congressman Nethercutt, there is a thing called 
structural carryover. We split this money up among 83 different 
agencies, State agencies, geographic States, as well as Indian 
tribal organizations that operate the programs. As a result of 
none of them wanting to overspend, they all underspend 
slightly, and we end up with an amount of money that carries 
over.
    The historical level has been around $100 million. That is 
something we felt we couldn't reduce without affecting a 
State's ability to put people on the program. You need to have 
a little cushion because the consequences of overspending are 
severe.

                      WIC ELIGIBILITY REQUIREMENTS

    Mr. Nethercutt. Let me ask you this: What are the 
eligibility requirements, income eligibility requirements, 
average across the 50 States as it relates to eligibility for 
WIC?
    Mr. Braley. The eligibility is based on 185 percent of the 
income poverty guidelines. I believe for a family of four that 
is around $31,000 a year currently.
    Mr. Nethercutt. Okay. And it would go up if it is a family 
of six.
    Mr. Braley. That is right.
    Mr. Nethercutt. My memory in my district is that if you 
have four kids and two parents, you would be eligible for WIC 
funding if you make--I think it is $58,000--which seemed to me 
to be high. But, you know, I am not kicking the program. I 
think it is a good program. It helps people. But I was 
surprised by that number. Maybe if you would take a look and 
see if I am close.
    Mr. Braley. We could give you the income limit for every 
family size in the record.
    [The information follows:]
                       WIC Eligibility Guidelines
    The information is provided for the record. Please note that the 
WIC Income Eligibility Guidelines are based on a school year rather 
than a Federal Fiscal year; therefore, we have provided the two sets of 
guidelines that cover July 1, 2001 through June 30, 2003.
    [The information follows:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
                      DIABETES AND COMMODITY FOODS

    Mr. Nethercutt. Let me ask you this question, Mr. 
Secretary: I have had a real interest in the issue of diabetes, 
and other members of this subcommittee have as well. We care 
deeply about it, especially as it relates to our Indian tribes 
and our Native American population.
    A few years ago, your Department, the Department of 
Agriculture, took a hard look at the commodity programs to try 
to get out to the recipients some more healthful food. In some 
cases, we have a diabetes incidence of 65 percent in some of 
our tribes, and diabetes disproportionately hits minority 
populations in our country.
    Mr. Bost. That is correct.
    Mr. Nethercutt. So it is a great concern of ours, and 
everybody here. I think without exception, everyone feels 
deeply about this issue.
    Have you had a chance to look into the issue of commodity 
programs, the helpful nature of the food, how the commodity 
programs are performing as it relates to the impact that it 
might have on people who are prone to have or are, you know, 
likely to get diabetes more than other populations in the 
country?

                          DIABETES AND OBESITY

    Mr. Bost. Yes, sir, and I share your concern. Diabetes, 
obesity and other diseases are significant issues, and in terms 
of looking at the commodity programs and, all of our programs--
our school nutrition programs and, of course, the WIC program--
that we are looking at what we can do to add fruits and 
vegetables to our programs, and also purchase lower fat bison 
meat for some of the Indian reservations that is lower in fat 
than beef. You are absolutely right that this is a concern, and 
we are taking, I believe, some steps to address this issue.
    One final point. We are currently working with the Five-a-
Day Group, the Cancer Institute, and the Department of Health 
and Human Services to form a coalition so that we can continue 
to push additional fruits and vegetables to all of the persons 
that we serve to address not only the issue of diabetes but 
also this issue of obesity and a significant number of people 
in this country being overweight.
    Mr. Nethercutt. Yes, sir. Thank you so much.
    Thanks, Mr. Chairman.
    Mr. Bost. Thank you, sir.
    Mr. Bonilla. Thank you, Mr. Nethercutt.
    Mr. Boyd?

                        FARMERS' MARKET PROGRAMS

    Mr. Boyd. Thank you, Mr. Chairman.
    Secretary Bost, I have to tell you that I am impressed with 
your demeanor and your optimism and your aggressiveness. I read 
your biography, and I assume that you picked a lot of that up 
at the University of South Florida when you served down at Fort 
Myers. [Laughter.]
    Mr. Bost. Yes, sir, I most certainly did.
    Mr. Boyd. Good. Just one quick question. There has been 
some discussion about the farmers' market programs, and I think 
most of us recognize this is a two-edged sword that helps in 
two different directions. One is the people who are growing 
and, two, the people who are consuming.
    My question to you is: Since we have zeroed it out, what 
steps are you taking to get fresh fruits and vegetables into 
your food programs?
    Mr. Bost. Well, as I was saying to Mr. Nethercutt, we are 
looking at a couple of programs. Of course, there is a review 
of the WIC package. In addition to that, we are looking at 
purchases that we can make through the Department of Defense to 
provide additional fruits and vegetables in all of our school 
nutrition programs.
    George, did I leave out something?

                    ALTERNATIVES TO FARMERS' MARKETS

    Mr. Braley. Yes, actually, back to Mr. Nethercutt's 
question as well as yours, we have expanded the DOD purchases. 
Of course, they purchase fruits and vegetables for their own 
purposes, and we have tried to piggyback on their purchase 
system, first for schools, but we have included Native American 
populations as well so that we allow them to obtain some fresh 
fruits and vegetables for that program as well. So we have a 
number of initiatives going on.
    We have also encouraged schools to get with local farm 
cooperatives and purchase their produce locally wherever they 
can. That works better in your part of the country, further 
south, where the growing season and the school year overlap 
quite a bit. It is a little tougher up North. But we have had 
some success with that in a number of States, including 
Florida.
    Mr. Bost. Mr. Boyd, in addition to that, I think it is also 
important to note that, we sit here and kind of make these 
generalizations about increasing fruits and vegetables in 
schools. I am going to be really candid with you. We send a lot 
of fruits and vegetables to schools. The kids don't eat them. 
So we need to look at doing some things differently in terms of 
providing them with some very specific types of fruits and 
vegetables that are not going to go to waste. I say that 
because of a real specific point.
    I met with the peach people this week, and they have a 
flash fresh-frozen fruit cup of peaches that has been a 
tremendous success in terms of it increasing the amount of 
fruits eaten by students, and it is a fruit that kids will eat. 
The issue of grapes is also real important, and apples, and we 
have ended up putting cranberries in trail mixes.
    So we are looking at some real creative ways that are going 
to increase the consumption of fruits and vegetables, not just 
me sitting here telling you that I am sending them to the 
schools, but also that they are actually going to consume them.
    Mr. Boyd. You are sort of making my case for me. I don't 
want to get into a debate with you about how to run your 
program because you are much too skilled for me to get into 
that. However, it seems to me that in these programs you are 
not sending the food to somebody. You are saying here it is, if 
you want it, go get it. By the way, it doesn't cost the 
Government until they do get it. So it seems to me a good 
program that solves the problem that you are talking about, 
plus, we talk in the defense industry a lot aboutmaintaining 
industrial bases and so on and so forth. But the truth is, as we 
globalize our economy and trade with these developing countries, the 
only thing they have to give to us in these wonderful trade agreements 
that we are doing is their agricultural production. That puts 
tremendous pressure on our production agriculture folks.
    It just seems to me that this solves a couple of problems, 
and I just wish you would take another look at it.
    Thank you, Mr. Chairman.
    Mr. Bost. Absolutely, Mr. Boyd.
    Mr. Bonilla. Thank you, Mr. Boyd.
    Mr. LaHood?

                        FARMERS' MARKET PROGRAMS

    Mr. LaHood. Mr. Secretary, the decision to zero out the 
senior program, was that a programmatic decision or a fiscal 
decision, or both, or what? I mean, I read your testimony, but 
I am just curious.
    Mr. Bost. The issue for the administration and the 
Department was that, one, going back to Mr. Boyd's point, it is 
a program that is very well received and we are very, very 
sensitive to everyone's concerns. But when you are looking at 
putting together a budget, you have to make some difficult 
decisions and choices, and essentially in terms of how much it 
costs and the dollar amount, all of those things were taken 
into consideration. Primarily it was a fiscal decision for us, 
and it was a difficult one.
    Like I say, when you put together a budget, you are given 
the responsibility of making some very difficult decisions and 
choices.
    Mr. LaHood. I think it is a little bit contradictory to say 
it is good for children to have fruits and vegetables but not 
good for seniors. I don't quite get how that works.
    But if you are telling me it is a fiscal matter, I guess it 
is. Your testimony says it is, you know, not a program that 
exists in every State, and I don't know if that is a very good 
reason. But if you are saying it was budgetary, I guess it was.
    If we put the money back in, what would you think about 
that?
    Mr. Bost. If you were to put the money back in?
    Mr. LaHood. Yes, sir. Would you think it was a good program 
then? [Laughter.]
    Mr. Bost. If you were to put the money back in, the 
participants would be happy as a peach.
    Mr. LaHood. Have you looked at some of the nutrition 
programs that have been included in the farm bill that was 
passed in the House or Senate? And do you have any feelings 
about that?
    Mr. Bost. I have looked at those, and at this point we have 
just started to have those discussions. I don't know if I have 
a real definitive opinion other than, as I spoke earlier, I 
have some concerns about the lack of the QC teeth in the House 
version of the farm bill, and the same concern in the Senate. 
But I think it is too soon because they have got to come 
together.

                            COMBATING HUNGER

    Mr. LaHood. Do you think there are hungry people in America 
today?
    Mr. Bost. Do I think that there are hungry people in 
America today? Yes, I believe that there are hungry people in 
America today, and I think that we can do better, and I think 
that we are attempting to do better to meet the needs.
    Mr. LaHood. In what ways?
    Mr. Bost. Well, like I said, there was just a call to 
action. We are working with a number of people in the advocacy 
community. In addition to that, I have an initiative to 
increase the number of children that receive our free 
breakfasts. There is a major initiative to increase the number 
of children who eat and participate in our summer eating 
programs. I think that we have taken some very significant and 
bold steps to not only say that there is an issue but go out 
and address the issue.
    Also, we are working and looking at trying to increase the 
amount of commodities that are supplied to people who have a 
responsibility of distributing commodities. One of the most 
significant programs that we run is the food stamp program, 
where I am looking at simplifying the program so it is easier 
for needy persons to have access and also easier for States 
that have the responsibility of administering the program to 
administer the program. I think we are taking some steps on all 
fronts to address this issue of hunger in America.
    Mr. LaHood. Do you think it is a silly goal or unattainable 
goal to say, that, maybe you will wake up someday and there 
won't be any hungry people because of the work that you are 
doing and that your people are doing and that the USDA is doing 
and the money that we are providing?
    Mr. Bost. No, I don't think that it is a silly goal, but I 
think it is a significant challenge.
    Mr. LaHood. Is it unattainable?
    Mr. Bost. No, I think that it is attainable, but we 
cannot--``we'' being Government--we cannot address this issue 
by ourselves. That is why I am reaching out to people in the 
community and in our sister agencies to come together to 
address the issue. But I can't sit here and say I am going to 
do all these things and achieve it. But I believe that it is an 
attainable goal. I do not know if it is a goal that will be 
addressed while I sit in this chair, but I amgoing to do 
everything humanly possible while I am here to decrease the number of 
children and adults in this country that are hungry, that live in one 
of the richest countries in the entire world.
    Mr. LaHood. I wonder if it is attainable when you are 
eliminating a program like the senior farmers market program.
    Thank you, Mr. Chairman.
    Mr. Bonilla. Thank you, Mr. LaHood.
    Mr. Farr?
    Mr. Farr. Thank you, Mr. Chairman.

           CHILD NUTRITION LEVERAGING USDA'S PURCHASING POWER

    I like the energy that is in this room, and I like your 
spirit. But I want to put it into a different perspective. I am 
sure you are familiar that the importance of your agency is the 
one that drives the decision that has to be reached by the 
Secretary of Agriculture and by the Secretary of Health and 
Human Services to create dietary guidelines for Americans. And 
when those guidelines are adopted, they are for all Federal 
agencies, not just the Department of Agriculture but for every 
Federal agency to carry out any food program that they may 
have. So they are very important. Part of the dietary 
guidelines say that you have to choose a variety of fruits and 
vegetables.
    Why I think this committee is very interested in your 
leverage of your agency is you sit on two-thirds of all the 
money that Congress appropriates to the USDA. Your request is 
for $40 billion. That is more than some other departments of 
the Federal Government.
    What we think is missing in that leverage is that we are 
not using that leverage to buy the food that is on the dietary 
guidelines. We put them out there as an educational instrument, 
and then you wonder why the food, these fruits and vegetables, 
aren't reaching anybody. In America, we don't subsidize fresh 
fruits and vegetables. There is no Federal support for that. 
And it is fresh to market, and we have developed the technology 
to do that. Lettuce in a bag is an example.
    What we want your Department to do is start enforcing it, 
so one of the questions I have: Why would you even want to 
support a school program, a school lunch program, where the 
school allows vending machines?
    Mr. Bost. Well, the current authority that we have is to 
limit access to those machines during mealtimes so that 
students aren't able to access those vending machines during 
that period of time. That is the current authority we have.
    Mr. Farr. Why do you even allow schools to participate in 
the program if they have vending machines?
    Mr. Bost. I do not believe I have the authority to not 
allow them to participate in the program.
    Mr. Farr. You have $40 billion----
    Mr. Bost. Well, I think that it is the law, but, on the 
other side of the coin, Mr. Farr, I think it is real important 
to note, too, that the schools tell us--and coming from Texas, 
we have a significant number of schools that participate--they 
have those vending machines in their schools because they use 
it as a revenue source.
    Mr. Farr. That is correct.
    Mr. Bost. And that is why they have them. And the schools 
essentially state to me and to others----

                   CHILD NUTRITION DIETARY GUIDELINES

    Mr. Farr. Well, which is more important, the nutrition 
guidelines that we have developed which require fresh fruits 
and vegetables or vending machines that sell junk food? I mean, 
we are in conflict with our own policy here, and my point is 
that I think this committee is trying to point out that, with 
$40 billion of leverage, you ought to be able to do a much 
better job of buying the food that you are telling people that 
they ought to eat. And when we particularly participate in that 
program with the school lunch program and with WIC and with all 
the other things, there is no reason why there ought to be this 
disconnect between what we tell Americans who spend a lot of 
money developing the dietary guidelines and developing the 
goals, Healthy People Goals 2010, and then we don't exercise 
it. I mean, it is a message that isn't connected, and we are 
frustrated because the people that grow the fresh fruits and 
vegetables, who sometimes need some support--and they don't 
have any in law, they aren't guaranteed--they would love to be 
in the commodities program. And last year, when we looked over 
the list, we looked at the amount of lettuce and tomatoes and 
other things that you bought, the Federal Government bought, 
and it was nothing.
    Then, you know, it was commented here last year that we 
bought $50 million worth of cheese, and the question is: Why 
are the kids so obese in school? Well, look at what we are 
giving them? It is our fault.
    My point is that with $40 billion in leverage, you have got 
a lot of influence in this country in how we eat, what we eat.

                     CHILD NUTRITION STUDENT CHOICE

    Mr. Bost. One more point, I think you are absolutely right, 
but the other side of the coin, Mr. Farr, is that in America, 
one of the things that drives us as Americans is this issue of 
choice, that we love to have choices. You know, go into a 
grocery story, go down the cereal aisle. There are probably a 
hundred different choices of variety of----
    Mr. Farr. Yes, and that is why we required television 
manufacturers to put a V-chip in there so that you would have 
choice.
    Mr. Bost. Right, exactly, choice.
    Mr. Farr. Where is the V-chip on healthy fruits and 
vegetables that require schools to censor out the bad stuff?
    Mr. Bost. Choice. I promise I will get to my point quickly. 
When you say that I have a great deal of leverage, yes, I 
agree. I think I have a great deal of leverage in terms of us 
working with the schools and in terms of encouraging the 
schools and in terms of offering more fruits and vegetables. 
But this issue of vending machines is that we are currently--
and, I believe, given the very short period of time that I have 
been here, enforcing the authority that Congress has given us 
to enforce.
    The reauthorization of the child nutrition programs comes 
up in 2003, and I know that this is going to be at the top of 
our list to consider, and if there is a desire on Congress' 
part to expand the authority that we have to do that----
    Mr. Farr. Can we expect you to ask for that authority?
    Mr. Bost. I think that you can expect us to take a real 
hard look at it right now. This is a significant policy 
decision that I need to discuss with the Secretary. I don't 
feel comfortable sitting here saying what I am going to do in 6 
or 8 months without first discussing it with her. But I can 
assure you--and you have my commitment and my word--that it is 
one of the things that we are going to very seriously take a 
look at.
    Mr. Farr. Well, if you live up to the passion that you have 
expressed today, I hope that you bring that message to 
Congress. And I will do everything in my power and I think this 
committee's power to see that you are granted that authority.
    Mr. Bost. Okay.
    Mr. Bonilla. Thank you, Mr. Farr.
    Mr. Braley, did you want to make a comment?
    Mr. Braley. I just wanted to comment that, our programs and 
their benefits are designed, in light of the Dietary Guidelines 
for Americans. The school meals have fruit and vegetable 
requirements as part of the meal patterns. There are nutrient 
standard requirements that do that as well.
    We have been working on a rule on the WIC program to add 
fruits and vegetables. I mentioned before, too, that we have 
always had a relationship with the production agriculture. 
Oftentimes we have bought canned and frozen products, but we 
have been using this Department of Defense fresh program more 
and more, as I mentioned, for schools and for other outlets as 
well. So I think there are quite a few things we can point to 
where we have moved in the direction that you suggest.
    Mr. Farr. But you are not taking the leadership role. That 
is the problem. You have $40 billion of leverage. That is a lot 
of money. You can do amazing things with just attitude. And the 
attitude needs to be shifted from a passive one to an 
aggressive one.
    Mr. Bonilla. Thank you, Mr. Farr.
    Mr. Hinchey?
    Mr. Hinchey. Thank you very much, Mr. Chairman.
    I just wanted to follow up on that, Mr. Bost. 
Unfortunately, I was not here for your testimony, but I have 
been impressed with the way that you are involved with these 
programs, and I think that you have a terrific attitude about 
them. It is very positive, and we want to do everything that we 
can to support you.
    Mr. Bost. Thank you, and I appreciate that.

                  CHILD NUTRITION SCHOOL LUNCH PROGRAM

    Mr. Hinchey. With regard to the issue of nutrition in 
schools, I would like to focus on the issue of soft drinks and 
the way that the soft-drink industry has very aggressively 
marketed its products in schools. And I think that given 
choices, unfortunately a lot of kids would rather have a Pepsi 
or a Coke than milk. And what the soda companies have done is 
force their way into the schools by making it so economically 
advantageous for the schools with enormous financial 
incentives, it has become a kind of addiction. Their attitude 
is that if you can get kids drinking soft drinks early, they 
will continue drinking these products throughout their lives.
    I would much rather see children drink milk than soda. It 
is all part of an epidemic of childhood obesity. It has been 
reported that Americans have gained more weight in the last 10 
years than in the previous three or four decades.
    Mr. Bost. That is true.
    Mr. Hinchey. And I think a lot of it has to do with the 
kind of calories that we consume, and soft drinks are, I think, 
a major part of those calories.
    I have introduced legislation to stipulate that soft drinks 
could not be sold in schools before the last lunch period. I 
know that you don't have that authority now. My legislation 
also requires USDA to study whether to ban or at least limit 
sales or donations of competitive foods before lunch and to 
issue a public decision on this matter.
    I wonder if you could comment on that.
    Mr. Bost. Interestingly enough, over the course of the 
next, I think, 8 to 10 weeks we are going to have somesessions 
around the country as we prepare for the reauthorization of our child 
nutrition programs, and we expect this issue to come up as I bring 
forth what I believe our legislation should be. I think that is one 
that we would definitely want to take a look at and consider.
    The other point I would also like to mention is that we are 
working with the industry for us to do a better job of 
marketing milk, and I believe that in a couple of schools, of 
course, you know, the issue of white plain milk but also 
flavored milk, the chocolate and the strawberry varieties in a 
couple of schools, that we have seen an increase in the milk 
intake when they were able to do that.
    As you said, we currently are enforcing the authority that 
we currently have to regulate that for a period of time. It is 
my understanding that during the lunchtime, they are supposed 
to be off and children can't access them. This is an 
exceptionally difficult and complicated issue because, as I 
said previously, the schools have vending machines because they 
say they are a revenue source for them, and that if they had 
more money to buy books and support their athletic teams, they 
wouldn't have them in school.
    From our vantage point, we are ultimately concerned about 
the nutrition intake of our students, and as you so eloquently 
noted, our children are becoming more overweight and more 
obese, and it is something that we need to address. We are 
attempting as best as we can to take some steps to address this 
issue.
    Another issue for me, not only for children in terms of 
being overweight and obese, or adults, is not that they are 
just kind of fat and happy, but I am concerned about the long-
term medical effects and diabetes, hypertension, heart disease, 
being out of shape.
    Let me also share with you another point, too, that there 
is only one State in the country now that mandates physical 
education 1st through 12th, and that is Illinois. In other 
schools, they don't even have it. The issue is not only this 
issue of nutrition and what kids eat and how much they eat, but 
the other side of the coin, you have--I am always searching 
that balance--you have also got to consider the lack of 
physical activity on the part of our school kids, too.
    Mr. Hinchey. Sure. You are absolutely right about that. But 
I am talking to the head of the Food and Nutrition Service now, 
and I am interested in nutrition at this particular moment, 
although I might be interested in exercise 5 minutes from now. 
[Laughter.]

               CHILD NUTRITION COMPETING FOOD ENFORCEMENT

    I want to work with you on this. I have introduced some 
legislation, and I would like to have your comments on it with 
regard to whether you want the authority to ban these kinds of 
drinks before lunch as well as during lunch, and whether you 
would do a study as to whether or not we ought to ban or in 
some sense limit the use of these soft drinks in schools.
    Mr. Bost. I have to look at Mr. Dewhurst and see him making 
faces at me, but, Mr. Hinchey, I always like to have more 
authority. [Laughter.]
    Mr. Bost. Who is it that is not going to want to have more 
authority? It is the utilization of the authority----
    Mr. Hinchey. I want you to use it----
    Mr. Bost [continuing]. That gets all these people in 
trouble.
    Mr. Hinchey. I want you to use it properly.
    Mr. Bost. I am not going to sit here and say that I don't 
want more authority----
    Mr. Hinchey. I want you to use it properly, Mr. Bost, and I 
am not interested in giving you blanket authority because I 
don't trust you that much. [Laughter.]
    Mr. Bost. But, Mr. Hinchey, I think----
    Mr. Hinchey. But I am interested in whether you want to 
have additional authority in a very limited way to try to help 
our children get better nutrition so that they can lead 
healthier lives. This is an issue that affects everybody across 
the board, but it is most predominant in low-income and 
minority communities where they are more desperate for funds 
and are willing to submit to the entreaties of the soft-drink 
companies to get those machines in the school and get the kids 
hooked on these sugar-laden drinks.
    So this is a very serious matter, and I know you take it 
seriously.
    Mr. Bost. Absolutely.
    Mr. Hinchey. But I want you to take this particular aspect 
of the issue seriously. I am going to ask you directly for some 
comment, not right now but I am going to ask you to supply me 
some comment in writing----
    Mr. Bost. We can do that.
    Mr. Hinchey [continuing]. On whether you want this 
additional, limited, defined, discrete authority, which I 
believe would be very helpful to the students of our country 
and their families.
    Mr. Bost. Okay. We will do that.
    [The information follows:]
             Limiting Sales of Competitive Foods in Schools
    The Department is concerned about the proliferation of foods in 
competition with reimbursable breakfasts and lunches throughout the 
school. We believe statutory authority, combined with efforts to build 
local support, is an effective way to address this issue. We continue 
to distribute the Team Nutrition's Change the Scene kit, which provides 
tools for States and locals to bring about change in the school 
nutrition environment by working with school administrators, teachers 
parents, students, as well as food service directors. While current 
authority restricts the sale of competitive foods, it does not prohibit 
providing competitive foods without charge. Indeed, we have witnessed 
the proliferation of give-aways on banned foods of minimal nutritional 
value such as soda. This practice will reduce the impact of extensions 
on the bans for these foods.

                        FARMERS' MARKET PROGRAM

    Mr. Hinchey. There is a pilot program in New York to test 
wirless electronic benefit transfer system for food stamps 
technology for the farmers' markets.
    The farmers' market program is very popular in New York and 
it is successful. Almost 2 million people participated in the 
mc farmers' market nutrition program in fiscal year 2001. It is 
a great benefit to low-income families who get access to fresh, 
seasonal produce, as well as to the local farmers who grow this 
produce.
    New York is the largest participant in the farmers' market 
nutrition program. It has over 300,000 women and their children 
buying produce in farmers' markets all across the State.
    In the conference report last year, New York was given 
funds to develop a pilot program using wireless electronic 
technology in farmers' markets. The point is you can't hook up 
anything. There is no electricity going out to these farmers' 
market, as you know.
    I know that efforts are underway in my State, in New York, 
for this pilot program, but I was wondering if you could tell 
me what the Department is doing, what kind of relationship you 
have established with New York on this effort, and if you see 
this as a possible model to use elsewhere.
    Mr. Bost. Oh, absolutely. A couple of things.
    One, I personally met with the company that is responsible 
for this technology so that I could see it and have a better 
understanding.
    Two, I made a commitment to them and also New York State 
that I would actually go up and look at it, and I am trying to 
get that scheduled so that I could actually go up and look at 
it.
    Three, we have had some conversations with the State agency 
in New York and essentially told them we would support their 
efforts to expand it, and we are kind of waiting on them. The 
ball is in their court to come to us and say that they want to 
do it because I have said that I would support it.
    And last, but not least, this is something that I am 
personally very interested in, having had the opportunity to 
develop a major EBT system in Texas, and we would be interested 
in expanding it to other sites across the country. But the key 
here, of course, is going to be cost and where is the money 
going to come from. And I don't know the answer to that 
question.
    Mr. Hinchey. Well, this is a matter of priorities, and the 
priorities are being set by the administration. You are part of 
the dialogue that sets these priorities.
    We know that you talk to the Director of the Office of 
Management and Budget, Mr. Daniels. I would hope that you will 
use the kind of energy and dedication to these issues that you 
have exhibited here at this hearing in conversations with him 
and other people in the White House, because I think they have 
got their priorities off.
    For example, the elimination of the farmers' market 
nutrition program for senior citizens and for WIC recipients 
seems to me a very bad decision indeed. These programs, are 
very inexpensive, but benefit hundreds of thousands of people 
and can be the difference between a healthy life and an 
unhealthy one.
    I hope that you will make these points because it is a 
matter of establishing priorities. And that is the most 
important thing that we do. You and I and people on this 
committee, the executive and legislative branches, we establish 
priorities. And I think that establishing a high priority for 
the people who need better nutrition so that we can have a 
healthier country ought to be on the top of the list.
    Mr. Bonilla. Thank you, Mr. Hinchey.

                     CHILD NUTRITION--SCHOOL LUNCH

    The Chair, before I yield to Ms. DeLauro, would just like 
to refer to a very short passage in the report that we passed 
for the current appropriations bill, and that illustrates the 
widespread concern on this subcommittee for better nutrition 
for our children. It involves milk. It says, ``The committee 
encourages the Department to consider developing a pilot 
program in which milk beverage machines are placed in schools, 
and suggests that the State of Iowa be considered a candidate 
for such a program.'' This is not something that is just a 
concern of one member of this subcommittee.
    Ms. DeLauro?
    Ms. DeLauro. Thank you very much, Mr. Chairman. And good 
morning to all.
    Mr. Bost. Good morning. How are you?
    Ms. DeLauro. I am very well, thank you. And I apologize, 
for not being here during your testimony.
    Let me just----
    Mr. Bost. It was good.
    Ms. DeLauro. Pardon? [Laughter.]
    I have no doubt. I sit on the Labor, Health, Education, and 
Human Services Subcommittee, and the subcommittee met yesterday 
with Secretary Thompson. The whole issue of children and 
nutrition, and preventive care and asthma, obesity, et cetera, 
was a large topic of conversation.
    I just wanted to make this one point here, which I made 
yesterday. My point is directed not to you specifically, but I 
think that there is a need for some cooperation and 
communication among departments. For instance, we are all of 
the view that we should be dealing with nutrition and how it 
affects other issues. You mentioned physical education. On the 
other hand--and I will ask the Secretary Education--the current 
budget just eliminates the physical fitness program in our 
schools.
    I just think that there needs to be some coordination 
between people in the federal government, who have the very, 
very best interests at heart for our youngsters, to address 
some of the problems that we are seeing. At this juncture, the 
decision to cut out such a program when we know only some of 
the difficulties needs to have some review.
    That being said, let me associate myself with my 
colleagues' comments on farmers' market. We have a farmers' 
market in West Haven, Connecticut, doing very, very well. One 
of the issues raised in your testimony is that they do not 
operate in every State. Well, we also provide assistance to 
specific States for specific farm assistance. I mean, we deal 
with agribusinesses that produce five major crops. That doesn't 
exist in every State. We shouldn't be selective when it comes 
to the farmers' market and its benefits to people that it does 
help. Maybe we just ought to expand it to the rest of the 
States. It is a small investment.
    Let me ask about the school lunch program, if I might, 
something that is near and dear to my heart.
    A February 2000 GAO report concluded few outbreaks of 
foodborne illness are linked to the national school lunch and 
school breakfast programs. So I applaud USDA's effort in 
ensuring the safety of our kids.
    At the same time, the report recommended that USDA develop 
a database to document all food safety actions taken on food 
use in these programs to provide information to assist schools 
in developing food procurement contracts that further enhance 
safety.
    The report states that the latest data was from 1997. Is 
there more recent data on the outbreak of foodborne illness in 
our school lunch and school breakfast programs? Has USDA 
developed a database to identify safety trends and track the 
Department's responsiveness to outbreaks of foodborne illness 
in those programs? And does USDA provide information on safe 
food handling and safety provisions that could be included in 
the school food procurement contracts?
    Let me add one footnote, because just a couple weeks ago 
there was this whole issue of tainted meat coming from Mexico. 
What precautions are taken specifically within the school lunch 
program to eliminate the opportunity that tainted meat does get 
into the school lunch program. Maybe that can't happen, if you 
can explain to me whether or not it can, and answer my other 
questions. Thanks.

                      CHILD NUTRITION FOOD SAFETY

    Mr. Bost. Well, Ms. DeLauro, let me first say that I don't 
know about the specific study that you are referring to. But 
what I can tell you, is that there is a concerted effort on our 
part, working with all of our sister agencies in the Department 
to ensure that we have the safest possible food for our 
children in this country. And there is a real commitment on the 
part of the Secretary and all the other Under Secretaries, and 
I would dare say that there has been better coordination, 
improved coordination since we have been here to ensure that we 
don't compromise the integrity of our food supply for our 
children.
    I think George has been here a while so he maybe can give 
you some history, because you go back to 2000 and the times 
that precede me.
    Mr. Braley. Congresswoman DeLauro, we have worked closely 
with the Food Safety and Inspection Service, but also the 
Centers for Disease Control. They maintain records of foodborne 
illnesses and that type of thing. I think we will have to give 
you the specific answers for the record there. We have put out 
extensive materials at your direction to schools on safe food 
handling and that kind of thing. There have been earmarked 
funds and appropriations to do that type of work, and, again, 
we can give you a listing of some of the activities that we 
have undertaken, and I think we have been pretty successful in 
limiting the incidence of those kinds of problems in the school 
meals programs.
    [The information follows:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
    Mr. Bost. And one final point, too. The American School 
Food Service Association they have a standard that I think all 
of their schools follow, which is ``Serving It Safe.'' And so I 
think there is a commitment not only on our part in terms of 
providing it and inspecting it and ensuring that is safe, but 
also on the part of the school industry to ensure that the food 
that they prepare and that they serve to the children is safe.
    And so here is an example or instance of us working in 
concert with them to ensure that we don't compromise the 
integrity of our foods that are supplied to school children in 
this country.
    Ms. DeLauro. Is there any discussion about this report, you 
know, that USDA develop a database to document all food safety? 
Is there any activity on that issue and any activity to update 
the information from 1997?
    Mr. Bost. Ms. DeLauro, I am not familiar with that report.
    Ms. DeLauro. Okay.
    Mr. Bost. Let's me do this----
    Ms. DeLauro. Terrific.
    Mr. Bost. Let's go back and look at it----
    Ms. DeLauro. Great.
    Mr. Bost [continuing]. And we will be more than happy to 
supply you with----
    Ms. DeLauro. Fine. I appreciate that.
    Mr. Bost. That is not something that I am familiar with. 
This is the first that I have heard of it. The information is 
provided for the record.
    [The information follows:]
                      Food Safety Action Database
    Currently, the Centers for Disease Control and Prevention relies on 
States to voluntarily report outbreaks of food-borne illnesses in 
schools.
    However, as a proactive measure the Food and Nutrition Service 
(FNS) has developed a food safety action database that has been 
operational since May 2000 that tracks all commodity holds and recalls 
by type of commodity, vendor, and reason for the hold or recall. The 
database is used by management to monitor trends and develop policy 
initiatives to reduce the occurrence of food safety incidents. In 
addition, the database will also track the timelines of actions that 
precede and follow a hold and recall, thereby identifying for 
management, key areas which need improvement.
    Another proactive step that FNS has taken to prevent food-borne 
illness in schools is the development and distribution of educational 
materials to foodservice managers and foodservice employees on the 
importance of preventing food-brone illness outbreaks.

                                  WIC

    Ms. DeLauro. Okay. Let me ask a question which has to do 
with the WIC program. Unemployment is rising. I think, you 
know, we saw higher unemployment numbers before September 11th. 
We certainly are seeing higher unemployment numbers afterward. 
And in that context, usually there is some sort of an equation 
here with what happens with participation in the WIC program.
    As the administration is preparing a supplemental to come 
to the Hill, are there thoughts about ensuring that there will 
be funds for WIC to accommodate additional and qualified 
participants in this program? Do you know of any way in which 
the States are taking action to address these issues right now 
or the situation? And how are you going about monitoring what 
the situation is with participation?
    Mr. Bost. A couple of things. First and foremost, if you 
look at the President's budget proposal for 2003, as I said 
before, it is unprecedented in terms of meeting the needs of 
everybody that is eligible for this program, up to 8 million 
participants per month, the highest I think it has ever been in 
the administration of the WIC program. That isthe first thing.
    The second thing is, in terms of looking at where we are 
now, we look at--we have staff who are in contact with the 
States on a monthly basis to make a determination of exactly 
where the States are in terms of being able to meet the needs 
of folks that need those services. And I can tell you, to be 
perfectly candid with you, some States are really bumping up 
against their limit, and they are starting to take some steps 
in terms of not being able to serve some folks. And it is 
something that we are watching very, very closely.
    With that in mind, going back to my first point, there is a 
real commitment on the part of this administration to meet the 
needs of people who are eligible to receive WIC services, and 
we are meeting and looking at these numbers very closely to 
ensure that we take whatever steps are necessary to address 
their needs.
    Ms. DeLauro. Well, I truly am glad to hear that. There are 
particularly a number of members on this committee that have 
really spent a lot of time and effort with regard to the WIC 
program. We know it is a success.
    Mr. Bost. It is.
    Ms. DeLauro. We certainly do want to, especially in 
difficult times, continue to make it available and that we 
don't have to start moving people off according to the 
categories that we have.
    So we will continue to talk about that with you, and I 
thank you very, very much.
    Mr. Bost. And, Ms. DeLauro, we will continue to provide the 
committee with updates on where we are with this. We don't want 
there to be any surprises for you. And so we will continue to 
provide you with updates.
    [The information follows:]
                        WIC Caseload Management
    Current restrictions: Some local agencies in Arizona, Oregon and 
Washington have begun restricting access for individuals in the lower 
nutritional risk priorities.
    Potential restrictions: Many State agencies, including California, 
are predicting the need to restrict access unless additional funding is 
provided.

                        WIC CASELOAD MANAGEMENT

    Ms. DeLauro. I think we are going to see the supplemental 
in about 10 days. I don't know what you do in terms of your own 
projections. I don't know what meetings have been held. So if 
you have got a number that you are suggesting or doing 
something with, that would be useful to know. It would just 
seem to me if it is due in 10 days, there are the conversations 
occurring now that talk about increased funding in this area, 
especially based on your candor. And I appreciate the candor 
about the people who are bumping up against funding 
limitations.
    Mr. Bost. Ms. DeLauro, let me respond to that, but let me 
ask the budget officer a question.
    [Pause.]
    Mr. Bost. I just wanted to make sure, before I say 
something, that I was correct. You are absolutely right. Two 
things: one, we are looking at those numbers; and, two, we are 
in conversations as we speak, as recently, I believe, as last 
night, to talk with OMB in terms of exactly where we are in 
terms of what the numbers are and how much money we would need.
    Ms. DeLauro. Okay. Thank you.
    Mr. Bost. And we will continue to work with the committee 
and with OMB.
    Ms. DeLauro. Thank you.
    Mr. Bonilla. Thank you very much, Ms. DeLauro.
    The buzzers have gone off, so if you will be patient with 
us for just a few minutes, I am going to run and vote, as I am 
sure other members are going to proceed to the House floor 
right now.
    I asked Ms. Kaptur to get a head start so she may return a 
couple of minutes before I return. I have asked her to proceed 
with the beginning of the second round of questioning, and then 
we will see you very shortly after that.
    Mr. Bost. Not a problem. That implies that she would kind 
of want me to sit and wait for you. I am just----
    Mr. Bonilla. Yes.
    [Laughter.]
    Thank you.
    Mr. Bost. You are welcome.
    [Recess.]
    Mr. Farr. I know the chairman is about to be here, and I 
think I am next in line for questioning, so maybe I will just 
start the questions, if that is all right.
    Here comes the chairman.
    Mr. Bonilla. Proceed.
    Mr. Farr. Thank you very much, Mr. Chairman.
    I am really impressed by your background----
    Mr. Bost. Thank you.

           COMMODITY PURCHASES--DISTRIBUTION AT FRESH PRODUCE

    Mr. Farr [continuing]. Particularly that you got a master's 
degree in special education. I think as I read it, in your 
Arizona Division of Developmental Disabilities and certainly 
working in Texas, it seems to me that you have committed your 
entire professional career to trying to help the underserved 
populations.
    What I think you bring to the table is the ability to 
understand what it takes to maneuver so that there is parity 
here, there is an access issue. And I think what you are 
picking up from this committee is that we would like to see in 
the food and nutrition arena just a much more aggressive stand 
by the Department on trying to bring in fresh fruits and 
vegetables.
    A lot of us on this committee represent what is called 
specialty crops or minor crops, and the other committee 
represents an awful lot of the old commodity program. And what 
we see as lining up is where America puts its message is not 
where America puts--where the Government puts its message is 
not where it puts its money.
    I note that, because I spend a lot of time supporting 
special education. The special education budget for the entire 
United States is $9.7 billion. That is what the request is this 
year.
    You are sitting on top of $40 billion, you know, 4 times as 
much money. And I really want to see you use that leverage, and 
I think it is leverage. It is about, okay, you want us to spend 
our money, we are going to spend it where, again, the message 
is.
    So a couple of questions are: One, you know, will we buy 
American? Will we buy fresh fruits and vegetables? Are there 
problems with buying it? I mean, last year my questions related 
to packaging--do we need to package fruits and vegetables 
differently?
    When we asked last year why they couldn't buy more fresh 
fruits and vegetables, well, they don't pack them right. Well, 
you know, if it's just packing, they will pack them any way you 
want.
    You know, I represent Salinas Valley, Steinbeck's area, and 
in the old days, if you put lettuce in a bag it was the fastest 
way to make it spoil. Today, if you put lettuce in a bag, you 
can keep it for 30 days, fresh.
    And do you know what the school people are telling me? That 
the kids really want that because what they see is the parents 
are eating that, and kids mimic a lot what their parents eat, 
and obviously that is a message they get at home. But if the 
food isn't there in the schools, and if the food isn't there 
for people at risk, usually the WIC mothers to get access to, 
or if the food isn't there for people who shop in the farmers' 
markets--and we even have some money, you know, to require or 
help the farmers' market locate in urban areas where they don't 
have access to fresh fruits and vegetables and a lot of tough 
inner-city areas where your corner store is sort of the liquor 
store of 7-Eleven, and now, you know, you don't go in there and 
find a lot of fresh fruits and vegetables, but the farmer 
markets are moving in.
    So I guess a couple of questions. Would you look into see 
whether there is any impediments in the packaging process for 
fresh fruits and vegetables that would make it--the impediments 
that don't allow you to buy them because of handling issues? 
And I also would like some response on whether you are 
enforcing the ``buy America'' on this--you know, we had the 
problem with strawberries where we were told that you were 
going to buy American on strawberries and we bought frozen 
strawberries, and the packager contaminated them with some 
imported ones from Central America. The difficulty was when the 
message got out that these kids--I think it was in Minnesota--
had strawberry contamination, the strawberry industry, which I 
also represent, the market just fell so--and, you know, later 
on found out, well, it wasn't the American market at all.
    Where I would like to see you using leverage of the 
Department is in the thrifty food plan market baskets. I am 
wondering to what extent the Department is working using the 
food stamp programs to purchase fruits and vegetables. Are you 
aggressively doing that more than just recommending and 
educating, but really using the power--and I know you know that 
about what we had to do for special education to bring it into 
the mainstream.
    Mr. Bost. Right.
    Mr. Farr. We forced it in law and used the leverage of 
money to reimburse schools, albeit it is not even enough for 
the schools. But, you know, special education may be one of the 
greatest things that American education has ever afforded 
people in this country, people with those kinds of 
disabilities.
    So I would like to see you using your influence--and, in 
closing, you have got a lot--I hope a lot of support from the 
Secretary. Ann Veneman is from California. She grew up in an 
area where they market fresh fruits and vegetables. She has 
been Secretary of Agriculture for the State of California. We 
arethe biggest producer of these fruits and vegetables and have 
different numbers. So I think there is interest from the Secretary on 
down, but the Department just has not, as you are picking up from 
questions here, I think, been as strong and as aggressive as we think 
they should be in marketing the nutrition program, not just marketing 
it by sort of passive education, but marketing by the strength of where 
you invest your dollars and how you spend your dollars.

            NUTRITION--CONSUMPTION OF FRUITS AND VEGETABLES

    Mr. Bost. Mr. Farr, let me first start off by essentially 
saying to you that there is a very real commitment on the part 
of me personally and, I believe, of the Department to ensure 
that we increase the overall consumption of fruits and 
vegetables by not only adults in this country but also our 
school children, because it is healthier and it has a great 
deal of nutritional value, and it goes a long way toward 
addressing many of the issues we spoke to earlier. So there is 
indeed a real commitment on several fronts.
    One, we are working with the Five-a-Day people to create an 
actual agreement that involves FNS and the Department of Health 
and Human Services and CDC and the National Cancer Institute 
and--I am missing one--Produce for Better Health. We have taken 
some very specific, aggressive steps to make sure they are at 
the table and to actually have a memorandum of understanding. 
The second part of that is to do exactly what you said, to 
actually go out and market this as something that the 
Department is interested in achieving.
    You also talk about ``Buy American.'' We are enforcing that 
provision whenever it is brought to our attention or that we 
are aware that that is not occurring. And onto another issue, 
in terms of making a difference in the schools, in a number of 
schools now, and especially in the high schools, we are seeing 
fruit and salad or garden bars, and we are really encouraging a 
number of schools to add those to their cafeterias, especially 
in junior high. And to address your issue of what children see 
their parents eat at home, we are encouraging schools to 
actually do that. I had the opportunity of at least visiting 
one or two high schools over the course of the last several 
months, and I have seen those, and for the most part, they have 
been successful.
    To your issue of packaging, I am not aware of that. I had 
not heard that. I am not aware of that, nor have I heard that 
that is a concern. But it is something that I will look into, 
and I will see if it is an issue. This is kind of going out on 
a limb here. I don't know why it would be. That is not 
something that I have heard of, and I am sure if it were an 
issue----
    Mr. Farr. It was brought up last year, and our response 
was, well, if that--just let us know, we will----

                  SCHOOL LUNCH PROGRAM--FRESH PRODUCE

    Mr. Bost. Exactly. And so let me look into it and see if it 
is a concern. But it hasn't been brought to me, and I am not 
aware if it is a concern. But let's assume that it is. If it 
is, I think that is something that we can address, and I think 
it is something that we can overcome.
    [The information follows:]
                 Packaging Fresh Fruits and Vegetables
    We understand the importance of increasing fresh fruit and 
vegetable distribution to America's school children. However, we do not 
perceive packaging as a barrier to increased purchases of fresh fruit 
and vegetables and therefore cannot recommend any packaging changes. 
Increasing fresh fruit and vegetable purchases has been a topic of 
discussion during the last few appropriation years, and there are 
several areas where barriers exist.
    The current structure of USDA's commodity ordering and delivery 
systems and the perishable nature of fresh produce pose the largest 
challenges to increasing fresh fruits and vegetables in the nutrition 
programs. USDA purchases in truckload quantities of approximately 
36,000 pounds. Vendors deliver to State warehouses during a two-week 
delivery window and food items are often stored several months until 
recipients need product. Each State has a different distribution system 
to deliver USDA donated food to recipients.
    Fresh fruits and vegetables are highly perishable and must be 
shipped in smaller quantities, with more frequent deliveries, and with 
smaller delivery windows than USDA's current system is able to provide. 
FNS has a successful partnership with the Department of Defense, 
Defense Personnel Support Center (DOD/DPSC) to deliver nutritious, 
quality fresh fruits and vegetables to schools. Through DOD, USDA has 
been able to offer schools a wider variety of fresh fruits and 
vegetables than would normally be available through direct USDA 
purchase.
    Another challenge is balancing the mission of providing enhanced 
nutrition via fresh produce with the Agency's other mission of using 
its authority and resources to maximize the overall health of American 
agriculture from an economic standpoint. Fresh fruits and vegetables 
are often not in need of surplus removal price support. Growers of 
fresh fruits and vegetables sell their excess crops to processors who 
freeze, can, or dry the commodities. USDA provides price support 
removal of further processed surplus fruits and vegetables if normal 
commercial channels cannot absorb the excess.
    Schools that use donated commodities are asking USDA for 
commodities that are further processed, proportioned, ready-to-use, 
have consistent quality and are available for the entire school year. 
Domestically produced fresh fruits and vegetables are grown seasonally 
throughout the United States and are not consistently available when 
demand is highest.

    Mr. Bost. But, in closing, Mr. Farr, I want to be very 
clear to you about this. There is a real commitment on my part 
and the Department and I believe the Secretary to increase the 
consumption among children and adults of fruits and vegetables, 
for a variety of reasons. And we are working on ensuring that 
that occurs.
    Mr. Farr. If children are mimicking their parents, one 
thing parents don't have in their homes are vending machines, 
and neither do WIC stamps allow you to buy from vending 
machines, and neither do the people that we really honor. I 
mean, you were talking to Maurice Hinchey about athletics. 
Remember that Lance Armstrong, who is probably, you know, one 
of the greatest athletes of all time----
    Mr. Bost. From Austin, Texas.
    Mr. Farr. And how did he overcome his cancer and how does 
he win the Tour de France? It is because of nutrition. How do 
the athletes that just finished the Olympics in Salt Lake 
City--all of them are on nutritional programs. There isn't a 
coach teaching a team that doesn't talk about nutrition.
    I think that we need to get the priorities back straight, 
and you are in charge of it, so we look forward to great 
advances.
    Mr. Bost. We will do our best.
    Mr. Bonilla. Thank you, Mr. Farr.

                          WIC CONTINGENCY FUND

    Mr. Bost, I have a question about the contingency fund that 
the administration is requesting for WIC. There are several 
questions that some of us would have. How would such a fund 
operate? When would it be accessed? Since this is mandatory, it 
is going to be difficult for us to have any role once all these 
questions are answered. We are very interested in what would 
trigger the use of a contingency fund.
    Mr. Bost. Well, Mr. Chairman, it goes back to some previous 
comments that I made about FNS working with the State agencies 
to determine what their needs are, and anticipating the 
utilization of resources that are currently there, and coming 
together and being able to balance it out and making some 
decisions about when the contingency fund should actually kick 
in.
    I don't know if there is anything else I would add to it. I 
don't want to just talk for the sake of talking. But I think 
that we would look at what the needs and the expenditures are, 
how much money we have available, and where they are with 
regard to participation, then make some decisions about how we 
can strike an equal balance across what all of our needs are, 
in addition to considering those folks that have not used all 
of the resources that are currently available to them, too. So 
we look at that balance for both.
    Mr. Bonilla. In the coming weeks and months, if we are able 
to fund this contingency fund, we will probably need many more 
specifics.
    Mr. Bost. Okay. I think we can do that.
    George?
    Mr. Braley. Mr. Chairman, if I could, one thing. I believe 
that this would remain a discretionary program, even the 
contingency fund would still be discretionary in its treatment 
as it was requested, and it would kick in in the event that our 
forecast for food prices and demand for the program were off 
and wouldn't have to come back and seek a supplemental.
    Mr. Bonilla. Mr. Braley, you are absolutely right. I 
misspoke when I referenced it as mandatory earlier. Thank you 
for clarifying that.
    Ms. Kaptur?

                         SENIOR FARMERS' MARKET

    Ms. Kaptur. Thank you, Mr. Chairman. I just wanted to show 
Under Secretary Bost letters I have received from seniors in 
our community. We are the only region of Ohio that has had the 
senior farmers' market nutrition program operational. I am 
going to ask my staff just to bring you one letter from a 
senior, 87 years of age, Martha Roman, and a letter from one of 
the farm families that don't benefit from commodity programs. 
They are a specialty crop producer and a historic family in our 
area. And just take a look at the handwriting on the first one, 
if that is all you remember from this hearing, because these 
are the types of individuals that this program has benefited.
    Another letter I received from a woman says that, ``The 
senior nutrition program has been very helpful to me as a 
diabetic, being able to purchase fresh fruits and vegetables; 
otherwise, I would not have the funds to get them.''
    Another letter from a family, ``My husband and I are on 
Social Security and raising two grandsons. You don't know how 
much this has helped us.''
    So in your testimony both on the WIC farmers' market 
program and on the senior farmers' market nutrition program, 
you commented well because the program isn't operating in every 
State or in every district in every State and isn't accessing 
every person. Is it really a valuable program? The inference, 
is it really a valuable program?
    I can tell you, sir, I have now served on this committee 
for over a decade. The policy problem I mentioned to you of the 
nutrition side of agriculture not being able to connect to the 
production side of agriculture is demonstrated graphically in 
these two programs. Everysingle expansion we have been able to 
make in every single State, in every single district has been a fight. 
And it is a fight to connect the nutrition side of agriculture, which 
has the bulk of the dollars today, to the agriculture side of the 
Department.
    And the letter from the Bench family, that farm family in 
my district, this is a family farm. This is not a big 7,000-
acre, multi-layered conglomerate. This is a farm family that 
has been existing in our community and one of the last 
remaining families. We have the last generation of family 
farmers left in our community. And I am sure it is the same in 
many districts across this country.
    So I have a special commitment as a member of this 
subcommittee to keep trying to embed in the consciousness of 
the Department there is a connection here, and the $40 billion 
that is given by the American people through their tax dollars 
for food programs has got to connect to the production side of 
agriculture.
    And so my question to you, as I am a passionate advocate 
for the expansion of these programs, as a way of getting the 
whole arrangement turned around inside the Department, whether 
it is food stamps being able to be cashed in at farmers' 
markets across this country, whether they are roadside stands, 
or whether they are in the central part of our community, like 
the center part of our cities like the Department of 
Agriculture's farmers' market--I don't know if you have EBT out 
there or some of these new-fangled mechanisms of using credit 
cards, but you ought to try it as a demonstration a couple 
hundred feet from your office.

              FARMERS' MARKET--ELECTRONIC BENEFIT TRANSFER

    But my real question is: In your regulatory authority, do 
you have set-asides, whether it is the food--or do you have 
regulations that would force the consciousness that we need so 
that every single program administrator is thinking about how 
does this benefit independent producers and ranchers, 
independent farmers and ranchers out there in the country? How 
can this program connect? The same with when you send the money 
to the State of Ohio, millions and millions of dollars for our 
breakfast and lunch programs, those people spending the money 
do not give a hoot whether it relates to farmers and ranchers 
in our State. They don't care. They don't think about it.
    And so, yes, they go to the grocery store, but the very 
same farmers cannot get their product on the shelf. Isn't that 
amazing? So our independent egg producers cannot get on the 
shelf of the major grocery chains because we have massive 
companies that have come into our State producing 2.6 billion 
eggs a year, for example, and they get the contract because 
they are big enough for however those contracts are written.
    All I am trying to do today is to raise your consciousness 
and your listening, and I appreciate that, because there is 
something wrong with the nutrition part of agriculture. It has 
been wrong for a long time in the way that it relates to the 
independent farmers and producers and ranchers that are out 
there.
    So your power is so awesome in terms of what can happen 
here. I am just urging you to take a look at this and to think 
about how to raise the consciousness of those who receive the 
dollars that you send out.
    I wanted to also mention an issue--one of my staff just 
came up to me here and said, Marcy, in the commodity 
supplemental food program, you know, the food banks have been 
trying to get 2-pound loaves of cheese rather than 5-pound 
loaves of cheese, and there is no way to break the bureaucracy 
on this, over and over and over again.
    I would just urge you to pay attention to what is happening 
at the recipient end, whether the recipient end is in the food 
bank or whether the recipient end is in the cafeteria of a 
given school in an inner city, to really look at what is 
happening to America's food dollars at the receiving end. It 
seems to me that the Department is pretty good top-down because 
it was--when was it established, 18----
    Mr. Bost. 1863.
    Ms. Kaptur. It has an 1800s structure, and we need a 
bottom-up--we need the loop to close. We need to come back--it 
is a command-and-control structure from the top down, but it 
seems to me that it doesn't feed back very well from the 
bottom-up to give you guidance from a policy standpoint. And in 
subsequent rounds, I am going to ask some questions about plate 
waste among youth.

               FOOD STAMP PROGRAM--DIRECT FARMER BENEFIT

    But I really wanted to go back to the budget issue, $40 
billion, how many of those food stamp dollars go into the 
pockets of farmers directly, and ranchers, who are hanging on 
with their fingernails? Seventy-five percent of every farmer's 
income in this country today is represented by Government 
payments because the market isn't working for them. How do we 
put real dollars back into their pockets?
    Mr. Bost. Ms. Kaptur, I think we hear you very loud and 
clear, and I am very sensitive to all of the comments that you 
have made. And there are a couple of things that we will, of 
course, follow up on, but I would also like to make one comment 
that I think is also very important.
    I think that the Secretary has done an outstanding job of 
addressing some of your concerns in terms of when we are at a 
sub-Cabinet meeting talking about many of the issues that you 
have described here today. I can't speak to what happened 
before I got to USDA. I can talk to you about what has happened 
since I have been here, that the nutrition part is discussed, 
and that we are an integral part of all of those discussions, 
looking at the entire Department as a whole.
    I think that we are on the right track, I believe, in terms 
of addressing some of your concerns. We haven't been able to 
finalize anything yet on the deliverables you described, but I 
think we are making our way toward that end. I would be more 
than happy and would love to have the opportunity to sit down 
and talk with you some more about some of the very specific 
steps I think that we are taking to address some of your 
concerns, because I do believe we are on the right track. I 
think it is because of the leadership of the Secretary who 
invites all of the subcabinet members to talk about the things 
instead of creating these things in stovepipes that I think 
have preceded me getting here.
    Ms. Kaptur. Thank you.
    Mr. Bost. You are welcome.
    Mr. Bonilla. Mr. Goode?
    Mr. Goode. Thank you, Mr. Chairman.

                       FARMERS' MARKET--VIRGINIA

    I have just got one question, kind of based on what Ms. 
Kaptur asked. Do you have any of the farmers' markets in 
Southside, Virginia, that participate in the program that she 
was talking about where you can give food stamps for Franklin 
County tomatoes instead of the green tomatoes that were shipped 
to one of the large chains?
    Mr. Braley. Staff is looking to see where we have markets 
located. I believe we have programs in Virginia. I don't know 
specifically in your district.
    Mr. Goode. All right. And which gentleman is going to----
[Laughter.]
    Mr. Braley. The gentleman right there thumbing through his 
papers feverishly.
    Mr. Bost. As George said, I know that they are there, but I 
don't know if it is that specific location.
    Mr. Goode. Which ones in Virginia?
    Mr. Braley. I stand corrected. We don't--I may be corrected 
yet again. [Laughter.]
    They had a senior farmers' market program that operated 
last growing season. They do not have a WIC farmers' market 
program at this point. The issue of whether food stamps can be 
used there, though, farmers' markets can be certified to accept 
food stamps, and so they may indeed be able to receive food 
stamps at this point. But they have one of the two pilot 
projects in Virginia, but we will have to get back to you in 
terms of whether there is a specific----
    Mr. Goode. And you will tell me where the senior market 
was?
    Mr. Braley. We will tell you where they were, and there 
probably should be a number of them around the State, and we 
will get that information back to you.
    [The information follows:]
      The Farmers' Market Nutrition Program in Southwest Virginia
    The Southwest Virginia Retail Farmers Market in Hillsville, 
Virginia, was certified to accept coupons from low-income senior 
citizens participating in the Seniors Farmers' Market Nutrition Pilot 
Program (SFMNPP) during the summer and early fall of 2001. This market, 
which serves 6 southwest Virginia counties plus the cities of Galax and 
Bristol, housed 5 vendors who were authorized to accept SFMNPP coupons. 
The State of Virginia does not administer a WIC Farmers' Market 
Nutrition Program.
    In addition, one (1) farmers' market and 11 produce stands in 
southwest Virginia are authorized to accept food stamps.

    Mr. Goode. Thank you, Mr. Chairman.
    Mr. Bonilla. Thank you, Mr. Goode.
    Mr. Farr, did you have further questions?
    Mr. Farr. No, Mr. Chairman.
    Mr. Bonilla. Thank you very much, Mr. Farr.
    Ms. Kaptur?

                          COMMODITY PURCHASING

    Ms. Kaptur. Yes, Mr. Chairman. I just wanted to ask Mr. 
Bost or his associates, in terms of your dealings with the 
Agricultural Marketing Service and the purchases that USDA does 
in bulk, how do they involve you? Do you have regular 
discussions with them as to what they are going to purchase and 
how they are going to purchase? I mean, how do we end up with 2 
years' worth supply of dry milk? How does this happen in our 
country?
    Mr. Braley. Congresswoman Kaptur, the milk is under a 
different program. Farm Service Agency acquires that through 
price support programs. The theory behind that is that by-
products are bought when they are in surplus and when the 
market demand increases, they are sold. So they are buying and 
selling through the Commodity Credit Corporation.
    On things like fruits and vegetables and perishable items, 
that is where we work very closely with theAgricultural 
Marketing Service, and producers come in--and some of the folks that 
Under Secretary Bost mentioned a little earlier, they come in and they 
see Mr. Hawks, the Under Secretary over marketing and regulatory areas, 
and they also come to see Mr. Bost. The reason they do that is they 
establish with Agricultural Marketing Service that their markets are 
distressed, that there is an overproduction and they need some support. 
Then they come and talk to us about whether there is a demand for the 
products in our programs and what form they could be brought in and 
used.

                            CHILD NUTRITION

    Ms. Kaptur. Well, let me just mention this, Mr. Braley. 
Take yogurt. Ohio, the kids--they won't drink the milk. In 
fact, there is really a nutrition problem with our youth that 
is extremely serious. We have a decline in milk consumption by 
girls and rising osteoporosis in their teens. And I know that 
Mr. Bost knows that. It is a horrible problem.
    And we have hyperactive youth in the classrooms because 
they are drinking too much sugar, and we have got an epidemic 
of Ritalin being used to calm everybody down. And nobody is 
connecting nutrition to the behavior of these children.
    It just seems to me that if somebody were thinking ahead, 
if yogurt is being eaten in Ohio--and it can't be the only 
place, where when you put fruit in it, with the calcium and so 
forth, the kids love it. Somebody wasn't thinking ahead 
someplace inside Agriculture, whether it is the Farm Service 
Agency or whether it is the Agriculture--I thought it was AMS. 
Now you tell me it is Farm Service on the milk side.
    Something is out of whack. I mean, we wouldn't land a man 
on the moon if that is how we thought about things. And so 
there is something wrong with the way the Department thinks 
about how we order these decisions regarding the need in the 
food banks. We can't get 2-pound loaves of cheese, and we end 
up with a 2-year supply of dry milk. Really if we had thought 
ahead, we would be buying it in a form where we could produce 
yogurt and add fruit so the kids would eat it because we have 
an osteoporosis problem among our kids. Something is wrong with 
the structure.
    So I just wanted to again weigh in and say I am glad the 
Secretary is holding these sub-Cabinet level meetings because 
this is really a severe problem, and we are paying lots of 
money for storage. I mean, this money, the money we are wasting 
on storage we could be putting into--not just $10 million for 
the WIC farmers' market program and the $25 million for the 
senior farmers' market nutrition program. Those programs should 
be hundreds of millions of dollars.

                   COMMODITY PURCHASES--FARMER IMPACT

    If you want to look at where people can shop at a decent 
price and where we get the best buck--and, you know, the real 
irony of this is if I go into my food banks, the farmers who 
qualify for no commodity programs in my region are donating 
squash and donating apples, where our major food chains aren't 
donating a penny. One food chain in my area is helping our food 
banks as we are going through this crisis in our region. It is 
the farmers who aren't getting anything that we are not trying 
to help who are donating their extra product as they are 
hanging on by their fingernails who are helping the poor of our 
region.
    Something is wrong with this picture. We ought to be 
rewarding those who believe in community. We ought to be 
rewarding those who are producing. And our food programs, the 
ones that have been managed under this Department, haven't been 
thinking about what happens on the ground. Some kind of 
feedback loop isn't happening up to you, and it gets me really 
upset because I see it in living color in my region, and I am 
sure it is true in every region in the country. And I am 
telling you, you have got the tail that wags the dog. In fact, 
you have got the dog. The rest is now a tail that really needs 
your help.
    There is a program that the Department operates in 
conjunction with the Department of Defense because Congressman 
Farr, who has been such a leader on this, trying to also raise 
our consciousness about who else in the Federal Government 
purchases food, Department of Defense, Department of Education, 
whomever. What is the nature of your partnership with the 
Department of Defense supply center and how they can also be 
brought in to a rising consciousness of how they can purchase 
more food from our independent producers?

                 COMMODITY PURCHASING--DOD PARTNERSHIP

    Mr. Braley. The Department of Defense, we have had a very 
successful partnership with DOD involving FNS and Agricultural 
Marketing Service, and they began purchasing on a pilot basis 
some fresh fruits and vegetables. They had a supply system that 
they were buying locally for their commissaries and that sort 
of thing. They piggyback some of our program needs in our child 
nutrition programs on that, and it has been a very successful 
and popular program.
    We have also more recently added many of the Indian tribal 
organizations that participate in the food distribution program 
on Indian reservations into that process so that they could get 
some fresh fruits and vegetables beyond the ones that we can 
buy through our traditional purchase and distribution system.
    There is some consideration in the farm bill for expanding 
that activity and providing additional fresh fruits and 
vegetables ultimately to our programs, at least in one version 
of the farm bill, so there may be some additional activity we 
would have if that ultimately becomes law.
    We have had a very successful partnership with DoD. It is 
something that they have been doing successfully for their 
local outlets. It requires a different kind of systemthan what 
AMS and Farm Service Agency have for other products, which are 
typically canned or frozen products that are distributed. But instead 
of reinventing the wheel, we have worked very successfully with DOD in 
establishing a program.
    Ms. Kaptur. If the chairman wouldn't mind--I don't know if 
Mr. Farr wants to comment at this point, but he has really 
been----
    Mr. Bonilla. Mr. Farr does have an additional question that 
he may ask, if you would like at this time, Mr. Farr.
    Mr. Farr. Thank you very much.
    Does the Department of Defense--what is the relationship 
between the Department of Defense and USDA on having to buy 
from the commodities program?
    Mr. Braley. We get commodities in a couple of different 
ways. Some are more demand-driven, and that is with funds that 
are appropriated through the entitlement process. There are so 
many cents per meal in the school lunch program.
    Mr. Farr. Who drives that demand?
    Mr. Braley. The demand is really driven by local schools 
and identifying which products are popular. We try to buy them 
at a time when the markets are favorable for the buyer, and we 
purchase what is in surplus at a point in time. But that is 
mostly demand driven. In addition----
    Mr. Farr. So you have the discretion. If you didn't want to 
buy anything out of the commodities program, you wouldn't have 
to.
    Mr. Braley. No, we have to meet our entitlement, our 
commodity entitlement out of that, but there is latitude within 
a large market basket that is available, what different schools 
might choose to purchase and that sort of thing. And one----
    Mr. Farr. But that entitlement isn't a fresh fruit and 
vegetable entitlement, is it?
    Mr. Braley. No, it is not. There is a plan that is put 
together at the beginning----
    Mr. Farr. Does the military have an entitlement? Do they 
have to buy out of that commodity program?
    Mr. Braley. We earmark $25 million at the beginning of the 
year for the military to make purchases of fresh fruits and 
vegetables on behalf of States that want them for their 
schools, but that does come out of the entitlement.
    Mr. Farr. My point is, does the military have an 
entitlement for the commodities? Do they have to buy from the 
commodities program like you do?
    Mr. Braley. No. They don't have the same agriculture 
support mission that we do for the programs that we support.

                     COMMODITIES-DISTRIBUTION--DOD

    Mr. Farr. Well, therein might be the problem. We are 
required to buy the wrong things.
    Let me suggest something to you. I have been very impressed 
by what the military has been doing to sort of meet supply and 
demand, and I was given a presentation yesterday on what we 
did--on what the military developed, which is now available to 
the public sector, which was used for security in Atlanta, and 
it is a homeland defense thing, and it is an amazing--you know, 
everything you might need, every single hour of every day at 
every place if anything happens, including food to feed the 
volunteers and feed the people that are there.
    I represent the Naval Postgraduate School in Monterey which 
is the only postgraduate school in any of the services, and in 
that school they have created an integrated engineering center, 
degree-granting. And essentially what they are trying to bring 
in is all the coordination of everybody that is in aviation and 
everybody that is in the sea and everybody that is on land, and 
how do you integrate all of these different technical systems 
they all use. Obviously where these things are in demand are 
places like Afghanistan. When we go there, we have to go 
without any reliance on local products--we have to go there 
being able to totally support our troops, including feed them 
with food that comes from this country, because we can't feed 
them food that isn't inspected, you know.
    So my point I am trying to make is that it seems to me that 
what we have an opportunity here--and really at no cost to the 
Department, because I think that the Naval Postgraduate School 
with all the students out there would love to undertake it--is 
the whole mission of logistics, of when you identify there are 
nutritional needs in this country down to specific schools, to 
specific buildings that are suffering from the information 
coming from lack of good nutrition in that community and that 
spot, to how you get the logistics of getting that food from--
and particularly fresh fruits and vegetables, which are all--
you know, they are not stored, they are not packaged, they 
can't just go to the shelf, but how you match that all up.
    I think that is the kind of thing we need to do. We know 
where the problems are. The problem is that we file all our 
information in reports that are in, you know, things like this. 
And that is not really available. The way I saw it yesterday, 
everything that was made available at the Olympics for security 
purpose was on a laptop computer, and there were thousands of 
them given to everybody. So if anything ever happened anywhere, 
everybody would be totally in communication with everyone.
    It seems to me that is sort of where we need to be with 
food. If there is any need, a desired need, how do we get 
whatever is needed to that spot as fast as possible, what does 
it take? And that is not rocket science. That is justsitting 
down and integrating, and I think the difficulty our committee has--and 
you saw it today--is that the food that is purchased under the 
commodities program isn't the food that is advertised under the food 
service program. But you are both under the same umbrella of the USDA, 
and we would like to see that there is a better connect between what we 
tell people they should eat and what we are buying.
    I mean, frankly, I think there is just a matter of years, a 
matter of time before we are going to be out a lot of this 
commodity stuff. America does not want welfare for farmers. And 
they don't want people, you know, just to be able to make a 
living who aren't even growing on the land, and you see the 
newspaper accounts of it all the time, and the farm bill is 
trying to address this as much they should be. The Secretary 
has been critical of it. The administration has been critical 
of it.
    What America wants to see is us spending the money on the 
things with a high nutritional value. And that is what all of 
us on this committee have been trying to talk about.
    So if there are any logistical issues, packaging, delivery, 
time, you know, disconnect between understood need and demand, 
then we ought to be able to match that up. And I will offer the 
services--and I will talk to the Admiral today to see if there 
is any way in this school, which is now--just everybody in the 
country is flocking to see this program that was put together, 
where they may be of assistance, if requested.
    I know they are doing it for food. They have got to know 
exactly, you know, all those people we are reading about and 
hearing about in Afghanistan, the logistical support of getting 
fresh fruits and vegetables all the way over to that country 
and getting them fed to the troops, they can do that. Well, if 
they can do that, why can't we feed the kids in our schools? 
And you know what? I will bet you one thing you are not going 
to find in Bosnia and in Afghanistan, there are not a lot of 
vending machines over there, let's not use vending machines for 
an excuse.
    I have got this note here. I am not sure if I understand. 
The $25 million is the maximum allowed? For DOD fresh, is it 
$25 million the maximum allowed?
    Mr. Braley. That is what we have built up to from a more 
modest start. It is currently at $25 million out of the funds 
available.
    Mr. Farr. What are the total funds available?
    Mr. Braley. Before I address that, the other point I would 
want to make is there is, as I say in the current version of 
the farm bill that is being debated now, at least one version 
of it, there is an additional, I think, $50 million in DOD 
purchases for domestic nutrition assistance programs that may 
or may not come along, which would obviously be a help.
    The total commodity support is close to $800 million in 
aggregate for school meals.
    Mr. Farr. Only $800 million out of a $40 billion----
    Mr. Braley. That is right. That is for school meals. We 
also purchase and distribute commodities in some of our other 
programs, but most of our programs are food stamps and cash 
reimbursements for schools that also buy food, some locally as 
well as nationally around the country.
    Mr. Farr. How much of the entire commodity program do we 
buy?
    Mr. Braley. Our total commodity purchases for a year out of 
the $40 billion that is available, I would say in the 
neighborhood of $1 billion, a little more than that, maybe, but 
$1 billion out of $40 billion. So most of it is money put in 
the hands of low-income consumers that go out and buy food as 
well in the grocery store.
    Mr. Farr. And of the $1 billion, how much is in fresh 
fruits and vegetables?
    Mr. Braley. Of the $1 billion, the Department buys in the 
neighborhood of the $25 million that we are doing through DOD, 
plus some other products that are less perishable. We have 
bought things like potatoes and fresh items that have a longer 
shelf life.
    Mr. Farr. Well, therein is the problem.
    Mr. Braley. Well, again, if you look at schools, for 
example, we buy 20 to 25 percent of the total food that is used 
in the school lunch program. We provide certain items that can 
be bought nationally at a good price and distribute it, but 
most of the purchasing is done locally by states. So there are 
a lot of fresh fruits and vegetables and other products that 
are purchased in the local community in support of the school 
lunch program, and the Federal dollars that you appropriate 
allow the purchase of most of that food.
    Mr. Farr. Well, I am looking at a list here that says Food 
and Nutrition Service, child nutrition program, quantity and 
value of commodities, and it goes all the way down this list 
and totals up to about $500 million--oh, there is more on the 
back. But as you look at all this, it is frozen, canned, 
frozen, frozen, frozen. It is all--I mean, there is one thing 
here, I don't know what DPSC is, fresh produce. Grapefruit 
fresh, you spent 163--is that thousand? You spent $163,000 on 
fresh grapefruit last year, but you spent $82 million on frozen 
ground beef. I guess that is hamburger patties.
    But the point I am trying to make is that we are missing 
out on--this is what gets into this packaging. If you look at 
everything in here, it is all about packaging, because the 
frozen, you can handle it in a different way than you 
handlefresh. So I think there are--there must be some impediments to 
packaging, or you wouldn't just be buying all this frozen and canned 
stuff.
    Mr. Bost. Well, I don't know about that. I think maybe it 
has to do with shelf life and how you store it. But, Mr. Farr, 
I think that we understand and we hear you loud and clear, and 
I think those are some things that we will definitely look at.
    Mr. Farr. $71,154,000 on mozzarella cheese last year. Thank 
you.
    Mr. Bost. Thank you.

                     COMMODITY PURCHASES PACKAGING

    Ms. Kaptur. In the big picture, this is not maybe as 
important as some of the other things that you talked about, 
but I pride myself on dealing with the bureaucracy and the red-
tape issues. You made reference to the 5 pound versus the 2 
pound blocks of cheese. We will look into that, and I would 
really like to hear from you where that is the case because I 
thought that we had solved this problem and we are down to 2 
pounds. But it must have been important to you because you 
mentioned, and if you would provide me with some specifics, we 
will address it.
    [The information follows:]

                         CSFP Cheese Packaging

    When we purchase cheese with CSFP appropriations, we are 
able to specify that it be provided in 2-lb. loaves. However, 
the Agriculture and Consumer Protection Act of 1973, as 
amended, requires that the first 9 million pounds of surplus 
cheese that becomes available be provided to the Commodity 
Supplemental Food Program (CSFP). The Farm Service Agency (FSA) 
on behalf of the Commodity Credit Corporation (CCC) has 
informed us that it accepts American process cheese for 
purchase under price-support authority in 5- and 2-lb. sizes, 
in loaf or sliced form. FSA further indicates that 
manufacturers determine which of these pack sizes/forms they 
wish to sell. Most often, they provide barrels, blocks, or 5-
lb. loaves. However, of the $8,542.515 in bonus cheese donated 
to CSFP in FY 2001, CSFP was fortunate to receive $1,425,016 in 
2-lb. loaves.
    Bonus cheese is not expected to be available in the 
foreseeable future, so CSFP operators can expect to receive 
cheese, purchased with program appropriations, in the 2-lb. 
pack size that they prefer. In the event that bonus cheese 
should again become available, FSA has indicated that it will 
have any barrels or blocks they acquire under price support 
processed into 2-lb. loaves for CSFP, to the extent that the 
necessary processing capacity is available at reasonable cost.

    Ms. Kaptur. Thank you, Mr. Secretary. We appreciate that 
very much.
    Mr. Bost. You are welcome.
    Mr. Latham [presiding]. Are you done, Mr. Farr?
    Mr. Farr. Yes, thank you.
    Mr. Latham. And I think we should use more fresh corn and 
soybeans also. [Laughter.]
    Mr. Latham. Ms. Kaptur?

                   COMMODITY PURCHASES--FARMER IMPACT

    Ms. Kaptur. As I listened to Mr. Farr talk, I kept 
thinking, okay, so $82 or $83 million on beef, but I wonder who 
it was bought from and how we acquired that and how many 
independent producers and farmers and ranchers actually 
benefited. I know how this really operates in Ohio, and I like 
Mr. Goode's comments about green tomatoes and how many of those 
dollars that are available for purchases directly from roadside 
stands, you know, how can we increase that, because those are 
the local people. Those are the people that are trying to hang 
on. We appreciate you hearing our message.
    I wanted to also say I will be submitting a question for 
the record that will ask USDA to compare the buying power of 
major companies like Wal-Mart and Kroger's and Safeway and 
McDonald's that buy food, how much do they buy in a year 
compared to your total and your market impact. I would be real 
interested in that comparison.

                 CHILD NUTRITION--SCHOOL LUNCH PROGRAM

    But I wanted to turn to a little different subject now, 
again, in the area of child nutrition. I had a mother in my 
office the other day who is a very well-known farmer in our 
community and a real expert in integrated pest management on 
their own farmstead. One of the things she told me--and she had 
her little girl with her. She goes, ``Marcy, my daughter came 
back from school, and I have gone into the lunch room now, and 
there are children in her class''--this is grade school--``they 
don't know what orange juice is. They don't drink it.'' And she 
said, ``I can't believe it.'' And this is in a rural county in 
Ohio.
    And I said, ``I am shocked.'' She goes, ``You are shocked? 
I can't believe it.'' And so she said, ``Even when orange juice 
was made available, the kids really didn't know what it was.''
    I have had a continuing interest in the poor diet of our 
youth, and I know they always say Government is the Big 
Brother, but I think, Under Secretary Bost, you are the big 
father and big mother in this instance because you are feeding 
our children, and probably more than anybody else in the 
country. So I am paying particular attention to you.
    I noticed in going out into the schools--and I don't know 
how many of your administrators spend much time in the schools 
in these lunch rooms, but I get in there and I urge you to do 
that, and don't make it one of these cosmetic visits where the 
local superintendent takes you to the best place. Show up 
unannounced, if you can do that, and see what goes on in that 
room. The limited timethe kids now have for lunch, they want to 
rush them through lunch, that is all a part of our, you know, super-
efficient society, very few with recess, as you so properly mentioned 
in your testimony, but also the waste.

                   SCHOOL LUNCH PROGRAM--PLATE WASTE

    I think the lingering message I take away for me is what we 
throw away in those lunch rooms. And we had asked USDA to do a 
study, report back to us, and this study came back to us based 
on data that is over 10 years old. I have to say I was very 
disappointed in the study. I am hoping that your Center for 
Nutrition Policy and Promotion might be able to produce 
something better, because I think there is a serious, again, 
disconnect between what we are trying to do and then what 
happens down in these cafeterias.
    One thing the study does indicate is that over half of the 
food service managers didn't think waste was a problem. That is 
a conclusion the study draws. Yet the same study shows that 
nearly half of the cooked vegetables were thrown out, a third 
of the raw vegetables and salads, 22 percent of the fresh 
fruit, and 21 percent of the canned and processed fruit. That 
was from years ago. So it is data that is 10, 12 years old.
    I really am going to ask you to think about this, and what 
can we do in our nutrition programs to promote good nutrition 
and to eliminate waste? If I talk to the maintenance workers in 
the schools, they tell me in a year how much is actually being 
thrown out. And the kids are running to the vending machines--
that is one problem--if they have the money. But they are also 
not eating the proper foods.
    We have a major national problem here. I ask myself, What 
more can I do about it? One indicator I use is the plate waste, 
and it is not insignificant. If we are teaching our children 
that food is expendable, either that good food is expendable or 
we have the wrong food there for them, we are not doing our job 
as mom and dad. Feeding is the most important--feeding and 
education are the two most important things that we do with our 
youngsters. And we are giving very bad messages off all over 
this country. And when it is in my district, I know it is a 
national epidemic, because I come from a fairly conservative--I 
always call it the bootstrap part of America. People work their 
way up. They should appreciate what they have. But with that 
kind of food waste going on, it is not a good message to the 
kids.
    So I just wanted to see if there is something you might be 
able to do to better analyze the waste that is occurring and 
the behavior, the eating habits that are being formed because 
of the way we feed in these schools. Is there any way that 
maybe your Center for Nutrition Policy can take a better look 
at this than this report did?
    Mr. Bost. Well, absolutely. In addition to that, we have a 
Team Nutrition program involved in the school systems 
throughout the country that attempts to address some of the 
concerns you have, especially providing foods the children are 
going to eat, and two, educating not only the people that are 
responsible for buying it, but also the kids themselves on the 
nutritional value of some of the foods that are presented.
    But the real issue here, Ms. Kaptur--and I have been into a 
couple of schools, too, since I have had the responsibility for 
this position--and it all comes down to a couple of things: 
one, providing the kids with food that they are going to eat, 
and two, being able to creatively introduce foods to children 
that historically they don't want to eat. Let me give you a 
really good example.

                  CHILD NUTRITION--NUTRITION EDUCATION

    March is National Nutrition Month, and there was a display 
in the back of the building. Jessica Shahin, my Assistant, 
tasted a barbecue sauce made with raisins. Jessica said it 
tasted pretty good. We are actually looking at some creative 
ways to use fruits and vegetables in ways that kids will eat.
    Another real important point I want to mention too is this 
issue of nutrition education. When I got here, I looked at how 
much money we are spending on nutrition education, and it is 
millions and millions of dollars. I think last year it was over 
$300 million. I was really concerned with those types of 
expenditures, we need to look at doing some things differently 
because our children are getting fatter. They are not getting 
healthier. They are getting fatter, and they are continuing to 
eat the wrong things. I think we need to take a little bit of a 
different approach in terms of what we are doing with nutrition 
education.
    The one thing we are struggling with that is exceptionally 
difficult for me to get my arms around, is that we need to look 
at doing something that is going to change the behavior not 
only of our children but also adults in this country, 
especially in terms of the food that they eat and, more 
importantly, the amount of food that they eat.
    We brought together some experts from academia, from 
universities, from the industry, our staff and the CDC and from 
Five-a-Day and all of those folks to come and sit down and talk 
with us, at least in two forums that we have had, to address 
the broader issue of obesity and people being overweight and 
the narrow issue of what we can do to get our children and 
theadults in this country to eat healthier.
    I am going to be very candid with you. This is hard. It is 
exceptionally difficult to come up with some specific 
initiatives we feel we can undertake to address this issue 
because we are talking about changing the behavior of Americans 
in this country. As Americans, the one thing that we pride 
ourselves on is doing what we want to do, when we want to do 
it, how we want to do it.
    Ms. Kaptur. I don't disagree with you there.
    Mr. Bost. This is difficult, but I also want to say to you 
that we are not an Agency that is going to walk away from a 
challenge. I have identified what the issues are, and we have 
taken, I think, some very positive steps to address many of the 
issues that you spoke to.
    We are not there yet, but I am going to continue to plug 
away at it, and hopefully come back to you with some things 
that we are going to try. But we are not there yet.
    Ms. Kaptur. Well, Under Secretary Bost, you obviously are 
thinking about it already, and you have been in some of those 
cafeterias. It is interesting to engage the children in 
conversation about what they like and what they don't like and 
why they like this and what happens in their given school. I 
think these food service workers talk about substitute moms and 
dads. Most of them are moms. But what they know, the people who 
are actually serving the meals in those schools, they are some 
of the best meetings I have ever had in my career, just talking 
to those individuals, and they exist all over the country.
    But with the youngsters and what happens in those 
cafeterias, it is really very interesting to watch. And I think 
ethnic sensitivity and racial sensitivity is important here 
because in some parts of our communities, for example, greens 
would go over real well.
    But they are not even purchased. In fact, when they showed 
me the beans that are purchased, I see so many green beans 
being thrown away on these trays. And I think you really need 
to do a very specific plate waste study, and you need to do a 
study about what the kids really like, and you need to share 
the recipes around the country with these school districts that 
tend to minimize the importance of the lunch day because they 
are not into eating. They are into education. And so they don't 
think about what is going on in that cafeteria.
    The Girl Scouts, for example, I learned in my area have a 
wonderful project, which obviously doesn't cover every girl, 
but they go on a camp-out, and one of the incentives that are 
given for the winners are where they have no waste. They try to 
make them sensitive to recycling, and that includes food.
    Now, we don't want them to go hungry, and they are eating, 
but they are thinking about how to eat what is right, but not 
wasting anything they have. I don't know how you embed that in 
the thinking of those that run our nutrition programs at every 
level. When I look at our State government, I don't trust them 
with much of anything. And our program is administered by our 
State, unfortunately.
    But I think setting standards and some of the regulations 
that you write, you might be able to think of ways to promote 
good nutrition, but also minimize the waste and have some 
incentives in there, even some national recognitions, perhaps, 
of good recipes or good performance. I am not going to tell you 
how to do your job. All I see is the output, and there is too 
much waste.

                       SCHOOL LUNCH--PLATE WASTE

    Mr. Bost. We agree with you, and I think we reviewed the 
study, and we will definitely follow up on your suggestions.
    [The information follows:]

                              Plate Waste

    Research shows that plate waste in the National School 
Lunch Program is at 12 percent, which is within the normal 
range found in household and commercial settings. While plate 
waste is an inevitable aspect of any meal-based food service 
program, FNS agrees that, to the extent that plate waste can be 
lowered, this can make program operations more efficient with 
lower cost. Our recommendations are:
    Continue providing training and technical assistance to 
schools to help them make improvements to their meals so they 
are more appealing to students. We are in the process of 
completing an Offer verses Serve training package and resource 
manual to assist schools in administering this provision 
specifically designed to address plate waste.
    Make nutrition education and healthy eating fun. We 
encourage schools to have nutrition fairs and taste tests to 
introduce children to new foods and the importance of healthy 
eating. Having chefs come into schools to provide some 
technical assistance to the foodservice staff, nutrition 
education to the students and food for all entices children to 
eat foods they would not ordinarily try. By continually 
reminding children of the importance of healthy eating, we 
encourage them to make healthy choices and to eat the food they 
select.
    Support children's healthy eating choices by encouraging 
schools to give students enough time to eat. We cannot 
emphasize the importance of healthy eating and not give 
children time to eat a healthy meal. Many times, plate waste is 
the result of insufficient time to finish the food they have 
received.

    Mr. Bost. the other point I would like to make with you 
today, is that I have had the opportunity to work closely with 
the American School Food Service Association, and I know they 
are very concerned about the same things you are. I spoke to 
them earlier this week, and I am probably going to go to 
Minneapolis and actually speak to the food service workers that 
are responsible for the recipes. I will definitely listen to 
their suggestions because they are interested. I am going to 
speak to them about ensuring that children in the schools--one, 
get enough to eat; two, that the food they get is healthy; and, 
three, that there is not a lot of waste. I know they are 
concerned with those things. There have been some opportunities 
for an exchange of ideas, Suzanne Bierman, my Deputy Under 
Secretary, is telling me, about some recipes which do some of 
the things you recently talked about. I think we need to do a 
better job also of telling you about some of the things we are 
doing in some of our schools----
    Mr. Farr. Would the gentlelady yield?
    Ms. Kaptur. I would be pleased to yield to the gentleman.
    Mr. Bost [continuing]. Because I think that some of the 
things you are concerned about are already occurring, maybe not 
on the larger level that we need, but some of the things you 
spoke to are indeed occurring.

                      SCHOOL LUNCH--STUDENT CHOICE

    Mr. Farr. My question goes to that of this sort of your 
issue of choice, we can't really make people eat differently. 
But, again, let's reflect on what we have learned from the 
military. I mean, the military doesn't give you those choices. 
They make you eat well because they want healthy soldiers. And 
the military is buying this fresh produce, and probably more so 
than the school lunch program.
    Mr. Bost. But, Mr. Farr, the other side of the coin, too, 
is that when I go to the schools and I talk to the food service 
persons, they essentially have told me that if the kids are 
offered some of the things that Ms. Kaptur just described, they 
won't eat it, and they don't eat it because they do have some 
of the other choices that are available to them. So it is not 
as simple as we would want to make it. The question that I had 
to ask my staff, just recently, within the last week or so, 
was, okay, why don't we just provide nutritional food to the 
kids? The soda machines, all the other things, just take them 
out. And they said, Well, Eric, you can't do that. You can't do 
that.
    Mr. Farr. You take them out, I will back you up. 
[Laughter.]
    Mr. Bost. They said, You can't do that. And so my thing is 
I know exactly.
    Let me tell you a brief story. Give me 30 seconds.
    Mr. Farr. Okay.
    Mr. Bost. It is the macaroni story that my wife always 
gives with the kids. She says, I am going to fix macaroni. The 
kids say, Well, I don't want macaroni. And she says, Oh, okay, 
you don't have to eat it. Well, what are you having tomorrow? 
Well, we are going to have macaroni again.
    So eventually if you keep offering it up and that is the 
only choice the kids will eat it. That was what prompted my 
question to my staff about the vending machine, Mr. Farr, I 
know exactly what you are saying. We are looking at some 
options that are available to us to get us where I think you 
want us to go in terms of providing healthy, nutritious meals 
in our schools. But there are some limitations that are in 
place right now that prevent me from getting to where I think 
you want us both to be able to go.

                     SCHOOL LUNCH--PROGRAM CONTROL

    Mr. Farr. I want to start a revolution. I want a revolution 
for the first time in the history of America where we honor 
farm labor. I think if agriculture is going to survive, we have 
got to treat that industry like we treat aerospace workers and 
mine workers and auto workers.
    I live in an area where if the teacher asks the children, 
do any of the children--do any of your parents work in the 
fields or canneries? No child will raise their hand. And 100 
percent of the parents work in those places. Kids are 
embarrassed to tell where their parents work. We don't honor 
farm labor. What do they produce? They produce the freshest 
crops and vegetables in the world. And the growers know that 
the farm workers make the market decisions, because if youpick 
the wrong head of lettuce that doesn't sell, the company doesn't make 
money.
    So there is beginning to be an understanding of how 
important this is. It is more of--and where do kids learn the 
value? And their schools don't serve the same things that their 
parents harvest outside the window of these schools. It is an 
embarrassment how we treat this subject. And yet when we come 
to areas of health and when we come to areas of where we have 
to have people in good shape, which, again, is the military, we 
insist that it be done that way. And I would just like us to 
move that insistence--and you got the message loud and clear. 
But I think it is much greater than just the ability to have 
access to fresh fruits and vegetables. It is really a 
national--it is a new national effort if you have--it is a war 
effort. It is a war on nutrition. And if we are going to combat 
that, a battle on nutrition, a war on poverty, I guess in that 
sense, poor eating habits. As history has shown, if you really 
want to win that war, you got to commit, well, first an 
attitude--it seems like you have that--and then the resources.
    And your department, $40 billion, is the best place to 
start because it is the super agency as far as it is two-thirds 
of the entire USDA. And we can change attitudes, and that is, I 
think, what you got out of this hearing today, and I 
appreciate----
    Mr. Bost. Very loud and clearly. But the other side of the 
coin, too--and I don't want to belabor it--is that it is not as 
cut and dried as you would describe it. I have $40 billion and 
I am able to go the schools and dictate what and when they will 
serve. It is not that cut and dried for me. But the approach 
that we are taking is that we need to do a much better job in 
meeting the nutritional needs of every American school child, 
and I am committed to doing that. We are working within the 
authority Congress has given us and I am going to chip away at 
the problem to ensure that it is solved.
    The other side of the coin for me is this issue of choice. 
That is very real. And there is also one more that we haven't--
the other leg on the stool that we haven't talked about is this 
issue of accountability that parents have for what their 
children eat. I take my role very seriously, but I also take 
very seriously the responsibility that I have to not dictate 
certain things. There is a place and a responsibility for 
parents regarding what their children eat, too.
    Mr. Farr. Well, there is a carrot-and-stick approach. We 
have to provide you with the stick, but you do have the ability 
and I think the personality to use that carrot as a way to 
attract new behavior.
    Ms. Kaptur. May I ask, in following on Mr. Farr's line of 
thought here, what if you were to say to a State like Ohio, if 
you don't get the vending machines out, you don't get the 
Federal money? [Laughter.]
    Mr. Braley. I would like to take just a minute and digress 
to the history on what we have called competitive foods over 
the years. The legislation, the authorizing statute for child 
nutrition--and I have been involved with these programs for a 
long time--has changed over the years. It has gone back and 
forth. At different times the Department has had more authority 
to regulate what is served in schools in competition with the 
school meals that we reimburse, and at other times it has had 
less. It has been a fairly stable situation for about the last 
10 or 15 years, we have been left with the ability to say we 
can regulate what is served only during meal service periods. 
So our ability to regulate vending machines or products that 
are available outside of a pretty narrow window is prescribed 
by statute and the regulations consistent with that have been 
developed over a period of time.
    Recently, we have interpreted those regulations as strongly 
as we can to give local schools and States the understanding 
that they can do more if they want. The State can have a more 
restrictive policy if they choose to, as can a local district. 
But the distance that we can go is currently in our statutes.
    Obviously, the hearings or the listening sessions that we 
are going to have around the country to get input on 
legislation will be one source of input on whether the policy 
needs to be reviewed or not at this point. That reauthorization 
process will take place next year.
    Ms. Kaptur. Mr. Braley, you said that the law and the 
regulations have been narrowed to say that the Federal role in 
nutrition then can only operate during the school lunch period? 
Is that what you just said?
    Mr. Braley. We have authority to prescribe what the 
reimbursable meals, the meals that we support with cash and 
commodities include, and we have done a lot to improve the 
nutritional quality there over a long period of time. But what 
goes on elsewhere in the school environment nutritionally, we 
have very limited authority to deal with those issues, and that 
is passed along to the States, and in turn to the local 
districts to--we have minimum standards, and they can go 
further than that if they choose to.
    Mr. Farr. For States to ban the vending machines, willyou 
have incentives?

                    CHILD NUTRITION REAUTHORIZATION

    Mr. Braley. There aren't any currently in the statutes. The 
other thing we have done is promoting healthier school 
environments through a program that we have called ``Changing 
the Scene,'' trying to encourage healthier choices among a la 
carte foods that are sold in schools, coupled with improved 
nutritional quality of the meals that we offer, and that has 
been underway for a year or so now, and with some success. But 
as Under Secretary Bost indicated, that is going to take some 
time to change people's minds. And, again, legislatively, we 
are about as far as we can go within current statute in this 
regard.
    Mr. Bost. I think the timely part of this, Ms. Kaptur, is 
the fact that these programs come up for reauthorization next 
year, and we are doing some things in the interim to see how--
one, to build on them, to see how effective they are going to 
be; two, to try some new and different things; and, three, to 
listen to what other comments are going to be made as we look 
to put our package together.
    As a part of that, some individual States have taken some 
steps--I think California is one of them--to limit some things 
that are sold in schools. I think they did it in elementary 
school in Louisiana, too. And so some States are doing some 
things on their own to address some of the things that we 
aren't able to do right now because we don't have the authority 
to do so.
    Mr. Farr. Can you give any bonus, do you have any 
discretion to help encourage that? Can you give them more, give 
them something or reward them or something?

                   SCHOOL LUNCH--STATE REIMBURSEMENTS

    Mr. Braley. The reimbursements, again, are prescribed in 
law, so much cash and commodities for a meal to a low-income 
child. Certainly we can give recognition and publicity and 
things like that. I think, again, our partners like the 
American School Food Service Association recognize innovative 
practices and things that have happened, and so it is not 
financial so much as recognition for practices that we think 
are good and should be modeled elsewhere.
    Ms. Kaptur. Mr. Braley, while we are talking on this one, 
perhaps for the three of us that are remaining, for California, 
for Iowa, and for Ohio, if your staff is able to give you the 
numbers, what were the disbursements to our three States in the 
last fiscal year for our child nutrition or school breakfast or 
school lunch programs? Do you have those in a chart you might 
just----
    Mr. Braley. I am not sure we have them that we can just 
access instantly, but we can certainly provide that for the 
record.
    [The information follows:]

                      Federal School Food Funding

                         TOTAL USDA FUNDING FOR SCHOOL FOOD PROGRAMS IN FISCAL YEAR 2001
                                                 [In thousands]
----------------------------------------------------------------------------------------------------------------
                                                                 School       School      Special
                            State                                lunch      breakfast       milk        Total
                                                                program      program      program      funding
----------------------------------------------------------------------------------------------------------------
California..................................................     $775,023     $198,756         $795     $974,574
Iowa........................................................       46,767        9,450          129       56,346
Ohio........................................................      157,908       35,663          814      194,385
----------------------------------------------------------------------------------------------------------------
 Note: Data is based on obligations as reported September 30, 2001. Commodities are based on food orders for
  fiscal year 2001. Totals may not add due to rounding.

    Ms. Kaptur. It is back in the office?
    Mr. Braley. Yes, I think it probably--we could give you 
more accurate information if we can go back and pull it from 
there.
    Mr. Bost. Plus I think we would do two things: one, we want 
to make sure that we get all of those programs; and, two, we 
want to make sure that the information that we give you is 
accurate.
    Ms. Kaptur. All right. And, Under Secretary Bost, you said 
that of those dollars that would come to our respective States, 
it only represents what percent of the total food budget then 
for the States regarding--did you say 25 percent?
    Mr. Braley. I think what I said was in terms of school 
lunch support, we buy commodities in addition to providing cash 
support. The commodities that USDA purchases and provides to 
schools are somewhere in the 20 to 25 percent of the total food 
that is actually used in the school lunch.
    Ms. Kaptur. Oh, just the commodities.
    Mr. Braley. So the rest of it is purchased locally, and so 
I just wanted to make the point at that time that you can look 
at what we distribute, but the schools themselves and school 
districts purchase the vast majority of the foods locally.
    Ms. Kaptur. With the Federal dollars.
    Mr. Braley. With Federal dollars and with----
    Ms. Kaptur. So what percent of the total food purchasesof 
the amount that is spent on food purchases is provided by the Federal 
Government, either through the purchasing power of the dollars given or 
the commodities that are sent to them? What does the Federal government 
provide? Are we 100 percent, 90 percent, 85?
    Mr. Braley. We are probably the biggest source of funding 
for school meals followed by children's payments for meals, 
particularly in school districts that have some, you know, 
middle- and upper-income children, and then some States provide 
support, some don't provide very much in the way of per meal 
support. So the Federal Government is the biggest provider. It 
would depend on the district. If you went into a very low-
income district, the vast majority of the funding would come 
from Federal sources. In a more affluent district, it would 
tend to come from children's payments and less from the Federal 
Government since we don't reimburse as much for a so-called 
paid meal as we do for a free or reduced-price meal.
    Ms. Kaptur. Just for the record, just for your special milk 
and child nutrition programs for California, this past year the 
numbers I have been provided, California receives $1.3 billion.
    Mr. Bost. Right.
    Ms. Kaptur. $1.3 billion. Iowa would receive $86 million; 
Ohio, $281,646,000.
    You have got fewer people.
    But you are saying, Mr. Secretary, those aren't the 
complete totals because this doesn't include the commodities 
then, the value of the commodities that are sent to California, 
Iowa, or----
    Mr. Braley. It should be fairly complete, and I don't know 
which----
    Ms. Kaptur. Oh, here, that does--okay.
    Mr. Braley. This would be for last fiscal year.
    Mr. Bost. Right.
    Ms. Kaptur. All right. So that includes everything.
    Mr. Braley. But we can double-check and make sure there is 
not something missing. It obviously doesn't include the WIC 
program or food stamps and some of the other benefit programs 
that we administer, of course.
    Ms. Kaptur. Well, I was particularly in this set of 
questions interested in the schools. How significant is the 
Federal share of the cost----
    Mr. Bost. Also child care and summer is in here, too.
    Mr. Braley. Which are child nutrition programs for kids in 
day care and also kids during summer months when they are not 
in school.
    Mr. Bost. Right. Special milk, school lunch, school 
breakfast.
    Ms. Kaptur. All right. I was just saying, Mr. Farr was 
pointing out to me what a small percent of the total the fresh 
food purchases actually were, fruits and vegetables. And I can 
think back to the fight we had in Ohio trying to get apples, 
fresh apples, on the tray, and we had to fight at every level 
because they said, well, we only buy applesauce, we don't buy 
apples. But we said we have Ohio apple producers, they have 
apples. I am telling you--first of all, even that I had to be 
involved in that sort of thing in our office--well, you know, 
we get the applesauce from Pennsylvania. We have Ohio apple 
producers. The whole system fights what Mr. Farr is talking 
about, the acquisition of product, fresh fruits and vegetables 
from local farmers.
    The reason I am asking you for these numbers, an 
interpretation of these numbers, is because I would like to 
know how important the Federal dollar is in terms of these 
programs. Is it 50 percent important, 75 percent important in 
terms of--after your vast years of experience in these 
classrooms and schools, how important is that dollar? What 
percent do we comprise?
    Mr. Braley. I think the Federal contribution to school 
lunch as a total market is probably close to half. But, again, 
we have got some cost studies that show the different 
contributions, and we will provide a more detailed breakout of 
sources of funding for the record.
    [The information follows:]

                   Federal Funding for School Feeding

    The most recent data the Agency has on the composition of 
revenues of the School Food Authorities (SFAs) participating in 
the Naitonal School Lunch Program and School Breakfast Program 
appears in the School Lunch and Breakfast Cost Study (October 
1994). In School Year 1992-93, Federal funding represented the 
largest source of revenue, accounting for 47 percent of the 
average SFA's revenues. Most of the USDA subsidies consist of 
cash subsidies for reimbursable meals. These cash subsidies 
accounted for an average of 39 percent of total SFA revenues 
compared to an average of 8 percent for donated commodities.

    Ms. Kaptur. All right. Well, in my round here, I just 
wanted to ask, Mr. Secretary, what do I need to do in order to 
get a respectable plate waste study out of the Department of 
Agriculture that is current and is based on site visits, 
perhaps? All you have to do is call the food service workers in 
these various schools. I mean, the people are already on the 
ground. How do we get measurement?
    Mr. Bost. Ms. Kaptur, send us a request, and I assure you 
that either we will do it or we will get somebody else in the 
Department to do it, or we will work with them.
    Ms. Kaptur. Thank you. Thank you, Mr. Secretary, very much.
    Mr. Bost. You are welcome.
    Mr. Latham. Do you have any other questions?
    Mr. Farr. No, I just wanted to thank you, Mr. Chairman. I 
think today has been one of the better hearings we have had, 
and I think that the message here is that we need to, as 
Members of Congress, eliminate some of this bureaucracy and if 
you start with the nutritional message, we have got to make the 
left hand and the right hand all on message. And we are all 
politicians. We know about being on message. And I think we 
have a disjunct in America where the message that we preach is 
not the message that we purchase. And we need to do that.
    Mr. Latham. You have one more question?
    Ms. Kaptur. I have one more question.

                        COMMODITIES--FOOD BANKS

    Mr. Secretary, do you know whether you receive requests 
from food banks around the country and to what extent the 
requests for food product are going up?
    Mr. Bost. Yes, to both parts of your question.
    Ms. Kaptur. Okay.
    Mr. Bost. We have received additional requests, and those 
requests are for additional commodities based on the needs that 
the food banks have said that they have.
    In addition, Ms. Kaptur, what we are attempting to do is 
not only address, I think, some of their concerns, but on the 
other side of the coin address some of the issues with people 
in this country that are eligible to receive food stamps that 
are not receiving them, and if they were, would not need to go 
to the food banks.
    And so I am taking a two-pronged approach in terms of 
addressing the issue.
    Ms. Kaptur. Could you describe to us based on past years' 
experience with food bank requests from around the country--put 
this in context for us, give us a sense of what is happening in 
our country right now.
    Mr. Bost. I think, you know, based on what we have been 
told from some folks in the advocacy community, it is 
unprecedented in terms of the need that is out there. I can't 
give you the historical point because I don't have the history 
in terms of nationally. I can tell you about the last couple of 
years in Texas. They have seen a significant increase over the 
course of the last year.
    Ms. Kaptur. We are finding that true in our own area. In 
ending today, I want to thank Congressman Latham for being with 
us and being generous with the gavel there. I just wanted to 
suggest to you, in looking at what is happening in my 
community, because we have so many local farmers that do 
contribute products, they allow people to go into the fields 
and glean and so forth, even though this isn't your job, the 
food banks kind of do connect you in terms of commodities. If 
there is a way for us to reward farmers who are donating at the 
local level or providing them with, let's say, row incentives, 
where if they plant 50 rows of squash but they donate two rows 
to a food bank, that we somehow give credit--my goodness, we 
give credit for people not to plant. We have all these ratios. 
But all over this country--I was so disappointed in the retail 
stores in my community. Only one chain, and it is a chain that 
is struggling, but was the chain that gave the largest 
donations. Kroger was an absolute embarrassment. I put that on 
the record. Myers, an absolute embarrassment in our community, 
put that on the record. These are chains that can afford to 
give something. They gave absolutely nothing.
    This is why I fight so hard for our WIC programs, our 
farmers' markets, and our senior farmers' markets, because I 
know who is helping the poor in my community, and that means 
something to me. And if there is any way to help these farmers 
that are hanging on by their fingernails, who at the same time 
are donating to our food banks, we ought to do that somehow. 
And I don't have a mechanism, but I am asking that you 
recommend one to me.
    Mr. Bost. Okay.
    Ms. Kaptur. If you need legislation, I will put it in the 
farm bill.
    Mr. Bost. We will double-check this, of course, but I 
think, Ms. Kaptur, that there is an opportunity for them to get 
a tax break when they do donate. I have read something or heard 
something--oh, Ron is telling me they don't know if that is an 
issue that has been resolved yet or not. Maybe I read it or 
thought I read it, but----
    Ms. Kaptur. I do the same thing.
    Mr. Bost. But we will double-check for sure.
    [The information follows:]

               Rewarding Produce Donations to Food Banks

    There is no independent source of funding that can be used 
to reward small farmers who donate fresh fruits and vegetables 
to charitable organizations, such as food banks. However, 
administrative funds provided under the Emergency Food 
Assistance Act can be used by State and local organizations to 
support the delivery of these products to such organizations. 
In addition, the Internal Revenue Code rewards small farmers by 
allowing them a tax deduction for such donations.

    Ms. Kaptur. Any way we can give incentives or recognition 
or reward for that, my goodness, we should be doing that.
    Thank you.
    Mr. Bost. Thank you.
    Mr. Latham. I thank the gentlelady, and thank you all very 
much for your testimony. I know the chairman would ask you to 
respond to written questions.
    Mr. Bost. Certainly.
    Mr. Latham. This hearing is adjourned.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
                                         Wednesday, March 20, 2002.

                           RURAL DEVELOPMENT

                               WITNESSES

MICHAEL E. NERUDA, DEPUTY UNDER SECRETARY FOR RURAL DEVELOPMENT
HILDA G. LEGG, ADMINISTRATOR, RURAL UTILITIES SERVICE
JAMES C. ALSOP, ACTING ADMINISTRATOR, RURAL HOUSING SERVICE
JOHN ROSSO, ADMINISTRATOR, RURAL BUSINESS-COOPERATIVE SERVICE
NORMAN REID, ACTING DEPUTY ADMINISTRATOR, OFFICE OF COMMUNITY 
    DEVELOPMENT
STEPHEN B. DEWHURST, BUDGET OFFICE, DEPARTMENT OF AGRICULTURE

                       Introduction of Witnesses

    Mr. Bonilla. The subcommittee will come to order. Good 
morning to all who are joining us at the hearing this morning. 
We have before us today the people who are responsible for 
managing USDA's multibillion dollar rural development 
portfolio. We have with us Mr. Mike Neruda, the Deputy Under 
Secretary for Rural Development; Hilda Legg, the Administrator 
for the Rural Utilities Service; James Alsop, the Acting 
Administrator of the Rural Housing Service; and John Rosso, the 
Administrator of the Rural Business-Cooperative Service. And, 
as always, Steve Dewhurst is joining us today. As I mentioned 
to you a moment ago, Steve, you are probably the happiest guy 
in the room, since this is the last hearing we are having on 
the fiscal 2003 budget for the Department of Agriculture. But 
we always appreciate you being here with us day in and day out.
    Mr. Neruda, it is indeed a pleasure to have you appearing 
here before us today. Even though you were named Deputy Under 
Secretary back in October, I believe you have been at Rural 
Development much longer than that.
    At the same time the Senate Agriculture Committee has been 
busy trying to find $6 billion worth of pencil dust, they have 
not finished their work on the administration's nominee for 
Under Secretary for Rural Development. So you have essentially 
been wearing two hats and playing two major roles down there, 
and we appreciate your dedication to the job. I know it is 
keeping you busy probably around the clock.
    I also take note, Mr. Neruda, of your service to our 
country. You are a Captain in the Naval Reserves and you 
received a Bronze Star for your service in Desert Storm, and to 
top it off, you managed General Schwarzkopf's public schedule 
after the Gulf War at the height of his popularity. I know that 
is an experience you will probably remember the rest of your 
life in a good way.
    I am sure that you are very proud of your service, and we 
are very proud of you and for what you have done and continue 
to do for our country.
    Before we begin hearing opening remarks, I would like to 
yield to my colleague, Ms. Kaptur, for any remarks she may 
have.
    Ms. Kaptur. Thank you, Mr. Chairman. We welcome this 
distinguished list of witnesses this morning. We are very 
anxious to hear your testimony, particularly in view of what 
appear to be very major cuts in the Rural Development area. So 
I will ask several questions during the question period on 
that, and we want to wish you very well in your tenure, and we 
thank you for your service to our country.
    Mr. Neruda. Thank you very much.
    Mr. Bonilla. Mr. Neruda, we have read your written 
statements and they are entered into the record. If you have 
any remarks at this time, we would be delighted to hear them.

                           Opening Statement

    Mr. Neruda. Mr. Chairman, Congresswoman Kaptur, and other 
members of the subcommittee, it is a true pleasure to be here 
today to present the President's 2003 budget, and let me say 
that it is especially a pleasure since at five o'clock this 
morning, my Jeep broke down on the GW Parkway in the middle of 
a heavy rainstorm. So I am seeing this as sort of the end of my 
day as opposed to the beginning of my day. [Laughter.]
    So I am very pleased to be here, Mr. Chairman. As you know, 
Rural Development agencies deliver over 40 different loan, loan 
guarantee, and grant programs in the areas of business 
development, cooperative development, housing, community 
facilities, water supply, waste disposal, electric power, and 
telecommunications, including distance learning and 
telemedicine.
    Our staff also provides technical assistance to rural 
families and community leaders to ensure success of those 
projects. Leveraging funding and partnering with other 
organizations enables Rural Development to extend and maximize 
the impact of our limited resources.

                    RURAL DEVELOPMENT BUDGET REQUEST

    Mr. Chairman, the President's commitment to improving 
conditions in rural America is reflected in the budget request. 
The Rural Development budget request totals $2.6billion in 
budget authority. Budget authority at that level will support $11.6 
billion in programs and pay administrative expenses. This level of 
support is consistent with the program levels achieved in recent years, 
although it is below the current appropriated estimate of $14.3 billion 
that is available for 2002.
    Incorporation of revised economic assumptions, 
implementation of more comprehensive cash flow models, and 
recent program experience resulted in changes in program 
subsidy rates for 2003. Changes vary by program, but the 
subsidy rates for several of our major programs rose. The net 
effect is that a smaller total program level could be supported 
with the same level of budget authority.
    Our 2003 budget does not reflect an across-the-board 
reduction, but due to rising subsidy rates, we are not able to 
sustain current program levels in several large programs. Other 
than that, there are few significant policy changes in this 
budget.
    I will now focus only on those policy issues as I discuss 
each agency's request. Let me point out that the development 
and incorporation of new cash flow models resulted just 
recently in Rural Development receiving its first unqualified 
audit opinion on its financial statements since 1993. This is a 
significant achievement. It reflects the commitment and support 
of this subcommittee to provide resources necessary for Rural 
Development to continue to deliver programs in a manner that 
protects the public's interest.
    Now that we have achieved an unqualified opinion, we are 
committed to retain that clean distinction. I will now go 
through specific agencies within Rural Development.

                        RURAL UTILITIES SERVICE

    The administration believes that enhanced communications 
infrastructure is essential for rural communities to be able to 
compete effectively for jobs and income-generating 
opportunities. For that reason, this budget continues 
supporting broadband transmission and local dial-up internet 
service by providing $80 million in loans and $2 million in 
grants.
    We are able to reduce our grant request because recent 
experience indicates the task can be accomplished principally 
with loans, except for a very few cases in the very smallest of 
our rural communities.
    The fiscal year 2003 budget reflects the Administration's 
commitment to a fully privatized Rural Telephone Bank that does 
not require federal funds to finance the loans it makes.
    This has proved to be remarkably successful, and efforts 
have been underway since 1996 to privatize the bank. A 
privatized bank would be able to expand and tailor its lending 
practices beyond current limitations imposed as a government 
lender.
    I would also like to point out that the request for 
electric program loans is maintained at the 2001 appropriated 
program level of over $2.6 billion. The FY 2002 appropriation 
provided over $4 billion in loan funds for FY 2002.
    This increase in FY 2002 will go a long way toward reducing 
the backlog of electric loan demands, so our FY 2003 request is 
returned to the FY 2001 program level.

                  RURAL BUSINESS-COOPERATIVE SERVICES

    One key to creating economic opportunity in rural areas is 
the development of new business and employment opportunities. 
However, many rural areas do not have sufficient access to the 
capital needed to sustain local businesses and generate new 
rural growth.
    Rural Business-Cooperative Services programs, particularly 
the Business and Industry loan guarantee program, supplement 
the efforts of local lending institutions in providing capital 
to stimulate job creation and economic expansion. RBS also 
provides research and technical assistance to assist in the 
identification and creation of new business structures that 
could support innovative capital formation and utilization in 
rural America.

                         RURAL HOUSING SERVICE

    The budget request for the programs administered by RHS 
totals $5.2 billion in program level. This commitment will 
improve housing conditions in rural areas and in particular 
improve home ownership opportunities.
    We are proposing a multi-family housing request of $60 
million for direct loans, $100 million for guaranteed loans, 
$53 million for farm labor housing loans and grants, and $712 
million for rental assistance.
    This request includes a one-year pause in Section 515 new 
multi-family housing construction. The $60 million loan program 
is directed solely to repair and rehabilitation of existing 
projects. I know that this is of concern to the subcommittee.
    RHS has an existing multi-family housing portfolio of $12 
billion that includes over 17,600 projects. Many of these 
projects are 20 years old or older and face rehabilitation 
needs. To provide maximum benefits for rural America, Rural 
Development is taking a critical overall look at the multi-
family housing new construction program to ensure that it is 
maintained on a proper course.
    Our budget request includes $2 million to fund an 
independent study to identify alternative ways to fund new 
construction in a more cost efficient manner and to reveal 
other options to manage the program more effectively.
    Direct loans would continue to be made for new construction 
under both the Farm Labor Housing program, which we strongly 
support, and the Section 538 Guaranteed Loan program. The 
budget provides an increase in farm labor housing, to $53 
million, which will address pressing needs forfarm worker 
housing across the country.
    This program provides housing to the poorest workers of any 
sector in the economy and supports agriculture's need for 
dependable labor to harvest the abundance produced by rural 
farms.
    The budget includes a total of $712 million in rental 
assistance payments, a slight increase over the current level. 
These payments are used to reduce the rent in rural rental 
housing projects to no more than 30 percent of the income of 
very low income occupants, and these are typically female heads 
of households with annual incomes averaging about $8,000.
    The request for community facilities funding totals $250 
million for direct loans, $210 million for guaranteed loans, 
and $17 million for grants. Community facilities programs 
finance rural health facilities, child care facilities, fire 
and safety facilities, jails, education facilities and almost 
any other type of essential community facility needed in rural 
America.

                        ADMINISTRATIVE EXPENSES

    And last, I would like to spend just a few minutes 
discussing administrative expenses. Delivering Rural 
Development programs to the remote, isolated and low income 
areas of rural America requires administrative expenses 
sufficient to the task. With an outstanding loan portfolio 
exceeding $83 billion, fiduciary responsibilities mandate that 
Rural Development maintain adequately trained staff, employ 
state of the art automated financial systems, and monitor 
borrowers' activities and loan security to ensure protection of 
the public's interests.
    For 2003, the budget proposes a total of $685 million for 
Rural Development Salaries and Expenses--S&E. Within this FY 
2003 request, $56 million will cover the cost of items 
previously paid from central accounts within USDA or on a 
government-wide basis, including GSA rental payments, Federal 
Employees Compensation Act, and Civil Service retirement and 
retiree health benefits.
    The Explanatory Notes provided to the committee make 
available information on the comparable levels for these items 
in 2001 and 2002.
    Our request includes support for initiatives such as the 
multi-family housing study mentioned earlier and maintaining 
the commitment to modernizing financial systems, along with 
assuming the new mission area responsibilities mentioned above.
    It also includes funding for new equipment to support 
state-of-the-art technologies utilized in our Centralized 
Servicing Center in St. Louis to improve servicing of single 
family housing borrowers, support for reviewing large and 
complex electric and telecommunications infrastructure loans, 
and increased funding for training.
    Rural Development is very appreciative of the funding 
provided in the 2002 appropriation for automated financial 
systems development, which allowed Rural Development to 
continue the development of systems for guaranteed loans, 
multi-family loans, Rural Utilities Service systems 
modernization, and the Program Funds Control System. That 
funding allows Rural Development to address long delayed 
automated systems development needs. The funding we are 
requesting will allow us to continue several projects that 
require multi-year funding.
    I would just like to say that, as we all know, the House 
and Senate-passed versions of the farm bill included 
substantial increases in responsibilities for the Rural 
Development mission area. And, of course, we do not know how 
this is all going to come out in the end when the conferees 
have ironed out all their differences. But there looks to be a 
substantial increase in our responsibilities in Rural 
Development, which we will accept with the greatest challenge. 
I would suggest to the subcommittee that certain areas, with 
certain of these programs, if they do become part of the 
enabling legislation, will continue to tax our career staff.
    We have one of the finest career staffs at the department. 
I am wondering who is running Rural Development this morning. 
They are all behind me, but it is quite a challenge even when 
you have very good managers who try to use the best talent 
available and in some cases double-hat those folks into more 
than one task. So I, respectfully, again state that this could 
be a problem for us in the long term.
    Mr. Chairman, members of the subcommittee, this concludes 
my formal statement and, of course, I will very willingly 
accept questions from the subcommittee.
    [The information follows:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
                               J-1 VISAS

    Mr. Bonilla. Thank you, Mr. Neruda, for your testimony. The 
first thing I would like to bring up is something that you and 
I have discussed one on one before, and that is the issue of J-
1 visas. USDA is no longer going to act as an interested 
government agency on behalf of applicants. We all understand 
the legitimate concerns and the reasons behind this decision.
    You have a lack of statutory responsibility in this area, a 
lack of adequate resources and an inadequate system of 
background checks. Because of national security risks, all 
these are very reasonable causes for your decision.
    However, a lot of us have been receiving many phone calls 
from our folks back home concerning J-1 visa holders who are 
serving underserved and impoverished areas. This policy change 
specifically affects doctors who are being recruited to some of 
the community health centers, and to some of the medical 
schools. It is unfortunate that we do not have more doctors, 
American doctors, that want to move into some of these areas to 
serve folks, but that is reality.
    I want to see if we can gain a better understanding of this 
issue, and so I am going to submit several questions for the 
record and ask for you to report back on this issue. I would 
encourage you to work with ARS in obtaining any technical 
information that you may need to answer these questions and to 
complete this report.
    Our staffs have, I believe, communicated and indicated that 
you could have this interim report back to us by the end of 
April. I would appreciate it if you could ensure that that 
deadline is met. The questions that we have will be submitted 
for the record on this subject.
    Mr. Neruda. I will provide that information for the record.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
    [Clerk's note.--Subsequent to the hearing, the subcommittee 
received the following letter from Deputy Secretary Mosley:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



                    ADMINISTRATIVE FUNDING AND FTE'S

    Mr. Bonilla. I want to move quickly to state administrative 
funding. This is an area of concern that has been brought to my 
attention--Funding levels for state offices and the 
discrepancies in how those offices get funded. If you would, 
could you please provide for the record the administrative 
funding level for each state office and the number of FTEs 
assigned to each state office? If you would provide that for 
the record, I would appreciate that.
    Mr. Neruda. Yes, sir.
    [The information follows:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
    Mr. Bonilla. Related to this, tell me how does Rural 
Development decide on funding levels for administrative funding 
in each state office?
    Mr. Neruda. Mr. Chairman, if you would allow me, I would 
like to turn that over to Steve Dewhurst.
    Mr. Bonilla. Okay. He does not want to talk.[Laughter.]
    Mr. Neruda. My good assistant in the Under Secretary's 
office, Bob Ross, just told me it is $8,000 for general support 
per FTE per office. Is that correct, Bob?
    Mr. Bonilla. $8,000?
    Mr. Neruda. $8,000 per FTE.
    Mr. Bonilla. Is this allocation being reviewed in any way? 
Are you reviewing any of these allocations or is that going to 
remain standard?
    Mr. Neruda. Mr. Chairman, I would like to take this back 
and review it. I apologize for not being totally knowledgeable 
about this. I will definitely review this and get back to you.
    Mr. Bonilla. That sounds good, Mr. Neruda.
    [The information follows:]

            Administrative Funding and Full-Time Equivalents

    In FY 2002, each state received $8,000 per full time 
equivalent (FTE) position for ``general support'' purposes. 
General support is used for travel, leases, supplies, state 
training, and all other responsibilities beyond salary and 
benefits requirements. Each state was also allocated the full 
funding necessary to cover salary and benefits needs of the 
state's FTE's.
    State Directors have complete authority to commingle these 
funds, to manage their resources in the best manner to meet the 
needs in their states, while not violating anti-deficiency 
constraints.
    In prior years, small task groups of State Directors were 
convened to review allocations of general support funds and 
allocations of FTE's to the states. Options were considered to 
provide additional general support funds to large states for 
travel needs, additional funds to states without GSA leases to 
reduce lease burdens, etc. Ultimately, the task groups 
concluded that all states have unique needs, and the fairest 
allocation was an equal, per FTE, allocation. In FY 2002, the 
$8,000 amount was determined, based on the FY 2002 Salary and 
Expense appropriation and the total funding demands across the 
mission area. No changes have been made to FTE allocations 
since FY 2000.
    Rural Development does not plan to make significant changes 
in resource allocations across the mission area prior to having 
an Under Secretary in place.

    Mr. Bonilla. Thank you very much. Ms. Kaptur.

                            OVERALL FUNDING

    Ms. Kaptur. Thank you, Mr. Chairman. Mr. Neruda, as I read 
the budget submission in terms of the overall funding request 
made for Rural Development programs, you are asking for $2.8 
billion in total, which is 21 percent below last year's 
appropriated level. Is my understanding correct?
    Yes, Mr. Dewhurst.
    Mr. Dewhurst. I am sorry. The 2002 budget authority for 
this area is $2.756 billion.
    Ms. Kaptur. All right. Could you comment----
    Mr. Dewhurst. I am sorry. The 2003 request is a little over 
$2.6 billion, so the budget authority is not down by 20 some 
percent. I apologize.
    Ms. Kaptur. I am sorry. I was not asking for budget 
authority. I was asking for the program level. The total, your 
development programs?
    Mr. Dewhurst. The program level is $15 billion in the 
current year, and it is $11.556 billion in 2003, so that is 
correct. That is down.
    Ms. Kaptur. So that is at least a 21 percent cut below 
2002; am I reading the numbers correctly?
    Mr. Dewhurst. Yes, ma'am.
    Ms. Kaptur. Thank you. Now, the figures that I have show me 
that the distribution of those cuts are as follows: The Rural 
Community Advancement program, which are all of our water and 
sewer and community facilities, is a four percent cut; Rural 
Utilities Service, 40 percent cut; Rural Housing Service, a ten 
percent cut; and the Rural Business Service, 17 percent cut. Am 
I correct in that understanding?
    Mr. Neruda. Yes, ma'am. If I could mention especially the 
one that I know the most information on, RUS, there was a bump 
in 2002 to put the election program over $4 billion to try to 
take care of some of the backlog. But we basically went back to 
figures similar to 2001 in the RUS electric program, so we are 
back to around $2.6 billion.
    Ms. Kaptur. All right. Thank you, Mr. Neruda.
    Mr. Neruda. That was the reason for that change.

                         APPROPRIATION HISTORY

    Ms. Kaptur. What happened there? May I ask you, are the 
figures we are being presented today the ones that you took to 
the Office of Management and Budget?
    Mr. Neruda. If you will let me allow Steve to look back?
    Ms. Kaptur. All right.
    Mr. Dewhurst. Well, we had higher levels.
    Ms. Kaptur. Right.
    Mr. Dewhurst. This was, of course, last summer. We 
developed our budget prior to September 11 and other events, 
and, in effect, we could not sustain that budget when we 
finalized it in the fall.

                        BACKLOG OF APPLICATIONS

    Ms. Kaptur. All right. I thank you for that. Let me ask you 
my overall question is really if we are concerned about rural 
life in America, certainly the shape of the economy in rural 
communities across this country, which in most places is not 
getting better, how can we possibly justify the magnitude of 
these reductions? That is the question that I wanted to ask 
you.
    I am hearing from Steve Dewhurst that maybe it is because 
of September 11 that we have to justify these, but I will let 
you clarify that. I want to ask each of the other 
administrators who are here with us today, could you give us a 
sense of the backlog? In other words, in housing or in 
utilities, and our water systems, how much of a backlog is 
there? Give us a sense of what remains this year to be done 
based on the request you have compared to the prior year.
    Are we amassing more requests that we are unable to serve 
or are we, as perhaps Mr. Neruda suggested, meeting the demand 
that is out there? Can you give me a sense of that?
    Mr. Neruda. Fine. If I could, ma'am, be allowed to give 
just a few comments. All of us in Rural Development are very 
concerned about rural development in rural America, and believe 
that funding levels generally do meet the needs for the coming 
fiscal year. In some areas, we are using new cash flow models. 
For example, in housing. This causes us to have higher subsidy 
ratios. Also our multi-family, rental assistance is going to be 
higher.
    This does not mean that we are any less interested in rural 
America or that we have any less interest in providing as much 
as we can to rural America. We have had to work with some of 
the new models, and frankly, using the new model has allowed 
us, which is very important I know to Congress and the American 
public, to have a clean audit for the first time since 1993.
    It is also true that we have some backlog in some areas, 
and I would like to go ahead and allow our administrators and 
acting administrators to discuss that at this time.
    Ms. Kaptur. Thank you. Ms. Legg.

                        RURAL UTILITIES SERVICE

    Ms. Legg. Thank you, Madam Congresswoman. Yes, regarding 
the electric program, as Mr. Neruda stated, the generous 
addition last year has allowed us to begin eating into the 
backlog. The backlog number at the beginning of this year was 
about $4.7 billion, and we have been able now with the funding 
between this year and next year to expend an additional $2 
billion, which is why we are requesting $2.6 billion next year.
    Actually we are getting a lot of applications, a lot of 
interest in that program, but we should be able with the money 
that we were appropriated this year to complete thebacklog by 
the time we complete next year. It is a matter, as Mr. Neruda also 
spoke about, of processing that additional funding with the existing 
staff, but certainly the demand is there.
    Ms. Kaptur. So you will be able to accommodate the backlog?
    Ms. Legg. Yes.
    Ms. Kaptur. For all?
    Ms. Legg. The electric loans, at this point, yes.
    Ms. Kaptur. All right.
    Ms. Legg. And then in regard to the water and waste.
    Ms. Kaptur. Yes.
    Ms. Legg. The backlog figure is $1.5 billion. The funding 
request is about $1.4 billion, and as you have accurately 
stated, it is only a small, about 4 percent reduction. Those 
applications are ready, pretty much ready, to go, so we believe 
we will be able to meet that backlog with the 2003 budget.
    I would just comment on the 4 percent, as Mr. Dewhurst did, 
that we all have to give something in the aftermath of 
September 11. We feel that this was very reasonable and we 
could meet the backlog demand on that.
    Ms. Kaptur. I know that my time has expired on this round, 
Mr. Chairman. Perhaps we could save the other administrators 
for the next round to answer my question on backlog. Thank you.
    Mr. Bonilla. Thank you, Ms. Kaptur. Before I yield to Ms. 
Emerson, I want to thank her for the gift that she has put in 
front of us today. I notice that some of the different rice 
bags have different aromas. Is that correct?
    Mrs. Emerson. That is right, we have basmati rice, which 
our producers grow specifically for some clients in Turkey, and 
jasmine rice is also a specialty rice, we are very fortunate in 
southeast Missouri to be able to grow these.
    Mr. Bonilla. Thank you.
    Mrs. Emerson. Well, we are the northernmost rice producing 
district, so we are able to grow lots of different varieties. 
It is very interesting.
    Mr. Bonilla. We appreciate it.
    Mrs. Emerson. Thank you. I hope you will enjoy it, and 
thanks for not having me take time out of my five minutes to 
talk about that. [Laughter.]

                         PRE-DEVELOPMENT COSTS

    Is it my turn now? Thank you, Mr. Chairman. Mr. Neruda, 
thanks for being here today and all of you. I have an issue 
that has been discussed throughout the rural communities in my 
district, and I might add I have the poorest district in the 
state of Missouri, with many, many very small communities who 
really depend on a strong agriculture economy to be 
economically viable themselves. As a result of the fourth year 
in a row of low agriculture prices, commodity prices and the 
decline in farm income, these are communities that are in dire 
straits.
    Unfortunately, these communities that need the most help of 
Rural Development, my little bitty communities, do not have the 
resources to meet the criteria necessary to apply for Rural 
Development grants for waste water, sewage, what have you, or 
what is called pre-development costs. In other words, they 
cannot pay for environmental review, easement acquisition, 
financial management, contract management, civil rights and 
labor standards enforcement, all of the things that are 
required when applying for a Rural Development grant.
    Now, my towns of 10,000 or more have a few more resources, 
but not much. Many of my smaller towns just simply do not have 
the resources to meet that requirement, and I am just 
wondering, since I believe there is no budget impact, can we 
have a little discussion or talk about the idea of perhaps 
including those pre-development costs within an application 
process?
    In other words, allowing the recipients to take that money 
out of the grant. Is this something we might look to do, or 
could we legislatively fix that; what do you think?
    Mr. Neruda. Congresswoman Emerson, I do appreciate your 
comments, and we have had inquiries on this. It is a 
significant issue for us, and something that we would like to 
be able to work on. Some of our programs do allow for repayment 
from loan proceeds for engineering and some of those other 
costs. But this is an issue, for communities to find funding 
prior to loan closing.
    It is especially an issue, as you mentioned, in the smaller 
communities such as in your district, and I would say 
unfortunately you have one of the poorer districts, but you 
have one of the most historically rich districts, so it is 
important that we try to do something in this area.
    We would like to work with you and your staff and any 
others on this, and see if there is anything we can do. It has 
been my understanding since being in the job at Rural 
Development that it might require some legislative language to 
be able to do this in a way that would be equitable to all of 
our programs, but we would certainly be willing to work with 
your staff and others to see what could be done.
    Mrs. Emerson. I do appreciate that, Mr. Chairman. I hope 
that we can work with the committee, too, I do believe there is 
no cost, I mean there is no further outlayfor this. I 
appreciate your offer, and my staff will get together with yours, Mr. 
Neruda, to try to work on that.
    Let me ask you another question that has to do not so much 
with pre-development costs but rather the application and grant 
process.
    Mr. Neruda. Right.

                     APPLICATION AND GRANT PROCESS

    Mrs. Emerson. We have, I guess, about $20 million of Value-
Added Development Grant money last year. And unfortunately, our 
Missouri producer groups were not very successful in receiving 
those grants. We are trying to put together ethanol plants and/
or soy diesel grant proposals.
    I know that during the second round alone, Missouri had 14 
applications encompassing a wide range of agricultural 
projects, all of which were turned down. Can you give me an 
idea what our producer groups can do to write better grant 
applications that conform with your guidelines?
    Mr. Neruda. Thank you for that question because you are not 
the first person that has inquired on that and called my 
office, and I know that it is a troublesome area for folks out 
in the country. As you know, the Value-Added program was a 
pilot program last year. What we have found, without doing any 
statistical or outside consulting analysis of this, is that 
those states generally did a little better that had folks in 
their state offices that were really skilled at grant writing 
and the farm groups that went to them and said could you just 
help us write the grants tended to fair a little better.
    And then it was all based on a scoring process, but I 
guess, to be very blunt about it, it is something that I am 
very concerned about. I would like to get training for some of 
our state folks that are not necessarily skilled in this, 
because obviously some of the small communities and even some 
of the consumer and producer groups in our individual states 
are not experts in writing applications.
    Mrs. Emerson. So, in other words, our producer groups could 
actually come and work with rural development and have your 
personnel help them write better grants?
    Mr. Neruda. Right. Well, we could help them: Again, I mean 
we cannot get into the business of trying to help one over the 
other.
    Mrs. Emerson. Right.
    Mr. Neruda. But we could certainly objectively give some 
pointers in how to write these applications better. In my view, 
it is no different than our children applying for college.
    Mrs. Emerson. Right.
    Mr. Neruda. You know there is a way to do it and a way not 
to do it. When the scorers who see these independently then at 
USDA look through all of these applications, it helps if they 
have the key components that we are looking for.
    Mrs. Emerson. Well, it might be a good public relations 
tool for you all to do a couple workshops----
    Mr. Neruda. Right.
    Mrs. Emerson [continuing]. Around the states, and in our 
states, I know other departments and agencies do that, and 
certainly that would be helpful.
    Mr. Neruda. It is.
    Mrs. Emerson. We might have a better opportunity to compete 
and receive some grants.
    Mr. Neruda. It is a very valid point, and it is something 
that I would like to really work on in terms of our field 
structure.
    Mrs. Emerson. Thank you very much. Thanks, Mr. Chairman.
    Mr. Bonilla. Thank you, Ms. Emerson. Mr. Hinchey.
    Mr. Hinchey. Thank you very much, Mr. Chairman. Mr. Neruda 
and Ms. Legg and gentlemen, welcome. It is very nice to see 
you. I want to start off by recognizing some things that you 
have done that I think are important and valuable. For example, 
the funding of the Rural Economic Area Partnership program in 
the budget is continued I think at a good level, and the 
recommendation for that funding, and very much appreciated.
    Ms. Legg, in your capacity as the Rural Utilities 
Administrator, you have authority to approve loans for the 
advancement of utility projects and various communications 
technology in rural areas. And I think you have done that 
certainly in the cases that I am aware of in New York and 
elsewhere in a way that I very much appreciate. So I just want 
to say thank you for that.
    Ms. Legg. Thank you, sir.

                         RURAL HOUSING SERVICE

    Mr. Hinchey. And let you know how valuable that work is 
from the point of view of the people that I represent here in 
the Congress and thanks very much for that.
    I wanted to question a couple of sections of the budget 
with regard to the funding levels however. One is the Rural 
Renting Housing program, and I know, Mr Neruda, that you are 
committed to the problems of rural America, but the budget 
unfortunately in this area is, I think, inadequate. We know 
that a disproportionate amount of the nation's substandard 
housing is in rural areas.
    Rural households are poorer than urban households. They pay 
more of their income for housing than their urban counterparts. 
They are less likely to receive government assistance, 
particularly government assisted mortgages. They also have 
limited access to mortgage credit in the secondarymortgage 
market, and that makes them easier prey to predatory lending.
    And renters in rural areas are the worst housed in the 
country. One-third of rural renters pay more than 30 percent of 
their income for housing. The Section 515 Rural Rental Housing 
Loan program serves low and very low income families with safe, 
affordable housing. The portfolio contains 450,000 rented 
apartments in Section 515 developments, and the delinquency 
rate is remarkably low. It is only 1.6 percent.
    The average tenant income is significantly less than $8,000 
a year, and that is 30 percent of the nation's rural median 
household income. More than half of the tenants are elderly or 
disabled, and one-quarter are minority. This year the 
president's budget cut Section 515 almost in half to $60 
million and limited it to repair, rehabilitation and 
preservation.
    If the fiscal year 2003 budget request for Section 515 is 
approved, it will be the first time in more than 30 years that 
the federal government provides no new rental units for rural 
housing in rural America. All new construction is postponed 
pending a comprehensive program review, which itself is 
estimated to cost about $2 million.
    As it stands right now, one million households either 
cannot afford their rents, they live in unsafe or unsanitary 
conditions, or both, and the capital replacement needs alone 
for 2001 were $130 million, with only 15 million in funding 
available.
    Section 521 rental assistance is used in conjunction with 
Section 515 to help families who cannot afford their reduced 
rent. In recent years, appropriations for rental assistance 
have gone up. Even at the increased level of 701 million, that 
is for the fiscal year 2002, current funding for rental 
assistance is insufficient. Nearly 50 percent of Section 515 
households receive rental assistance, but almost 90,000 Section 
515 households who need assistance do not receive any.
    The need for rental assistance is projected to increase to 
$937 million within the next four years. Prepayment of 515 
properties is a threat to two-thirds of the portfolio over the 
next seven years, because what we find in that regard is, as 
people prepay, the owners prepay, they convert the housing over 
to market rate housing, and the people who need the housing 
fall out because they cannot afford the market rate.
    And Section 515 funding has fallen off dramatically. It 
stands at $114 million, which is its lowest level in 25 years. 
This allows little money to provide incentives and other 
resources for preservation. The demand for incentives is 
estimated at approximately $100 million for equity loans alone. 
And this includes $11 million in approved but unfunded 
requests. Some of that dates back three or four years.
    Spending for Section 515 rental subsidized housing has been 
cut by 73 percent since 1994, and rural rental housing unit 
production by the federal government has been reduced by 88 
percent since 1990.
    So for those of us who represent rural areas, and although 
New York is not known as a rural state, it has, I think, 
probably the third largest rural population in the country, for 
those of us who represent rural areas, this is a serious 
problem, and I am wondering what you feel about this, and how 
you think we ought to proceed with it, and how we could 
possibly justify these kinds of cuts, given the enormous need 
that exists?
    Mr. Neruda. Congressman Hinchey, I truly do appreciate your 
statement, and you have obviously hit on some of the concerns 
that we have, those of us responsible for administering the 
housing program. Again, when I took over as the individual 
temporarily to manage Rural Development, I saw this as an area 
that we probably needed to do some work in.
    I would like to be able to say that there are some easy 
answers, and unfortunately there are not very many easy 
answers. One of the problems with 515 is that we do have an 
aging portfolio, and there were some concerns--and I think 
rightly so--that until we address those issues of repair and 
restoration, we were just compounding the problem with new 
construction.
    And we have to face up within USDA to the issues of repair 
and restoration for our folks in those very low income brackets 
that definitely need this housing. This is critical housing for 
rural America. We are obviously the agency that handles rural 
housing. As most of you know, when you travel around, a lot of 
people are surprised that USDA has a housing program at all for 
rural America, but it is critical, and we think we know how to 
administer the program, and that we have a lot of experience in 
it.
    But we also realize that there are some issues out there, 
and one of them is the aging portfolio in the multi-family 
program.
    Mr. Hinchey. Well, Mr. Neruda, that is a noble defense of 
the indefensible. And I very much appreciate the effort that 
you have made, but, you know, we all know that budgets are 
priorities, and I think that not you but someone in the 
administration has a wrong sense of what the proper priorities 
ought to be.
    We are going to be passing a budget resolution later today 
which calls for an additional $10 billion to the administration 
carte blanche, no controls whatsoever, just another $10 billion 
to be spent on defense over and above enormous new records in 
defense spending, but we cannotafford a few million dollars to 
deal with the problem of housing for people who so desperately need it.
    So I am not criticizing you or your agency. I think you are 
doing a terrific job, but I am mentioning this by way of trying 
to get a message through to other people in the administration 
that the priorities are wrong here, and that there are 
desperate needs, and to be able to come to the Congress with a 
budget that provides for no expansion in rural housing, the 
first time that has happened in three decades, I think is again 
indefensible.
    So I am hoping that we can work with you over the course of 
the next several months and with the administration to try to 
improve the situation. It may be that someone just made a 
mistake and that we can correct it.
    Mr. Neruda. Yes, sir.
    Mr. Bonilla. Thank you, Mr. Hinchey.
    Mr. Hinchey. Mr. Chairman, thank you, sir.
    Mr. Bonilla. We heard buzzers go off, folks. We are going 
to have to go to the floor and cast two votes. I would estimate 
that in roughly 12, 15 minutes we shall return. If you all will 
just bear with us, we would appreciate it. The hearing will 
remain open during that time. If a member returns before I do, 
we are going to allow them to proceed. Thank you.
    [Recess.]

                          APPLICATION BACKLOG

    Ms. Kaptur [presiding]. Thank you very much. We apologize 
for the interruption, and in our chairman's absence, I would 
like to reconvene the hearing, and ask perhaps if the various 
administrators, could complete answering the question I had 
asked earlier about the nature of the backlog in your 
respective areas, and whether it is lesser or greater than the 
prior fiscal year, and relate that to the budget request that 
you have presented to us today. Who is comfortable? Mr. Rosso.
    Mr. Rosso. I will be happy to. Good afternoon, 
Congresswoman.
    Ms. Kaptur. Thank you.

                         GUARANTEED B&I PROGRAM

    Mr. Rosso. It is a pleasure to be before you today. We have 
what is analogous to a cash flow situation. We are constantly 
receiving applications, and approving them throughout the year. 
It is no-year money. So it is a cash flow kind of thing that is 
constantly going.
    Take the B&I Guaranteed Loan program. Last year at the end 
of the fiscal year, we were close to $800 million in a backlog, 
which is not extraordinary, but we also had $484 million of no-
year carryover money from the prior year.
    So, again, it is similar to a cash flow situation. There 
will constantly be a backlog. The present backlog to date I 
would not know. Each day it changes, but we were able to 
accommodate it very readily, because, as I said, we had the 
$484 million no-year carryover money. We had the new 
appropriations, although with the continuing resolution, it was 
difficult, but still the carryover money carried us through.
    As far as how it will affect us in the future, this year, 
because of the subsidy rate, we are down to perhaps an 
authorized $800 million, but with the carryover we had, that 
brings us back up to the $1.2 billion, which we normally use. 
We will not feel the effects of the new subsidy rate until next 
year.
    Ms. Kaptur. That is what I am concerned about.
    Mr. Rosso. Next year the subsidy rate is going from two 
percent to 3.74 percent. So next year, based on that subsidy 
rate, we will only be able to guarantee $785 million, plus or 
minus. Now, we are trying to address that in various and sundry 
ways. It is not the program level that is the problem. It is 
the subsidy rate.
    We are trying to address the subsidy rate by looking at the 
model from OMB, how they calculate it. We have various 
proposals that are coming forward before the agency which would 
go to perhaps an annualized fee similar to the FHA and the VA, 
which would then make up the 3.75 percent. If you take the 
average life span of a mortgage being seven years, and you had 
a half a percent per year fee as opposed to 2 percent 
origination, at the end of the average life span, you would 
have the subsidy rate, and then we would be back to restoring 
the full $1.2 billion that we normally use.
    There are other avenues of approach that we are looking at, 
including buying back from the secondary market a loan because 
of technical default. They are still making monthly payments, 
but there are technical defaults. The banks do not want to buy 
them back, so we are forced to buy them back.
    At that point, it is similar to a liquidation charge for 
us. We are charged with the entire loan, yet we have no way of 
liquidating and getting a credit, so we have a net loss. We 
take the full brunt of the loss. We are contemplating moving 
forward now with a fiscal transfer agent, so that once the 
technical default is cured, we can go into the secondary market 
and resell them and come back to probably a no-loss situation 
on those loans.
    So there are several avenues of approach that we are 
addressing, all keyed into the subsidy rate, because the 
subsidy rate determines what we will be able to do in terms of 
the proper level.
    Ms. Kaptur. Do you have both direct and guaranteed?
    Mr. Rosso. We no longer have direct.
    Ms. Kaptur. No direct. All guaranteed?
    Mr. Rosso. All guaranteed.

                             LOAN APPROVALS

    Ms. Kaptur. In any given fiscal year, if you look at the 
number of loans that are presented to your agency that are 
bankable or that are worthy, what percentage of those are 
ultimately guaranteed?
    Mr. Rosso. How many do we reject basically? I would say we 
probably accept 80 percent of the loans that come forward to 
us, and the rejection on the other 20 percent are basically 
because they are not creditworthy. They do not show a cash flow 
in the long-term, so they would not be able to sustain the 
payments that are necessary. We probably approve 80 percent of 
what comes forward.
    Ms. Kaptur. All right. So I take it then for this current 
fiscal year, you are then guaranteeing all 80 percent, 
everything that comes to you, of those that are creditworthy, 
you are able to guarantee every creditworthy loan that comes to 
you?
    Mr. Rosso. Yes, we are.
    Ms. Kaptur. You have no backlog?
    Mr. Rosso. We are in good shape this year.
    Ms. Kaptur. All right.
    Mr. Rosso. We may not have a similar demand next year, 
either because in the past year there were interest rate 
reductions which caused a lot of refinancing, both in the 
regular commercial market as well as in the guaranteed market. 
So that refinancing now with the interest rates probably 
changing direction, we will not have that surge.
    Ms. Kaptur. So you are not an administrator under stress 
basically?
    Mr. Rosso. Not at this point.
    Ms. Kaptur. All right. Then let us move on to Housing. How 
would you answer those questions for me, please?

                     RURAL HOUSING SERVICE BACKLOG

    Mr. Alsop. Thank you, Congresswoman. Within Rural Housing 
Service, as you are aware, we have three major programs: the 
Single Family Housing program; the Multi-Family Housing 
program; and Community Facilities.
    Within the Single Family Housing program, under our 502 
direct program we typically have a backlog of approximately $5 
billion in applications on hand at any one time. Within our 502 
Guaranteed program, we do not have a backlog at the present 
time.
    Within our 504 program, which primarily assists elderly 
individuals and those individuals who would like to repair 
single family housing, yes, we have a backlog of about $120 
million. However, based upon the FY 2003 budget, in single 
family housing, we feel that we will be able to assist more 
than 48,000 households, and as we are processing applications 
on a daily basis, we are also receiving applications. So there 
is going to be a constant demand for the Single Family Housing 
program, as we look at the future.
    But we feel very comfortable within single family housing 
that we are meeting our demand. Based upon the budget, we are 
able to assist those families that need adequate, safe and 
decent homes.
    In the Multi-Family Housing program, unlike Single Family, 
we do not carry a backlog of applications. The reason for that 
is, under the multi-family housing, all of our applications 
would be received by Notice of Funds Availability, which is 
published in the Federal Register, and those applicants that we 
fund during the fiscal year, we are able to utilize all funds 
that are appropriated to multi-family housing during that 
fiscal year.
    So from one fiscal year to the other, we do not carry a 
backlog of applications on hand within the Multi-Family Housing 
program.
    In the Community Facilities program, we would have on hand 
at any one time probably $400 million in applications or pre-
applications for funding during the fiscal year. Based upon the 
budget, we typically would fund about $370 million of those 
funds that may be available during that fiscal year.
    As noted in the single family housing program, each day 
there may be another pre-ap or an application from entities 
that are interested in obtaining financial assistance, but 
again that backlog is being met through the demand based upon 
our allocation for the fiscal year.
    Ms. Kaptur. I am going to ask each of the administrators to 
submit for the record for your respective programs the number 
of applications that you have received in each of these and 
their dollar value, and the manner in which you have been able 
to respond to that volume in the past fiscal year, and looking 
at the budget that you have proposed, how well you will be able 
to meet the demand in this next fiscal year.
    Mr. Neruda. I will provide that information for the record.
    [The information follows:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
                           NEW ENERGY SOURCES

    Ms. Kaptur. Let me just ask Deputy Under Secretary Neruda, 
you have a really interesting background because you have 
worked for senators from Iowa and you are from Nebraska 
yourself, and you have worked for Senator Zorinsky from 
Nebraska, and I am very interested--and I am sure you have not 
had a chance to think all this through yet--but I have been 
pushing the department as hard as I know how on this issue of 
new energy sources for the future and the important role that 
biofuels has to play in that.
    And as you look at the various instrumentalities under your 
purview, how do you conceive that you could be helpful to 
spawning a real value-added industry for this country to 
displace petroleum in this marketplace with renewable biofuels? 
What powers do you have that you can employ in this effort?
    Mr. Neruda. Congresswoman Kaptur, I appreciate the 
comments. As you know, power is an interesting word inside the 
Beltway. Because of my background and because of folks that I 
am very familiar with that have been involved in production 
agriculture in the Midwest, I personally have a great interest 
in biofuels and biomass and the various programs that we could 
use within the area of Rural Development.
    As you know, there have been some peaks and valleys 
historically with some of the projects that we have been able 
to fund in some of these areas. Now there is increased interest 
in these areas, not only due to the events of 9/11, but going 
back certainly at least to the Gulf War, and also with some of 
the down swings in the agriculture economy.
    It is an area that I know and, as the chairman mentioned, 
we have a great designee in Mr. Tom Dorr for Under Secretary, 
who is a producer from Iowa. He has a great interest in this 
area in trying to energize the Rural Development mission area 
in coming up with all available avenues that we have, not only 
for ethanol plants, which is one that most people know about, 
but biomass and other ways.
    Ms. Kaptur. I want to have lunch with him.
    Mr. Neruda. It is a critical area that we are trying to 
work on not only with RBS and our Co-op Service, which would be 
considered the historic areas of support, but also along with 
RUS in terms of wind energy, wind farms, and other various ways 
that we could be productive. It is a task that we are really 
going to have to devote more time to.
    We have got, I think, a great budget in that area, but we 
are really going to have to spend more quality time in 
mobilizing our resources, which right now is my responsibility, 
in seeing what all we can do in that area.
    There can be some problematic issues there, because we want 
to be as innovative as we can and think a little out of the 
box, and not just think within the box as we have for the last 
20 years on bioenergy. I think that will be the challenge for 
us.
    Ms. Kaptur. Well, I thank you for your openness and just 
know that Congressman Nick Smith, who chairs the Research 
Subcommittee on the authorizing side, and I are cooperating 
together to do a major symposium in our region on this issue of 
fuels of the future, renewable fuels of the future, and we 
would very much like to work with you and with your colleagues 
on selecting just the very best people in the country that we 
can invite to that.
    And I would commend to your attention an article I placed 
in the Congressional Record about two weeks ago that came from 
Foreign Affairs written by Senator Richard Lugar and our former 
CIA Director James Woolsey, entitled ``The New Petroleum.'' It 
really places it in a wonderful context, and I share their 
perspective and their point of view, and know that you have 
very strong support right here among a number of our members by 
the way on moving America to an energy self-sufficient future 
here at home.
    And I will have subsequent questions as well. Thank you.

                    LOCAL NETWORK TELEVISION SERVICE

    Mr. Bonilla. Thank you, Ms. Kaptur. Before I yield to Mr. 
Boyd, I just want to acknowledge one of our constituents who is 
joining us today, Mr. Santiago Huerto. I appreciate his visit 
here today. He is from one of the great cities that I represent 
in my area in Texas, Laredo. Welcome, Mr. Huerto. Mr. Boyd.
    Mr. Boyd. Thank you, Mr. Chairman. Mr. Neruda and team, 
welcome, and first of all, I want to start by thanking Rural 
Development for the work that you have done in the south 
Florida area on some migrant housing facilities. We have got 
some folks that head up some nonprofit entities down there that 
are really doing good work, and I know that you are working 
with them hand-in-hand, and I have had the opportunity to go 
down there and visit and that is a huge positive step for 
everybody, the industry, the migrant laborer, so I wanted to 
thank you for your work and encourage you to continue it.
    I want to begin my first round by focusing on an issue that 
has to do with those of us who serve rural areas, and it is 
probably one of the most sticky constituent problems we face, 
the whole issue of local network television service/satellite 
television service. And I assume that this question has not 
been addressed earlier, Mr. Chairman, by one of the other 
members.
    But it is my understanding in 2000, we put in place a law, 
and I think funded it, funded that program through what is 
called the--help me here--it is the Local Television Guaranteed 
Loan program. And that law has been in placeabout two years 
now. We still do not have the rules developed, I understand, to 
implement that law, and this budget zeroes out that program.
    Where are we going and when we can expect? I know you are 
working hand-in-hand. This thing has got to be brought along by 
the private industry, but are we doing our part to make sure 
that we deliver the satellite services in the rural communities 
like we ought to?
    Mr. Neruda. Congressman, thank you for your question, and 
that is one that we are concerned about. Concerning the 
regulations, I believe those have been passed back to us from 
OMB; is that right? Ms. Legg, you want to take that? Go ahead.
    Ms. Legg. Thank you, Congressman. Having lived on a farm 
where I could not get the news, I do very much understand this 
issue. You are correct in that the legislation was passed two 
years ago. However, it was only in this year's budget that 
there was any money appropriated to do anything for the local 
to local legislation.
    This year we got $20 million in budget authority in our 
present cycle when the budget was approved the end of November. 
We were ready as a staff to begin to go out with a NOFA that we 
have to publish. One of the first things you have to do by law 
is to get an audit firm involved in how you are going to manage 
that.
    What happened was quite frankly the whole proposed merger 
of EchoStar and Direct TV suddenly put the whole issue out 
there, because in their initial proposal, they were talking 
about serving the top 100 markets. When you look at a loan 
program, which had $20 million this year, the total cost of 
serving is estimated to be about $1.2 billion, so we were 
looking at what we might possibly get going with the $20 
million.
    When you look at leaving the last 100 rural markets, there 
is not a lot of incentive. You are obviously diluting the 
ability to repay that loan. What we began to look at is, and 
just recently the proposed merger said okay, serving all 200 
markets. What we hope is that all rural Americans will be able 
to get television as they need it for a lot of reasons, not 
only just their safety as well as the news.
    What we have decided to do, as Mr. Neruda correctly stated, 
is that we are in the process of drafting a NOFA, a rule 
proposal, that would go out and say to rural constituents, to 
the folks that would be interested, what does this do? What is 
this new merger? What is the impact that it would have in terms 
of how we could best administer the money that you have 
appropriated to us?
    Right now we are not sure what is the prudent way to use 
$20 million, which, we know is not going to give you the 
coverage that you need. If they are, in fact, going to serve 
all 200 markets, the ability to repay back those loans is going 
to be extremely small at this point.
    So we are kind of caught in that new issue of today. We 
would love to work with your folks on any input that you have 
on that, because I do very much understand that issue from a 
personal standpoint.
    Mr. Boyd. Okay. Let me follow up.
    Ms. Legg. Sure.
    Mr. Boyd. And I am pleased to be having this conversation 
with somebody that was raised in a rural area, because when my 
constituents because of the Grade B rule cannot pick up the 
Super Bowl on Fox network, they have a satellite that they are 
paying for every month, but under the laws that we have in 
place, they cannot get the satellite signal in because the 
satellite company or basically local network cuts it off, 
forces them to cut it off, we got a serious problem.
    And I remember my own home a year ago I could not watch the 
Super Bowl because of those silly rules that we got in place, 
or laws. They are not rules; they are laws. And the Congress 
put them in place.
    But I want to, first of all, say that the $20 million, the 
administration never asked for. We budgeted it, and it is more 
than $20 million. It is $20 million which is leveraged for 
about $260 million worth of loans.
    Ms. Legg. That is correct. That is right, $258 million. 
That is correct.
    Mr. Boyd. So, you know, it is unfair to say that we are 
only dealing with $20 million. We are really talking about $260 
million.
    Ms. Legg. That is correct.
    Mr. Boyd. And you guys did not even ask for the money this 
year, so I mean how do we reconcile that, I guess is my 
question? Do you expect us to put it back in?
    Ms. Legg. I would not presume to say what we would expect 
you to do, Congressman. That will be your determination on 
that. What we are very conscious of is whether the borrower out 
there is going to be able to repay that loan, that is what our 
concern is, and what the market is going to be, because we do 
very serious due diligence, as you well know, on all of our 
loan programs.
    So we are seeking input. If you have some insight on that, 
we would be glad to look at that or meet with your folks on it. 
But that is our concern, the ability to repay based on what is 
happening in the big picture, if you will, nationwide.
    Mr. Boyd. Okay. I understand what you are saying. It is all 
wrapped up, and the EchoStar/Direct TV merger is allwrapped up 
in this, in how that merger is put together. And I guess the Justice 
Department makes those requirements in approving that merger?
    Ms. Legg. And what their commitment is to who they are 
going to serve. Obviously, what we want to ensure with this 
money is the intent, I think, that you all gave us, to make 
local to local television accessible in that rural community, 
which is also the most expensive, hardest to serve, as always 
in rural America. And so they have to have the ability to pay 
back this loan money, and if someone is, in fact, going to 
service that, what is the market going to be? And those are 
just really serious issues in trying to put this program in 
place. It has been one that we have given a lot of thought to 
and struggled with.
    Mr. Boyd. I want to make sure I understand what you have 
told me. The regulation or the delay in developing the 
regulation is because of the issue of EchoStar/Direct TV? Is 
that basically what you have told me?
    Ms. Legg. Basically that is, yes, sir.
    Mr. Boyd. Okay. Thank you, Mr. Chairman. I will have some 
other questions, but I would like to wait till the next round.
    Mr. Bonilla. Thank you, Mr. Boyd. Mr. Goode.
    Mr. Goode. Thank you, Mr. Chairman. I want to thank Rural 
Development. Rural Development helps a lot of rural America, 
and that is a lot of the fifth district of Virginia, and we 
appreciate that. But to follow up a little bit on Congressman 
Boyd, now you or Congressman Boyd could get Direct TV service 
if under current law, as it stands right now, could you not, if 
the local affiliate for that station, and I do not know what 
station the Super Bowl is on. Let us say it is on ABC. If it 
was on ABC, if the local station granted a waiver and Direct TV 
or EchoStar requested it, they could watch; am I not right?
    Ms. Legg. I do not know the answer to that. I can tell you 
this. Whether it is the Super Bowl, I am not sure. As a Direct 
TV subscriber----
    Mr. Goode. You are a subscriber; right.
    Ms. Legg. What I cannot get on my family farm is the local 
news.
    Mr. Goode. Right.
    Ms. Legg. I can only get Chicago or New York, those 
stations.
    Mr. Goode. Well, you have got a waiver. That is the reason 
you can get those. The local station, let us say it is ABC--we 
will just pick that one--your ABC station has granted you a 
waiver; have they not?
    Ms. Legg. In order to get the Chicago station?
    Mr. Goode. So you get Chicago ABC.
    Ms. Legg. I do not know if it is a waiver technically. I am 
not sure I know what waiver they were giving me. I just know 
when I turn my TV on, I cannot get local news. That is my 
personal experience with it.
    Mr. Boyd. Would the gentleman yield?
    Mr. Goode. I yield.
    Mr. Boyd. If she is not in a Grade B area, then she does 
not have to get a waiver.
    Mr. Goode. She is probably not in a Grade B area.
    Mr. Boyd. She is not cut out from getting any ABC satellite 
station in the country. But if she is in what they call a Grade 
B area, then she has got to get a waiver and that only can come 
from the local network station. That is the way I understand 
the law.
    Mr. Goode. And you may not be in a Grade B area.
    Ms. Legg. I do not know about that. As far as being back 
home in Kentucky, no.
    Mr. Goode. All right. You probably----
    Ms. Legg. I am saying back home in Kentucky. I am not 
talking about up here. I think you do see the complexity with 
the whole service. What we are looking at is the borrower's 
ability to pay back the loan and the complexity of the issue.
    Mr. Goode. Is it your understanding that EchoStar and 
Direct TV right now do not have the technological capacity to 
deliver you? What is your local station, the one you want to 
get?
    Ms. Legg. That would be WBKO, Bowling Green.
    Mr. Goode. From Bowling Green, and you cannot get----
    Ms. Legg. Or Lexington.
    Mr. Goode. Right. Do they have the capacity or do you know?
    Ms. Legg. I do know this. Again, I just spoke to my brother 
who still lives on the family farm, and I think they have been 
telling the subscribers when he hooked up--this is anecdotal 
information here, please--that they would get it in a year or 
two years. They have not gotten it since he has hooked up and 
subscribed to Direct TV.
    So I would simply say that as a fact he has not been able 
to get it. Whether or not they have the technological 
capability, those are some of the issues obviously that this 
merger and Justice will have to look at, and what the time 
frame would be if they actually could deliver that service into 
those local markets. Then, of course, what are the consequences 
if they do not serve that local market? Again, where is that 
mostly rural community going to turn to get service?
    Mr. Goode. Right. Because if you have a tornadowarning, the 
Chicago station is not going to tell you.
    Ms. Legg. It is not going to help me at all, Congressman. 
That is exactly right.
    Mr. Goode. And I do not know if this is true. Some have 
said that the technological capacity is there now for Direct TV 
to give you the local station, but the local station does not 
want to pay Direct TV what Direct TV wants to have to give you 
the local station, and that is the rub. How much Direct TV is 
willing to sell it, their costs, how much they want for it, and 
how much the local station wants to pay, and they never are 
going to be together, unless they want us to help them. That is 
the bottom line; is that not right?
    Ms. Legg. And that is why it is very difficult to put 
together a lending program that has any strength in terms of 
repayment when the complexity of the issue is as it is. That is 
why we are seeking input on this.
    Mr. Goode. The lending program, as it exists today, who 
would be the repayer of the loan? Direct TV and EchoStar?
    Ms. Legg. Right now our typical borrower would be a local 
distribution company, a cooperative that might be into it, a 
local television company, a cable provider, would be who our 
typical borrower would be in that rural community. And they 
would have to have the market base, and they would be in many 
ways, competing.
    Mr. Goode. Then they would be the negotiator with Direct TV 
and Echostar; am I right? Is that right?
    Ms. Legg. Bobbie Purcell is telling me. Excuse me. She was 
just saying, if Direct TV comes into all those markets, the 
local provider, our typical local provider in that regard, 
would not just see that there is no market feasibility. There 
is no market there for them to go in and compete against; 
therefore, they would not have the repayment capability. It is 
market-driven based on who they are competing against, who the 
competition is.
    Mr. Goode. All right. Thank you, Mr. Chairman. My time ran 
out. Thank you.

                         LOANS TO RURAL AMERICA

    Mr. Bonilla. Thank you, Mr. Goode. Before we go on to the 
next round, I would like to state for the record and 
acknowledge the recent announcements that Rural Development has 
made just since January 31. Millions of dollars in grants and 
loans have been made to rural America--South Carolina, $4.3 
million; Pennsylvania, $22 million; Ohio, $14.5 million; Iowa, 
$7 million; Tennessee, $8.5 million; California, $2.4 million; 
Florida, $52.4 million; Missouri, $6.1 million; and Texas, 
$19.6 million. We are delighted to see that this money is 
actually getting out there to help the folks who are in these 
communities.

                           EMPOWERMENT ZONES

    I would also like to acknowledge your work on the selection 
of the Middle Rio Grande FUTURO communities as a rural 
empowerment zone. It stands for Families United to Utilize 
Regional Opportunities. This empowerment zone is a five county 
region in a remote area of my district along the Mexican 
border. Four of the five counties are among the 20 poorest 
counties in the U.S. Portions of Maverick, Zavala, Uvalde, 
Dimmit and La Salle counties suffer from a 20 percent 
unemployment rate along with a 46.5 percent poverty rate.
    This is going to be a tremendous help to get these 
communities on the road to economic well-being. I can tell you 
that when we had a little ceremony acknowledging this just a 
few weeks ago, everyone turned out from these counties. They 
understand what a difference this empowerment zone makes to 
them, and they are very appreciative, as am I.
    Mr. Neruda. Thank you, Mr. Chairman. I would like to point 
out Dr. Reid, who is at the end of our table, is the acting 
Deputy Administrator of the Office of Community Development, 
who with his staff had to go through all of the many, many 
applications and do the initial scoring. It is a very popular 
program, that we feel, does many good things for these 
communities. Thank you for your comment.
    Mr. Bonilla. Thank you. Ms. Kaptur.

                          STATE PARTICIPATION

    Ms. Kaptur. Thank you, Mr. Chairman. Following on that 
question, when I looked at the explanatory notes in the budget 
submission, I noted that only 20 states out of 50 were 
successful in getting funding under the Rural Cooperative 
Development Grants program, 28 states were successful in the 
Value Added Agricultural Product Market Development Grant 
program. Only 21 of 50 in the Rural Empowerment Zone and 
Enterprise Community Grants program. Only 23 states in the 
Rural Economic Development Loan program, and 27 in the 
Intermediary Relending Program Loans program.
    My own state of Ohio is absent from most of the lists. Can 
you tell me why these lists appear to be so limited? Is it a 
question of available dollars, or are there state match 
requirements that must be met before states can participate, or 
is it simply a lack of applications? I am curious as to why all 
states are not treated with the same dispatch?
    Mr. Neruda. Ma'am, if I could make a stab at that. This is 
a great concern to me, and it was something that Mrs. Emerson 
had brought up a little earlier in terms of one of our 
particular programs, Value Added.
    Frankly it is a concern of mine. I am originally from 
Nebraska, and I looked through the lists, and I don't see 
Nebraska that much. So I appreciate what you are saying. And 
frankly, I think it is twofold. I think one is that it really 
is dependent on how skilled certain of our career in the states 
have been ingetting the word out that these programs are 
available.
    My experience with a couple of states is that we have some 
dynamic career folks in those states. In some cases, they have 
led training sessions on grantsmanship and put out the word 
through their public information officers as to what is 
available. I would say that in many cases, it is simply a case 
of our inability to put that on a high priority to get the word 
out in all our states.
    Some states just seem to have a natural ability to have a 
longstanding interest and skilled folks that know how to go 
about the grantsmanship process. And I would like to just add 
that as my initial comment on that issue.
    Ms. Kaptur. All right. I hope we can do something about 
that.
    Mr. Neruda. I agree with you on that.

                                BIOFUELS

    Ms. Kaptur. I wanted to move, if I could, very quickly to 
the biofuels arena again. I noticed in Mr. Rosso's testimony 
that you referenced a Business and Industry Loan guarantee used 
to finance the Quad County corn processors cooperative in 
Galva, Iowa, and this was for an 18 million gallon ethanol 
facility, and the guarantee was to a bank in St. Cloud, 
Minnesota.
    My question is twofold. How many loans, or just 
approximately, for these types of facilities, and I mean bio-
based facilities? I agree with Mr. Neruda, it is not only 
ethanol. It could be soy diesel. It could be some type of 
blended product. How many loans for alternative energy 
production--I would even put manure generation as a part of 
that--have agencies under your jurisdiction made or guaranteed 
in the past three years? Just hear from anybody on that? Is it 
growing?
    Mr. Rosso. Fiscal year 2001, we made about $20 million 
worth of loans and grants.
    In the origination of the program, there were unlimited 
loans amounts going to ethanol. Our current loan limit now is 
$25 million, and those that default cause a horrendous impact 
upon our loss ratio. But we have continued to fund them, and we 
do continue to fund them on a regular basis. We receive 
applications regularly. We also further funded them under the 
Value-Added market Development Grant program, which is 
different from our B&I Guaranteed loan.
    So we do fund them through that also for their early 
stages, for their feasibility studies, their workplans, their 
initial start-ups and so on.
    Ms. Kaptur. Well, I would greatly appreciate any advice you 
could give myself and Congressman Smith as we attempt to put 
this symposium together in our area, because one of the things 
we are looking at is pooling demand, for example, in our 
transit systems. Some of our urban transit systems have offered 
to purchase biofuel to meet a percentage of their annual needs, 
and it would be very important to us to be able to speak with 
people who have actually put these types of efforts together so 
that we can give advice to many participants in this effort who 
may not be involved technically in rural development, but would 
be a downstream user.
    And so if you have those who have put arrangements together 
in other parts of the country on the lending side or the legal 
side of the equation, we would be very grateful for any 
recommendations. Maybe some of your staff, maybe some of the 
private entities that are out there would be very, very 
interested, and I wanted to ask you how important you see 
cooperatives and the advancement of cooperatives as a part of 
this bioenergy future? And you have a $2 million increase in 
Rural Development relating to cooperative energy alternatives. 
Could you discuss that in this context?

                     ALTERNATIVE ENERGY DEVELOPMENT

    Mr. Rosso. The cooperatives are the ones that are taking 
the lead in the alternative energy development. They are 
banding together and forming an ethanol plant or a bio-diesel 
plant or whatever. It is not individual farmers because 
basically they cannot afford to do it. It is not private 
industry taking the lead either in this particular instance.
    It is cooperatives that are taking the lead in order to 
find an outlet for their product as well as to find secondary 
revenue being derived from it. That is why, with the demand in 
that program, we have put in an additional $2 million. We 
expect it will be fully subscribed because they are really in 
the lead on the whole process at this point.
    Ms. Kaptur. And who can apply for help? Who would be the 
applicant from the local community then? You are saying a 
cooperative?
    Mr. Rosso. Yes. And there are more and more being formed 
everyday. The $2 million is going to develop a program of 
research designed to show how the cooperative can be adopted to 
expand the domestic fuel supply. We have a whole Rural 
Cooperative Development Grant Program of $9 million for 2003, 
of which $2 million is strictly for the research to assist 
cooperatives regarding alternative energy.
    Ms. Kaptur. All right. I know my time has expired, Mr. 
Chairman, but I represent both rural and urban America, and 
many of the users will be urban interests, whether it is city 
garbage trucks or school bus systems or port authorities 
ortransit systems, and I would be very interested in how any examples 
you might have of how you pull these people together to connect to the 
producer. And we do not have any such examples in Ohio. And I doubt 
that Nick has them in Michigan, which is one reason we want to do this. 
So I just wanted to place that on the record, and I know my time has 
expired, so we appreciate your thinking on that.
    Mr. Neruda. I will provide that information for the record.
    [The information follows:]

                     Alternative Energy Development

    Your proposal to bridge together the interests of urban 
users and biofuel producers through a symposium has 
considerable merit. A number of Federal Departments and some 
municipalities have began using biofuel blends is purchasing 
for their fleets of buses and other transportation service 
modes. As an example, the USDA is purchasing blended fuels for 
its fleet of 85 vehicles here in the Washington metropolitan 
area. The state of Michigan is using biofuels in the operation 
of its heavy duty truck fleet. At the local level, a few rural 
counties and towns have organized shared services cooperative 
for group purchasing of their input needs. An example is the 
Western Areas Cities and Counties Cooperative (WACCO) 
headquartered in Fergus Falls, MN, which represents seven 
counties and 18 towns. This model has wide potential for the 
purchase of fuels, salt, snow plow blades, office equipment, 
and supplies. We will be happy to coordinate with the 
Department's Office Energy Policy and New Uses to identify 
possible examples that can be shared in the symposium you are 
organizing.
    Producers through their cooperatives are the ones that are 
taking the lead in the alternative energy development. 
Producers/farmers are banding together to form cooperatives 
that own and operative ethanol plants, or bio-diesel, or 
whatever. Individual farmers cannot afford to do it. It is not 
private industry taking the lead either in this particular 
instance.

                    LOCAL NETWORK TELEVISION SERVICE

    Mr. Bonilla. Thank you, Ms. Kaptur. Mr. Boyd.
    Mr. Boyd. Thank you, Mr. Chairman. I want to just make a 
brief comment on the rural satellite television thing before we 
leave, Ms. Legg, and tell you that the law, and I know you are 
going to after this meeting get more familiar with the law, but 
the law basically was not all about just satellite service. It 
was about promoting any method that might be used to deliver 
the services, the local network services into, or solve this 
problem, whether it be cable, wireless technology or whatever.
    And there are a bunch of companies out there working on 
this technology, and we know that ultimately that is what is 
going to solve the problem, but our involvement can speed up 
that process, and that is why we, those of us who live in rural 
areas, feel so strongly about it.
    So I would like to encourage you to learn as much as you 
can about this law and about the problems. You having been 
raised there, obviously you have some understanding of what the 
problem is, but what the current laws are relative to the 
waivers and so on and so forth. They are very difficult to deal 
with, and you know you always got to deal with corporate people 
who live somewhere besides in the rural areas, and our rural 
people are having difficulty.
    I spend a lot of time in my congressional office helping 
folks get those waivers for the local network stations. So it 
is a problem, and I want to make sure that our USDA Rural 
Utilities Service department is focused on it and understands 
all the issues about it. So that is the only thing I wanted to 
say.
    Ms. Legg. We will be sure to do that, Congressman. Thank 
you.

                  GURANTEED BUSINESS AND INDUSTRY LOAN

    Mr. Boyd. Now, next question. This is an easy one, maybe. I 
noticed that there was a $3.7 million loan, and I am not sure 
which division it came through. It might be through yours, Mr. 
Rosso. But it was to demolish an existing hotel on Amelia 
Island and build a new hotel in its place. Now what struck me 
about this, and the reason I ask this question, is that Amelia 
Island is not too far from where I live. It is a very, very 
upscale community. It is just north of Jacksonville. It is a 
sister community to Hilton Head.
    By any definition, you could not consider it a poor socio-
economically deprived rural area. And do we have any rules in 
place about how we direct our money and spend the taxpayers' 
money or guarantee the loans because there is always the cost 
of that, and would you mind addressing this problem for me? 
Again, I am not sure who I am addressing it to, but I believe 
it is yours.
    Mr. Rosso. It was probably within my area. Unfortunately, 
it is a level that was handled at the statelevel, since we do 
not get involved with those items below $5 million. If I can address 
the question generically, our limits are populations of 50,000 or less, 
and there is no restriction on low income or whatever type of income in 
the area.
    However, we do have areas within our programs that are 
geared to lower income areas where the fee is only 1 percent. 
So there are targeted portions of the program, but the program 
at large for guaranteed lending does not have specific economic 
divisions.
    Mr. Boyd. Would you do this for me? Would you look into 
this particular one, and if you have got different fees, I 
understand that, but those of us who serve on this committee 
have to fight every year for appropriations for dollars to help 
rural socio-economically deprived areas, and when we see the 
money going into a place like Hilton Head Island, which, you 
know, you got to have a key or a pass to get into the place, it 
creates some heartburn for us.
    Mr. Rosso. Yes, sir.
    [The information follows:]

                 Guaranteed Business and Industry Loan

    On August 1, 2001, a Business and Industry loan guarantee 
in the amount of $4,635,000 was approved to demolish an exiting 
36-unit hotel, built in 1948, and build a new 90-unit hotel. As 
a result of this hotel, 30 jobs will be created in this area. 
The project is located in Fernandina Beach, Nassau County, 
Florida, an area considered ``rural'' by our statutory 
definition. The average daily room rate is projected to be 
$100, which, at today's prices, would not be construed as 
luxury accommodations.
    Our regulations establish priority scoring and funding 
criteria that must be applied to all projects when determining 
funding priorities. It is our understanding that the hotel will 
create 30 new job opportunities for local rural residents; 
i.e., in management and a wide variety of ``housekeeping'' 
services.

    Mr. Boyd. Thank you, Mr. Chairman.
    Mr. Bonilla. Thank you, Mr. Boyd. Mr. Goode, do you have 
further questions?
    Mr. Goode. Just a couple.
    Mr. Bonilla. Go right ahead.

                 DESIGNATION OF CENTERS FOR EXCELLENCE

    Mr. Goode. Who makes the decision on the designation of 
centers for excellence at community colleges?
    Mr. Neruda. Congressman, ultimately that responsibility 
would be me. Our Office of Community Development would make 
some of the recommendations. But it would be with me 
ultimately.
    Mr. Goode. You have got eight now; is that correct?
    Mr. Neruda. That is correct, yes.
    Mr. Goode. And last year each of them got what? $20,000?
    Mr. Neruda. Yes, $20,000.
    Mr. Goode. All right. What is the possibility of getting 
the list expanded for economically deprived areas?
    Mr. Neruda. Well, obviously, we are very interested in that 
program. Normally we try to work a relationship where they 
would provide technical assistance to--help me--is that a REAP 
or an EZ?
    Mr. Reid. Empowerment zones, enterprise communities, 
champion communities, REAP zones.

                    RURAL ECONOMIC AREA PARTNERSHIP

    Mr. Goode. What is a REAP zone?
    Mr. Reid. A REAP zone is called a Rural Economic Area 
Partnership. There are five of them. They operate like 
empowerment zones and enterprise communities, except that USDA 
does not give them any kind of administrative support beyond 
about $200,000 in total to help them get started.
    They generally cover a whole county or several counties 
that are experiencing a certain kind of distress that does not 
qualify them for the EZ or the EC program, such as high rates 
of out migration or industrial restructuring that is taking 
place in the area.
    Mr. Goode. I come from an area, my fifth district has 
several areas, we do not call it industrial restructuring. We 
just call it the jobs are going to China and Mexico so fast you 
cannot count them.
    Mr. Reid. Yes.
    Mr. Goode. And our unemployment rate is in the city of 
Martinsville is 14.5 percent; Pittsylvania County is about 12; 
Henry County is about 13. I think those areas and on east of 
there in Brunswick County and Mecklenburg County, there were 
1,500 people in the town of Clarksville, 1,400, 1,500 jobs lost 
a few weeks ago.
    So I think that area, if you have any REAP area wouldsurely 
qualify for consideration for inclusion for a center for excellence. 
What eight colleges are centers for excellence now?
    Mr. Reid. I cannot remember them all but they include: The 
University of Texas Pan American, which is in Edinburg, Texas, 
right on the Mexico border; Heritage College in Washington 
state; Little Hoop Community College in North Dakota.
    Mr. Goode. You got some in Kentucky?
    Mr. Reid. Summerset Community College in Kentucky. That is 
how many? Four so far. Fort Peck Community College in Montana.
    Mr. Goode. Could you come by the office maybe and talk 
about those eight and what the opportunities are for other----
    Mr. Reid. Yes, we can do that.

                          RURAL HOME OWNERSHIP

    Mr. Goode [continuing]. Highly, highly distressed areas? 
All right. To jump to another thing, with rural housing, I 
notice there is an increase in rural housing rental assistance 
proposed in the budget; correct?
    Mr. Neruda. Yes, sir.
    Mr. Goode. HUD is beginning to do this. What is your 
situation for encouraging rural home ownership instead of rural 
rental assistance?
    Mr. Neruda. Mr. Alsop, would you want to take that 
question?
    Mr. Goode. All right.
    Mr. Alsop. Thank you, Congressman Goode. As we look at the 
situation within the Rural Housing Service, we have two methods 
of providing housing, either through home ownership through our 
502 programs, our 502 direct and guaranteed, or through our 
multi-family housing program, which is our 515 program.
    As we look at the needs within rural areas, there are many 
families that would qualify to receive assistance under our 
home ownership program. We try to assist those families within 
our appropriated dollar amount.
    But we have also found out there are many of these 
families, and we have statistics that would reflect the number 
of single parents, the number of parents in low income areas, 
that are unable to afford home ownership. There is gap between 
whether or not those families or individuals can afford home 
ownership versus whether they are able to continue to obtain 
affordable housing through our rental program.
    So we like to look at the assistance that we are providing 
in the Rural Housing Service as a balance to meet those needs 
in the area of home ownership or in the area of being able to 
rent facilities so they can still have affordable, safe and 
decent housing in these rural areas.
    Mr. Goode. Mr. Chairman, thank you very much. And again, I 
want to say thanks to all of those at Rural Development for 
their efforts on behalf of rural America.

                     ADDITIONAL COSTS FOR FARM BILL

    Mr. Bonilla. Thank you, Mr. Goode. I would like to ask a 
question. I remember in the opening remarks, Mr. Neruda, you 
stated that you were concerned about some of the additional 
costs that the farm bill may impose. Tell me what you estimate 
those costs in terms of salary and expenses, might be. Does the 
farm bill--I know it is still being worked on--but does it 
include any provision to cover these additional costs?
    Mr. Neruda. Yes, sir, Mr. Chairman. First of all, just to 
give you an example of some of our concerns, for example, the 
conferees may decide on a payment value added program, which 
was just a pilot last year. The two numbers being discussed are 
$50 million and $75 million, while last year we gave $20 
million, plus $5 million for a consortium of universities 
including with Iowa State, Kansas State, Cal Davis, and 
Oklahoma State. That totaled $25 million for the pilot.
    So we would already at a minimum probably be talking about 
doubling in the value added program alone, and this was what 
started our concerns. Budget tells me that we have not 
completely analyzed yet what the total might be and what we 
might expect. Is that true, Mr. Dewhurst?
    Mr. Dewhurst. Yes.
    Mr. Neruda. We are quite concerned that it looks like there 
will be other areas, and there is an energy title as well. At 
least there was an energy title the last staff conference I 
went to, and there are probably going to be some areas there 
that would be increasing our responsibilities.
    Mr. Bonilla. As this becomes more clear, I hope you will 
stay in contact with us.
    Mr. Neruda. Yes, sir. Very definitely, Mr. Chairman. As the 
placeholder here in Rural Development until we have an Under 
Secretary, I am very concerned about that, because a lot of 
times we do not get these programs until closer to the end of 
the fiscal year, and then we are really in a scramble to do 
them correctly.
    Mr. Bonilla. Very good. Ms. Kaptur.

                         BIO-ENERGY PRODUCTION

    Ms. Kaptur. Thank you, Mr. Chairman. Mr. Neruda, I hope in 
following on what I had discussed in the earlier round 
regarding the way in which your cooperative research agreements 
for cooperative energy alternatives, the way that program is 
structured, I hope that you think about in who you invite or 
how you choose to engage interested parties in our country that 
you will not solely restrict the partners to those that only 
live in rural areas, but that somehow the urban users be drawn 
in through some mechanism that would be encouraged by the way 
in which you write the regulations for this program, or at 
least because I can tell you in my particular area, for 
example, that is absolutely essential in moving that product to 
the market.
    And they need to be engaged in the aggregation of demand 
issue, and normally would not see themselves involved, I am 
sure in other parts of the country, you know you are in central 
Chicago, you do not really think about where your fuel comes 
from, and the people who are out in the hinterlands producing 
it do not think about where to market it unfortunately. So we 
have got to draw these two enormous forces together for the 
common good of the country, and I think you can really help us 
do that.
    And, in fact, I am going to ask for the record of each of 
the administrators who are here today, if you could describe 
for me how you view your own agency's respective role in moving 
the department in this area of bioenergy production, and the 
research and the business development side of the equation. I 
am sure in Housing that might be difficult. On the other hand, 
you might have areas where certain types of manure can be used 
to power, and I do not know where all your housing developments 
are, and where all the equipment exists, but I would be real 
interested in your submitting that for the record.
    Mr. Neruda. We will provide that information for the 
record.
    [The information follows:]

                          Bioenergy Production

                   rural business-cooperative service
    Rural Development is providing assistance to producers developing 
biomass energy products and desires to conduct research that assists 
producers to take advantage of these new opportunities through their 
cooperatively-owned businesses. It is in the National interest that we 
build a viable and sustainable bio-energy industry. This is a job that 
we have to do right. While there are many issues remaining in terms of 
product development and commmercial--scale production technology, 
establishing bio-energy as a permanent component of the US energy 
sector requires turning our research attention to the business side of 
the equation. At this juncture, bio-energy producers, and farmers in 
particular, need a far greater understanding of the economics of the 
emerging markets for bio-energy. Economic research in this area is 
critical to the development of sound business strategies and 
organizations that can make a vibrant industry a reality.

                        RURAL UTILITIES SERVICE
    The Senate and House versions of the Farm Bill contain provisions 
that would expand RUS loan and grant authority to support renewable 
energy and bioenergy and biochemical projects.
    The loan and grant authority provided in the bill will provide the 
Electric Program with the capability to establish public/private 
partnerships to explore these renewable energy technologies that will 
serve to reduce the country's dependence on foreign energy resources. 
The RUS Electric program stands ready to assist the department in the 
advancement of bioenergy production, and the research and the business 
development side of the equation in an effort to lay the groundwork for 
this technology to improve the quality of life in rural America.
                         rural housing service
    Currently, we have no programs regarding bioenergy production.

                         RURAL HOUSING PROGRAMS

    Ms. Kaptur. I wanted to ask Mr. Alsop also if you can tell 
me or if you need to submit this for the record, if you look at 
the last ten years, you talked about the resources for housing. 
In every single year that your program has existed, do more new 
units come on line every year in terms of those that are 
financed, or is it basically flat or is it diminishing? What is 
happening not with the total but with the new additions in 
terms of financing single family? I heard what you said about 
multi-family. It is only through advertising and the Register, 
but tell us what is really going on in this housing program in 
terms of numbers of people served.
    Mr. Alsop. Thank you, Congresswoman Kaptur. Over the past 
few years, especially in single family housing, we have seen 
the number of applications for the direct program increase, but 
we have also implemented our new guaranteed program within 
single family housing. And that is where we are also seeing our 
Rural Development agency being able to address some of the 
needs of those families who may be able to qualify based upon 
their median household income at a higher level than just very 
low or low income families.
    And we can submit this answer for the record as well. I can 
say that during the past few years, we have seen a steady 
incline in our applications for both the direct program as well 
as the guaranteed program. The direct program gives usthe 
opportunity to serve those families who are very low and lower income, 
versus our guarantee program gives us an opportunity to serve families 
at more of the higher income bracket, and we work through our lenders 
to make sure that that program is properly implemented.
    But, yes, we have seen a constant increase in the demand 
for single family housing during the past few years and 
especially with the implementation of our guaranteed 502 
program.
    Ms. Kaptur. And are you serving a greater number of low 
income families or are the moderate income families displacing, 
if you look at the total number of units that are out there? 
What is your sense of that?
    Mr. Alsop. My sense of who we are serving under our single 
family housing program will reflect that even under the 
guarantee program, anywhere from ten to 20, 30 percent of our 
particular guaranteed loans would be made to the lower income 
families. So we do not see that we are leaving out a segment of 
the population even within our guaranteed single family housing 
program. So there is still a constant incline in that area.
    Ms. Kaptur. All right. And we will ask you to submit some 
numbers for the record.
    Mr. Alsop. The information will be provided for the record.
    [The information follows:]

     Number of Low-Income Families Being Served by the Section 502 
              Guaranteed Rural Housing (GRH) Loan Program

    Almost 30 percent of all GRH loans obligated in Fiscal Year 
2000 and 2001 were for low-income (80% of median or less) 
families. Thus far in Fiscal Year 2002, 31.56 percent of all 
GRH loans obligated have been for low-income applicants.
    Fiscal Year 2000--8,302 loans were obligated for low-income 
applicants, representing 29.32 percent of all GRH loan 
activity.
    Fiscal Year 2001--8,961 loans were obligated for low-
income, representing 30.38 percent of all GRH loan activity.
    Fiscal Year 2002 (year-to-date)--3,502 loans have been 
obligated for low-income applicants as of March 26, 2002, 
representing 31.56 percent of all GRH loan activity so far this 
fiscal year.

                  WATER AND WASTE WATER LOAN PROGRAMS

    Ms. Kaptur. We thank you, Mr. Alsop. I wanted to ask about 
water and waste water loan disposal programs. If I look at 
Ohio, and I have listened to what you said, you know, 
Congresswoman, do not worry, the money is there, and all we do 
is just keep dealing with the backlog, and it is all taken care 
of, but let me just go through Ohio.
    It is a state I know a little bit about. If I look at your 
water and waste disposal grants for 2001, $18 million for Ohio; 
2002, $16 million; 2003, projected 17 million. But if we look 
back to 2001, the applications on hand from Ohio were over $54 
million, so that means you are serving the way I read this a 
third of the need.
    Maybe I am not reading the numbers right. I look under 
rural water and waste disposal loan program, the direct loan 
program, in Ohio in 2001, for example, there was $39,900,000 in 
your direct loan program there, but the applications on hand 
for direct and guaranteed in Ohio were over $178 million, and 
in terms of guarantees in Ohio, we only got $1 million in 2001 
and not much different from that in the subsequent two years.
    My question is as I look at Ohio, I do not understand what 
you said to me in terms of, yes, we are able to meet the 
backlog, I am always hearing about water and waste water from 
our rural communities, and that they are not getting the funds, 
and they have applied, and they have to apply again.
    I hear more about this than any other thing. These numbers 
do not say what you just said to me. They argue that there is a 
much larger backlog than you are able to serve.
    Mr. Neruda. Congresswoman, I would just like to start with 
that, and unfortunately I do appreciate your concerns. We have 
been asked by various committees on both sides of the Hill, on 
what our backlog is. It is something that we need to get a 
little better handle on. I would like Ms. Legg to discuss this. 
I think, Mr. Greg Morgan has provided her some infomation here. 
So go ahead.
    Ms. Legg. I think I can comment on that. When I talk about 
the $1.5 billion in backlog, those are applications that are 
ready to go, and that is what the FY 2003 budget proposal would 
be able to take care of.
    I agree with you very much that water is a big issue. What 
we often find are applications that are filed, but the 
engineering studies are not done, so they are incomplete 
applications. If you add that in, that is about another $1.8 
actually if I recallcorrectly, of those that are out there in 
some stage of the process. In terms of what could be ready to go out 
the door, in this budget we would be able to process the backlog of 
$1.5 billion.
    So it is the readiness of those applications as they come 
in that might add to the figures not matching with yours. I do 
not have Ohio specifically in front of me, but if you would 
like, I can break that down for you.
    Ms. Kaptur. That would be very, very helpful to understand 
why the applications appear to be so much greater than what was 
able to be served in all these programs.
    Ms. Legg. I would be glad to do that.
    [The information follows:]

               Water and Waste Grant Applications on Hand

    There are currently 497 incomplete applications 
[applications that have been filed but are not considered 
complete applications as they are missing documents such as the 
engineering and environmental reports] and 504 applications 
[applications that are ready to be further processed once 
funding becomes available] on hand for Water and Waste Grants 
for a total of 1,001. The total amount requested by these 
applications is $507,727,679 for incomplete applications and 
$498,880,923 for applications for a total of $1,006,608,602. 
There are currently 831 incomplete applications and 722 
applications on hand for Water and Waste Loans for a total of 
1,553. The total amount requested by these applications is 
$1,362,365.191 for incomplete applications and $1,014,868,140 
for applications for a total of $2,377,233,331.
    The total, loan and grant, incomplete applications on hand 
is $1,870,092,870 and applications on hand is $1,513,749,063 
for a grand total on hand of $3,383,841,933.
    In Ohio there are currently 14 incomplete applications and 
49 applications on hand for water and waste grants. The total 
amount requested by these applications is $14,979,052 for 
incomplete applications and $44,651,664 for applications for a 
total of $59,630,716. Also, in Ohio there are currently 15 
incomplete applications and 64 applications on hand for water 
and waste loans. The total amount requested by these 
applications is $22,752 for incomplete applications and 
$127,172,429 for applications for a total of $149,924,589.
    In Ohio the total, loan and grant, incomplete applications 
on hand is $37,731,212 and applications on hand is $171,824,093 
for a grand total on hand of $209,555,305.

    Ms. Kaptur. Thank you, Mr. Chairman. My time has expired on 
this round, but I do have two more questions at the appropriate 
time.
    Mr. Bonilla. Go right ahead, Ms. Kaptur. I believe your 
questions will close out the hearing.
    Ms. Kaptur. Oh, all right.

                      NOTICE OF FUNDS AVAILABILITY

    Mr. Neruda. Mr. Chairman, with your indulgence, we 
apologize. We use unfamiliar terms so often. NOFA has been used 
around here, and I know that probably for some folks they do 
not know what we are talking about. That is Rural Development 
usage for Notice of Funds Availability that we need to put out, 
and I apologize for using the abbreviations earlier. So thank 
you.

                          WATER DEBT TO TEXAS

    Ms. Kaptur. My last question actually I am asking for 
colleagues from Texas, and though this may have nothing 
directly to do with the Department of Agriculture, I want to 
put it on the record because I do wonder about rural 
development and the extent to which you might be able to help 
some of these farmers, but according to figures I have been 
given, since 1992 Mexico has amassed a water debt to Texas in 
excess of one million acre feet.
    And because of Mexico's failure to fulfill its water 
delivery obligations under treaty, it has had serious impacts 
on farmers in the south Texas area, and they figure $1 billion 
in lost gross regional product and nearly 30,000 jobs lost 
since 1992 putting many farmers out of business, and the Bureau 
of Land Reclamation is really the one involved in this treaty 
issue.
    But my question is if there are that many farmers that are 
having difficulty in south Texas due to basically the lack of 
water and the fact that irrigation reservoirs are at an all 
time low, is there anything that Rural Development can do to 
help in this area and not leave this just up to the Bureau of 
Land Reclamation? Is there anything else that can be done with 
water conservation systems, drip irrigation, using other 
products, helping them develop other value added products? Is 
there anything else that can be done there?
    Mr. Neruda. I appreciate those comments, and I know that 
there are concerns on those. Generally speaking, and please 
correct me, career staff, if I am wrong on this, but, first of 
all, we would not be able to do anything if it is for 
production agriculture. I will turn that over to Hilda.
    Ms. Legg. We have had some knowledge of this issue from the 
start. But, as of this point, this is really not a direct 
avenue for our water and waste program to be involved. We will 
continue to watch it knowing of your interest in it, but I 
think it has not been within our jurisdiction at this pointto 
deal with, but we are aware of it.
    Ms. Kaptur. Because you basically deal with incorporated 
entities that apply.
    Ms. Legg. Who apply. That is correct.
    Ms. Kaptur. I just wonder if the Bureau of Land 
Reclamation, dues very much creatively? I was so impressed when 
I went over to Israel, and I saw the way they did drip 
irrigation. We know in south Texas the issue is really 
conservation of water, and which is the appropriate agency to 
deal with regions in the creation of water, more conserving of 
water, systems that are more conserving of water, or working 
with farmers to diversify in some way if they are being put out 
of business, and what you are saying is south Texas is sure not 
going to apply for housing because they are going out of 
business and they are losing money, but there is no role for 
any of your respective entities.
    How about the community development part of USDA? Have they 
been contacted by anybody?

                      SOUTHWEST BORDER INITIATIVE

    Mr. Reid. With respect to the issues in Texas, there are 
two possibilities, things that the department is involved in in 
rural development. One is the Southwest Border Initiative which 
was formed several years ago, actually by an Executive Order of 
the President. It involves a number of federal agencies to work 
together to address issues along the U.S.-Mexico border.
    The Administration has had at least one meeting, I think, 
recently to reenergize that initiative, and it is possible that 
that could be a forum for dialogue among departments to address 
those issues.
    Another possibility would be the State Rural Development 
Council in Texas, I know you have one in Ohio as well. It is a 
forum that brings together federal agencies with state agencies 
and local and private nonprofit entities. That would be a way 
of bringing a lot of the players to the table and at least 
having some dialogue about how that problem might be addressed, 
and what kinds of solutions might be sought.

                 NATIONAL FOOD AND AGRICULTURAL COUNCIL

    Ms. Kaptur. All right. Well, I appreciate those thoughts, 
and I know Chairman Bonilla also has an interest in this. In 
closing down, I am glad, Dr. Reid, you reminded me of something 
I wanted to ask Mr. Neruda. I notice that you chair the 
National Food and Agricultural Council, and that brings 
together all members from USDA where USDA maintains a presence 
at the state and local level, and you coordinate USDA programs 
at the state and local level.
    So I am going to burden you now with one of my key 
interests at the department, and that is how to better focus 
the use of USDA dollars that go for the procurement of food for 
our children for school breakfast and school lunches, and 
working with our states to get them to invite farmers to bid on 
these substantial amounts that are expended? In my own state of 
Ohio and in any given year, it is over $200 million, which are 
then matched.
    It is almost a half a billion dollars just into the school 
programs. Do you see this council, which I actually know very 
little about, having any role in helping to connect production 
agriculture to the nutrition part of the department?
    Mr. Neruda. Congresswoman, I appreciate those comments. If 
you do not mind, I would like 30 seconds to give you a little 
background. That is an internal organization within USDA that 
was formed to try to work with issues like yours and others, 
primarily in what we call the county-based agencies.
    Ms. Kaptur. All right.
    Mr. Neruda. Which would be now FSA, NRCS and Rural 
Development, to work together to coordinate and work on certain 
management issues. Certainly in the states, a lot of folks from 
other USDA agencies do attend our meetings. At USDA, the issues 
tend to be on reorganization, IT convergence, issues that we 
are trying to work with to be able to deliver our programs 
better to our constituents.
    We have not been as involved in that particular area. That 
does not mean that we could not, just that we have not. We have 
a certain limited resource base and it is a sort of an ad hoc 
organization within the department.
    Ms. Kaptur. Well, use everything you have.
    Mr. Neruda. Right.
    Ms. Kaptur. Because two-thirds of the money we send out of 
here goes into these nutrition programs.
    Mr. Neruda. Right.
    Ms. Kaptur. And it is very interesting to think about less 
than two percent of the food stamps in this country are cashed 
in at farmers' markets, that in most of our school feeding 
programs, there is no effort by the department at the county 
level to work with farmers to get them ready to provide product 
in the way schools will buy it.
    And I can tell you when we had some of your compatriots in 
the department who handle our county offices, they said that 
they were hearing from farmers at the county level wanting to 
move product into these school programs and the institutional 
structure of USDA and these state agencies did not welcome that 
effort. And I can tell you from my experience here in working 
with Congressman Tony Hall, trying to get Ohio apples into the 
Ohio school breakfast and lunch program, harder than landing a 
man on the moon.
    So I would invite you to use this council to the extent 
that you can to get some attention to this issue, and it means 
so much today because the condition of farm income,especially 
around where you have got independent farmers and not gigantic huge 
corporate farms, but you have independent family farmers. These are 
essential programs that can really help them, but the department is not 
creating a wedding here. There is not a match that is going on.
    I would invite you to use whatever powers you have to help 
nudge that along, and I thank you very much. Thanks, Mr. 
Chairman, for allowing me these few extra moments, and all of 
you for your testimony this morning.

                        WATER TREATY WITH MEXICO

    Mr. Bonilla. Thank you, Ms. Kaptur. In closing, I would 
like to acknowledge the problem that Ms. Kaptur is referring to 
on the water treaty with Mexico. In fact, I worked with the 
good Member Solomon Ortiz from Texas last year to put report 
language in the bill. It was directed to the Office of the 
Secretary, acknowledging that a serious problem exists, and 
asking specifically for a report. I will read from the report 
language:
    ``The conferees direct the Secretary to provide a report to 
the Committees on Appropriations of the House and Senate by 
March 1, 2002, detailing the value of the annual loss of the 
U.S. agricultural production resulting from this deficit'', 
from this failure of Mexico to abide by this treaty, ``and the 
department's authorities and plans to assist agricultural 
interest in the Rio Grande watershed with the financial 
ramifications of Mexico's water debt''.
    It is something that a lot of us are concerned about even 
above and beyond the members of this subcommittee. Mr. Ortiz 
has been the leader on this issue. I am not sure what the other 
south Texas members are doing about this, but he is very, very 
up-front on this issue.
    It also reminds me of the old saying that Mark Twain said 
years ago that is still true today that says, ``whiskey is for 
drinking and water is for fighting''. [Laughter.]
    In a lot of parts of the country, including this one, this 
is a very serious issue. I want to thank you all for being here 
today and helping us develop our agricultural appropriations 
funding bill this year. We will be in touch with you throughout 
this process. We appreciate your help and look forward to 
working with you on this. Thank you again for being here.
    The subcommittee will stand adjourned until tomorrow. I 
will mention to members and staff that it is possible that 
there will not be votes on the floor. However, there are five 
subcommittees that will move forward with scheduled hearings 
including ours with FDA tomorrow at 9:30 a.m., whether we have 
scheduled votes on the floor or not.
    The subcommittee stands adjourned until that time.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    


                           W I T N E S S E S


                                                                   Page
Alsop, J. C......................................................   535
Biermann, S. M...................................................     1
Bost, E. M.......................................................     1
Braley, G. A.....................................................     1
Dewhurst, S. B...................................................     1
Dewhurst, S. B...................................................   535
Legg, H. G.......................................................   535
Neruda, M. E.....................................................   535
Reid, Norman.....................................................   535
Rosso, John......................................................   535

                                
